Annual Report • Apr 27, 2016
Annual Report
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Financial statements
2015 was another poor year for Storm Real Estate, and the past two years have been very challenging. The oil price has continued to fall in the last year. This weakened the economy in Russia and led to a fall in the value of our buildings. Storm Real Estate recorded a decrease in value of 19.0 million on real estate in Russia in 2015. Total comprehensive income for the year was -16.8 million in 2015 compared with -34.2 million in 2014. Operating profit from the properties in Russia fell from 10.3 million to 8.7 million.
In 2015 the Group disposed of a building in St Petersburg. The estimated annualized return for the Group during the ownership period was 8.3%.
Investment in TK Development produced an unrealized reduction in value of 0.1 million. Management of liquid assets via the portfolio of funds and bonds resulted in a loss of 0.2 million.
| Numbers in USD million | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 |
|---|---|---|---|---|---|---|---|
| Rental income | 9,8 | 10,8 | 11,8 | 12,6 | 12,9 | 12,7 | 10,4 |
| Net operating income from properties | 7,5 | 8,0 | 8,7 | 9,6 | 10,1 | 10,3 | 8,7 |
| Net operating income % | 77% | 77% | 74% | 76% | 78% | 82% | 84% |
| Value of investment property | 82,2 | 85,9 | 99,3 | 102,7 | 103,1 | 70,3 | 39,0 |
The graph above shows the correlation between the valuation of investment property, the oil price and the Russian Ruble.
| Numbers in USD million | 2011 | 2012 | 2013 | 2014 | 2015 |
|---|---|---|---|---|---|
| Total Comprehensive Income | 9,6 | 7,0 | 3,1 | -34,2 | -16,8 |
| Equity, opening balance | 79,3 | 78,7 | 80,7 | 78,4 | 38,8 |
| Return on equity | 12.1% | 8.9% | 3.9% | -43.6% | -43.3% |
| Numbers in NOK | 2011 | 2012 | 2013 | 2014 | 2015 |
|---|---|---|---|---|---|
| Share price 01.01 | 12,70 | 13,05 | 15,10 | 17,40 | 12,50 |
| Dividends | 1,50 | 1,50 | 1,00 | 1,60 | 0,00 |
| Share price 31.12 | 13,05 | 15,10 | 17,40 | 12,50 | 10,55 |
| Dividend adjusted return | 14.6% | 27.2% | 21.9% | -19.0% | -15.6% |
| Return on equity (1) |
Total Shareholder Return (2) |
Equity per share in NOK (3) |
|
|---|---|---|---|
| Last 1 year | -43.3% | -15.6% | -32.8% |
| Last 3 years (annualized) | -25.9% | -5.1% | -19.6% |
| Last 5 years (annualized) | -9.6% | +6.5% | -7.5% |
(1) Return on equity measured as the total comprehensive income for the period / equity as at beginning of the period.
(2) Total Shareholder Return = IRR share price, dividend-adjusted. The share was listed on the Oslo Stock Exchange in June 2010.
(3) Equity per share in NOK = IRR NAV per share, dividend-adjusted.
Storm Real Estate ASA is an investment company focusing on real estate. Its strategy comprises the direct ownership and management of commercial property in Russia and the EEA, as well as indirect ownership by taking positions in other companies through the purchase of shares or corporate bonds.
Storm Real Estate ASA was established in 2007.
In 2015 the Company disposed of Grifon House in St. Petersburg. The remaining property is the Gasfield building in Moscow with a total lettable area of approximately. 11,500 square meters. Both buildings have been let to solid companies within the oil, gas and pharmaceutical industries.
The Gasfield property is a class B building located in the area between the Third Ring Road and the Moscow Automobile Ring Road (MKAD), close to the Gazprom headquarters. The building comprises offices, a restaurant, fitness center and parking spaces. It has a gross area of 15,000 square meters and a net lettable area of 11,500 square meters. There are 20 different tenants, one of which (LLC Gazprom Tsentrremont) accounts for approximately 78% of the total leased area.
In addition the Company owns 11.1% of the Danish listed property company TK Development A/S.
Since November 2008 Storm Capital Management Ltd. has managed the Company under an asset management agreement.
A team established locally in Moscow and St. Petersburg manages the operational side of the property portfolio. Their work includes sourcing new tenants, credit control, property management, accounting and other administrative functions in Russia. The team ensures that the buildings are run efficiently and effectively, maintaining a high standard of customer service for the tenants.
The Board currently consists of five members, four of whom are independent.
Rental income Net Operating Income from properties
During the course of 2015 our property values were written down by USD 19 million. For the second consecutive year the negative result was characterized by challenges in the Russian economy.
Political disagreements with the west have continued and sanctions remain in force. At the same time the oil price continued to fall throughout the year which weakened the economy and contributed to the fall in the value of our buildings. Vacancy has continued to rise and it is a tenant's market.
Almost all leases are now denominated in Rubles and the currency is at historically low exchange rates. At the same time our bank debt is in USD. Our property values fell by 53% over the last two years from a peak of USD 103 million.
It is important to note that we have not been in breach of our loan covenants and that the bank loan has favorable terms given the current market.
In purely operative terms we have had a good year. Our buildings have been fully let to good tenants who pay on time. This has generated operating income of USD 10.4 million with net operating income of USD 8.7 for the period.
Factors which could contribute to a better situation are higher energy and raw materials prices as well as improvements in the political relationship between Russia and the West, which will then have a positive effect on the Russian economy.
We remain the biggest investor in TK Development A/S, a Danish property developer. The company has been engaged in a restructuring process since we took our place on the board. The change in value for the period was USD -0.1 million. TK Development reported impairments in December 2015. We believe that our investment in the company now constitutes a lower risk than before and represents a significant upside. The share is trading at a high discount on underlying values.
Liquidity management also gave a negative result for the last year of USD 0.2. This was due to exposure to energy. However this exposure is primarily placed in real estate.
We cannot affect political and macroeconomic conditions, but we will work hard to ensure that Storm Real Estate ASA will be a good investment in the future.
Storm Real Estate invests in real estate and real estaterelated securities in Russia and the EEA. Below is an update for the year 2015 of the markets that are relevant for the Group.
2015 was another very challenging year for investments in Russia.
Throughout 2015 we have experienced a sharp fall in the price of oil, a fall that started in autumn 2014. As a result of this, the Russian rouble has depreciated significantly. Over an 18 month period from summer 2014 to the end of 2015, the US dollar has become more than twice as expensive measured in terms of Russian roubles. Coinciding with international sanctions against Russia as a result of involvement in the Ukraine, this has meant significant challenges for the Russian economy which is now in recession. Estimates of negative growth in gross domestic product for the year that has passed is between -3.5% and -3.8%. Market commentators have estimates for 2016 from negative growth of -0.9% to positive growth of +0.7%.
The real estate market is also badly affected. Rents denominated in US dollars have become considerably more expensive for local tenants. As a result, there has been a significant "de-dollarisation" of the real estate market, in that fewer lease contracts are entered into in US dollars, and most lease contracts are entered into in local currency. Meanwhile, the sanctions have hit Russia's financial sector hard, which has meant challenges associated with e.g. obtaining financing for real estate.
Inflation in the country is high at 12.9% and the central bank's key interest rate stands at 11%.
The investment volume in Russia has naturally fallen considerably in the context of the political and economic challenges in the country. As a comparison, in both 2012 and 2013 over USD 8 billion was invested in commercial real estate in Russia, whilst in 2015 only USD 2.8 billion was invested.
There is a significant reduction in investment from abroad. Of the investments in 2015 approx. 70% (1.960 million dollars) of the investments were from domestic investors and 30% (840 million dollars) from foreign investors.
In essence, it is European and American investors behind the foreign investments.
The rental levels fell further in 2015, and there is strong correlation between oil prices, the foreign exchange market and the real estate market.
The vacancy rate has now risen for two consecutive years. In class B-buildings, the vacancy rate is approx. 14.4%. For class A-buildings, the vacancy rate is approx. 32%.
The investment volume for real estate in Central and Eastern Europe (CEE), where Storm Real Estate has exposure, reached the highest level in seven years with EUR 9 billion. Poland and the Czech Republic, which are countries where Storm Real Estate has indirect exposure, accounted for 76 percent of the investment volume in the region.
Storm Real Estate ASA owns approx. 11% of the shares in the Danish listed company, TK Development A/S. In December 2015, TK Development announced a more focused strategy on real estate development in Denmark, Sweden and Poland. These markets are described in brief below.
Sweden's economy showed a strong upward trend towards the end of 2015. Growth in gross domestic product reached approx. 4.1% for 2015. Sweden has zero interest rate which is helping to drive economic growth. The real estate market in Stockholm is strong. The vacancy rate is at a record low of 7.1% and rental prices are at the highest recorded levels. Yield is down during 2015 and is now at 3.75% in central Stockholm.
Denmark experienced modest positive growth in 2015 of 0.2% from the previous year. Unemployment and public debt are low, and with interest rates at close to zero (0.2%) there are positive expectations for future growth. Demand in the premium segment has increased in line with a trend to move from more peripheral locations to more central. The vacancy rate in Copenhagen overall is now at 10.2% and yield is down slightly and is now at 4.25% in central Copenhagen.
Growth in gross domestic product in Poland is estimated at about 3.5% in 2015 and forecasts show the same for 2016. This is driven by strong domestic demand on the basis of lower unemployment and higher wage growth. Poland also represents the largest market in Central and Eastern Europe (the CEE region), and accounted for 46% of the entire region's investment volume in 2015. At year end yield on office properties was at 5.75%, compared with 6.0% the year before.
Storm Real Estate ASA seeks to maintain an open and inclusive shareholder information policy. Providing timely information on any matters that may affect the company's share price should help the share price better reflect the Company's underlying value.
Storm Real Estate ASA was listed on the Oslo Stock Exchange on 6 July 2010. Ticker: STORM. The shares are registered in the Norwegian Central Securities Depository, registration number (ISIN) NO0010360175. The registrar for the share is Nordea.
At 31 December 2015 Storm Real Estate ASA had 18,345,623 issued shares.
Each share has a nominal value of NOK 0.40. The Company had 721,799 treasury shares at the start of the year, but no treasury shares as at 31 December 2014 or 31 December 2015.
At 31 December 2015 Storm Real Estate ASA had 429 shareholders. At 31 December 2015 the 20 largest shareholders held 66.1% of the shares. The Company's Board Members controlled 43.9% of the shares in the Company at the end of 2015. Morten E. Astrup is the largest shareholder in Storm Real Estate through his ownership of and control over related companies and investment funds.
| 31.12.2015 | 31.12.2014 | |||||
|---|---|---|---|---|---|---|
| Shares | % | % | ||||
| Norwegian | 9,488,779 | 51.7% | 9,975,736 | 54.4% | ||
| Foreign | 8,856,844 | 48.3% | 8,369,887 | 45.6% | ||
| Total | 18,345,623 | 100.0% | 18,345,623 | 100.0% |
Table: domestic and foreign shareholders
There is only one share class, and each share entitles the holder to one vote. Storm Real Estate ASA is committed to the principle of equal treatment of all shareholders. All shareholders have the opportunity to obtain effective redress for infringement of their rights. The Company's Articles of Association contain no provisions on voting rights differentiation, no restrictions on the number of votes that can be cast, and no other restrictions on shareholder rights.
There have been no material transactions between Storm Real Estate ASA and shareholders, members of the Board of Directors, members of management or close relatives of any such parties, other than those disclosed in the financial statements.
The annual general meeting is the Company's supreme authority. It is normally held in May. The Board determines the agenda for the annual general meeting and works to ensure that it becomes a forum for the shareholders. Notice of the meeting is usually sent out no later than 21 days in advance and will also be available on the Company's website and through the Oslo Stock Exchange notification service. Shareholders who would like to receive such information by email can register with the company's Investor Relations contact. Shareholders who are unable to attend may vote by proxy. The Company has prepared proxy forms which enable shareholders to vote on individual issues.
Management works continuously to ensure an open and active dialogue with investors and other participants in the financial market. There are quarterly presentations in Oslo for shareholders, brokers and analysts. Updated information can be found on the Company's website: www.stormrealestate.no. The Investor Relations contact at Storm Real Estate ASA is Einar Pedersen ([email protected]).
The annual general meeting on 13 May 2014 authorized the Board to purchase shares in the Company for up to 10% of the share capital. The authorization is valid until 13 May 2016. The authorization has not been used.
On 13 May 2014 the annual general meeting authorized the Board to pay an additional dividend on the basis of the Company's financial statements for 2014. The total additional dividend may not exceed NOK 1.50 per share. The authorization remains in force until the 2016 annual general meeting. The authorization has not been used.
Good corporate governance is key to aligning the interests of shareholders, management, employees and other stakeholders. Storm Real Estate is committed to achieving high standards of corporate governance and long-term shareholder value creation.
The Norwegian Code of Practice for Corporate Governance is intended to support listed companies by clarifying the division of roles between shareholders, the Board of Directors and management more comprehensively than is required by the current legislation. Storm Real Estate operates in accordance with the Norwegian Code of Practice for Corporate Governance. The Code is a collection of "comply or explain" guidelines, and Storm Real Estate's governance structure is in accordance with the guidelines. The following sections detail the key aspects of Storm Real Estate's corporate governance policy.
The scope of business is trading and investing in real estate and securities relating to this, inter alia by participating in other companies involved in similar business activities through equity, loans or providing guarantees, as defined in the Company's Articles of Association. Storm Real Estate ASA is listed on the Oslo Stock Exchange. Ticker: STORM.
The Company aims to maintain a sound financial structure, reflecting the nature of its business. As at 31 December 2015 equity was USD 22.0 million and the equity ratio was 37.8%. This follows two years of very negative developments particularly in Russia, but the equity ratio is deemed sufficient in light of the risk and the size of the business. Considerations on the Company's capital structure are based on the Group's targets, market outlook, strategies and risk profile.
Storm Real Estate has a long-term objective to pay annual dividends. When considering dividends, the Board emphasizes the company's dividend capacity, the requirements for a sound level of equity and sufficient financial resources for future growth. The Board considers buy-backs of shares to supplement dividends as a way of returning value to the shareholders.
Storm Real Estate's objective is that all shareholders are treated equally. The Company has one class of shares, and all shares have equal voting and dividend rights. All of Storm Real Estate's shareholders have equal rights in the event of share capital increases.
The Board and management shall treat all shareholders equally with regard to price-relevant information. Storm Real Estate is listed on the Oslo Stock Exchange and is thus obliged to comply with the disclosure requirements in Norwegian securities legislation. The company discloses all price relevant information to the market through Oslo Stock Exchange's news site www.newsweb.no and on Storm Real Estate's website www.stormrealestate.no.
Related-party transactions shall be carried out according to the arm's length principle and always in compliance with the Norwegian Public Limited Liability Companies Act.
The shares of Storm Real Estate are freely negotiable.
The annual general meeting is open to all shareholders and all shares have equal voting rights. There are no ownership restrictions. The notice of the annual general meeting shall be sent out to the shareholders no later than 21 days prior to the date of the meeting. Notice of an extraordinary general meeting shall be sent to shareholders no later than two weeks before the date of the extraordinary general meeting. The provision requiring companies to send such documents by post does not apply if the documents concerning matters to be dealt with at the general meeting have been made available on the Company's website. A shareholder may still ask to receive documents concerning matters to be dealt with at the general meeting by post. All shareholders can participate in person or by proxy.
The nomination committee submits its recommendations on the composition of the Board and remuneration of board members to the annual general meeting. The board members are directly elected by the annual general meeting. The nomination committee is elected for a period of two years and consists of Per Lorange, Christopher W. Ihlen and Erik M. Mathiesen. The next election will be held at the annual general meeting in 2016.
Storm Real Estate's Board of Directors consists of five members. The Company seeks a balanced composition of the Board, taking into account the expertise, experience and background relevant to the Company's operations. The majority of the members of the Board of Directors are independent members. Morten E. Astrup is the largest shareholder.
A presentation of the members of the Board of Directors follows below:
Mr Aukner is currently on the board of several Norwegian companies, including CentraGruppen, Agra Holding and Bama Gruppen. He has previously held senior management positions at a number of Norwegian companies. Mr Aukner has an MBA from Copenhagen Business School and is also an Authorised Financial Analyst – the Norwegian equivalent of AFA. He is a Norwegian citizen and resides in Oslo, Norway. Mr Aukner is an independent member of the Board of Directors.
Chairperson (born 1975) Mr Astrup is a partner and CIO of Storm Capital Management Ltd., and has 20 years of asset management experience. He is a specialist within alternative investments, private equity and real estate. He has held board positions in several international companies and been an advisor to both private and institutional investors in Europe. Mr Astrup holds a master's degree in Business and Economics from BI Norwegian Business School/City University London. He is a Norwegian citizen and resides in London.
Kim Mikkelsen is an investor and member of the board of several financial and internet companies. He invests in small and medium-sized enterprises via his companies Strategic Capital, Strategic Investments and Strategic Venture Capital. Through Strategic Capital he was a majority shareholder and CIO of Nordic Asset Management, a Danish management company that he started in 2003 and that grew to manage funds of GBP 400 million before being acquired in 2009 by PFA Pension, Denmark's secondlargest pension fund. Mr Mikkelsen has held several management positions in investment banks in London and Copenhagen. He is a Danish citizen and is an independent member of the Board of Directors.
board member (born 1972) Ms Nergaard is currently chairperson of the board of OPAK AS, in addition to her work as a director of Storm Real Estate ASA Between 1998 and 2005 she was employed as a financial analyst at Handelsbanken Capital Markets, Oslo. Ms Nergaard has a law degree from Oslo University, where she studied between 1992 and 1998. She is a Norwegian citizen and resides in Snarøya, Norway. Ms Nergaard is an independent member of the Board of Directors.
Augustsson is the chairperson of Noreco, a listed company in the oil sector. She is the longest-sitting Board member in Panoro, a listed company in the oil sector. She is also the leader of the audit committee of both Noreco and Panoro. Augustsson has broad experience and a large network within capital markets, including the raising of capital. She is a Board member of Storm Nordic Fund, Storm Bond Fund, Surfside Holding AS and Mikrofinans Norge AS. She received the DEUG in Economics from Toulouse University (1996) and a Master in European Management/Diplome de Grande Ecole from ESCP-EAP (1999).
Mr Ihlen is the general manager of Kevlar AS and currently sits on the board of 22 Norwegian companies, including Forenede Industrier Eiendom AS and Vika Eiendomsforvaltning AS. Investment in and management of commercial real estate is the main activity of most of the companies in which he is involved. He has experience in brokerage and management of real estate dating back to 1997, and has worked for Neas and been a partner in NAI First Partners. Mr Ihlen has a law degree from Oslo University, where he studied between 1991 and 1997. He is a Norwegian citizen and resides in Oslo, Norway. Mr Ihlen is an independent deputy board member.
Storm Real Estate attaches importance to independence and neutrality in all relations between the Board, management and owners in general. The principles of independence, neutrality and standard business practice also apply in dealings with other stakeholder groups such as customers, suppliers, banks and other business connections.
The relationship between the Board of Directors, the Company and the operational management is regulated by the management agreement in force between Storm Real Estate and Storm Capital Management Ltd. This agreement was first entered into in 2008 with a term of 5 years plus a period of notice of one year. In November 2011 the annual general meeting granted the Board the authority to make changes to the management agreement, including the term of the agreement. In 2013 the agreement was extended so that there is now a rolling notice period of 12 months with a discontinuation supplement equivalent to 12 month's fees.
In December 2015 the Company received notice of the termination of the agreement from Storm Capital Management. The agreement terminates on 21 December 2016. The Board is working to establish a solution for the future management of the Company.
The Board of Directors has established two committees: the audit committee and the remuneration and governance committee. Both committees prepare matters for the Board of Directors.
The audit committee acts as a preparatory body in connection with the Board's supervisory role with respect to financial control and external audit, and supports the Board in the administration and exercise of the Board's responsibility for supervisory oversight in accordance with:
The audit committee consists of Kim Mikkelsen and Stein Aukner. The CFO also attends the meetings of the committee. The committee was established at the time of the stock exchange listing in July 2010 and held five meetings in 2015.
The remuneration and governance committee submits proposals on management remuneration to the Board of Directors and reviews the corporate governance policies and procedures, including insider information guidelines. The committee consists of two members, Nini Høegh Nergaard (Chairperson) and Christopher W. Ihlen. The committee met once in 2015.
The Board had 8 meetings in 2015.
The Board ensures that the Company has good internal control procedures and appropriate systems for risk management adapted to the Company's operations. The Company has drawn up an authority matrix which is included in the steering documents. The CFO is responsible for financial reporting, including responsibility for the fields of accounting, taxation, duties and financial reporting. Control measures have been established in connection with the presentation of quarterly and annual financial statements. The audit committee undertakes a preparatory review of the quarterly and annual financial statements.
The remuneration of the Board of Directors is determined annually by the Ordinary General Meeting. At the company's ordinary general meeting in 2015, the remuneration for the year since the previous ordinary general meeting was set at NOK 250,000 for the Chairperson and NOK 125,000 for Board members. Morten E. Astrup, partner at Storm Capital Management Ltd, does not receive a fee for his duties as a board member. In addition, NOK 40,000 was set for fees for members of the Audit committee.
Storm Capital Management Ltd. receives a management fee of two percent of the Company's equity per year as remuneration for managing Storm Real Estate. This amount includes management salaries, travel expenses and offices outside Russia. Transactions with Storm Capital Management are described in more detail in the notes to the financial statements. There is no performance-related fee.
The Board is committed to reporting financial results and other relevant information openly and in accordance with the requirement for equal treatment of all shareholders and participants in the securities market. It is the Company's aim to ensure that the market is in possession of correct, clear and timely information about the Company's operations at all times. This is essential for the efficient pricing of the share and for the market's confidence in the Company. The Company also aims to ensure that its operations are monitored by securities analysts. The Company maintains an open investor relations policy. All information made public will be published in both Norwegian and English, in order to make information available to both domestic and international investors.
There are no barriers to takeovers in Storm Real Estate's Articles of Association.
The Group's auditor is Ernst & Young AS. The auditor participates in the board meeting at which the financial statements are approved. The auditor also participates in relevant meetings of the audit committee at least once a year. The auditor meets with the board once a year without management being present. The auditor's fees are reported each year to the annual general meeting.
Storm Real Estate ASA is an investment company focusing on real estate through both the direct ownership of buildings and taking positions in other listed property companies.
2015 was a very poor year for Storm Real Estate. As for the previous year, the Board notes that political turbulence and macroeconomic developments in Russia, with a large fall in the oil price and strong currency fluctuations have had significantly negative effects on the Company's value. The total fair value of our properties in Russia fell by over 50% during the last two years.
High vacancy and falling office rental rates is worrying, as is the fact that almost all lease contracts are now entered into in local currency which introduces us to currency risk. The Group's properties have been fully let and the business has provided a good cash flow in the last year.
Gazprom Tsentrremont remains the main tenant of the Gasfield building. The agreement is a rolling 11 month agreement with automatic renewal. The agreement now runs with an underlying exposure to Russian roubles. The next period expires in January 2017. All lease contracts are now predominantly short-term.
Grifon House in St Petersburg was sold in December. During our ownership term the project has provided acceptable returns, but the sale still gave a negative result in accounting terms due to a previous value increases. The background for the sale was to reduce our combined exposure to Russia in line with what has been previously communicated.
Storm Real Estate is the largest single shareholder in the Danish listed company TK Development A/S and as at 31 December 2015 has a holding equivalent to 11.07% of the shares. The Board considers the holding to be a long-term strategic investment. Storm Real Estate is represented on the Board of TK Development.
The Company has maintained its management strategy for free liquidity. Liquid assets are primarily placed in high interest bonds. These investments have a risk profile in line with the Company's required rate of return.
Since November 2008 Storm Capital Management Ltd. has managed the Company pursuant to an asset management agreement. In December 2015 the Company received notice of the termination of the management agreement from Storm Capital Management. The notice period is 12 months; the agreement therefore terminates in December 2016. The Board is currently in the process of evaluating the appropriate future organization of the Company's management.
The consolidated statements are prepared according to International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). The accounting policies have been consistently applied in all Group entities in all periods. All figures stated in the report are in USD unless specified otherwise.
The Board is not satisfied with the Company's results for 2015. However, the core business has a good cash flow and that operating income from the Russian properties is good. Nevertheless, there is increased uncertainty related to future rental income.
Total comprehensive income for the year was USD -16.8 million in 2015 (2014: USD -34.2 million). A large part of the result was caused by value adjustments of properties in Russia of USD -19.0 million. Net operating income from investment properties in Russia was USD 8.7 million, a reduction from USD 10.3 million in 2014.
A negative result was recorded from the investment in TK Development of USD -0.1 million (2014: USD +3.2 million). In the same period the Company recorded a foreign exchange loss on Danish Kroner of approximately USD 1.5 million (2014: USD -2.1 million).
Investment in funds and other investments gave a loss of USD 0.2 million. By way of comparison the return on liquidity management was USD +2.4 million in 2013 and USD -0.6 million in 2014.
Borrowing costs, including interest linked to interest rate swaps, were USD 3.2 million in 2015 (2014: USD 3.0 million). In addition, a fall in the value of interest rate hedging derivatives of USD 0.1 million has been included for 2015 connected with a declining interest rate curve (2014: USD -0.9 million).
A negative tax expense (tax income) has been recognized, primarily resulting from a reduction in the value of the investment property in Russia. Calculated taxes for the period are USD -2.3 million (2014: USD -4.7 million).
The value of properties totaled USD 39.0 million (2014: USD 70.3 million).
The value of the investment in TK Development A/S represents USD 12.6 million (2014: USD 14.1 million). The value of the investment in funds and liquid placements totaled USD 4.6 million (2014: USD 8.3 million). Bank deposits totaled USD 1.7 million (2014: USD 3.9 million).
The Group has financed the properties in Russia via a bank loan totaling USD 24.7 million (2014: USD 42.4 million).
The Group has recognised a liability of NOK 1.4 million linked to hedging derivatives (interest-rate hedging and foreign currency hedging) (2014: USD 1.9 million).
The Company has classified the loan as short-term according to the auditor's interpretation of the accounting standard IAS 1.69 and 1.74-75. This is despite the fact that the Company is in professional disagreement about the auditor's interpretation of the aforementioned IFRS standards. The Company believes that the criteria for classifying the liability as short-term are not met, and that this can give a misleading picture of the Company's financial position. A classification as though the debt has fallen due for repayment, and as if it is to be repaid within 12 months is not in line with the commercial reality. The Company believes the auditor's interpretation of the aforementioned accounting standard is too strict.
The Company was not in breach of the commercial loan agreement as at 31/12/2015, the loan had not fallen due for repayment and does not fall due within 12 months.
The Group had a cash flow before changes in working capital of USD 7.1 million (2014: USD 9.3 million). Financing activities resulted in a net inward cash flow of USD 15.0 million (2014: USD 4.4 million), primarily linked to the sale of subsidiaries.
Financing activities resulted in a net outward cash flow of USD 21.7 million (2014: USD 11.0 million), all of which is linked to debt financing in the form of interest and repayments (2014: USD 5.6 million). In 2015 the Company repaid a bank loan of USD 10.0 million in connection with the sale of a subsidiary.
The Group recorded a net reduction in cash and liquid assets of USD 2.4 million (2014: USD -4.5 million).
Profit for the year for the Parent Company is USD 1.9 million compared with USD -29.7 million in 2014. The Parent Company's income essentially comes from interest income on loans to other companies in the Group. This income totaled USD 4.3 million in 2015 (2014: USD 10.2 million).
In 2015 the Company merged with its Cypriot subsidiary Tiberton Yard Ltd, with the parent company as the surviving entity. The Company has therefore taken over the subsidiary's assets and liabilities.
The Gasfield building in Moscow is almost fully let. The relationship with tenants is considered to be good. However, there is increased uncertainty and risk related to future rental income from the property in Russia.
In recent years the Board has worked to create a better balance between exposure in Russia and investments in other markets. As part of this strategy, as well as the short-term financing due for repayment in the summer of 2016, the business in St Petersburg was disposed of in 2015.
The Group's operations are considered to be associated with somewhat higher risk than traditional real estate companies. In the light of this, the Board has set a target of a return on equity of 10% per year over time. This target has not been achieved in recent years. For the sake of good order the Board wishes to point out that this is a long-term target.
Certain risk factors may adversely affect Storm Real Estate, including financial risk, risk related to the operations of the company and market risk. If one or more of these risks or uncertainties should be realized, the Company's business, operating profit and financial strength could be materially and adversely affected. In addition, the Company is exposed to interest rate, credit, liquidity and currency risk. The group's risks are fully described in note 4 Financial risk management to the Group's financial statements.
The company attempts to mitigate the impact of interest rate risk by establishing/entering into fixed interest rate agreements or employing hedges where deemed beneficial or warranted as a condition for securing financing. Currency risk is mitigated by continuously reviewing the exposure to currencies other than USD. Foreign currency hedging is normally carried out concurrent with exposure to other currencies.
The parent company has no personnel and the subsidiaries have five employees in Russia, of which three are women. There have been no work-related accidents in 2015. There is no material negative environmental impact related to the Company's operations. The Group recorded nil days of sickness absence in 2015.
In accordance with the reporting requirements in section 3-3 of the Norwegian Accounting Act the Group presents a report on its work related to social responsibility.
Storm Real Estate has operations in Russia, where corruption is a greater challenge than in Norway. The Company is aware of this and has introduced procedures and routines to its daily operations to reduce the risk of corruption. The Company is conscious of its role in society related to combating corruption and operates with a high level of transparency and openness, and subsidiaries have clear instructions for transparency; in particular with regard to Group management and our auditors. The Board is not aware of any cases of corruption related to the Group's operations, and will continue to focus closely on this in the future.
The Company also focuses on employee rights and social conditions, and the Board is not aware of any challenges related to employee rights or social conditions in the workplace. The Company has no specific guidelines related to human rights.
Pursuant to section 3-3a of the Norwegian Accounting Act, the Board confirms that the annual report for 2015 has been prepared based on the assumption of a going concern.
The Board recommends the following distribution of the parent company's net profit for the year:
Oslo, 16 March 2016 The Board of Directors and General Manager of Storm Real Estate ASA
Stein Aukner Chairperson
Morten E. Astrup Board member
Nini E.H. Nergaard Board member
Silje Augustsson Board member
Kim Mikkelsen Board member
Erik M. Mathiesen General manager
Storm Real Estate group
| All numbers in 000 USD | Note | 2015 | 2014 |
|---|---|---|---|
| Rental income | 6 | 10,365 | 12,675 |
| Total income | 10,365 | 12,675 | |
| Property related expenses | 6 | -1,710 | -2,335 |
| Personnel expenses | 16 | -451 | -656 |
| Other operating expenses | 15 | -1,385 | -2,291 |
| Total operating expenses | 3,546 | 5,281 | |
| Operating profit before fair value adjustments | 6,819 | 7,394 | |
| Gain/loss from fair value adjustments on investment property | 6 | -7,461 | 17,208 |
| Total operating profit | -643 | 24,602 | |
| Finance revenues | 14 | 264 | 2,917 |
| Finance expenses | 14 | -3,841 | -4,245 |
| Disposal of subsidiary | 24 | -1,810 | 0 |
| Currency exchange gains (losses) | 14 | -1,102 | -2,358 |
| Net financial gains (losses) | -6,490 | -3,687 | |
| Earnings before tax | -7,133 | 20,915 | |
| Income tax expense | 18 | -2,339 | 4,681 |
| Profit for the period | -4,794 | 16,234 | |
| Other comprehensive income: OCI to be reclassified to profit or loss in subsequent periods: |
|||
| Translation differences from foreign operations | -11,993 | -50,478 | |
| Other comprehensive income, net of tax | -11,993 | -50,478 | |
| Total Comprehensive income for the period | -16,787 | -34,244 | |
| Average number of shares | 18,345,623 | 18,355,116 | |
| Ordinary and diluted earnings per share (USD) | 20 | -0.26 | 0.88 |
| Total Comprehensive Income per share (USD) | 20 | -0.92 | -1.87 |
per 31 December
Storm Real Estate group
| All numbers in 000 USD | Note | 31.12.2015 | 31.12.2014 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Investment property | 6 | 38,950 | 70,343 |
| Financial investments | 10 | 12,641 | 14,192 |
| Property, Plant and Equipment (PP&E) | 8 | 20 | 33 |
| Total non-current assets | 51,611 | 84,568 | |
| Current assets | |||
| Financial investments | 10 | 4,651 | 8,299 |
| Other receivables | 13 | 387 | 510 |
| Cash and cash equivalents | 11 | 1,703 | 3,922 |
| Total current assets | 6,741 | 12,731 | |
| TOTAL ASSETS | 58,352 | 97,299 | |
| EQUITY AND LIABILITIES | |||
| Paid-in equity | |||
| Ordinary shares Share premium |
1,236 21,036 |
1,236 21,036 |
|
| Other paid-in equity | 56,763 | 56,763 | |
| Total paid-in equity | 79,035 | 79,035 | |
| Other equity | |||
| Other equity | -57,036 | -40,250 | |
| Total other equity | -57,036 | -40,250 | |
| TOTAL EQUITY | 22,000 | 38,786 | |
| Liabilities | |||
| Non-current liabilities | |||
| Loans from credit institutions | 12 | 0 | 39,833 |
| Deferred tax liabilities | 19 | 4,513 | 10,824 |
| Financial derivative liability | 10 | 817 | 1,986 |
| Other long-term liabilities | 321 | 499 | |
| Total non-current liabilities | 5,651 | 53,140 | |
| Current liabilities | |||
| Trade liabilities | 11 | 58 | 106 |
| Financial derivative liability | 10 | 4,450 | 0 |
| Loans from credit institutions | 12 | 24,707 | 2,606 |
| Other short-term liabilities | 17 | 1,486 | 2,662 |
| Total current liabilities | 30,700 | 5,373 | |
| TOTAL LIABILTIES | 36,351 | 58,513 | |
| TOTAL EQUITY AND LIABILITIES | 58,352 | 97,299 |
Oslo, 16 March 2016 The Board of Directors and General Manager of Storm Real Estate ASA
Stein Aukner Chairperson
Morten E. Astrup Board member
Nini E.H. Nergaard Board member
Silje Augustsson Board member
Kim Mikkelsen Board member
Erik M. Mathiesen General manager
Storm Real Estate group
| All numbers in 000 USD | Note | 2015 | 2014 |
|---|---|---|---|
| Cash Flow from operational activities | |||
| Earnings before tax | -7,133 | 20,915 | |
| adjusted for: | |||
| depreciations | 8 | 8 | 7 |
| value adjustment on investment property | 6 | 7,461 | -17,208 |
| finance income | 14 | 87 | -2,917 |
| finance expenses | 14 | 3,490 | 4,245 |
| disposal of subsidiary | 24 | 1,810 | 0 |
| net currency gains | 14 | 1,337 | 4,239 |
| Cash flow before changes in working capital | 7,061 | 9,281 | |
| Change in working capital: | |||
| trade receivables and other receivables | 123 | 128 | |
| trade payables and other payables | -577 | -672 | |
| paid taxes | -2,339 | -3,647 | |
| Net cash flow from operational activities | 4,268 | 5,090 | |
| Cash Flow from investment activities | |||
| Outflows from financial investments | -3,179 | -3,783 | |
| Inflows from financial investments | 5,365 | 8,002 | |
| Disposal of subsidiary, net of cash | 12,615 | 0 | |
| Interest received | 248 | 140 | |
| Net cash flow from investment activities | 15,049 | 4,359 | |
| Cash flow from financing activities | |||
| Repayment on loans | 12 | -17,822 | -2,544 |
| Purchase of treasury shares | 0 | -434 | |
| Dividends paid | 0 | -4,948 | |
| Interest paid | -3,225 | -3,083 | |
| Net cash flow from financing activities | -21,710 | -11,009 | |
| Net change in cash and cash equivalents | -2,393 | -1,560 | |
| Carried forward cash and cash equivalents | 3,922 | 6,362 | |
| Currency exchange variation on cash and cash equivalents | 174 | -879 | |
| Cash and cash equivalents at end of period | 1,703 | 3,922 | |
| Including restricted cash and deposits | 11 | 238 | 372 |
| Paid-in equity | Other equity | ||||||
|---|---|---|---|---|---|---|---|
| Share capital | Share premium |
Other paid-in equity |
Treasury shares |
Retained earnings |
Translation differences on foreign operations |
Total equity |
|
| 1 January 2014 | 1,296 | 21,036 | 61,734 | -50 | 10,592 | -16,171 | 78,437 |
| Profit (loss) for the period Other comprehensive income |
16,232 | -50,478 | 16,232 -50,478 |
||||
| Net purchase of treasury shares | -10 | -424 | -434 | ||||
| Deletion of treasury shares | -60 | 60 | -0 | 0 | |||
| Dividends Sum |
-60 | 0 | -4,971 -4,971 |
50 | 15,807 | -50,478 | -4,971 -39,652 |
| 31 December 2014 | 1,236 | 21,036 | 56,763 | 0 | 26,399 | -66,649 | 38,786 |
| 1 January 2015 | 1,236 | 21,036 | 56,763 | 0 | 26,399 | -66,649 | 38,786 |
| Profit (loss) for the period | -4,794 | -4,794 | |||||
| Other comprehensive income | -11,993 | -11,993 | |||||
| Sum | 0 | 0 | 0 | 0 | -4,794 | -11,993 | -16,787 |
| 31 December 2015 | 1,236 | 21,036 | 56,763 | 0 | 21,605 | -78,641 | 22,000 |
Storm Real Estate ASA (hereafter "Storm Real Estate", the "Company" or the "Group") is a property investment company that invests in rental properties and securities with real estate exposure in Russia and the EEA.
The Company was established on 2 January 2007 and is a public limited liability company. The Company is incorporated and domiciled in Oslo with its registered office at Dronning Mauds gate 3, N-0250 Oslo, Norway. In the 2015 financial year the portfolio of office buildings consisted of one building in Moscow and one in St. Petersburg.
The Company is listed on the Oslo Stock Exchange, ticker STORM.
The consolidated financial statements were approved for issue by the Board of Directors on 16 March 2016. The financial statements will be dealt with at the general meeting on 13 May 2016 for final approval.
The consolidated financial statements of Storm Real Estate ASA have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and adopted by the European Union in accordance with the Norwegian Accounting Act. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies.
The consolidated financial statements have been prepared on a historical cost basis, with the exception of investment property and financial instruments which are all stated at fair value. Preparation of financial statements in conformity with IFRS requires the use of accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 5. The consolidated financial statements are presented in USD and all values are rounded to the nearest thousand (USD 000), unless otherwise indicated.
The accounting policies used in the consolidated financial statements are consistent with the previous year's statements. New and amended IFRS standards with effect from 1.1.2015 have not had an effect on the Group Amendments not mentioned here have not had an effect on the Group's annual report. Future amendments to standards and interpretations that can be relevant to the Company are described below.
IAS 1 Presentation of Financial Statements The amendments to IAS 1, issued as part of the IASB's "Disclosure Initiative", are meant to encourage the wider use of professional judgment with regard to the information to be included in notes and how financial statements can be structured. The amendments enter into effect on 1 January 2016. The Group intends to implement the relevant amendments on the effective date. The Group has carried out an initial assessment of the effects of implementing the standard, and has not identified any significant effects for its financial position or results, but can impact information provided in notes.
IFRS 15 Revenue from Contracts with Customers IASB and FASB have issued a new, common standard for revenue recognition, IFRS 15. The standard replaces all existing standards and interpretations for revenue recognition. The core principle of IFRS 15 is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard applies to all revenue from contracts and contains a model for the recognition and measurement of sales of certain non-financial assets (e.g. sale of property, plant and equipment). The standard has not yet been approved by the EU. The Group intends to implement the relevant amendments on the effective date, providing that the EU approves the amendments prior to presentation of the consolidated financial statements. The Group has carried out an initial assessment of the effects of implementing the standard, and has not identified any significant effects for its financial position or results.
Amendments to IAS 24 Key management personnel The amendments clarify that a management company, i.e. an entity providing key management personnel services, is a related party and subject to the disclosure requirements for related parties. In addition, an entity that is administered by a management company must disclose the costs accrued for management services.
The standard enters into effect for periods which begin 1 February 2015 or later. The Group intends to implement the relevant amendments on the effective date. The Group has carried out an initial assessment of the effects of implementing the standard, and has not identified any significant effects for its financial position or results as this is information the Group already discloses in the note.
IFRS 9 will replace IAS 39 Financial instruments recognition and measurement. IASB sub-divided the project into three main phases: classification and measurement, hedging and impairment. New rules for impairment were published in July 2014, and the standard is thereby complete. The parts of IAS 39 that have not been amended as part of this project are transferred and included in IFRS 9. The Group intends to implement the relevant amendments on the effective date.
IFRS 16 Leases replaces the existing IFRS standard for leases, IAS 17 Leases. IFRS 16 lays down principles for recognizing, measuring, presenting and disclosing leases for both parties in a lease, i.e. the customer (lessee) and provider (lessor). The new standard requires that the lessee recognize assets and liabilities for most leases, which is a significant change from the current principle. For the lessor IFRS 16 essentially continues the existing principles in IAS 17. In line with this, a lessor shall continue to classify their leases as operating leases or finance leases, and account for these two types of leases differently. The Group intends to implement the relevant amendments on the effective date.
The Group has not chosen early adoption of any new or amended IFRSs or IFRIC interpretations. There are also standards and interpretations which have been adopted, but for which the effective date is in the future. The Group's policy is to implement the relevant amendments on the effective date where the amendments are relevant to the Group.
Subsidiaries are all companies over which the Group has control. Control exists when the Group is exposed to, or has rights to, variable returns as a result of involvement with the company and the Group is able to impact returns through its power over the company. Control is normally achieved when the Group owns – directly or indirectly – more than 50% of the voting shares in the company. The effect of any existing voting rights resulting from exercisable options is included in the assessment of control. The Group also assesses whether control exists where fewer than 50% of the voting rights are held but the Group is nevertheless in a position to control financial and operating guidelines.
Such companies are included in the consolidated financial statements from the date on which the Group obtains control over the company. In the same way, the company is deconsolidated when control over the company ceases.
The purchase method is applied to business combinations. The consideration transferred is measured at the fair value of assets transferred, liabilities incurred and equity instruments issued. The consideration also includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Costs related to business combinations are expensed as incurred. Identifiable assets and liabilities are recognized at fair value at the acquisition date. Non-controlling interests in the acquiree are measured on a case-by-case basis either at fair value or at their share of the acquiree's net assets.
In the case of a step acquisition, equity interests from previous acquisitions are remeasured at the control date to fair value through profit and loss. Any contingent consideration is recognized at fair value at the acquisition date. In accordance with IAS 39, subsequent changes to the fair value of the contingent consideration are recognized in the income statement or as a change to other comprehensive income if the contingent consideration is classified as an asset or liability. Contingent considerations classified as equity are not remeasured, and subsequent settlement is entered against equity.
Intra-company transactions, balances, and unrealized gains and losses on transactions between Group companies are eliminated. The financial statements of subsidiaries are restated where necessary to achieve consistency with the Group's accounting policies.
The Group's consolidated financial statements are presented in USD, which is also the Parent Company's functional currency. Each entity in the Group determines its own functional currency, and items included in the income statement of each entity are measured using that functional currency. The functional currency is the currency within the primary economic environment in which the entity operates.
Transactions in foreign currencies are initially recorded in the functional currency at the rate on the transaction date. Monetary items denominated in foreign currencies are translated into the functional currency on the reporting date. All currency translation differences are taken to the income statement. Tax charges linked to currency translation differences on such items are recognized in other comprehensive income.
Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the rate on the reporting date.
The assets and liabilities of foreign entities are translated into the presentation currency at the rate on the reporting date, and related income statement items are translated at average exchange rates per quarter. Currency translation differences arising on the translation are recognized as other comprehensive income. In the consolidated financial statements, currency translation differences linked to net investments are included in other comprehensive income until disposal of the net investment, at which point they are recognized in the income statement.
The Company operates within different business segments as per the definitions in IFRS 8. Business areas with unique financial characteristics are divided into direct investments in investment property and investments in shares in property companies. The business areas are separate segments that are followed up together by decision-makers. See note 25 for detailed segment information for the financial year.
Investment property comprises completed property held to generate rental income or for capital appreciation or both. Property held under a lease is classified as investment property when the definition of an investment property is met. Investment property is recognized initially at cost including transaction costs. Transaction costs include transfer taxes, professional fees for legal services and initial leasing commissions to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met.
Subsequent to initial recognition, investment property is carried at fair value. Gains or losses arising from changes in fair value are included in the income statement in the year in which they arise.
Investment property is derecognized when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the withdrawal or disposal of investment property are recognized in the income statement in the year of disposal. Gains or losses on the disposal of investment property are determined as the difference between net selling price and the carrying amount of the asset at the time of sale.
Property, plant and equipment that is not directly attributed to the investment property is classified as non-current assets and measured at acquisition cost less depreciation and impairment losses. Acquisition cost includes expenditure that is directly attributable to the acquisition of the items. Acquisition cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.
Costs incurred after the asset has been taken into use are included in the asset's carrying amount or recognized as a separate asset, as appropriate, when it is probable that future economic benefits associated with the acquisition will flow to the Group and the cost can be measured reliably. The carrying amount of the replaced part is written down to zero. All other repairs and maintenance are charged to the income statement in the period in which they are incurred.
(a) Where a Group company is the lessee Leases in which a significant portion of the risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases are classified as operating expenses and charged to the income statement on a straight-line basis over the term of the lease.
Properties leased under operating leases are included in investment property in the Company's statement of financial position. Rental income is recognized over the term of the lease on a straight-line basis.
At the start of a lease agreement tenants pay a security deposit. This is treated as an advance payment from the tenants. The tenants then continue to pay in advance for the term of their lease, such that the level of the security deposit is maintained.
The Group has classified its financial instruments in the following categories:
(a) at fair value through profit or loss and (b) loans and receivables measured at amortized cost. The classification depends on the purpose for which the financial instrument was acquired. Management determines the classification of its financial instruments at initial recognition.
(a) Financial instruments at fair value through profit or loss Financial instruments at fair value through profit or loss are financial instruments held for trading. A financial instrument is classified in this category if acquired in principle for the purpose of selling in the short term. Instruments are also categorized as held for trading unless they are designated as hedges.
(b) Loans and receivables measured at amortized cost Loans and receivables are non-derivative financial instruments with fixed cash flows that are not quoted in an active market. They are classified as current assets unless the redemption date is more than 12 months after the reporting date, in which case they are classified as noncurrent assets. The Group's loans and receivables comprise 'trade and other receivables' and cash and cash equivalents in the statement of financial position.
Ordinary purchases and sales of financial assets are recognized on the trade date – the date on which the Group commits to purchase or sell the asset. All financial assets not carried at fair value through profit or loss are initially recognized at fair value with the addition of transaction costs. Financial assets carried at fair value through profit and loss are initially recognized at fair value. Subsequent measurement is at fair value though profit and loss.
Loans and receivables are initially recognized at fair value plus directly attributable transaction expenses. Loans and receivables are subsequently measured at amortized cost using the effective interest method, such that the effective interest is the same for the entire lifetime of the instruments.
A financial instrument is derecognized when:
i) the rights to receive cash flows from the instrument have expired; or
ii) the Group has transferred its rights to receive cash flows from the instrument and either (i) the Group has transferred substantially all the risks and rewards relating to the instrument, or (ii) the Group has neither transferred nor retained substantially all the risks and rewards relating to the instrument, but has transferred control of the instrument.
The Group's financial liabilities cover trade and other current payables, long-term debt and derivative financial instruments.
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit and loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the short term. This category includes derivative financial instruments that are not designated as hedging instruments in hedge relationships in accordance with IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial liabilities that do not come into the "held for trading" category and that are not designated at fair value through profit and loss are classified as "other liabilities".
The measurement of financial liabilities depends on their classification, as follows:
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Subsequent measurement is also at fair value through profit or loss. Trade payables and bank loans are measured at amortized cost.
Other liabilities are recognized at amortized cost.
A financial liability is derecognized when the obligation under the liability is discharged, canceled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, this is treated as derecognition of the original liability and recognition of a new liability. The difference in the respective carrying amounts is recognized in the income statement.
Trade receivables are recognized initially in the balance sheet at fair value and subsequently measured at amortized cost using the effective interest method, less provision for bad debts. A provision for bad debts on trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the carrying amount of the assets and the estimated future cash flows from the assets.
Cash and cash equivalents include cash in hand and deposits held with banks.
Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Own equity instruments which are bought back (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized in other equity/ other contributed equity. Voting rights related to treasury shares are canceled and no provision is made for payment of dividends on treasury shares.
A person is considered as a related party if he or she, directly or indirectly, has the possibility to exercise control or influence over another party in connection with financial and operational decisions. Parties are also considered related if they are under control or significant influence. Transactions with related parties are based on the arm's length principle.
Loans to certain subsidiaries are considered as part of the Group's net investment. Exchange rate changes related to monetary items (receivables and liabilities) which are a part of the Company's net investment in foreign entities are treated as currency translation differences, and thus entered against equity.
The tax expense for the period comprises taxes payable and change in deferred tax. However, deferred tax is not recorded if it arises on initial recognition of an asset or liability in a transaction, other than a business combination, that affects neither accounting nor taxable profit or loss on the transaction date.
Deferred tax assets are recognized only to the extent that it is probable that there will be future taxable income against which the temporary differences can be utilized. Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related tax asset is realized or the deferred tax liability is settled. The provision for deferred tax is based on the expected manner of realization or settlement of the carrying amounts of assets and liabilities.
Tax effects on other comprehensive income are separated and presented via other comprehensive income. These include exchange differences on net investments in foreign entities.
The Group's revenue includes rental income from the properties. This is recognized in income over the period of the lease. Revenue arising from expenses recharged to tenants is recognized in the period in which the expenses can be contractually recovered. The parent company has revenue from services sold to Group companies and interest income from Group companies. This income is recognized when it is recovered.
Interest income is recognized in income as it is earned using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, which is the estimated future cash flow discounted at the original effective interest rate of the instrument. Interest income on impaired loans is recognized using the effective interest rate.
Current assets and short-term debt maturing within 12 months are classified as current assets or short-term debt.
Earnings per share is calculated by dividing net profit by the weighted average number of outstanding shares in the Company during the reporting period. Treasury shares are not included in the calculation.
The Group's activities expose it to a variety of financial risks: market, credit and liquidity risk. The Group's overall risk management program focuses on the unpredictability of the financial markets and seeks to minimize the potential adverse effects on the Group's financial performance. The Group has attempted to maintain a policy of having solid tenants who can discharge their obligations even in difficult financial times.
Management identifies and evaluates financial risk, and has policies covering specific areas such as credit risk, currency risk, use of derivative financial instruments and investment of excess liquidity.
Investments in Russia are deemed to have high market risk. The climate in the financial market and especially the price of real estate, demand for premises and general rental levels in Russia represents risk, as it will affect the Company's rental income. The Company aims to reduce these types of fluctuation by continuing to require deposits from tenants, typically equivalent to three months' rent. The Company's investments in shares in other property companies is also subject to market risk.
Storm Real Estate is a Norwegian group with its main focus on rental properties in Russia and share investments in the EEA. This exposes the Group to currency risk arising from various currency exposures, primarily with respect to NOK, USD, RUB and DKK. Currency risk arises when future commercial transactions or recognized assets and liabilities are denominated in a currency that is not the entity's functional currency.
Management has established a policy to mitigate currency risk against the Parent Company's functional currency (USD). The rental lease contracts are exposed to the risks of changes in RUB/USD exchange rates. Lease agreements have been entered into in USD which are to be translated into RUB with a maximum exchange rate, and the highest such USD/RUB rate is 45 Rubles per dollar. With a real exchange rate of over 73 Rubles per dollar, in practice the revenue from these contracts is fully exposed to the Russian Ruble.
A sensitivity analysis of the stated factors for the Group's presentation currency and the Parent Company's functional currency (USD) is shown below. If the value of the USD changes relative to other currencies, this will have the following effects on the consolidated financial statements:
| 000 USD | Effect attributable to net income |
Effect attributable to equity (other comprehensive income) |
Net effect on the Company's equity |
|---|---|---|---|
| 1% appre ciation in USD |
+313 | -675 | -362 |
| 1% depre ciation in USD |
-313 | +675 | +362 |
The effect is deemed to be linear, so that a 5% change is five times larger than a change of 1%. A reasonable range for exchange rates in a normal situation would be 0-20%. Exchange rate fluctuations related to the Russian Ruble have also been higher, for example in 2015.
In 2014 and 2015 the Russian Ruble fell considerably against the USD. Indirect effects resulting from this are that it becomes difficult for tenants in the market to pay their rent in USD. This has an effect on rents and as a result on valuations of investment property. Such effects are indirect and impossible to quantify. The sensitivity analysis above does not contain such indirect effects of a weaker exchange rate, but the effect of exchange rate changes on the market for investment property can be significant.
The Group is exposed to risk concerning property prices and property rental, and the Group has geographically concentrated its activity in Russia. The Group has further indirect exposure to price risk as a result of developments in the financial markets, since these affect the tenants' ability to pay.
Sensitivity analysis for price risk:
| 000 USD | Effect attributable to profit for 2015 |
|---|---|
| 1% rent increase | +104 |
| 1% rent decrease | -104 |
The effect is deemed to be linear, so that a 5% change is five times larger than a change of 1%. Price changes can also affect the valuation of the buildings.
(iii) Interest rate risk on cash flows and fair value
The Company has financed properties with bank loans totaling USD 24.8 million. To reduce the interest rate risk, the Company has entered into interest rate swaps totaling USD 26.5 million whereby a variable interest rate equivalent to USD 3 month LIBOR is swapped with a fixed interest rate of a weighted average of 2.82% for 5.2 years from 31 December 2015. The table below illustrates the net effect of a change in interest rates of one percentage point.
| 000 USD | Effect on interest | Effect on interest | Net effect per |
|---|---|---|---|
| paid (loans) | received (swaps) | year | |
| 1% increase in interest rate |
-239 | +265 | -26 |
The fair value of interest rate swaps is measured at the present value of future cash flows in the statement of financial position, and the change in fair values are brought over the income statement. The table below shows the effect a change of one percentage point would have had on the Consolidated statement of total comprehensive income.
| 000 USD | Effect on interest expenses |
Change in PV of interest rate swaps |
Effect on equity |
|---|---|---|---|
| Økning av rentesatsen med 1% |
-26 | +1.359 | +1.333 |
Credit risk arises on cash and cash equivalents and deposits with banks and financial institutions, as well as outstanding receivables and liabilities. For banks and financial institutions the Group aims to use parties with a good credit rating.
No covenants were breached during 2015, and the Company does not expect significant losses from counterparties in 2016. All new contracts with tenants require a deposit and the rent is partly invoiced in advance. If rent is not paid on time, the Company immediately begins the search for a new tenant.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial asset.
The Group aims to keep liquidity sufficient to meet its foreseeable obligations as well as securing a reasonable capacity to meet unforeseen obligations. The funding strategy aims to maintain flexibility to seize market opportunities and at the same time withstand fluctuations in income and expenses. At year-end the Group had satisfactory liquid reserves and funding flexibility. Management continuously monitors forecasts of the Group's liquidity reserves.
The Group has bank loans with covenants including debt ratio and debt service ratio (debt service coverage ratio). If the Group exceeds these, the Group would repay bank debt in order to maintain compliance with covenants. The Group has little margin for covenants of a 70% loan ratio in relation to the valuation of the real estate by appraisers. In the event of a further reduction in property value, the Group will have to deposit further funds.
The Group largely holds short-term leases and there is a risk of vacancy and loss of rental income.
The table below analyses the Group's financial liabilities (borrowing), broken down by maturity (all figures in USD 000).
| As at 31 December 2014 | 0-1 yr. | 1-5 yrs. | >5 yrs. | Total |
|---|---|---|---|---|
| Repayments of interest-bearing | ||||
| debt (nominal value) | 2,606 | 39,997 | 0 | 42,603 |
| Advance payments from tenants | 912 | 4 | 0 | 916 |
| Interest rate swaps | ||||
| (undiscounted) | 837 | 1,268 | 13 | 2,118 |
| Currency forwards | 35 | 0 | 0 | 34 |
| Trade payables and other | ||||
| short-term debt | 614 | 0 | 0 | 614 |
| Interest on loans | 2,184 | 6,451 | 0 | 8,635 |
| Total | 7,118 | 47,721 | 13 | 54,921 |
| As at 31 December 2015 | 0-1 yr. | 1-5 yrs. | >5 yrs. | Total |
|---|---|---|---|---|
| Repayments of interest-bearing | ||||
| debt (nominal value) | 2,366 | 22,415 | 0 | 24,780 |
| Advance payments from tenants | 709 | 0 | 0 | 24,780 |
| Interest rate swaps | ||||
| (undiscounted) | 554 | 953 | 21 | 1,528 |
| Trade payables and other | ||||
| short-term debt | 15 | 0 | 0 | 15 |
| Interest on loans | 1,555 | 2,388 | 3,942 | 7,885 |
| Total | 5,198 | 25,756 | 3,963 | 34,917 |
The Group's objectives when managing capital are 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. In order to maintain or adjust the capital structure, the Group may adjust the level of the dividend paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group's capital comprises capital invested through investments in investment property and securities, as well as cash and cash equivalents.
The target for long-term return on capital is a minimum of 10%. In 2015 the return on capital measured in dividendadjusted equity per share was -43.3% measured in Norwegian Kroner.
The Group has an acceptable equity ratio. The equity ratio was 38% at 31 December 2015. The equity ratio was 40 % at 31 December 2014. The Group has equity ratio requirements in relation to loan agreements and has not been in breach of these as at the reporting date.
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable in the present circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the final outcome. The estimates and assumptions that represent a significant risk of material adjustments to the carrying amounts of assets and liabilities within the next financial year are addressed below.
Fair value of investment property (estimate)
Investment property is recognized at fair value. A separate valuation is carried out by independent experts in which the property is assessed using updated macro assumptions (market-based rent rates, discount rates, inflation expectations, economic growth, etc.) The Company bases the fair value of investment property on external valuations by independent appraisers. There are multiple methods for assessing the fair value of investment property. The Group has to date used the discounted cash flow method, which is the present value of estimated future cash flows, using known contractual parameters, as well as expectations for market development. This method is the most widely recognized method for valuation of real estate. See note 6 for more information about the investment property.
Fair value of derivatives and other financial instruments (estimate)
The fair value of financial instruments traded in active markets is based on quoted market prices at the transfer date. The quoted market price used for financial assets
held by the Group is the current bid price. The Group has instruments for which valuation techniques must be applied to determine fair value. The fair value of embedded derivatives is estimated based on currency forecasts and then calculated using the Black & Scholes model. The fair value of interest rate swaps and forward contracts is calculated by the issuing financial institution as the present value of future estimated cash flows. The carrying amount of trade receivables (face value minus provision for bad debts) and trade payables is not considered to deviate significantly from fair value.
Assessment of bank loans with covenants (judgment) The group has a bank loan whose classification entails an element of judgment. The classification of loans is regulated in IAS 1 Presentation of Financial Statements. IAS 1.69 c) and d) stipulate that a liability shall be classified as shortterm when it is due to be settled within twelve months, or the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. See also Note 12 to the consolidated financial statements for further information on how the Group has classified bank loans on the balance sheet date.
| GROUP | ||
|---|---|---|
| Value as valued by an independent valuer: | 2015 | 2014 |
| As at 1 January | 69,900 | 103,100 |
| Value Adjustment Investment Property | -19,000 | -33,200 |
| Disposal Investment Property | 6,200 | 0 |
| Value per Closing date | 34,700 | 69,900 |
| Other assets recognised as part of Investment Property: | ||
| As at 1 January | 443 | 0 |
| Changes in carrying value of land plot lease agreements * | -247 | 443 |
| Disposal in carrying value of land plot lease agreements * | 0 | 0 |
| Assets as a result of embedded derivatives contract ** | 4,054 | 0 |
| Value per Closing date | 4,250 | 443 |
| Carrying value of Investment Property IFRS 01.01 | 70,343 | 103,100 |
| Carrying value of Investment Property IFRS 31.12 | 38,950 | 70,343 |
* The Company has in 2015 capitalised land plot lease agreements in accordance with AS 40 Investment Property and IAS 17 Leases.
** In 2015 The Company signed an agreement on a lease reduction with the anchor tenant in Moscow. Reduction is in practice done by agreeing a ceiling on exchange rate USD/RUB = 45. This arrangement shall in accordance with IFRS be treated as a financial derivative. This derivative is related to the investment property. The company has recognised a financial liability when USD/RUB at the reporting date was unfavourable. A recognition of this currency derivative has no effect on the net asset value, when the size of the asset and liability are equal (see liability in note 10).
| Direct property related costs Net Operating Income |
1,710 8,654 |
2,335 10,340 |
|---|---|---|
| Rental income | 10,365 | 12,675 |
| Net Operating Income (NOI) from properties | 2015 | 2014 |
| GROUP | ||
| 000 USD |
The properties were virtually fully let as of 31 December 2014 and 31 December 2015. The valuation of investment property as at 31 December 2014 and 2015 has been performed by an independent expert valuer, Cushman & Wakefield in Moscow. For both years a discounted cash flow model has been applied. The variables used for valuation are both company specific and marked derived. Company specific variables include contractual rental income and expenses. Market derived variables include, inter alia, market rent rates, market discount rates and market capitalisation rates. Also see note 5 for critical accounting estimates and assumptions.
| Moscow | St. Petersburg | |||
|---|---|---|---|---|
| Independent valuer's valuation parameters | 31.12.2015 | 31.12.2014 | 31.12.2015 | 31.12.2014 |
| Discount rates | 12.5 % | 12.5 % | n/a | 14.0 % |
| Capitalisation rates | 11.5 % | 11.5 % | n/a | 12.0 % |
| Market rental rates, \$/sq.m | 300 | 530 | n/a | 200 |
| Sensitivity analysis at 31 December 2014, million USD | GROUP |
|---|---|
| Effect of an increase in discount rates of 1% | -1,2 |
| Effect of an increase in capitalisation rates of 1% | -1,8 |
In the Gasfield building in Moscow, the anchor tenant is LLC Gazprom Tsentrremont who rents around 78% of the lettable area. Storm Real Estate has established a framework for a long-term tenancy with annual renewal. In March 2015, Storm Real Estate ASA signed an extension for an additional 11 months until February 2016 with adjusted terms. In February 2016 the agreement was extended for another 11 months.
| Specification of tenants representing more than 10% of the group's income | 2015 | 2014 |
|---|---|---|
| LLC Gazprom Tsentrremont | 5,085 | 8,337 |
| Group company | Location | Formed/ Acquired | Ownership |
|---|---|---|---|
| OOO Martex | Russia | 2007 | 100% |
| Tiberton Yard Holding 2 Ltd | Cyprus | 2008 | 100% |
| Tiberton Yard Finance Ltd | Cyprus | 2008 | 100% |
| Gasor Consulting Ltd | Cyprus | 2008 | 100% |
| Storm Real Estate Ltd | Cyprus | 2009 | 100% |
Storm Real Estate ASA has in 2015 carried out a cross-border merger with subsidiary Tiberton Yard Ltd (Cyprus). See note 2 to the parent company's accounts for information about the merger.
000 USD
| Computers and telephony |
Sum | Computers and telephony |
Sum | |
|---|---|---|---|---|
| Historic cost | 2015 | 2015 | 2014 | 2014 |
| At 1 January | 162 | 162 | 184 | 184 |
| Additions | 0 | 0 | 35 | 35 |
| Disposals | -24 | -24 | -57 | -57 |
| At 31 December | 138 | 138 | 162 | 162 |
| Depreciation and impairment | ||||
| At 1 January | -129 | -129 | -179 | -179 |
| Depreciations this period | -8 | -8 | -7 | -7 |
| Translation differences of depreciations | ||||
| and write-downs | 19 | 19 | 57 | 57 |
| At 31 December | -118 | -118 | -129 | -129 |
| Net book value 31 December | 20 | 20 | 33 | 33 |
There are no fixed assets in the parent company. Exchange differences have been included in disposals and depreciations. PP&E are recognised at historic cost. Computers & telephony is computers and telephony equiment, depreciated straight line over the lifespan of the assets (3 years for computers and 7 years for telephone equipment).
| GROUP | ||
|---|---|---|
| Future minimum rents receivable under non-cancellable contracts are as follows: | 31.12.2015 | 31.12.2014 |
| Within 1 year | 5,078 | 5,407 |
| Between 1 and 5 years | 366 | 1,110 |
| Over 5 years | 0 | 25 |
| Sum | 5,444 | 6,541 |
| Financial investments | 31.12.2015 | 31.12.2014 |
|---|---|---|
| Held-for-trading investments: quoted equity shares | 12,641 | 14,192 |
| Held-for-trading investments: quoted bonds | 2,107 | 1,312 |
| Held-for-trading investments: fund investments | 2,543 | 6,987 |
| Sum financial investments | 17,291 | 22,490 |
| Forward currency contracts | 35 | 0 |
| Sum derivative assets not designated as hedges | 35 | 0 |
| Total other financial assets | 17,326 | 22,490 |
| Derivative liabilities not designated as hedges | 31,12,2015 | 31,12,2014 |
| Foreign exchange forward contracts | 0 | -35 |
| Interest rate swaps | -1,401 | -1,951 |
| Embedded derivatives | -4,054 | 0 |
| Sum derivative liabilities not designated as hedges | -5,609 | -2,429 |
| Total other financial liabilties | -5,609 | -2,429 |
| Interest bearing loans | 31,12,2015 | 31,12,2014 |
|---|---|---|
| Interest bearing loans | 24,707 | 42,438 |
| Total interest bearing loans | 24,707 | 42,438 |
Embedded financial derivatives occur as a result of currency fluctuations between RUB and USD. Most of the tenancy lease agreements are in USD, and include a clause with a minimum and maximum exchange rate for the conversion and payment in RUB. In 2015 an agreement was signed with the achor tenant on a maximum exchange rate of USD/RUB = 45. Roubles had depreciated by the reporting date, hence a negative value is recognized on the embedded derivatives on the reporing date. See note 6 regarding the recognition of an identical amount associated with investment property. Thus, the gross presentation of this currency derivative has not had an effect on the company's equity.
The parent company has entered into interest swap agreements which fixes the interest on parts of the loan. Fair values of the interest swaps are calculated based on expectations on future cash flows with today's interest rates and the yield curve over the remaining fixed period.
000 USD
The below table shows an analysis of fair values of assets and liabilities in the group, grouped by level in the fair value hierarchy, which either are measured at fair value or where information about the fair value is provided.
Level 1 - Quoted prices in active markets that the entity can access at the measurement date.
Level 2 – Use of a model with inputs other than level 1 that are directly or indirectly observable market data.
Level 3 - Use of a model with inputs that are not based on observable market data.
| Financial assets measured at fair value | Level 1 | Level 2 | Level 3 | Sum |
|---|---|---|---|---|
| Investment property (*) | 0 | 0 | 38,950 | 38,950 |
| Held-for-trading investments: listed shares | 12,641 | 0 | 0 | 12,641 |
| Held-for-trading investments: listed bonds | 2,107 | 0 | 0 | 2,107 |
| Held-for-trading investments: investment funds | 2,543 | 0 | 0 | 2,543 |
| Foreign exchange forward contracts | 0 | 35 | 0 | 35 |
| Sum | 17,291 | 35 | 38,950 | 56,276 |
| Financial liabilties measured at fair value | ||||
| / where fair value must be presented | Level 1 | Level 2 | Level 3 | Sum |
| Interest bearing loans | 0 | 24,780 | 0 | 24,780 |
| Embedded derivatives | 0 | 0 | 4,054 | 4,054 |
| Land plot leases | 0 | 154 | 0 | 154 |
| Interest rate swaps | 0 | 1,401 | 0 | 1,401 |
| Sum | 0 | 26,335 | 4,054 | 30,389 |
(*) See Note 6 for information regarding fair value of investment properties
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial instruments that are carried in the financial statement.
| Carrying amount | Fair value | |||
|---|---|---|---|---|
| 31.12.2015 | 31.12.2014 | 31.12.2015 | 31.12.2014 | |
| Financial assets | ||||
| Trade receivables | 3 | 7 | 3 | 7 |
| Other receivables | 384 | 504 | 384 | 504 |
| Derivative financial assets at fair value through profit or loss | 35 | 0 | 35 | 0 |
| Held-for-trading financial investments | 17,291 | 22,490 | 17,291 | 22,490 |
| Cash and short-term deposits | 1,703 | 3,922 | 1,703 | 3,922 |
| Sum | 19,416 | 26,924 | 19,416 | 26,924 |
| Financial liabilities | ||||
| Interest-bearing loans and borrowings | 24,707 | 42,438 | 24,780 | 42,603 |
| Trade liabilities | 58 | 106 | 58 | 106 |
| Other short-term liabilities | 1,656 | 2,662 | 1,656 | 2,662 |
| Land plot leases | 154 | 443 | 154 | 443 |
| Derivative financial liabilities at fair value through profit or loss | 5,455 | 1,986 | 5,455 | 1,986 |
| Sum | 32,030 | 47,635 | 32,103 | 47,800 |
Cash and cash equivalents include restricted cash of 238 (2014: 372).
GROUP
| GROUP | ||||
|---|---|---|---|---|
| Interest bearing borrowings at amortised cost | Interest | Maturity | 31.12.2015 | 31.12.2014 |
| Secured bank loan I | LIBOR + margin | 2018 | 24,707 | 31,353 |
| Secured bank loan II | LIBOR + margin | 2016 | 0 | 11,086 |
| Sum interest bearing borrowings at amortised cost | 24,707 | 42,438 |
The nominal value of bank loan I as of 31 December 2015 was 24,780 and as of 31 December 2014 was 31,443.
The investment property Gasfield in Moscow is pledged as security for the bank loan, book value USD 38,950K
The interest on the loan is calculated based on 3 month USD LIBOR plus the following margins:
| For loan to value up to 50% | 4.50% |
|---|---|
| For loan to value up to 55% | 4.75% |
| For loan to value up to 60% | 5.00% |
| For loan to value up to 65% | 5.50% |
| For loan to value up to 70% | 6.00% |
| For loan to value over 70% | 8.00% |
The prinicpal on the loans are repaid according to the following schedule:
Year 1-2 from start date: 1,5% of balance per year Year 3-4 from start date: 3,0% of balance per year Year 5-10 from start date: 5,7% of balance per year Repayment of residual at the maturity of the loan period.
The loan contain financial covenants, inter alia on loan to value (maximum 70% of the valuation made by independent valuer) and covenant on equity ratio (minimum 20%).
According to the loan agreement with the bank, it is required that the Company has a borrowing rate of maximum 70% relative to the valuation made by an independent valuer. If the LTV ratio is exceeded the company has an unconditional right to make a subsequent payment of the amount required to restore compliance of the LTV ratio. As at 31/12/2015 the Company had a LTV of 71% of the said valuation. According to the loan agreement the Company has an unconditional right to make a subsequent payment to resore the LTV ratio, within a period of 45+14 days. The company is not in breach with the commercial loan agreement on the closing date.
As at 31/12/2015 the next quarterly amortisation amount was sufficient to recover the LTV ratio to below 70%. For that reason it was not necessary to make a payment over and above the ordinary instalment, if the payment is moved forward so that it is made within 45+14 days from the reporting date. The Company has after the reporting date made this payment.
The company has classified the loan as current in accordance with the auditor's interpretation of Accounting Standard IAS 1.69 and 1.74 to 75. This despite the fact that the company disagrees with the auditor's interpretation of the aforementioned IFRS standards. The Company believes that the criteria for requirements on classification of debt as current is not met and that this could give a misleading picture of its financial position. A classification as if the debt has become due for payment, and as if it is to be repaid within 12 months is not in accordance with the commercial reality.
000 USD
| Other receivables | 31.12.2015 | 31.12.2014 |
|---|---|---|
| Taxes receivable | 179 | 221 |
| Prepayments | 30 | 190 |
| Other receivables | 47 | 92 |
| Trade receivables | 131 | 7 |
| Sum other receivables | 387 | 510 |
No trade receivables were overdue as of 31 December 2014 or 31 December 2015. The Russian entities have income tax and VAT receivable related to previous years.
| GROUP | ||
|---|---|---|
| Finance income | 2015 | 2014 |
| Interest income | 263 | 172 |
| Changes in fair value, held-for-trading financial investments | 0 | 2,667 |
| Other finance income | 1 | 78 |
| Sum finance income | 264 | 2,917 |
| Finance costs | 2015 | 2014 |
| Interest costs from loans measured at amortised cost | -3,240 | -3,069 |
| Sale of subsidiary | -1,810 | |
| Changes in fair value, financial derivatives over profit and loss | -113 | -958 |
| Changes in fair value, held-for-trading financial investments | -351 | 0 |
| Other finance costs | -137 | -218 |
| Sum finance costs | -5,652 | -4,245 |
| Foreign exchange gains and losses | 2015 | 2014 |
| Foreign exchange gains | 1,696 | 2,259 |
| Foreign exchange losses | -2,798 | -4,618 |
| Sum foreign exchange gains and losses | -1,102 | -2,359 |
| Net finance gains (losses) | -6,490 | -3,689 |
| Other operating expenses | 2015 | 2014 |
|---|---|---|
| Management fees | 716 | 1.512 |
| Legal, agency and consultancy fees | 149 | 27 |
| Auditors | 246 | 315 |
| Other operating expenses | 265 | 430 |
| Depreciation | 0 | 7 |
| Sum other operating expenses | 1,377 | 2,291 |
| Auditor fees | (auditor fees are quoted excl. vat) | 2015 | 2014 |
|---|---|---|---|
| Audit fees | 115 | 166 | |
| Other services | 105 | 149 | |
| Sum auditor expenses | 220 | 315 |
annual report 2015
GROUP
000 USD
000 USD
| Personnel costs | 2015 | 2014 |
|---|---|---|
| Salaries and bonuses | 271 | 456 |
| Board fees | 112 | 109 |
| Social security taxes | 67 | 90 |
| Sum personnel costs | 451 | 656 |
| Number of employees | 6 | 6 |
| Average number of employees | 6 | 6 |
There are no pension schemes in the group. There are no employees in the Norwegian parent company, and therefore no obligation for the Norwegian mandatory pension scheme (OTP).
The company does not have employed management, but is managed by Storm Capital Management Ltd on a asset management contract. For this the company has paid a management fee of USD 715K in 2015 (2014: USD 1,512K).
Also see note 8 to the parent company's accounts for a list of board fees.
| 2015 | 2014 | |
|---|---|---|
| Taxes payable | 657 | 463 |
| Advance rents received | 709 | 912 |
| Other current liabilities | 120 | 261 |
| Sum other current liabilities | 1,486 | 1,637 |
| Consolidated income statement | 2015 | 2014 |
|---|---|---|
| Current income tax | 1,662 | 2,767 |
| Movement in deferred tax | -4,124 | 1,914 |
| Movement in deferred tax due to changes in tax rates | 123 | 0 |
| Sum income tax | -2,339 | 4,681 |
| The tax on the group's profit before tax differs from the theoretical amount as follows | 2015 | 2014 |
|---|---|---|
| Profits before tax | -7,133 | 20,912 |
| Tax at domestic tax rates applicable to respective countries | -301 | 5,484 |
| Tax effects of: | ||
|---|---|---|
| FX variations between functional currency and tax currency | -2,271 | -419 |
| Income not subject to tax | -557 | -1,651 |
| Expenses not deductible for tax purposes | 838 | 0 |
| Withholding tax from foreign entities at different tax rate | 264 | 361 |
| Tax losses for current year not recognised | 0 | 905 |
| Recognition of earlier years' non-recognised deferred tax expense | 243 | 0 |
| Recognition of earlier years' non-recognised deferred tax assets | -141 | 0 |
| Changes in deferred tax due to changed tax rate | -176 | 0 |
| Effect of tax merger | -239 | 0 |
| Sum income tax | -2,339 | 4,681 |
| Deferred tax reversal | 2015 | 2014 |
|---|---|---|
| Deferred tax asset reversed after more than 12 months | 0 | 0 |
| Deferred tax liabilities reversed after more than 12 months | 4,513 | 10,824 |
| Net deferred tax liability | 4,513 | 10,824 |
| Movement in deferred tax | 2015 | 2014 |
| Per 1 January | 10,824 | 9,522 |
| Charged over income statement in the period | -4,124 | 1,914 |
| Charged over comrehensive income in the period | -2,186 | -612 |
| Deferred tax liability as per 31 December | 4,513 | 10,824 |
000 USD
Movements in deferred tax / deferred tax assets (without netting of assets and liabilities)
| Deferred tax assets | C/forward losses | Receivables | Non current assets | Other | Sum |
|---|---|---|---|---|---|
| 31 December 2013 | 0 | 0 | 0 | 1,766 | 1,766 |
| Period movement | 0 | 0 | 0 | -1,190 | -1,190 |
| 31 December 2014 | 0 | 0 | 0 | 577 | 577 |
| Period movement | 1,288 | 0 | 0 | -219 | 1,069 |
| 31 December 2015 | 1,288 | 0 | 0 | 358 | 1,646 |
| Deferred tax | |||||
| 31 December 2013 | 0 | -2,569 | -7,376 | -1,344 | -11,290 |
| Period movement | 0 | 0 | 864 | -976 | -112 |
| 31 December 2014 | 0 | -2,569 | -6,512 | -2,320 | -11,402 |
| Period movement | 0 | 0 | 2,702 | 1,082 | 3,784 |
| Disposals on sale | 0 | 0 | 1,456 | 0 | 1,456 |
| 31 December 2015 | 0 | -2,569 | -2,354 | -1,238 | -6,161 |
| Net deferred tax liabilities 2014 | 0 | -2,569 | -6,512 | -1,743 | -10,823 |
| Net deferred tax liabilities 2015 | 1,288 | -2,569 | -2,354 | 880 | -4,513 |
PP&E consists predominately of investment property.
The Group has tax losses of 1,338 (2014: 603) that are available indefinitely for offset against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they may only be used to offset taxable profits of certain companies in the Group, and there is uncertainty connected to future profits.
| NOTE 20 | Earnings per share | |
|---|---|---|
| Ordinary earnings per share | 2015 | 2014 |
|---|---|---|
| Net profit attributable to ordinary equity holders of parent company (000 USD) | -4,794 | 16,234 |
| Weighted average number of shares | 18,345,623 | 18,355,116 |
| Net profit per share attributable to ordinary equity holders (1 USD) | -0.26 | 0.88 |
| Total comprehensive income per share | 2015 | 2014 |
|---|---|---|
| Total comprehensive income (000 USD) | -16,787 | -34,244 |
| Weighted number of shares | 18,345,623 | 18,355,116 |
| Total comprehensive income per share (1 USD) | -0.92 | -1.87 |
The Group has an asset management agreement with Storm Capital Management Ltd. and Storm Capital Partners Ltd on Asset Management and administrative services. Board member Morten E. Astrup and Managing director Erik M Mathiesen are shareholders in in Storm Capital Partners Ltd.
The fee is calculated based on 2% of net asset value, calculated annually at 31 December and adjusted for changes in capital. According to the management agreement the fee has been split with 25% payable to Storm Capital Partners Ltd and 75% to Storm Capital Management Ltd.From September 2015, the fee has been paid in full to Storm Capital Management Ltd.
In December 2015 the Company received a notice of termination of the management agreement from Storm Capital Management Ltd. The agreement expires 21 December 2016. See note 25 regarding contingent liability.
| 000 USD |
|---|
| --------- |
000 USD
000 USD
| Transactions with related parties | 2015 | 2014 |
|---|---|---|
| Storm Capital Management Ltd. | 655 | 1.215 |
| Storm Capital Partners Ltd. | 123 | 378 |
| Total related party transactions | 778 | 1,593 |
| Investments in fund managed by Storm Capital Management Ltd | 2015 | 2014 |
| Storm Bond Fund | 2,543 | 6,987 |
| Sum | 2,543 | 6,987 |
The balance againts related parties other than group companies were nil as of 31 December 2015 and 31 December 2014.
Information regarding this aspect is included in the note regarding the parent company. See note 12 in the financial statement of Storm Real Estate ASA.
See note 2.5 for a description of the company's operating segments.
The segment investment property in Russia contains elements from several group companies, e.g. borrowing costs and hedging derivatives which are from the parent company.
000 USD
| Segment profits | Real estate shares | Property Russia | Other | Sum |
|---|---|---|---|---|
| Operating income | 0 | 10,365 | 0 | 10,365 |
| Direct propery related expenses | 0 | -1,718 | 0 | -1,718 |
| Indirect administration costs | 0 | -449 | -1,379 | -1,828 |
| Value change investment property measures | ||||
| in local currency RUB | 0 | -7,461 | 0 | -7,461 |
| Operating profit | 0 | 736 | -1,379 | -643 |
| Finance income | -95 | 42 | 317 | 264 |
| Finance costs | 0 | -3,382 | -460 | -3,841 |
| Sale of subsidiary | 0 | -1,810 | 0 | -1,810 |
| Net currency income / costs | -1,454 | -295 | 647 | -1,102 |
| Earnings before tax | -1,549 | -4,709 | -875 | -7,133 |
| Tax | 0 | -628 | 2,967 | 2,339 |
| Annual profit | -1,549 | -5,337 | 2,092 | -4,794 |
| Other comprehensive income | 0 | -11,993 | 0 | -11,993 |
| Total Comprehensive Income | -1,549 | -17,330 | 2,092 | -16,787 |
| Assets and Liabilities | Real estate shares | Property Russia | Other | Sum |
|---|---|---|---|---|
| Assets | 12,641 | 47,936 | -2,225 | 58,351 |
| Liabilities | 0 | 30,646 | 5,707 | 36,352 |
| Net asset values | 12,641 | 17,290 | -7,932 | 22,000 |
The group has in 2015 sold the shares in group company Pete Ltd including its subsidiary CJSC Grifon. Total comprehensive income includes a loss on realisation of these shares as follows:
| 500 15,073 -9,885 -2,878 2,310 |
|---|
| 2,878 |
| 9,885 |
| 13,263 |
In December 2015 the company received notice of termination of the management agreement with Storm Capital Management Ltd. The board is in a process of assessing the future management of the company, of which one of several options is that Storm Capital Management continues to manage the company. In the event that the contract is finally terminated in December 2016, Storm Real Estate ASA will incur a liability of a one-off amount equivalent to 12 months management fee at 2015 level (approx 5.8 million NOK).
There are no events after the closing date which are considered to be materially relevant to the annual accounts for 2015.
| All numbers in 000 USD | Note | 2015 | 2014 |
|---|---|---|---|
| Other income | 0 | 384 | |
| Total income | 0 | 384 | |
| Personnel expenses | 8 | -121 | -124 |
| Other operating expenses | 7 | -1,177 | -2,016 |
| Total operating expenses | -1,298 | 2,140 | |
| Operating profit (loss) before fair value adjustments | -1,298 | -1,757 | |
| Finance revenues | 6 | 4,308 | 10,501 |
| Finance expenses | 6 | 1,263 | -33,116 |
| Disposal of subsidiary | 14 | 492 | 0 |
| Currency exchange gains (losses) | 6 | -1,000 | -2,175 |
| Net financial gains (losses) | 2,536 | -24,791 | |
| Earnings before tax (EBT) | 1,238 | -26,547 | |
| Income tax expense | 10 | -629 | 3,118 |
| Profit (loss) for the period | 1,867 | -29,665 | |
| Other comprehensive income: | |||
| Exchange differences on net investments in foreign operations | 0 | 0 | |
| Tax effects on exchange differences on net investments | 0 | 0 | |
| Translation differences from foreign operations | 0 | 0 | |
| Other comprehensive income, net of tax | 0 | 0 | |
| Total Comprehensive income for the period | 1,867 | -29,665 |
Storm Real Estate ASA
| All numbers in 000 USD | Note | 31.12.2015 | 31.12.2014 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Investment in subsidiaries | 2 | 45,751 | 5 |
| Financial derivative assets | 3 | 12,641 | 14,192 |
| Loans to subsidiaries | 13 | 40,595 | 79,556 |
| Total non-current assets | 98,986 | 93,752 | |
| Current assets | |||
| Receivables from group companies | 13 | 32,647 | 0 |
| Financial investments | 3 | 4,651 | 1,312 |
| Other receivables | 5 | 12 | 58 |
| Cash and cash equivalents | 1,021 | 1,098 | |
| Total current assets | 38,330 | 2,468 | |
| TOTAL ASSETS | 137,317 | 96,220 | |
| EQUITY AND LIABILITIES | |||
| Paid-in equity | |||
| Ordinary shares | 12 | 1,236 | 1,236 |
| Share premium | 21,036 | 21,036 | |
| Other paid-in equity | 56,763 | 56,763 | |
| Total paid-in equity | 79,035 | 79,035 | |
| Other equity | |||
| Other equity | 58,148 | -32,790 | |
| Total other equity | -58,148 | -32,790 | |
| TOTAL EQUITY | 20,887 | 46,245 | |
| Liabilities | |||
| Non-current liabilities | |||
| Loans from credit institutions | 4 | 0 | 39,833 |
| Deferred tax liabilities | 10 | 2,797 | 4,345 |
| Financial derivatives | 3 | 817 | 1,986 |
| Loans from group companies | 13 | 47,411 | 0 |
| Total non-current liabilities | 51,026 | 46,164 | |
| Current liabilities | |||
| Trade liabilities | 29 | 52 | |
| Corporate tax payable | 10 | 216 | 964 |
| Loans from credit institutions | 4 | 24,707 | 2,606 |
| Financial derivatives | 3 | 549 | 0 |
| Payables to group companies | 13 | 39,677 | 0 |
| Other short-term liabilities | 9 | 226 | 190 |
| Total current liabilities | 65,404 | 3,811 | |
| TOTAL LIABILTIES | 116,430 | 49,975 | |
| TOTAL EQUITY AND LIABILITIES | 137,317 | 96,220 |
Oslo, 16 March 2016 The Board of Directors and General Manager of Storm Real Estate ASA
Stein Aukner Chairperson
Morten E. Astrup Board member
Nini E.H. Nergaard
Board member
Silje Augustsson Board member
Kim Mikkelsen Board member
Erik M. Mathiesen General manager
| All numbers in 000 USD | Note | 2015 | 2014 |
|---|---|---|---|
| Cash Flow from operational activities | |||
| Earnings before tax | 1,238 | -26,547 | |
| adjusted for : | |||
| finance income | 6 | -4,308 | -10,501 |
| finance expenses | 6 | 1,263 | 33,116 |
| disposal of subsidiary | 14 | -492 | 0 |
| net currency gains | 1,853 | 4,056 | |
| Cash Flow before changes in working capital | -445 | 124 | |
| Change in working capital: | |||
| trade receivables and other receivables | 46 | 9,541 | |
| trade payables and other payables | -7 | -53 | |
| paid taxes | -969 | -1,815 | |
| Net cash flow from operational activities | -1,376 | 7,797 | |
| Net cash flow from investment activities Net payments in/out from intra-group loans |
17,692 | 0 | |
| Payments out for financial investments | -3,179 | 1,246 | |
| Payments in for financial investments | 5,365 | -3,784 | |
| Sale of subsidiary, net of cash | 553 | 0 | |
| Dividends received Interest received |
2,376 189 |
0 5,532 |
|
| Net cash flow from investment activities | 22,996 | 2,995 | |
| Cash flow from financing activities | |||
| Repayment of loans | 4 | -17,823 | -2,544 |
| Purchase of treasury shares | 12 | 0 | -434 |
| Dividends paid | 0 | -4,948 | |
| Interest paid | -3,833 | -3,083 | |
| Net cash flow from financing activities | -21,655 | 11,009 | |
| Net change in cash and cash equivalents | -35 | -218 | |
| Carried forward cash and cash equivalents | 1,098 | 1,358 | |
| Addition via merger | 28 | 0 | |
| Currency exchange variation on cash and cash equivalents | -69 | -42 | |
| Cash and cash equivalents at end of period | 1,021 | 1,098 | |
| Including restricted cash and deposits | 238 | 372 |
| Paid-in equity | Other equity | ||||||
|---|---|---|---|---|---|---|---|
| Share capital |
Share premium |
Other paid-in equity |
Treasury shares |
Retained earnings |
Total equity |
||
| 1 January 2014 | 1,296 | 21,036 | 61,732 | -50 | -2,700 | 81,316 | |
| Net purchase of treasury shares | -10 | -424 | -434 | ||||
| Deletion of treasury shares | -60 | 60 | 0 | 0 | |||
| Profit (loss) for the period | -29,665 | -29,665 | |||||
| Dividends | -4,971 | -4,971 | |||||
| Total | -60 | 0 | -4,971 | 50 | -30,089 | -35,070 | |
| 31 December 2014 | 1,236 | 21,036 | 56,761 | 0 | -32,789 | 846,245 | |
| 1 January 2015 | 1,296 | 21,036 | 61,732 | -50 | -2,700 | 81,316 | |
| Profit (loss) for the period | 1,867 | 1,867 | |||||
| Merger with subsidiary | -27,226 | -27,226 | |||||
| Total | 0 | 0 | 0 | 0 | -25,359 | -25,359 | |
| 31 December 2015 | 1,236 | 21,036 | 56,761 | 0 | -58,148 | 20,887 |
Storm Real Estate ASA is a public limited liability company registered in Norway. Its head office is at Dronning Mauds gate 3, Oslo. Storm Real Estate ASA uses a simplified version of IFRS as accounting principle. There are no material effects in comparison with ordinary IFRS principles used in the Group. Also see note 3 to the consolidated accounts for further information on accounting principles.
Subsidiaries and investments in related companies are recognised as cost. Investments are recognised at cost for investments in subsidiaries unless there have been impairment of the values. A write-down to fair value will be done if the impairment is not considered temporary and impairment is considered required by IFRS. Write-downs will be reversed if the requirement for impairment is no longer present.
Income is recognised when it is probable that transactions will generate future economic benefits in favour of the company, and the amount can be reliably estimated. Sales revenues are presented net of value added tax and discounts. Revenues from sale of services are recognised in line with the provision of the services.
| SRE ASA investment in subsidiaries | Location | Formed/ | acquired Ownership | Equity 31.12.2015 |
Book value SRE ASA 2015 |
Book value SRE ASA 2014 |
|---|---|---|---|---|---|---|
| Storm Real Estate Ltd | Cyprus | 2009 | 100% | -68 | 1 | 1 |
| Tiberton Yard Holding 2 Ltd | Cyprus | 2015 | 100% | 4 | 2 | 0 |
| Tiberton Yard Finance Ltd | Cyprus | 2008 | 100% | -10,170 | 3 | 3 |
| Gasor Consulting Ltd * | Cyprus | 2015* | 100% | 2,616 | 45,744 | 0 |
| LLC Martex ** | Russia | 2007 | 100% | - | - | - |
| Sum | -7,617 | 45,744 | 5 |
* Investment in Gasor Consulting Ltd is resulting from a merger between Storm Real Estate ASA and Tiberton Yard Ltd in 2015. ** LLC Martex is a subsidiary of subsidiary, 100% owned by Gasor Consulting Ltd.
Storm Real Estate ASA has in 2015 undertaken a cross border merger with its subsidiary Tiberton Yard Ltd (Cyprus), with Storm Real Estate ASA as the surviving entity. The merger is a parent/ subsidiary merger without compensation and is accounted for using the continuity method.
| Financial investments | 31.12.2015 | 31.12.2014 |
|---|---|---|
| Held-for-trading investments: quoted equity shares | 12,641 | 14,192 |
| Held-for-trading investments: quoted equity bonds | 2,107 | 1,312 |
| Held-for-trading investments: fund investments | 2,543 | |
| Sum financial investments | 17,291 | 15,503 |
| Derivative assets not designated as hedges | 31.12.2015 | 31.12.2014 |
| Foreign exchange forward contracts | 35 | 0 |
| Sum derivative assets not designated as hedges | 35 | 0 |
| Total other financial assets | 17,326 | 15,503 |
| Derivative liabilities not designated as hedges | 31.12.2015 | 31.12.2014 |
| Interest rate swaps | -1,401 | -1,951 |
| Sum derivative liabilities not designated as hedges | -1,401 | -1,951 |
| Total other financial liabilties | -1,401 | -1,951 |
| Interest bearing loans | 31.12.2015 | 31.12.2014 |
| Interest bearing loans | 24,707 | 42,438 |
The parent company has entered into interest swap agreements which fixes the interest on parts of the loan. Fair values of the interest swaps are calculated based on expectations on future cash flows with today's interest rates and the yield curve over the remaining fixed period. The company does not use hedge accounting.
Total interest bearing loans 24,707 42,438
ASA
The below table shows an analysis of fair values of assets and liabilities in the parent company, grouped by level in the fair value hierarchy, which either are measured at fair value or where information about the fair value is provided.
| 000 USD | ||||
|---|---|---|---|---|
| Financial assets measured at fair value | Level 1 | Level 2 | Level 3 | Sum |
| Held-for-trading investments: listed shares | 12,641 | 0 | 0 | 12,641 |
| Held-for-trading investments: listed bonds | 2,107 | 0 | 0 | 2,107 |
| Held-for-trading investments: investment funds | 2,543 | 0 | 0 | 2,543 |
| Foreign exchange forward contracts | 0 | 35 | 0 | 35 |
| Sum | 17,291 | 35 | 0 | 17,326 |
| Financial liabilties measured at fair value | ||||
| / where fair value must be presented | Level 1 | Level 2 | Level 3 | Sum |
| Interest bearing borrowings | 0 | 24,780 | 0 | 24,780 |
| Interest rate swaps | 0 | 1,401 | 0 | 1,401 |
| Sum | 0 | 26,181 | 0 | 26,181 |
| Interest bearing borrowings at amortised cost | Rente | Forfall | 31.12.2015 | 31.12.2014 |
|---|---|---|---|---|
| Secured bank loan I | LIBOR + margin | 2018 | 24,707 | 31,353 |
| Secured bank loan II | LIBOR + margin | 2016 | 0 | 11,086 |
| Sum interest bearing borrowings at amortised cost | 24,707 | 42,438 |
The nominal value of bank loan I as of 31 December 2015 was 24,780 and as of 31 December 2014 was 31,443.
The investment property Gasfield in Moscow is pledged as security for the bank loan, book value USD 38,950K.
The interest on the loan is calculated based on 3 month USD LIBOR plus the following margins:
| For loan to value up to 50% | 4,50% |
|---|---|
| For loan to value up to 55% | 4,75% |
| For loan to value up to 60% | 5,00% |
| For loan to value up to 65% | 5,50% |
| For loan to value up to 70% | 6,00% |
| For loan to value over 70% | 8,00% |
The prinicpal on the loans are repaid according to the following schedule:
Year 1-2 from start date: 1,5% of balance per year Year 3-4 from start date: 3,0% of balance per year Year 5-10 from start date: 5,7% of balance per year Repayment of residual at the maturity of the loan period.
The loan contain financial covenants, inter alia on loan to value (maximum 70% of the valuation made by independent valuer) and covenant on equity ratio (minimum 20%).
According to the loan agreement with the bank, it is required that the Company has a borrowing rate of maximum 70% relative to the valuation made by an independent valuer. If the LTV ratio is exceeded the company has an unconditional right to make a subsequent payment of the amount required to restore compliance of the LTV ratio. As at 31/12/2015 the Company had a LTV of 71% of the said valuation. According to the loan agreement the Company has an unconditional right to make a subsequent payment to resore the LTV ratio, within a period of 45+14 days. The company is not in breach with the commercial loan agreement on the closing date.
As at 31/12/2015 the next quarterly amortisation amount was sufficient to recover the LTV ratio to below 70%. For that reason it was not necessary to make a payment over and above the ordinary instalment, if the payment is moved forward so that it is made within 45+14 days from the reporting date. The Company has after the reporting date made this payment.
The company has classified the loan as current in accordance with the auditor's interpretation of Accounting Standard IAS 1.69 and 1.74 to 75. This despite the fact that the company disagrees with the auditor's interpretation of the aforementioned IFRS standards. The Company believes that the criteria for requirements on classification of debt as current is not met and that this could give a misleading picture of its financial position. A classification as if the debt has become due for payment, and as if it is to be repaid within 12 months is not in accordance with the commercial reality.
| Other receivables | 31.12.2015 | 31.12.2014 |
|---|---|---|
| Taxes receivable | 0 | 16 |
| Other receivables | 12 | 42 |
| Sum other receivables | 12 | 58 |
| Finance income | 2015 | 2014 |
|---|---|---|
| Interest income | 178 | 49 |
| Changes in fair value, held-for-trading financial investments | 0 | 3,179 |
| Interest gains from group companies | 5,181 | 7,272 |
| Dividends from subsidiaries | 2,376 | 0 |
| Gains from the disposal of shares in subsidiaries | 492 | 0 |
| Reversal of provision for bad debts against group companies *) | 2,150 | 0 |
| Other finance revenues | 0 | 1 |
| Sum finance income | 10,377 | 10,501 |
| Finance costs | 2015 | 2014 |
|---|---|---|
| Interest costs from loans measured at amortised cost | -3,232 | -3,058 |
| Changes in fair value, financial derivatives over profit and loss | -113 | -940 |
| Changes in fair value, held-for-trading financial investments | -351 | 0 |
| Provision for losses on intra-group receivables *) | 0 | -29,055 |
| Interest costs from group companies | -3,076 | 0 |
| Other finance costs | -68 | -63 |
| Sum finance costs | -6,840 | -33,116 |
| Foreign exchange gains and losses | 2015 | 2014 |
|---|---|---|
| Foreign exchange gains | 888 | 1,913 |
| Foreign exchange losses | -1,882 | -4,089 |
| Sum foreign exchange gains and losses | -994 | -2,175 |
| Net finance gains (losses) | 2,543 | -24,791 |
*) The parent company has made a provision for losses on intra-group receivables from group companies. As a consequence of reduced valuations on the Group's investment property in Russia, the company's subsidiaries are as per 31.12.2014 and 31.12.2015 not considered fully capable to meet its liabilities towards the parent company.
| Other operating expenses | 2015 | 2014 |
|---|---|---|
| Management fees | 716 | 1.512 |
| Legal, agency and consultancy fees | 104 | 27 |
| Auditors | 155 | 218 |
| Other operating expenses | 201 | 259 |
| Sum other operating expenses | 1,177 | 2,016 |
| Auditor fees | (auditor fees are quoted excl. vat) | 2015 | 2014 |
|---|---|---|---|
| Audit fees | 53 | 70 | |
| Other services | 102 | 148 | |
| Sum auditor expenses | 155 | 218 |
| Personnel costs | 2015 | 2014 |
|---|---|---|
| Board fees | 112 | 109 |
| Social security taxes | 9 | 16 |
| Sum personnel costs | 121 | 124 |
The parent company did not have any employees in 2014 or 2015 and therefore no pension scheme.
| Board fees (incl fees for board committees) paid out in the year | 2015 | 2014 |
|---|---|---|
| Stein Aukner, chairman of the board | 290 | 290 |
| Morten E. Astrup | 0 | 0 |
| Nini H. Nergaard | 125 | 125 |
| Kim Mikkelsen | 165 | 165 |
| Christopher W Ihlen | 125 | 125 |
| Fredrikke Aaeng (former board member) | 51 | 165 |
| Sum board fees | 756 | 870 |
Board fees for 2014-2015: Chairman of the board: 250.000 kroner Board members: 125.000 kroner Audit committee 40.000 kroner
Board fees for 2015-2016 are subject to approval by the Annual General Meeting in May 2016.
| 2015 | 2014 | |
|---|---|---|
| Accrued expenses | 167 | 190 |
| Other current liabilities | 59 | 0 |
| Sum other current liabilities | 226 | 190 |
| Income statement | 2015 | 2014 |
|---|---|---|
| Current income tax | 241 | 964 |
| Movement in deferred tax | -945 | 2,154 |
| Movement in deferred tax due to changes in tax rates | 75 | 0 |
| Sum income tax | -629 | 3,118 |
| Basis for taxation, parent company | 2015 | 2014 |
| Earnings before tax in functional currency USD | 1,238 | -26,547 |
| FX variations between functional currency and tax currency | -4,141 | 12,521 |
| Income and expenses not subject to taxation | 1,925 | 25,573 |
| Movement in temporary differences | -1,763 | -7,976 |
| Basis for taxation | -2,740 | 3,571 |
| Tax payable | 0 | 964 |
ASA
000 NOK
| Temporary differences, parent company | 31.12.2015 | 31.12.2014 | Change |
|---|---|---|---|
| Financial liabilties | 1,360 | 2,069 | -709 |
| Receivables | -15,288 | -18,163 | 2,875 |
| Tax losses carried forward | 2,740 | 0 | 2,740 |
| Sum temporary differences | -11,188 | -16,094 | 4,906 |
| Tax rate | 25% | 27% | 27% |
| Deferred tax | -2,797 | -4,345 | 1,548 |
| Share capital and nominal value | 31.12.2015 | 31.12.2014 |
|---|---|---|
| Shares issued | 18,345,623 | 18,345,623 |
| Nominal amount | 0,40 | 0,40 |
| Share capital | 7,338,249 | 7,689,969 |
All shares are fully paid. There is only one share class. All shares have equal rights.
| Treasury shares | 2015 | 2014 |
|---|---|---|
| Per 1 January | 0 | 721,799 |
| Purchased in the period | 0 | 0 |
| Sold in the period | 0 | 0 |
| Deleted in the period | 0 | -721,799 |
| Per 31 December | 0 | 0 |
| Average no of treasury shares in the period | 0 | 296,455 |
NOK
| 20 largest shareholders as of 31 December 2015 | Type | Country | Shares | % |
|---|---|---|---|---|
| SKANDINAVISKA ENSKILDA BANKEN AB | NOM | SWEDEN | 3,135,608 | 17.1 % |
| ACONCAGUA MANAGEMENT LTD | LUXEMBOURG | 3,000,000 | 16.4 % | |
| J.P. MORGAN BANK LUXEMBOURG SA | NOM | UK | 830,000 | 4.5 % |
| STORM NORDIC FUND SICAV SIF | SWEDEN | 800,000 | 4.4 % | |
| DEUTSCHE BANK AG | NOM | UK | 709,759 | 3.9 % |
| BJØRGVIN AS | NORWAY | 579,675 | 3.2 % | |
| BANAN II AS | NORWAY | 476,338 | 2.6 % | |
| FINANSFORBUNDET | NORWAY | 416,650 | 2.3 % | |
| AUBERT VEKST AS | NORWAY | 373,304 | 2.0 % | |
| ØRN NORDEN AS | NORWAY | 348,060 | 1.9 % | |
| TDL AS | NORWAY | 182,250 | 1.0 % | |
| THORE HYGGEN | NORWAY | 181,250 | 1.0 % | |
| MOTOR-TRADE EIENDOM OG FINANS AS | NORWAY | 180,000 | 1.0 % | |
| INGRID MARGARETH LANGBERG | NORWAY | 173,750 | 0.9 % | |
| STORM CAPITAL MANAGEMENT | UK | 160,000 | 0.9 % | |
| ALBION HOLDING AS | NORWAY | 155,000 | 0.8 % | |
| SVENSKA HANDELSBANKEN AB FOR PB | NOM | NORWAY | 150,000 | 0.8 % |
| AAA MANAGEMENT SUPPORT AS | NORWAY | 100,000 | 0.5 % | |
| STORM CAPITAL PARTNERS LTD. | LUXEMBOURG | 98,855 | 0.5 % | |
| EUROPA LINK AS | NORWAY | 72,078 | 0.4 % | |
| Sum 20 largest shareholders | 12,122,827 | 66.1 % | ||
| OTHER SHAREHOLDERS | 6,655,979 | 33.9 % | ||
| Sum | 18,345,623 | 100.0 % |
* NOM = Nominee investor owning shares on behalf of clients.
The shareholder list shows the shareholder register from VPS as at 31 December 2015.
Any trades via brokers before the closing date which is registered after the closing date is not reflected in the shareholder list.
| Shares held by board members | Shares | % | |
|---|---|---|---|
| Morten E. Astrup | via Aconcagua Management Ltd, Storm Nordic Fund, Ørn Norden AS, | 4,406,915 | 24.0 % |
| Storm Capital Management Ltd and Storm Capital Partners Ltd | |||
| Kim Mikkelsen | via Strategic Investments A/S | 3,135,608 | 17.1 % |
| Stein Aukner | via Banan AS and Aukner Holding AS | 501,338 | 2.7 % |
| Christopher W. Ihlen | via Kevlar AS | 12,500 | 0.1 % |
| Sum | 8,056,361 | 43.9 % |
Erik Mathiesen (CEO) has an indirect holding in the company by investings in Storm Nordic Fund, Storm Capital Management Ltd and Storm Capital Partners Ltd.
The Group has an asset management agreement with Storm Capital Management Ltd. and Storm Capital Partners Ltd on Asset Management and administrative services. Board member Morten E. Astrup and Managing director Erik M Mathiesen are shareholders in in Storm Capital Partners Ltd.
The fee is calculated based on 2% of net asset value, calculated annually at 31 December and adjusted for changes in capital. According to the management agreement the fee has been split with 25% payable to Storm Capital Partners Ltd and 75% to Storm Capital Management Ltd.From September 2015, the fee has been paid in full to Storm Capital Management Ltd.
In December 2015 the Company received a notice of termination of the management agreement from Storm Capital Management Ltd. The agreement expires 21 December 2016, See note 15 regarding contingent liability.
| Transactions with | 2015 | 2014 |
|---|---|---|
| Storm Capital Management Ltd. | 655 | 1,215 |
| Storm Capital Partners Ltd | 123 | 378 |
| Tiberton Yard Ltd (merged with SRE ASA in 2015) | 0 | 384 |
| Sum related party transactions | 778 | 1,977 |
The balance againts related parties other than group companies were nil as of 31 December 2014 and 31 December 2015. The parent had the following balances against group companies:
| Current receivables | 31.12.2015 | 31.12.2014 |
|---|---|---|
| Tiberton Yard Finance Ltd | 32,485 | 25,905 |
| Tiberton Yard Ltd | 0 | 84 |
| Tiberton Yard Holding 2 Ltd | 45 | 42 |
| Storm Real Estate Ltd | 72 | 60 |
| Pete Ltd (Sold in 2015) | 0 | 2,285 |
| Gasor Consulting Ltd | 46 | 0 |
| Sum current receivables from related parties | 32,647 | 28,377 |
| Provision for losses, intra-group receivables | 0 | -28,377 |
| Net book value, current receivables from related parties | 32,647 | 0 |
| Non-current receivables | 31.12.2015 | 31.12.2014 |
|---|---|---|
| Tiberton Yard Finance Ltd | 67,500 | 67,500 |
| Tiberton Yard Ltd | 0 | 4,573 |
| Pete Ltd (Sold in 2015) | 0 | 8,162 |
| Sum non-current receivables from related parties | 67,500 | 80,235 |
| Provision for losses, intra-group receivables | -26,905 | -678 |
| Net book value, non-current receivables from related parties | 40,595 | 79,556 |
| Current liabilities | 31.12.2015 | 31.12.2014 |
|---|---|---|
| Tiberton Yard Finance Ltd | -28,973 | 0 |
| Tiberton Yard Holding 2 Ltd | -7 | 0 |
| Gasor Consulting Ltd | -289 | 0 |
| Liabilities towards group companies, bank cash pooling | -10,408 | 0 |
| Sum current liabilities towards group companies | -39,677 | 0 |
| Non-current liabilities | 31.12.2015 | 31.12.2014 |
| Tiberton Yard Finance Ltd | -47,411 | 0 |
| Sum non-current liabilities towards group companies | -47,411 | 0 |
| Net receivables (liabilities) , group companies | -13,847 | 79,556 |
|---|---|---|
| Recognised profit (sales price - book value) | 492 | |
|---|---|---|
| Carrying amount of the investment at the time of the sale | 3 | |
| Price for the parent company's holding of 99% of the shares in Pete Ltd | 495 | |
| In 2015 the Company sold the shares in the subsidiary Pete Ltd. The result in the parent company include a gain on the sale of the shares as shown below: |
||
| NOTE 14 | Sale of subsidiary | USD |
See note 24 in the consolidated finance statement for more information about the transaction.
In December 2015 the Company received a termination of the management agreement with Storm Capital Management Ltd. The Board is in a process where the company's future leadership is under consideration, where one of several possible outcomes is that Storm Capital Management Ltd continues to manage the company. If the result is that the management agreement is finally terminated in December 2016, Storm Real Estate incur an obligation to pay out a lump sum equivalent of 12 months equivalent of management fee at 2015 level (approx. 5,8 million NOK).
There are no events after the closing date which are considered to be materially relevant to the annual accounts for 2015.
The Board of Directors and the General Manager have today reviewed and approved the Board of Directors' report and the consolidated and separate financial statements for Storm Real Estate ASA and the Group for the 2015 calendar year as at 31 December 2015.
The consolidated financial statements have been prepared in accordance with IFRSs and related interpretations as adopted by the EU and additional disclosure requirements in the Norwegian Accounting Act and generally accepted accounting principles in Norway as at 31 December 2015. The Board of Directors' report for the Group and the Parent Company complies with the requirements in the Norwegian Accounting Act and Norwegian accounting standard no 16, as at 31 December 2015.
To the best of our knowledge:
Oslo, 16 March 2016 The Board of Directors and General Manager of Storm Real Estate ASA
Stein Aukner Chairperson
Morten E. Astrup Board member
Nini E.H. Nergaard Board member
Silje Augustsson Board member
Kim Mikkelsen Board member
Erik M. Mathiesen General manager
STORM real eastate asa
annual report 2015
Storm Real Estate ASA 100 New Bond Street London W1S 1SP United Kingdom Ph: +44 (0)20 7409 3378 Fax: +44 (0)20 7491 3464 www.stormrealestate.no
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