TIDMARO
RNS Number : 3263D
Arricano Real Estate PLC
26 April 2017
26 April 2017
Arricano Real Estate plc
("Arricano" or the "Company" or, together with its subsidiaries,
the "Group")
Final Results for the 12 months ended 31 December 2016
Arricano is one of the leading real estate developers and
operators of shopping centres in Ukraine. Today, Arricano owns and
operates five completed shopping centres comprising 147,800 sqm of
gross leasable area, a 49.9% shareholding in Assofit and land for a
further three sites under development.
Highlights
-- Recurring revenues increased by 13.3% to USD23.1 million (2015: USD20.4 million)
-- Operating profit increased to USD43.8 million (2015: USD18.9
million), both figures including revaluation gains and adjustments
to operating expenses explained below
-- Total fair valuation of the Company's portfolio was USD175.7
million as at 31 December 2016 (2015: USD160.3 million)
-- Overall occupancy rates for 2016 increased to 98.3% from 96.2% in 2015
-- As at 31 December 2016, the Company's borrowings at project
level remain conservative with a loan to investment property value
ratio of 28.5%, compared to 37.4% in 2015
-- Net asset value USD24.2 million (2015: USD3.1 million)
Rupert Cottrell, Chairman of Arricano, commented: "Following on
from our half-year report in September 2016, the market in Ukraine
has continued to show signs of improvement and the Company's
trading performance reflects this. There remain many challenges
ahead for the country and the economy but there is now evidence of
consistent improvement and a growing expectation of continued
progress."
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
For further information please contact:
CEO:
Arricano Real Estate plc Tel: +380 44 569
Mykhailo Merkulov 6708
Financial PR:
Novella Communications Limited Tel: +44 (0)20
Tim Robertson/Toby Andrews 3151 7008
Nominated Adviser and Joint
Broker: Tel: +44 (0)20
Smith & Williamson Corporate 7131 4000
Finance Limited
Azhic Basirov
Joint Broker:
Whitman Howard Limited Tel: +44 (0)20
Ranald McGregor-Smith 7087 4555
Chairman's Statement
It is a pleasure to report on Arricano's trading performance in
2016, which shows the Company performing well and increasing
recurring revenues by 13.3% from the prior year to USD23.1 million.
This is a clear indicator of the Company's ability to operate
successfully in what has been an improving but still highly
challenging market environment.
Arricano has adapted well to the unexpected political and
economic events over the last three years. Where necessary the
Company has supported tenants financially and worked ceaselessly to
ensure every shopping centre maximises its appeal to consumers.
Interestingly, since 2015, Arricano has increased the number of
visitors to its shopping centres and last year, 38 million people
visited Arricano shopping centres. This approach has created a new
base for the business and the trading performance for 2016 shows
that the business is stable and able to grow from here.
Demand from both tenants for retail space and from consumers to
visit the shopping centres is at the heart of the Company's
success. Occupancy across the portfolio has improved to 98.3%, up
from 96.2% at 31 December 2015, demonstrating Arricano's ability to
attract new and keep existing tenants. In 2016, the Company signed
179 new lease agreements relating to 23,404 sqm of retail space and
increasing the total number of tenants across the portfolio to 750.
Particularly noteworthy is the occupancy level of the Prospect
Shopping Mall in Kyiv which only opened in September 2014 and is
now 97.6% let.
As at 31 December 2016, Arricano had 147,800 sqm of completed
assets spread across five completed shopping centres ("SECs"). In
addition, the Company also owns title rights for 14 ha. of
development land divided into three specific sites which are at
varying stages of development. These are in Lukianivka and Petrivka
(both Kyiv), as well as Rozumovska (Odessa).
The commencement date for construction of a new SEC in
Rozumovska, Odessa is yet to be decided. The Odessa Mall is
intended to include a major hypermarket, shops and shopping
galleries, leisure and entertainment areas, with a gross leasable
area of 38,000 sqm.
Regarding the 49,9% shareholding in Assofit Holdings Limited
("Assofit"), a holding company, which held the Sky Mall shopping
centre, the Company continues to pursue Stockman Interhold S.A.
("Stockman") concerning the ownership of Assofit and in August 2016
announced a further award had been issued by The London Court of
International Arbitration. The tribunal awarded costs of
approximately USD0.9 million to be paid by Stockman to Arricano.
Arricano continues to consider its options in relation to this
matter with its legal advisers.
Arricano currently has 112 employees and it is their efforts
which are behind the improved trading performance for 2016 and on
behalf of the Board I would like to thank them all, for their hard
work and commitment to the business. Again on behalf of the Board I
would like to thank Raul Parusk, a Non Executive Director who
stepped down from this position with effect from 1 February
2017.
Arricano's long-term strategy remains unchanged in that we are
focused on developing and investing in the portfolio of shopping
centres under the Company's control. The political and economic
environment in Ukraine is improving and there is increasing
investor appetite to be in a position to benefit alongside a
further recovery in the economy. In 2017, the Company will continue
to focus on maintaining the portfolio and developing new space.
Rupert Cottrell
Chairman
25 April 2017
Chief Executive Officer's Report
Introduction
The increases in revenue, profitability, asset valuations and
occupancy all demonstrate that 2016 was a successful year for
Arricano and a reflection of the hard work that has gone into
stabilising the business and developing and implementing strategies
to operate in the new political and economic environment.
As a consequence, we are working successfully to ensure our
shopping centres remain the leaders in their respective markets and
provides consumers with an environment to enjoy a retail and
leisure experience combined. Achieving this balance is key to
Arricano's success and is under constant scrutiny from the
management team in terms of fine tuning the mix of retail outlets
on offer in each centre and marketing the centres successfully to
consumers.
Results
Recurring revenues for the period were USD23.1 million (2015:
USD20.4 million). As a result, the Net Operating Income ("NOI")
from the operating properties was USD21 million compared to USD20.2
million in 2015.
Profit before tax was USD29.2 million (2015: loss of USD16.3
million). This increase was achieved through a combination of
improved recurring revenues and an increase in the valuation of the
Company's property portfolio and decrease in operating
expenses.
The portfolio of assets was externally and independently valued
as at 31 December 2016 by Expandia LLC, part of the CBRE Affiliate
Network. The portfolio was valued at USD175.7 million (31 December
2015: USD160.3 million), the increase in the value of the portfolio
was primarily driven by the increase in rental income and the
improved stability of the Hryvna.
Bank debt at the year-end was USD 50.1 million (2015: USD 60.1
million), with the majority of borrowings at the project level at
an average interest rate of 10.8%. Loans mature between 2017 and
2020 and the Company's loan to investment property value ratio is
28.5%. In addition, there was USD5 million of cash and cash
equivalents as at 31 December 2016.
The Market
The market remains challenging but our business has adapted well
to operate successfully in the environment we are now in. The
increases in revenue from our tenant base suggest we have turned
the corner in terms of rebasing the business and we can now work
towards maintaining incremental growth across the business.
Our twin focus has been on strengthening our relationship with
our tenants and increasing the appeal of our shopping centres. We
believe we have set a new standard in Ukraine for our level of
involvement with tenants in our centres through supporting their
businesses whilst simultaneously further enhancing the overall
retail offer of the shopping centres. We have provided free
training courses for retail staff focused on developing customer
service skills and sales techniques, this was an innovative offer
from a lessor and was very positively received by tenants.
Collaboration such as this, we believe deepens the relationship
between Arricano and tenants, increasing the likelihood of
long-term partnerships forming.
Increasing the appeal of the shopping centres is the other key
focus for the business. In 2016, Arricano continued to invest in
optimising the open spaces in the shopping centres and in creating
social spaces with extended food courts, family areas and comfort
zones, thereby changing the customer experience of the shopping
centres to being a balance between a retail and social
experience.
Working with the media has increased and we have generated
useful publicity directly for the shopping centres both
independently and in conjunction with existing tenants. Social
media and internet shopping are growing in importance in Ukraine,
we are increasingly active in both areas and are continuing to
evolve our strategies to match consumer activity levels.
This approach, coupled with an increased operational efficiency
has improved the consumer experience and has helped to maintain
visitor numbers to the centres. In 2016 38 million people visited
the shopping centres.
The Company's ability to attract new tenants was clearly
demonstrated in 2016 with the signing of 179 new leases covering
23,404 sqm of retail space. This increased the total number of
tenants across all five shopping centres to 750. Well known
incoming tenants include LC Waikiki, Jysk, New Balance, Citrus,
Kari and Crocs.
In terms of the new developments, the Company is progressing
projects in Odessa and Lukyanivka, Kyiv.
Currently, the Company is focused on development of the
Lukyanivka project. In 2016, construction continued using internal
financing, in 2017 we plan to attract external creditors for this
project and develop it more actively.
Outlook
Arricano continues to outperform the market in the context of
the wider environment, as shown by the increase in occupancy to
98.3% and the increase of NOI by 4%, both excellent achievements.
The asset and tenant base of the business is strong and we continue
to work hard to further strengthen it through focusing on the
Customer Experience of our tenants and of all visitors to our
shopping centres. Following the 'Innovation' year of 2015, and a
'Service' year in 2016 Arricano is declaring 2017 to be a 'Customer
Experience' year. The Company's management team believes that in a
new Experience Economy, increases in loyalty of B2C and B2B
customers will lead to significant increases in revenues. The focus
on Customer Experience will involve significant research and
analysis activities which will be followed by fine tuning of the
product and tenant mix. We will also continue to support tenants in
increasing their turnover, while B2C clients will experience
changes in the product and service offering in each mall aimed at
increasing frequency of visits and length of stay in Arricano's
shopping centres. We know that in time Ukraine will recover and at
that point Arricano will be able to reap the reward of its
continued investment in the existing and future portfolio.
Mykhailo Merkulov
Chief Executive Officer
25 April 2017
Operating Portfolio
In the following section we have provided an overview of each
asset in the completed portfolio.
Sun Gallery (Kryvyi Rih)
Sun Gallery, opened in 2008, is one of the largest shopping
malls in Kryvyi Rih. It is located at 30-richchia Peremohy Square,
in the Saksahanskyi district in the northeastern part of Kryvyi
Rih. It has easy access by car and has good public transport links.
The primary shopping centre catchment area includes almost the
whole territory of the Saksahanskyi district and part of the
Pokrovskyy district. The secondary area covers the Dovhyntsivskyi
district.
The shopping centre is on two levels, spanning a total GLA of
approximately 34,740 sq. m. There are approximately 139 tenants,
including children's entertainment zone, a food court with
restaurants and cafes and a bowling alley. Two fashion-anchor
tenants were added: LC Waikiki (fashion) and Jysk (home goods) both
stores opened in 2017.
Key statistics
-- GLA - c. 34,740 sqm
-- Vacancy rate as at 31 December 2016 - 0.2 per cent.
-- Average monthly rental rate - USD10.0 /sqm as at 31 December 2016
-- Average Monthly Visitors 2016 - 0.4 million
-- Bank debt at 31 December 2016 - USD8.5 million
-- Valuation at 31 December 2016 - USD18.1 million
City Mall (Zaporizhzhia)
City Mall is one of the largest shopping centres in Zaporizhzhia
with a total GLA of approximately 21,480 sq. m. on a single level.
The shopping centre is located on the Dnipro river approximately
3km from Zaporizhzhia city centre, between two densely populated
areas of Zaporizhzhia in the Alexandrovskyy administrative district
(1b Zaporizska street), with convenient accessibility by public and
private transport.
City Mall comprises a gallery with approximately 95
international and local tenants, including a food court with 11
restaurants, a children's entertainment zone and parking which is
shared with DIY superstore Epicenter. City Mall's anchor tenants
are the hypermarket Auchan, which is the largest in the city, and
the electronics store Comfy. During 2016, 25 new contracts were
signed bringing new brands to the City Mall, including brands that
were previously unavailable in the region. After a third successive
year of nil vacancy rates, weaker tenants were replaced with
stronger ones such as LC Waikiki, New Balance, Crocs and
Monton.
Key statistics
-- GLA - c. 21,480 sqm
-- Vacancy rate as at 31 December 2016 - 0.0 per cent.
-- Average monthly rental rate - USD22.37 /sqm as at 31 December 2016
-- Average Monthly Visitors 2016 - 0.5 million
-- Bank debt at 31 December 2016 - USD8.5 million
-- Valuation at 31 December 2016 - USD21.4 million
South Gallery (Simferopol)
The site is located in the north of Simferopol, about five
minutes' driving distance from one of the city's major crossroads,
Moskovska Square. The site is linked to the city centre and
residential areas east of the city by one of the main thoroughfares
of Simferopol. The primary shopping centre catchment area includes
northern parts of the Kyivskyi and Zaliznychnyi districts. The
secondary area covers almost the whole city, except for its very
southern parts.
South Gallery shopping centre (Phases I and II) is situated on a
land plot with a total area of 10.2 ha. Phase I of the shopping
centre tenants include Auchan (international hypermarket chain),
with a small gallery. With the completion of Phase II in February
2014 the mall is now a regional destination shopping centre with a
total GLA of 36,690 sq. m.
During 2016, 30 new lease contracts were signed, while Detskiy
Mir (children's department store) increased in size to 1085 sq. m.
The South gallery has also upgraded its food-court and the centre
is negotiating collaborations with several international
brands.
Key statistics
-- GLA - 36,690 sqm
-- Vacancy rate as at 31 December 2016 - 3.9 per cent.
-- Average monthly rental rate - USD13.75 /sqm as at 31 December 2016
-- Average Monthly Visitors (2016) - 0.7 million
-- Bank debt at 31 December 2016 - USDNil
-- Valuation at 31 December 2016 - USD35.4 million
RayON (Kyiv)
The RayON shopping centre was opened to the public in August
2012. The shopping centre is located in the north east of Kyiv
along the left bank of the Dnipro river, with satisfactory
transportation links.
The shopping centre has a GLA of approximately 24,250 sq. m. on
two levels, with approximately 860 parking spaces. The concept for
RayON is a district shopping centre, which focuses on food,
clothing and convenience products. The shopping centre is anchored
by a Silpo foods supermarket, one of the biggest supermarket chains
in Ukraine and a member of the Fozzy group. Electronics supermarket
Comfy also operates within the shopping centre.
RayON has several restaurants and a children's entertainment
zone to complement the retail facilities. RayON is located in the
middle of the Desnjanski district, one of the most densely
populated areas in Kyiv, with an estimated catchment area of
approximately 170,000.
Rayon completed the refurbishment of its food court in January
2017 and the installation of baby-rooms in the centre has produced
very positive feedback from customers with young children. In
November "Boomer" (Cinema) opened two additional halls, while the
entertainment zone for kids "Game Park" increased to 770 sq. m.
Key statistics
-- GLA - c. 24,250 sqm
-- Vacancy rate as at 31 December 2016 - 1.35 per cent.
-- Average monthly rental rate - USD13.10 /sqm as at 31 December 2016
-- Average Monthly Visitors 2016 - 0.5 million
-- Bank debt at 31 December 2016 - USD17.7 million
-- Valuation at 31 December 2016 - USD27.2million
Prospect (Kyiv)
SEC Prospect is located directly on the inner ring road of Kyiv
on the left bank of the Dnipro river in the Desnianskyi
administrative district, with good automobile accessibility and
public transport links. The area is already recognised as a popular
shopping destination, located close to a large open-air market and
a bazaar-style shopping centre (SC Darinok).
The SEC consists of a two-storey retail and leisure complex with
a total gross building area of approximately 61,872 sqm (excluding
roof and surface parking and excluding the hypermarket building
referred to below) and a GLA of approximately 30,650 sq. m. and
parking. The centre opened at the end of 2014.
2016 saw the introduction of 17 small sales areas alongside free
training sessions for shop personnel. Openings including "UAMade"
and "Kids Republic" were introduced to the centre while there are
ongoing negotiations with international brands planning their
expansion into Ukraine.
Key statistics
-- GLA - c. 30,650 sqm
-- Vacancy rate as at 31 December 2016 - 2.4 per cent.
-- Average monthly rental rate - USD9.44 /sqm as at 31 December 2016
-- Average Monthly Visitors (2016) - 1.1 million
-- Bank debt at 31 December 2016 - USD15.7 million
-- Valuation at 31 December 2016 - USD29.8 million
Development Properties
Lukianivka (Kyiv)
The Lukianivka development property is located on the right bank
of Kyiv in the Shevchenkivskyi administrative district. The land
plot has a total area of 4.14 hectares. The Group is planning to
construct its flagship shopping centre in the central business
district of Kyiv, with a more upmarket vision in terms of the
concept and tenant mix. The Lukianivka development property allows
for the construction of a multi-use complex, consisting of a
shopping and leisure centre including, inter alia, a hypermarket,
shops and shopping galleries, a leisure and entertainment area, a
food court restaurants and a service area. The property would also
have two underground parking levels and one seven-storey
residential building, construction of which will continue after
completion of the shopping centre. It is expected that the GLA of
the shopping and entertainment centre would be approximately 47,000
sq. m. The Group obtained the relevant construction permit in June
2013.
Land plot: 4.14 hectares
Title: Leasehold title plus title
to several buildings (historical
landmarks) on the site
Development: Retail, leisure and entertainment
centre
Gross construction c.78,000 sqm for the shopping
area (GBA): centre (plus c.38,500 sqm
GBA for parking)
Gross leasable area c.47,000 sqm
(GLA):
Parking spaces: To include roof parking and
underground parking
Type: City shopping centre (pocket
hypermarket anchored) with
residential
Actual construction Q4 2013
start date:
Forecast opening date: Q4 2018
Rozumovska (Odesa)
The Black Sea port of Odesa is Ukraine's fourth largest city,
with over one million inhabitants, and is a popular leisure
destination. The Rozumovska development property is located partly
on the façade of Rozumovska Street close to its intersection with
Balkovska Street, in the Malynovskyi administrative district of
Odesa, in close proximity to public transportation links.
The site is located opposite the city's main bus station.
Rozumovska Street connects directly to the highway to Kyiv.
The Group has signed a lease agreement for the land plot with a
total area of 4.5 hectares. The Rozumovska development property is
expected to be a three-storey shopping and entertainment centre
with a sufficient number of parking spaces to accommodate customer
demand. The target GLA is approximately 38,000 sq. m., including a
hypermarket, shops and shopping galleries, a leisure and
entertainment area, a food court restaurants and a service area.
The preliminary design concept of the project has been completed
and the developer is currently applying for the relevant consents
and permits, given current market conditions.
Land plot: 4.5 hectares
Location: Odesa
Title: Leasehold
Development: retail, leisure and entertainment
centre
Gross construction To be defined
area (GBA):
Gross leasable area 38,000 sqm
(GLA):
Parking spaces: 1,400
Type: Regional mall (hypermarket
anchored)
Expected construction to be defined
start date:
Forecast opening date: to be defined
Petrivka (Kyiv)
The Petrivka development property is located on the right bank
of the Dnipro river in Kyiv, in the Obolonskyi administrative
district. The site has an area of 5.4 ha. The Group is currently
considering the best use of the site, which could include both
residential and retail use.
Investment
Sky Mall (Kyiv)
Sky Mall is one of the largest shopping centres in Kyiv, built
to an award-winning design by the international architectural firm
Chapman Taylor. It is home to top-quality brands, which include
TopShop and Marks & Spencer, and anchored by the hypermarket
Auchan, Comfy and stores of the Inditex Group. The first phase of
the shopping centre (hypermarket) opened in 2007 and the second
phase of the development opened in August 2010. It is located in
the Dniprovskyi district of Kyiv on Vatutina Avenue, on the left
bank of the Dnipro River. The shopping centre has good motor
vehicle access and public transport links.
The GLA of the current operating centre (Phases I and II) is
approximately 68,000 sq. m, with approximately 1,880 parking
spaces. The shopping centre spans three levels with a cinema,
children's and entertainment zone, food court, hypermarket and
gallery shops.
The Company currently owns only 49.9 per cent. of Assofit
Holding Limited, which earlier acted as the holding company of the
Sky Mall Shopping and Entertainment Centre. Taking into
consideration that the holding was stripped of its main asset in
2014, Arricano is taking all possible legal measures to return the
property and acquire the remaining interests from the other
party.
Key statistics
-- Arricano ownership - 49.97 per cent in Assofit.
-- GLA - c. 68,000 sqm
Finance Report
The Company's revenue mainly consists of rental income from the
portfolio of the completed properties. During the year ended 31
December 2016 the Company's rental income amounted to USD23.1
million (2015: USD20.4 million).
The total fair valuation of the Company's portfolio was USD175.7
million as at 31 December 2016 (2015: USD160.3 million). This
increase reverses the previous year's fall in portfolio value. The
main reasons for increase of fair value of the Company's portfolio
were successful rotations of lessees, increase in rental rates and
billing currency exchange rates.
The Company's continued focus on managing the reduction of the
cost base has led to operating expenses during the period of USD4.5
million, compared to USD15.6 million in the previous year.
As a result of the above, profit from operating activities has
increased by 132% to USD43.8 million (2015: USD18.9 million).
Despite the devaluation of the Hryvnia, foreign exchange losses
on monetary items that form part of the net investment in the
foreign operation, net of tax effect were USD28.4 million (2015:
USD80.8 million) due to devaluation Ukrainian national
currency.
Finance expenses in 2016 decreased by USD18.4 million due to
decrease in foreign exchange losses and partially due to decrease
in loans portfolio, while finance income rose by USD2.1 million, a
226% increase (2015 USD0.9 million).
The Company's net profit for the year ended 31 December 2016 was
USD23.5 million (2015: USD20.4 million net loss). This turnaround
was due to the USD11.5 million increase in the property valuation,
in addition to the USD11 million reduction in operating expenses
and the USD18.4 million fall in finance costs all contributing
towards this improved figure
Net Asset Value as at 31 December 2016 was USD24.2 million
(2015: USD3.1 million), resulting in an Adjusted Net Asset Value
per share of USD0.23 (2015: USD0.03). The increase in NAV was
driven primarily by the growth in the Company's property valuation
as well as positive cash flows.
Total assets, as at 31 December 2016, amounted to USD187.1
million (2015: USD173.2 million), an increase of 8% from the
previous year. This mainly related to the increase in investment
property value, as well as the ash and cash equivalents.
Cash balances as at 31 December 2016 including cash equivalents
and current deposits amounted to USD4.95 million (2015: USD3.3
million).
During the year ended 31 December 2016, PrJSC
Livobereazhzhiainvest signed amendments to the loan agreements with
PJSC "Bank "St.Petersburg" stipulating a decrease in the amount of
loan principal payable in 2016 by USD2.4 million. Moreover, the
loan payable to the EBRD by PrJSC Grandinvest was transferred to
PrJSC UkrPanGroup for an amount of USD3.8million, that allowed to
optimize Group's cash flows. Upon reassignment, the loan principal
in amount of USD1.2 million was settled by the Group.
As at 31 December 2016, the Company had USD101 million of
outstanding borrowings.
Arricano Real Estate PLC
Consolidated financial statements as at and for the year ended
31 December 2016
Consolidated statement of financial position as at 31 December
2016
Note 31 December 31 December
2016 2015
(in thousands of USD)
Assets
Non-current assets
Investment property 4 175,663 160,310
Long-term VAT recoverable 6 1,215 3,364
Property and equipment 214 230
Intangible assets 38 36
Total non-current assets 177,130 163,940
Current assets
Trade and other receivables 7 1,162 890
Loans receivable 5 305 347
Prepayments made and other
assets 901 955
VAT recoverable 6 1,067 1,086
Assets classified as held
for sale 8 1,590 1,804
Restricted deposits - 800
Cash and cash equivalents 9 4,953 3,349
Total current assets 9,978 9,231
Total assets 187,108 173,171
31 December 31 December
Note 2016 2015
(in thousands of USD)
Equity and Liabilities
Equity 10
Share capital 67 67
Share premium 183,727 183,727
Non-reciprocal shareholders
contribution 59,713 59,713
Accumulated deficit (24,973) (48,466)
Other reserves (61,983) (61,983)
Foreign currency translation
differences (132,371) (130,008)
Total equity 24,180 3,050
Non-current liabilities
Long-term borrowings 12 36,845 38,501
Advances received 15 325 556
Finance lease liability 13 6,855 9,933
Trade and other payables 14 4,628 3,988
Other long-term liabilities 16 98 80
Deferred tax liability 21 3,530 2,806
Total non-current liabilities 52,281 55,864
Current liabilities
Short-term borrowings 12 64,239 66,385
Trade and other payables 14 15,759 20,291
Taxes payable 1,106 676
Advances received 15 4,425 4,539
Current portion of finance
lease liability 13 2 4
Other liabilities 16 25,116 22,362
Total current liabilities 110,647 114,257
Total liabilities 162,928 170,121
Total equity and liabilities 187,108 173,171
These consolidated financial statements were approved by
management on 25 April 2017 and were signed on its behalf by:
Michael Zampelas Mikhail Merkulov
Director Director
The consolidated statement of financial position is to be read
in conjunction with the notes to, and forming part of, the
consolidated financial statements.
Arricano Real Estate PLC
Consolidated financial statements as at and for the year ended
31 December 2016
Consolidated statement of profit or loss and other comprehensive
income for the year ended 31 December 2016
Note 2016 2015
(in thousands of USD, except
for earnings per share)
Revenue 17 23,090 20,383
Other income 56 204
Gain on revaluation of investment
property 4(a) 27,928 16,396
Goods, raw materials and
services used 18 (837) (785)
Operating expenses 19 (4,545) (15,572)
Salary costs (1,384) (1,297)
Salary related charges (343) (343)
Depreciation and amortisation (122) (118)
Profit from operating activities 43,843 18,868
Finance income 20 3,095 949
Finance costs 20 (17,706) (36,088)
Profit/(Loss) before income
tax 29,232 (16,271)
Income tax expense 21 (5,739) (4,108)
Net profit/(loss) for the
year 23,493 (20,379)
Items that will be reclassified
to profit or loss:
Foreign exchange losses on
monetary items that form
part of net investment in
the foreign operation, net
of tax effect (28,356) (80,745)
Foreign currency translation
differences 25,993 42,520
Total items that will be
reclassified to profit or
loss (2,363) (38,225)
Other comprehensive loss (2,363) (38,225)
Total comprehensive profit/(loss)
for the year 21,130 (58,604)
Weighted average number of
shares (in shares) 11 103,270,637 103,270,637
Basic and diluted gain/(loss)
per share, USD 11 0.22749 (0.19734)
The consolidated statement of profit or loss and other
comprehensive income is to be read in conjunction with the notes
to, and forming part of, the consolidated financial statements.
Arricano Real Estate PLC
Consolidated financial statements as at and for the year ended
31 December 2016
Consolidated statement of cash flows for the year ended 31
December 2016
Note 2016 2015
(in thousands of USD)
Cash flows from operating
activities
Profit/(loss) before income
tax 29,232 (16,271)
Adjustments for:
Finance income 20 (3,095) (949)
Finance costs, excluding
foreign exchange loss 20 13,620 16,913
Gain on revaluation of investment
property 4(a) (27,928) (16,396)
Gain on disposal of assets
classified as held for sale - (49)
Depreciation and amortisation 122 118
Unrealised foreign exchange
loss 4,089 18,714
VAT recoverable written-off - 426
Allowance for bad debts 19 5 10,617
Operating cash flows before
changes in working capital 16,045 13,123
Change in trade and other
receivables (413) (221)
Change in prepayments made
and other assets (69) (638)
Change in finance lease
liability 56 -
Change in VAT recoverable 1,721 1,365
Change in taxes payable 497 530
Change in trade and other
payables (939) (343)
Change in advances received 309 290
Change in other liabilities 830 (13)
Income tax paid (866) (522)
Interest paid (6,480) (6,219)
Cash flows from operating
activities 10,691 7,352
Cash flows from investing
activities
Acquisition of investment
property, excluding capitalised
borrowing costs, and settlements
of payables due to constructors (1,341) (10,078)
Acquisition of property
and equipment (187) (223)
Loans repaid - 9
Change in VAT recoverable - (152)
Placement of the restricted
deposit - (1,471)
Repayment of the restricted
deposit 800 2,865
Interest received 257 318
Cash flows used in investing
activities (471) (8,732)
Note 2016 2015
(in thousands of USD)
Cash flows from financing
activities
Proceeds from borrowings,
net of transaction costs 1,860 34,936
Repayment of borrowings (9,309) (30,183)
Finance lease payments (612) (532)
Cash flows (used in) from
financing activities (8,061) 4,221
Net increase in cash and
cash equivalents 2,159 2,841
Cash and cash equivalents
at 1 January 3,349 832
Effect of movements in exchange
rates on cash and cash equivalents (555) (324)
Cash and cash equivalents
at 31 December 9 4,953 3,349
Non-cash movements
During the year ended 31 December 2016, acquisition and disposal
of a land plot held on leasehold of USD 954 thousand and USD 1,173
thousand, respectively, occurred through finance lease (2015:
acquisition of investment property of USD 1,925 thousand).
The consolidated statement of cash flows is to be read in
conjunction with the notes to, and forming part of, the
consolidated financial statements.
Arricano Real Estate PLC
Consolidated financial statements as at and for the year ended
31 December 2016
Consolidated statement of changes in equity as at and for the
year ended 31 December 2016
Attributable to equity holders of the parent
------------------------------------------------------------------------------------------------------
Foreign
Non-reciprocal currency
Share Share shareholders Accumulated Other translation
capital premium contribution deficit reserves differences Total
(in thousands
of USD)
Balances at 1
January 2015 67 183,727 59,713 (28,087) (61,983) (91,783) 61,654
Total
comprehensive
profit/(loss)
for the year
Net loss for
the year - - - (20,379) - - (20,379)
Foreign
exchange
losses
on monetary
items that
form part of
net
investment
in the
foreign
operation,
net of tax
effect - - - - - (80,745) (80,745)
Foreign
currency
translation
differences - - - - - 42,520 42,520
Total other
comprehensive
loss for the
year - - - - - (38,225) (38,225)
Total
comprehensive
loss
for the year - - - (20,379) - (38,225) (58,604)
Balances at 31
December
2015 67 183,727 59,713 (48,466) (61,983) (130,008) 3,050
The consolidated statement of changes in equity is to be read in
conjunction with the notes to, and forming part of, the
consolidated financial statements.
Arricano Real Estate PLC
Consolidated financial statements as at and for the year ended
31 December 2016
Consolidated statement of changes in equity as at and for the
year ended 31 December 2016 (continued)
Attributable to equity holders of the parent
-------------------------------------------------------------------------------------------------------
Foreign
Non-reciprocal currency
Share Share shareholders Accumulated Other translation
capital premium contribution deficit reserves differences Total
(in thousands
of USD)
Balances at 1
January 2016 67 183,727 59,713 (48,466) (61,983) (130,008) 3,050
Total
comprehensive
profit/(loss)
for the year
Net profit for
the year - - - 23,493 - - 23,493
Foreign
exchange
losses
on monetary
items that
form part of
net
investment
in the
foreign
operation,
net of tax
effect - - - - - (28,356) (28,356)
Foreign
currency
translation
differences - - - - - 25,993 25,993
Total other
comprehensive
loss for the
year - - - - - (2,363) (2,363)
Total
comprehensive
profit
for the year - - - 23,493 - (2,363) 21,130
Balances at 31
December
2016 67 183,727 59,713 (24,973) (61,983) (132,371) 24,180
The consolidated statement of changes in equity is to be read in
conjunction with the notes to, and forming part of, the
consolidated financial statements.
Arricano Real Estate PLC
Consolidated financial statements as at and for the year ended
31 December 2016
Notes to the consolidated financial statements
1 Background
(a) Organisation and operations
Arricano Real Estate PLC (Arricano, the Company or the Parent
Company) is a public company that was incorporated in Cyprus and is
listed on the AIM Market of the London Stock Exchange. The Parent
Company's registered address is office 1002, 10th floor, Nicolaou
Pentadromos Centre, Thessalonikis Street, 3025 Limassol, Cyprus.
Arricano and its subsidiaries are referred to as the Group, and
their principal place of business is in Ukraine.
The main activities of the Group are investing in the
development of new properties in Ukraine and leasing them out. As
at 31 December 2016, the Group operates five shopping centres in
Kyiv, Simferopol, Zaporizhzhya and Kryvyi Rig with a total leasable
area of over 147,800 square meters and is in the process of
development of two new investment projects in Kyiv and Odesa, with
one more project to be consequently developed.
The average number of employees employed by the Group during the
year is 112 (2015: 121).
(b) Ukrainian business environment
Ukraine's political and economic situation has deteriorated
significantly since 2014. Following political and social unrest,
which started in November 2013, in March 2014 various events in
Crimea led to the annexation of the Republic of Crimea by the
Russian Federation, which was not recognised by Ukraine and many
other countries. This event resulted in a significant deterioration
of the relationship between Ukraine and the Russian Federation.
Following the instability in Crimea, regional tensions have spread
to the Eastern regions of Ukraine, primarily Donetsk and Lugansk
regions. In May 2014, protests in those regions escalated into
military clashes and armed conflict between supporters of the
self-declared republics of the Donetsk and Lugansk regions and the
Ukrainian forces, which continued through the date of these
consolidated financial statements. As a result of this conflict,
part of the Donetsk and Lugansk regions remains under control of
the self-proclaimed republics, and Ukrainian authorities are not
currently able to fully enforce Ukrainian laws on this
territory.
Unrest in Donetsk and Lugansk does not affect the flow of
current business of the Group.
Political and social unrest combined with the military conflict
in the Donetsk and Lugansk regions has deepened the ongoing
economic crisis, caused a fall in the country's gross domestic
product and foreign trade, deterioration in state finances,
depletion of the National Bank of Ukraine's foreign currency
reserves, significant devaluation of the national currency and a
further downgrading of the Ukrainian sovereign debt credit ratings.
Following the devaluation of the national currency, the National
Bank of Ukraine introduced certain administrative restrictions on
currency conversion transactions, which among others included
restrictions on purchases of foreign currency by individuals and
companies, the requirement to convert large part of foreign
currency proceeds to local currency, restrictions on payment of
dividends abroad, a ban on early repayment of foreign loans and
restrictions on cash withdrawals from banks. These events had a
negative effect on Ukrainian companies and banks, significantly
limiting their ability to obtain financing on domestic and
international markets.
The final resolution and the effects of the political and
economic crisis are difficult to predict but may have further
severe effects on the Ukrainian economy.
As at 31 December 2016, the carrying value of the Group's
investment property located in Simferopol, the administrative
centre of the Republic of Crimea, amounted to USD 35,400 thousand
(2015: USD 28,500 thousand). The ultimate effect of these
developments in the Republic of Crimea on the Group's ability to
continue operations in this region, to realise its related assets
and to maintain and secure its ownership rights cannot yet be
determined.
Whilst management believes it is taking appropriate measures to
support the sustainability of the Group's business in the current
circumstances, a continuation of the current unstable business
environment could further negatively affect the Group's results and
financial position in a manner not currently determinable. These
consolidated financial statements reflect management's current
assessment of the impact of the Ukrainian business environment on
the operations and the financial position of the Group. The future
business environment may differ from management's assessment.
(c) Cyprus business environment
According to the Cyprus Statistical Service, economic growth for
2016 was estimated at the level of 2,8% compared to 2015. Even
though the financial services sector showed negative growth, there
has been an increase in the Gross Domestic Product which is mainly
attributed to the hotels, construction, manufacturing and the
wholesale and retail trade sectors. The economic growth was mainly
driven by the increase in private consumption, which benefited from
the reduction in unemployment and the consequent increase in
disposable income. The growth was also supported by the slower pace
of reductions in public spending and the increase in investments.
On 17 March 2017 the credit rating of the country rose from BB to
BB +.
Despite the significant steps towards economic recovery, a
degree of uncertainty still exists, as certain issues remain to be
resolved, such as the high index of non-performing loans, the high
unemployment and the implementation of privatization and reforms of
the public services sector.
The current economic environment of Cyprus is not expected to
have a significant impact on the operations of the Group as the
Group does not hold significant funds in Cypriot financial
institutions.
On the basis of the evaluation performed, the Group's management
has concluded that no additional provisions or impairment charges
are necessary. The Group's management believes that it is taking
all the necessary measures to maintain the viability of the Group
and the development of its business in the current business and
economic environment.
2 Basis of preparation
(a) Statement of compliance
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRSs") as adopted by the European Union (EU).
(b) Basis of measurement
The consolidated financial statements have been prepared under
the historical cost basis except for investment property, which is
carried at fair value.
(c) Functional and presentation currency
The functional currency of Arricano Real Estate PLC is the US
dollar (USD). The majority of Group entities are located in Ukraine
and have the Ukrainian Hryvnia (UAH) as their functional currency,
except for Voyazh-Krym LLC, which has the Russian Rouble (RUB) as
its functional currency starting from 1 May 2014, following the
changes in the Ukrainian business environment described in note
1(b). The Group entities located in Cyprus, Estonia and Isle of Man
have the US dollar as their functional currency, since
substantially all transactions and balances of these entities are
denominated in US dollar. The Group entity located in the Russian
Federation, Green City LLC, has the Russian Rouble (RUB) as its
functional currency, since substantially all transactions and
balances of this entity are denominated in the Russian Rouble.
For the benefits of principal users, the management chose to
present the consolidated financial statements in USD, rounded to
the nearest thousand.
In translating the consolidated financial statements into USD
the Group follows a translation policy in accordance with
International Financial Reporting Standard IAS 21 The Effects of
Changes in Foreign Exchange Rates and the following rates are
used:
-- Historical rates: for the equity accounts except for net
profit or loss and other comprehensive income (loss) for the
year.
-- Year-end rate: for all assets and liabilities.
-- Rates at the dates of transactions: for the statement of
profit or loss and other comprehensive income and for capital
transactions.
UAH and RUB are not freely convertible currencies outside
Ukraine and the Russian Federation, and, accordingly, any
conversion of UAH and RUB amounts into USD should not be construed
as a representation that UAH and RUB amounts have been, could be,
or will be in the future, convertible into USD at the exchange rate
shown, or any other exchange rate.
The principal USD exchange rates used in the preparation of
these consolidated financial statements are as follows.
Year-end USD exchange rates as at 31 December are as
follows:
Currency 2016 2015
UAH 27.19 24.00
RUB 60.66 72.88
Average USD exchange rates for the years ended 31 December are
as follows:
Currency 2016 2015
UAH 25.59 21.81
RUB 66.83 60.59
As at the date of these consolidated financial statements are
authorised for issue, 25 April 2017, the exchange rate is UAH 26,67
to USD 1.00 and RUB 56,08 to USD 1.00.
(d) Use of judgments, estimates and assumptions
The preparation of consolidated financial statements in
conformity with IFRSs as adopted by the EU requires management to
make judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses and the disclosure of
contingent assets and liabilities. Actual results may differ from
these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
In particular, information about significant areas of estimation
uncertainty and critical judgments in applying accounting policies
that have the most significant effect on the amounts recognised in
the consolidated financial statements and have significant risk of
resulting in a material adjustment within the next financial year
are included in the following notes:
-- note 2(c) - determination of functional currency,
-- note 4 - valuation of investment property,
-- note 5 - valuation of loans receivable and investment in Filgate Credit Enterprises Limited,
-- note 7 - valuation of trade and other receivables,
-- note 8(a) - classification of assets held for sale,
-- note 23(d)(i) - legal case in respect of Assofit Holdings Limited and valuation of related available-for-sale financial asset.
(e) Going concern
As at 31 December 2016, the Group's current liabilities exceed
current assets by USD 100,669 thousand. In addition, the Group has
not complied with several loan covenants under the existing loan
agreements (refer to note 12), which, as per the terms of the
relevant loan agreement, gives the lender a right to demand
immediate repayment of the loans in the amount of USD 17,650
thousand. There is a risk that the Group will not fulfill these
covenants till 1 July 2017, and this will give the lender a right
to demand immediate repayment of the loans amounting to USD 17,650
thousand after that date. These conditions indicate the existence
of a material uncertainty that may cast significant doubt about the
Group's ability to continue as a going concern.
At the same time, the Group has positive equity of USD 24,180
thousand as at 31 December 2016, generated net profit of USD 23,493
thousand and positive cash flows from operating activities
amounting to USD 10,691 thousand for the year then ended.
Management is undertaking the following measures in order to
ensure the Group's continued operation on a going concern
basis:
-- The Group has financial support from the ultimate controlling
party. Based on representations received in writing from entities
under common control, management believes that the Group will not
be required to settle the outstanding loans, accrued interest and
other payables to related parties in the amount of USD 66,955
thousand plus any accruing interest during the year ending 31
December 2017.
-- In April 2017, the Group has received a waiver from PJSC
"Bank "St.Petersburg" waiving the breaches of covenants valid until
July 2018. Accordingly, management believes that PJSC "Bank
"St.Petersburg" will not demand early repayment of the loans
amounting to USD 17,650 thousand with contractual maturity in
2017-2020 presented as short-term liability as at 31 December
2016.
-- The Group will be able to draw on existing facilities granted
from entities under common control, should this be required for
operational and other needs of the Group.
-- During the year ended 31 December 2016, management was able
to conclude a number of new tenancy agreements and increase
occupancy rate of its shopping centres. Besides, the Group managed
to gradually increase its rental rates during the year for existing
tenants. In accordance with the budget approved for 2017, the Group
plans to increase its operating income during the next year.
-- In August 2016, the major constructor of the Group postponed
the settlement of outstanding balance of USD 2,155 thousand from 15
August 2016 to 15 August 2019.
Management believes that the measures that it undertakes, as
described above, will allow the Group to maintain the positive
working capital and operate on a going concern basis in the
foreseeable future.
These consolidated financial statements are prepared on a going
concern basis, which contemplates the realisation of assets and the
settlement of liabilities in the normal course of business.
(f) Measurement of fair values
A number of the Group's accounting policies and disclosures
require the measurement of fair values, for both financial and
non-financial assets and liabilities.
When measuring the fair value of an asset or a liability, the
Group uses market observable data as far as possible. Fair values
are categorised into different levels in a fair value hierarchy
based on the inputs used in the valuation techniques as
follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a
liability might be categorised in different levels of the fair
value hierarchy, then the fair value measurement is categorised in
its entirety in the same level of the fair value hierarchy as the
lowest level input that is significant to the entire
measurement.
The Group recognises transfers between levels of the fair value
hierarchy at the end of the reporting period during which the
change has occurred.
Further information about the assumptions made in measuring fair
values is included in the following notes:
-- Note 4 - investment property; and
-- Note 22(e)(iii) - fair values.
3 Significant accounting policies
The accounting policies set out below are applied consistently
to all periods presented in these consolidated financial
statements, and have been applied consistently by Group
entities.
(a) Basis of consolidation
(i) Business combinations
Business combinations are accounted for using the acquisition
method as at the acquisition date, which is the date on which
control is transferred to the Group.
The Group measures goodwill at the acquisition date as:
-- The fair value of the consideration transferred; plus
-- The recognised amount of any non-controlling interests in the acquiree; plus
-- If the business combination is achieved in stages, the fair
value of the pre-existing equity interest in the acquiree; less
-- The net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is
recognised immediately in profit or loss.
The consideration transferred does not include amounts related
to the settlement of pre-existing relationships. Such amounts are
generally recognised in profit or loss.
Transaction costs, other than those associated with the issue of
debt or equity securities that the Group incurs in connection with
a business combination, are expensed as incurred.
Any contingent consideration payable is recognised at fair value
at the acquisition date. If an obligation to pay contingent
consideration that meets the definition of a financial instrument
is classified as equity, then it is not remeasured and settlement
is accounted for within equity. Otherwise, other contingent
consideration is remeasured at fair value at each reporting date
and subsequent changes in the fair value of the contingent
consideration are recognised in profit or loss.
When the acquisition of subsidiaries does not represent a
business, it is accounted for as an acquisition of a group of
assets and liabilities. The cost of the acquisition is allocated to
the assets and liabilities acquired based on their relative fair
values, and no goodwill or deferred tax is recognised.
(ii) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases. The accounting
policies of subsidiaries have been changed when necessary to align
them with the policies adopted by the Group. Losses applicable to
the non-controlling interests in a subsidiary are allocated to the
non-controlling interests even if doing so causes the
non-controlling interests to have a deficit balance.
Consolidated entities as at 31 December are as follows:
Name Country Cost % of ownership
of incorporation
2016 2015 2016 2015
(in thousands of
USD, except for
% of ownership)
Praxifin Holdings
Limited Cyprus 3 3 100.00% 100.00%
U.A. Terra Property
Management Limited Cyprus 3 3 100.00% 100.00%
Museo Holdings
Limited Cyprus 3 3 100.00% 100.00%
Sunloop Co Limited Cyprus 3 3 100.00% 100.00%
Isle of
Lacecap Limited Man 3 3 100.00% 100.00%
Beta Property Management
Limited Cyprus 3 3 100.00% 100.00%
Voyazh-Krym LLC Ukraine 363 363 100.00% 100.00%
PrJSC Livoberezhzhiainvest Ukraine 69 69 100.00% 100.00%
PrJSC Grandinvest Ukraine 69 69 100.00% 100.00%
Arricano Property
Management LLC Ukraine 5 5 100.00% 100.00%
PrJSC UkrPanGroup Ukraine 59 59 100.00% 100.00%
Prizma Alfa LLC Ukraine 4 4 100.00% 100.00%
Arricano Development
LLC Ukraine 9 9 100.00% 100.00%
Prizma Development
LLC Ukraine 4 4 100.00% 100.00%
Arricano Real Estate
LLC Ukraine - - 100.00% 100.00%
Twible Holdings
Limited Cyprus - - 100.00% 100.00%
Gelida Holding
Limited Cyprus - - 100.00% 100.00%
Sapete Holdings
Limited Cyprus - - 100.00% 100.00%
Wayfield Limited Cyprus - - 100.00% 100.00%
Comfort Market
Luks LLC Ukraine 40,666 40,666 100.00% 100.00%
Mezokred Holding
LLC Ukraine 8,109 8,109 100.00% 100.00%
Vektor Capital
LLC Ukraine 11,441 11,441 100.00% 100.00%
Budkhol LLC Ukraine 31,300 31,300 100.00% 100.00%
Budkholinvest LLC Ukraine - - 100.00% 100.00%
Russian
Green City LLC Federation - - 100.00% 0.00%
RRE Development
Services OU Estonia - - 100.00% 0.00%
Crimsonville Investments
Limited Cyprus - - - 100.00%
On 29 April 2016, the Group's subsidiary U.A. Terra Property
Management Limited acquired Green City LLC, the company
incorporated in the Russian Federation, from the entity under
common control for the purpose of facilitating operations and cash
flow management of the investment property.
On 5 October 2016, the Parent Company acquired RRE Development
Services OU, a company incorporated in Estonia, for the purpose of
facilitating of management activities.
These acquisitions were accounted for as an acquisition of
assets and liabilities as they do not meet the definition of a
business according to IFRS 3 Business Combinations.
No significant identifiable assets were acquired and no
significant liabilities were assumed upon these acquisitions.
Consideration transferred is also not significant. As part of the
above acquisitions, the rights to receive certain loans of the
acquired subsidiaries payable to entities under common control were
reassigned to the Group for a nominal amount of USD 1 per each loan
assignment. Accordingly, as at the date of each acquisition the
relative fair value of these loans receivable is considered to be
nil.
During the year ended 31 December 2016, the Group liquidated its
subsidiary Crimsonville Investments Limited, a company incorporated
in Cyprus. As at 31 December 2015, this subsidiary was dormant and
had no significant assets or liabilities.
(iii) Interests in equity-accounted investees
The Group's interests in equity-accounted investees comprise
interests in associates.
Associates are those entities in which the Group has significant
influence, but not control or joint control, over the financial and
operating policies. Significant influence is presumed to exist when
the Group holds between 20% and 50% of the voting power of another
entity.
Interest in associates is accounted for using the equity method
and is recognised initially at cost. The cost of the investment
includes transaction costs.
The consolidated financial statements include the Group's share
of the profit or loss and other comprehensive income of equity
accounted investees from the date that significant influence
commences until the date that significant influence ceases.
When the Group's share of losses exceeds its interest in an
equity-accounted investee, the carrying amount of that interest
including any long-term investments, is reduced to zero, and the
recognition of further losses is discontinued, except to the extent
that the Group has an obligation or has made payments on behalf of
the investee.
The listing of associates as at 31 December is as follows:
Name Country % of ownership
of incorporation
2016 2015
Filgate Credit
Enterprises Limited Cyprus 49.00% -
On 14 December 2016, the Parent Company acquired non-controlling
interest (49% of corporate rights) of Filgate Credit Enterprises
Limited from the company under common control incorporated in
Cyprus, in exchange for loan receivable from Weather Empire Limited
(refer to note 5). As part of the above acquisition, the rights to
receive certain loans payable by Filgate Credit Enterprises Limited
to entities under common control in amount of USD 215,891 thousand
were reassigned to the Group for a nominal amount of USD 1. The
fair value of these loans receivable is considered to be nil at the
date of reassignment (refer to note 5).
In addition, a call share option agreement was concluded
granting an option to the Parent Company to purchase the remaining
51% of the corporate rights of Filgate Credit Enterprises Limited
within 5 years from the effective date. Exercise of the call option
depends on certain criteria and occurrence of certain conditions,
and, as at the date of these consolidated financial statements the
call option was not excercised by the Group. . Thus, the rights
under the call option agreement were not taken into consideration
upon recognition of investment in Filgate Credit Enterprises
Limited and determination of the investment's classification.
(iv) Transactions with entities under common control
Acquisitions from entities under common control
Business combinations arising from transfers of interests in
entities that are under the control of the shareholder that
controls the Group are accounted for using book value accounting.
Any result from the acquisition is recognised directly in
equity.
Disposals to entities under common control
Disposals of interests in subsidiaries to entities that are
under the control of the shareholder that controls the Group are
accounted for using book value accounting. Any result from the
disposal is recognised directly in equity.
(v) Loss of control
Upon the loss of control, the Group derecognises the carrying
amounts of the assets and liabilities of the subsidiary, any
non-controlling interests and the other components of equity
related to the subsidiary. Any surplus or deficit arising on the
loss of control is recognised in profit or loss. If the Group
retains any interest in the previous subsidiary, then such interest
is measured at fair value at the date that control is lost.
Subsequently it is accounted for as an equity-accounted investee or
as an available-for-sale financial asset depending on the level of
influence retained.
(vi) Transactions eliminated on consolidation
Intra-group balances, and any unrealised income and expenses
arising from intra-group transactions, are eliminated in preparing
these consolidated financial statements. Unrealised gains arising
from transactions with equity accounted investees are eliminated
against the investment to the extent of the Group's interest in the
investee. Unrealised losses are eliminated in the same way as
unrealised gains, but only to the extent that there is no evidence
of impairment.
(b) Foreign currency transactions and operations
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the
respective functional currencies of Group entities at exchange
rates at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies at the reporting date
are retranslated to the functional currency at the exchange rates
as at that date. The foreign currency gain or loss on monetary
items is the difference between amortised cost in the functional
currency at the beginning of the period, adjusted for effective
interest and payments during the period, and the amortised cost in
foreign currency translated at the exchange rate at the end of the
reporting period.
Non-monetary assets and liabilities that are measured at fair
value in a foreign currency are translated to the functional
currency at the exchange rate at the date that the fair value was
determined. Non-monetary items in a foreign currency that are
measured based on historical cost are translated using the exchange
rate at the date of the transaction.
Foreign currency differences arising on retranslation are
recognised in profit or loss, except for differences arising on the
retranslation of available-for-sale equity instruments which are
recognised in other comprehensive income.
Foreign currency transactions of Group entities located in
Ukraine
In preparation of these consolidated financial statements for
the retranslation of the operations and balances of Group entities
located in Ukraine denominated in foreign currencies, management
applied the National Bank of Ukraine's (NBU) official rates.
Management believes that application of these rates substantially
serves comparability purposes.
(ii) Foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on acquisition, are
translated to USD at exchange rates at the reporting date. The
income and expenses of foreign operations are translated to USD at
exchange rates at the dates of the transactions.
Foreign currency differences are recognised in other
comprehensive income, and presented in the foreign currency
translation reserve in equity. However, if the operation is a
non-wholly-owned subsidiary, then the relevant proportionate share
of the translation difference is allocated to the non-controlling
interests. When a foreign operation is disposed of, such that
control, significant influence or joint control is lost, the
cumulative amount in the translation reserve related to that
foreign operation is reclassified to profit or loss as part of the
gain or loss on disposal. When the Group disposes of only part of
its interest in a subsidiary that includes a foreign operation
while retaining control, the relevant proportion of the cumulative
amount is reattributed to non-controlling interests. When the Group
disposes of only part of its investment in an associate or joint
venture that includes a foreign operation while retaining
significant influence or joint control, the relevant proportion of
the cumulative amount is reclassified to profit or loss.
When the settlement of a monetary item receivable from or
payable to a foreign operation is neither planned nor likely in the
foreseeable future, foreign exchange gains and losses arising from
such a monetary item are considered to form part of a net
investment in a foreign operation and are recognised in other
comprehensive income, and presented in the foreign currency
translation difference reserve in equity.
(c) Financial instruments
The Group classifies non-derivative financial assets into the
following categories: loans and receivables and available-for-sale
financial assets.
The Group classifies non-derivative financial liabilities into
the other financial liabilities category.
(i) Non-derivative financial assets and financial liabilities -
recognition and derecognition
The Group initially recognises loans and receivables on the date
that they are originated. All other financial assets and financial
liabilities are recognised initially on the trade date at which the
Group becomes a party to the contractual provisions of the
instrument.
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows on the financial asset
in a transaction in which substantially all the risks and rewards
of ownership of the financial asset are transferred. Any interest
in transferred financial assets that is created or retained by the
Group is recognised as a separate asset or liability.
The Group derecognises a financial liability when its
contractual obligations are discharged or cancelled or expire.
Financial assets and liabilities are offset and the net amount
presented in the statement of financial position when, and only
when, the Group has a legal right to offset the amounts and intends
either to settle on a net basis or to realise the asset and settle
the liability simultaneously. The Group currently has a legally
enforceable right to set off if that right is not contingent on a
future event and enforceable both in the normal course of business
and in the event of default, insolvency or bankruptcy of the Group
and all counterparties.
(ii) Non-derivative financial assets and financial liabilities - measurement
Loans and receivables
Loans and receivables are a category of financial assets with
fixed or determinable payments that are not quoted in an active
market. Such assets are recognised initially at fair value plus any
directly attributable transaction costs. Subsequent to initial
recognition loans and receivables are measured at amortised cost
using the effective interest method, less any impairment
losses.
Loans and receivables comprise the following classes of
financial assets: trade and other receivables as presented in note
7, loans receivable as presented in note 5, restricted deposits and
cash and cash equivalents as presented in note 9.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, call deposits
and highly liquid investments with maturities of three months or
less from the acquisition date that are subject to insignificant
risk of changes in their fair value.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial
assets that are designated as available-for-sale or are not
classified in any of the other categories of financial assets. Such
assets are recognised initially at fair value plus any directly
attributable transaction costs. Subsequent to initial recognition,
they are measured at fair value and changes therein, other than
impairment losses (refer to note 3(i)(i)), are recognised in other
comprehensive income and presented within equity in the fair value
reserve. When an investment is derecognised or impaired, the
cumulative gain or loss in equity is reclassified to profit or
loss. Unquoted equity instruments whose fair value cannot be
reliably measured are carried at cost.
Available-for-sale financial assets comprise equity
securities.
(iii) Non-derivative financial liabilities - measurement
The Group classifies non-derivative financial liabilities into
the other financial liabilities category. Such financial
liabilities are recognised initially at fair value less any
directly attributable transaction costs. Subsequent to initial
recognition, these financial liabilities are measured at amortised
cost using the effective interest method.
Other financial liabilities comprise loans and borrowings as
presented in note 12, finance lease liability as presented in note
13, trade and other payables as presented in note 14 and other
liabilities as presented in note 16.
(iv) Capital and reserves
Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to issue of ordinary shares are recognised as
a deduction from equity, net of any tax effects.
Share premium
Share premium reserves include amounts that were created due to
the issue of share capital at a value price greater than the
nominal.
Non-reciprocal shareholders contribution
Non-reciprocal shareholders contribution reserve includes
contributions made by the shareholders directly in the reserves.
The shareholders do not have any rights to these contributions
which are distributable at the discretion of the Board of
Directors, subject to the shareholders' approval.
Retained earnings (accumulated deficit)
Retained earnings (accumulated deficit) include accumulated
profits and losses incurred by the Group.
Other reserves
Other reserves comprise the effect of acquisition and disposal
of subsidiaries under common control, change in non-controlling
interest in these subsidiaries, and the effect of forfeiture of
shares.
Foreign currency translation differences
Foreign currency translation differences comprise foreign
currency differences arising from the translation of the financial
statements of foreign operations and foreign exchange gains and
losses from monetary items that form part of the net investment in
the foreign operation.
(d) Investment properties
Investment properties are those that are held either to earn
rental income or for capital appreciation or for both, but not for
sale in the ordinary course of business, use in production or
supply of goods or services or for administrative purposes.
Investment properties principally comprise freehold land,
leasehold land and investment properties held for rental income
earning or future redevelopment.
Leasehold of land under operating lease is classified and
accounted for as an investment property when the definition of
investment property is met. Under investment property accounting,
the right to use the land is measured at fair value and the
obligation to pay rentals is accounted for as a finance lease.
(i) Initial measurement and recognition
Investment properties are measured initially at cost, including
related acquisition costs. Cost includes expenditure that is
directly attributable to the acquisition of the investment
property. The cost of self-constructed investment property includes
the cost of materials and direct labour, any other costs directly
attributable to bringing the investment property to a working
condition for their intended use and capitalised borrowing
costs.
If the Group uses part of the property for its own use, and part
to earn rentals or for capital appreciation, and the portions can
be sold or leased out separately, they are accounted for
separately. Therefore the part that is rented out is investment
property. If the portions cannot be sold or leased out separately,
the property is investment property only if the company-occupied
portion is insignificant.
(ii) Subsequent measurement
Subsequent to initial recognition investment properties are
stated at fair value. Any gain or loss arising from a change in
fair value is included in profit or loss in the period in which it
arises.
When the Group begins to redevelop an existing investment
property for continued future use as investment property, the
property remains an investment property, which is measured at fair
value, and is not reclassified to property and equipment during the
redevelopment.
When the use of a property changes such that it is reclassified
as property, plant and equipment, its fair value at the date of
reclassification becomes its cost for subsequent accounting.
Investment properties are derecognised on disposal or when they
are permanently withdrawn from use and no future economic benefits
are expected from their disposal. The gain or loss on disposal is
calculated as the difference between the net disposal proceeds and
the carrying amount of the asset and is recognised as gain or loss
in profit or loss.
It is the Group's policy that an external, independent valuation
company, having an appropriate recognised professional
qualification and recent experience in the location and category of
property being appraised, values the portfolio as at each reporting
date. The fair value is the amount for which a property could be
exchanged on the date of valuation between a willing buyer and a
willing seller in an arm's length transaction. The valuation is
prepared in accordance with International Valuation Standards
published by the International Valuation Standards Council.
(iii) Property under development (construction)
Property that is being constructed or developed for future use
as an investment property and for which it is not possible to
reliably determine fair value is accounted for as an investment
property that is stated at cost until construction or development
is complete, or until it becomes possible to reliably determine its
fair value. When construction is performed on land previously
classified as an investment property and measured at fair value,
such land continues to be accounted at fair value throughout the
construction phase.
(e) Property and equipment
(i) Recognition and measurement
Items of property and equipment are measured at cost less
accumulated depreciation and impairment losses.
Cost includes expenditures that are directly attributable to the
acquisition of the asset. The cost of self-constructed assets
includes the cost of materials and direct labor, any other costs
directly attributable to bringing the asset to a working condition
for its intended use, and the costs of dismantling and removing the
items and restoring the site on which they are located. Purchased
software that is integral to the functionality of the related
equipment is capitalised as part of that equipment.
When parts of an item of property and equipment have different
useful lives, they are accounted for as separate items (major
components) of property and equipment.
The gain or loss on disposal of an item of property and
equipment is determined by comparing the proceeds from disposal
with the carrying amount of property and equipment, and is
recognised net within other income/other operating expenses in
profit or loss.
(ii) Reclassification to investment property
When the use of a property changes from owner-occupied to
investment property, the property is re-measured to fair value and
reclassified to investment property. Any gain arising on
re-measurement is recognised in profit or loss to the extent that
it reverses a previous impairment loss on the specific property,
with any remaining gain recognised in other comprehensive income
and presented in the revaluation reserve in equity. Any loss is
recognised immediately in profit or loss.
(iii) Subsequent costs
The cost of replacing part of an item of property and equipment
is recognised in the carrying amount of the item if it is probable
that the future economic benefits embodied within the part will
flow to the Group and its cost can be measured reliably. The costs
of the day-to-day servicing of property and equipment are
recognised in profit or loss as incurred.
(iv) Depreciation
Items of property, plant and equipment are depreciated from the
date that they are installed and are ready for use, or in respect
of internally constructed assets, from the date that the asset is
completed and ready for use. Depreciation is based on the cost of
an asset less its residual value.
Depreciation is recognised in profit or loss on a straight-line
basis over the estimated useful lives of each part of an item of
property and equipment. Leased assets are depreciated over the
shorter of the lease term and their useful lives unless it is
reasonably certain that the Group will obtain ownership by the end
of the lease term. Land is not depreciated.
The estimated useful lives for the current and comparative
periods are as follows:
-- vehicles and equipment - 5 years
-- fixture and fittings - 2.5 - 5 years
Depreciation methods, useful lives and residual values are
reviewed at each financial year end and adjusted if
appropriate.
(f) Intangible assets
(i) Recognition and measurement
Intangible assets that are acquired by the Group, which have
finite useful lives, are measured at cost less accumulated
amortisation and accumulated impairment losses.
(ii) Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the
future economic benefits embodied in the specific asset to which it
relates. All other expenditure, including expenditure on internally
generated goodwill and brands, is recognised in profit or loss as
incurred.
(iii) Amortisation
Amortisation is calculated over the cost of the asset, or other
amount substituted for cost, less its residual value.
Amortisation is recognised in profit or loss on a straight-line
basis over the estimated useful lives of intangible assets, other
than goodwill, from the date that they are available for use since
this most closely reflects the expected pattern of consumption of
future economic benefits embodied in the asset. The estimated
useful lives for the current and comparative periods are as
follows:
-- software - 3-5 years
Amortisation methods, useful lives and residual values are
reviewed at each financial year end and adjusted if
appropriate.
(g) Inventories
Inventories are measured at the lower of cost and net realisable
value. The cost of inventories is based on the first-in first-out
principle, and includes expenditure incurred in acquiring the
inventories and bringing them to their existing location and
condition.
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion
and selling expenses.
(h) Assets classified as held for sale
Non-current assets, or disposal groups comprising assets and
liabilities, that are expected to be recovered primarily through
sale rather than through continuing use, are classified as held for
sale.
Such assets, or disposal group, are measured at the lower of
their carrying amount and fair value less cost to sell. Any
impairment loss on a disposal group is allocated first to goodwill,
and then to the remaining assets and liabilities on pro rata basis,
except that no loss is allocated to inventories, financial assets,
deferred tax assets or investment property, which continue to be
measured in accordance with the Group's other accounting policies.
Impairment losses on initial classification as held for sale and
subsequent gains or losses on remeasurement are recognised in
profit or loss. Gains are not recognised in excess of any
cumulative impairment loss.
Intangible assets and property, plant and equipment once
classified as held for sale are not amortised or depreciated.
(i) Impairment
(i) Non-derivative financial assets
A financial asset not carried at fair value through profit or
loss is assessed at each reporting date to determine whether there
is any objective evidence that it is impaired. A financial asset is
impaired if objective evidence indicates that a loss event has
occurred after the initial recognition of the asset, and that the
loss event had a negative effect on the estimated future cash flows
of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can
include default or delinquency by a debtor, restructuring of an
amount due to the Group on terms that the Group would not consider
otherwise, indications that a debtor or issuer will enter
bankruptcy, adverse changes in the payment status of borrowers or
issuers in the Group, economic conditions that correlate with
defaults, the disappearance of an active market for a security or
observable data indicating that there is measurable decrease in
expected cash flows from a group of financial assets. In addition,
for an investment in an equity security, a significant or prolonged
decline in its fair value below its cost is objective evidence of
impairment.
Financial assets measured at amortised cost
The Group considers evidence of impairment for financial assets
measured at amortised cost at both a specific asset and collective
level. All individually significant assets are assessed for
specific impairment. Those found not to be specifically impaired
are then collectively assessed for any impairment that has been
incurred but not yet identified. Assets that are not individually
significant are collectively assessed for impairment by grouping
together assets with similar risk characteristics.
In assessing collective impairment the Group uses historical
trends of the probability of default, timing of recoveries and the
amount of loss incurred, adjusted for management's judgment as to
whether current economic and credit conditions are such that the
actual losses are likely to be greater or less than suggested by
historical trends.
An impairment loss is calculated as the difference between an
asset's carrying amount, and the present value of the estimated
future cash flows discounted at the asset's original effective
interest rate. Losses are recognised in profit or loss and
reflected in an allowance account. When the Group believes that
there are no realistic prospects of recovery of the asset, the
relevant amounts are written off. Interest on the impaired asset
continues to be recognised through the unwinding of the discount.
When a subsequent event causes the amount of impairment loss to
decrease and the decrease can be related objectively to an event
occurring after the impairment was recognised, the decrease in
impairment loss is reversed through profit or loss.
Available-for-sale financial assets
Impairment losses on available-for-sale financial assets are
recognised by reclassifying the losses accumulated in the fair
value reserve in equity, to profit or loss. The cumulative loss
that is reclassified from equity to profit or loss is the
difference between the acquisition cost, net of any principal
repayment and amortisation, and the current fair value, less any
impairment loss previously recognised in profit or loss. Changes in
impairment provisions attributable to application of the effective
interest method are reflected as a component of interest income.
If, in a subsequent period, the fair value of an impaired
available-for-sale debt security increases and the increase can be
related objectively to an event occurring after the impairment loss
was recognised in profit or loss, then the impairment loss is
reversed, with the amount of the reversal recognised in profit or
loss. However, any subsequent recovery in the fair value of an
impaired available-for-sale equity security is recognised in other
comprehensive income.
(ii) Non-financial assets
The carrying amounts of non-financial assets, other than
investment property and inventory are reviewed at each reporting
date to determine whether there is any indication of impairment. If
any such indication exists then the asset's recoverable amount is
estimated. For goodwill and intangible assets that have indefinite
lives or that are not yet available for use, the recoverable amount
is estimated each year at the same time.
For the purpose of impairment testing, assets that cannot be
tested individually are grouped together into the smallest group of
assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or
cash-generating unit (CGU). Subject to an operating segment ceiling
test, for the purposes of goodwill impairment testing, CGUs to
which goodwill has been allocated are aggregated so that the level
at which impairment testing is performed reflects the lowest level
at which goodwill is monitored for internal reporting purposes.
Goodwill acquired in a business combination is allocated to groups
of CGUs that are expected to benefit from the synergies of the
combination.
The Group's corporate assets do not generate separate cash
inflows and are utilised by more than one CGU. Corporate assets are
allocated to CGUs on a reasonable and consistent basis and tested
for impairment as part of the testing of the CGU to which the
corporate asset is allocated.
The recoverable amount of an asset or CGU is the greater of its
value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks
specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an
asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in profit or loss. Impairment
losses recognised in respect of CGUs are allocated first to reduce
the carrying amount of any goodwill allocated to the CGU (group of
CGUs) and then to reduce the carrying amount of the other assets in
the CGU (group of CGUs) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In
respect of other assets, impairment losses recognised in prior
periods are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment loss
is reversed if there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset's carrying amount does not exceed
the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been
recognised.
(j) Provisions
A provision is recognised if, as a result of a past event, the
Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. The
unwinding of the discount is recognised as finance cost.
(k) Revenue
(i) Rental income from investment property
Rental income from investment property is recognised in profit
or loss on a straight-line basis over the term of the lease.
(ii) Sale of services
Revenue from services rendered is recognised in proportion to
the stage of completion of the transaction at the reporting date.
The stage of completion is assessed by reference to surveys of work
performed.
(l) Leases
(i) Determining whether an arrangement contains a lease
At inception of an arrangement, the Group determines whether
such an arrangement is or contains a lease. This will be the case
if the fulfilment of the arrangement is dependent on the use of a
specific asset and the arrangement conveys a right to use the
asset.
At inception or upon reassessment of the arrangement, the Group
separates payments and other consideration required by such an
arrangement into those for the lease and those for other elements
on the basis of their relative fair values. If the Group concludes
for a finance lease that it is impracticable to separate the
payments reliably, then an asset and a liability are recognised at
an amount equal to the fair value of the underlying asset.
Subsequently the liability is reduced as payments are made and an
imputed finance charge on the liability is recognised using the
Group's incremental borrowing rate.
(ii) Leased assets
Assets held by the Group under leases that transfer to the Group
substantially all the risks and rewards of ownership are classified
as finance leases. Upon initial recognition the leased asset is
measured at an amount equal to the lower of its fair value and the
present value of the minimum lease payments. Subsequent to initial
recognition, the asset is accounted for in accordance with the
accounting policy applicable to that asset.
Other leases are operating leases and the leased assets are not
recognised in the statement of financial position.
(iii) Lease payments
Payments made under operating leases are recognised in profit or
loss on a straight-line basis over the term of the lease. Lease
incentives received are recognised as an integral part of the total
lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned
between the finance cost and the reduction of the outstanding
liability. The finance cost is allocated to each period during the
lease term so as to produce a constant periodic rate of interest on
the remaining balance of the liability.
Contingent lease payments are accounted for by revising the
minimum lease payments over the remaining term of the lease when
the contingency no longer exists and the lease adjustment is
known.
(m) Finance income and costs
Finance income comprises interest income on funds invested,
foreign currency gains, income from derecognition of finance lease
liabilities and gains on initial recognition of financial
liabilities at fair value. Interest income is recognised as it
accrues in profit or loss, using the effective interest method.
Finance costs comprise interest expense on borrowings and on
deferred consideration, foreign exchange losses, costs from
recognition of finance lease liabilities and impairment of
available-for-sale financial assets.
Borrowing costs that are not directly attributable to the
acquisition, construction or production of a qualifying asset are
recognised in profit or loss using the effective interest
method.
Foreign currency gains and losses arising on loans receivable
and borrowings are reported on a net basis as either finance income
or finance cost. Foreign currency gains and losses arising on
accounts receivable and payable are recognised as other income or
operating expense.
(n) Income tax expense
Income tax expense comprises current and deferred tax. Current
tax and deferred tax are recognised in profit or loss except to the
extent that it relates to a business combination, or items
recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to
tax payable in respect of previous years.
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is not recognised for:
-- temporary differences on the initial recognition of assets or
liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable profit or loss;
-- temporary differences related to investments in subsidiaries
and jointly controlled entities to the extent that it is probable
that they will not reverse in the foreseeable future; and
-- taxable temporary differences arising on the initial recognition of goodwill.
The measurement of deferred tax reflects the tax consequences
that would follow the manner in which the Group expects, at the end
of the reporting period, to recover or settle the carrying amount
of its assets and liabilities. For this purpose, the carrying
amount of investment property measured at fair value is presumed to
be recovered through sale, and the Group has not rebutted this
presumption.
Deferred tax is measured at the tax rates that are expected to
be applied to the temporary differences when they reverse, based on
the laws that have been enacted or substantively enacted by the
reporting date.
In determining the amount of current and deferred tax the Group
takes into account the impact of uncertain tax positions and
whether additional taxes, penalties and late-payment interest may
be due. The Group believes that its accruals for tax liabilities
are adequate for all open tax years based on its assessment of many
factors, including interpretations of tax law and prior experience.
This assessment relies on estimates and assumptions and may involve
a series of judgments about future events. New information may
become available that causes the Group to change its judgment
regarding the adequacy of existing tax liabilities; such changes to
tax liabilities will impact the tax expense in the period that such
a determination is made.
Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax assets and
liabilities, and they relate to income taxes levied by the same tax
authority on the same taxable entity, or on different tax entities,
but they intend to settle current tax liabilities and assets on a
net basis or their tax assets and liabilities will be realised
simultaneously.
A deferred tax asset is recognised for unused tax losses, tax
credits and deductible temporary differences, to the extent that it
is probable that future taxable profits will be available against
which they can be utilised. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
(o) Earnings per share
The Group presents basic and diluted earnings per share ("EPS")
data for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares
outstanding during the period, adjusted for own shares held.
As at 31 December 2016 and 2015, there were no potential
dilutive ordinary shares.
(p) Segment reporting
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to
transactions with any of the Group's other components. Management
believes that during the current year and prior year, the Group
operated in and was managed as one operating segment, being
property investment, with investment properties located in Ukraine
and the Republic of Crimea.
The Board of Directors, which is considered to be the chief
operating decision maker of the Group for IFRS 8 Operating Segments
purposes, receives semi-annually management accounts that are
prepared in accordance with IFRSs as adopted by the EU and which
present aggregated performance of all the Group's investment
properties.
(q) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and
interpretations are not yet effective as at 31 December 2016, and
have not been applied in preparing these consolidated financial
statements. Of these pronouncements, potentially the following will
have an impact on the Group's operations. The Group plans to adopt
these standards and interpretations when they become effective.
IFRS 9 Financial Instruments
IFRS 9 Financial instruments, published in July 2014, replaces
the existing guidance in IAS 39 Financial Instruments: Recognition
and Measurement, and includes revised guidance on the
classification and measurement of financial instruments, impairment
of financial assets and hedge accounting.
Classification - Financial assets and liabilities
IFRS 9 contains three principal classification categories for
financial assets: measured at amortised cost, fair value through
other comprehensive income (FVOCI) and fair value through profit or
loss (FVTPL). The classification of financial assets under IFRS 9
is generally based on the business model in which a financial asset
is managed and its contractual cash flow characteristics. The
standard eliminates the existing IAS 39 categories of
held-to-maturity, loans and receivables and available for- sale.
Under IFRS 9, derivatives embedded in contracts where the host is a
financial asset in the scope of the standard are not separated.
Instead, the whole hybrid instrument is assessed for
classification. Equity investments are measured at fair value.
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification of financial liabilities.
Impairment - Financial assets and contract assets
IFRS 9 replaces the 'incurred loss' model in IAS 39 with an
'expected credit loss' model. The new impairment model applies to
financial assets measured at amortised cost and FVOCI and the
contract assets. The new impairment model generally requires to
recognise expected credit losses in profit or loss for all
financial assets, even those that are newly originated or acquired.
Under IFRS 9, impairment is measured as either expected credit
losses resulting from default events on the financial instrument
that are possible within the next 12 months ('12-month ECL') or
expected credit losses resulting from all possible default events
over the expected life of the financial instrument ('lifetime
ECL'). Initial amount of expected credit losses recognised for a
financial asset is equal to 12-month ECL (except for certain trade
and lease receivables, and contract assets, or purchased or
originated credit-impaired financial assets). If the credit risk on
the financial instrument has increased significantly since initial
recognition, the loss allowance is measured at an amount equal to
lifetime ECL.
Financial assets for which 12-month ECL is recognised are
considered to be in stage 1; financial assets that have experienced
a significant increase in credit risk since initial recognition,
but are not defaulted are considered to be in stage 2; and
financial assets that are in default or otherwise credit-impaired
are considered to be in stage 3.
Measurement of expected credit losses is required to be unbiased
and probability-weighted, should reflect the time value of money
and incorporate reasonable and supportable information that is
available without undue cost or effort about past events, current
conditions and forecasts of future economic conditions. Under IFRS
9, credit losses are recognised earlier than under IAS 39,
resulting in increased volatility in profit or loss. It will also
tend to result in an increased impairment allowance, since all
financial assets will be assessed for at least 12-month ECL and the
population of financial assets to which lifetime ECL applies is
likely to be larger than the population with objective evidence of
impairment identified under IAS 39.
Disclosures
IFRS 9 will require extensive new disclosures, in particular
about credit risk and expected credit losses.
Transition
IFRS 9 is effective for annual reporting periods beginning on or
after 1 January 2018. Early adoption of the standard is permitted.
The Group does not intend to adopt the standard earlier.
The classification and measurement and impairment requirements
are generally applied retrospectively (with some exemptions) by
adjusting the opening retained earnings and reserves at the date of
initial application, with no requirement to restate comparative
periods.
The Group has not started a formal assessment of potential
impact on its consolidated financial statements resulting from the
application of IFRS 9 neither has initiated any specific actions
towards the preparation for implementation of IFRS 9. Accordingly,
it is not practicable to estimate the impact that the application
of IFRS 9 will have on the Group's consolidated financial
statements.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers establishes a
comprehensive framework for determining whether, how much and when
revenue is recognised. It replaces existing revenue recognition
guidance, including IAS 18 Revenue, IAS 11 Construction Contracts
and IFRIC 13 Customer Loyalty Programmes.
Rendering of services
Under IFRS 15, the total consideration in the service contracts
will be allocated to all services based on their stand-alone
selling prices. The stand-alone selling prices will be determined
based on the list prices at which the Group sells the services in
separate transactions.
Transition
IFRS 15 is effective for annual reporting periods beginning on
or after 1 January 2018, with early adoption permitted.
The Group is currently performing a detailed assessment of the
impact resulting from the application of IFRS 15 and expects to
disclose additional quantitative information before it adopts IFRS
15.
Various Improvements to IFRSs
Various Improvements to IFRSs have been dealt with on a
standard-by-standard basis. All amendments, which result in
accounting changes for presentation, recognition or measurement
purposes, will come into effect not earlier than 1 January 2017.
The Group has not yet analysed the likely impact of the
improvements on its financial position or performance.
4 Investment property
(a) Movements in investment property
Movements in investment properties for the years ended 31
December are as follows:
Prepayment for
Land held on Land held on investment Property under
freehold leasehold Buildings property construction Total
(in thousands of
USD)
At 1 January 2015 6,900 47,272 138,254 55 13,071 205,552
Additions - 1,925 - 11 1,340 3,276
Transfers - - - (42) 42 -
Fair value gains
on revaluation 724 8,605 7,067 - - 16,396
Transfer from
assets classified
as held for sale* - 4,499 - 8 543 5,050
Currency
translation
adjustment (1,624) (17,579) (46,061) (9) (4,691) (69,964)
At 31 December
2015/
1 January 2016 6,000 44,722 99,260 23 10,305 160,310
Additions - 954 - - 994 1,948
Disposals - (1,173) - - - (1,173)
Fair value gains
on revaluation (985) 3,920 24,993 - - 27,928
Currency
translation
adjustment 785 (5,369) (7,553) (3) (1,210) (13,350)
At 31 December
2016 5,800 43,054 116,700 20 10,089 175,663
* As at 31 December 2015 and 2016, included into land held on
leasehold is the land plot, including the finance lease asset,
owned by Mezokred Holding LLC. As at 31 December 2015 and 2016, the
Group was involved as a third party in a lawsuit alleging
invalidation of a resolution of the Kyiv City Council, according to
which the latter has approved an allocation of this land plot for
construction of the hypermarket to Mezokred Holding LLC and
entitled Mezokred Holding LLC to lease this land plot for a period
of 25 years (refer to note 23(d)(ii)).
During the year ended 31 December 2016, acquisition and disposal
of a land plot held on leasehold of USD 954 thousand and USD 1,173
thousand, respectively, occurred through finance lease (2015:
acquisition of USD 1,925 thousand) (refer to note 13).
As at 31 December 2016, in connection with loans and borrowings,
the Group pledged as security investment property with a carrying
value of USD 103,337 thousand (2015: USD 91,630 thousand) (refer to
note 23(a)).
During the year ended 31 December 2016 53% of total construction
services were purchased from one counterparty (2015: 42% of total
construction services).
(b) Determination of fair value
The fair value measurement, developed for determination of fair
value of the Group's investment property, is categorised within
Level 3 category due to significance of unobservable inputs to the
entire measurement, except for certain land held on the leasehold
which is not associated with completed property and is therefore
categorised within Level 2 category. As at 31 December 2016, the
fair value of investment property categorised within the Level 2
category is USD 26,800 thousand (2015: USD 27,100 thousand). To
assist with the estimation of the fair value of the Group's
investment property as at 31 December 2016, which is represented by
the shopping centres, management engaged registered independent
appraiser Expandia LLC, part of the CBRE Affiliate network, having
a recognised professional qualification and recent experience in
the location and categories of the projects being valued.
The fair values are based on the estimated rental value of
property. A market yield is applied to the estimated rental value
to arrive at the gross property valuation. When actual rents differ
materially from the estimated rental value, adjustments are made to
reflect actual rents. The valuation is prepared in accordance with
the practice standards contained in the Appraisal and Valuation
Standards published by the Royal Institution of Chartered Surveyors
("RICS") or in accordance with International Valuation Standards
published by the International Valuation Standards Council.
Valuations reflect, when appropriate, the type of tenants
actually in occupation or responsible for meeting lease commitments
or likely to be in occupation after letting vacant accommodation,
the allocation of maintenance and insurance responsibilities
between the Company and the lessee, and the remaining economic life
of the property. When rent reviews or lease renewals are pending
with anticipated reversionary increases, it is assumed that all
notices and, when appropriate, counter-notices, have been served
validly and within the appropriate time.
Land parcels are valued based on market prices for similar
properties.
As at 31 December 2016, the estimation of fair value is made
using a net present value calculation based on certain assumptions,
the most important of which are as follows:
-- monthly rental rates, ranging from USD 1.00 to USD 131.40 per
sq.m., which are based on contractual and market rental rates,
adjusted for discounts or fixation of rental rates in Ukrainian
hryvnia at a pre-agreed exchange rate, occupancy rates ranging from
97.6% to 100%, and discount rates ranging from 18.40% to 24.40%
p.a., which represent key unobservable inputs for determination of
fair value;
-- all relevant licenses and permits, to the extent not yet
received, will be obtained, in accordance with the timetables as
set out in the investment project plans.
As at 31 December 2015, the estimation of fair value is made
using a net present value calculation based on certain assumptions,
the most important of which are as follows:
-- monthly rental rates, ranging from USD 3.00 to USD 56.00 per
sq.m., which are based on contractual and market rental rates,
adjusted for discounts or fixation of rental rates in Ukrainian
Hryvnia at a pre-agreed exchange rate, occupancy rates ranging from
91% to 100% and discount rates ranging from 15.00% to 19.00% p.a,
which represent key unobservable inputs for determination of fair
value;
-- all relevant licenses and permits, to the extent not yet
received, will be obtained, in accordance with the timetables as
set out in the investment project plans.
The reconciliation from the opening balances to the closing
balances for Level 3 fair value measurements is presented in note
4(a).
As at 31 December 2016, the fair value of investment property
denominated in functional currency amounted to UAH 4,115,139
thousand and RUB 1,475,176 thousand (2015: UAH 3,381,091 thousand
and RUB 1,416,111 thousand). The increase in fair value of
investment property mainly results from increased rental rates
invoiced in Ukrainian hryvnia due to the increase in the exchange
rates applied to the USD equivalent of rental rates fixed in the
rental contracts.
Sensitivity at the date of valuation
The valuation model used to assess the fair value of investment
property as at 31 December 2016 is particularly sensitive to
unobservable inputs in the following areas:
-- If rental rates are 1% less than those used in valuation
models, the fair value of investment properties would be USD 1,309
thousand (2015: USD 1,135 thousand) lower. If rental rates are 1%
higher, then the fair value of investment properties would be USD
1,309 thousand (2015: USD 1,135 thousand) higher.
-- If the discount rate applied is 1% higher than that used in
the valuation models, the fair value of investment properties would
be USD 8,505 thousand (2015: USD 7,270 thousand) lower. If the
discount rate is 1% less, then the fair value of investment
properties would be USD 9,783 thousand (2015: USD 8,343 thousand)
higher.
-- If the occupancy rates are 1% higher than those used in the
valuation or are assumed to be 100% for shopping center in Kyiv,
the fair value of investment properties would be USD 956 thousand
higher (2015: if occupancy rates are 1% higher than that used in
the valuation or are assumed to be 100% for the shopping centers in
Kyiv and for the first stage of the shopping center in Symferopol,
the fair value of investment properties would be USD 608 thousand
higher). If the occupancy rates are 1% less, then the fair value of
investment properties would be USD 1,154 thousand (2015: USD 1,115
thousand) lower.
5 Loans receivable
Loans receivable as at 31 December are as follows:
2016 2015
(in thousands of USD)
Non-current assets
Long-term loans receivable due from related parties 1,383 31,340
Accrued interest receivable due from related parties 264 10,025
Impairment of loans receivable due from related parties (1,647) (41,365)
- -
Current assets
Short-term loans receivable due from related parties 7,299 7,326
Accrued interest receivable due from related parties 1,601 1,374
Short-term loans receivable due from third parties 305 347
Impairment of loans receivable due from related parties (8,900) (8,700)
305 347
Loans receivable from related parties
In July 2011 the Parent Company granted a loan to Weather Empire
Limited with the purpose of buying 1,077 shares in the Parent
Company's share capital from Retail Real Estate S.A. As at 31
December 2015, the resulting loan receivable of USD 39,761
thousand, including accrued interest of USD 9,761 thousand, was
unsecured, bore a 3% fixed interest rate that was fully capitalised
and repayable together with the principal and was overdue.
In July 2013 the shares of Weather Empire Limited were
transferred to the Parent Company's major shareholders pro-rata to
their ownership rights due to non-exercising of conversion rights
by ELQ Investors II Ltd and later on or about 12 August 2013 were
transferred in full to Retail Real Estate S.A. Subsequent to this
transfer, settlement of the loan by Weather Empire Limited depended
on the intention and ability of the Company's ultimate controlling
party to repay this loan.
As at 31 December 2015, this loan was overdue and management
considered it to be non-recoverable. In this respect management has
proceeded with the full impairment of that loan receivable of USD
39,761 thousand, including accrued interest of USD 9,761 thousand,
as at 31 December 2015.
On 14 December 2016, the Group acquired 49% of shares in Filgate
Credit Enterprises Limited (refer to note 3(a)(iii)). Due to the
net liability position of Filgate Credit Enterprises Limited as at
the date of acquisition, this investment is considered to be fully
impaired. The purchase price was set-off in full against the loan
receivable from Weather Empire Limited of USD 39,761 thousand that
was fully impaired during the prior periods. Following the set-off,
the loans receivable along with respective allowance for impairment
were derecognised.
As part of the above acquisition, the rights to receive certain
loans payable by Filgate Credit Enterprises Limited to entities
under common control in amount of USD 215,891 thousand were
reassigned to the Group for a nominal amount of USD 1. These loans
are unsecured, bear an interest rate of 9-10% and are overdue as at
31 December 2016. The fair value of these loans receivable is
considered to be nil.
Included in loans receivable as at 31 December 2016 is a loan
due from Filgate Credit Enterprises Limited amounting to USD 10,300
thousand (2015: USD 10,029 thousand), out of which the amount of
USD 8,390 thousand is overdue. Full amount of this loan receivable
was impaired as at 31 December 2016 and 2015.
6 VAT recoverable
Management presents VAT recoverable within non-current and
current assets based on the expected timing of VAT liabilities
being available against which VAT recoverable can be utilised.
Management expects that long-term VAT recoverable will be
recovered in full by 2019.
7 Trade and other receivables
Trade and other receivables as at 31 December are as
follows:
(in thousands of USD) 2016 2015
Trade receivables from related
parties 1,384 1,567
Other receivables from related
parties 8,963 9,066
Allowance for impairment (10,338) (10,629)
9 4
Trade receivables from third
parties 1,086 950
Other receivables from third
parties 137 24
Allowance for impairment (70) (88)
1,153 886
1,162 890
Trade receivables from related parties mainly comprise accounts
receivable from related party, OKey Ukraine, under the common
control of the ultimate controlling party. The Group ceased working
with OKey Ukraine in August 2009. As the result of financial
difficulties faced by this tenant, an allowance for impairment is
recognised.
As at 31 December 2016, included in other receivables from
related parties are receivables from Dniprovska Prystan PrJSC
amounting to USD 8,598 thousand (2015: USD 8,704 thousand), which
are overdue. In 2012, the court ruled to initiate bankruptcy
proceedings against the mentioned related party and, as at 31
December 2016, the decision which would declare Dniprovska Prystan
PrJSC insolvent has not yet been made. Full amount of receivable
was impaired as at 31 December 2016 and 2015.
8 Assets classified as held for sale
(a) Movements in assets classified as held for sale
Movements in assets classified as held for sale for the years
ended 31 December are as follows:
Prepayment for
Land held on investment Property under
leasehold Buildings property construction Other assets Total
(in thousands of
USD)
At 1 January 2015 5,996 215 24 654 2,813 9,702
Transfer to
investment
property (4,499) - (8) (543) - (5,050)
Transfer from VAT
recoverable - - - - (80) (80)
Additions - - 5 18 25 48
Disposals - (148) - - - (148)
Transfers - - (16) 34 (18) -
Currency
translation
adjustment (1,497) (67) (5) (163) (936) (2,668)
At 31 December
2015/
1 January 2016 - - - - 1,804 1,804
Currency
translation
adjustment - - - - (214) (214)
At 31 December
2016 - - - - 1,590 1,590
During the year ended 31 December 2015, the Group terminated
held-for-sale classification of assets and liabilities of Gelida
Holding Limited and its subsidiary Mezokred Holding LLC due to a
change in expected pattern of realisation of these assets. As at 31
December 2015, the assets and liabilities of the above subsidiaries
were reclassified as follows:
(in thousands of USD)
Investment property 5,050
Long-term VAT recoverable 80
Finance lease liability (297)
Short-term loans and borrowings (199)
Trade and other payables (167)
Included in other assets classified as held for sale as at 31
December 2016, is a land plot with a carrying amount of USD 1,590
thousand (2015: USD 1,804 thousand), land lease rights for which
were intended to be amended by one of the Group's subsidiaries,
Comfort Market Luks LLC, in respect of allocation of part of such
land plot to a third party in accordance with an investment
agreement concluded between the parties. Based on this investment
agreement, Comfort Market Luks LLC acts as an intermediary in
construction of a hypermarket with the total estimated area of
11,769 square meters and a parking lot with a total estimated area
of 20,650 square meters. As at 31 December 2016, the construction
of the hypermarket and a parking lot is finalised and, except for
the lease rights for the abovementioned land plot to be allocated
to a third party, the owner of the hypermarket, the investment
agreement is considered to be fulfilled. Management expects that
the lease rights for the land plot under the hypermarket will be
transferred to the third party in 2017 subject to completion of
formal
legal procedures. As at 31 December 2016, advance payment
received under this agreement (refer to note 15) amounts to USD
1,692 thousand (2015: USD 1,917 thousand) and will be settled upon
transfer of the lease rights for the land plot.
9 Cash and cash equivalents
Cash and cash equivalents as at 31 December are as follows:
(in thousands of USD) 2016 2015
Bank balances 2,935 1,377
Call deposits 2,018 1,972
4,953 3,349
As at 31 December 2015, excluded from cash and cash equivalents
is a restricted deposit in amount of USD 800 thousand with maturity
in 2016. This deposit served as pledge under loan facilities. As at
31 December 2016, the Group has not replenished the deposit pledged
that leads to covenant's breach under loan agreement with PJSC
"Bank "St.Petersburg" (refer to note 12).
As at 31 December 2016, in connection with loans and borrowings,
the Group also pledged as security bank balances and call deposits
with a carrying value of USD 44 thousand and USD 1,013 thousand,
respectively (2015: USD 34 thousand and USD 1,255 thousand,
respectively) (refer to note 23(a)).
As at 31 December 2016, cash and cash equivalents placed with
two bank institutions amounted to USD 3,710 thousand, or 75% of the
total balance of cash and cash equivalents (2015: USD 2,683
thousand, or 80%). In accordance with Moody's rating, these banks
are rated Caa2 and Aa3 as at 31 December 2016 (2015: Caa2 and Aa3,
respectively).
10 Share capital
Share capital as at 31 December is as follows:
2016 2016 2016 2015 2015 2015
Number Number
of shares US dollars EUR of shares US dollars EUR
Issued and
fully paid
At 1 January
and 31 December 103,270,637 66,750 51,635 103,270,637 66,750 51,635
Authorised
At 1 January
and 31 December 106,000,000 68,564 53,000 106,000,000 68,564 53,000
Par value,
EUR - - 0.0005 - - 0.0005
All shares rank equally with regard to the Parent Company's
residual assets. The holders of ordinary shares are entitled to
receive dividends as declared from time to time, and are entitled
to one vote per share at meetings of the Parent Company.
During the years ended 31 December 2016 and 2015 the Parent
Company did not declare any dividends.
11 Gain/(loss) per share
The calculation of basic gain per share for the year ended 31
December 2016 was based on the profit for the year ended 31
December 2016 attributable to ordinary shareholders of USD 23,493
thousand and a weighted average number of ordinary shares
outstanding as at 31 December 2016 of 103,270,637. The calculation
of basic loss per share for the year ended 31 December 2015 was
based on the loss for the year ended 31 December 2015 attributable
to ordinary shareholders of USD 20,379 thousand and weighted
average number of ordinary shares outstanding as at 31 December
2015 of 103,270,637.
The Group has no potential dilutive ordinary shares.
12 Loans and borrowings
This note provides information about the contractual terms of
loans. For more information about the Group's exposure to interest
rate and foreign currency risk, refer to note 22.
2016 2015
(in thousands of USD)
Non-current
Secured bank loans 27,745 31,231
Unsecured loans from related
parties 9,100 7,270
36,845 38,501
Current
Secured bank loans (current portion
of long-term bank loans) 22,319 28,843
Unsecured loans from related
parties (including current portion
of long-term loans from related
parties) 41,920 37,391
Unsecured loans from third parties - 151
64,239 66,385
101,084 104,886
Terms and debt repayment schedule
As at 31 December 2016, the terms and debt repayment schedule of
loans and borrowings are as follows:
Currency Nominal interest rate Contractual year of maturity Carrying value
(in thousands of USD)
Secured bank loans
PJSC "Bank "St.Petersburg" USD 10.50% 2017-2020 17,650
EBRD USD 1M LIBOR + 7.5% 2017-2020 15,485
EBRD USD 3M LIBOR + 8.0% 2017-2020 8,454
Raiffeisen Bank Aval UAH 18.00% 2017-2020 8,475
50,064
Unsecured loans from related parties
--------------
Retail Real Estate OU USD 12.00% 2017 21,351
Barleypark Limited USD 10.55% 2017 18,795
Retail Real Estate OU USD 10.50% 2019 10,425
Loans from other related parties UAH/ USD 0.00%-10.00% 2017 449
51,020
101,084
As at 31 December 2015, the terms and debt repayment schedule of
loans and borrowings are as follows:
Currency Nominal interest rate Contractual year of maturity Carrying value
(in thousands of USD)
Secured bank loans
PJSC "Bank "St.Petersburg" USD 10.50% 2016-2020 20,193
EBRD USD 1M LIBOR + 7.5% 2016-2020 18,258
EBRD USD 3M LIBOR + 6.5% 2016-2018 11,210
Raiffeisen Bank Aval UAH 18.00% 2016-2020 10,413
60,074
Unsecured loans from related parties
Bytenem Co Limited USD 12.00% 2016 19,409
Barleypark Limited USD 10.55% 2017 17,186
Retail Real Estate OU USD 10.50% 2019 7,783
Loans from other related parties UAH/ USD 0.00%-10.00% 2016 283
44,661
Unsecured loans from third parties
Other UAH/USD 0.00% 2016 151
X
--------------
151
104,886
As at 31 December LIBOR for USD is as follows:
2016 2015
LIBOR USD 3M 1.00% 0.61%
LIBOR USD 1M 0.77% 0.43%
For a description of assets pledged by the Group in connection
with loans and borrowings refer to note 23(a).
PJSC "Bank "St.Petersburg"
During the year ended 31 December 2016, the Group signed
amendments to the loan agreements with PJSC "Bank "St.Petersburg"
stipulating a decrease in the amount of loan principal payable in
2016 by USD 2,447 thousand.
During the year ended 31 December 2015, the Group signed
amendments to the loan agreements with PJSC "Bank "St.Petersburg"
stipulating a decrease in the amount of loan principal payable in
2015 by USD 2,397 thousand, a decrease in the amount of the deposit
pledged as a collateral from USD 1,385 thousand to USD 1,200
thousand and an obligation to replace the existing pledge of
investment property by other investment properties acceptable to
PJSC "Bank "St.Petersburg" until 31 December 2015.
As at 31 December 2016 and 2015, the Group has not fulfilled an
obligation to replace the existing pledge of investment property by
other investment properties acceptable to PJSC "Bank
"St.Petersburg", which was considered as the event of default under
the loan agreements concluded with the bank. In addition, during
the year ended 31 December 2016, the Group has not replenished the
deposit pledged as a collateral for the amount of USD 1,200
thousand within the time period required by the loan agreement. As
a result, this loan was presented as short-term as at 31 December
2016 and 2015. As at the date these consolidated financial
statements are authorised for issuance, these breaches are not
remedied. In April 2017, management obtained the letter from the
bank waving the breaches of these covenants valid until July 2018.
Accordingly, management believes that despite the breaches of loan
covenants the bank will not demand early repayment of the
loans.
EBRD
On 25 November 2016, the Group signed an additional agreement
with the EBRD reassigning the loan payable to the EBRD from PrJSC
Grandinvest to PrJSC UkrPanGroup for an amount of USD 3,737
thousand. The effective date of this agreement is 14 December 2016.
The new agreement stipulates an increase in the annual interest
rate by 1.5% and changes to the repayment schedule of the loan
principal.
Upon reassignment, the loan principal in amount of USD 1,238
thousand was settled by the Group. The pledge remained
unchanged.
Bytenem Co Limited
On 26 February 2016, the Group signed an amendment to the loan
agreement with Bytenem Co Limited stipulating a prolongation of the
maturity date until 30 June 2017.
On 27 September 2016, the loan payable to Bytenem Co Limited was
assigned to Retail Real Estate OU. Upon reassignment, the amount of
loan facility was increased up to USD 18,000 thousand.
Barleypark Limited
Based on the terms of the loan agreement the loan is repayable
on demand but not later than the final repayment date of 13 August
2017.
Retail Real Estate OU
As at 31 December 2016, the undrawn credit facilities from this
related party amount to USD 900 thousand (2015: USD 2,558
thousand).
13 Finance lease liability
Finance lease liabilities as at 31 December are payable as
follows:
Present Present
Future value Future value
minimum of minimum minimum of minimum
lease lease lease lease
payments Interest payments payments Interest payments
2016 2016 2016 2015 2015 2015
(in thousands
of USD)
Less than six
months 367 366 1 564 562 2
Between six and
twelve months 367 366 1 564 562 2
Between one and
two years 839 836 3 1,379 1,376 3
Between two and
five years 2,836 2,816 20 4,136 4,122 14
More than five
years 36,844 30,012 6,832 56,973 47,057 9,916
41,253 34,396 6,857 63,616 53,679 9,937
The imputed finance costs on the liability are based on the
Group's incremental borrowing rate ranging from 13.0% to 17.2% as
at 31 December 2016 and 2015.
During the year ended 31 December 2016, as a result of a change
in land lease rate indices and land lease payments calculation
methodology imposed by the state authorities, the Group
derecognised a finance lease liability amounting to USD 1,799
thousand (refer to note 20) resulting an income in profit or loss
for the year ended 31 December 2016 and derecognised a finance
lease asset for the amount of USD 219 thousand (refer to note 4(a))
(2015: recognised an increase in finance lease liability amounting
to USD 2,641 thousand resulting in a loss in profit or loss for the
year ended 31 December 2015 in respect of land plot in Kryvyi Rig
and recognised an additional finance lease asset for the amount of
USD 1,925 thousand in respect of land plots in Kyiv, Zaporizhzhya
and Odesa).
Future minimum lease payments as at 31 December 2016 and 2015
are based on management's assessment that is based on actual lease
payments effective as at 31 December 2016 and 2015, respectively,
and expected contractual changes in the lease payments. The future
lease payments are subject to review and approval by the municipal
authorities and may differ from management's assessment.
The contractual maturity of land lease agreements ranges from
2020 to 2038. The Group intends to prolong these lease agreements
for the period of usage of the investment property being
constructed on the leased land. Consequently, the minimum lease
payments are calculated for a period of 50 years.
14 Trade and other payables
Trade and other payables as at 31 December are as follows:
(in thousands of USD) 2016 2015
Non-current liabilities
Payables for construction works 4,616 3,981
Trade and other payables to third
parties 12 7
4,628 3,988
Current liabilities
Payables for construction works 11,623 15,809
Trade and other payables to related
parties 1,371 1,785
Trade and other payables to third
parties 2,765 2,697
15,759 20,291
20,387 24,279
As at 31 December 2016, included in payables for construction
works are UAH denominated payables of USD 3,797 thousand and USD
2,155 thousand with maturity on 20 December 2020 and 15 August
2019, respectively. These payables are measured at amortised cost
under the effective interest rates of 18.02% and 18.92% per annum,
respectively.
As at 31 December 2015, non-current liabilities are represented
by UAH denominated payables for construction works of USD 4,302
thousand with maturity on 20 December 2020 that are measured at
amortised cost under the effective interest rate of 18.92% per
annum.
Also, included in payables for construction works as at 31
December 2016 are EUR denominated payables under a commission
agreement concluded with a third party for the total amount of USD
2,838 thousand (2015: USD 3,024 thousand) with maturity on 15
September 2019. As at 31 December 2016 and 2015, these payables
relate to construction works performed at shopping centre
"Prospect", are presented in accordance with their contractual
maturity and measured at amortised cost under the effective
interest rate of 6.38% (2015: 6.01%) per annum.
The Group's exposure to currency and liquidity risk related to
trade and other payables is disclosed in note 22.
15 Advances received
Advances from customers as at 31 December are as follows:
2016 2015
(in thousands of USD)
Non-current
Advances from third parties 325 556
325 556
Current
Advances received under investment
agreement (refer to note 8) 1,692 1,917
Advances from third parties 2,707 2,593
Advances from related parties 26 29
4,425 4,539
4,750 5,095
In September 2009, the Group received a prepayment from an
anchor tenant for the period of ten years. As at 31 December 2016,
the non-current portion of the prepayment amounts to USD 325
thousand and the current portion amounts to USD 181 thousand (2015:
USD 556 thousand and USD 205 thousand, respectively). Remaining
advances from third parties are mainly represented by prepayments
from tenants for the period from two to ten months.
16 Other liabilities
Other liabilities as at 31 December are as follows:
2016 2015
(in thousands of USD)
Non-current
Other long-term liabilities 98 80
98 80
Current
Deferred consideration 24,317 22,362
Other liabilities 799 -
25,116 22,362
25,214 22,442
As at 31 December 2016, other liabilities amounting to USD 799
thousand are represented by accrual of liability to Odesa City
Council in respect of an agreement on customer share participation
in the creation and development of engineering, transport and
social infrastructure of Odesa, including penalties for late
payment, in amount of USD 191 thousand (2015: nil) (refer to note
23(d)(iv)).
As at 31 December 2016, other current liabilities comprise
deferred consideration that is payable in respect of the
acquisition of Wayfield Limited and its subsidiary Budkhol LLC,
amounting to USD 24,317 thousand (2015: USD 22,362 thousand),
including accrued interest of USD 4,317 thousand (2015: USD 2,362
thousand).
In March 2015, the Group signed an amendment to the share
exchange agreement with Vunderbuilt S.A. in order to postpone the
payment of USD 20,000 thousand from 30 April 2015 to 30 April 2016.
In February 2016, the Group signed further amendment to the share
exchange agreement in order to postpone the payment of this
deferred consideration from 30 April 2016 to 30 June 2017. Deferred
consideration is presented in accordance with its contractual
maturity as at 31 December 2016 and 2015 and bears a 9.75% interest
rate per annum.
17 Revenue
Revenue for the years ended 31 December is as follows:
2016 2015
(in thousands of USD)
Rental income from investment
properties 22,872 20,184
Other sales revenue 218 199
23,090 20,383
During the year ended 31 December 2016, 21% of the Group's
rental income was earned from two tenants (15% and 6%,
respectively) (2015: 23%, 16% and 7%, respectively).
The Group rents out premises in the shopping centres to tenants
in accordance with lease agreements predominantly concluded for a
period of 12-30 months, save for the hypermarkets and large network
retails chains, which enter into long term lease agreements. In
accordance with lease agreements, rental rates are usually
established in USD and are settled in Ukrainian hryvnias and
Russian Roubles using the exchange rates established by the
National Bank of Ukraine and Central Bank of the Russian
Federation, as applicable. However, taking into account the current
market conditions, the Group provides temporary discounts to its
tenants by applying lower exchange rates than those established by
the National Bank of Ukraine or Central Bank of the Russian
Federation, in arriving to the rent payment for the particular
month.
Management believes that these measures will allow the Group to
maintain occupancy rates in the shopping centres at a relatively
high level during the current deteriorated period in Ukrainian
business environment. Management believes that these measures are
temporary until the Ukrainian business environment stabilises.
The Group's lease agreements with tenants usually include 3-15
months cancellation clause. The Group believes that execution of
the option to prolong the lease period upon expiration of
non-cancellable period on the terms different to those agreed
during the non-cancellable period, is not substantiated.
Accordingly, upon calculation of rental income for the period the
Group does not take into account rent payments, which are
prescribed by the agreements upon expiration of the period during
which the agreement cannot be cancelled.
Direct operating expenses arising from investment property that
generated rental income during the years ended 31 December are as
follows:
2016 2015
(in thousands of USD)
Advertising (note 19) 708 542
Repair, maintenance and building
services (note 18) 370 366
Communal public services (note
18) 338 249
Security services (note 19) 259 270
Realty tax (note 19) 253 178
1,928 1,605
No direct operating expenses arising from investment property
that did not generate rental income during 2016 and 2015
occurred.
18 Goods, raw materials and services used
Goods, raw materials and services used for the years ended 31
December are as follows:
2016 2015
(in thousands of USD)
Repair, maintenance and building
services (note 17) 370 366
Communal public services (note
17) 338 249
Other costs 129 170
837 785
19 Operating expenses
Operating expenses for the years ended 31 December are as
follows:
2016 2015
(in thousands of USD)
Management, consulting and legal
services 2,209 2,781
Advertising (note 17) 708 542
Office expenses and communication
services 277 202
Security services (note 17) 259 270
Realty tax (note 17) 253 178
Administrative expenses 66 89
Independent auditors' remuneration 51 154
Other assurance services charged
by independent auditors 44 67
Allowance for bad debts 5 10,617
Tax services charged by independent
auditors 3 5
VAT recoverable written-off - 426
Other 670 241
4,545 15,572
20 Finance income and finance costs
Finance income and finance costs for the years ended 31 December
are as follows:
2016 2015
(in thousands of USD)
Finance income from derecognition
of finance lease liability (refer
to note 13) 1,799 -
Gain on initial recognition
of trade and other payables
at fair value 920 -
Interest income 257 587
Other finance income 119 362
Finance income 3,095 949
Interest expense (10,293) (10,143)
Foreign exchange loss (4,086) (19,175)
Interest expense on deferred
consideration (1,955) (1,950)
Finance costs from recognition
of finance lease liability (refer
to note 13) - (2,641)
Other finance costs (1,372) (2,179)
Finance costs (17,706) (36,088)
Net finance cost (14,611) (35,139)
21 Income tax expense
(a) Income tax expense
Income taxes for the years ended 31 December are as follows:
2016 2015
(in thousands of USD)
Current tax expense 918 574
Deferred tax expense 4,821 3,534
Total income tax expense 5,739 4,108
Corporate profit tax rate for Ukrainian entities is fixed at
18%.
While computing the deferred tax liability that arises on the
temporary differences between carrying amounts and tax values of
assets and liabilities of Voyazh-Krym LLC, registered in the
Autonomous Republic of Crimea, as at 31 December 2016 and 2015,
management of the Group reflected the tax consequences that are
applicable under the legislation of the Russian Federation that is
being applied for all companies operating in the Republic of
Crimea. In absence of clear regulations that will be applicable to
the Republic of Crimea, management expects that reversal of
temporary differences will be done under the Laws of the Russian
Federation. The applicable tax rate for the entities operating
under the laws of the Russian Federation is 20%.
The applicable tax rates are 12.5% for Cyprus companies and 20%
for Estonian companies, and nil tax for companies incorporated in
the Isle of Man.
(b) Reconciliation of effective tax rate
The difference between the total expected income tax expense for
the years ended 31 December computed by applying the Ukrainian
statutory income tax rate to profit or loss before tax and the
reported tax expense is as follows:
2016 % 2015 %
(in thousands of USD)
Profit/(loss) before tax 29,232 100% (16,271) 100%
Income tax expense (benefit)
at statutory rate in Ukraine 5,262 18% (2,929) 18%
Effect of different tax
rates on taxable profit/(loss)
in other jurisdictions (3,030) (10%) (1,117) 7%
Non-deductible expenses 2,939 10% 5,186 (32%)
Change in unrecognised deferred
tax assets (1,734) (6%) 4,873 (30%)
Foreign currency translation
difference 2,302 8% (1,905) 12%
Effective income tax expense 5,739 20% 4,108 (25%)
(c) Recognised deferred tax assets and liabilities
As at 31 December deferred tax assets and liabilities are
attributable to the following items:
Assets Liabilities Net
2016 2015 2016 2015 2016 2015
(in thousands
of USD)
Investment
property - - (16,316) (10,633) (16,316) (10,633)
Property
and equipment 1 1 - - 1 1
Trade and
other receivables 440 501 (22) - 418 501
Assets classified
as held for
sale - - (286) (324) (286) (324)
Trade and
other payables 811 37 - - 811 37
Short-term
borrowings 3,184 8 (3,178) - 6 8
Other long-term
payables 8 7 (349) (456) (341) (449)
Tax loss
carry-forwards 12,177 8,053 - - 12,177 8,053
Deferred
tax assets
(liabilities) 16,621 8,607 (20,151) (11,413) (3,530) (2,806)
Offset of
deferred
tax assets
and liabilities (16,621) (8,607) 16,621 8,607 - -
Net deferred
tax assets
(liabilities) - - (3,530) (2,806) (3,530) (2,806)
(d) Movements in recognised deferred tax assets and liabilities
Movements in recognised deferred tax assets and liabilities
during the year ended 31 December 2016 are as follows:
Balance Recognised Recognised Foreign Balance
as at in profit in OCI currency as at
1 January or loss translation 31 December
2016 adjustment 2016 asset
asset (liability)
(liability)
(in thousands
of USD)
Investment
property (10,633) (6,483) - 800 (16,316)
Property
and equipment 1 - - - 1
Trade and
other receivables 501 (26) - (57) 418
Assets classified
as held
for sale (324) - - 38 (286)
Trade and
other payables 37 827 - (53) 811
Short-term
borrowings 8 (1) - (1) 6
Other long-term
payables (449) 55 - 53 (341)
Tax loss
carry-forwards 8,053 807 4,576 (1,259) 12,177
Deferred
tax assets
(liabilities) (2,806) (4,821) 4,576 (479) (3,530)
Movements in recognised deferred tax assets and liabilities
during the year ended 31 December 2015 are as follows:
Balance Recognised Recognised Foreign Balance
as at in profit in OCI currency as at
1 January or loss translation 31 December
2015 adjustment 2015 asset
asset (liability)
(liability)
(in thousands
of USD)
Investment
property (11,780) (3,179) - 4,326 (10,633)
Property
and equipment (2) 3 - - 1
Trade and
other receivables 974 (153) - (320) 501
Assets classified
as held
for sale (494) 1 - 169 (324)
Trade and
other payables 7 36 - (6) 37
Advances
received 855 (598) - (257) -
Short-term
borrowings 3 7 - (2) 8
Long-term
borrowings (14) 10 - 4 -
Other long-term
payables (794) 80 - 265 (449)
Tax loss
carry-forwards 9,734 259 1,548 (3,488) 8,053
Deferred
tax assets
(liabilities) (1,511) (3,534) 1,548 691 (2,806)
(e) Unrecognised deferred tax assets
Deferred tax assets as at 31 December 2016 have not been
recognised in respect of the following items:
Utilisation
of
previously Increase in Foreign
Balance as at Change in unrecognised unrecognised currency Balance as at
1 January tax-loss temporary temporary Effect of translation 31 December
2016 carry forward differences differences acquisition adjustment 2016
(in thousands
of USD)
Trade and other
receivables 107 - (101) - 550 (6) 550
Tax loss
carry-forwards 28,575 (814) - 75 4,119 (3,244) 28,711
28,682 (814) (101) 75 4,669 (3,250) 29,261
Deferred tax assets as at 31 December 2015 have not been
recognised in respect of the following items:
Utilisation of
previously Increase in Foreign
Change in unrecognised unrecognised currency Balance as at
Balance as at 1 tax-loss carry temporary temporary translation 31 December
January 2015 forward differences differences adjustment 2015
(in thousands of
USD)
Trade and other
receivables 275 - (122) - (46) 107
Other long-term
payables 69 - (43) - (26) -
Trade and other
payables 731 - (505) - (226) -
Advances from
customers 120 - (75) - (45) -
Tax loss
carry-forwards 17,341 - - 18,883 (7,649) 28,575
-
--------------- --------------- --------------- --------------- --------------- ---------------
18,536 - (745) 18,883 (7,992) 28,682
During 2016, certain Group entities submitted amended CPT
declarations that led to a decrease in tax loss carry forwards by
USD 814 thousand.
In accordance with existing Ukrainian legislation tax losses can
be carried forward and utilised indefinitely. Deferred tax assets
have not been recognised in respect of those items since it is not
probable that future taxable profits will be available against
which the Group can utilise the benefits therefrom.
During the year ended 31 December 2016, unrecognised temporary
differences of USD 1,708 thousand (2015: USD 13,265 thousand)
relate to items recognised in other comprehensive income.
22 Financial risk management
(a) Overview
The Group has exposure to the following risks from its use of
financial instruments:
-- credit risk
-- liquidity risk
-- market risk
This note presents information about the Group's exposure to
each of the above risks, the Group's objectives, policies and
processes for measuring and managing risk. Further quantitative
disclosures are included throughout these consolidated financial
statements.
(b) Risk management framework
The management has overall responsibility for the establishment
and oversight of the risk management framework.
The Group's risk management policies are established to identify
and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits.
Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group's
activities.
The Group, through its training and management standards and
procedures, aims to develop a disciplined and constructive control
environment in which all employees understand their roles and
obligations.
The Group's Audit Committee oversees how management monitors
compliance with the Group's risk management policies and procedures
and reviews the adequacy of the risk management framework in
relation to the risks faced by the Group.
(c) Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from the
Group's loans and receivables.
(i) Trade and other receivables
The Group's exposure to credit risk is influenced mainly by the
individual characteristics of each customer. However, management
also considers the demographics of the Group's customer base,
including the default risk of the industry and country, in which
customers operate, as these factors may have an influence on credit
risk, particularly in the currently challenging economic
circumstances. There is no significant concentration of receivables
from a single customer. In 2016 and 2015, 100% of the Group's
revenue is attributable to sales transactions with customers in
Ukraine and the Republic of Crimea.
Management has no formal credit policy in place for customers
other than regular tenants and the exposure to credit risk is
approved and monitored on an ongoing basis individually for all
other significant customers.
The Group does not require collateral in respect of trade and
other receivables.
The Group establishes an allowance for impairment that
represents its estimate of incurred losses in respect of trade and
other receivables and loans receivable. The main components of this
allowance are a specific loss component that relates to
individually significant exposures, and a collective loss component
established for groups of similar assets in respect of losses that
have been incurred but not yet identified. The collective loss
allowance is determined based on historical data of payment
statistics for similar financial assets.
(ii) Guarantees
The Group considers that financial guarantee contracts entered
into by the Group to guarantee the indebtedness of related parties
to be insurance arrangements, and accounts for them as such. In
this respect, the Group treats the guarantee contract as a
contingent liability until such time as it becomes probable that
the Group will be required to make a payment under the
guarantee.
(iii) Exposure to credit risk
The carrying amount of financial assets represents the maximum
credit exposure.
In addition to the credit risk, the Group is exposed to the risk
of non-recoverability of VAT recoverable, prepayments made and
other assets amounting in total to USD 3,182 thousand as at 31
December 2016 (2015: USD 5,402 thousand).
(iv) Impairment losses
The ageing of trade and other receivables as at 31 December
was:
2016 2016 2015 2015
Gross Impairment Gross Impairment
(in thousands of
USD)
Not past due 1,082 - 816 -
Past due 0 - 30
days 13 - - -
Past due 31 - 60
days 5 - 7 -
Past due 61 - 90
days - - 1 -
Past due 91 - 360
days 46 - 1,737 (1,729)
More than one year 10,424 (10,408) 9,046 (8,988)
11,570 (10,408) 11,607 (10,717)
Allowance for impairment of financial assets is as follows:
2016 2015
(in thousands of USD)
Allowance for impairment of trade
and other receivables 10,408 10,717
Allowance for impairment of loans
receivable 10,547 50,065
Allowance for impairment of available-for-sale
financial assets 20,727 20,727
41,682 81,509
The movement in the allowance for impairment in respect of
financial assets during the years ended 31 December was as
follows:
2016 2015
(in thousands of USD)
Balance at 1 January 81,509 75,360
Impairment loss recognised 5 10,617
Bad debt write-off (39,761) -
Reversal of bad debt allowance - (1,972)
Foreign currency translation differences (71) (2,496)
Balance at 31 December 41,682 81,509
In 2016, the Group acquired corporate rights in Filgate Credit
Enterprises Limited. Due to a net liability position of Filgate
Credit Enterprises Limited as at the date of acquisition, this
investment is considered to be fully impaired. The purchase price
was set-off in full against the loan receivable from Weather Empire
Limited amounting to USD 39,761 thousand that were fully impaired
during the prior periods. Following the set-off, the loan
receivable along with the respective allowance for impairment were
derecognised (refer to note 5).
(d) Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Group's approach to managing liquidity is to
ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or
risking damage to the Group's reputation.
The following are the contractual maturities of financial
liabilities, including interest payments as at 31 December
2016:
Contractual cash flows
-----------------------------------------------------------
More
Carrying 2 months 2 - 1 - 2 - than
amount Total or less 12 months 2 years 5 years 5 years
(in thousands
of USD)
Secured bank
loans 50,064 60,727 1,518 25,077 8,803 25,329 -
Unsecured
loans from
related parties 51,020 54,550 18,980 24,575 955 10,040 -
Finance lease
liability 6,857 41,253 122 612 839 2,836 36,844
Trade and
other payables 20,387 24,072 15,754 821 778 6,719 -
Other liabilities 25,214 26,165 799 25,268 98 - -
153,542 206,767 37,173 76,353 11,473 44,924 36,844
The following are the contractual maturities of financial
liabilities, including interest payments as at 31 December
2015:
Contractual cash flows
-----------------------------------------------------------
More
Carrying 2 months 2 - 1 - 2 - than
amount Total or less 12 months 2 years 5 years 5 years
(in thousands
of USD)
Secured bank
loans 60,074 74,631 21,334 13,169 11,075 29,053 -
Unsecured
loans from
related parties 44,661 47,554 36,988 1,045 760 8,761 -
Unsecured
loans from
third parties 151 151 - 151 - - -
Finance lease
liability 9,937 63,616 188 940 1,379 4,136 56,973
Trade and
other payables 24,279 27,966 4,489 16,710 856 5,911 -
Other liabilities 22,442 23,088 - 23,008 80 - -
161,544 237,006 62,999 55,023 14,150 47,861 56,973
(e) Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates and equity prices will
affect the Group's income or the value of its holdings of financial
instruments. The objective of market risk management is to manage
and control market risk exposures within acceptable parameters,
while optimising the return.
(i) urrency risk
Group entities located in Ukraine
The Group is exposed to currency risk on sales, purchases and
borrowings that are denominated in a currency other than the
Ukrainian hryvnias (UAH), primarily the U.S. Dollar (USD) and Euro
(EUR).
Interest on borrowings is denominated in the currency of the
borrowing. Generally, borrowings are denominated in USD which does
not always match the cash flows generated by the underlying
operation of the Group, primarily executed in UAH.
Exposure to currency risk
The Group's exposure to foreign currency risk as at 31 December
was as follows based on notional amounts:
2016 2015
------------------------
USD EUR USD EUR
(in thousands of USD)
Cash and cash equivalents 25 109 31 25
Secured bank loans (41,589) - (49,661) -
Unsecured loans from related parties (185) - (191) -
Trade and other payables (220) (1,040) - (775)
Net short position (41,969) (931) (49,821) (750)
Sensitivity analysis
A 10 percent weakening of the Ukrainian hryvnia against the
following currencies as at 31 December would have decreased net
profit or loss and decreased equity by the amounts shown below.
This analysis assumes that all other variables, in particular
interest rates, remain constant.
2016 2015
----------------- -----------------
Profit Profit
or loss Equity or loss Equity
(in thousands of
USD)
USD (3,441) (3,441) (4,085) (4,085)
EUR (76) (76) (62) (62)
A 10 percent strengthening of the Ukrainian hryvnia against
these currencies at 31 December would have had the equal but
opposite effect on these currencies to the amounts shown above, on
the basis that all other variables remain constant.
Intra-group borrowings
The Group entities located in Ukraine are exposed to currency
risk on intra-group borrowings, eliminated in these consolidated
financial statements, that are denominated in a currency other than
the Ukrainian hryvnia (UAH), primarily the U.S. Dollar (USD). These
borrowings are treated as part of net investment in a foreign
operation with foreign exchange gains and losses recognised in
other comprehensive income and presented in the translation reserve
in equity.
The exposure to foreign currency risk on these borrowings is USD
274,599 thousand and USD 256,769 thousand as at 31 December 2016
and 2015, respectively. The effect of translation of these loans
payable by Ukrainian subsidiaries resulted in a foreign exchange
loss of USD 28,356 thousand, including tax effect, recognised
directly in other comprehensive income for the year ended 31
December 2016 (2015: USD 80,745 thousand).
A 10 percent weakening of the Ukrainian hryvnia against the USD
would have increased other comprehensive loss for the year ended 31
December 2016 and decreased equity as at 31 December 2016 by USD
22,517 thousand (2015: USD 21,055 thousand). This analysis assumes
that all other variables, in particular interest rates, remain
constant.
A 10 percent strengthening of the Ukrainian hryvnia against
these currencies would have had the equal but opposite effect to
the amounts mentioned above, on the basis that all other variables
remain constant.
Group entity located in the Republic of Crimea and the Russian
Federation
The Group entities, located in the Republic of Crimea and the
Russian Federation, are exposed to currency risk on purchases and
borrowings that are denominated in a currency other than the
Russian Rouble (RUB), primarily the Ukrainian hryvnia (UAH) and
U.S. Dollar (USD).
Exposure to currency risk
The exposure to foreign currency risk as at 31 December was as
follows based on notional amounts:
2016 2015
---------------------
USD UAH USD UAH
(in thousands of USD)
Cash and cash equivalents 850 - - -
Trade and other payables - (1,320) - (4,080)
Net short position 850 (1,320) - (4,080)
Sensitivity analysis
A 10 percent strengthening of the Russian Rouble against the
following currencies as at 31 December would have increased net
profit or loss and increased equity by the amounts shown below.
This analysis assumes that all other variables, in particular
interest rates, remain constant.
2016 2015
---------------- ----------------
Profit Profit
or loss Equity or loss Equity
(in thousands of
USD)
UAH 106 106 326 326
USD (68) (68) - -
A 10 percent weakening of the Russian Rouble against these
currencies at 31 December would have had the equal but opposite
effect on these currencies to the amounts shown above, on the basis
that all other variables remain constant.
(ii) Interest rate risk
Changes in interest rates impact primarily loans and borrowings
by changing either their fair value (fixed rate debt) or their
future cash flows (variable rate debt). Management does not have a
formal policy of determining how much of the Group's exposure
should be to fixed or variable rates. However, at the time of
obtaining new financing management uses its judgment to decide
whether a fixed or variable rate would be more favorable to the
Group over the expected period until maturity.
Refer to notes 5, 12, 13 and 16 for information about maturity
dates and effective interest rates of fixed rate and variable rate
financial instruments. Re-pricing for fixed rate financial
instruments occurs at maturity of fixed rate financial
instruments.
Profile
The interest rate profile of the Group's interest-bearing
financial instruments as at 31 December was as follows:
2016 2015
(in thousands of USD)
Fixed rate instruments
Loans and borrowings 77,099 75,216
Other liabilities 24,317 22,362
Finance lease liability 6,857 9,937
108,273 107,515
Variable rate instruments
Loans and borrowings 23,939 29,468
23,939 29,468
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets
and liabilities at fair value through profit or loss or as
available-for-sale, and the Group does not designate derivatives
(interest rate swaps) as hedging instruments under a fair value
hedge accounting model. Therefore a change in interest rates at the
reporting date would not affect profit or loss or equity.
Cash flow sensitivity analysis for variable rate instruments
An increase of 100 basis points in interest rates at the
reporting date would have decreased equity as at 31 December and
would have decreased net profit or loss for the years ended 31
December by the amounts shown below. This analysis assumes that all
other variables, in particular foreign currency rates, remain
constant.
2016 2015
---------------- ----------------
Profit Profit
or loss Equity or loss Equity
(in thousands of
USD)
Loans and borrowings (196) (196) (242) (242)
(196) (196) (242) (242)
A decrease of 100 basis points in interest rates at 31 December
would have had the equal but opposite effect to the amounts shown
above.
(iii) Fair values
Estimated fair values of the financial assets and liabilities
have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment
is required in interpreting market data to produce the estimated
fair values. Accordingly, the estimates are not necessarily
indicative of the amounts that could be realised in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the
estimated fair values.
The estimated fair values of financial assets and liabilities
are determined using discounted cash flow and other appropriate
valuation methodologies, at year-end, and are not indicative of the
fair value of those instruments at the date these consolidated
financial statements are prepared or distributed. These estimates
do not reflect any premium or discount that could result from
offering for sale at one time the Group's entire holdings of a
particular financial instrument. Fair value estimates are based on
judgments regarding future expected cash flows, current economic
conditions, risk characteristics of various financial instruments
and other factors.
Fair value estimates are based on existing financial instruments
without attempting to estimate the value of anticipated future
business and the value of assets and liabilities not considered
financial instruments. In addition, tax ramifications related to
the realisation of the unrealised gains and losses can have an
effect on fair value estimates and have not been considered.
Management believes that for all the financial assets and
liabilities, the carrying value is estimated to approximate the
fair value as at 31 December 2016 and 2015. Such fair value was
estimated by discounting the expected future cash flows under the
market interest rate for similar financial instruments that
prevails as at the reporting date. The estimated fair value is
categorised within Level 2 of the fair value hierarchy.
(f) Capital management
Management defines capital as total equity attributable to
equity holders of the parent. The Group has no formal policy for
capital management but management seeks to maintain a sufficient
capital base for meeting the Group's operational and strategic
needs, and to maintain confidence of market participants. The Group
strives to achieve with efficient cash management, and constant
monitoring of the Group's investment projects. With these measures
the Group aims for steady profits growth. There were no changes in
the Group's approach to capital management during the year.
23 Commitments and contingencies
(a) Pledged assets
As at 31 December, in connection with loans and borrowings, the
Group pledged the following assets:
2016 2015
(in thousands of USD)
Investment property (note 4(a)) 103,337 91,630
Call deposits (note 9) 1,013 1,255
Restricted deposits (note 9,
12) - 800
Bank balances (note 9) 44 34
104,394 93,719
As at 31 December 2016 and 2015, the Group has also pledged the
following:
-- Future rights on income of Prizma Alfa LLC and Comfort Market
Luks LLC under all lease agreements;
-- Investments in the following subsidiaries: PrJSC Grandinvest,
PrJSC UkrPanGroup, Comfort Market Luks LLC and PrJSC
Livoberezhzhiainvest;
-- Property rights under the Investment Agreement between PrJSC
Grandinvest, PrJSC Livoberezhzhiainvest and Voyazh-Krym LLC.
(b) Construction commitments
The Group entered into contracts with third parties to construct
two shopping centres in Kyiv and a shopping centre in Odesa for the
amount of USD 20,584 thousand as at 31 December 2016 (2015: USD
23,548 thousand).
(c) Operating leases commitments
The Group as lessor
The Group entered into lease agreements on its investment
property portfolio that consists of five shopping centres. These
non-cancellable lease agreements have remaining terms from one to
ten years. All agreements include a clause to enable upward
revision of the rent rate on an annual basis according to
prevailing market conditions.
The future minimum lease payments under non-cancellable leases
as at 31 December are as follows:
2016 2015
(in thousands of USD)
Less than one year 3,358 5,490
Between one and five years 3,384 3,470
More than five years - 666
6,742 9,626
(d) Litigations
In the ordinary course of business, the Group is subject to
legal actions and complaints.
(i) Legal case in respect of Assofit Holdings Limited
Starting from November 2010 the Group has been involved in an
arbitration dispute with Stockman Interhold S.A. (Stockman), which
was the majority shareholder of Assofit Holdings Limited (Assofit),
regarding invalidation of the Call Option Agreement dated 25
February 2010. In accordance with this Call Option Agreement,
Arricano was granted the option to acquire the shareholding of
Stockman being equal to 50.03 per cent in the share capital of
Assofit during the period starting from 15 November 2010 up to 15
March 2011. In November 2010, the Company sought to exercise the
option granted by the Call Option Agreement, however the buy-out
was suspended by legal and arbitration proceedings that were
initiated by Stockman in relation to the validity of the
termination of the agreement relating to the call option under the
Call Option Agreement.
In the seventh award delivered on 5 May 2016, the tribunal of
the London Court of International Arbitration has found that
Stockman is in breach of the Call Option Agreement and has taken
"steps deliberately to dissipate and misappropriate Assofit's
assets". As a result, the tribunal has ordered Stockman to
transfer, or procure the transfer of, the Option Shares to Arricano
within 30 days of the award. Upon registration of the transfer,
Arricano shall pay to Stockman the Option Price minus damages,
which when netted out brings the balance to nil. In the event that
Stockman does not transfer, or procure the transfer of the Option
Shares, Arricano may elect instead to claim damages in lieu of the
share transfer.
In its latest award, being the eighth award, made on 17 August
2016, the tribunal of the London Court of International Arbitration
has awarded the costs of approximately USD 0.9 million to be paid
by Stockman to Arricano. No receivable was recognised in these
consolidated financial statements, as recoverability of the related
asset was not certain.
As at the date that these consolidated financial statements are
authorised for issuance, a number of related legal cases are under
the consideration of the District Court of Nicosia.
In September 2014, Assofit Holdings Limited transferred the
shares of Prizma Beta LLC to Financial and Investment Solutions BV,
a company registered in the Netherlands, despite the fact that an
Interim Receiver was appointed in Assofit at that period of time
with the responsibility of collecting and safeguarding Assofit's
assets. Further in September 2014, Joint-Stock Bank Pivdeniy PJSC,
Ukraine, which had an outstanding mortgage loan due from Prizma
Beta LLC of USD 32,000 thousand, exercised its right to recover the
abovementioned loan by means of reposession of ownership rights to
the Sky Mall shopping centre which was pledged to secure this loan
in September 2014. As at the date that these consolidated financial
statements are authorised for issuance, shares of Prizma Beta LLC
and ownership rights for the Sky Mall shopping centre remain to be
alienated.
As at 31 December 2016 and 2015, the Group holds 49.97% of
nominal voting rights in Assofit without retaining significant
influence. In prior years' consolidated financial statements of the
Group until 31 December 2013, investment in Assofit was recognised
in the statement of financial position as available for-sale
financial asset at its carrying amount of USD 20,727 thousand. Due
to loss of the legal control over the major operating asset being
the Sky Mall shopping centre in September 2014, management believes
that investment in Assofit is fully impaired as at 31 December 2016
and 2015.
(ii) Legal case in respect of Mezokred Holding LLC
On 17 April 2014, a claim was filed against Mezokred Holding LLC
by a third party individual seeking to nullify the resolution
issued by the Kyiv City Council, according to which the latter has
approved the allocation to Mezokred Holding LLC of a land plot in
Obolon District of Kyiv for the construction of a hypermarket and
entitled Mezokred Holding LLC to lease this land plot for a period
of 25 years.
On 9 November 2016, the Kyiv Administrative Court ruled in favor
of Mezokred Holding LLC. The plaintiff filed an appeal to the Kyiv
Court of Appeal.
On 21 March 2017, the Kyiv Court of Appeal reconfirmed the
ruling of the first instance court and dismissed appeal of the
plaintiff in full. Such ruling of the appeal court came into effect
on the same date. The plaintiff had submitted a cassation appeal on
4 April 2017 requesting cancellation of the rulings of the first
and second instance courts. Management believes that the Group will
be successful in defending its title to the lease agreement for the
land plot concerned further in court, if this is required. Should
this not be the case, the Group may ultimately lose its lease
rights for the land plot concerned and title to the related
investment property. As at 31 December 2016, the fair value of the
land plot and property under construction at Mezokred Holding LLC
is USD 4,400 thousand and USD 694 thousand, respectively.
(iii) Legal case in respect of Voyazh-Krym LLC
Starting from October 2013, the Group has been involved in the
legal proceedings regarding demolishing of the part of the shopping
centre "South Gallery" located in Simferopol with an area of 0.73
ha. On 22 January 2016, Arbitration court of the Russian Federation
ruled against Voyazh-Krym LLC and the latter filed an appeal. On 27
December 2016, the Court of Central District has cancelled the
previous decision of 20 September 2016 and decided to reconsider
the case under the rules of the arbitration court.
As at the date that these consolidated financial statements are
authorised for issuance, the results of respective hearing in
written proceeding are not yet available.
Management believes that the Group will be successful in
defending its rights further in court, if this is required.
Otherwise, Voyazh-Krym LLC may be required to perform
reconstruction of the part of the shopping center stated at USD
24,307 thousand as at 31 December 2016.
(iv) Legal case in respect of Vector Capital LLC
On 3 October 2016, the claim was filed against Vektor Capital
LLC by Odesa City Council to recover indebtedness in respect of the
agreement on customer share participation in the creation and
development of engineering, transport and social infrastructure of
Odesa for the amount of USD 404 thousand. The Group has recognized
an accrual in respect of this legal case (refer to note 16). As at
the date that these consolidated financial statements are
authorised for issuance, the legal case is ongoing.
Management is unaware of any other significant actual, pending
or threatened claims against the Group.
(e) Taxation contingencies
(i) Ukraine
The Group performs most of its operations in Ukraine and
therefore within the jurisdiction of the Ukrainian tax authorities.
The Ukrainian tax system can be characterised by numerous taxes and
frequently changing legislation which may be applied retroactively,
open to wide interpretation and in some cases are conflicting.
Instances of inconsistent opinions between local, regional, and
national tax authorities and between the Ministry of Finance and
other state authorities are not unusual. Tax declarations are
subject to review and investigation by a number of authorities that
are enacted by law to impose severe fines, penalties and interest
charges. A tax year remains open for review by the tax authorities
during the three subsequent calendar years, however under certain
circumstances a tax year may remain open longer. These facts create
tax risks substantially more significant than typically found in
countries with more developed systems.
Management believes that it has adequately provided for tax
liabilities based on its interpretation of tax legislation and
official pronouncements. However, the interpretations of the
relevant authorities could differ and the effect on these
consolidated financial statements, if the authorities were
successful in enforcing their interpretations, could be
significant. No provisions for potential tax assessments have been
made in these consolidated financial statements.
(ii) Republic of Crimea and the Russian Federation
As a result of the events described in note 1(b), Ukrainian
authorities are not currently able to enforce Ukrainian laws on the
territory of the Republic of Crimea. Starting from April 2014, this
territory is subject to the transitional provisions of tax rules
established by the Russian government to ensure gradual
introduction of federal laws into the territory. Although these
transitional provisions were thought to put certain relief on the
entities registered in the Republic of Crimea, interpretations of
these provisions by the tax authorities may be different from the
tax payers' view.
Effective from 1 January 2015, the territory of the Republic of
Crimea is subject to general legislation of the Russian Federation.
The taxation system in the Russian Federation continues to evolve
and is characterised by frequent changes in legislation, official
pronouncements and court decisions, which are sometimes
contradictory and subject to varying interpretation by different
tax authorities.
Taxes are subject to review and investigation by a number of
authorities, which have the authority to impose severe fines,
penalties and interest charges. A tax year generally remains open
for review by the tax authorities during the three subsequent
calendar years; however, under certain circumstances a tax year may
remain open longer. Recent events within the Russian Federation
suggest that the tax authorities are taking a more assertive and
substance-based position in their interpretation and enforcement of
tax legislation.
These circumstances may create tax risks in the Russian
Federation that are substantially more significant than in other
countries. Management believes that it has provided adequately for
tax liabilities based on its interpretations of applicable Russian
tax legislation, official pronouncements and court decisions.
However, the interpretations of the tax authorities and courts,
especially due to reform of the supreme courts that are resolving
tax disputes, could differ and the effect on these consolidated
financial statements, if the authorities were successful in
enforcing their interpretations, could be significant.
In addition, a number of new laws introducing changes to the
Russian tax legislation have been recently adopted. In particular,
starting from 1 January 2015 changes aimed at regulating tax
consequences of transactions with foreign companies and their
activities were introduced, such as concept of beneficial ownership
of income, etc. These changes may potentially impact the Group's
tax position and create additional tax risks going forward. This
legislation is still evolving and the impact of legislative changes
should be considered based on the actual circumstances.
(iii) Republic of Cyprus
During the prior years, the Company incurred certain foreign
legal expenses, where the VAT accounted for on these expenses was
fully claimed. Management believes that the Company properly
claimed the VAT accounted for on these expenses, on the basis of
the plans to transfer the said expenses, being purely of legal
nature, to respective parties in full. Since as at the date of
issue of these consolidated financial statements the management did
not proceed with the implementation of their plans, the
transactions will not be complete in the view of VAT authorities,
and the Company may be liable to pay VAT of approximately USD 1,712
thousand plus related interest and penalties.
No provision for the VAT liability or related penalties is made
in these consolidated financial statements as management believes
that it is not probable that such VAT liability will materialise,
as the Company will proceed with the implementation of the plan on
the transfer of expenses.
24 Related party transactions
(a) Control relationships
The Group's largest shareholders are Retail Real Estate OU, OU
Ekspert Kapital, Dragon - Ukrainian Properties and Development plc,
Deltamax Group OU, Rauno Teder and Jüri Põld. The Group's ultimate
controlling party is Estonian individual Hillar Teder. Hillar Teder
indirectly controls 55.45% of the voting shares of the Parent
Company. Apart from this, the adult son of Hillar Teder controls
7.48% of the voting shares of the Parent Company.
(b) Transactions with management and close family members
Key management remuneration
Key management compensation included in the statement of profit
or loss and other comprehensive income for the year ended 31
December 2016 is represented by salary and bonuses of USD 711
thousand (2015: USD 298 thousand).
(c) Transactions and balances with entities under common control
Outstanding balances with entities under common control as at 31
December are as follows:
2016 2015
(in thousands of USD)
Long-term loans receivable 1,647 41,365
Short-term loans receivable 8,900 8,700
Trade receivables 1,384 1,567
Other receivables 8,963 9,066
Provision for impairment of trade
and other receivables and loans
receivable from related parties (20,885) (60,694)
9 4
Long-term loans and borrowings 9,100 7,270
Short-term loans and borrowings 41,920 37,391
Trade and other payables 1,371 1,785
Advances received 26 29
Other liabilities 24,317 22,362
76,734 68,837
None of the balances are secured. The terms and conditions of
significant transactions and balances with entities under common
control are described in notes 5, 7, 12 and 16.
Expenses incurred and income earned from transactions with
entities under common control for the years ended 31 December are
as follows:
2016 2015
(in thousands of USD)
Interest expense (6,320) (5,988)
Other finance costs (40) (2)
Interest income - 268
Operating expenses (89) (11,147)
Other finance income 18 -
Prices for related party transactions are determined on an
ongoing basis.
(d) Guarantees issued by related parties
The Group's related parties issued guarantees securing loans
payable by Ukrainian subsidiaries of Arricano Real Estate PLC to
the EBRD (loans payable by Comfort Market Luks LLC, UkrPanGroup
PrJSC) and PJSC "Bank "St.Petersburg" (loans payable by
Livoberezhzhiainvest PrJSC). The guarantees cover the total amount
of outstanding liabilities in relation to EBRD loans as at 31
December 2016 of USD 23,939 thousand (2015: USD 29,468 thousand)
and in relation to PJSC "Bank "St.Petersburg" as at 31 December
2016 of USD 17,650 thousand (2015: USD 20,193 thousand).
(e) Acquisitions from entities under common control
On 29 April 2016, the Group acquired 100% shareholding in Green
City LLC from the entity under common control for the consideration
of USD 1,560.
On 14 December 2016, the Parent Company acquired a
non-controlling interest (49% of corporate rights) of Filgate
Credit Enterprises Limited from the company under common control
incorporated in Cyprus, in exchange for loan receivable from
Weather Empire Limited (refer to note 5).
25 Subsequent events
There were no material events after the reporting period, which
have a bearing on the understanding of the financial
statements.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF ARRICANO REAL ESTATE
PLC
Report on the audit of the consolidated financial statements
Opinion
We have audited the accompanying consolidated financial
statements of Arricano Real Estate PLC (the "Company"), and its
subsidiaries (together with the Company, referred to as the
"Group"), which comprise the consolidated statement of financial
position as at 31 December 2016, and the consolidated statements of
profit or loss and other comprehensive income, changes in equity
and cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting
policies.
In our opinion, the accompanying consolidated financial
statements give a true and fair view of the consolidated financial
position of the Company as at 31 December 2016, and of its
consolidated financial performance and its consolidated cash flows
for the year then ended in accordance with International Financial
Reporting Standards as adopted by the European Union (IFRS-EU) and
the requirements of the Cyprus Companies Law, Cap. 113, as amended
from time to time (the "Companies Law, Cap. 113").
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the "Auditors' responsibilities
for the audit of the consolidated financial statements" section of
our report. We are independent of the Group in accordance with the
Code of Ethics for Professional Accountants of the International
Ethics Standards Board for Accountants (IESBA Code), and the
ethical requirements in Cyprus that are relevant to our audit of
the consolidated financial statements, and we have fulfilled our
other ethical responsibilities in accordance with these
requirements and the IESBA Code. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Material uncertainty related to going concern
We draw attention to Note 2 (e) in the consolidated financial
statements, which indicates that as at 31 December 2016 the
Company's current liabilities exceeded its current assets by USD
100,669 thousand. In addition, the Group has not complied with
several loan covenants under the existing loan agreements (refer to
note 12), which, as per the terms of the relevant loan agreement,
gives the lender a right to demand immediate repayment of the loans
amounting to USD 17,650 thousand as at 31 December 2016. As stated
in Note 2 (e), these events or conditions indicate that a material
uncertainty exists that may cast significant doubt on the Company's
ability to continue as a going concern. Our opinion is not modified
in respect of this matter.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
Valuation of investment properties (USD 175,663
thousand)
-----------------------------------------------------------------
See Note 4 to the consolidated financial
statements
-----------------------------------------------------------------
The key audit matter How the matter was addressed
in our audit
----------------------------- ----------------------------------
The Group has a significant Our audit procedures
holding of investment included the following:
properties, which as 1. Assessing, using
at 31 December 2016 our own experts, the
represented 94% of appropriateness of the
the total assets. We valuation methods used
identified the valuation and assumptions underlying
of investment properties the determination of
as a key audit matter the fair value of property,
due to the significance including monthly rental
of the balance to the rates, occupancy rates
consolidated financial and discount rates.
statements as a whole, We verified these assumptions
and due to the significant to rental agreements,
element of judgement performed analytical
and estimation associated review of the data received.
with determination Challenging various
of the fair value. key inputs such as rental
The Group measures and occupancy rates,
its investment properties discount rates etc.
at fair value at each 2. Evaluating the competence,
reporting date, except objectivity and independence
for properties under of the valuer used by
development, which the management.
are carried at cost. 3. Evaluating the reasonableness
As disclosed in note of the forecasted income
4 to the consolidated used in the reports
financial statements, by reconciling actual
the fair value is based figures of December
on the valuation performed 2016 against the budgeted
by an independent external figures for January
valuer (the "Valuer"), 2017 used by the valuer
engaged by the Group, in order to identify
using the discounted any deviations. All
cash flow valuation the deviations were
model, which considers investigated and traced
the present value of to the primary documents.
net cash flows to be 4. Testing the design
generated from the and implementation of
property, taking into the Group's controls
account the expected over the investment
rental rates, occupancy property valuation
rates, foreign exchange 5. Performing a sensitivity
rates and other costs. analysis over the key
The expected net cash inputs used for calculation
flows are discounted of the fair value of
using risk-adjusted investment property.
discount rates. Land
parcels are valued
based on market prices
for similar properties.
----------------------------- ----------------------------------
Litigations and contingent liabilities
-----------------------------------------------------------------
See note 23 (d) to the consolidated financial
statements
-----------------------------------------------------------------
The key audit matter How the matter was addressed
in our audit
----------------------------- ----------------------------------
In the normal course Our audit procedures
of the business, potential included the following:
exposures may arise 1. Reviewing the minutes
from various legal of the Board and Audit
procedures against Committee meetings.
the Group entities. 2. Inquiring the in-house
Due to the range of lawyers to determine
the potential outcomes any potential outcome
and the considerable of the cases and steps
uncertainty around that will be undertaken
the resolution of various in future with regards
claims, the determination to the ongoing litigations.
of the amount, if any, 3. Reviewing and assessing
to be recorded in the responses of the external
consolidated financial legal advisors of the
statements as a provision Group.
is inherently subjective. 4. Assessment, following
As at 31 December 2016, the completion of the
the Group was involved above procedures, the
in a number of significant appropriateness of accounting
legal cases which are for litigations in the
still ongoing and the consolidated financial
financial impact of statements of the Group.
which cannot be currently We also reviewed the
determined. relevant disclosure
in the contingent liabilities
note to ensure completeness
and accuracy of the
disclosure.
----------------------------- ----------------------------------
Other information
The Board of Directors is responsible for the other information.
The other information comprises the information included in the
Annual Report for the year ended 31 December 2016, but does not
include the consolidated financial statements and our auditors'
report thereon.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon, except as required by the Companies
Law, Cap. 113.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. Our report in
this regard is presented in the "Report on other legal
requirements" section.
Responsibilities of the Board of Directors for the consolidated
financial statements
The Board of Directors is responsible for the preparation of
consolidated financial statements that give a true and fair view in
accordance with IFRS-EU and the requirements of the Companies Law,
Cap. 113, and for such internal control as the Board of Directors
determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the consolidated financial statements, the Board of
Directors is responsible for assessing the Group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting, unless there is an intention to either liquidate the
Group or to cease operations, or there is no realistic alternative
but to do so.
The Board of Directors is responsible for overseeing the Group's
financial reporting process.
Auditors' responsibilities for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditors' report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the Board of Directors.
-- Conclude on the appropriateness of the Board of Directors'
use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on
the Group's ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw
attention in our auditors' report to the related disclosures in the
consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditors' report.
However, future events or conditions may cause the Group to cease
to continue as a going concern.
-- Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves a true
and fair view.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the Group audit. We remain solely responsible for
our audit opinion.
We communicate with the Board of Directors regarding, among
other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the Board of Directors with a statement that we
have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with the Board of Directors, we
determine those matters that were of most significance in the audit
of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in
our auditors' report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Report on other legal requirements
Pursuant to the additional requirements of the Auditors and
Statutory Audits of Annual and Consolidated Accounts of Law 2009,
L42(I)/2009, as amended from time to time ("Law 42(I)/2009"), we
report the following:
-- We have obtained all the information and explanations we
considered necessary for the purposes of our audit.
-- In our opinion, proper books of account have been kept by the
Company, so far as it appears from our examination of these
books.
-- The consolidated financial statements are in agreement with the books of account.
-- In our opinion and to the best of our information and
according to the explanations given to us, the consolidated
financial statements give the information required by the Companies
Law, Cap. 113, in the manner so required.
-- In our opinion, the Management Report, the preparation of
which is the responsibility of the Board of Directors, has been
prepared in accordance with the requirements of the Companies Law,
Cap. 113, and the information given is consistent with the
consolidated financial statements.
-- In the light of the knowledge and understanding of the
business and the Company's environment obtained in the course of
our audit, we have not identified material misstatements in the
Management Report.
-- In our opinion, the information included in the corporate
governance statement in accordance with the requirements of
subparagraphs (iv) and (v) of paragraph 2(a) of Article 151 of the
Companies Law, Cap. 113, and which is included as a specific
section of the Management Report, have been prepared in accordance
with the requirements of the Companies Law, Cap, 113, and is
consistent with the consolidated financial statements.
-- In the light of the knowledge and understanding of the
business and the Company's environment obtained in the course of
our audit, we have not identified material misstatements in the
corporate governance statement in relation to the information
disclosed for items (iv) and (v) of subparagraph 2(a) of Article
151 of the Companies Law, Cap. 113.
-- In our opinion, the corporate governance statement includes
all information referred to in subparagraphs (i), (ii), (iii) and
(vi) of paragraph 2(a) of Article 151 of the Companies Law, Cap.
113.
Other matter(.)
This report, including the opinion, has been prepared for and
only for the Company's members as a body in accordance with Section
34 of Law 42(I)/2009 and for no other purpose. We do not, in giving
this opinion, accept or assume responsibility for any other purpose
or to any other person to whose knowledge this report may come
to.
The engagement partner on the audit resulting in this
independent auditors' report is John C. Nicolaou.
John C. Nicolaou, CPA
Certified Public Accountant
and Registered Auditor
for and on behalf of
KPMG Limited
Certified Public Accountants
and Registered Auditors
11, June 16th 1943 Street
3022 Limassol
Cyprus
25 April 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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