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Alpha Pyrenees Trust Limited
10 March 2017
 

10 March 2017

 

ALPHA PYRENEES TRUST LIMITED

("ALPHA PYRENEES TRUST" or the "COMPANY")

 

ALPHA PYRENEES TRUST POSTS RESULTS FOR THE YEAR ENDED 31 DECEMBER 2016

Alpha Pyrenees Trust Limited, the property company invested primarily in commercial real estate in France, today posts its results for the period from 1 January to 31 December 2016.

 

For further information:

Serena Tremlett, Chairman, Alpha Pyrenees Trust Limited             01481 231100

Paul Cable, Fund Manager, Alpha Real Capital LLP                       020 7391 4700

 

For more information on the Company, please visit www.alphapyreneestrust.com.

 

FORWARD-LOOKING STATEMENTS

 

This trading update contains forward-looking statements which are inherently subject to risks and uncertainties because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements are based on the Board's current view and information known to them at the date of this update. The Board does not make any undertaking to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Nothing in this trading update should be construed as a profit forecast.



 

About the Trust

Alpha Pyrenees Trust Limited ("the Trust" or "the Company") primarily invested in properties in France, particularly in the Ile-de-France region around Paris, focusing on commercial property in the office, industrial, logistics and retail sectors let to tenants with strong covenants. The Trust is pursuing an orderly realisation of its investment property and has the support of its lender in this process.

Dividends

The Trust does not pay dividends.

Listing

The Trust is a closed-ended Guernsey registered investment company which has been declared under the relevant legislation to be an Authorised Closed-Ended Collective Investment Scheme. Its shares are listed on the Official List of the UK Listing Authority and traded on the London Stock Exchange.

Management

The Trust's Investment Manager is Alpha Real Capital LLP ("the Investment Manager"). Control of the Trust rests with the non-executive Guernsey-based Board of Directors.

ISA/SIPP status

The Trust's shares are eligible for Individual Savings Accounts (ISAs) and Self Invested Personal Pensions (SIPPs).

Website

www.alphapyreneestrust.com

 

Chairman's Statement

The Investment Manager has been focused on achieving asset sales to support the settlement of the bank borrowings which now mature on 31 October 2018. The Board notes the progress achieved on this front during the year with the sale of a further three properties in France at prices totalling £19.8 million (€24.3 million) and a property in Spain for £0.3 million (€0.4 million) with the net proceeds being used to partially repay bank borrowings. The Investment Manager is focused on achieving an orderly realisation of the Trust's remaining five property assets, three of which are located in France and two in Spain, in a consensual manner in accordance with a formal agreement with Barclays Bank PLC ("Barclays"). To further this process the Investment Manager continues to undertake active asset management within the remaining portfolio with particular emphasis on the letting of vacant units to enhance property income and the marketability of the property (see property review section). The Board is aware of the risks and uncertainties that the Company and Group are facing whilst pursuing the properties orderly realisation plan and provide further detail on these in notes 20 and 21 to the financial statements.

Going concern

During the year, the Board has made further progress in the planned orderly realisation of its investment properties and subsequent repayment of the bank borrowings. The maturity date of the remaining bank borrowings is 31 October 2018.   The Trust has the support of its lender for an orderly realisation of its remaining five investment properties with a view to winding up the Trust's group in due course. The accounts are therefore not prepared on a going concern basis.

Results

Results for the year to 31 December 2016 show a consolidated loss of £15.6 million (loss of 13.2 pence per share). The remaining portfolio is substantially vacant property and hence the loss reflects this, the revaluation at the end of the year and losses made on sales during the year.

Revaluation and Net Asset Value

Investment properties held for sale are included in the consolidated balance sheet at a valuation of £14.3 million (€16.8 million) as assessed by the independent valuers, with the exception of Ivry that is valued at its selling price (£2.5 million, €2.9 million) (note 11). As at 31 December 2016, the net asset value per ordinary share is negative 50.2p (31 December 2015: negative 30.9p): the movement in the year primarily reflecting the loss in the year, losses on revaluation of properties and adverse foreign exchange movement.

Brexit

During the year, the "Brexit" Referendum was held, in which the United Kingdom voted to leave the European Union. The Board considers that this event will not have any material adverse impact on the orderly realisation of the Trust's remaining properties.

Finance Commentary

It was announced on 31 October 2016 that the Trust's loan facilities with Barclays had been extended and the maturity date of all its borrowings is 31 October 2018.

Following net repayments in the year of £28.7 million (€35.2 million), as at 31 December 2016 the Trust had total borrowings of £77.4 million (€90.5 million) under its facilities with Barclays.

The current interest rates will continue to apply to the facilities during the extension period and the 2% extension fees (per annum pro-rated), charged on the initial and all extensions up to 15 April 2016, are deferred to the new maturity date and will be payable to the extent that the Trust has sufficient cash funds at that time. No additional fee was charged on the latest extension.

There is a cash-pooling arrangement over the Trust's cash flows from the remaining property portfolio to provide further security to the loan but still providing the Trust with working capital for its operations.

Formal marketing of the Trust's remaining properties is ongoing and the results of the marketing process to date indicate that, although there is no certainty that transactions will take place, if they do, the prices achieved are most likely to be lower than the valuation at 31 December 2016. The Trust will provide further updates on progress in due course.

As the Board has previously stated, the sales process will not result in any return to ordinary shareholders after repayment of the Trust's bank borrowings, to the extent that this is possible, has taken place.

 

 

Serena Tremlett
Chairman
9 March 2017



 

Property review

Portfolio overview

The Trust owns three properties in France (St Cyr L'Ecole, Champs-sur-Marne and Ivry-sur-Seine) and two properties in Spain (Alcalá de Guadaíra and Écija) totalling approximately 31,090 square metres (approximately 334,600 square feet) of commercial real estate. While the properties are generally well located and offer good value accommodation to occupiers, the properties suffer from weak tenant demand at the present time coupled with a high level of vacancy.

The valuation of the five property portfolio as at 31 December 2016 was approximately £16.8 million (€19.7 million).

Property Sales

On 3 February 2016 the Trust sold its properties located at Athis Mons, Aubergenville and Aubervilliers in France totalling approximately 59,730 square metres for £19.8 million (€24.3 million).

On 28 December 2016 the Trust sold its warehouse property located at Zaragoza in Spain totalling approximately 2,590 square metres for £0.3 million (€0.4 million).

The above sales form part of the orderly realisation process supported by the Trust's lender, Barclays, and the net proceeds from them has been used in the reduction of the Trust's bank borrowings.

Post year end, following signing of a conditional contract for a £2.5 million (€2.9 million) sale of the Ivry property, the representative of the local authority where the property is located has exercised its pre-emption rights to purchase that property at the same price.

The remaining properties held by the Trust are being actively marketed and the Trust will provide further updates on the results of the marketing process in due course.

 

Paul Cable
For and on behalf of the Investment Manager
9 March 2017

 

 

Directors

David Jeffreys (aged 57)

Director

David Jeffreys qualified as a Chartered Accountant with Deloitte Haskins and Sells in 1985.  He works as an independent non-executive director to a number of Guernsey based investment fund companies and managers and is a Guernsey resident.

From 2007 until 2009 David was the Managing Director of EQT Funds Management Limited, the Guernsey management office of the EQT group of private equity funds.  He was previously the Managing Director of Abacus Fund Managers (Guernsey) Limited between 1993 and 2004, a third party administration service provider to primarily corporate and fund clients.

In addition to the Company, David is a director of two listed entities, Alpha Real Trust Limited and Tetragon Financial Group Limited, and a number of other unlisted entities.

Serena Tremlett (aged 52)

Director

Serena has over 25 years' experience in financial services, specialising in closed-ended property and private equity funds and fund administration over the last 18 years.

She is a non-executive director on the listed company board of Alpha Real Trust Limited in addition to various unlisted property and private funds and general partners. Serena was previously company secretary (and a director) of Assura Group, at that time a FTSE 250 company listed on the London Stock Exchange, investing in primary healthcare property and ran Assura's Guernsey head office.

Prior to working for Assura, Serena was head of Guernsey property funds at Mourant International Finance Administration (now State Street) for two years and worked for Guernsey International Fund Managers (now Northern Trust) for seven years where she sat on a number of listed and unlisted fund boards. Since 2008, Serena is co-founder and managing director of Morgan Sharpe Administration, a specialist closed-ended fund administrator.

 

 

 

Directors' and corporate governance report

The Directors present their report and financial statements of the Company and the Group for the year ended 31 December 2016.

Principal activities and status

Since its incorporation on 16 November 2005, the Company, an authorised closed-ended Guernsey registered investment company, has carried on the business of a property investment company, investing in commercial property in France and Spain. The Trust is pursuing an orderly realisation of its investment property and has the support of its lender in this process.

Its shares are listed on the Official List of the UK Listing Authority and have been traded on the London Stock Exchange since 29 November 2005.

Business review, results and dividends

The Chairman's statement above contains a review of the Group's business for the year.

The results for the year are set out in the financial statements below.

The Trust does not pay dividends.

Corporate governance

The Company is authorised by the Guernsey Financial Services Commission ('GFSC') and for this reason is required to follow the principles and guidance set out in the Finance Sector Code of Corporate Governance issued by the GFSC and effective from 1 January 2012 ('Guernsey Code'). 

As a company with a standard listing on the London Stock Exchange, the Company is not required to comply with the UK Corporate Governance Code ('UK Code'). However, the Board does take into consideration the UK Code in determining its governance procedures whilst also taking into account the size of the Company, the nature of its business and its entirely non-executive board.

The Board

Biographies of the current Directors are set out above. 

The Directors' interests in shares of the Company as at 31 December 2016 are set out below and there have been no changes in such interests up to the current date:

 

Number of ordinary shares 2016

Number of ordinary shares 2015

Dick Kingston*

710,616

710,616

David Jeffreys

250,000

250,000

Phillip Rose*

1,290,079

1,290,079

David Rowlinson*

-

-

Serena Tremlett

121,472

121,472

 

* resigned on 3 June 2016

Non-executive Directors are not appointed for specified terms.  However, appointments of Board members can be terminated at any time without penalty and the Company's Articles of Association ("Articles") require each Director to retire and submit himself/herself to re-election by the shareholders at every third year.  In addition, the Board believes that continuity and experience adds to its strength. 

The Annual General Meeting of the Company will take place on 28 April 2017.

Individual Directors may seek independent legal advice in relation to their duties on behalf of the Company.

Senior Independent Director

The Board has appointed David Jeffreys as its Senior Independent Director and has agreed that he will be available for discussions with shareholders independently of his peers, to the extent appropriate.

Operations of the Board

The Board's primary role is to review matters which are of strategic importance to the Company, including the following:

1)    Setting, and continuing to review, the objectives and strategy of the Company, taking into account market conditions.

2)    Reviewing the capital structure of the Company including gearing.

3)    Appointing the Investment Manager, administrator and other appropriately skilled service providers; monitoring their effectiveness and performance through regular reports and meetings.

4)    Reviewing the Company's performance including net asset value and earnings per share.

The Board considers these matters at its quarterly meetings.

The Board meets at least four times per annum and on an ad-hoc basis to consider specific issues reserved for decision by the Board including all potential disposals, significant capital expenditure and leasing matters and decisions relating to the Company's financial gearing. 

Certain matters relating to the implementation of strategy are delegated either to the Investment Manager or the administrator but the performance of such delegation by these agents is regularly monitored by the Board. 

At the Board's quarterly meetings it considers papers circulated in advance including reports provided by the Investment Manager and the administrator in its capacity as Company Secretary. The Investment Manager's report comments on:

·      The French and Spanish property markets including recommendations for any changes in strategy that the Investment Manager considers may be appropriate.

·      Performance of the Group's portfolio and key asset management initiatives.

·      Transactional activity undertaken over the previous quarter and being contemplated for the future.

·      The Group's financial position including relationships with bankers and lenders.

The administrator provides a quarterly compliance, company secretarial and regulatory report.

Together, these reports enable the Board to assess the success with which the Group's strategy is being implemented, consider any relevant risks (such as the general economic climate) and to consider how they should be properly managed.

Board and Director appraisals

The Board carries out an annual review of its composition and performance (including the performance of individual Directors) and that of its standing committees.  Such appraisal includes reviewing the performance and composition of the Board (and whether it has an appropriate mix of knowledge, skills and experience), the relationships between the Board and the Investment Manager and administrator, the processes in place and the information provided to the Board and communication between Board members.

At the June 2016 Board meeting, the Board considered its composition in terms of size and cost to manage the completion of the sales process described above. As a result of these considerations, David Rowlinson, Phillip Rose and Dick Kingston have resigned from the Board, effective 3 June 2016. David Jeffreys and Serena Tremlett, who have been with the Company since inception, will continue as Directors and the Board will take responsibility going forward for matters previously dealt with by its sub-committees.

Board meeting attendance

The table below shows the attendance at Board meetings during the year to 31 December 2016:

Director

No. of meetings attended

No. of meetings eligible to attend

Dick Kingston

2

4

David Jeffreys

10

11

Phillip Rose

2

4

David Rowlinson

2

4

Serena Tremlett

11

11

Directors' and officers' insurance

An appropriate level of Directors' and Officers' insurance is maintained whereby Directors are indemnified against liabilities to third parties to the extent permitted by Guernsey company law.

Board Committees

The Board had established three standing committees, all of which operated under detailed terms of reference, copies of which are available on request from the Company Secretary. Following the decisions taken at the June 2016 Board meeting, the Board Committees were dissolved. Responsibilities of the Board Committees have been taken over by the two remaining non-executive Directors.

Audit Committee

The Audit Committee had consisted of David Jeffreys (Chairman), Dick Kingston, David Rowlinson and Serena Tremlett.

Role of the Committee

The role of the Audit Committee, which met at least twice a year, included:

·      The engagement, review of the work carried out by and the performance of the Company's external auditor.

·      To monitor and review the independence, objectivity and effectiveness of the external auditor.

·      To develop and apply a policy for the engagement of the external audit firm to provide non-audit services.

·      To assist the Board in discharging its duty to ensure that financial statements comply with all legal requirements.

·      To review the Company's financial reporting and internal control policies and to ensure that the procedures for the identification, assessment and reporting of risks are adequate.

·      To review regularly the need for an internal audit function.

·      To monitor the integrity of the Company's financial statements, including its annual and half year reports and announcements relating to its financial performance, reviewing the significant financial reporting issues and judgements which they contain.

·      To review the consistency of accounting policies and practices.

·      To review and challenge where necessary the financial results of the Company before submission to the Board.

The Audit Committee made recommendations to the Board which were within its terms of reference and considered any other matters as the Board might have referred to it.

Committee meeting attendance

During the year, the committee met with all members in attendance once prior to its dissolution.

Policy for non audit services

The Board has adopted a policy for the provision of non-audit services by its external auditor, BDO Limited and reviews and approves all material non-audit related services in accordance with the need to ensure the independence and objectivity of the external auditor. No services, other than audit-related ones, were carried out by BDO Limited during 2016.

Internal audit

The Board relies upon the systems and procedures employed by the Investment Manager and the administrator which are regularly reviewed and are considered to be sufficient to provide it with the required degree of comfort. Resulting from this and the fact that the Group only has one employee, the Board continues to believe that there is no need for an internal audit function.

Nomination Committee

The Nomination Committee had consisted of Serena Tremlett (Chairman), David Jeffreys, Dick Kingston, Phillip Rose and David Rowlinson.

The Committee's principal task was to review the structure, size and composition of the Board in relation to its size and position in the market and to make recommendations to fill Board vacancies as they arose and it met at least annually.

Committee meeting attendance

The committee met at least once annually but did not meet during the year prior to its dissolution.

Remuneration Committee and attendance

The Remuneration Committee had consisted of the independent non-executive Directors being David Jeffreys (Chairman), Dick Kingston, David Rowlinson and Serena Tremlett.

The Board approved formal terms of reference for the Committee and a copy of these is available on request from the Company Secretary.

As the Company comprises only non-executive directors, the Committee's main role was to determine their remuneration within the cap set out in the Company's Articles.  The Remuneration Committee met once during 2016, prior to its dissolution, with all members in attendance.

Remuneration report

The fees payable to the Directors were limited to £200,000 per annum in aggregate under the Company's Articles and the annual fees payable to each Director had not changed since the Company's shares were listed in 2005 to the June 2016 Board meeting. At that meeting, the Board was reduced to two non-executive Directors with their fees being reduced to £40,000 per annum in aggregate. The fees payable to the Directors are expected to reflect their expertise, responsibilities and time spent on the business of the Company, taking into account market equivalents, the activities and the size of the Company and market conditions.  Under their respective appointment letters, each director is entitled to an annual fee together with a provision for reimbursement for any reasonable out of pocket expenses. 

 

During the year the Directors received the following emoluments in the form of fees from the Company:

 

Year ended

31 December 2016

£

Year ended

31 December 2015

£

Dick Kingston*

15,000

30,000

David Jeffreys

21,500

23,000

Phillip Rose*

10,000

20,000

David Rowlinson*

10,000

20,000

Serena Tremlett

20,000

20,000

Total

76,500

113,000

* resigned on 3 June 2016

Internal control and risk management

The Board understands its responsibility for ensuring that there are sufficient, appropriate and effective systems, procedures, policies and processes for internal control of financial, operational, compliance and risk management matters in place in order to manage the risks which are an inherent part of business. Such risks are managed rather than eliminated in order to permit the Company to meet its financial and other objectives.

As the Company has only one employee, the Board reviews the internal procedures of both its Investment Manager and its administrator upon which it is reliant. The Investment Manager has a schedule of matters which have been delegated to it by the Board and upon which it reports to the Board on a quarterly basis. These matters include quarterly management accounts and reporting against key financial performance indicators. Further, a compliance report is produced by the administrator for the Board on a quarterly basis.

The Company maintains a risk management framework which considers the non-financial as well as financial risks and this is reviewed by the Board.

Investment management agreement

The Company has an agreement with the Investment Manager. This sets out the Investment Manager's key responsibilities, which include proposing a property investment strategy to the Board, identifying property investments to recommend for acquisition or sale and arranging appropriate lending facilities. The Investment Manager is also responsible to the Board for all issues relating to property asset management.

Substantial shareholding

Shareholders with holdings of more than three per cent of the issued ordinary shares of the Company as at 10 February 2017 were as follows:

Name of investor

No. of ordinary shares

% held

Antler Investment Holdings Limited

21,437,393

18.22

Alpha Global Property Securities Fund Pte. Ltd

9,390,800

7.98

Hargreaves Lansdown Asset Management

6,426,667

5.46

TD Waterhouse Clients

6,125,659

5.21

Mr Richard M. Peskin

6,000,000

5.10

Mrs Rosemary J. Skelley

5,857,607

4.98

Winterflood Securities

5,040,046

4.28

Halifax Share Dealing Clients

4,783,407

4.07

Mr J. A. M. Hemming

4,465,000

3.80

Interactive Investor

4,259,302

3.62

Barclays Wealth Management (UK)

3,830,859

3.26

Shareholder relations

The Board places high importance on its relationship with its shareholders, with members of the Investment Manager's Investment Committee making themselves available for meetings with key shareholders and sector analysts. Reporting of these meetings and market commentary is received by the Board on a quarterly basis to ensure that shareholder communication fulfils the needs of being useful, timely and effective. One or more members of the Board and the Investment Manager will be available at the Annual General Meeting to answer any questions that shareholders attending may wish to raise.

Directors' Responsibilities Statement

Company law requires the Directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the Company and of the Group at the end of the year and of the profit or loss of the Company and the Group for that year.

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

(1)   select suitable accounting policies and then apply them consistently;

(2)   make judgements and estimates that are reasonable and prudent;

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

(4)   prepare the financial statements on the going concern basis unless it is appropriate to assume that the Company and Group will not continue in business (as detailed in the going concern paragraph below and in note 2 of the financial statements, these financial statements have not been prepared on a going concern basis).

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and of the Group and to enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

So far as each of the Directors is aware, there is no relevant information of which the Company's auditor is unaware, and they have taken all the steps they ought to have taken as Directors to make themselves aware of any relevant information and to establish that the Company's auditor is aware of that information.

Going concern

During the year, the Board has made further progress in the planned orderly realisation of its investment properties and subsequent repayment of the bank borrowings. The maturity date of the remaining bank borrowings is 31 October 2018.   The Trust has the support of its lender for an orderly realisation of its remaining five investment properties with a view to winding up the Trust's group in due course. The accounts are therefore not prepared on a going concern basis.

Annual General Meeting

The AGM will be held in Guernsey at 9 a.m. on 28 April 2017 at Old Bank Chambers, La Grande Rue, St Martin's, Guernsey.  The meeting will be held to receive the Annual Report and Financial Statements, re-elect Directors and propose the reappointment of the auditor and that the Directors be authorised to determine the auditor's remuneration.

Independent auditor

BDO Limited has expressed its willingness to continue in office as auditor of the Company.

By order of the Board,

 

David Jeffreys                                                                                                                                       

Director                                                                                                                                                  



 

Directors' statement pursuant to the Disclosure and Transparency Rules

 

Each of the Directors, whose names and functions are listed in the Directors' and corporate governance report, confirm that, to the best of each person's knowledge and belief:

·      the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU ('IFRS') in accordance with the requirements of the London Stock Exchange, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and Company, and

·      the Chairman's Statement and the Property Review includes a fair review of the development and performance of the business and the position of the Company and Group and notes 20 and 21 to the financial statements provide a description of the principal risks and uncertainties that they face.

 

By order of the Board,

 

 

David Jeffreys                                                                                                                                       

Director                                                                                                                                                  

 

 

.

Corporate responsibility - benefits, risks and controls

The Board has reviewed the Company's Corporate Responsibility Policy and considers this to be appropriate for the Company. The Company's policy is as follows:

Alpha Pyrenees Trust Limited is committed to managing its portfolio in a way that delivers positive environmental, social and economic benefits. The Company recognises that the way in which buildings are designed, built, managed and occupied, significantly influences their impact on the environment and affected communities and it seeks to manage these issues.

The Company believes that, through the implementation of socially responsible policies, the Company can manage effectively our sustainability related risks, associated with, for example, climate change (more severe and regular floods, increasing storm damage costs and rising energy prices), site contamination and remediation, use of hazardous materials, waste management (rising landfill and disposal costs) and local community relations.

The Company's standard business process ensures that appropriate environmental reports are obtained as part of the due diligence process for property acquisitions and the Company assesses the accessibility of each property acquisition to public transportation.

The Company's managers and appointed agents are required to comply with all relevant laws and regulations affecting the Company's business, and managers are expected to be aware of the environmental issues associated with property investment including environmental health and safety legislation, energy use, pollution and waste management.

 

 

 

Independent auditors' report

To the members of Alpha Pyrenees Trust Limited

We have audited the financial statements of Alpha Pyrenees Trust Limited for the year ended 31 December 2016 which comprise the Consolidated and Company Statements of Comprehensive Income, the Consolidated and Company Balance Sheets, the Consolidated and Company Cash Flow Statements, the Consolidated and Company Statements of Changes in Equity  and the related notes 1 to 21. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. 

 

This report is made solely to the company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work is undertaken so that we might state to the parent 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 parent company and the parent company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Respective responsibilities of the directors and auditor  

As explained more fully in the Directors' Responsibilities Statement within the Directors' Report, 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 International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council's Ethical Standards for Auditors.

 

Scope of the audit of the financial statements

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 and parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non‑financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify 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 misstatements or inconsistencies we consider the implications for our report.

 

Opinion on the financial statements

In our opinion the financial statements:

·      give a true and fair view of  the state of the group's and of the parent company's affairs as at 31 December 2016 and of the group's loss and the parent company's loss for the year then ended;

·      have been properly prepared in accordance with IFRSs as adopted by the European Union; and

·      have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.

 

Emphasis of matter ‑ Going concern

We draw attention to the disclosures made in note 2 to the financial statements which explains that it is the intention of the Board to seek an orderly disposal of the Group's investment property with a view to winding up the Group in due course. As a consequence, the financial statements have therefore been prepared on a basis other than that of a going concern.

 

Matters on which we are required to report by exception

 We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

 

·      proper accounting records have not been kept by the parent company; or

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

·      we have failed to obtain all the information and explanations, which, to the best of our knowledge and belief, are necessary for the purposes of our audit.

 

Richard Michael Searle FCA 

For and on behalf of BDO Limited

Chartered Accountants and Recognised Auditor

Place du Pré, Rue du Pré

St Peter Port, Guernsey

 

Date: 9 March 2017

Consolidated statement of comprehensive income

 

For the year ended 31 December 2016

For the year ended 31 December 2015


Revenue

£'000

Capital

£'000

Total

£'000

Revenue
 £'000

Capital
£'000

Total
£'000









Income








Revenue

3

1,033

-

1,033

15,142

-

15,142

Property operating expenses

3

(1,241)

-

(1,241)

(5,717)

-

(5,717)

Net rental (expense)/income


(208)

-

(208)

9,425

-

9,425









Losses on disposal of investment properties held for sale

11

-

(1,461)

(1,461)

-

(28,863)

(28,863)

Gains on disposal of subsidiaries


-

676

676

-

-

-

Losses on revaluation of investment properties held for sale

11

-

(7,268)

(7,268)

-

(13,459)

(13,459)









Expenses

 







Investment Manager's fee

19

(867)

-

(867)

(1,380)

(592)

(1,972)

Other administration costs

5

(948)

-

(948)

(1,203)

-

(1,203)









Operating (loss)/profit


(2,023)

(8,053)

(10,076)

6,842

(42,914)

(36,072)

 








Finance income

4

-

-

-

1

880

881

Finance costs

6

(5,462)

(17)

(5,479)

(11,832)

(51)

(11,883)

 








Loss before taxation


(7,485)

(8,070)

(15,555)

(4,989)

(42,085)

(47,074)









Taxation

7

-

-

-

-

5,783

5,783









Loss for the year

 

(7,485)

(8,070)

(15,555)

(4,989)

(36,302)

(41,291)


 







Other comprehensive income/(loss)

 







Items that may be reclassified to profit or loss in subsequent periods:

 







Foreign exchange (losses)/gains on translation of foreign operations (translation reserve)

 

-

(6,498)

(6,498)

-

4,697

4,697

Reclassification of  foreign exchange gains on translation of foreign operations following disposals

 

-

(676)

(676)

-

(2,735)

(2,735)


 







Other comprehensive (loss)/income for  the year


-

(7,174)

(7,174)

-

1,962

1,962









Total comprehensive loss for the year


(7,485)

(15,244)

(22,729)

(4,989)

(34,340)

(39,329)









Loss per share

 - basic & diluted

 

9



 

(13.2)p



 

(35.1)p


The total column of this statement represents the Group's statement of comprehensive income, prepared in accordance with IFRS as adopted by the European Union. The revenue and capital columns are supplied as supplementary information permitted under IFRS. All items in the above statement derive from continuing operations. All income is attributable to the equity holders of the parent company. There are no non-controlling interests.

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

Consolidated balance sheet

 As at 31 December 2016

Notes

2016

£'000

2015

£'000





Current assets




Investment properties held for sale

11

16,824

39,283

Trade and other receivables

12

685

6,940

Restricted cash

13

3,897

10,054

Cash and cash equivalents

13

1,213

1,309



22,619

57,586





Current liabilities




Trade and other payables

14

(1,294)

(1,955)

Bank borrowings

15

(2,889)

(91,311)

Liabilities directly associated with investment properties held for sale

 

(257)

(694)



(4,440)

(93,960)





Non-current liabilities




Bank borrowings

15

(77,282)

-





Net liabilities


(59,103)

(36,374)





Equity




Share capital

16

-

-

Special reserve

17

113,131

113,131

Translation reserve

17

17,060

24,234

Capital reserve

17

(174,243)

(166,173)

Revenue reserve

17

(15,051)

(7,566)





Total equity


(59,103)

(36,374)





Net asset value per share

 

(50.2)p

(30.9)p

The financial statements were approved by the Board of Directors and authorised for issue on 9 March 2017. They were signed on its behalf by:

 

David Jeffreys                                                                                                       

Director                                                                                                                  

 

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

Consolidated cash flow statement

 

Notes

For the year ended

31 December 2016

£'000

For the year ended

31 December 2015

£'000





Operating activities

 

 

 

Loss for the year


(15,555)

(41,291)





    Adjustments for :




    Losses on disposal of investment properties


1,461

28,863

    Gains on  disposal of subsidiaries


(676)

-

    Losses on revaluation of investment properties


7,268

13,459

    Deferred taxation


-

(5,783)

    Finance income


-

(881)

    Finance costs


5,479

11,883

Operating cash flows before movements in working capital


(2,023)

6,250

 

 

 

 

    Movements in working capital:

 

 

 

    Movement in trade and other receivables


1,013

3,539

    Movement in trade and other payables


(1,454)

(4,550)

Cash flows (used in)/from operations

 

(2,464)

5,239

 




   Interest received


-

1

Cash flows (used in)/from operating activities


(2,464)

5,240





Investing activities




    Proceeds from disposal of investment properties


25,319

114,087

    Capital expenditure


-

(228)

    Restricted cash movement

13

7,412

(2,700)

Cash flows from investing activities


32,731

111,159





Financing activities




    Repayment of borrowings

 

(28,702)

(108,980)

    Bank loan interest paid and costs

 

(1,385)

(10,419)

Cash flows used in financing activities

 

(30,087)

(119,399)

 




Net increase/(decrease) in cash and cash equivalents


180

(3,000)





Cash and cash equivalents at beginning of year


1,309

4,659

    Exchange translation movement


(276)

(350)

Cash and cash equivalents at end of year (note 13)


1,213

1,309

 

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

Consolidated statement of changes in equity

For the year ended 31 December 2015

Share capital £'000

Special
reserve

£'000

Translation reserve

£'000

Capital reserve

£'000

Revenue reserve

£'000

Total equity

£'000








At 1 January 2015

-

113,131

22,272

(129,871)

(2,577)

2,955








Total comprehensive income/(loss) for the year







Loss for the year

-

-

-

(36,302)

(4,989)

(41,291)

Other comprehensive income

-

-

1,962

-

-

1,962

Total comprehensive income/(loss) for the year

-

-

1,962

(36,302)

(4,989)

(39,329)








At 31 December 2015

-

113,131

24,234

(166,173)

(7,566)

(36,374)








Note 16, 17







 

For the year ended 31 December 2016

Share capital £'000

Special
reserve

£'000

Translation reserve

£'000

Capital reserve

£'000

Revenue reserve

£'000

Total equity

£'000








At 1 January 2016

-

113,131

24,234

(166,173)

(7,566)

(36,374)








Total comprehensive income/(loss) for the year







Loss for the year

-

-

-

(8,070)

(7,485)

(15,555)

Other comprehensive loss

-

-

(7,174)

-

-

(7,174)

Total comprehensive loss for the year

-

-

(7,174)

(8,070)

(7,485)

(22,729)








At 31 December 2016

-

113,131

17,060

(174,243)

(15,051)

(59,103)








Note 16, 17







 

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

 

Company statement of comprehensive income




 

 

Notes

For the year ended

31 December 2016

For the year ended

31 December 2015

Revenue
 £'000

Capital
£'000

Total
£'000

Revenue
 £'000

Capital
£'000

Total
£'000









Expenses








Investment Manager's fee

19

(867)

-

(867)

(538)

(230)

(768)

Other administration costs

5

(458)

-

(458)

(505)

-

(505)

Total expenses


(1,325)

-

(1,325)

(1,043)

(230)

(1,273)

 








Operating loss


(1,325)

-

(1,325)

(1,043)

(230)

(1,273)

 








Finance costs

6

(1)

(18)

(19)

(2)

(106)

(108)

Movement in impairment of amounts receivable from and investments in subsidiary undertakings

20

-

1,208

1,208

-

(2,209)

(2,209)

 








(Loss)/profit before taxation


(1,326)

1,190

(136)

(1,045)

(2,545)

(3,590)









Taxation

7

-

-

-

-

-

-

 

 







(Loss)/profit for the year


(1,326)

1,190

(136)

(1,045)

(2,545)

(3,590)









Total comprehensive (loss)/income for the  year


(1,326)

1,190

(136)

(1,045)

(2,545)

(3,590)

 

The total column of this statement represents the Company's statement of comprehensive income, prepared in accordance with IFRS as adopted by the European Union. The revenue and capital columns are supplied as supplementary information permitted under IFRS. All items in the above statement derive from continuing operations.

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

 

Company balance sheet

 As at  31 December 2016

Notes

2016

£'000

2015

£'000





Current assets




Trade and other receivables

12

15

12

Cash and cash equivalents


1

36



16

48





Total assets


16

48





Current liabilities




Trade and other payables

14

(787)

(683)





Total liabilities


(787)

(683)





Net (liabilities)/assets


(771)

(635)





Equity




Share capital

16

-

-

Special reserve

17

113,131

113,131

Capital reserve

17

(138,129)

(139,319)

Revenue reserve

17

24,227

25,553





Total equity


(771)

(635)

 

The financial statements were approved by the Board of Directors and authorised for issue on 9 March 2017. They were signed on its behalf by:

 

David Jeffreys                                                                                                       

Director                                                                                                                  

 

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

 

 

Company cash flow statement

 

Note

For the year ended

 31 December 2016

£'000

For the year ended

 31 December 2015

£'000





Cash flows from operating activities








Loss for the year


(136)

(3,590)





    Adjustments for :




    Finance costs


19

108

Movement in impairment of amounts receivable from subsidiary undertakings


(1,208)

2,209

 




Operating cash flows before movements in working capital


(1,325)

(1,273)

 




    Movement in operating trade and other receivables


(3)

(7)

    Movement in operating trade and other payables


104

302





Cash flows used in operations


(1,224)

(978)





    Interest paid


(1)

(2)

    Interest received from subsidiaries


-

22





Cash flows used in operating activities


(1,225)

(958)





Investing activities




     Current account loans repaid/(advanced)

10

1,194

(681)





Cash flows from/(used in) investing activities


1,194

(681)





Net decrease in cash and cash equivalents


(31)

(1,639)





Cash and cash equivalents at beginning of year


36

1,801

Exchange translation movement


(4)

(126)





Cash and cash equivalents at end of year


1

36

 

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

 

Company statement of changes in equity

For the year ended 31 December 2015

Share
capital £'000

Special
reserve £'000

Capital
reserve

£'000

Revenue reserve

£'000

Total
equity

£'000







At 1 January 2015

-

113,131

(136,774)

26,598

2,955







Total comprehensive income/(loss) for the year

 

 




Loss for the year

-

-

(2,545)

(1,045)

(3,590)

Other comprehensive income/(loss)

-

-

-

-

-

Total comprehensive loss for the year

-

-

(2,545)

(1,045)

(3,590)


 

 




At 31 December 2015

-

113,131

(139,319)

25,553

(635)







Note 16, 17






 

For the year ended 31 December 2016

Share
capital £'000

Special
reserve £'000

Capital
reserve

£'000

Revenue reserve

£'000

Total
equity

£'000







At 1 January 2016

-

113,131

(139,319)

25,553

(635)







Total comprehensive income/(loss) for the year

 

 




Income/(loss) for the year

-

-

1,190

(1,326)

(136)

Other comprehensive income/(loss)

-

-

-

-

-

Total comprehensive income/(loss) for the year

-

-

1,190

(1,326)

(136)


 

 




At 31 December 2016

-

113,131

(138,129)

24,227

(771)







Note 16, 17






 

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


Notes to the financial statements

For the year ended 31 December 2016

 

1. General information

The Company is a limited liability, closed-ended investment company incorporated in Guernsey. The address of the registered office is given below. The nature of the Group's operations and its principal activities are set out in the Chairman's statement above. The financial statements were approved and authorised for issue on 9 March 2017 and signed by David Jeffreys on behalf of the Board.

2. Significant accounting policies

A summary of the principal accounting policies is set out below. The policies have been consistently applied to all years presented.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies. The areas involving a high degree of judgement or complexity or areas where the assumptions and estimates are significant to the financial statements are disclosed in this note.

Basis of preparation

These financial statements have been prepared in accordance with IFRS, which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and International Accounting Standards and Standards Interpretations Committee's interpretations approved by the International Accounting Standards Committee ("IASC") that remain in effect, and to the extent that they have been adopted by the European Union.

Going concern

During the year, the Board has made further progress in the planned orderly realisation of its investment properties and subsequent repayment of the bank borrowings. The maturity date of the remaining bank borrowings is 31 October 2018.   The Trust has the support of its lender for an orderly realisation of its remaining five investment properties with a view to winding up the Trust's group in due course. The financial statements are therefore not prepared on a going concern basis.

a) Adoption of new and revised Standards

A number of new standards and interpretations issued by the IASB and the International Financial Reporting Interpretations Committee are effective for the current year. The adoption of these standards has not led to any changes in the Group's accounting policies.

b) Standards and Interpretations in issue and not yet effective

At the date of authorisation of these financial statements, there were a number of standards and interpretations, which have not been applied in these financial statements that were in issue but not yet effective. These are either not relevant to the Company and Group or, given the orderly disposal of investment properties and intended wind up of the Company and Group, are not expected to have a significant impact.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and the subsidiary undertakings controlled by the Company, made up to 31 December each year. Control is achieved where the Company has power over the investee, exposure or rights, to variable returns from its involvement with the investee and the ability to use its power to affect the amount of the investor's returns.

The results of subsidiary undertakings acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal as appropriate.

When necessary, adjustments are made to the financial statements of subsidiary undertakings to bring their accounting policies used into line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Presentation of statement of comprehensive income

In order to better reflect the activities of an investment company and in accordance with guidance issued by the Association of Investment Companies ("AIC"), supplementary information, which analyses the statement of comprehensive income between items of a revenue and capital nature, has been presented alongside the Company and Group's statement of comprehensive income.

Revenue recognition

Rental income from investment property leased out under an operating lease is recognised in the statement of comprehensive income on a straight line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the net consideration for the use of the property and are therefore also recognised on the same straight line basis. Rental revenues are accounted for on an accruals basis. Therefore, deferred revenue generally represents advance payments from tenants. Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of revenue can be measured reliably. Upon early termination of a lease by the lessee, the receipt of a surrender premium is immediately recognised as revenue.

The Company's interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable. Provisions against recoverability of interest income are recognised as an expense within the movement in impairment of amounts receivable from subsidiary undertakings.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Foreign currencies

a) Functional and presentation currency

Items included in the financial statements of each of the Group entities are measured in the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in Sterling, which is the Company's functional and presentation currency.

b) Transactions and balances

Transactions in currencies other than the functional currency of the Group's entity involved are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in net profit or loss for the year.

c) Group companies

The results and financial position of all the Group entities that have a functional currency which differs from the presentation currency are translated into the presentation currency as follows:

(i)             assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet;

(ii)            income and expenses for each statement of comprehensive income are translated at the average exchange rate prevailing in the period; and

(iii)           all resulting exchange differences are recognised as a separate component of equity.

On consolidation, the exchange differences arising from the translation of the Company's net investment in foreign entities are taken to other comprehensive income. When a foreign operation is sold, such exchange differences are recognised in the statement of comprehensive income as part of the gain or loss on sale.

The year-end exchange rate used is £1:€1.169 (2015: £1:€1.357) and the average rate for the year used is £1:€1.226 (2015: £1:€1.377).

Operating profit

a) Company

Operating profit includes interest income from subsidiary entities, as reduced by Investment Manager's fees and administrative expenses and excludes the movement on impairment of loans from and investments in subsidiaries, finance costs and finance income.

b) Group

Operating profit includes net gains or losses on revaluation of investment properties and net gains or losses on disposal of investment properties and subsidiaries, as reduced by administrative expenses and property operating costs and excludes finance costs and finance income.

Expenses

All expenses are accounted for on an accruals basis and include fees and other expenses paid to the administrator, the Investment Manager and the Directors.

In respect of the analysis between revenue and capital items presented within the statement of comprehensive income, all expenses have been presented as revenue items except:

(i)             realised gains or losses from disposal of investment properties and subsidiaries and unrealised gains or losses on revaluation of investment properties;

(ii)            foreign exchange losses.

Taxation

The Company is exempt from Guernsey taxation on income derived outside of Guernsey and bank interest earned in Guernsey. A fixed annual fee of £1,200 (2015: £1,200) is payable to the States of Guernsey in respect of this exemption. No charge to Guernsey taxation arises on capital gains. The Group is liable to foreign tax arising on activities of the overseas subsidiaries. The Company has subsidiary operations in Luxembourg, Belgium, France and Spain.

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

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income and expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible timing differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset realised. Deferred tax is charged or credited in the statement of comprehensive income.

Fair value measurement

The Group measures certain non-financial assets such as investment property held for sale, at fair value at the end of each reporting period, using recognised valuation techniques and following the principles of IFRS 13. In addition, fair values of financial instruments measured at amortised cost are disclosed in the financial statements.

Fair value 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 fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

·      in the principal market for the asset or liability, or

·      in the absence of a principal market, in the most advantageous market for the asset or liability.

The Group must be able to access the principal or the most advantageous market at the measurement date. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to the fair value measurement as a whole:

·      Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

·      Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

·      Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Investment property held for sale

Investment property, which was property held to earn rentals and/or for capital appreciation, was initially recognised at cost being the fair value of consideration given including related transaction costs. As from prior year, the Group investment properties are all classified as held for sale. Investment properties are classified as held for sale if their carrying amount will be recovered by sale rather than by continuing use in the business. For this to be the case, the property must be available for immediate sale in its present condition, management must be committed to and have initiated a plan to sell the property which, when initiated, was expected to result in a completed sale within twelve months. Property assets that are classified as held for sale are measured at fair value based on half yearly professional valuations made by Knight Frank LLP, in accordance with IAS 40 Investment Property. The valuations are in accordance with standards complying with the Royal Institution of Chartered Surveyors Appraisal and Valuation manual and the International Valuation Standards Committee. The Ivry property has been valued by the Directors at its selling price, this being the best approximation to its fair value at year end, although the sale of this property has not completed at the time of signing these financial statements (note 11).

Gains or losses arising from changes in the fair value of investment property held for sale are included in the statement of comprehensive income in the period in which they arise. Properties were treated as acquired when the Group assumed the significant risks and returns of ownership and are treated as disposed of when these are transferred to the buyer.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of the Company.

For management purposes, the Group is organised into one main operating segment, which invests in commercial property located in Europe. Accordingly, all significant operating decisions are based upon analysis of the Group as one segment. The financial results from this segment are equivalent to the financial statements of the Group as a whole.

All of the Group's revenue is from entities that are incorporated in Europe.

The Group does not have non-current assets at the balance sheet date (2015: none).

With the exception of cash and cash equivalents and restricted cash, which are located in Europe and Guernsey, all of the Group's current assets are located in Europe only.

Revenue from one tenant, Fitness 4 All, amounted to £0.1 million (2015: Alcatel-Lucent for £9.0 million). Total revenue from tenants located in France amounted to £0.5 million (2015: £14.3 million) and revenue from tenants located in Spain amounted to £0.2 million (2015: £0.8 million).

Investment in subsidiaries

Investments in subsidiaries are initially recognised and subsequently carried at cost in the Company's financial statements less, where appropriate, provisions for impairment.

Financial instruments

Financial assets and financial liabilities are recognised on the Company and Group's balance sheet when the Company and Group become a party to the contractual provisions of the instrument. The Company and Group shall offset financial assets and financial liabilities if the Company and Group has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis.

(a) Financial assets

The Company and Group's financial assets fall into the categories discussed below, with the allocation depending to an extent on the purpose for which the asset was acquired. The Company and Group have not classified any of its financial assets as held to maturity or as available for sale.

Unless otherwise indicated, the carrying amounts of the Company and Group's financial assets are a reasonable approximation of their fair values.

(i) Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through rental leases with tenants (e.g. trade receivables and cash and cash equivalents) but also incorporate other types of contractual monetary assets. They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue and subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

The effect of discounting on these financial instruments is not considered to be material.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Company and Group will be unable to collect all of the amounts due under the terms of the receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, such impairments directly reduce the carrying amount of the impaired asset and are recognised against the relevant income category in the statement of comprehensive income.

Cash and cash equivalents are carried at cost and consist primarily of short term deposits in banks with an original maturity of three months or less.

Restricted cash is carried at cost and relates to trapped cash held on the cash pooling account controlled by Barclays Bank PLC.

 (ii) Derecognition of financial assets

A financial asset (in whole or in part) is derecognised either:

·      when the Company and Group has transferred substantially all the risks and rewards of ownership; or

·      when it has neither transferred nor retained substantially all the risks and rewards and when it no longer has control over the asset or a portion of the asset; or

·      when the contractual right to receive cash flow has expired.

(b) Financial liabilities

The Company and Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was issued and its characteristics.

Unless otherwise indicated, the carrying amounts of the Company and Group's financial liabilities are a reasonable approximation of their fair values.

(i) Financial liabilities measured at amortised cost

Other financial liabilities include the following items:

·      Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.

·      Bank borrowings are initially recognised at fair value net of attributable transaction costs incurred. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method.

(ii) Derecognition of financial liabilities

A financial liability (in whole or in part) is derecognised when the Company and Group has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on derecognition is taken to the statement of comprehensive income.

(c) Share capital

Financial instruments issued by the Company are treated as equity only to the extent that they do not meet the definition of a financial liability. The Company's ordinary shares are classified as equity instruments. For the purposes of the disclosures given in note 20 the Company considers all its share capital, share premium and all other reserves as equity. The Company is not subject to any externally imposed capital requirements.

 (d) Effective interest rate method

The effective interest rate method is a method of calculating the amortised cost of a financial asset or liability and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments (including all fees or amounts paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or liability, or, where appropriate, a shorter period.

Significant accounting estimates and judgements

The Directors make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Investment property

The gross property value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Transaction costs normally borne by the seller are not deducted in arriving at gross property value, in accordance with IFRS 13. The fair value is calculated by deducting the costs normally borne by the purchaser from the gross property value. Fair value is not intended to represent the liquidation value of the property, which would be dependent upon the price negotiated at the time of sale less any associated selling costs. The fair value is largely based on estimates using property appraisal techniques and other valuation methods. Such estimates are inherently subjective and actual values can only be determined in a sales transaction.

Investment properties held for sale are measured at fair value. The Board determines that a property is available for sale where it is intended and expected to sell within one year from the date of classification as held for sale.

The Ivry property has been valued by the Directors at its selling price, this being the best approximation to its fair value at year end, although the sale of this property has not completed at the time of signing these financial statements (note 11).

The fair value of the Group's investment properties held for sale as at 31 December 2016 was £16.8 million (2015: £39.3 million). Refer to note 11 for further details.

(b) Income and deferred taxes

The Group is subject to income and capital gains taxes in numerous jurisdictions. Significant judgement is required in determining the total provision for income and deferred taxes. There are many transactions and calculations for which the ultimate tax determination and timing of payment is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded such differences will impact the income and deferred tax provisions in the period in which the determination is made.

The Group's deferred tax liability as at 31 December 2016 was nil (2015: nil). See note 7 for further details.

3. Revenue

 

Group

2016

£'000

Company

2016

£'000

Group

2015

£'000

Company

2015

£'000

Rental income

375

-

11,885

-

Other income

357

-

-

-

Service and management charges

301

-

3,257

-

Total

1,033

-

15,142

-

At 31 December 2016, the Group recognised non recoverable property operating expenditure as follows:

 

2016

£'000

2015

£'000

Service charge income

301

3,257

Property operating expenditure

(1,241)

(5,717)

Non recoverable property operating expenditure

(940)

(2,460)

Property operating expenses relating to investment properties that did not generate any rental income were £0.5 million (2015: £0.8 million).

The Group leases out its investment property solely under operating leases. Leases are typically for terms of standard institutional 3/6/9 years in France and 5 + 5 years in Spain.  At the balance sheet date, using the exchange rate prevailing at that date, the Group had contracted with tenants for the following future minimum lease payments in respect of leases expiring within the following time periods:

 

2016

£'000

2015

£'000

Within one year

256

1,829

In the second to fifth years inclusive

1,053

4,332

After five years

1,968

785

Total

3,277

6,946

4. Finance income

 

Group

2016

£'000

Company

2016

£'000

Group

2015

£'000

Company

2015

£'000

Bank interest income

-

-

1

-

Net gains on financial assets and liabilities held at fair value through profit or loss (note 20)

-

-

880

-

Foreign exchange gain

-

-

-

-

Total

-

-

881

-

The Group had interest rate swaps which matured on 10 February 2015.



 

5. Other administration costs

 

Group

2016

£'000

Company

2016

£'000

Group

2015

£'000

Company

2015

£'000

Accounts and administrative fees

265

126

288

152

Non-executive Directors' fees

77

77

113

113

Auditors' remuneration for audit services

70

37

98

52

Other professional fees

532

218

697

188

Staff costs

4

-

7

-

Total

948

458

1,203

505

The Group has one employee. The Directors are the only key management personnel of the Group.

6. Finance costs

 

Group

2016

£'000

Company

2016

£'000

Group

2015

£'000

Company

2015

£'000

Interest on bank borrowings

5,134

-

10,896

-

Loan fee amortisation

276

-

900

-

Foreign exchange loss

17

18

51

106

Other charges

52

1

36

2

Total

5,479

19

11,883

108

Other than net losses on financial liabilities held at fair value through profit or loss, finance costs arise on financial liabilities measured at amortised cost using the effective interest rate method.

7. Taxation

(a) Taxation on profit on ordinary activities

Company

The Company is exempt from Guernsey taxation on income derived outside of Guernsey and bank interest earned in Guernsey. A fixed annual fee of £1,200 (2015: £1,200) is payable to the States of Guernsey in respect of this exemption. No charge to Guernsey taxation arises on capital gains. The Group is liable to foreign tax arising on activities in the overseas subsidiaries. The Company has subsidiary operations in Luxembourg, Belgium, France and Spain.



 

Group

The Group's tax position for the year comprises:

 

Group

2016

£'000

Group

2015

£'000

Deferred taxation

 

 

France

-

(5,783)

Spain

-

-

Total

-

(5,783)

 



Tax expense reconciliation



Loss for the year

(15,555)

(47,074)

 



Loss for the year at the tax rate of 33.33%

(5,184)

(15,690)

Less: income not taxable

(359)

(1,155)

Add: expenditure not taxable

2,957

2,064

Add: un-provided deferred tax asset movement

2,586

8,998

Tax charge

-

(5,783)

Tax at domestic rates applicable to profits in the country concerned

 

Group

2016

£'000

Group

2015

£'000

French taxation at 33.33%

-

(5,783)

Spanish taxation at 30%

-

-

 (b) Deferred taxation

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon.

 

Revaluation of investment properties

£'000

Accelerated tax depreciation

£'000

Tax losses

 

 

£'000

Interest rate swap

 

£'000

Total

 

 

£'000

At  31 December  2014

(16,733)

31,022

(7,928)

(131)

6,230

Charged/(credited) to profit or loss

1,954

(15,160)

7,301

122

(5,783)

Charged/(credited) to other comprehensive income

1,004

(2,029)

569

9

(447)

At  31 December  2015

(13,775)

13,833

(58)

-

-

Charged/(credited) to profit or loss

7,415

(7,479)

64

-

-

Charged/(credited) to other comprehensive income

(1,854)

1,860

(6)

-

-

At  31 December  2016

(8,214)

8,214

-

-

-

 

At the balance sheet date the Group has unused tax losses of £170.6 million (2015: £149.6 million). Due to the unpredictability of future taxable profits, the Directors believe it is not prudent to recognise deferred tax assets in respect of the losses.

The French unused tax losses of £89.7 million (2015: £82.0 million), Belgian unused tax losses of £0.9 million (2015: £0.1 million), Spanish unused tax losses of £29.9 million (2015: £24.0 million) and unused tax losses in Luxembourg of £50.1 million (2015: £43.5 million) can be carried forward indefinitely.

 

8. Dividends

The Company does not pay dividends.



 

9. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

 

1 January 2016 to

31 December 2016

1 January 2015 to

31 December 2015

Losses after tax per statement of comprehensive income (£'000)

(15,555)

(41,291)

Basic and diluted losses per share

(13.2)p

(35.1)p

Weighted average number of ordinary shares (000's)

117,627

117,627

10. Investment in subsidiary undertakings

A list of the significant investments in subsidiaries, including the name, country of incorporation and the proportion of ownership interest is given below.

Name of subsidiary undertaking

Class of share

% of class held with voting rights

Country of
incorporation

Principal
activity

Alpha Pyrenees Luxembourg SARL

Ordinary

100%

Luxembourg

Holding company

Alpha Pyrenees Belgium SA

Ordinary

100%

Belgium

Holding company

Alpha Pyrenees Athis Mons SARL

Ordinary

100%

France

Holding company

Alpha Pyrenees Athis Mons SCI

Ordinary

100%

France

Property investment

Alpha Pyrenees Offices SARL

Ordinary

100%

France

Holding company

Alpha Pyrenees Offices SCI

Ordinary

100%

France

Property investment

Alpha Pyrenees Spain SLU

Ordinary

100%

Spain

Property investment

Alpha Pyrenees Alcalá SLU

Ordinary

100%

Spain

Property investment

Alpha Pyrenees Ècija SLU

Ordinary

100%

Spain

Property investment

The Group's investment properties are held by its subsidiary undertakings.

During the year, Alpha Pyrenees Evreux SARL and Alpha Pyrenees Luxembourg No 2 SARL, both holding companies, were dissolved.

The Company has made the following loans to its subsidiary undertakings as at 31 December 2016:


2016

Interest bearing
£'000

2016

Non-interest bearing
£'000

2016

Total

£'000

2015

Interest bearing
£'000

2015

Non-interest bearing
£'000

2015

Total

£'000

Loans

106,557

68,590

175,147

91,795

55,128

146,923

Impairment

(106,557)

(68,590)

(175,147)

(91,795)

(55,128)

(146,923)

Total

-

-

-

-

The loans are denominated in Euros, unsecured and are subject to a range of interest rates, fixed for the term of the relevant loan. At 31 December 2016 the weighted average interest rate was 4.81% (2015: 4.83%).

A total impairment of £175.1 million (2015: £146.9 million) has been made against amounts receivable from subsidiary undertakings to reflect the current mark to market impact of the property valuations which have arisen within the Group subsidiaries and that Barclays Bank PLC has first charge over all investment properties held for sale.

During the year, the Company received £1,194,000 as loan repayment from subsidiaries, as shown in the cash flow statement under investing activities: this is due to the cash release mechanism of the cash pooling account controlled by Barclays Bank PLC (see note 13) and impacts the Company's statement of comprehensive income through the movement in impairment of amounts receivable from and investments in subsidiary undertakings.

The Company's investment in subsidiaries is also fully impaired.

11. Investment properties held for sale

 

2016

£'000

2015

£'000

Investment properties held for sale at 1 January

39,283

122,637

Subsequent capital expenditure after acquisition

-

10

Disposals

(19,891)

(109,476)

Movement in rent incentives/initial costs

(280)

(4,425)

Fair value adjustment in the year

(7,268)

72

Effect of foreign exchange

4,980

(8,818)

Transfer from investment properties

-

39,283

Investment properties held for sale at 31 December

16,824

39,283

Investment properties held for sale represent the fair value of properties that have been actively marketed for disposal at the balance sheet date.

The fair value of the Group's investment properties held for sale at 31 December 2016 and 31 December 2015 (with the exception of the properties sold after year end and before signing the financial statements, valued at their selling price) has been arrived at on the basis of valuations carried out at that date by Knight Frank LLP, independent valuers not connected to the Group. The portfolio has been valued on a fair value basis as defined by the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards ("RICS").

The approved RICS definition of fair value 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."

During the year, the Group sold three properties in France and a property in Spain: Aubervilliers for £12.1 million (€14.8 million), Aubergenville for £4.0 million (€4.9 million) and Athis Mons for £3.7 million (€4.6 million) in France and Zaragoza for £0.3 million (€0.4 million) in Spain.

Post year end, following signing of a conditional contract for a £2.5 million (€2.9 million) sale of the Ivry property, the representative of the local authority where the property is located has exercised its pre-emption rights to purchase that property at the same price; Ivry has therefore been valued by the Directors at its selling price, this being their best approximation to fair value at year end (note 21).

At 31 December 2016, the Group has pledged investment properties held for sale valued at £16.8 million (€19.7 million) (2015: £39.3 million (€53.3 million)) to secure borrowings (note 15).

 

12. Trade and other receivables

 

Group

2016

£'000

Company

2016

£'000

Group

2015

£'000

Company

2015

£'000

Trade receivables

53

-

197

-

Amounts receivable from Property Managing Agents

34

-

674

-

Prepayments

41

11

110

12

Other receivables

438

4

5,959

-

VAT receivable

119

-

-

-

Total

685

15

6,940

12

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. Note 20 provides an ageing of trade receivables.

 

13. Cash and cash equivalents

Cash and cash equivalents included in the cash flow statement comprise the following balance sheet amounts:

 

Group

2016

£'000

Company

2016

£'000

Group

2015

£'000

Company

2015

£'000

Cash at bank in the balance sheet

5,110

1

11,363

36

Cash balance held on the cash pooling account

(3,897)

-

(10,054)

-

Cash and cash equivalents

1,213

1

1,309

36

 

The cash balance held on the cash pooling account is subject to certain restrictions; accordingly this balance has not been classified as cash and cash equivalents for the purposes of the cash flow statement.

In November 2013, the Group entered into a cash pooling arrangement with Barclays Bank PLC over the Group's cash-flows from the whole property portfolio in order to provide further security to Barclays Bank PLC but which provides the Group and the Company with working capital for its operations. The resulting cash pooling account is controlled by Barclays Bank PLC and a cash release mechanism is in place whereby cash is released by Barclays Bank PLC following review of the Group's working capital budget, which is updated quarterly.

 

14. Trade and other payables

 

Group

2016

£'000

Company

2016

£'000

Group

2015

£'000

Company

2015

£'000

Trade payables

277

128

380

62

Deferred income

241

-

339

-

Investment Manager's fee payable

627

627

640

572

VAT payable

3

-

32

-

Accruals

146

32

564

49

Total

1,294

787

1,955

683

 

Trade payables and accruals primarily comprise amounts outstanding for trade purchases and ongoing costs. The Group has financial risk management policies in place to ensure that all payables are paid within the credit time frame.

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

 

15. Bank borrowings

 

Group

2016

£'000

Company

2016

£'000

Group

2015

£'000

Company

2015

£'000

Current liabilities: interest payable and bank borrowings

2,889

-

91,311

-

Non-current liabilities: bank borrowings

77,282

-

-

-

Total liabilities

80,171

-

91,311

-

 


 


 

The borrowings are repayable as follows:


 


 

Interest payable

2,889

-

1,016

-

On demand or within one year

-

-

90,295

-

In the second to fifth years inclusive

77,282

-

-

-

After five years

-

-

-

-

 

80,171

-

91,311

-

During the year, the Group sold four investment properties at prices totalling £20.1 million (€24.7 million) with the net proceeds from these sales contributing to bank borrowings repayments of £28.7 million (€35.2 million).

At 31 December 2016, £77.3 million (€90.3 million) (2015: £90.4 million (€122.7 million)) was outstanding on all borrowings. Borrowings are secured over the shares in the Company's operating subsidiaries and mortgages over properties with a total value of £16.8 million (€19.7 million) (2015: £39.3 million (€53.3 million)).

The weighted average rate of interest at 31 December 2016 on all fixed rate loans is 5.19% (2015: 5.32%) and 9.59% (2015: 9.85%) on floating rate loans.

During the year, the repayment date of all borrowings has been reset to 31 October 2018, following agreement with Barclays Bank PLC.

The current interest rates will continue to apply to the facilities during the extension period.

Extension fees of 2% (per annum pro-rated) are charged on all borrowings from 10 February 2015: these are deferred to the new maturity date and will be payable to the extent that the Group has sufficient cash funds at that time. No additional fee was charged on the latest extensions to 31 October 2016 and to 31 October 2018. As at 31 December 2016, the Board consider it probable, based on cash flow forecasts, that there will be insufficient cash funds to settle this amount and hence this represents a contingent liability of €6.3 million (£5.4 million), which has not been recognised in these financial statements.

16. Share capital

Authorised share capital

The Company's authorised share capital is unlimited.

Issued and fully paid

 

Number of shares

At 31 December 2014

117,627,056

Shares cancelled/issued during the year

-

At 31 December 2015

117,627,056

Shares cancelled/issued during the year

-

At 31 December 2016

117,627,056

The Company has one class of shares which carry no right to fixed income. All ordinary shares have nil par value.

17. Reserves

The movements in the reserves for the Group and the Company are shown above.

Special reserve

On 9 December 2005, the Royal Court of Guernsey confirmed the reduction of the Company's capital by way of cancellation of the amount standing to the credit of its share premium account on that date. The amount was transferred to the special reserve. The special reserve is a distributable reserve to be used for all purposes permitted under Guernsey company law, including the buyback of shares and payment of dividends.

Translation reserve

The translation reserve contains exchange differences arising on consolidation of the Group's overseas operations. These amounts may subsequently be reclassified to profit or loss.

Capital reserve

The capital reserve contains gains and losses on the disposal of investment properties, and increases and decreases in the fair value of the Group's investment properties and currency swap derivative financial instruments, together with expenses allocated to capital.

Revenue reserve

Any surplus arising from net profit after tax is taken to this reserve, which may be utilised for the buyback of shares and payment of dividends.

18. Events after the balance sheet date

Sales proceeds of the Zaragoza property in Spain for £0.3 million (€0.4 million) were used to repay borrowings in early January 2017.

19. Related party transactions

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. Alpha Real Capital LLP is the Investment Manager to the Company under the terms of the Investment Manager Agreement and is thus considered a related party of the Company.

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Following the disposal of the majority of the property portfolio, the Board has agreed, in line with the consensual sales programme established with Barclays Bank PLC, a monthly fee reflecting the need for the Investment Manager to maintain adequate resources to complete the disposal of the remaining properties and winding up of the Group. This fee is separately disclosed on the face of the statement of comprehensive income. The consensual sales programme requires 30% of fees earned by the Investment Manager to be deferred and only released when sales milestones have been achieved. The outstanding balance for Investment Manager's fees as at 31 December 2016 is £627,000 (31 December 2015: £640,000).

The Directors of the Company received fees for their services as detailed below.

Directors fees

2016

£'000

2015

£'000

Dick Kingston (Chairman)**

15

30

David Jeffreys

22

23

Phillip Rose**

10

20

David Rowlinson*

10

20

Serena Tremlett

20

20

Total

77

113

 

*David Rowlinson is a director of Antler Investment Holdings Limited ("Antler") and the managing director of Liberation Management Limited, which is a trustee of the Rockmount Purpose Trust that indirectly is a partner of Alpha Real Capital LLP. As such he is considered to be in a position in which he is able to exercise significant influence over the Investment Manager. David Rowlinson resigned as Director of the Company with effective date 3 June 2016.

** Resigned with effective date 3 June 2016

Serena Tremlett is also the Managing Director and a major shareholder of Morgan Sharpe Administration Limited, the Company's administrator and secretary. During the year the Company paid Morgan Sharpe Administration Limited fees of £81,000 (2015: £81,000). As from February 2017, Morgan Sharpe Administration Limited fees will be reduced to £45,000 per year.

During the year, in addition to the Directors' fees above, David Jeffreys and Serena Tremlett received £1,750 (2015: £2,000) and £3,750 (2015: £9,000) respectively for their position as Directors of Company's subsidiaries.

Directors' shareholdings in the Company are detailed in the Directors' and corporate governance report.

The following, being partners of the Investment Manager, hold or have an interest in the following shares in the Company at 31 December 2016:

 

2016

Number of shares held

2015

Number of shares held

Rockmount Ventures Limited and ARRCO Limited**

21,437,393

21,437,393

P. Rose***

1,290,079

1,290,079

B. Bauman

544,809

544,809

B. Frith

229,078

229,078

K. Devon-Lowe

108,650

24,650

**Rockmount Ventures Limited is the parent company of ARRCO Limited. The interest attributed to the two corporate partners represents 21,437,393 shares held by a related party, Antler. As such these companies are considered to be in a position in which they are able to exercise significant influence over the Investment Manager.

***Phillip Rose is the CEO and a partner of the Investment Manager.

During the year, Alpha Real Capital LLP, the Investment Manager of the Company, transferred its holding of 9,390,800 in the Company to its wholly owned subsidiary registered in Singapore, Alpha Global Property Securities Fund Pte. Ltd.

Paul Cable, being the Investment Manager's Fund Manager responsible for the Company's investments, holds 84,918 (2015: 84,918) shares in the Company.

20. Financial instruments risk exposure and management

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.

There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.

Principal financial instruments

The principal financial instruments used by the Group and Company, from which financial instrument risk arises, are as follows:

 

Financial assets and liabilities carrying value

 

Group

2016

£'000

Company

2016

£'000

Group

2015

£'000

Company

2015

£'000

Current financial assets

 

 

 

 

Trade and other receivables (excluding prepayments)

644

4

6,830

-

Restricted cash

3,897

-

10,054

-

Cash and cash equivalents

1,213

1

1,309

36

Total current financial assets

5,754

5

18,193

36

 

 

 

 

 

Current financial liabilities

 

 

 

 

Trade and other payables (excluding deferred income)

1,053

787

1,616

683

Bank borrowings

2,889

-

91,311

-

Liabilities directly associated with investment properties held for sale

257

-

694

-

Total current financial liabilities

4,199

787

93,621

683

 

 

 

 

 

Non-current financial liabilities

 

 

 

 

Bank borrowings

77,282

-

-

-

Total non-current financial liabilities

77,282

-

-

-

Total financial liabilities

81,481

787

93,621

683

Net changes in realised and unrealised gains or losses on financial instruments can be summarised as follows:

 

Group

2016

£'000

Company

2016

£'000

Group

2015

£'000

Company

2015

£'000

Net change in realised gains or losses on loans and receivables


 


 

Bank interest income

-

-

1

-

Impairment of trade and other receivables

-

-

(283)

-

Movement in impairment of amounts receivable from and investments in subsidiary undertakings

-

1,208

-

(2,209)

Total

-

1,208

(282)

(2,209)

 


 


 

Net change in unrealised gains and losses on financial assets and liabilities held at fair value though profit or loss


 


 

Interest rate swaps

-

-

880

-

Net gain on financial assets and liabilities held at fair value through profit or loss

-

-

880

-

 


 


 

Disclosed as:


 


 

Finance income (note 4)

-

-

880

-

Net gain on financial assets and liabilities held at fair value through profit or loss

-

-

880

-

 

 

Group

2016

£'000

Company

2016

£'000

Group

2015

£'000

Company

2015

£'000

Bank interest income

-

-

1

-

Interest on bank borrowings

(5,134)

-

(10,896)

-

Loan fee amortisation

(276)

-

(900)

-

Total interest (expense)/income

(5,410)

-

(11,795)

-

 

General objectives, policies and processes

The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's finance function.

The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility.  The above financial risk management policies apply equally to the Group and the Company. Further details regarding these policies are set out below.

Credit risk

Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date.

a) Group

The Group's credit risk principally arises from cash and cash equivalents as well as credit exposures with respect to tenants including other receivables. In the event of a default by an occupational tenant, the Group will suffer a rental shortfall and incur additional costs in maintaining, insuring and re-letting the property until it is re-let. General economic conditions may affect the financial stability of tenants and prospective tenants and/or demand for and value of real estate assets. A property advisor monitors the tenants in order to anticipate and minimise the impact of default by occupational tenants. Where possible, tenants' risk is mitigated through rental guarantees.

Fitness 4 All is the largest tenant within the portfolio representing 27.0% (2015: KDI for 39.5%) of the annual contracted rent as at 31 December 2016.  The Group meets with the tenants frequently and monitors their financial performance closely.

At 31 December 2016, trade and other receivables past due but not impaired amounted to £0.1 million (2015: £0.1 million).

The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group's maximum exposure to credit risk without taking into account the value of rent deposits obtained. Details of the Group's receivables are summarised in note 12 of the financial statements.

The Group policy is to maintain its cash and cash equivalent balances with a reasonable diversity of banks. The Board monitors the placement of cash balances on an ongoing basis and has policies to limit the amount of credit exposure to any financial institution. As at 31 December 2016, the Group had spread its cash across four financial institutions and had placed circa 76% in one bank, this mainly representing cash held on the cash pooling account (note 13).

b) Company

The Company's credit risk principally arises from cash and cash equivalents and amounts receivable from subsidiaries. The Company follows the same Group policy with regards to diversification of banking arrangements. Amounts receivable from subsidiaries are of mainly a long term nature and the loans are monitored on a regular basis.

An impairment of £175.1 million (2015: £146.9 million) has been made against amounts receivable from subsidiary undertakings to reflect the current mark to market impact of the investment properties valuations, loss realised on investment properties disposals, which have arisen within the Group's subsidiaries (note 10) and the fact that Barclays Bank PLC has first charge over all investment properties held for sale.


2016

Total

£'000

2015

Total

£'000

Impairment at 1 January

146,923

153,423

Movement

(1,208)

2,209

Effect of foreign exchange

29,432

(8,709)

Impairment at 31 December

175,147

146,923

The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Company's maximum exposure to credit risk. Details of the Company's loans and receivables are summarised in notes 10 and 12 of the financial statements.

Liquidity risk

Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group and Company have developed procedures with the object of minimising such losses such as maintaining sufficient cash and other highly liquid current assets and by having in place an adequate amount of committed credit facilities. Cash and cash equivalents are placed with financial institutions on a short term basis reflecting the Group's and Company's desire to maintain a level of liquidity in order to enable timely payments to creditors.

The cash balance held on the cash pooling account is subject to certain restrictions; accordingly this balance has not been classified as cash and cash equivalents for the purposes of the cash flow statement (note 13).

The cash pooling account is controlled by Barclays Bank PLC and a cash release mechanism is in place whereby cash is released by Barclays Bank PLC following review of the Group's working capital budget, which is updated quarterly. This allows the Group to settle its liabilities for working capital requirements in a timely manner.



 

a) Group

The following table illustrates the contractual maturity analysis of the Group's financial liabilities based, where relevant, on interest rates and exchange rates prevailing at the balance sheet date.

 

2016

Within 1 year

£'000

1-2 years

£'000

2-5 years

£'000

Over 5 years

£'000

Total
£'000

Carrying value
£'000

Trade and other payables (excluding deferred income)

1,053

-

-

-

1,053

1,053

Liabilities directly associated with investment properties held for sale

257

-

-

-

257

257

Bank borrowings

2,889

87,181

-

-

90,070

80,171

 

4,199

87,181

-

-

91,380

81,481

 

 

2015

Within 1 year

£'000

1-2 years

£'000

2-5 years

£'000

Over 5 years

£'000

Total
£'000

Carrying value
£'000

Trade and other payables (excluding deferred income)

1,616

-

-

-

1,616

1,616

Liabilities directly associated with investment properties held for sale

694

-

-

-

694

694

Bank borrowings

92,994

-

-

-

92,994

91,311

 

95,304

-

-

-

95,304

93,621

Given the current economic environment and the maturity of the Group's bank borrowings on 31 October 2018 the Board will continue to seek the support of its lender in an orderly realisation of its remaining five investment properties with a view to winding up the Group in due course. The financial statements are therefore not prepared on a going concern basis.

b) Company

The Company only has trade payables and other payables which are payable within one year.

Market risk

a) Foreign exchange risk

The Group operates in Europe and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to Euros. Foreign exchange risk arises from future commercial transactions, recognised monetary assets and liabilities and net investments in foreign operations.

The Group's policy is, where possible, to allow Group entities to settle liabilities denominated in their functional currency (primarily Euros or Sterling) with the cash generated from their own operations in that currency.

As the property portfolio is acquired and mortgaged in Euros the Board considers it appropriate from a risk perspective to review currency exposure on a net assets basis. For illustrative purposes, therefore, the effect of a strengthening of the Euro by 5 cents would increase Group net assets by £0.8 million (2015: increase by £1.3 million). A weakening of the Euro by 5 cents would decrease net assets by £0.7 million (2015: decrease by £1.3 million).

As the Company impairs its large intercompany loan book to reflect the underlying net asset value of its Group companies, the overall net asset sensitivity of the Company to foreign currency movements is the same as the Group's above.

b) Cash flow and fair value interest rate risk

The Group's principal interest rate risk arises from borrowings.

The Group's cash flow is regularly monitored by the Group's management.

For the Group, an increase of 100 basis points in interest rates would result in an increased post-tax loss of £0.3 million (2015: £0.3 million). A decrease in 100 basis points in interest rates would result in a reduced post-tax loss for the period of £0.3 million (2015: £0.3 million).

For the Company, in line with prior year, an increase or decrease of 100 basis points in interest rates would not result in a significant change of post-tax loss.

The sensitivity analyses above are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated - for example, change in interest rate and change in market values.

c) Capital risk management

The Group's objectives when managing capital had been to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

As stated in note 2, the Group is not a going concern and the Board will continue to seek the support of its lender in an orderly realisation of its remaining five investment properties in order to repay borrowings and with a view to winding up the Group in due course.

Consistent with others in the industry, the Board monitors capital on the basis of the gearing ratio in the currency in which properties and associated borrowings are held and takes action where appropriate.

The Company has no borrowings; all borrowings are by subsidiaries within the Group.

e) Fair values

 The following methods and assumptions are used to estimate fair values:

·      Cash and short-term deposits, trade receivables, trade payables and other current liabilities approximate their carrying amounts due to the short-term maturities of these instruments.

·      The fair value of floating rate borrowings is calculated by discounting future cash flows using rates currently available for debt of similar terms and remaining maturities. The carrying value does not approximate fair value.

·      The fair value of fixed rate borrowings is estimated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. The carrying value does not approximate fair value.

·      The fair value of the floating rate and fixed rate borrowings approximates £21.1 million (note 21).

21. Fair value measurement

IFRS 13 requires disclosure of the fair value measurement of the Group's assets and liabilities, the related valuation techniques, the valuations' recurrence and the inputs used to assess and develop those measurements.

The Group discloses fair value measurements by level of the following fair value measurement hierarchy:

·      Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

·      Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

·      Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The level in the fair value hierarchy within which the asset or liability is categorised is determined on the basis of the lowest input that is significant to the fair value measurement. Assets and liabilities are classified in their entirety into one of the three levels.

Investment properties held for sale are valued on a recurring basis: half yearly.

The Group's valuers derive the fair value by applying the methodology and valuation guidelines as set out by the Royal Institution of Chartered Surveyors in the United Kingdom in accordance with IAS 40. This approach is based on discounting the future net income receivable from properties to arrive at the net present value of that future income stream. Future net income comprises the rent secured under existing leases, less any known or expected non-recoverable costs and the current market rent attributable to vacant units.  The consideration basis for this calculation excludes the effects of any taxes on the net income. The discount factors used to calculate fair value are consistent with those used to value similar properties with comparable leases in each of the respective markets. A decrease in the net rental income or an increase in the discount rate will decrease the fair value of the investment property.

The Ivry property has been valued by the Directors at its selling price, this being the best approximation to its fair value at year end.

The following table shows an analysis of the fair values of assets and liabilities recognised in the balance sheet by level of the fair value hierarchy described above:

31 December 2016

Assets and liabilities measured at fair value

Level 1

Level 2

Level 3

Total

£'000

£'000

£'000

£'000

Assets measured at fair value





Investment properties

-

-

16,824

16,824






Liabilities for which fair values are disclosed





Current





Bank borrowings (note 20 e))

-

-

(2,889)

(2,889)

Non current





Bank borrowings (note 20 e))

-

-

(18,179)

(18,179)






Total

-

-

(4,244)

(4,244)

 

31 December 2015

Assets and liabilities measured at fair value

Level 1

Level 2

Level 3

Total

£'000

£'000

£'000

£'000

Assets measured at fair value





Investment properties

-

-

39,283

39,283






Liabilities for which fair values are disclosed





Current





Bank borrowings (note 20 e))

-

-

(54,937)

(54,937)






Total

-

-

(15,654)

(15,654)

 

The Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

There were no transfers between level 1 and level 2 fair value measurements.



 

Movements in level 3 of the fair value measurements, during the year ended 31 December 2016 can be summarised as follows:


2016

2015

£'000

£'000

At 1 January

39,283

212,180

Subsequent capital expenditure after acquisition

-

227

Disposals

(18,496)

(134,136)

Loss recognised in profit or loss

(1,395)

(6,128)

Rent incentives movement

(280)

(4,717)

Fair value adjustment

(7,268)

(13,459)

Effect of foreign exchange

4,980

(14,684)

At 31 December

16,824

39,283

 

The fair value of investment properties is based on unobservable inputs and it is therefore disclosed as level 3. The following methods, assumptions and inputs were used to estimate fair values of investment properties:

31 December 2016

Class of investment properties

Carrying amount / 

fair value

'000

Area

(square meters)

Valuation technique

Significant unobservable inputs

Range

 

Weighted average

Europe

£14,363

(€16,790)

23,920

Income capitalisation

Gross ERV per sqm p.a.

€36 / €150

€105.7

 




Net initial yield

(8.1)% / 0.1%

(3.0)%

 




Reversionary yield

12.2% / 14.8%

13.1%

 




Gross equivalent yield

10.0% / 11.5%

10.6%

 







Europe

£2,461

(€2,877)

7,420

Selling price

-

-

-

 

31 December 2015

Class of investment properties

Carrying amount / 

fair value

'000

Area

(square meters)

Valuation technique

Significant unobservable inputs

Range

 

Weighted average

Europe

£21,363

(€28,990)

33,930

Income capitalisation

Gross ERV per sqm p.a.

€21 / €150

€96.2

 




Net initial yield

(4.6)% / 0.2%

(2.5)%

 




Reversionary yield

9.9% / 12.8%

10.6%

 




Gross equivalent yield

9.0% / 11.5%

9.4%

 







Europe

£17,920

(€24,317)

59,730

Selling price

-

-

-

The Directors assessed at the balance sheet date whether the Group's investment properties are being exploited according to their highest and best use and they are satisfied that this is the case.

Property risk

The majority of properties have been valued by an independent third party (see note 11) and the fair value has been arrived at on the basis of a sale between a willing buyer and willing seller. Should the Group be required to dispose of its investment properties not as a willing seller the sale proceeds could vary.

One investment property is valued based upon the agreed selling price.

Liabilities for which fair value is disclosed

The fair value of the Group's borrowings has been determined by reference to what will be realised in an orderly wind up of the Group and hence the amount that will be repaid.

Company

The Company did not have any financial assets or financial liabilities at fair value through profit or loss.




 


Directors and Trust information

 

Directors

Serena Tremlett (Chairman)
David Jeffreys

 

Administrator and secretary

Morgan Sharpe

Administration Limited

Old Bank Chambers

La Grande Rue

St Martin's

Guernsey GY4 6RT

Legal advisors in Guernsey

Carey Olsen
PO Box 98

Carey House
Les Banques
St Peter Port
Guernsey GY1 4BZ

Registered office

Old Bank Chambers

La Grande Rue

St Martin's

Guernsey GY4 6RT

Independent valuers

Knight Frank LLP
55 Baker Street
London W1U 8AN

Legal advisors in the UK

Norton Rose

3 More London Riverside

London SE1 2AQ

Investment Manager

Alpha Real Capital LLP
Level 6, 338 Euston Road

London NW1 3BG

 

Independent auditor

BDO Limited
Place du Pré
Rue du Pré
St Peter Port
Guernsey GY1 3LL

Registrar

Computershare Investor Services (Jersey) Limited

Queensway House
Hilgrove Street
St Helier
Jersey JE1 1ES

 

Tax advisors

BDO LLP
55 Baker Street
London W1U 7EU

Deloitte LLP
Hill House
1 Little New Street
London EC4A 3TR



Shareholder information

Share price

The Company's Ordinary Shares are listed on the London Stock Exchange.

Change of address

Communications with shareholders are mailed to the addresses held on the share register. In the event of a change of address or other amendment, please notify the Company's Registrar under the signature of the registered holder.

Investment Manager

The Company is advised by Alpha Real Capital LLP which is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

 

 

Financial Calendar

Financial reporting

Reporting/Meeting dates

Annual results announcement

10 March 2017

Annual report published

31 March 2017

Annual General Meeting

28 April 2017

First trading update statement (Qtr 1)

2 June 2017

Half year report

18 August 2017

Second trading update statement (Qtr 3)

10 November 2017

 

 

 

 

 


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