Interim Results for 6 months ended 30 June 2016

INTERIM CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

1.     GENERAL INFORMATION

 

Public Service Properties Investments Limited was incorporated in 2001, is domiciled in the British Virgin Islands (registered office at Nerine Chambers, Road Town, Tortola, British Virgin Islands) and is the parent company of the PSPI Group. Public Service Properties Investments Limited and its subsidiaries (together "the Group" or "the Company"), was an investment property group with a portfolio in Germany.  At 31 December 2015 the Group owned four investment properties in Germany which were presented as held for sale and their results for the year treated as discontinued operations. During the six months ended 30 June 2016 these sales successfully completed and, as such, the Group holds no investment properties at 30 June 2016. The Group has given a number of representations and warranties in respect of the various sale transactions.

 

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The principal accounting policies applied in the preparation of these interim condensed consolidated financial statements have been consistently applied to all the periods presented, unless otherwise stated.

 

2.1   Basis of preparation

 

The interim condensed consolidated financial statements of the Group have been prepared in accordance with IAS 34 "Interim Financial Reporting", published by the International Accounting Standards Board (IASB). The interim condensed consolidated financial statements are reported in Pound Sterling unless otherwise stated.

 

These interim condensed financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's Annual Financial Statements for the year ended 31 December 2015, which have been prepared in accordance with International Financial Reporting Standards ('IFRS'). These condensed consolidated interim financial statements for the six months ended 30 June 2016 and the comparative figures for the six months ended 30 June 2015 are unaudited. The extracts from the Group's Annual Financial Statements for the year ended 31 December 2015 represent an abbreviated version of the Group's full accounts for that year, on which the Auditors issued an unqualified audit report.

 

Comparative information in the interim condensed consolidated income statement for the period ended 30 June 2015 has been restated in order to be consistent with the presentation of certain items as discontinued in 2016 as detailed in Note 12.

 

The interim condensed consolidated financial statements are prepared under the historical cost convention as modified by the revaluation of investment properties, other financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results can differ from those estimates. Critical judgments made by management in the application of IFRS and key sources of estimation uncertainties were the same as those that applied to the consolidated financial statements for the year ended 31 December 2015. Income tax expense, if applicable, is recognised based upon the best estimate of the weighted average annual income tax rate expected for the financial year.

 

The accounting policies and valuation principles adopted are consistent with those of the previous financial year.

 

The Group has adopted the following,  new standards, amendments to standards and interpretations annual improvements for the six months ended 30 June 2016, which do not have significant impact on the interim consolidated financial statements.

 

Annual improvements 2010-2012 (effective 1 July 2014)

Annual improvements 2011-2013 (effective 1 July 2014)          

Amendment to IAS 19, 'Employee benefits', on defined benefit plans (effective 1 July 2014)

 

The Group is not exposed to seasonal variation in its operations.

 

 

2.2 Principles of consolidation

 

2.2.1 Subsidiaries

 

Subsidiaries are entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Group's voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial and operating policies, etc. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

 

Accounting for business combinations under IFRS 3 only applies if it is considered that a business has been acquired. The Group may invest in subsidiaries that hold properties but do not constitute a business. These transactions are therefore treated as asset acquisitions rather than business combinations.

 

For acquisitions meeting the definition of a business combination, the acquisition method of accounting is used. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.  Acquisition-related costs are expensed as incurred.

 

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

 

For acquisitions of subsidiaries not meeting the definition of a business, the Group allocates the cost between the individual identifiable assets and liabilities in the Group based on their relative fair values at the date of acquisition. Such transactions or events do not give rise to goodwill.

 

Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

All the Group companies have 31 December as their year-end. Consolidated financial statements are prepared using uniform accounting policies for like transactions. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

2.2.2 Changes in ownership interests in subsidiaries without change in control

 

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

 

2.2.3 Disposal of subsidiaries

 

When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

 

 

2.3  Amendments to accounting and valuation principles 

 

There have been no amendments to accounting or valuation principles during the period ended 30 June 2016.

 

 

3.          FINANCIAL RISK MANAGEMENT

 

3.1 Financial risk factors

 

The Group's activities expose it to a variety of financial risks: market risk (including currency and price risk), cash flow and fair value interest rate risk, credit risk and liquidity rate risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group's financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
 

Risk management is carried out by the senior management of the asset manager under policies approved by the board of directors. Senior management identifies, evaluates and hedges financial risks. The board provides principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments and investment of excess liquidity.

The interim condensed consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2015. There have been no significant changes in the risk management policies since prior year end.

 

 

3.2 Liquidity risk

 

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Management monitors rolling forecasts of the Group's liquidity reserve on the basis of expected cash flow.

 

 

3.3 Fair value estimation

 

In 2016, there were no significant changes in the business or economic circumstances that affect the fair value of the Group's financial assets and financial liabilities. In 2016, there were no reclassifications of financial assets or liabilities. During the period there have not been transfers between levels.

 

 

4.     FOREIGN EXCHANGE RATES

			Balance Sheet		Income Statement and Cash Flow Statement
					YTD	YTD
					average	average
			30 June 2016	30 June 2015	2016	2015
			£	£	£	£
EUR 1.00			1.206	1.417	1.282	1.365

 

 

5.    ADMINISTRATIVE EXPENSES

	30 June 2016                      £		30 June 2015 (restated) £		31 Dec 2015                     £
Third party company administration	37,386		35,353		76,932
Management fees	85,290		247,157		340,683
Professional fees (including audit fees)	181,211		202,464		319,735
Insurance and general expenses	41,473		28,781		49,343
	345,360		513,755		786,693

 

 

6.    a) FINANCE INCOME

	30 June 2016                      £		30 June 2015 (restated) £		31 Dec 2015                     £
Interest income - other third party	14,774		905		1,529
Net exchange gains	988,109		-		-
	1,002,883		905		1,529

 

        b) FINANCE COSTS

	30 June 2016                    £		30 June 2015     (restated)               £		31 Dec 2015                    £
Other interest and borrowing expenses	653		978		314
Net exchange losses	-		1,573,664		1,137,905
	653		1,574,642		1,138,219

 

 

7.   EARNINGS PER SHARE

           

Basic earnings per share are calculated by dividing the net profit/(loss) attributable to shareholders by the weighted average number of ordinary shares outstanding during the period.

 

 

	As of 30 June 2016   £	As of 30 June 2015 (restated) £	As of 31 Dec 2015   £
Profit / (loss) from continuing operations attributable to shareholders	656,870	(2,087,492)	(1,923,383)
Profit / (loss) from discontinued operations attributable to shareholders	(26,681)	(904,677)	(1,058,202)
Total	630,189	(2,992,169)	(2,981,585)
Weighted average number of ordinary shares outstanding	22,759,054	81,521,644	57,385,592
Basic and diluted earnings/(loss) per share (pence per share) -continued operations	2.89	(2.56)	(3.35)
Basic and diluted earnings/(loss) per share (pence per share) - discontinued operations	(0.12)	(1.11)	(1.84)
Total	2.77	(3.67)	(5.19)

 

 

ADJUSTED EARNINGS PER SHARE - NON GAAP

 

The Directors have chosen to disclose "adjusted earnings per share" in order to provide an indication of the Group's underlying business performance. Accordingly, it excludes the effect of the items as detailed below:

 

	Note	As of 30 June 2016 £		As of 30 June 2015 £		As of 31 Dec 2014 £
Net profit/(loss) attributable to shareholders		630,189		(2,992,169)		(2,981,585)
Loss on disposal of subsidiaries		-		493,276		437,435
Fair value loss on investment properties	9	-		864,815		1,442,732
Deferred income tax liability movement		-		(12,688)
Amortisation of debt issue costs		-		5,425		10,748
Impairment of loan		-		-
Repayment penalty		-		-		290,381
Recycling of cash flow hedging reserve		16,852		114,320		113,249
Non-recurring transaction fees		124,877		-		752,924
Current income tax expense		14,778		22,197		86,937
Foreign exchange (gains)/losses	6b	(988,109)		1,573,664		1,137,905
Total adjusted earnings		(201,413)		68,840		1,290,726
Weighted average number of ordinary shares outstanding		22,759,054		81,521,644		57,385,592
Basic adjusted and diluted earnings/(loss) per share (pence per share)		(0.08)		0.08		0.22

8.  DIVIDENDS

 

 

No dividends have been paid during the period ended 30 June 2016, or in the year ended 31 December 2015. See Note 11 for details of Compulsory Partial Redemptions of Ordinary Shares made.

 

 

9.  INVESTMENT PROPERTY        

 

	30 June 2016   £	30 June 2015 (restated) £	31 Dec 2015   £
Beginning of the period/year	-	15,954,390	15,954,390
Net (loss)/gain on fair value adjustment - discontinued	-	(864,815)	(1,442,732)
Disposals	-	-	(3,933,853)
Transferred to disposal group classified as held for sale	-	(3,811,406)	(9,580,381)
Net changes in fair value adjustments due to exchange differences	-	(1,530,964)	(997,424)
End of the period/year	-	9,747,205	-

 

 

 

Disposal of investment property and investment property held for sale

 

On 2 February 2016 the Group announced it had exchanged binding contracts to dispose of the Brakel property for a gross price of €3 million. On 10 March 2016 the Group announced the sale of the three remaining assets leased to Marseille Kliniken for a gross price of €10 million. After these sales the Group has disposed of all investment property held in all jurisdictions. Prior to the transfer to the disposal group classified as held for sale, these properties were written down to their estimated sales values.

 

Included in investment property held for sale as at 31 December 2015 are the four remaining investment properties held at this date by the Company in Germany (Brakel, Buren, Arnsberg and Kreuztal-Kromabch); these were approved for sale in 2015. At 30 June 2015 these investment properties were valued by Colliers International Property Consultants Limited ("Colliers"). The valuation basis is market value and conforms to international valuation standards. The main inputs in the model are the annual net rental and the average capitalisation rate of 11.7%. The capitalisation rate is based on properties in similar conditions and reflects the expectations on future incomes. Given the unobservable inputs used for the valuation, the fair value is of level 3. Colliers is a qualified independent valuer who holds recognised and relevant professional qualifications and has recent experience in the relevant locations and category of properties being valued. The valuations were presented before estimated purchasers' costs; however, sellers' costs are not included.

 

. 

 

Included in investment property held for sale as at 30 June 2015 is one property in Germany (Huttenstrasse, Berlin). The Directors approved the sale of this property prior to 30 June 2015 and the Group announced its sale on 9 July 2015 for a gross sale price of €5.4 million (£3.9 million). Prior to transfer to the disposal group classified as held for sale, this property was written down to its sale value.

 

 

Disposals during the year ended 31 December 2015 relate to the sale of one care home in Germany (Huttenstrasse, Berlin). This property was written down to its sales value of €5.4 million (£3.9 million) prior to disposal. In doing so the Group recognised a loss of €0.6 million (£0.4 million) which is included in the net losses on fair value adjustments of £1.4 million in the table above.

 

 

 

10. RECEIVABLES AND PREPAYMENTS

 

	30 June 2016 £		30 June 2015 £		31 Dec 2015 £
Deferred consideration	-		2,500,000		-
Prepayments	18,057		63,326		64,954
	18,057		2,563,326		64,954

 

 

Included in receivables and prepayments as at 30 June 2015 is an amount of £2.5 million in relation to the disposal of the Wellcare portfolio of UK properties and businesses, which was concluded on 4 March 2015. The total consideration for the sale of the Wellcare portfolio was £34.5 million of which £2.5 million was deferred until 31 December 2015 and payable if Embrace was successful in tendering for certain ongoing domiciliary care contracts. On 30 April 2015 the Company was notified by Embrace that it had been successful in tendering.  Accordingly, the deferred amount was received on 31 December 2015.

 

 

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable and prepayment mentioned above.

 

None of the receivables and prepayments are impaired.

 

 

11.   SHARE CAPITAL

 

	30 June 2016 £		30 June 2015 £		31 Dec 2015 £
Authorised:
Equity interests:
500,000,000 Ordinary shares of $0.01 each	2,569,974		2,569,974		2,569,974
Allotted, called up and fully paid:
Equity interests:
105,365,717 Ordinary shares of $0.01 each	-		-		-
37,931,697 Ordinary shares of $0.01 each	-		218,060		-
22,759,054 Ordinary shares of $0.01 each	130,836		-		130,836

 

 

 

	Number of shares	Ordinary shares £	Share premium £	Total   £
At 31 December 2014	105,365,717	605,722	89,736,103	90,341,825
Compulsory partial redemption - 27 April 2015	(67,434,020)	(387,662)	(15,712,210)	(16,099,872)
At 30 June 2015	37,931,697	218,060	74,023,893	74,241,953
Compulsory partial redemption - 9 November 2015	(15,172,643)	(87,224)	(5,450,791)	(5,538,015)
At 31 December 2015 and 30 June 2016	22,759,054	130,836	68,573,102	68,703,938

 

 

   Compulsory Partial Redemption of Ordinary Shares

 

On 14 April 2015 the Company announced the Compulsory Partial Redemption of 67,434,020 ordinary shares at 23.875p per ordinary share redeemed. On 27 April 2015, the Company completed the redemption of these shares for a total consideration of approximately £16.1 million. The Company's share capital after the partial redemption comprised 37,931,697 ordinary shares of $0.01 each.

 

On 26 October 2015 the Company announced a further Compulsory Partial Redemption of 15,172,643 shares at 36.50p per ordinary share redeemed. On 9 November 2015, the Company completed the redemption of these shares for a total consideration of approximately £5.5 million. The Company's share capital after the partial redemption comprised 22,759,054 ordinary shares of $0.01 each.

 

Following the completion of the sales of the Group's remaining investment properties in the six months to 30 June 2016 (as outlined in Note 9), the Company announced a further Compulsory Partial Redemption on 23 June 2016 of approximately 22.5 million shares which was completed on 7 July 2016. (See Note 15).

 

 

12.  NON-CURRENT ASSETS HELD FOR SALE, DISCONTINUED OPERATIONS AND OTHER TRANSACTIONS

 

a)     Non-current assets held for sale

 

As at 31 December 2015, the assets and liabilities directly associated with the four remaining German investment properties held by the group were presented as held for sale and written down to their anticipated sales value following the approval for their disposal in 2015.

 

As at 31 December 2015, the properties were available for immediate sale and being actively marketed, with negotiations with potential buyers at an advanced stage. Other assets and liabilities directly associated with the investment properties which will be disposed of in the same transaction have also been presented in this disposal group.

 

The sale of the four remaining properties was completed by two transactions in February and March 2016 (see Note 9) after which the Group held no investment property. Borrowings secured on these assets were repaid from proceeds received.

 

As at 30 June 2016 any assets and liabilities directly associated with these properties, have been presented in the disposal group and classified as held for sale for consistency of presentation. These relate to taxation receivable and accruals in relation to unpaid transaction fees.

 

As at 30 June 2015, one investment property in Germany (Huttenstrasse) has been presented as available for sale. This property was approved for sale prior to 30 June 2015 and the Group announced its sale on 9 July 2015 for a gross sale price of €5.4 million (£3.8 million).

 

 

Assets of disposal group classified as held for sale:

 

	30 June 2016 £		30 June 2015 £		31 Dec 2015 £
Investment property	-		3,811,406		9,580,381
Receivables and prepayments	27,291		-		27,291
Cash and cash equivalents	-		-		207,964
Restricted cash	-		-		500,074
	27,291		3,811,406		10,315,710

 

Liabilities of disposal group classified as held for sale:

 

 

	30 June 2016 £		30 June 2015 £		31 Dec 2015 £
Borrowings	-		-		3,055,556
Deferred income tax	-		9,221		-
Accruals	126,097		-		720,928
Derivative financial instruments	-		-		158,954
	126,097		9,221		3,935,438

 

 

 

 

12.  NON-CURRENT ASSETS HELD FOR SALE, DISCONTINUED OPERATIONS AND OTHER TRANSACTIONS (Continued)

 

 

b)     Discontinued operations

 

In the year ended 31 December 2015, the results of the German segment of the business were treated as discontinued operations as it represents a significant segment of the business and the four remaining investment properties were presented as available for sale at 31 December 2015.

 

As mentioned in Note 12 a) the sales of the final four investment properties owned by the Group completed in February and March 2016. The result of the German segment to the point of disposal has been treated as discontinued in the period to 30 June 2016.

 

The comparative information for the period ended 30 June 2015 has been restated to reflect this treatment in the table below:

 

	30 June 2016   £		30 June 2015 (restated) £		31 Dec 2015   £
Revenue	352,970		816,929		1,469,151
Net loss from fair value adjustments on investment properties	-		(864,815)		(1,442,732)
Gain/(loss) on disposal of subsidiaries - UK	-		(519,969)		67,822
Gain/(loss) on disposal of subsidiaries - Germany	(129,076)		-		(701,484)
Administrative expenses	(175,767)		(131,415)		(215,560)
Finance income	-		67		83
Finance costs	(60,030)		(195,965)		(322,419)
Income tax expense	(14,778)		(9,509)		86,937
Gain/(loss) for the year from discontinued operations	(26,681)		(904,677)		(1,058,202)