«ATLAS ESTATES LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 Atlas Estates Limited Martello Court Admiral Park St Peter Port ...»
1. Financial risk management
1.1 Financial risk factors The activities of the Company’s subsidiaries exposes the Group to a variety of financial risks: market risk (including currency risk, price risk and cash flow interest rate risk), credit risk and liquidity risk. As a result, the Company is also exposed to the same financial risks. The Company’s financial risks relate to the following financial instruments: loans and receivables, cash and cash equivalents and trade and other payables. The accounting policy with respect to these financial instruments is described above.
Risk management is carried out by the Property Manager under policies approved by the Board of Directors.
The Property Manager identifies and evaluates financial risks in close co-operation with the Group’s operating units. The Board approves written principles for overall risk management, and is overseeing the development of policies covering specific areas such as foreign exchange risk and interest-rate risk. The Property Manager may call upon the services of a retained risk management consultant in order to assist with its risk assessment tasks.
Reports on risk management are produced periodically on an entity and territory level to the key management personnel of the Group and of the Company.
(a) Market risk (i) Foreign exchange risk Through its subsidiaries, the Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Euro, Polish Zloty, Hungarian Forint, Romanian Lei, and Bulgarian Lev, the Bulgarian Lev is pegged to the Euro at a fixed rate of exchange of 1.95583.
Foreign exchange risk arises from future commercial transactions, recognised monetary assets and liabilities and net investments in foreign operations.
In the year covered by these financial statements the Group has not entered into any currency hedging transactions. Foreign exchange risk is monitored and the cost benefits of any potential currency hedging transactions are reviewed to determine their effectiveness for the Group.
The majority of the Company’s assets and liabilities are Euro-based, minimising the Company’s individual exposure to foreign exchange risk. The tables below summarise the Company’s exposure to foreign currency risk at 31 December 2012. The Company’s financial assets and liabilities at carrying amounts are included in the table, categorised by the currency at their carrying amount.
The sensitivity analyses below are based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur and changes in some of the assumptions may be correlated – for
NOTES TO THE FINANCIAL STATEMENTSexample, change in interest rate and change in foreign currency rates. The Company manages foreign currency risk on an overall basis. The sensitivity analysis prepared by management for foreign currency risk illustrates how changes in the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
If the euro weakened / strengthened by 10% against either of the Polish Zloty, Hungarian Forint or Romanian
Lei, with all other variables held constant, post-tax profit for the year would have remained the same (2011:
post-tax loss for the year would have remained the same).
(ii) Price risk Through its subsidiaries, the Company is exposed to property price and property rentals risk. It is not exposed to the market risk with respect to financial instruments as it does not hold any equity securities, other than its investment in subsidiaries.
(iii) Cash flow and fair value interest rate risk As the Company has no significant interest-bearing assets denoted in currencies other than euro, its income and operating cash flows from such assets are substantially independent of changes in market interest rates.
The Company’s interest rate risk arises from long-term receivables from subsidiaries. Loans issued at variable rates expose the Company to cash flow interest rate risk.
The Company’s cash flow and fair value interest rate risk is periodically monitored by the Property Manager.
The Property Manager analyses its interest rate exposure on a dynamic basis. It takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows.
Interest costs may increase as a result of such changes. They may reduce or create losses in the event that unexpected movements arise. Various scenarios are considered including refinancing, renewal of existing positions, alternative financing and hedging. The scenarios are reviewed on a periodic basis to verify that the maximum loss potential is within the limit given by management.
Trade and other receivables and payables are interest-free and have settlement dates within one year.
The sensitivity analyses below are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated – for example, change in interest rate and change in market values.
An increase in 100 basis points in interest yields would result in a decrease in the post-tax profit for Company for the year of €0.1 million (2011: increase in the post-tax profit for the year of €0.1 million). A decrease in 100
basis points in interest yields would result in a increase in post tax profit for the year of €0.1 million (2011:
decrease in post tax profit for the year of €0.1million).
(b) Credit risk The Company’s credit risk arises from cash and cash equivalents as well as credit exposures with respect to outstanding receivables from subsidiaries (note 9). Credit risk is managed on a local and Group basis and structures the levels of credit risk it accepts by placing limits on its exposure to a single counterparty, or groups of counterparty, and to geographical and industry segments. Such risks are subject to an annual and more frequent review. Cash transactions are limited to high-credit-quality financial institutions. The utilisation of credit limits is regularly monitored.
As at 31 December 2012, the Company had one major counterparty, MeesPierson, which is part of the ABN AMRO Group. Given that ABN AMRO is a high-credit-quality financial institution, with a rating of A+ in 2012 and A+ in 2011, as well as the short-term nature of those investments, the credit risk associated with cash and cash equivalents is estimated as low.
The maximum exposure of the Company in respect of cash and cash equivalents and outstanding receivables is equal to their gross value at the balance sheet date.
(c) Liquidity risk Prudent liquidity risk management for the Company implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions.
Due to the dynamic nature of the underlying businesses, the Property Manager aims to maintain flexibility in funding by keeping cash and committed credit lines available.
NOTES TO THE FINANCIAL STATEMENTSThe Company’s liquidity position is monitored on a weekly basis by the management and is reviewed quarterly by the Board of Directors.
1.2 Capital risk management The Company’s objectives when managing capital are to safeguard the Company’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 Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
2. Critical accounting estimates and judgements Management makes estimates and judgements concerning the future that influence the application of accounting principles and the related amounts of assets and liabilities, income and expenses. The resulting accounting estimates will, by definition, seldom equal the related actual results. Estimates and judgments are continually evaluated and are based on historical experience as adjusted for current market conditions and various other factors that are deemed to be reasonable based on knowledge available at that time.
7. (Loss) / earnings per share Basic (loss) / earnings per share is calculated by dividing the (loss) / profit after tax attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.
For diluted (loss) / earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The difference in the number of ordinary shares between the basic and diluted (loss) / earnings per share reflects the impact were the outstanding share warrants to be exercised.
NOTES TO THE FINANCIAL STATEMENTSReconciliations of the (loss)/ earnings and weighted average number of shares used in the calculations are set
The outstanding share warrants exercise price exceeds current market value; therefore the warrants are not dilutive. As a result, diluted (loss) / earnings per share equals basic (loss) / earnings per share.
Investments in subsidiary undertakings are stated at cost. Cost is recognised as the nominal value of the company’s shares and the fair value of any other consideration given to acquire the share capital of the subsidiary undertakings.
A list of principal subsidiary undertakings and joint ventures is given at note 19.
The Company has carried out an annual impairment review of the carrying values of investments and loans receivable from subsidiaries. The Company considers the best indication of value of investments and loans to subsidiaries to be the valuation reports produced by Jones Lang LaSalle, the independent valuers.
In 2012 €nil million (2011: €40.8 million) has been recognised in other operating expenses and €7.0 million (2011: €3.1 million) in other operating income in respect of impairment and reversal of impairment.
The method applied to assign value to the company’s investments is fair value less costs to sell and has been based on the property valuations assessed by independent experts. In assessing the value of each investment the Company has considered not only the asset value recognised in the books of the individual entities but also the valuation amount of elements held at cost. Substantially, this has resulted in the carrying values of 49
ATLAS ESTATES LIMITED
NOTES TO THE FINANCIAL STATEMENTSinvestments and loans receivable from subsidiaries being compared to the adjusted net asset value of the group.
9. Trade and other receivables
All trade and other receivables are financial assets, with the exception of prepayments and accrued income.
Loans receivable from subsidiaries are interest-bearing, with interest charged at EURIBOR plus an agreed margin. These loans have agreed maturity dates in excess of five years.
The book values of trade and other receivables, other loans receivable and loans receivable from subsidiaries are considered to be approximately equal to their fair value.
For fair value considerations see note 8.
The carrying amounts of trade and other receivables are denominated in the following currencies:
The maximum amount of exposure of the Company to credit risk at the balance sheet date approximates the total of loans receivable from subsidiaries.
10. Cash and cash equivalents
Loan payables from subsidiary is interest-bearing, with interest charged at EURIBOR plus an agreed margin.
This loan has agreed maturity date in three years.
12. Share capital account
During 2007, 3,470,000 ordinary shares of €0.01 each with an aggregate nominal value of €34,700 were purchased and are held in Treasury. Distributable reserves were reduced by €16,023,000, being the consideration paid for these shares.
On 11 July 2008 the Company issued 1,430,954 new ordinary shares to AMC as part settlement of the performance fee earned by AMC under the Property Management Agreement (“PMA”) for the financial year ending 31 December 2007. €4,537,442 (or £3,629,953 at the agreed exchange rate of £1 equalling €1.25) was
settled by the issue to AMC of 1,430,954 new ordinary shares issued as follows:
699,141 new ordinary shares issued at £2.6842 per ordinary share (being the price per ordinary • share calculated by the formula set out in the PMA using data derived from the London Stock Exchange Daily Official List) in settlement of one third of the 2007 performance fee as Atlas is entitled to do under the terms of the PMA; and 731,813 new ordinary shares issued at £2.3958 per ordinary share (being the price per ordinary • share calculated as the average closing price of the ordinary shares for the 45 days prior to (but not including) the date (being 15 May 2008) of the results for the first quarter of 2008).
This had been approved at the AGM held on 24 June 2008.
On 28 July 2008 the Company announced that it had issued 442,979 new ordinary shares under the Scrip Dividend Offer which had been approved at the AGM held on 24 June 2008.