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Tamar Eur Ind Fund (TEIF)

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Thursday 27 March, 2014

Tamar Eur Ind Fund

Replacement - Annual Financial Report

RNS Number : 3656D
Tamar European Industrial Fund Ltd
27 March 2014
 



27 March 2014

 

The following amendment has been made to the highlights section of the 'Annual Financial Report' announcement released on 27 March 2014 at 7am under RNS 2950D.

 

The total dividends for 2012 and 2013 were 1.50p respectively, not £1.50 as previously stated.

 

All other details remain unchanged

 

The full amended text is shown below

 

TAMAR EUROPEAN INDUSTRIAL FUND LIMITED

("TEIF"/the "Group"/"Fund"/"Company")

 

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2013

 

TEIF COMPLETES EXTENSION OF DEUTSCHE BANK AND MACQUARIE BANK DEBT FACILITY

 

Tamar European Industrial Fund, a Guernsey registered closed-ended investment company focusing on industrial property assets in Western Europe, today announces results for the year ended 31 December 2013.

 

Highlights:

 

·      Total asset sales for the year amounted to £7.16m, at 5.19% above pre-sale valuations before transaction costs and tax.  These sales comprised two further Nordic assets together with an asset in Belgium and three individual units in France, the Netherlands and Belgium.

 

·      Active asset management initiatives resulted in 19 new leases signed, generating £1.1m of gross annual income, and 73 leases renewed during the year, representing 85,527 sqm of space and £5.2m of gross annualised income. This more than offset the £1.97m of income lost owing to tenant vacations.  However, a high level of tenant retention was achieved during the year at over 75% by passing rent.

 

·      Significant progress has been made on our stated aim to dispose of the Nordic portfolio. The two Nordic sales mean that 18 assets have been sold from the Portfolio in three years, and only two assets now remain to be sold.

 

·      An 18 month extension to the Deutsche Bank and Macquarie Bank debt facility covering France, Belgium and the Netherlands was put in place in December 2013, extending the loan until 20 July 2015. As part of the extension agreement, £5.84m of debt was repaid which, together with regular amortisation and asset sales, resulted in a total of £11.5m of debt being amortised during 2013.

 

·      Operating profit before finance costs of £2.5m (2012: loss of £3.9m); this resulted in a much reduced loss before tax of £1.1m (2012: loss of £11.7m).

 

·      At the year end, gearing net of unrestricted cash balances stood at 40.8% (2012: 42.3%).

 

·      Two dividend payments were made, in April and September 2013 of 0.75p per share each, resulting in a total dividend for 2013 of 1.50p per share (2012 total: 1.50p per share).  The Board proposes to pay a further interim dividend of 0.75p per share on 30 April 2014 to shareholders on the register on 9 April 2014.

 

Giles Weaver, Chairman, commented:

 

"Our markets have shown gradual signs of improvement, with momentum building towards the end of 2013. During the year we conducted extensive asset management initiatives and negotiated an 18 month extension of the debt facility covering France, Belgium and the Netherlands, which together represent 80% of the Group's assets.

 

"I am pleased to have achieved sales at 5.19% above valuation on assets sold, excluding transaction costs and tax demonstrating the strength of our portfolio. We have made excellent progress on our strategy to dispose of our Nordic assets, as only two remain in Sweden, one of which is under offer, and the other of which is being actively marketed. Currently a number of sales are also progressing in the Fund's other jurisdictions. 

 

"The Board is focused on returning cash generated from our disposal programme to shareholders. We are monitoring our debt covenants following our successful refinancing, and will continue to do so before making a decision about cash distributions."

 

 

 

For further information:

 

Patrizia Financial Services Limited

Rob Brook

+44 20 3747 6501

 

FTI Consulting

Stephanie Highett/Dido Laurimore/Nick Taylor

+44 20 3727 1000

 



 

Tamar European Industrial Fund Limited

2013
Annual report and accounts
for the year ended
31 December 2013

 

 

 

 

 

 

  




Contents

 

1           Company Summary

2        Financial Highlights

4        Chairman's Statement

7        Investment Manager

8        Investment Manager's Review

13      Portfolio Statistics

15      Property Portfolio

16      Board of Directors

17      Report of the Directors

24      Directors' Responsibilities for the Financial Statements and
Directors' Responsibility Statement

25      Independent Auditor's Report

29      Consolidated Statement of Comprehensive Income

30      Consolidated Statement of Financial Position

31      Consolidated Statement of Changes in Equity

32      Consolidated Cash Flow Statement

33      Notes to the Accounts

54      Notice of Annual General Meeting

55      Shareholder Information

56      Corporate Information

 

 

 

 

 

This document is important and relates to certain matters on which voting action is required. Shareholders who are in any doubt as to what action to take should consult an appropriate independent adviser immediately.

 

If any shareholder has sold or transferred all their shares in the Company, he or she should pass this document to the person through whom the transfer or sale was effected for onwards transmission to the transferee or purchaser.

 

 

Company Summary

The Company

Tamar European Industrial Fund Limited (the "Company" or the "Fund" and, together with its subsidiaries, the "Group") is a limited liability, closed-ended, Guernsey registered investment company. Its shares have a premium listing on the Official List of the UK Listing Authority and are traded on the London Stock Exchange.  It was incorporated on 25 August 2006 and its shares were admitted to listing on 25 September 2006.

At 31 December 2013 total assets less current liabilities were £144m and shareholders' funds were £73m.

Investment Objective
and Policy

The investment objective of the Company is to provide Ordinary Shareholders with an attractive level of income together with the potential for income and capital growth. At an EGM on 3 August 2011, the investment policy was amended to allow the Group to dispose of its Nordic assets. Its new investment policy is to focus on investments in industrial real estate assets primarily across Western European jurisdictions (but with no investments being made in the United Kingdom and no new investments being made in the Nordic area). The Company will aim to maintain some geographic diversification with the expectation that the Company's investments will be diversified across Western Europe, and primarily in France, Benelux and Germany.  The Portfolio is also expected to be diversified by factors such as geography, industry sub-sector and investment size. 

Details of the 30 largest property holdings are given on page 15 and a full portfolio listing is available on the Company's website detailed below.

Management

At launch, the Board appointed Kenmore Financial Services Limited (now known as Patrizia Financial Services Limited) as Investment Managers.  A new investment management agreement was signed on 14 December 2011. Further details of the investment management agreement are provided in the Notes to the Accounts.

Capital Structure
and Gearing

At admission on 25 September 2006, the Company had a capital structure comprising 140m Ordinary Shares.  Ordinary shareholders are entitled to all dividends declared by the Company and to all the Company's assets after repayment of liabilities including its borrowings.  Borrowings consist of bank facilities provided by Deutsche Bank AG, Macquarie Bank, Deutsche Pfandbriefbank AG and BNP.  The gearing policy of the Company is that borrowings will not exceed 65% of gross assets.

Status

The Company's shares are eligible for ISAs and PEP transfers and for inclusion within SASS and SIPPS.

Website

The Company's website address is: www.tamareif.com

 

Financial Highlights

·      Total asset sales for the year amounted to £7.16m, at 5.19% above pre-sale valuations before transaction costs and tax.  These sales comprised two further Nordic assets together with an asset in Belgium and three individual units in France, the Netherlands and Belgium.

 

·      Active asset management initiatives resulted in 19 new leases signed, generating £1.1m of gross annual income, and 73 leases renewed during the year, representing 85,527 sqm of space and £5.2m of gross annualised income. This more than offset the £1.97m of income lost owing to tenant vacations.  However, a high level of tenant retention was achieved during the year at over 75% by passing rent.

 

·      Significant progress has been made on our stated aim to dispose of the Nordic portfolio. The two Nordic sales mean that 18 assets have been sold from the Portfolio in three years, and only two assets now remain to be sold.

 

·      An 18 month extension to the Deutsche Bank and Macquarie Bank debt facility covering France, Belgium and the Netherlands was put in place in December 2013, extending the loan until 20 July 2015. As part of the extension agreement, £5.84m of debt was repaid which, together with regular amortisation and asset sales, resulted in a total of £11.5m of debt being amortised during 2013.

 

·      Operating profit before finance costs of £2.5m (2012: loss of £3.9m); this resulted in a much reduced loss before tax of £1.1m (2012: loss of £11.7m).

 

·      At the year end, gearing net of unrestricted cash balances stood at 40.8% (2012: 42.3%).

 

·      Two dividend payments were made, in April and September 2013 of 0.75p per share each, resulting in a total dividend for 2013 of 1.50p per share (2012 total: 1.50p per share).  The Board proposes to pay a further interim dividend of 0.75p per share on 30 April 2014 to shareholders on the register on 9 April 2014.

Reconciliation of net asset value per accounts to adjusted net asset value before deferred tax assets and liabilities relating to investment properties:

Total
£'000

Per share Pence

Net asset value per accounts

73,410

52.4p

Adjustments:



Deferred tax arising from property revaluation (see note 10(a))

3,001

2.1p

Unrecognised deferred tax adjusted for within initial purchase price consideration (see note 9)

5,389

3.9p

Adjusted net asset value

81,800

58.4p

Reconciliation of net asset value per accounts to adjusted net asset value
after unrecognised deferred tax liabilities and contingent deferred tax:

Total
£'000

Per share Pence

Net asset value per accounts

73,410

52.4p

Adjustments:



Unrecognised deferred tax liabilities (see note 10(b))

(14,880)

(10.6)p

Unrecognised deferred tax adjusted for within initial purchase price consideration (see note 9)

5,389

3.9p

Adjusted net asset value after unrecognised deferred tax liabilities and contingent deferred tax

63,919

45.7p

 

Financial Highlights

 

The above adjusted net asset values ("NAV") are based on the NAV per accounts which is calculated in accordance with International Financial Reporting Standards issued by, or adopted by, the International Accounting Standards Board (the ''IASB'') and interpretations issued by the International Financial Reporting Standards Committee.  In order to reconcile these to the published accounts it is necessary to adjust for those items identified above.



 

Returns (for year ended 31 December 2013)


31 December
2013

31 December
2012

%
Change

Total assets less current liabilities (£000's)

143,524

167,268

(14.2)

Net asset value (pence per share)

52.4

57.4

(8.7)

Adjusted net asset value (pence per share)

58.4

60.8

(3.9)

Ordinary Share price

36.0

34.5

4.3

FTSE All-Share Index

3,609.63

3,093.41

16.7

Discount to adjusted net asset value per share

(38.4)%

(43.3)%

-

 

 

Earnings and Dividends (for year ended 31 December 2013) 

Basic and diluted loss per Ordinary Share

4.3p

Dividends paid per Ordinary Share

1.5p

 

 

Highs/Lows (during year ended 31 December 2013)

High

Low

Ordinary Share price

37.5p

27.0p


 

Chairman's Statement

Our markets have shown gradual signs of improvement, with momentum building towards the end of 2013. During the year we conducted extensive asset management initiatives and negotiated an 18 month extension of the debt facility covering France, Belgium and the Netherlands, which together represent 80% of the Group's assets.

 

I am pleased to have achieved sales at 5.19% above valuation on assets sold, excluding transaction costs and tax demonstrating the strength of our portfolio. We have made excellent progress on our strategy to dispose of our Nordic assets, as only two remain in Sweden, one of which is under offer, and the other of which is being actively marketed. Currently a number of sales are also progressing in the Fund's other jurisdictions. 

 

The Board is focused on returning cash generated from our disposal programme to shareholders. We are monitoring our debt covenants following our successful refinancing, and will continue to do so before making a decision about cash distributions.  

 

 

Results

 

Since 31 December 2012, net asset value per share, excluding deferred tax relating to investment property, decreased by 2.4 pence to 58.4 pence.

 

The table below shows the movement in adjusted net asset value per share for the current financial year and for the period since admission:

 

NAV per share (Pence)

Since admission 2013

 

Opening, excluding deferred tax and after listing costs

95.5

60.8

Movement in portfolio valuations

(65.0)

(8.7)

Expensing of acquisition costs

(6.5)

-

Uplift from balance of retained profits

16.1

3.7

Movement from mark to market of derivatives

(1.4)

1.3

Dividends paid

(16.6)

(1.5)

Foreign exchange movements

29.6

0.7

Movement on deferred tax compensated for at acquisition

6.7

2.1

As at 31 December 2013, excluding deferred tax relating to investment property

58.4

58.4

 

After deducting all deferred tax, whether recognised on the balance sheet or not, adjusted NAV per share at 31 December 2013 was 45.7 pence (31 December 2012 - 46.0 pence).

 

Loss before tax in the year to 31 December 2013 was £1.1 m.  Key components of this include:

 

·  operating profits less interest                                                   £6.9m

·  unrealised revaluation losses                                                   (£12.1m)

·  realised gain on disposal of investment properties                      £0.3m

·  realised gain on disposal of subsidiaries net of foreign

exchange reclassified from other comprehensive income            £2.0m

·  unrealised gain on derivatives                                                   £1.8m

 

The tax charge for the year was £4.9m (2012 - £1.8m).

 

 

 

Portfolio

During the year, the Company successfully sold three assets in the Nordic region and Belgium as well as a further unit at each of St Pieters, Belgium Torcy, France, and Vaassen, the Netherlands, for a total gross consideration of £7.16m, which was 5.19% in excess of the pre-sale valuations excluding transaction costs and tax. 

 

As at 31 December 2013, the Company held 39 properties (2012: 42 properties) at a market value of £139.1m (2012: £153.9m).  Further information on the portfolio is contained within the Investment Manager's Review.

 

Gearing

As at 31 December 2013, the Company had drawn £75.3m of debt from its total facilities, representing gearing of 54.1% (2012 - 55.4%).  If all unrestricted cash balances within the Group were to be applied to reduce the drawn debt facilities, gearing would fall to 40.8% (2012 - 42.3%).  The loan to value covenants on the Company's banking facilities currently range from 70% to 90% (averaging 75% based on debt drawn).

 

As at 31 December 2013 the Company has hedged the risk of interest rate increases by the use of interest rate swaps and caps representing 29% of drawn debt.  The swaps and caps limit the interest rate payable for a weighted average period of 1.5 years.  The blended cost of money based on debt drawn to date is currently 1.06% (6.76% including margin). 

 

Dividends

Two dividend payments of 0.75 pence per share were made on 26 April 2013 to shareholders on the register at 10 April 2013 and 27 September 2013 to shareholders on the register on 11 September 2013.  The Board proposes to pay a further interim dividend of 0.75p per share on 30 April 2014 to shareholders on the register on 9 April 2014. 

 

Shareholder Communication

The Board considers it important that shareholders are kept regularly informed of the progress of the Group.  The adjusted Net Asset Value per share will continue to be published quarterly.

 

Corporate Governance

The Company is a member of the Association of Investment Companies ("AIC") and has fully complied with the provisions of the AIC Code of Corporate Governance (the "AIC Code") and the principles of the UK Corporate Governance Code ("UK Code"), as well as paragraph 9.8.6 of the Listing Rules. The Company has also fully complied with the amendments to the UK Code which came into force for accounting periods beginning on or after 1 October 2012.

                                                                                           

On 30 September 2011, the Guernsey Financial Services Commission issued a Code of Corporate Governance ("the GFSC Code") which came into effect on 1 January 2012. As the Company already reports against with the AIC Code and the UK Code it is deemed to meet the requirements of the GFSC Code.


The AIC Code addresses all the principles and recommendations of the revised UK Code issued by the Financial Reporting Council in September 2012, as explained by the AIC Guide.  Those provisions of The UK Code on which the Company does not report in detail in this Report have been excluded because, as explained by the AIC guide, they are not relevant to the Company.

  

Prospects

Secondary real estate markets continue to improve, although the Eurozone is still only seeing an increase in liquidity. The Company's portfolio decreased in value on a like-for-like basis by 6.6% over 2013 and, whilst market values are now stabilising, the uneven recovery in occupational markets mean that value increases have yet to manifest themselves. The weight of money available for investment in real estate together with the continued thawing of the debt markets mean that prospects are improving but, until occupational markets recover, such improvement will be constrained.

 

For the Fund, the focus continues to be on tenant retention as well as leasing up of vacant space to maximise liquidity in order to be able to fulfil the strategy of returning cash to shareholders.  A stronger and deeper debt market is positive news across all markets and the benefits from this are beginning to be felt in the secondary sectors. There are encouraging signs of interest in the Fund's assets from investors and I am confident that progress is being made towards achieving this strategy. 

 

 

 

Giles Weaver

Chairman

26 March 2014

 


Investment Manager

Patrizia Financial Services Limited ("PFSL") is the Investment Manager of the Company and the Luxembourg Subsidiaries (and their subsidiaries) pursuant to the Investment Management Agreement.  The Investment Manager is responsible for advising the Group on the overall management of the Group's investments and for managing the Group's cash in accordance with the Company's investment objective and policy and subject to the overall control and supervision of the Directors.

 

The Directors have satisfied themselves that the Investment Manager has procedures in place to address potential conflicts of interest.

 

The acquisition of the Tamar Group by PATRIZIA Immobilien AG was completed in April 2013.   Since then there has been a name change from Tamar Financial Services Limited to Patrizia Financial Services Limited.  This has not affected any of the terms of the asset management agreement.


Investment Manager's Review

Property Market Overview

 

European logistics and industrial investment activity accelerated in the second half of 2013, with total volumes around 40% higher than in the first half of the year.  The total investment volume for 2013, at £12.69m, was 73% higher than for 2012 and represented the highest figure since the last peak in 2006.  However, the recovery in investor activity was not consistent across all European countries, with France seeing no change year-on-year, and Belgium seeing a 24% decline, whereas Germany increased by 23%.

 

Portfolio deals accounted for around two thirds of total investment activity, including £2.09bn of "platform" deals, which saw specialist logistics operators with existing portfolios enter into joint ventures with institutional investors looking to position themselves in the sector.

 

The Jones Lang LaSalle (JLL) weighted European prime warehousing net initial yield index improved by 20 basis points during 2013, with yield compression notably in France and Germany.  Prime light industrial yields remained unchanged in most markets year-on-year, with the Netherlands proving an exception as yields softened by 25 basis points.

 

Improvements in the occupier markets across Europe were less dramatic, with overall take up at 14.2m sqm (JLL), 12% above volumes recorded in 2012.  Again, the overall statistics masked local differences, so, whilst take-up improved in Belgium, as well as Germany and the Netherlands it fell significantly (-18%) in France.

 

Despite the increase in take-up, the JLL pan-European prime warehousing rental index declined slightly over 2013 (-0.2%).  This decrease was due to the impact of falling rents in Eurozone fringe countries which out-weighed increases in core countries.

 

Belgium

The Belgian economy grew by only 0.2% in 2013, with prospects for 2014 suggesting growth of between 1 and 1.4% for 2014.

 

Investment volumes fell by 24% over the year compared with 2012, reflecting to some extent a lack of prime product available in the market and also low levels of demand and limited institutional investor interest.  In particular, the light industrial sector is dominated by private investors who are dependent on leverage, which remained limited throughout the year. Total investment volume in the industrial sector was limited to £140m, although prime logistics and light industrial yields remained unchanged over the year.

 

Following a strong second half, 2013 saw industrial take-up volumes increase by 12% compared with 2012, with occupiers continuing to focus on the main markets of Antwerp, Brussels, Gent and Liege, which together accounted for 77% of the total.  Despite this improvement, prime rents in the logistics and light industrial sectors remained unchanged during the year.

 

The TEIF portfolio reflected these general occupational statistics, with demand picking up at the Fund's asset in Zaventem, close to Brussels International Airport, but remaining limited at Aarschot which is located away from the main centres.

 

France

Despite the French economy reflecting slight positive growth in 2013 (+0.3%), it continues to struggle under the burden of high unemployment, increasing taxes and weak domestic demand.  Prospects for 2014 are for a slight improvement, with GDP growth expectations at less than 1%.

Total investment volumes in the industrial sector remained unchanged year-on-year in 2013 at £1.09bn.  This figure was supported by the return of portfolio deals, particularly in the first half of the year, with the first six months accounting for 63% of the full year volume.  Almost three quarters of the volume transacted from non-domestic investors, with US investors accounting for 23% of the total volume.  JLL reported some slight prime logistics yield compression over the year, including in the Paris region (by 20 basis points).  However, prime light industrial yields remained unchanged. 

 

In terms of occupational activity, a strong third quarter saw second half take-up increase by 38% compared with the first half.  However, the overall figure for 2013 was down by 18% compared with 2012 with Paris seeing the strongest level of demand.  Prime and secondary logistics rents remained stable across all French markets during the year.  JLL reported rental growth in several prime light industrial markets such as Paris and Lyon but this is considered to reflect a lack of representative transactions.

 

The Company's French portfolio has performed in line with expectations in terms of occupancy over 2013, with a good level of tenant retention compensating for continuing muted demand from new occupiers.  Generally, rental levels held up and tenant incentives were also stable.  An increasing level of interest from investors was noted during the second half of the year.

 

Germany

Germany once again demonstrated that it is the economic powerhouse of the Eurozone with 1.3% GDP growth for 2013, with a similar, if not slightly better, picture in prospect for 2014.

 

Just under £1.6bn was invested in Germany in the industrial markets in 2013, 23% more than the figure for 2012.  Accounting for 13% of the total European volume, Germany remained the second strongest market in Europe after the UK, driven by a large number of portfolio transactions.  Around two thirds of this volume was invested by non-domestic players, with the strongest foreign investor group being UK-based.  Prime logistics yields compressed by around 25 basis points during 2013 across most German markets.  Prime light industrial yields remained unchanged.

 

In terms of take-up, Germany remained the strongest logistics market in 2013, accounting for nearly one third of total annual take-up.  The total volume was 4.4m sqm, 10% higher than 2012.  Prime logistics and light industrial rents remained generally stable across the main German markets during 2013, although JLL noted some rental growth in Munich.

 

The Company maintained its 100% occupancy throughout the year but noted that occupiers remain unwilling to commit to long-term leases, with consequent impact on liquidity in the investment market.

 

Netherlands

The Netherlands emerged from recession during the third quarter (its third recession since the beginning of the European financial crisis) but overall GDP movement for 2013 was negative at around -1% and markets are far more volatile than others in the Eurozone.  Any benefit from a buoyant export market has been out-weighed by the significant falls in residential property prices and consequent decline in consumer spending.

 

Industrial investment volumes increased by almost 80% compared with 2012, with a total figure of £531m, with the second half of the year contributing over three quarters of the total.  Around 85% of the volume was from foreign investors.  Despite this increase in activity prime logistics and light industrial yields remained unchanged throughout the year, reflecting the fact that the increase in volume was off a low base.

 

As with the investment market, the occupier market rebounded significantly in 2013, with a total volume of 1.8m sqm, a 21% increase on 2012.  This put the Netherlands in second place in terms of European occupier activity.  Prime logistics and light industrial rents remained stable throughout the year.

 

At the Company's single asset in Vaassen, one of the four buildings was sold to an owner occupier but occupational demand continues to be muted.

 

Sweden

The Swedish economy grew by less than 1% during 2013, with improved consumer spending compensating for a subdued export market.  GDP growth for 2014 is forecast to be 1.5%.

 

The Swedish industrial investment market saw its most active year since 2007, with almost £1.1bn transacted thanks to the second half of the year which saw over 60% of the total volume.  This total was 56% higher than that of 2012.  Unlike most other European markets, domestic investors dominated, accounting for 74% of the total, a trend which is expected to continue.  There was no movement in yields during the year for prime logistics and light industrial investments.

 

Continuing the pattern seen in recent years, demand from occupiers focused on Stockholm, Gothenburg and Malmo throughout 2013.  Demand is strongest for smaller units (less than 10,000 sqm) in prime locations.

 

As with investment yields, rents for prime logistics and light industrial space remained unchanged during 2013.

 

The Company's portfolio performance reflected the above general market observations, with a high occupancy level maintained at the asset near Gothenburg but no new lettings in the asset located away from the main centres.

 

Portfolio Overview

During 2013 the portfolio saw 19 new leases signed, representing 6.87% of gross income (£1,082,852) and 6.53% or 23,953 sqm of total area.  Furthermore, 73 lease renewals were signed securing 32.94% of gross income (£5,190,192) and 23.31% or 85,527 sqm of total area. A total of 19 tenants vacated during the year representing 13.18% of ERV (£1,972,193) and 13.46% or 49,398 sqm of total area.

 

Of the leasing activity undertaken during the year, the more prominent leases signed included:

·      Agusta Westland at Zaventem (Belgium) for 2,016 sqm with a rent of £91,941 on a six year firm lease and MGF at Gargenville (France) for 12,206 sqm with a rent of £438,246 on a standard three year firm lease.

 

Major lease renewals included:

·      14,925 sqm renewed and extended for three years from December 2015 with Blondie Logistics for an annual rent of £667,975 at Kungsbacka (Sweden) 1,947 sqm renewed at Collegien (France) with Align Aerospace for an annual rent of £125,247 on a standard three year firm lease and 2,833 sqm at Fontenay (France) to Low & Co for an annual rent of £200,395 on a six year firm lease.

 

As at 31 December 2013, the Group's total portfolio was valued at £139,098,000.  By value per country is as follows: France 62%, Belgium 16%, Germany 12%, Sweden 8% and Netherlands 2%.

 

At the year end, the portfolio comprised 39 properties totalling 344,003 sqm with 223 individual leases.  The current anticipated net operating income for 2014 is £12.51m reflecting a yield of 7.24% on gross cost. As at December 2013, the void rate was 20.89% by area, 16.86% by market rent and the reversionary yield was 8.66%. 

 

 


Belgium

France

Germany

Netherlands

Sweden

TOTAL
31/12/13

Number of Assets

5

27

3

2

2

39

Number of Tenants

33

152

3

2

26

216

Total Area (sqm)

67,634

166,795

44,296

13,986

51,292

344,003

Average Lot Value (000's)

£4,288

£3,214

£5,749

£1,524

£5,296

£3,567

Value (per sqm)

£317

£520

£389

£218

£206

£404

Area/Tenancy (sqm)

2,050

1,097

14,765

6,993

1,973

1,593

Area/Asset (sqm)

13,527

6,178

14,765

6,993

25,646

8,821

Vacancy (by area)

47.92%

15.04%

0.00%

0.00%

28.03%

20.89%

Ave Lease Term*

4.20

2.40

4.54

0.00

3.95

2.90

Running Yield

4.16%

8.44%

7.27%

2.03%

8.07%

7.24%

 

 

 

Outlook

 

There are signs that the leading European markets have turned a corner and the almost total risk aversion which has been the characteristic for several years is gradually being replaced by a more optimistic outlook and an appetite for risk.  This change in attitude has been accompanied by an opening up of the debt markets which, whilst still relatively restricted, are demonstrating significantly more liquidity than previously.  This has led to greater investment volumes, a trend which is likely to accelerate in 2014 and beyond.  The caveat to this more positive outlook is the fact that the occupier markets are at best generally in convalescent mode, which has an inevitable impact on values.

 

The consequence is that the considerable weight of money looking to be invested into real estate markets is now more evenly spread across the risk curve, albeit with a weighting still generally in favour of core-type products.  Liquidity has therefore returned to the secondary markets although values have stayed static, with pricing closely correlating to asset quality.

 

The change in investor mood and outlook is not evenly spread geographically.  The most positive impacts have been seen in the UK markets where, in certain cases, occupational demand outstrips supply and rental growth is occurring.  This has created an environment in which pricing for certain asset classes such as light industrial and regional offices has increased significantly and rapidly after a long period of stagnation.  However, in the European secondary markets, the picture is more about stabilisation, particularly in France (where  62% of the Fund's assets are located), where the economy is still struggling and the general mood is one of caution.  So, whilst there is increased liquidity, the approach of investors looking at secondary assets is still opportunistic.

 

The Nordic sales programme is now virtually complete, with two remaining assets which are being actively marketed.  Attention has also been focused on the realisation of the Company's other assets and the recently negotiated debt facility extension permits the Investment Manager to look to achieve this aim in gradually improving market conditions.

 

 

 

Patrizia Financial Services Limited

Investment Manager


Portfolio Statistics

 

 

Geographical Analysis by fair value as at 31 December 2013

 

 

 

 

 

Lease Expiry Profile

At 31 December 2013 the average lease length until the shorter of the next break clause or expiry for the portfolio was 2.9 years.

 

 

 

 

 

Portfolio Statistics

 

 

Top Ten Tenants at 31 December 2013


Tenant


Passing Rent
£'000s


% Total Portfolio Passing Rent


CompAir Drucklufttechnik


1,012

7.1%

Blondie Logistics


597

4.2%

Daimler


596

4.2%

MGF Logistique


438

3.1%

Gutenberg on Line


378

2.6%

Metro


361

2.5%

Tenesol


355

2.5%

The Logistics Box


342

2.4%

Coca-Cola


324

2.3%

V TAB Norrahammar AB


312

2.2%



£4,715

33.1%

 

 


Property Portfolio

As at 31 December 2013

Property

 

 

Countr

CBRE Valuation Yield

Market Value (£'000)

% of Total Assets (less Current Liabilities)

Leuvensesteenweg

Belgium

8.69%

9,502

6.6%

Croissy Beaubourg

France

9.06%

9,252

6.4%

Kungsbacka

Sweden 

8.90%

8,962

6.2%

Simmern

Germany

9.00%

8,617

6.0%

Nanterre

France

8.06%

7,214

5.0%

Aarschot

Belgium

10.73%

7,027

4.9%

Gargenville

France

10.90%

6,469

4.5%

Sindelfingen

Germany

7.70%

6,025

4.2%

Torcy Nord

France

10.00%

5,428

3.8%

Fontenay

France

9.25%

4,100

2.9%

TEN LARGEST PROPERTY HOLDINGS



72,596

50.6%

Lisses Bois Charland

France

9.00%

4,054

2.8%

Lisses Porges

France

8.50%

3,624

2.5%

St Michel sur Orge

France

9.25%

3,411

2.4%

Lisses (Leonardo de Vinci)

France

8.75%

3,394

2.4%

Torcy Coutures

France

8.75%

3,361

2.3%

Croissy Beaubourg 17

France

8.63%

3,305

2.3%

Ternat

Belgium

8.68%

3,152

2.2%

Fontenay Salengro 1

France

9.25%

2,977

2.1%

Blanc Mesnil

France

8.75%

2,918

2.0%

Villepinte

France

8.75%

2,893

2.0%

TWENTY LARGEST PROPERTY HOLDINGS


105,685

73.6%

Pontault Combault (Multi let)

9.75%

2,756

1.9%

Urbach

8.60%

2,605

1.8%

Sucy en Brie

9.00%

2,417

1.7%

Vaassen 1

11.00%

2,409

1.7%

Collegien

9.28%

2,284

1.6%

Villefranche/Saône

9.25%

2,238

1.6%

Fontenay Ionics

8.25%

2,158

1.5%

Lognes (Courcerin)

9.50%

2,029

1.4%

Bonneuil sur Marne

8.94%

1,787

1.2%

Lognes Campanules 18

9.43%

1,766

1.2%

THIRTY LARGEST PROPERTY HOLDINGS



128,134

89.3%

Other Properties



10,964

7.6%

TOTAL PROPERTY PORTFOLIO



139,098

96.9%

Price adjustment related to deferred tax liabilities


(5,389)

(3.8%)

Other non-current assets and net current assets


9,814

6.9%

Total assets (less current liabilities)



143,524

100.0%

 


Board of Directors

 

Giles Weaver (Chairman)

Aged 67, Giles is a non-executive director of a number of investment companies.  He was formerly chairman of Murray Johnstone Limited and non-executive director of Aberdeen Asset Management PLC.

 

Jonathan Gamble

Aged 46, Jonathan is currently a director of Asset Risk Consultants Limited, which provides investment consulting services.  He has worked professionally in London, Australia and Singapore as a dealer for Morgan Stanley and Société Générale before moving to Guernsey.  He serves on the boards of a number of companies.

 

Helen Green

Aged 51, Helen is a Chartered Accountant and has been employed by Saffery Champness, a UK top 20 firm of chartered accountants, since 1984. Since 2000, she has been based in the Guernsey office where she is client liaison director responsible for trust and company administration.  Helen is Chairman of Acorn Income Fund Limited and serves on the boards of a number of companies in various jurisdictions.

 

Christopher Spencer

Aged 63, Chris qualified as a Chartered Accountant in London in 1975.  Following two years post qualification work in Bermuda he moved to Guernsey.  Chris, who specialised in audit and fiduciary work, was managing partner/director of the Guernsey Practice of Pannell Kerr Forster (Guernsey) Limited and Praxis Fiduciaries Limited from 1990 until his retirement in May 2000.  He is a non-executive director of a number of hedge funds, funds of hedge funds and other investment and insurance companies. 


 

Robert Lipscomb

Aged 69, Robert is a Fellow of the Royal Institution of Chartered Surveyors. Following seven years working with reputable surveyors in London he moved to Paris in 1972 as a partner with Jones Lang (LaSalle). In 1985 Robert joined Healey & Baker's Paris office, where he held various roles including International Managing Partner to the European Partnership, Chairman of the Southern European offices Board and responsibility for industrial property across Europe. These roles were retained following the merger of the company with Cushman & Wakefield in 1998 until his retirement at the end of 2006.


 

Report of the Directors

The Directors present their annual report and accounts for the year ended 31 December 2013 (the "year").

 

Results and Dividends

The results for the year are set out from page 29 in the attached financial statements. The Company has paid two interim dividends of 0.75 pence during the year ended 31 December 2013. It is the policy of the Directors to declare and pay dividends as interim dividends.  The Directors propose a further interim dividend of 0.75 pence to be paid on 30 April 2014 to shareholders on the register on 9 April 2014.

 

Principal Activity and Status

The Company is a Guernsey registered company and during the year carried on business as a property investment company. The Group's Investment Policy and a review of the business during the year are contained in the Chairman's Statement and the Investment Manager's Review.

 

Corporate Governance

The Company is a member of the Association of Investment Companies ("AIC") and has fully complied with the provisions of the AIC Code of Corporate Governance (the "AIC Code") and the principles of the UK Corporate Governance Code, as well as paragraph 9.8.6 of the Listing Rules. The Company has also fully complied with the amendments to the UK Corporate Governance Code which came into force for accounting periods beginning on or after 1 October 2012.

                                                                                           

On 30 September 2011, the Guernsey Financial Services Commission issued a Code of Corporate Governance ("the GFSC Code") which came into effect on 1 January 2012. As the Company already reports against with the AIC Code and the UK Corporate Governance Code it is deemed to meet the requirements of the GFSC Code.


 

The AIC Code addresses all the principles and recommendations of the revised UK

 

Corporate Governance Code issued by the Financial Reporting Council in September 2012, as explained by the AIC Guide.  Those provisions of The UK Corporate Governance Code on which the Company does not report in detail in this Report have been excluded because, as explained by the AIC guide, they are not relevant to the Company.

 

Directors

The Directors who held office during the year and their interests in the shares of the Company at 31 December 2013 (all of which were beneficial) were:


Ordinary Shares

CGH Weaver


400,000

JJ Gamble


-

HF Green


5,000

CP Spencer


39,500

JRP Lipscomb


30,000

 

 

There have been no changes to the current directors' interests between 31 December 2013 and 26 March 2014.

 

Biographical details of each of the Directors are shown on page 16.

 

The Directors are considered to be independent and are elected for fixed terms of three years.  In accordance with the Company's Articles of Association (the "Articles") any Director who held office at the two preceding Annual General Meetings shall be required to retire and offer themselves for re-election and as such Helen Green and Jonathan Gamble retired and offered themselves for re-election at the AGM in May 2013 and were subsequently re-elected.

 

Mr Weaver is Chairman. To date the Board has not deemed it appropriate to appoint a Deputy Chairman or a Senior Independent Director. In 2010, Mr Lipscomb was appointed to the Board. No other new directors have been appointed to the Board since the Company's launch.  New Directors receive an induction from the Investment Manager and Secretary on joining the Board and all Directors are entitled to receive relevant training as necessary upon request.

 

The Board acknowledges the importance of diversity, including gender, to the effective functioning of the Board.  They continue to encourage diversity of business skills and experience, recognising that directors with diverse skills sets, capabilities and experience gained from different geographic and cultural backgrounds enhance the Board.

 

The Company has no executive directors or employees. The Investment Management Agreement sets out the matters over which the Investment Manager has authority and the limits beyond which Board approval must be sought. All other matters, including strategy, investment and dividend policies, gearing, and corporate governance procedures, are reserved for the approval of the Board of Directors. The Board currently meets at least quarterly and receives full information on the Company's investment performance, assets, liabilities and other relevant information in advance of Board meetings.

 

As all the Directors are non-executive the Board considers that it is not appropriate to have a Nomination Committee.

 

Annual performance evaluation

For the year under review the Board conducted an internal evaluation of its own performance and that of its committees and individual Directors in March 2013.

 

Evaluation of the Board took into account the balance of skills, experience, independence and knowledge of the company on the Board, its diversity including gender, how the board works together as a unit and other factors relevant to its effectiveness.

 

 

The Board believes that, following the completion of the performance evaluation, the performance of the Directors continues to be effective and that they continue to demonstrate commitment for their roles.

Levels of Directors' remuneration were reviewed at the Board meeting in March 2013.  The Directors have not yet considered it necessary to establish a separate Remuneration Committee.

 

During the year the Directors received the following emoluments in the form of fees (including those for Luxembourg services):


£

CGH Weaver


35,000

JJ Gamble


27,000

HF Green


22,000

CP Spencer


30,000

JRP Lipscomb


22,000

Total


136,000

 

There are no service contracts in existence between the Company and any Directors but each of the Directors was appointed by a letter of appointment which sets out the main terms of their role as directors of the Company.

 

Management

The Investment Manager provides management services to the Company.

The Investment Management Agreement was re-negotiated with the Investment Manager culminating in a new agreement dated 14 December 2011. 

The Management Engagement Committee has reviewed the appropriateness of the Investment Manager's appointment. In carrying out the review the Committee considered the investment performance of the Company and the capability and resources of the Investment Manager to deliver satisfactory investment performance. It also considered the length of the notice period of the Investment Management Agreement and the fees payable to the Investment Manager, together with the standard of the other services provided.  Following this review, it is the Directors' opinion that the continuing appointment of the Investment Manager on the terms agreed is in the interests of shareholders as a whole.

 

Substantial Interests in Share Capital

At 26 March 2014 the following holdings representing more than 3 per cent of the Company's issued share capital had been notified to the Company:

 


No. of Ordinary Shares Held


Percentage
Held

Credit Suisse Client Nominees (UK) Ltd

38,989,825

27.85%

Vidacos Nominees Ltd

32,350,599

23.11%

The BNY Nominees Ltd

18,984,177

13.56%

BNY (OCS) Nominees Ltd

10,000,000

7.14%

HSBC Global Custody Nominee (UK) Ltd

9,487,415

6.78%

 

Audit Committee

The Audit Committee, chaired by Mr Spencer, meets at least bi-annually and operates within clearly defined terms of reference and comprises all the Directors except for Mr Weaver.

 

The board is satisfied that for the year under review and thereafter the Directors that make up the Audit Committee have recent and relevant commercial and financial knowledge and experience to satisfy the provisions of the Code. In particular, Helen Green and Chris Spencer are qualified Chartered Accountants. 

 

The duties of the Audit Committee include reviewing the Annual and Interim Accounts; the system of internal controls; and the terms of appointment of the external auditors together with their remuneration. It is also the forum through which the external auditors report to the Board of Directors. To safeguard the objectivity and independence of the external auditor from becoming compromised, the Committee has a policy that precludes KPMG Channel Islands Limited ("KPMG") from providing certain services such as valuation work or the provision of accounting services and on the presumption that KPMG should only be engaged for non-audit services where there is no legal or practical alternative supplier. For the year ended 31 December 2013, audit fees amounted to £189,000 (2012: £257,000). Audit related fees amounted to £23,380 (2012: £22,700) for the independent review of the interim financial statements and non-audit fees amounted to nil (2012: £8,801) (2012: financial controls reviews and Belgian review). The audit committee considers KPMG to be independent of the Company and that the provision of such non-audit related services is not a threat to the objectivity and independence of the conduct of the audit.

 

The Audit Committee considers the reappointment of the external auditor, including the rotation of the audit partner, each year and also assesses their independence on an ongoing basis.  The external auditor is required to rotate the audit partner responsible for the Group audit every five years.  The current lead audit partner has been in place for 3 years.

 

KPMG Channel Islands Limited has been the Company's external auditor since 2006.  Whilst the Group has not formally tendered the audit since then, as part of the Audit Committee's review of the objectivity and effectiveness of the audit process the Audit Committee review this annually.

 

The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. The Audit Committee receive from KPMG a detailed audit plan, outlining their assessment of the key risks identified by the Investment Manager and the Board. For the 2013 financial year the primary risks identified were in relation to going concern, valuation of investment properties and recognition and measurement of deferred tax, due to the inherent judgement required in these areas. These risks are tracked through the year and the Audit Committee challenged the work done by the auditors to test the Investment Manager's assumptions and estimates around these areas. The Audit Committee assess the effectiveness of the audit process in addressing these matters through the reporting they receive from KPMG at both the half-year and year end. In addition the Audit Committee also seek feedback from Investment Manager on the effectiveness of the audit process. For the 2013 financial year, the Investment Manager was satisfied that there had been appropriate focus and challenge on the primary areas of audit risk and assessed the quality of the audit process to be good. The Audit Committee concurred with the view of the Investment Manager.

 

The significant issues the Audit Committee considered in relation to the 2013 accounts, and how these were addressed, were:

 

Going concern

 

The Group is dependent on ongoing external financing to continue its operations and therein lies a risk of loans not being repaid on a timely basis and non-compliance with loan covenants.   The Deutsche Bank and Macquarie Bank loan was extended in December 2013 for a further 18 months.  The Audit Committee addresses the going concern issue through receiving updates from the Investment Manager considering various cash flow sensitivities related to projected property sales, property values, rental income and other ongoing working capital requirements that may impact on the ability to meet the new covenants.  In addition, this area is a main area of audit focus and accordingly KPMG Channel Islands Limited provide verbal and written reporting to the Audit Committee.

  

Valuation of investment properties

 

The Group's property portfolio accounted for 80.1% of the Group's total assets at 31 December 2013. The valuation of the investment property is inherently subjective requiring significant judgements by the valuers.  Errors in valuation could have a material impact on the Group's net asset value. The fair value of the investment properties at 31 December 2013 was based on an independent valuation prepared by CB Richard Ellis Ltd, who have appropriate professional qualifications and experience in the location and category of the property being valued. The Audit Committee satisfied themselves of the outcome of the valuation process throughout the year via discussion with the Investment Manager on a quarterly basis. In addition, this is one of the main areas of audit focus and accordingly the Audit Committee receives verbal and written reports from KPMG Channel Islands Limited on this matter.

 

Recognition and measurement of deferred tax

 

The Group recognises deferred tax balances that involve estimates, assumptions and complex calculations and is therefore a significant area for the Audit Committee to consider.  The Audit Committee addresses these issues through a range of reporting from the Investment Manager and a process of challenging the appropriateness of the Investment Manager's views.  This is also an area of audit focus and accordingly the Audit Committee receives verbal and written reporting from KPMG Channel Islands Limited on these matters.

 

The Management Engagement Committee, chaired by Mr Weaver, comprises the full Board and reviews the performance of the Investment Manager and the continuing ability of Directors to act independently of any substantial shareholder, and their associates.

  

The table below sets out the number of scheduled Board and Audit Committee meetings held during the year and the number of meetings attended by each Director:

 

 

Meetings attended

Board of Directors

Audit

Committee

Held

4

3

CGH Weaver

4

N/A

JJ Gamble

4

3

HF Green

4

3

JRP Lipscomb

4

3

CP Spencer

4

3

 

Individual Directors may, at the expense of the Company, seek independent professional advice on any matter that concerns them in the furtherance of their duties. The Company maintains appropriate Directors' and Officers' liability insurance.

 

 

Principal Risks and Uncertainties

The Company invests in real estate in Europe and the Nordic area. It is therefore exposed to variations in market conditions for such assets and to responses to market conditions, to local and national economic conditions, changes to the currency and interest rate profiles, tax rates and other future events. In addition the Company will also face risks from breach of laws or regulations, poor selection of assets, failure of systems or procedures in any of the countries in which the Company operates, and actions leading to central management and control of the assets being regarded as taxable in the UK.

 

At an EGM on 3 August 2011, the investment policy was amended to allow the Group to dispose of its Nordic assets. Its new investment policy is to focus on investments in industrial real estate assets primarily across Western European jurisdictions (but with no investments being made in the UK and no new investments being made in the Nordic area).

 

The Investment Manager, through its active management and review processes, will seek to minimise these risks wherever possible, and the Board, through its review of the Investment Manager's work, will seek to identify any additional exposures.

 

The Board uses a number of key performance indicators to assist in measuring the performance of the Company. These are the:

•    running yield on the portfolio;

•    cost of the Company's debt;

•    performance of the share price and its relativity to NAV per share excluding deferred tax; and

•    dividend yield.

 

The Group's financing policies and approach to mitigating these risks together with details of financial instruments and derivatives are set out further in the accounts.

 

Going Concern

After making enquiries, specifically with respect to the levels of cash on the balance sheet, projected property sales timelines and ongoing covenant compliance in respect of the Group's external financing, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Further details are given in the basis of preparation note to the financial statements.

 

Internal Controls

The Board is responsible for the Company's system of internal control which is designed to manage rather than eliminate the risk of failure and for reviewing the systems' effectiveness, consistent with the guidance issued by the Financial Reporting Council in September 2012. The process is based principally on the Investment Manager's approach to internal control.

  

At its meetings the Board reviews a report from the Investment Manager on the management of the portfolio of assets within the Company. At each Board meeting the Board monitors the investment performance of the Company in comparison to its stated objective. The Board also reviews the Company's activities since the last Board meeting to ensure that the Investment Manager adheres to the agreed investment policy and approved investment guidelines and, if necessary will approve changes to such policy and guidelines. In addition, at each Board meeting, the Board receives reports from the Secretary in respect of compliance matters and duties performed on behalf of the Company. Through Board meetings the Board identify, evaluate and manage the significant risks. By their nature these procedures can provide reasonable, but not absolute, assurance against material misstatement or loss.

 

The Board has reviewed the need for an internal audit function. The Board has decided that the systems and procedures employed by the Investment Manager and the Secretary and the work carried out by the Company's external auditors, provide sufficient assurance that a sound system of internal control, which safeguards the Company's assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary.

 

Relations with Shareholders

The Company welcomes the views of shareholders and places great importance on communication with its shareholders.

 

The Board approves shareholder communications including annual and half yearly results prior to press announcements.

 

The Board receives regular reports on the views of shareholders and the Chairman and other Directors are available to meet shareholders if required. Any requests for meetings should be made to the Administrator, Northern Trust International Fund Administration Services.

 

Special Resolution 1: Directors' Authority to Buy Back Shares

The Company did not purchase any shares for cancellation during the year.

 

The Directors will seek renewal of the current authority of the Company to make market purchases of up to 14.99 per cent of the issued Ordinary Share Capital and Special Resolution 1, as set out in the notice of the Annual General Meeting, seeks renewal of such authority until the earlier of the Annual General Meeting in 2014 and 31 December 2014. Any buy back of Ordinary Shares will be made subject to Guernsey law and within any guidelines established from time to time by the Board (which will take into account the income and cash flow requirements of the Company).  The making and timing of any buy backs will be at the absolute discretion of the Board. Purchases of Ordinary Shares will only be made through the market for cash at prices below the prevailing net asset value of the Ordinary Shares (as last calculated) where the Directors believe such purchases will enhance shareholder value. The purchases will only be made in accordance with the rules of the UK Listing Authority. The price to be paid must not be more than five per cent above the average market value of the Shares for the five business days prior to the day the purchase is made.

 

It is intended that buy backs will only be made if doing so will represent an attractive investment opportunity for ongoing shareholders not participating in any such buy backs.  Accordingly, purchases of Ordinary Shares will only be made through the market for cash at prices below the prevailing Net Asset Value per Ordinary Share of the remaining Shares.

 

Environmental Policy

As a property fund, the activities of the Group are considered to have limited impact on the environment. Any alterations or improvements to properties in the portfolio are made with due consideration to how to improve the impact on the environment of the properties in question.

 

Disclosure of Information to Auditors

The Directors who held office at the date of approval of this Report of the Directors confirm that, so far as they are each aware, there is:

·   no relevant audit information of which the Company's auditors are unaware; and

·   each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

 

Auditor

KPMG Channel Islands Limited have expressed their willingness to continue in office as auditors and a resolution proposing their re-appointment will be submitted at the Annual General Meeting.

 

Statement Regarding Annual Report and Accounts

Following a detailed review of the Annual Report and Accounts by the Audit Committee, the Directors consider that taken as a whole the Annual Report and Accounts are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business and strategy.

 

Approved by the Board on 26 March 2014.

 

 

Helen Green                Jonathan Gamble

Director                         Director

 


Directors' Responsibilities for the Financial Statements

The Directors are responsible for preparing the Report of the Directors and the financial statements in accordance with applicable law and regulations.

 

Company law requires the Directors to prepare financial statements for each financial year.  Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards ("IFRS") and applicable law.

 

The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss for that period.

 

In preparing these financial statements, the Directors are required to:

·   select suitable accounting policies and then apply them consistently;

·   make judgements and estimates that are reasonable and prudent;

·   state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

·   prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

 

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that its financial statements comply with the Companies (Guernsey) Law, 2008.  They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.


 

 

Directors' Responsibility Statement

 

Each of the Directors, the names of whom are set out in the 'Directors' section of this Annual Report, confirms that to the best of his or her knowledge:

·    the financial statements, prepared in accordance with IFRS as issued by the IASB, 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; and

·    the Management Report (comprising the Chairman's Statement, Investment Manager's Review and Report of the Directors) 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.

 

The responsibility statement was approved by the Board of Directors on 26 March 2014 and signed on its behalf by Helen Green, Director.

 

 


Independent Auditor's Report

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF TAMAR EUROPEAN INDUSTRIAL FUND LIMITED 

Opinions and conclusions arising from our audit

Opinion on financial statements 

We have audited the consolidated financial statements (the "financial statements") of Tamar European Industrial Fund Limited (the "Company") and its subsidiaries (together, the "Group") for the year ended 31 December 2013 which comprise the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated cash flow and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as issued by the IASB.  In our opinion, the financial statements: 

 

·    give a true and fair view of the state of the Group's affairs as at 31 December 2013 and of its loss for the year then ended; 

·    have been properly prepared in accordance with International Financial Reporting Standards as issued by the IASB; and 

·    comply with the Companies (Guernsey) Law, 2008

 

Our assessment of risks of material misstatement

The risks of material misstatement detailed in this section of this report are those risks that we have deemed, in our professional judgment, to have had the greatest effect on: the overall audit strategy; the allocation of resources in our audit; and directing the efforts of the engagement team. Our audit procedures relating to these risks were designed in the context of our audit of the financial statements as a whole. Our opinion on the financial statements is not modified with respect to any of these risks, and we do not express an opinion on these individual risks.

 

In arriving at our audit opinion above on the financial statements, the risks of material misstatement that had the greatest effect on our audit were as follows:

 

Going Concern

Refer to page 20 for the Audit Committee section of the Report of the Directors and Note 1 (c) accounting policies

·    The risk - The Group is dependent on external financing to continue its operations.  The Group has three loan facilities which are subject to financial covenants and other conditions which the Group monitors regularly.  These covenants and conditions are sensitive to changes in property values and rental income receivable. There is a risk that the Group may not be able to comply with the covenants and other conditions on its loan facilities which may impact its ability to continue as a going concern.

·    Our response - Our audit procedures with respect to the Group's ability to continue as a going concern included, but were not limited to, the testing of the Group's compliance with loan covenants and evaluation of cash flow forecasts, particularly the cash flow sensitivities related to projected property sales, property values, rental income and other ongoing working capital requirements that may impact on the Group's ability to meet its covenants and other conditions. The cash flow forecasts were evaluated against historical and actual results, taking into account market and entity specific knowledge. We also considered the appropriateness of the basis of preparation disclosures in Note 1(c) to the financial statements which provides details of the key risk factors, assumptions made and uncertainties surrounding the Group's ability to continue as a going concern, and the Board's plans, as required for compliance with the requirements of International Financial Reporting Standards as issued by the IASB.

Valuation of investment properties (£133.7 million)

Refer to page 20 for the Audit Committee section of the Report of the Directors, Note 1 (k) accounting policies and Note 9 disclosures

 

Independent Auditor's Report

·    The risk - The Group's property portfolio accounted for 80% of the Group's total assets as at 31 December 2013.  The fair value of the investment properties at 31 December 2013 was assessed by the Board of Directors based on an independent valuation prepared by the Group's external property valuer. As highlighted in the Audit Committee section of the Report  of the Directors, the valuation of the Group's property portfolio, given it represents the majority of the total assets of the Group and requires the use of significant judgment, is a significant area of our audit. 

·    Our response - Our audit procedures with respect to the Group's investment properties included, but were not limited to, testing the design, implementation and operating effectiveness of the relevant controls, involvement of our KPMG Real Estate specialist group to review the valuation prepared by the external property valuer and to evaluate the appropriateness of the valuation methodologies and assumptions used, including undertaking discussions on key findings with the external valuer and challenging the assumptions used. We compared key inputs to the valuation such as rental income, occupancy and tenancy contracts for consistency with other audit findings.  We also considered the Group's investment property valuation policies and their application as described in Note 1 (k) to the  financial statements for compliance with International Financial Reporting Standards as issued by the IASB in addition to the adequacy of disclosures in Note 9 in relation to the fair value of the investment properties.

Recognition and measurement of deferred tax assets and liabilities

Refer to page 20 for the Audit Committee section of the Report of the Directors, Note 1 (j) accounting policies and Note 10 disclosures

·    The risk - The Group has a deferred tax liability of £3.8 million arising from property values in excess of tax written down values and other temporary differences.  As highlighted in the Audit Committee section of the Report of the Directors, deferred tax is considered as a significant audit risk due to the complexity of calculations and the subjectivity of estimates and assumptions therein.

·    Our response - Our audit procedures with respect to deferred tax included, but were not limited to, testing the design, implementation and operating effectiveness of the relevant controls, evaluation of significant inputs such as, but not limited to, enacted tax rates and underlying market and tax written down values of investment properties in the deferred tax calculation and recalculation of the deferred tax balances. We also considered the appropriateness of management's assumptions and estimates underlying the recognition of deferred tax assets and liabilities based on our knowledge of the Group and its operations.  We also considered the Group's deferred tax policies and their application, as described in Note 1(j) to the financial statements, for compliance with the International Financial Reporting Standards as issued by the IASB.

 

Our application of materiality and an overview of the scope of our audit

Materiality is a term used to describe the acceptable level of precision in financial statements. Auditing standards describe a misstatement or an omission as "material" if it could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. The auditor has to apply judgment in identifying whether a misstatement or omission is material and to do so the auditor identifies a monetary amount as "materiality for the financial statements as a whole".

 

The materiality for the financial statements as a whole was set at £1.8 million.  This has been calculated using a benchmark of the Group's total asset value (of which it represents approximately 1%) which we believe is the most appropriate benchmark as investment property values are considered as the prime driver of returns to the shareholders and the main focus of users of the financial statements.

 

We agreed with the audit committee to report to it all corrected and uncorrected misstatements we identified through our audit with a value in excess of £89,000, in addition to other audit misstatements below that threshold that we believe warranted reporting on qualitative grounds.

Audits for Group reporting purposes were performed by component auditors at the key reporting components in the following countries: France, Belgium, Sweden, Finland and Norway.  The Group audit team performed audits in respect of the Luxembourg entities owning German operations and the UK entities, and the Guernsey holding company Tamar European Industrial Fund Limited as a standalone entity, along with the audit of the Group. These Group procedures covered 100% of total Group revenue; 100% of Group profit before taxation; and 100% of total Group assets. The segment disclosures in Note 3 set out the individual significance of a specific country.

 

The audits undertaken for Group reporting purposes were all performed to the local materiality levels for each entity at the country component level and agreed with the Group audit team.  These materiality levels were set individually for each entity at the country component level and ranged from £4,800 to £510,000.

 

Detailed audit instructions were sent to the auditors in these locations. These instructions covered the significant audit areas that should be covered by these audits (which included the relevant risks of material misstatement detailed above) and set out the information required to be reported to the Group audit team. Telephone meetings were held by the Group audit team with the auditors at these locations.

 

Our assessment of materiality has informed our identification of significant risks of material misstatement and the associated audit procedures performed in those areas as detailed above. 

 

Whilst the audit process is designed to provide reasonable assurance of identifying material misstatements or omissions it is not guaranteed to do so. Rather we plan the audit to determine the extent of testing needed to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements does not exceed materiality for the financial statements as a whole. This testing requires us to conduct a significant depth of work on a broad range of assets, liabilities, income and expense as well as devoting significant time of the most experienced members of the audit team, in particular the Recognised Auditor, to subjective areas of the accounting and reporting process.

 

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Board of Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

 

Matters on which we are required to report by exception 

Under International Standards on Auditing [ISAs] (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the Annual Report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.

In particular, we are required to report to you if:

·      we have identified material inconsistencies between the knowledge we acquired during our audit and the directors' statement that they consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for members to assess the Group's performance, business model and strategy; or

·      the Audit Committee section of the Report of the Directors does not appropriately address matters communicated by us to the audit committee.

Under the Companies (Guernsey) Law, 2008, we are required to report to you if, in our opinion:

·      the Company has not kept proper accounting records; or

·      the financial statements are not in agreement with the accounting records; or

·      we have not received all the information and explanations, which to the best of our knowledge and belief are necessary for the purpose of our audit.

Under the Listing Rules we are required to review the part of the Corporate Governance Statement on page 17 relating to the Company's compliance with the nine provisions of the UK Corporate Governance Code specified for our review. 

We have nothing to report in respect of the above responsibilities.
 
Scope of report and responsibilities
The purpose of this report and restrictions on its use by persons other than the Company's members as a body

This report is made solely to the Company's members, as a body, in accordance with section 262 of the Companies (Guernsey) Law, 2008 and, in respect of any further matters on which we have agreed to report, on terms we have agreed with the Company. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

 

 

Respective responsibilities of directors and auditor

As explained more fully in the Directors' Responsibilities Statement set out on page 24, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and ISAs (UK and Ireland). Those standards require us to comply with the UK Ethical Standards for Auditors.

 

Heather J MacCallum

For and on behalf of KPMG Channel Islands Limited 

Chartered Accountants and Recognised Auditors 

Guernsey

 

The maintenance and integrity of the Tamar European Industrial Fund Limited website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements or audit report since they were initially presented on the website.  Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

 


Consolidated Statement of Comprehensive Income

For the year ended 31 December 2013



2013

2012



Notes


£'000


£'000

Revenue




Rental income


15,077

16,793

Other income


5,596

6,431





(Losses)/gains on investments




Unrealised loss on revaluation of investment properties

9

(12,141)

(11,141)

Realised gains/(losses) on disposal
of investment properties

9

273

(3,804)

Realised gains on disposal
of subsidiaries


2,307

-



11,112

8,279

Expenditure




Other expenses

2, 4

(8,343)

(12,177)

Foreign exchange loss reclassified from other comprehensive income as a result of the sale of subsidiaries


(300)

-



(8,643)

(12,177)

Net operating profit/(loss) before finance costs


2,469

(3,898)





Net finance income/(costs)




Interest receivable


105

417

Finance costs

5

(5,477)

(9,018)

Unrealised gains on derivatives

17

1,793

817



(3,579)

(7,784)

Net loss before taxation


(1,110)

(11,682)





Taxation

6

(4,940)

(1,833)

Net loss for the year


(6,050)

(13,515)





Other comprehensive income for the year, after tax:



Items that will be reclassified subsequently to profit or loss



Exchange differences on translating foreign operations

1,233

(4,578)

Other comprehensive income for the year, net of tax

1,233

(4,578)

Total comprehensive income for the year

(4,817)

(18,093)





Basic and diluted loss per share

8

(4.3)p

(9.7)p

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

 


Consolidated Statement of Financial Position

As at 31 December 2013



2013

2012



Notes


£'000


£'000

Non-current assets




Property, plant and equipment


19

26

Investment properties

9

124,757

150,234

Deferred tax assets

10a

-

175



124,776

150,435

Current assets




Assets classified as held for sale

9

8,952

-

Trade and other receivables

11

14,607

11,501

Financial assets

17

-

4

Cash and cash equivalents

12

18,617

22,337



42,176

33,842

Total assets


166,952

184,277





Current liabilities




Loans and borrowing

14

(8,350)

-

Trade and other payables

13

(13,376)

(14,018)

Financial liabilities

17

(322)

(2,124)

Current tax liabilities


(1,380)

(867)



(23,428)

(17,009)

Non-current liabilities




Loans and borrowings

14

(66,358)

(84,906)

Deferred tax liabilities

10a

(3,756)

(2,035)



(70,114)

(86,941)

Total liabilities


(93,542)

(103,950)

Net assets


73,410

80,327





Represented by:




Share capital

15

-

-

Share premium

15

2,985

2,985

Revenue reserve

15

70,425

77,342

Equity shareholders' funds


73,410

80,327

Net asset value per share

8

52.4p

57.4p

 

The accounts on pages 29 to 53 were approved and authorised for issue by the Board of Directors on 26 March 2014 and signed on its behalf by:

 

 

HF Green                                                         JJ Gamble

Director                                                             Director

 

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

 

 

Consolidated Statement of Changes in Equity





Share
Capital
& Premium
£'000

 


Revenue Reserve
£'000



Total
£'000

As at 31 December 2011

2,985

97,535

100,520

 

Net loss for the year

-

(13,515)

(13,515)

Other comprehensive income:




Items that will be reclassified subsequently to profit or loss




Exchange differences on translating foreign operations

-

(4,578)

(4,578)

Total comprehensive income for the year

-

(18,093)

(18,093)





Dividends paid

-

(2,100)

(2,100)





As at 31 December 2012

2,985

77,342

80,327

 

 

Net loss for the year

-

(6,050)

(6,050)

Other comprehensive income:




Items that will be reclassified subsequently to profit or loss




Exchange differences on translating foreign operations

-

1,233

1,233

Total comprehensive income for the year

-

72,525

75,510





Dividends paid

-

(2,100)

(2,100)





As at 31 December 2013

2,985

70,425

73,410

 

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

 


Consolidated Cash Flow Statement

 

For the year ended 31 December 2013



2013

2012



Notes


£'000


£'000

Cash flows from operating activities




Net loss for the year

(6,050)

(13,515)

Taxation


4,940

1,833

Adjustments for:




 Unrealised loss on revaluations of investment  properties

12,141

11,414

 Realised losses on disposal of investment properties

273

(3,804)

 Investment income

(105)

(417)

 Interest expense

6,080

9,749

 Unrealised losses on derivatives


(1,793)

(817)

 Depreciation


6

4

 Foreign exchange movements


27

(731)

 Taxation received


513

760

 (Increase)/decrease in trade and other receivables

(3,106)

1,605

 Decrease in trade and other payables

(642)

(4,109)

Interest received

105

417

Interest paid

(5,750)

(8,718)

Net cash inflow/(outflow) from operating activities


6,639

(6,602)





Cash flows from investing activities




Acquisition of investment properties

9

-

(135)

Development expenditure

9

(2,343)

(2,533)

Proceeds from disposal of investment properties


1,519

65,645

Proceeds from disposal of subsidiaries


4,118

-

Net cash inflow from investing activities


3,294

62,977





Cash flows from financing activities




Repayment of borrowings


(11,537)

(49,280)

Dividends paid

7

(2,100)

(2,100)

Net cash outflow from financing activities


(13,637)

(51,380)





Net increase in cash and cash equivalents


(3,704)

4,995

Cash and cash equivalents at start


22,337

17,421

Foreign exchange movements on cash and cash equivalents


(16)

(79)

Cash and cash equivalents at end


18,617

22,337





* Cash and cash equivalents at the end of 2013 includes restricted cash of £2,243,000 (2012: £990,000).

 


 

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

 

Notes to the Accounts

 

1.         Accounting policies

Tamar European Industrial Fund Limited is a company domiciled in Guernsey.  The address of the Company's registered office is Trafalgar Court, Les Banques, St Peter Port, Guernsey.  The Group accounts comprise the accounts of the Company and all of its subsidiaries, being entities controlled by the Company, drawn up to 31 December each year.  The consolidated financial statements were approved by the Board of Directors on 26March 2014.  The Group is primarily involved in the investment of properties and deriving rental income from these properties.

 

A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below.

 

(a) Basis of Accounting

The Group accounts have been prepared in accordance with International Financial Reporting Standards ("IFRSs") issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee.  The Group accounts give a true and fair view and are also in compliance with both the Companies (Guernsey) Law, 2008 and the presentational aspects of the AIC's Statement of Recommended  Practice (as revised in January 2009) where this is consistent with the requirements of IFRS.  The Company considers that it has complied (and intends to continue to comply) with the conditions applicable to property investment companies set out in the Listing Rules of the United Kingdom Listing Authority.

 

The Group accounts have been prepared on an historic cost basis except for the items noted in (k), (l)  and (q) below which are stated at fair value.

 

The Group classifies its financial assets, except for derivative financial instruments, as loans and receivables and comprise trade debtors and other receivables and cash and cash equivalents in the balance sheet.  Financial liabilities, other than derivative financial instruments, comprise trade and other payables and loans and borrowings.

 

These consolidated financial statements are presented in Pound Sterling, which is the Company's functional currency.  All amounts have been rounded to the nearest thousand, unless otherwise indicated.

 

(b) New Accounting Standards and Amendments to Existing Standards

 

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2013.

Ÿ IFRS 10 Consolidated Financial Statements (2011)

As a result of IFRS 10 (2011), the Group has changed its accounting policy for determining whether it has control over and consequently whether it consolidates its investees.  IFRS 10 (2011) introduces a new control model that is applicable to all investees, by focusing on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns.  In particular, IFRS 10 (2011) requires the Group to consolidate investees that it controls on the basis of de facto circumstances.

In accordance with the transitional provisions of IFRS 10 (2011), the Group assessed the control conclusion for its investees at 1 January 2013.  As a consequence, the Group has not changed its control conclusion.  This standard has no material impact on these financial statements.

 

Ÿ IFRS 12 Disclosure of interests in other entities

 

IFRS 12 establishes disclosure requirements for all forms of interests in other entities. This standard has no material impact on these financial statements.

 

Ÿ IFRS 13 Fair Value Measurement

IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such measurements are required or permitted by other IFRSs.  In particular, it unifies the definition of fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date.  It also replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7 Financial Instruments: Disclosures.  The Group has included additional disclosures in this regard (note 9 and 17).

In accordance with the transitional provisions of IFRS 13, the Group has applied the new fair value measurement guidance prospectively and has not provided any comparative information for new disclosures.  Not withstanding the above, the change has no significant impact on the measurement of the Group's assets and liabilities.  

Ÿ Presentation of Items of Other Comprehensive Income (Amendments to IAS 1)

 

The amendments to IAS 1 changed the grouping of items presented in Other Comprehensive Income in its condensed consolidated statement of comprehensive income.  Items that could be reclassified to profit or loss at a future point in time are now required to be presented separately from items that will never be reclassified.

 

The amendment has no impact on the recognised assets, liabilities and comprehensive income of the Group. 

 

New Accounting Standards not yet effective

In October 2010, the IASB issued IFRS 9 (2010) - Financial Instruments, which, following an amendment in December 2011, will become effective for accounting periods yet to be determined.  IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost.  The determination is made at initial recognition.  The classification depends on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument.

Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment Entities, will become effective commencing on or after 1 January 2014.  The amendments define an investment entity and introduce an exception to consolidating particular subsidiaries for investment entities.  The amendments require an investment entity to measure those subsidiaries at fair value through profit and loss in accordance with IFRS 9 Financial Instruments in its consolidated and separate financial statements.  The amendments also introduce new disclosure requirements for investment entities in IFRS 12 and IAS 27.

Amendments to IAS 32 - Offsetting of assets and liabilities, will become effective commencing on or after 1 January 2014.  The amendments provide clarification over the application of offsetting rules.

No IFRSs have been adopted early, however it is likely that any Standards or any amendments to existing standards issued, but that are not yet effective, would only require changes in disclosure and not result in changes to the accounting policies for recognition and measurement.

 

There are no other accounting standards that are not yet effective that would be expected to have a material effect.

  

 

(c) Basis of Preparation

The Directors have prepared cash flow forecasts for the Group for a period of 12 months from the date of authorisation of these accounts.  The Group's forecasts and projections reflect the Directors' plans for the coming year and their current view on future property market conditions. 

The Group's banking facilities are subject to financial covenants and other conditions which the Group monitors regularly.  These covenants and conditions are sensitive to changes in property values and rental income receivable.

 

The Group is dependent on ongoing external financing to continue its operations. The Group completed an 18 month extension of the Deutsche Bank and Macquarie Bank debt facility in December 2013 with an extension running until 20 July 2015.  The extension was conditional upon a €7m paydown and hence the banks provided a loan of just under €71m secured against the assets in France, Belgium and the Netherlands.  The leverage, based on the bank's valuation, was 62% and the cost of funds, including the margin and cost of funds together with arrangement fees, is 7.66%.

 

The Directors currently believe that the Group has sufficient resources available to it to ensure continued compliance with covenants and other conditions relating to the Group's banking facilities. 

 

Having taken into account the above and after making enquiries, specifically with respect to the levels of cash on the balance sheet, projected property sales timelines and ongoing covenant compliance in respect of the Group's external financing, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.

 

(d) Basis of Consolidation

 

Subsidiaries are entities controlled by the Group.  The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect these returns through its power over the entity.

 

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. These accounts include the results of the subsidiaries disclosed in note 16. Transactions and balances between Group companies are eliminated on consolidation. 

 

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary and other components of equity.  Any resulting gain or loss is recognised in profit or loss.  Any interest received in the former subsidiary is measured at fair value when control is lost.

 

 

(e) Use of Estimates and Judgements

The preparation of accounts in conformity with IFRSs issued by the IASB requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.  Such judgements, estimations and assumptions have been taken in respect of the performance fee payable to the investment manager, the valuation of investment properties and the recoverability of deferred tax balances.  Actual results may differ from these estimates. 

  

 

Assumptions and estimation of uncertainty

 

(i) Measurement of fair values

 

The fair value measurement for the assets and liabilities are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used.  The different levels have been defined as follows:

 

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date.

 

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

Level 3: unobservable inputs for the asset or liability.

 

The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the transfer has occurred. 

 

Further information about the assumptions made in measuring fair values is included in the following notes:

 

Note 9 - Investment properties

Note 17 - Financial instruments: Fair value hierarchy

 

(ii) Recognition and measurement of deferred tax assets and liabilities - Note 10

 

Judgements

 

(i) Functional currency determination

 

The Group's functional currency, Pound Sterling has been determined as the share capital is nominated in Pound Sterling.  In addition, the investment holding company incurs administrative expenses comprising Director's fees and other fees which are settled in Pound Sterling.  The principal assets of the holding company are its investments in its subsidiaries.  All of the subsidiaries of the holding company operate throughout Europe and their functional currency is either Euro, Swedish Krona or Norwegian Krone.  Any income received from the subsidiaries is received in their functional currency and subsequently converted to Pound Sterling.  The distributions paid to shareholders and the deposit account held by the investment holding company are in Pound Sterling.

 

(f) Segmental Reporting

Operating segments are identified and reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker ("CODM"). The CODM has been identified as the Board of Directors as they are responsible for allocating resources and assessing the performance of the operating segments.  Internal reports to the Board split the Group into geographical segments. The quarterly reports provided to the CODM are consistent with IFRS, therefore no reconciling items are required to be disclosed.

 

(g) Foreign Exchange

These Group accounts are presented in Sterling, which is the Company's functional currency.  All financial information presented in Sterling has been rounded to the nearest thousand. 

 

1. Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date.

 

The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date the fair value was determined. Foreign currency differences arising on retranslation are recognised in the Statement of Comprehensive Income.

 

2. Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Sterling at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Sterling at the average exchange rate for the year.

Foreign currency differences are presented in the Statement of Comprehensive Income and presented as a separate component in equity. When a foreign operation is disposed of, in part or in full, the relevant amount in equity is transferred to the Statement of Comprehensive Income.

 

(h) Revenue Recognition

Rental income, excluding VAT, arising from investment properties is accounted for in the Statement of Comprehensive Income on a straight-line basis over the lease term of ongoing leases. Lease incentives granted are recognised as an integral part of total rental income, over the term of the lease.

Other income (which relates to cost recharges) and interest income are accounted for on an accruals basis.

 

(i) Expenses

Expenses are accounted for on an accruals basis. The Group's investment management and administration fees, finance costs and all other expenses are charged through the Statement of Comprehensive Income.

 

(j) Taxation

Taxation expense comprises corporate income tax for the year and deferred tax. Corporate income tax and deferred tax are recognised in the Statement of Comprehensive Income.

 

The current income tax is based on taxable profit for the year. The taxable profit differs from the net loss or profit as reported in the income statement because it is adjusted for items of income or expense that are taxable or deductible in other years and for items that are not taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted in countries where the Group operates at the reporting date.

 

Deferred income tax is provided, using the liability method, on temporary differences at the Statement of Financial Position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are measured at the tax rates that are expected to apply to the period when the liability is settled or the temporary difference reverses, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.

 

As required by IAS 12, deferred income tax is not recognised on temporary differences at the time of initial recognition arising from investment property transactions accounted for as asset acquisitions. The aggregate amount of such deferred income tax is disclosed as unrecognised deferred income tax in note 10.

 

Deferred income tax assets are only recognised if it is considered probable that there will be suitable future profits or the future reversal of the underlying temporary differences.


 

(k) Investment Properties

Freehold investment properties, or the local legal equivalent, are initially recognised at cost, being the fair value of consideration given. Leasehold investment properties, or the local legal equivalent, are initially recognised at the lower of fair value and the present value of minimum lease payments.

 

After initial recognition, investment properties are measured at fair value, with unrealised gains and losses recognised in the Statement of Comprehensive Income. Fair value is based on valuation provided by CB Richard Ellis Ltd, chartered surveyors using recognised valuation techniques, at the Statement of Financial Position date, adjusted for deferred tax reductions which may be achieved on disposal of the investment property.

 

On derecognition, realised gains and losses on disposals of investment properties are recognised in the Statement of Comprehensive Income. Recognition and derecognition occurs on the exchange and conclusion of signed unconditional contracts and completion of the sale between a willing buyer and a willing seller. In the case of development expenditure, cost includes the cost of materials and direct labour and any other costs directly attributable to bringing the asset to a working condition for its intended use.  Cost also includes capitalised borrowing costs up to the point of practical completion.

 

(l) Derivative Financial Instruments

The Group holds derivative financial instruments to hedge its exposure to interest rate risk. Derivatives are recognised initially at fair value; attributable transaction costs are recognised in the Statement of Comprehensive Income when incurred. Subsequent to initial recognition, derivatives are measured at fair value. Hedge accounting is not applied to derivative instruments and changes in fair value are recognised in the Statement of Comprehensive Income as part of net finance costs.

 

(m) Cash and Cash Equivalents

Cash at bank and short term deposits that are held to maturity are carried at their fair value. Cash and cash equivalents consist of cash in hand and short term deposits in banks with an original maturity of three months or less.

 

(n) Trade and Other Receivables

Trade receivables, which are generally due for settlement at the relevant quarter end are recognised and carried at the original invoice amount.  As impairment events are identified, provisions are made on either a specific or collective basis, as may be applicable.

 

(o) Trade and Other Payables

Trade payables are recognised at fair value and then stated at amortised cost.

 

(p) Interest-Bearing Borrowings

All non-current borrowings are initially recognised at fair value of the consideration received, net of arrangement costs associated with the borrowing. After initial recognition, all interest bearing borrowings are subsequently measured at amortised cost using the effective yield method. The effective yield method recognises interest in the Statement of Comprehensive Income in the period to which it relates.  Amortised cost is calculated by taking into account any loan arrangement costs and any discount or premium on settlement.

 

(q) Assets Classified as Held for Sale

A property is classified as held for sale when their carrying amount is to be recovered principally through a sales transaction and a sale is highly probable.  Investment properties included in the assets classified as held for sale category continue to be measured in accordance with the accounting policy 1(k).

 

 

 

2.    Other Expenses

Investment management fees



2013
£'000

2012
£'000

Base fee



1,000

1,500

Performance fee



-

-

Disposal fee



45

317




1,045

1,817

 

The Investment Management Agreement was re-negotiated with the Investment Manager in 2011 culminating in a new agreement dated 14 December 2011. 

 

The new fee structure came into force from 1 January 2012 and under the new agreement, the base asset management fee is £1.5m for 2012, £1m for 2013 and £0.5m for the six months to 30 June 2014.  Thereafter the fee will be 1.35% per annum of the mid-price NAV (the NAV half way between NAV excluding a provision for deferred tax and NAV including a provision for deferred tax). The base fee will be payable quarterly in arrears.

 

Performance fee

Under the new agreement, the Company will pay a stepped performance fee to the Investment Manager when gross payments to shareholders (either by way of dividend, tender offer or otherwise) after 1 January 2012 exceed 40 pence per share.  The Investment Manager will be entitled to 5% of gross payments to shareholders over 40 pence per share rising in steps to 30% of gross payments on amounts over 75 pence per share.  The percentage of gross payments to which the Investment Manager is entitled will fall to 5% for all payments after 30 June 2014. 

 

Disposal Fee

As part of the new Investment Management Agreement a new disposal fee was introduced, effective from the date of signing.  This is calculated as 2.5% on net sales proceeds for property sales until 31 December 2012, and 1.5% on net sales proceeds for property sales completed in 2013. No disposal fee is due on sales completed in 2014 onwards. To calculate net sales proceeds various deductions are made from the gross proceeds of any disposal which include fees, costs and expenses for such sale, any discount for latent capital gains tax given to the purchaser of a special purpose vehicle subsidiary of the Company or, in the case of a sale of an asset, any capital gains tax which will become due as a result of the sale, any debt repayments and/or amortisation, any swap break costs and any pre-payment penalty.

 

There is a cap on the aggregate base fee and disposal fee for 2013 of £1.5m (2012: £1.85m).   The total fee payable to the Investment Manager in any one year is capped at 4.99% of the NAV per the Company's audited balance sheet as at 31 December of the previous year. 

 

Termination of Investment Management Agreement

The Investment Management Agreement may be terminated by either the Company or the Investment Manager in certain circumstances and within certain parameters.  The main principle is that the Investment Management Agreement will continue in full force and effect until terminated by either the Company or the Investment Manager by giving to the other not less than: (i) six months' written notice in the case of a notice served on or after 1 January 2013; or (ii) three months' written notice in the case of a notice served on or after 1 April 2014.

 

 

3.         Segment Reporting

 

 

Year  to December 2013

France
£'000

Belgium
£'000

Norway
£'000

 

Sweden
£'000

Holding companies £'000

All other £'000

Total
£'000

Interseg-mental
£'000

Consol-idated
£'000

Revenue from
external customers

11,684

2,054

-

2,067

1,622

3,246

20,673

-

20,673

Net operating profit/(loss) before finance costs

1,757

503

129

(611)

930

(239)

2,469

-

2,469

Interest receivable

906

26

17

3

14,624

12

15,587

(15,482)

105

Finance costs

(5,686)

(1,507)

603

(594)

(13,011)

(764)

(20,959)

15,482

(5,477)

Unrealised gains/(losses)
on derivatives

1,143

318

(2)

103

-

231

1,793

-

1,793

Taxation

(2,098)

(915)

(1,912)

119

(74)

(60)

(4,940)

-

(4,940)

Net profit/(loss)
for the year

(3,978)

(1,575)

(1,165)

(980)

2,469

(821)

(6,050)

-

(6,050)

Segment assets

144,909

25,999

4,906

11,610

275,244

23,982

486,650

(319,698)

166,952

Segment liabilities

(100,152)

(29,567)

(755)

(13,233)

(223,080)

(46,453)

(413,240)

319,698

(93,542)

 

 

 

 

Year  to December 2012

France
£'000

Belgium
£'000

Norway
£'000

 

Sweden
£'000

Holding companies £'000

All other £'000

Total
£'000

Interseg-mental
£'000

Consol-idated
£'000

Revenue from
external customers

12,420

2,583

1,804

3,019

-

3,398

23,224

-

23,224

Net operating profit/(loss) before finance costs

4,485

(944)

(4,308)

(1,954)

(857)

(320)

(3,898

-

(3,898)

Interest receivable

2,238

113

117

255

15,912

113

18,748

(18,331)

417

Finance costs

(5,322)

(2,032)

(1,053)

(1,499)

(15,151)

(2,292)

(27,349)

18,331

(9,018)

Unrealised gains/(losses)
on derivatives

(1)

-

657

152

-

9

817

-

817

Taxation

(3,672)

504

(1,531)

(407)

(1)

212

(1,833)

-

(1,833)

Net profit/(loss)
for the year

(2,272)

(2,359)

(3,056)

(3,453)

(97)

(2,278)

(13,515)

-

(13,515)

Segment assets

141,897

28,701

7,194

13,380

320,382

24,610

536,164

(351,887)

184,277

Segment liabilities

(85,947)

(28,618)

(2,225)

(14,834)

(276,652)

(47,561)

(455,837)

351,887

103,950

 

Holding company segment represents the results of TEIF Ltd, incorporated in Guernsey and the three intermediary holding companies, TEIF Luxembourg Sarl, TEIF Luxembourg Scandi Sarl and TEIF Luxembourg Investments Sarl, incorporated in Luxembourg.

 

No revenue from a single external customer amounts to 10 percent or more of the Group's revenues.  Revenue is primarily earned from rental and service charge income from the investment properties.

 

 

4.    Other expenses



2013

2012



£'000

£'000

              Direct operating expenses of let rental property

3,092

3,687

Expenses relating to void property


945

3,512

Investment management fees (see note 2)


1,045

1,817

Provision for bad debts


361

64

Valuation and other professional fees

1,657

1,889

Directors' fees

143

136

Auditors' remuneration for:




- audit of these accounts


54

62

- audit of subsidiaries' accounts


135

195

               - audit related services

23

23

 - non audit related services


-

9

Other


888

783



8,343

12,177

 

5.    Finance costs



2013

2012



£'000

£'000

Interest on borrowings


5,710

8,693

Net foreign exchange gains


(273)

(731)

Other interest


40

1,056



5,477

9,018

 

6     Taxation



2013

2012



£'000

£'000

Current income tax charge


1,328

269

Adjustment for prior periods


96

2



1,424

271

Deferred income tax relating to origination and reversal of temporary differences


3,516

1,562

Total tax charge


4,940

1,833

 

The deferred tax charge for the period principally reflects the movement in the deferred tax on temporary differences mainly arising from the change in fair value and tax written down value of the investment properties. 

A reconciliation of the current income tax charge applicable to the results at the statutory income tax rate to the charge for the period is as follows:



2013

2012



£'000

£'000

Net loss before taxation


(1,110)

(11,682)





Income tax at following


(256)

(4,021)

 applicable tax rates


23.06%

34.42%

Effects of:




 Tax exempt income


(871)

(6,364)

 Non-deductible expenses


58

4,991

 Losses not utilised


1,209

6,698

Losses utilised


(168)

(1,967)

 Other temporary differences


4,873

2,494

 Underprovided in prior periods


95

2

Total tax charge


4,940

1,833

 

The Group applicable income tax rate represents a blended rate across the tax jurisdictions in which the Group operates. The movement in the blended rate between 2012 and 2013 has decreased due to a larger share of before taxation results being attributable to countries with lower tax rates.

 

The Income Tax Authority of Guernsey has granted the Company exemption from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and the income of the Company may be distributed or accumulated without deduction of Guernsey income tax. Exemption under the above mentioned ordinance entails payment by the Company of an annual fee of £600.  It should be noted, however, that interest and dividend income accruing from the Company's investments may be subject to withholding tax in the country of origin.  With effect from 1 January 2008 the standard rate of income tax for most companies in Guernsey is zero per cent.  Tax exempt status continues to exist and the Company has been granted this status for 2013.

 

The Directors intend to conduct the Company's affairs such that the management and control is not exercised in the United Kingdom and so that the Company does not carry on any trade in the United Kingdom. Accordingly, the Company will not be liable for United Kingdom taxation on its income or gains other than certain income deriving from a United Kingdom source. The Company's subsidiaries are subject to local income tax on income arising on the property portfolio after deduction of its allowable debt financing costs and other allowable expenses, dependent upon the residence of each subsidiary.

As noted in accounting policy note 1(i), deferred income tax is not recognised on temporary differences at the time of initial recognition arising from investment property transactions accounted for as asset acquisitions.

 

7.    Dividends


On the 26 April and 27 September 2013, the Company paid an interim dividend each amounting to 0.75 pence per share - a total of £2,100,000. In 2012 the total interim dividend paid totalled £2,100,000.

8.    Basic and diluted loss per share and net asset value per share


The loss per Ordinary Share (2012: loss per Ordinary Share) is based on the net loss for the year of £6,050,000 (2012: loss £13,515,000) and on 140,000,000 (2012: 140,000,000) Ordinary Shares, being the weighted average number of shares in issue during the year. The net asset value per share is based on net assets at 31 December 2013 of £73,410,000 (31 December 2012: £80,327,000) and 140,000,000 Ordinary Shares, being the number of shares in issue at both year ends.  There are no dilutive instruments in existence.

 

 

9.    Investment properties




2013

2012



£'000

£'000




Balance at start


150,234

207,096

Acquisitions


-

135

Development costs


2,343

2,533

Transfer to assets classified as held for sale (see below)

(8,952)

-

Disposals


(9,364)

(46,515)

Net loss on fair value adjustments


(12,141)

(11,141)

Foreign exchange movements


2,637

(1,874)

Balance at end


124,757

150,234

 

Investment property comprises a number of industrial properties that are leased to third parties.  Further information about these leases is included in note 19.

 

The market value of these investment properties amounted to £139,098,000 (31 December 2012: £153,925,000).

 

Investment properties of £8,952,000 (31 December 2012: nil) that are under unconditional sales offers are reclassified as assets classified as held for sale.   The realised gain net of disposal costs for 31 December 2013 was £273,000 (2012: loss £3,804,000).

 

On the acquisition of certain properties, the Group negotiated a purchase price adjustment for contingent deferred tax.  The aggregate amount of such adjustments obtained to 31 December 2013 was £5,389,000 (2012: £3,691,000), which represents the difference between the CB Richard Ellis Ltd ("CBRE") valuation and the balance of the investment properties and assets held for sale in the Consolidated Statement of Financial Position .  It is assumed that in the case of a future sale, any prospective buyer would seek a similar adjustment and so the closing valuation has been reduced to reflect this.

 

The Group has entered into leases on its property portfolio as lessor (see note 19 for further information). No one property accounts for more than 15 per cent of the gross assets of the Group.

 

Assets classified as held for sale

As at 31 December 2013 the below investment properties were reclassified as assets classified as held for sale.  As at 31 December 2012 there were no assets classified as held for sale.

 

 

Property

 

 

Country

31 December 2013

Valuation

£'000

 

 

Completion date

Varla

Sweden

8,952

Expected April 2014

Total


8,952


 

  

 

Measurement of fair value

 

The fair value measurement for investment property has been categorised as a Level 3 fair value based on the inputs to the valuation technique used (see Note 1(e) and 1(k).

 

CBRE, who have appropriate professional qualifications and recent experience in the location and category of the property being valued, completed a valuation of Group investment properties at 31 December 2013 in accordance with the requirements of the Appraisal and Valuation Manual published by the Royal Institution of Chartered Surveyors, which is deemed to equate to fair value. 

 

Fair value is determined by reference to market based evidence, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The property valuer is independent and external to the Group. 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 the presence of such materials.

 

There were no transfers between levels of the fair value hierarchy for the year ended 31 December 2013.

 

Valuation process

 

The property portfolio is valued on a quarterly basis by CBRE.  A full valuation is performed annually in September.  Desktop valuations are performed at each quarter ending March, June and December.  The investment manager provides CBRE with a tenancy and capital expenditure schedule on which to base the valuation.  The investment manager and CBRE discuss the results of the valuations at least once a quarter, including the year end.  The valuation is reviewed by the Board of Directors once finalised and is discussed at their quarterly board meetings.

 

Valuation technique and significant unobservable inputs

 

The property has been valued using the income approach.  More specifically, the property has been valued using an income capitalisation method to arrive at a capital value net of purchaser's costs.  In establishing the gross income stream CBRE have reflected current rent payable to lease expiry (or break) at which point they have assumed that each unit will be relet and their opinion of estimated rental value. CBRE have made allowances for voids and rent free periods where appropriate, as well as deducting from the gross rent non-recoverable costs where applicable.  Among other factors the yield implicitly reflects the quality of a building and its location (prime vs. secondary), tenant credit quality, and lease terms.  Future growth of rents has also been accounted for implicitly in their opinion of yield.   Any capital expenditure is considered as a capital deduction. 

 

 

 

The following table shows each country that holds investment property and the relevant fair value, as well as the range of the significant unobservable inputs used.

 

Country

CBRE Valuation

Range of significant unobservable inputs, if applicable


£'000

Rental value

£ sqm

Void periods

Months

Occupancy rate

%

Rent free periods

Months

Capitalisation rates

%

 

France

 

 

86,775

 

32 - 137

 

3 - 36

 

50% - 100%

 

3 - 6

 

8.1% - 10.9%

 

Belgium

 

 

21,438

 

19 - 103

 

3 - 48

 

12% - 100%

 

3 - 6

 

 

8.5% - 10.7%

 

Germany

 

 

17,247

 

28 - 62

 

3 - 12

 

100%

 

3 - 9

 

7.7% - 9.0%

 

Sweden

 

 

10,591

 

4 - 147

 

 

3 - 48

 

45% - 100%

 

3 - 9

 

8.9% - 11.5%

 

Netherlands

 

 

3,047

 

28 - 72

 

 

N/A

 

100%

 

N/A

 

11.0%


139,098






The estimated fair value would increase (decrease) if:

 

·         the estimated rental value is higher (lower);

 

·         void periods were shorter (longer);

 

·         the occupancy rate were higher (lower);

 

·         rent free periods were shorter (longer); or

 

·         the capitalisation rates were lower (higher).

 

CBRE confirm that the fair value reported above represents their opinion of the highest and best use of the subject property, for the purpose of financial reporting under International Financial Reporting Standards.

 

There were no changes to the valuation technique or the significant unobservable inputs during the year.

 

10.  Deferred tax assets and liabilities

(a)   Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following items:




2013


2012



Assets
£'000

Liabilities
£'000

Assets
£'000

Liabilities
£'000

Investment property - on net revaluation


-

(3,001)

-

(1,120)

Tax loss carry-forwards


-

-

175

-

Other temporary differences


-

(755)

-

(915)



-

(3,756)

175

(2,035)


45





Notes to the Accounts

 

The Group expects to recover deferred tax on property values through sales.

 

(b)   Unrecognised deferred tax assets and liabilities

At 31 December 2013, deferred tax liabilities of  £14,880,000 (2012: £19,623,000) on temporary differences at the time of initial recognition arising from investment property transactions treated as asset acquisitions have not been recognised in accordance with IAS 12.

 

The Group also has tax losses amounting £2,880,000 (2012: £5,938,000) for which no deferred tax asset has been recognised.

 

11.   Trade and other receivables




2013

2012



£'000

£'000

Accrued income


744

211

Rents and cost recharges receivable
(net of provision for bad debts)


3,496

3,704

VAT recoverable


815

1,290

Other receivables and prepayments


9,552

6,296



14,607

11,501

 

Rents receivable, which are generally due for settlement at the relevant quarter end, are recognised and carried at the original invoice amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. 

 

12.   Cash and cash equivalents

All cash balances were held in current accounts or with banks on short term deposits with an original maturity of three months or less at the year end.  Cash amounting to £10,930,000 is held in the parent company (2012: £13,092,000).

In addition, £1,670,000 (2012: £1,637,000) that is held in a Deutsche Bank interest reserve account for the account of TEIF Luxembourg Sarl pursuant to the terms of the loan agreement (such amount is used in one of the debt service coverage ratio calculations) does not meet the cash and cash equivalents criteria and is included in other debtors

 

Cash and cash equivalents of the subsidiaries for which control has been lost during the year amounted to £35,000 (2012: nil).

 

13.   Trade and other payables




   2013

  2012



£'000

        £'000

Rental income received in advance


2,988

2,958

Trade payables


3,685

3,863

Investment manager's fee payable


263

375

VAT payable


1,009

1,601

Other payables


5,431

5,221



13,376

14,018

 

 

 

14.        Loans and borrowings



2013

2012



£'000

£'000

Current


8,350

-

Non-current


66,358

84,906

Total secured bank loans


74,708

84,906

 

Terms and conditions of the Group's outstanding loans and borrowings, all of which are secured over the property assets to which they relate, were as follows:



Currency

Cost of funds **

Year of maturity

2013
£'000

2012
£'000

Secured bank loans

Euro

2.242%

2015

6,891

6,725

Secured bank loans

Euro

0.274%

2015

5,882

6,073

Secured bank loans

SEK

4.635%

2015

3,190

3,187

Secured bank loans

Euro

0.274%

2015*

58,745

68,921





74,708

84,906

 

 

* An 18 month extension of the Deutsche Bank and Macquarie Bank debt facility was granted in December 2013. The leverage, based on the bank's valuation, was 62% and the cost of funds, including the margin and cost of funds together with arrangement fees, is 7.66%.  

 

** Cost of funds equates to the swap and cap rates (where applicable) on all hedged loans and the floating rate on any unhedged balances.

 

The interest rate swaps and caps (see note 17) limit the interest rate payable to a weighted average of 1.06% and a total inclusive margin of 6.76% (see comment at note 17 for further information).  At the year end, the actual interest rate payable was 0.64% and 6.34% inclusive of margin (2012: 2.08% and 6.11% respectively).

 

The principal covenant relating to the above loans relates to the ratio of outstanding loan to property market value.  As at 31 December 2013, depending on the facility, a ratio of not greater than 70-90% had to be maintained.

 

Under the terms of the loan with BNP Paribas, additional interest will be payable at 50% of any distributions from the borrower, Tamar GM Properties Sarl, to the holding company, TEIF Luxembourg Investments Sarl, above a threshold of 2.25 times the total of funds, whether equity or shareholder loans, made available to the borrower from the holding company, capped at a maximum of £2,053,000.

 

The borrowings are secured on investment property to the value of £139,098,000 (2012: 153,925,000).  See note 9.

 

  

The following are the contractual maturities of financial liabilities and financial assets, including estimated interest payments:

 

 

Carrying
amount
£'000

Contractual
cash flows
£'000

Within
1 year
£'000


1-2 years
£'000


2-5 years
£'000

Over
5 years
£'000

2013







Bank Loans

(74,708)

(81,580)

(13,517)

(68,063)

-

-

Financial Instruments

(322)

(335)

(12)

(323)

-

-

Trade and other payables

(9,379)

(9,379)

(9,379)

-

-

-

Cash

18,617

18,617

18,617

-

-

-

Trade and other receivables

13,048

13,048

13,048

-

-

-








2012







Bank Loans

(84,906)

(96,851)

(3,438)

(3,438)

(89,975)

-

Financial Instruments

(2,124)

(2,296)

(87)

(87)

(2,122)

-

Trade and other payables

(9,459)

(9,459)

(9,459)

-

-

-

Cash

22,337

22,337

22,337

-

-

-

Trade and other receivables

10,000

10,000

10,000

-

-

-

 

 

15.   Share capital and share premium account and reserves


2013 and 2012

Authorised share capital




Ordinary Shares of nil par value each



Unlimited





Issued share capital



£'000

140,000,000 Ordinary Shares of nil par value each, fully paid


-





Share premium account



£'000

Opening and closing balance



2,985

 

Revenue reserve

This contains all relevant amounts permitted under the Companies (Guernsey) Law, 2008 and is distributable to the extent permitted by this legislation.

The Group has no regulatory imposed requirements for capital maintenance. 

 

16. Related party transactions

Patrizia Financial Services Limited received fees for its services as Investment Manager.  Further details are provided in note 2.  The total charge to the Statement of Comprehensive Income during the year was £1,045,000 (2012: £1,817,000) of which £263,000 (2012: £375,000) remained payable at year end.

 

The Directors of the Company received fees for their services to the Group.  Further details are provided in note 4.  Total fees and expenses for the year were £143,000 (2012: £136,000) of which nil (2012: £3,000) remained payable at year end.

 

All of the above transactions were undertaken on an arm's length basis.

 

The parent company owns 100 per cent of the issued ordinary share capital of TEIF Luxembourg Sarl, TEIF Luxembourg Investments Sarl and TEIF Luxembourg Scandi Sarl, companies incorporated in Luxembourg whose principal business is that of intermediary holding companies.

 

Significant subsidiaries of TEIF Luxembourg Sarl, TEIF Luxembourg Scandi Sarl and TEIF Luxembourg Investments Sarl include:



Country of
Incorporation

Effective
Ownership

TEIF Norge AS


Norway

100%

TEIF Sweden AB


Sweden

100%

Feldrien Investments BV

The Netherlands

100%

TEIF Belgium BVBA

Belgium

100%

Tamar GM Properties Sarl

France

100%

 

17.   Financial instruments

 

(i)         Financial risk factors

 

The main risks arising from the Group's financial instruments are credit risk, market and liquidity risk, interest rate risk and foreign currency risk. The Board reviews and agrees policies for managing its risk exposure. These policies are summarised below and have remained unchanged for the period under review.

 

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. In the event of default by an occupational 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 on an on-going basis in order to anticipate, and minimise the impact of, defaults by occupational tenants.  Credit evaluations are performed on new tenants and regularly across the portfolio.

 

The rent and cost recharges receivables of the Group at 31 December 2013 are disclosed in note 11.  The maximum exposure from rent and cost recharges receivables of the Group at 31 December 2013 was:





2013
£'000

2012
£'000

Less than 30 days overdue




2,930

2,974

Between 30 - 60 days overdue




24

8

Between 60 - 90 days overdue




2

14

More than 90 days overdue




1,934

2,272





4,890

5,268

Less:  Provided for




(1,394)

(1,564)





3,496

3,704

 

The amounts provided for relate to specific tenants.  Based on historic default rates, the Group believes that no allowance is necessary in respect of the remaining rent and cost recharges receivables.  The Group's credit risk in respect of rent receivables is spread across a number of tenants, assets, and seven different European countries.

 

With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents of £18,617,000 (2012: £22,337,000), the Group's exposure to credit risk arises from default of the various counterparties with a maximum exposure equal to the carrying value of these instruments. The Group mitigates this risk by spreading deposits across a number of counterparties. 

 

These counterparties had credit ratings of between AA- and BBB.

 

Market and liquidity risk

The Group is exposed to market risk through interest rates, currency fluctuations and availability of credit.

 

Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments. The Group's investments comprise European commercial property which may be difficult to realise at short notice. 

 

The Group maintains sufficient short-term liquidity to meet its immediate payment requirements.  The Board monitors the working capital position of the Group.  Note 14 sets out the main contractual maturities of the Group's financial liabilities, being bank loans and related financial instruments.  Loan repayments are only required on the maturity of the facilities unless there are earlier property disposals.

 

Interest rate risk

The Group's exposure to interest rate risk relates primarily to the Group's long-term debt obligations. These consist of secured bank loans, further details of which are provided in note 14. Interest rate exposure has been limited by the purchase of interest rate swap and cap contracts.  The Group has entered into interest rate swaps and caps with a notional amount of £22,003,100 (2012: £96,544,500) to hedge the exposure to changes in interest rates, representing 13% (2012: 99%) of drawn debt on a swaps basis and 29% once caps are included (2012: over 100%).   The swaps and caps limit the interest rate payable for a weighted average period of 1.5 years (2012: 1.3 years) to a weighted average rate 1.06%, and a total rate inclusive of margin of 6.76% (2012: 3.02% and 7.05% respectively).  The weighted average rate includes the surplus caps in both Norway and Sweden which are not required but have not been redeemed as yet due to being held for potential upside value. The fair value of the interest rate swaps at 31 December 2013 amounted to a £322,000 liability (2012: liability £2,124,000).

 

The financial assets recognised at year end 31 December 2012 represented the fair value of a swaption which was held as part of the Group's financing arrangements.  This swaption matured as at 31 December 2013.  This instrument provided a mechanism to reduce interest rate volatility.  The fair value of this instrument was based upon broker quotes and amounted to an asset of £4,000 as at 31 December 2012.

 

The fair values are estimated as the present value of the expected future net interest cash flows, based on current and expected future interest rates at the year end. Unrealised gains relating to the movement of the fair value of the interest rate swaps £1,793,000 (2012: gains of £817,000) have been included in the Statement of Comprehensive Income. 

 

An increase or decrease of one percentage point in variable rate interest rates would have an immaterial impact on the Group's net loss before taxation for the year ended 31 December 2012 and 2013.

 

 

The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:




2013


2012



Carrying
amount
£'000

Fair
value
£'000

Carrying
amount
£'000

Fair
value
£'000

Fixed rate instruments






Financial liabilities






  Secured bank loans


74,708

(81,902)

(84,906)

(98,679)







Variable rate instruments






Financial assets






  Cash and cash equivalents


18,617

18,617

22,337

22,337







Financial liabilities






  Secured bank loans - see below


(65,271)

(65,271)

(859)

(859)







Instruments with no interest






Financial assets






  Rents and cost recharges receivables


3,496

3,496

3,704

3,704

  Other receivables and prepayments


9,552

9,552

6,296

6,296



13,048

13,048

10,000

10,000

Financial liabilities






  Trade payables


(3,685)

(3,685)

(3,863)

(3,863)

  Investment manager's fee payable


(263)

(263)

(375)

375)

  Other payables


(5,431)

(5,431)

(5,221)

(5,221)



(9,379)

(9,379)

(9,459)

(9,459)







Derivatives






Financial assets


-

-

4

4

Financial liabilities


(322)

(322)

(2,124)

(2,124)



(322)

(322)

(2,120)

(2,120)

 

At 31 December 2013 the Group has fixed rate interest rate swaps and caps in place for an aggregate notional amount that is lower (2012: lower) than the aggregate amount drawn under its secure bank loan facility agreements. The extent to which this notional amount is lower is reported above as a liability under the variable rate financial liabilities heading.

 

Apart from the secured bank loans as disclosed in note 14, the fair value of financial assets and liabilities is not materially different from their carrying value in the accounts.  The fair values of fixed rate secured bank loans are estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date.  As all receivables or payables are classified as less than one year the fair value is considered to equate to the carrying value.

 

  

Foreign currency risk

The foreign currency exchange risk arises from assets, liabilities and net investments in foreign operations.  The Directors operate prudent policies with respect to currency hedging. Where feasible, and as appropriate, the Group finances assets using local currency denominated borrowing.

 

The Group's net exposure to foreign currency risk was as follows, based on notional amounts:



2013


2012


Euro
£'000

SEK
£'000

Euro
£'000

SEK
£'000

Investment properties

123,529

10,180

137,985

12,249

Secured bank loans

(72,108)

(3,214)

(81,979)

(3,268)


51,421

6,966

56,006

8,981

Impact of 10% strengthening of Sterling

 

(5,713)

 

(774)

 

(6,223)

 

(998)

The analysis above shows the impact of a 10% strengthening of Sterling against the Euro and the Swedish Krona at 31 December.  The analysis assumes that all other variables remain constant.  The impact of a 10% weakening of Sterling would have an identical opposite effect.

The foreign currency exchange risk arises from assets, liabilities and net investments in foreign operations. The Directors have received a review of currency hedging in association with the Investment Manager and advisers and continue to implement prudent policies such as converting surplus cash to minimise currency risk, where possible.   

 

(ii)        Fair value estimation

 

Aside from the fair value of the secured bank loans 31 December 2013: £81,902,000 (31 December 2012: £98,679,000) the fair value of all other financial assets and liabilities are not materially different from their carrying value (secured bank loans carrying value: 31 December 2013: £74,708,000 (31 December 2012: £84,906,000) in the financial statements. 

The fair value measurement for other financial assets and financial liabilities has been categorised as Level 2 fair value based on the inputs to the valuation technique used (see Note 1(e)). 





2013




2012

 

 

Level 1
£'000

Level 2
£'000

Level 3

£'000

Total

£'000

Level 1
£'000

Level 2
£'000

Level  3

  £'000

Total

£'000

Interest rate swaps

-

(322)

-

(322)

-

(2,124)

-

(2,124)

Interest rate swaption

-

-

-

-

-

4

-

4


-

(322)

-

(322)

-

(2,120)

-

(2,120)

 

The fair value of the interest rate swaps is based on our lending banks' current economic assessments and is typically derived all or in part from model prices, external sources, market prices and/or their internal books and records prices as at 31 December 2013.

Secured bank loans were classified as Level 2 (2012: Level 2) and  the fair value has been estimated as the present value of the future cash flows, discounted at the market rate of interest at the balance sheet date.

There were no transfers between levels of the fair value hierarchy for the year ended 31 December 2013.

 

(iii)       Capital management

 

The Board maintains a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.  The Board considers total assets less current liabilities as its capital and monitors the return on total shareholders' equity with reference to earnings per ordinary share and discount to NAV and also monitors the level of dividends to ordinary shareholders.  The Board is seeking renewal of a Special Resolution that would enable the Group to make market purchases of up to 14.99% of the issued Ordinary Share Capital.

 

18. Capital commitments

There were no capital commitments as at 31 December 2013 (2012: nil).

 

 

19. Lease length

The Group leases out its investment properties under operating leases.

The total minimum future lease payments due, analysed by the year in which they fall due, was as follows:

 

 

 


2013

£'000

2012

£'000

Less than one year


14,332

16,930

Between two and five years


24,632

36,641

Over five years


4,932

12,788

Total


43,896

66,359

 

The unoccupied property expressed as a percentage of estimated total rental value was 16.9 per cent at the year end (2012: 12.0 per cent).

 

20. Post balance sheet events

 

The property in Varla, Sweden is currently under offer with an SPA expected to be signed in April 2014. This will leave one property remaining in the Nordic's portfolio.

The Board proposes to pay a further interim dividend of 0.75p per share on 30 April 2014 to shareholders on the register on 9 April 2014.

 

 

Notice of Annual General Meeting

Notice is hereby given that the Eighth Annual General Meeting of Tamar European Industrial Fund Limited (the "Company") will be held at Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3QL, Channel Islands on 29 May 2014 at 11am for the following purposes.

To consider and, if thought fit, pass the following as Ordinary Resolutions:

1    The Annual Report and Accounts of the Company for the year ended 31 December 2013.

2    Re-elect KPMG Channel Islands Limited as Auditor of the Company until the conclusion of the next Annual General Meeting.

3    Authorise the Board of Directors to determine the Auditor's remuneration.

4    Re-elect Mr J R P Lipscomb as a Director of the Company in accordance with Article 73(1) of the Articles of Incorporation.

To consider and, if thought fit, pass the following as Special Resolutions:

1    That the Company be authorised, in accordance with Section 315 of the Companies (Guernsey) Law 2008, as amended (the "Guernsey Law"), to make market acquisitions (within the meaning of section 316 (I) of the Guernsey Law ) of ordinary shares of no par value each ("Ordinary Shares") (either for retention as treasury shares or transfer, or cancellation), provided that:

(a) the maximum number of Ordinary Shares hereby authorised to be purchased shall be 14.99 per cent of the issued Ordinary Shares on the date on which this resolution is passed;

(b) the minimum price which may be paid for an Ordinary Share shall be 1p;

(c)  the maximum price (exclusive of expenses) which may be paid for an Ordinary Share shall be 105 per cent of the average of the middle market quotations (as derived from the Daily Official List) for the Ordinary Shares for the five business days immediately preceding the date of purchase;

(d)   unless previously varied, revoked or renewed, the authority hereby conferred shall expire on 29 November 2015 or, if earlier, at the conclusion of the Annual General Meeting of the Company to be held in 2015, save that the Company may, prior to such expiry, enter into a contract to purchase Ordinary Shares under such authority and may make a purchase of Ordinary Shares pursuant to any such contract.

By order of the Board
Northern Trust International Fund Administration Services (Guernsey) Limited
Secretary
Trafalgar Court, Les Banques
St Peter Port, Guernsey GY1 3QL, Channel Islands

26 March 2014

Notes:

A member of a company is entitled to appoint another person as his proxy to exercise all or any of his rights to attend and to speak and vote at a meeting of the company.  A member may appoint more than one proxy in relation to a meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by him.  The requisite form is attached hereto and must be lodged with the Company's Registrars at: The Pavilions, Bridgwater Road, Bristol, BS99 6ZY at least 48 hours before the time of the Meeting.


Shareholder Information

 

Dividends

Dividends, where announced, are paid in April and September each year. Shareholders who wish to have dividends paid directly into a bank account rather than by cheque to their registered address can complete a mandate form for the purpose. Mandates may be obtained from Northern Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3QL, Channel Islands on request. Where dividends are paid directly to shareholders' bank accounts, dividend tax vouchers are sent directly to shareholders' registered addresses.

Share Price

The Company's Ordinary Shares are listed on the London Stock Exchange. Prices are given daily in the Financial Times under ''Investment Companies'' and in other newspapers.

Change of Address

Communications with shareholders are sent to the address held on the share register. In the event of a change of address or other amendment this should be notified to Northern Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL, Channel Islands under the signature of the registered holder.

Financial Calendar

29 May 2014                             Annual General Meeting
August 2014                             Announcement of interim results

Shareholder Enquiries

Contact Northern Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3QL, Channel Islands. Additional information regarding the Company may also be found at its website address which is: www.tamareif.com


Corporate Information

 

Directors (all non-executive)

CGH Weaver (Chairman)
JJ Gamble
HF Green
CP Spencer

JRP Lipscomb

 

Registered Office

Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL

Channel Islands

 

Administrator, Secretary and Registrar

Northern Trust International Fund
Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL

Channel Islands

 

Investment Manager

Patrizia Financial Services Limited

28-29 Dover Street

London W1S 4NA


 

 

 

 

Property Valuation Agents

CB Richard Ellis Limited
Kingsley House
Wimpole Street
London W1G 0RE

Auditors

KPMG Channel Islands Limited
20 New Street
St Peter Port
Guernsey GY1 4AN

Channel Islands

 

Solicitors as to English Law

Herbert Smith Freehills LLP
Exchange House
Primrose Street
London EC2A 2HS

Advisers as to Guernsey Law

Mourant Ozannes
1 Le Marchant Street
St Peter Port
Guernsey GY1 4HP

Channel Islands

 

Marketing Adviser

FTI Consulting
Holborn Gate
26 Southampton Buildings
London WC2A 1PB



This information is provided by RNS
The company news service from the London Stock Exchange
 
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