REG - Globalworth Real Est - Audited and Consolidated 2014 Financial Results <Origin Href="QuoteRef">GWI.L</Origin> - Part 6
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(85)
Total assets attributable to the parent 182
Disposal consideration (380)
Gain on sale (198)
SECTION VII: OTHER DISCLOSURES
This section includes segmental disclosures highlighting the core areas of Globalworth's operations in the office,
residential and other (industrial and corporate). There were no significant transactions between segments except for
management services provided by the offices segment to the residential and other (industrial) segments.
The transactions with related parties, new standards and amendments adopted by the EU in 2014 that have no impact on the
Group's financial position and performance, contingencies that existed at the year end and details on significant events
which occurred subsequent to the date of the financial statements.
27. Segmental Information
Policy
The Board of Directors is of the opinion that the Group is engaged mainly in 3 segments of business, being offices
investment property, residential investment property and other, in one geographical area, Romania. Operating segments are
reported in a manner consistent with the internal reporting provided to the chief operating decision-makers. The chief
operating decision-makers, who are responsible for allocating resources and assessing performance of the operating
segments, have been identified as the Executive Directors.
The Group is domiciled in Guernsey. The Group earns revenue and holds non-current assets (investment properties) in Romania
only, the geographical area of its operations.
For investment property, discrete financial information is provided on a property-by-property basis (including those under
construction / refurbishment) to members of executive management, which collectively comprise the Executive Directors of
the Group. The information provided is net rental income 'NOI' (gross rental income less property expenses) and property
valuation gains / losses. The individual properties are aggregated into segments with similar economic characteristics,
such as the nature of the property and the occupier market it serves. Management considers that this is best achieved by
aggregating into the office, residential and other segments.
Consequently, the Group is considered to have 3 reportable operating segments, the offices segment (acquires, develops,
leases and manages offices and spaces), the residential segment (builds, acquires, develops and leases apartments) and the
other segment (acquires, develops, leases and manages industrial spaces and corporate holding offices). Share based
payments expense is not allocated to individual segments as underlying instruments are managed at group basis.
Segment assets and liabilities reported to the Executive management on a segmental basis are set out below:
2014 2013
Segments Office E'000 Residential E'000 OtherE'000 Inter-segment eliminations E'000 Total E'000 Office E'000 Residential E'000 Other E'000 Inter-segment eliminations E'000 Total E'000
Revenue 19,686 2,283 796 (607) 22,158 8,070 40 - - 8,110
Operating expenses (7,727) (1,464) (81) 7 (9,265) (2,668) (130) (7) - (2,805)
Segment NOI 11,959 819 715 (600) 12,893 5,402 (90) (7) - 5,305
Administrative expenses (2,989) (923) (8,342) 600 (11,654) (370) - (1,486) - (1,856)
Acquisition costs (1,026) - (1,450) - (2,476) - - (108) - (108)
Change in fair value of investment property 26,204 382 (1,583) - 25,003 1,469 (106) - - 1,363
Bargain purchase gain on acquisition of subsidiary 32,139 40,461 7,649 - 80,249 9,377 - - - 9,377
Foreign exchange gain/(loss) (331) (16) (8) - (355) (77) - (1) - (78)
Finance cost (9,276) (1,754) 2,708 - (8,322) (255) - - - (255)
Finance Income 229 31 67 - 327 2 - - - 2
Segment results 56,909 39,000 (244) - 95,665 15,548 (196) (1,602) - 13,750
Share based payment expense - - (136) - (136) - - (44) - (44)
Gain on sale of subsidiary 198 - - - 198 - - - - -
Profit before tax 57,107 39,000 (380) - 95,727 15,548 (196) (1,646) - 13,706
13,706
Revenues are derived from a large number of tenants and no tenant contributes more than 10% of the Group's rental revenues
for the year ended 31 December 2014 (2013: One).
SECTION VII: OTHER DISCLOSURES (continued)
27. Segmental Informationcontinued
2014 2013
Segments Office E'000 Residential E'000 OtherE'000 Inter-segment eliminations E'000 Total E'000 Office E'000 Residential E'000 Other E'000 Inter-segment eliminations E'000 Total E'000
Segment non-current assets 473,167 109,855 44,651 - 627,673 135,261 7,725 - - 142,986
Total assets 499,660 111,830 59,297 (2,091) 668,696 147,982 8,248 9,318 - 165,548
Total liabilities 210,751 44,678 22,617 (2,091) 275,955 32,959 6,731 5,579 - 45,269
Additions to 55,388 - 11,809 - 67,197 1,974 - - - 1,974
non-current assets
1,974
None of the Group's non-current assets are located in Guernsey except for goodwill (there are no employment benefit plan
assets, deferred tax assets or rights arising under insurance contracts) recognised on business combination.
28. Transactions with Related Parties
The Group's related parties are Ioannis Papalekas, the Company's other Directors, as well as all companies controlled by
them or under their joint control, or under significant influence by Ioannis Papalekas.
The Group's major shareholder is Mr Ioannis Papalekas ('the Founder') who at 31 December 2014 owned 42.1% (2013: 63.1%) of
the Company's Ordinary shares. The remaining 57.9% (2013: 36.9%) of the Ordinary shares are held by several shareholders,
see further information in the Directors' Report on page 67 of the Annual Report.
The related party transactions are set out in the table below:
Sales/(purchases) Amounts owing (to)/from related parties at
for the year/period year/period ended
Nature of transactions/balance amounts 2014 2013 2014 2013
E'000 E'000 E'000 E'000
Income statement
BOB Development S.R.L.1 Disposal fees, management services and fit out works 1,508 3,434
BOC Real Property S.R.L.1 Disposal fees, management services and fit out works 138 4,059
Lessor for operating lease (63) (63)
Netron Investment S.R.L. Rent expenses 3 -
Upground Estates S.R.L1 Disposal fees, management services and fit out works 404 202
Rent and utilities (6) (8)
Tower Center International S.R.L. Management services and fit out works 53 -
Globalworth Limited Other expenses - (257)
Balance sheet
Bakaso Holdings S.R.L. Other receivables - 280
BOB Development S.R.L.1 Trade receivables - 2,228
Other receivable - 408
BOC Real Property S.R.L.1 Trade receivables - 4,146
Other receivable - 433
Other payable - (246)
Upground Estates S.R.L.1 Trade receivables - 629
Other receivable - -
Other payable - (3)
Ioannis Papalekas Other payable - (250)
Risunam Enterprises Limited Payable for properties acquired during the year (2,345) -
Malanis Holdings Limited Payable for properties acquired during the year (83) -
-
1 These represent only transactions for the pre-acquisition period incurred with the companies that were acquired by the
Group during the year.
Prior to the acquisitions of subsidiaries as disclosed in note 23, the Group's major shareholder Mr Ioannis Papalekas had
interest in the acquirees (ie 100% interest in Dunvant Holding Limited, which owned 22% interest of BOB Development S.R.L,
BOC Real Property S.R.L and Netron Investment S.R.L, 50% interest in Tower Center International S.R.L, 22.5% interest in
Upground Estates S.R.L and 99% interest in Aserat Properties S.A.
Transactions with Directors are disclosed in Directors' Report on page 67 of the Annual Report and the remuneration of the
Executive and Non-Executive Directors are disclosed in Remuneration Committee Report on page 69 of the Annual Report.
29. Subsequent Events
31 March 2015: Acquisition of Subsidiaries
The Group acquired 100% shareholding and control of the Bog'art Offices S.R.L.and Nusco Tower S.R.L., unlisted companies
based in Romania. The existing strategic management function and associated processes were acquired with the properties
and, as such, the Board considers these transactions the acquisition of a business, rather than an asset acquisition. These
companies operate in the real estate management and development business and currently own Unicredit Building and Nusco
Tower, fully completed and rented office buildings in Bucharest, respectively.
The Unicredit Building, a Class A office building located in Bucharest and entirely leased to Unicredit Tiriac Bank has
been acquired for cash consideration of approximately E43 m. The asset has been independently valued at approximately E48 m
and will add approximately E3.8 m to the NOI of the Company.
The Nusco Tower, a modern office building strategically located in Bucharest's new central business district ('CBD') has
been acquired for cash consideration of approximately E46 m. It is approximately 91% leased to well-known multinational
tenants like Oracle, Bayer and Volksbank. The asset has been independently valued at approximately E60 m and will add
approximately E4.3 m to the NOI of the Company.
Pro Forma Financial Information
The preliminary fair values of the identifiable assets and liabilities of the following new subsidiaries as at acquisition
date were:
Bog'art Offices S.R.L E'000 Nusco Tower S.R.L E'000 Total E'000
Assets 49,059 62,310 111,369
Liabilities 31,808 34,841 66,649
Total identifiable net assets at preliminary fair value 17,251 27,469 44,720
Goodwill 2,548 - 2,548
Bargain purchase gain arising on acquisition - (9,161) (9,161)
Preliminary purchase consideration 19,799 18,308 38,107
As part of the sale and purchase agreement, the purchase consideration transferred on acquisition date may change as a
result of final assessment of the fair values of the identifiable assets acquired and the liabilities assumed on
acquisition date the purchase consideration transferred may increase or decrease resulting in additional outflow or inflow
of the funds for the Group. The Group is currently in the process of assessing the final fair values of the identifiable
assets and liabilities of above subsidiaries as at the date of acquisition.
31 March 2015: Securing a E55 m Short-Term Facility
The Group concluded a E55 m short-term holding company level secured debt facility ("the facility") in order to fund the
equity portion of above 2 acquisitions (of Nusco Tower SRL and Bog'Art Offices SRL). The Facility has been provided by
subsidiaries of funds managed by Oak Hill Advisors, L.P. and certain of its advisory affiliates ('Oak Hill') for E36,667
thousand of the facility, and York Capital Management Global Advisors, LLC, through York Global Finance Offshore BDH
(Luxembourg) S.à r.l. ('York' and, together with Oak Hill, the 'Lenders') for E18,333 thousands of the facility.
8 June 2015: Securing a E9.1 m Long-Term Facility and Extending a c.E8 m Facility
A subsidiary of the Group, SEE, concluded a 7 year, E9.1 m loan facility in order to refinance part of the equity injected
into this subsidiary for the development of the TAP-Continental property. At the same time two existing facilities of the
same subsidiary with outstanding balance of c.E8 m in total were extended so as to have the same maturity date as the new 7
year E9.1 m loan facility.
26 June 2015: Securing an Additional E45 m Loan Facility and Extending an Existing E55 m Facility
The Group concluded an addendum to above mentioned E55 m facility agreement in order to obtain additional E45 m funding and
extended the maturity of entire E100 m facility to July 2016. The proceeds from this loan will be used to fund the Company
existing on going property development activities.
SECTION VII: OTHER DISCLOSURES (continued)
30. New and Amended Standards
During the year the Group adopted the following new and amended standards and interpretations. The new standards and
amendments had no impact on the Group's financial position and performance.
Narrow scope amendments Issued date Effective date
IAS 32 Financial Instruments: Presentation-Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) Dec-11 Jan-14
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) Oct-12 Jan-14
IFRIC 21 Levies May-13 Jan-14
IFRS 11 Joint Arrangements (amendments to IAS 28) Jun-13 Jan-14
Recoverable Amount Disclosures for Non-Financial Assets (IAS 36) May-13 Jan-14
Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39) Jun-13 Jan-14
Standards issued but not yet effective and not early adopted by the Group are presented in the table below, the management
believe that there will be no significant impact (for IFRS 15 "Revenue from Contracts with Customers", the Group is in
process of assessing the impact) in the Group's consolidated financial statements:
Narrow scope amendments Issued date Effective date
Defined Benefit Plans: Employee Contributions (Amendments to IAS 19) Nov-13 1-Jul-14
Annual Improvements 2010-2012:
IFRS 2 Share-based Payment: Definition of vesting condition Dec-13 Jul-14
IFRS 3 Business Combination: Accounting for contingent consideration in a business combination
IFRS 8 Operating Segments: Aggregation of operating segments; Reconciliation of the total of the reportable segments' assets to the entity's assets
IFRS 13 Fair Value Measurement: Short-term receivables and payables
IAS 16 Property, Plant and Equipment: Revaluation method-proportionate restatement of accumulated depreciation
IAS 24 Related Party Disclosures: Key management personnel services
IAS 38 Intangible Assets: Revaluation method-proportionate restatement of accumulated amortisation
Annual Improvements 2011-2013:
IFRS 1 First-time Adoption of International Financial Reporting Standards: Meaning of 'effective IFRSs' Dec-13 Jul-14
IFRS 3 Business Combinations: Scope exceptions for joint ventures
IFRS 13 Fair Value Measurement: Scope of paragraph 52 (portfolio exception)
IAS 40 Investment Property: Clarifying the interrelationship between IFRS 3 and IAS 40 when classifying property as investment property or owner-occupied property
IFRS 14 Regulatory Deferral Accounts Jan-14 Jan-16
IFRS 15 Revenue from Contracts with Customers May-14 Jan-17
Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) May-14 Jan-16
Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38) May-14 Jan-16
Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41) Jun-14 Jan-16
IFRS 9 Financial Instruments Jul-14 Jan-18
Equity Method in Separate Financial Statements (Proposed amendments to IAS 27) Aug-14 Jan-16
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Proposed amendments to IFRS 10 and IAS 28) Sep-14 Jan-16
Narrow scope amendments Issued date Effective date
Annual Improvements 2012-2014:
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: Changes in methods of disposal Sep-14 Jan-16
IFRS 7 Financial Instruments: Disclosures: Servicing contracts; Applicability of the amendments to IFRS 7 to condensed interim financial statements
IAS 19 Employee Benefits : Discount rate: regional market issue
IAS 34 Interim Financial Reporting: Disclosure of information 'elsewhere in the interim financial report'
Investment Entities: Applying the Consolidated Exception (Amendments to IFRS 10, IFRS 12 and IAS 28) Dec-14 Jan-16
Disclosure Initiative (Amendments to IAS 1) Dec-14 Jan-16
31. Contingencies
Policy
Contingent liabilities are not recognised in the consolidated financial statements. They are disclosed unless the
possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the
consolidated financial statements but disclosed when an inflow of economic benefits is probable.
Taxation
All amounts due to State authorities for taxes have been paid or accrued at the balance sheet date. The Romanian tax system
undergoes a consolidation process and is being harmonised with the European legislation. Different interpretations may
exist at the level of the tax authorities in relation to the tax legislation that may result in additional taxes and
penalties payable. Where the State authorities have findings from reviews relating to breaches of Romania's tax laws, and
related regulations these may result in: confiscation of the amounts in case; additional tax liabilities being payable;
fines and penalties (that are applied on the total outstanding amount). As a result the fiscal penalties resulting from
breaches of the legal provisions may result in a significant amount payable to the State.
The Group believes that it has paid in due time and in full all applicable taxes, penalties and penalty interests in the
applicable extent.
Transfer Pricing
According to the applicable relevant Romanian tax legislation, the tax assessment of related party transactions is based on
the concept of market value for the respective transfers. Following this concept, the transfer prices should be adjusted so
that they reflect the market prices that would have been set between unrelated companies acting independently (ie based on
the "arm's-length principle").
It is likely that transfer pricing reviews will be undertaken in the future in order to assess whether the transfer pricing
policy observes the "arm's-length principle" and therefore no distortion exists that may affect the taxable base of the
Romanian tax payer.
Independent Auditor's Report to the Members of Globalworth Real Estate Investments Limited
Opinion on Financial Statements
In our opinion the financial statements:
• give a true and fair view of the state of the Group's affairs as at
31 December 2014 and of its profit for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
What we have audited
We have audited the consolidated financial statements of Globalworth Real Estate Investments Limited and its subsidiaries
(the "Group") for the year ended 31 December 2014 which comprise the Consolidated Statement of Comprehensive Income, the
Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement
of Cash Flows and related notes 1 to 31. The financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the company's members, as a body, in accordance with Section 262 of the Companies (Guernsey)
Law, 2008. Our audit work has been undertaken so that we might state to the company's members those matters we are required
to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective Responsibilities of Directors and Auditor
As explained more fully in the Statement of Directors' responsibilities set out on page 68 of the Annual Report, the
directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and
fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland) ("ISAs (UK and Ireland)"). Those standards require us to
comply with the Auditing Practices Board's Ethical Standards for Auditors.
Scope of the Audit of the Financial Statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of whether the accounting policies are appropriate to the company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements. In addition, we read all the financial and
non-financial information in the Annual Report and Financial Statements to identify material inconsistencies with the
audited financial statements and to identify any information that is apparently materially incorrect based on, or
materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any
apparent material misstatements or inconsistencies we consider the implications for our report.
Our Assessment of Risks of Material Misstatement
We identified the following risks that we believed would have the greatest effect on our overall audit strategy and scope;
the allocation of resources in the audit; and directing the efforts of the engagement team:
ii) Valuation of investment properties, because valuation of investment property requires significant judgement and
investment property is the Group's most significant asset;
ii) Accounting for business combinations, particularly, fair value assessment of the assets transferred, the equity
interests issued, bargain purchase gain and contingent consideration measurement because the Group has concluded
significant transactions during the year and the accounting is complex and requires significant judgement;
iii) Going concern assessment because of the matters set out in the going concern section of note 1 to the financial
statements regarding the company's loan facilities.
Our Application of Materiality
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of
misstatements on the audit and of uncorrected misstatements, if any, on financial statements and in forming our audit
opinion.
We determined materiality for the Company to be E3.9 million, which is approximately 1% of equity. This provided a basis
for determining the nature, timing and extent of risk assessment procedures, identifying and assessing the risk of material
misstatement and determining the nature, timing and extent of further audit procedures.
On the basis of our risk assessments, together with our assessment of the Group's overall control environment, our
judgement is that overall performance materiality for the Group should be 50% of materiality, namely E1.95 million. Our
objective in adopting this approach was to ensure that total uncorrected and undetected audit differences in the financial
statements did not exceed our materiality.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of E195,000 , as
well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
An Overview of the Scope of our Audit
We adopted a risk-based approach in determining our audit strategy. This approach focuses audit effort towards higher risk
areas, such as management judgements and estimates and on locations that are considered significant based upon size,
complexity and risk.
Our group audit scope focused on six key locations in Romania. They were selected to provide an appropriate basis for
undertaking audit work to address the risks of material misstatement identified above. Together with the Group functions,
which are also subject to audit, these locations represent the principal business units of the Group and account for 80% of
the Group's total assets. All locations within the scope were subject to audit procedures and the extent of audit work was
based on our assessment of the risks of material misstatement and of the materiality of the Group's business operations at
those locations. For the remaining locations, we performed other procedures, particularly relating to valuation of
investment property, to ensure there were no significant risks of material misstatements in the consolidated financial
statements.
In assessing the risk of material misstatement to the financial statements, our audit scope focused on the completeness and
accuracy of the disclosures in the financial statements. Our response to the risk of material misstatement identified above
included the following procedures:
i) We addressed the risk relating to valuation of the Group's investment properties by:
- Agreeing the values to third party valuation reports to assess the appropriateness and suitability of the reported
values;
- Engaging our own internal valuation experts to test the valuation of all properties by assessing the reasonableness of
the valuation methodologies used and the key inputs and assumptions by reference to published market data and evidence of
comparable transactions; and
- Assessing the independence and qualifications of the third party valuation experts and internal valuation experts.
ii) We addressed the risk of inappropriate accounting for the acquisitions made in the year by:
- Reading acquisition documents and assessing whether the accounting implications have been properly assessed by
management;
- Evaluating the assumptions used by management in arriving at the fair value of the assets and liabilities acquired,
- Assessing the methodology applied, and the significant judgements and estimates made in relation to the acquisitions,
their classification and the calculation of bargain purchase gains.
iii) We addressed the going concern risk, particularly management's view that it does not give rise to a material
uncertainty, by:
- Assessing cashflow forecasts, including the available headroom, and their sensitivity to various events, particularly
to downside risks of tenant failure and expense or development cost overruns;
- Reading non-binding offer terms and other correspondence with potential finance providers, discussing the stage of
development of negotiations and evaluating management's assessment that it is sufficiently likely that one of the offers
will be successfully concluded so that the uncertainty is not material . We also assessed other resources available to the
Group in the event that financing negotiations are unsuccessful.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the
course of performing our audit; or
• is otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired
during the audit and the directors' statement that they consider the annual report is fair, balanced and understandable and
whether the annual report appropriately discloses those matters that we communicated to the audit committee which we
consider should have been disclosed.
Under the Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:
• proper accounting records have not been kept; or
• the financial statements are not in agreement with the accounting records; or
• we have not received all the information and explanations we require for our audit.
As the Company has chosen to voluntarily apply the UK Corporate Governance Code by applying the AIC Code, we are required
to review:
• the directors' statement, set out on page 66 of the Annual Report, in relation to going concern; and
• the part of the Corporate Governance Statement relating to the Company's compliance with the nine provisions of the UK
Corporate Governance Code specified for our review.
Ernst & Young LLP
Guernsey
Channel Islands
29 June 2015
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