Arricano Real Estate Plc (ARO) Interim Results 22-Sep-2021 /
12:00 GMT/BST Dissemination of a Regulatory Announcement that
contains inside information according to REGULATION (EU) No
596/2014 (MAR), transmitted by EQS Group. The issuer is solely
responsible for the content of this announcement.
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22 September 2021 Arricano Real Estate plc
("Arricano" or the "Company" or, together with its subsidiaries,
the "Group")
Unaudited Interim Results for the 6 months ended 30 June
2021
Arricano is one of the leading real estate developers and
operators of shopping centres in Ukraine with over 148,100 sqm of
gross leasable area under operation and land for a further three
sites under development.
Highlights
-- Operating activity was still affected by COVID-19
restrictions with the shopping centres in differentregions
partially closed for up to 59 days
-- Group revenue increased by 19% to USD 16.9 million (2020: USD
14.2 million)
-- Underlying operating profit before revaluation of investment
property increased by 23% to USD 11.9million (2020: USD 9.6
million)
-- Group average occupancy was 99.5%, as at 30 June 2021
-- Investment property revaluation loss of USD 9.0 million was
due to the Hryvnia strengthening against theUS Dollar, this was
then offset by a foreign exchange gain of USD 10.2 million included
in Other ComprehensiveIncome
-- The total value of the investment property portfolio
comprised USD 281.6 million (31 December 2020: USD275.5
million)
-- Net asset value increased to USD 125.2 million (31 December
2020: USD 119.4 million)
-- Cash flows from operating activity were USD 10.0 million, an
increase by 52% compared to the six monthended 30 June 2020
-- Average cost of bank loans continued to decrease, down from
10.1% as at 31 December 2020, to 8.3% as at30 June 2021
Ganna Chubotina, Chief Executive Officer of Arricano,
commented:
"Despite the challenges created by the global pandemic, our
portfolio of shopping centres continued to operate close to
capacity with occupancy at 99.5%. This demonstrates, in our view,
that we have been successful in supporting some of our tenants
through the last 18 months and equally importantly the appeal
amongst our tenant base of retaining their retail presence in our
centres over a period when the retail market has been very
challenging. While the impact of COVID-19 remains, normal trading
is returning which enables us to switch from protecting the
business to once again growing it."
For further information please contact:
CEO:
Arricano Real Estate plc
Ganna Chubotina Tel: +357 25 582 535
Nominated Adviser and Broker:
WH Ireland Limited
Tel: +44 (0)20 7220 1666
Chris Fielding/Ben Good
Financial PR:
Novella Communications Limited
Tel: +44 (0)20 3151 7008
Tim Robertson/Fergus Young
Chief Executive Officer's Report
Introduction
I am pleased to be reporting on a positive trading performance
for the first six months of 2021. While the effects of the global
pandemic are still visible, visitor numbers to our shopping centres
accelerated fast when restrictions were lifted, much faster than
when they were lifted in 2020 and continue to rise; indicating that
our customers are no longer avoiding social space for fear of
COVID-19 and are instead keen to return to normal retail
patterns.
Our ability to retain occupancy at 99.5% during a very
challenging period for all retailers reflects well on our business.
This led to revenue generation of USD 16.9 million, which is just
2% below pre-COVID-19 revenue levels in 2019, a good result
especially as the portfolio was partially closed for nearly two of
the six months under review. That being the case, the Company is
performing well and is positioned, assuming trading remains
restriction free, to continue to grow and develop.
Overall, we believe the retail market is recovering, in response
to increased consumer spending and a general improvement in
consumer confidence.
Results
Recurring revenues for the period increased by 19% to USD 16.9
million (2020: USD 14.2 million). Underlying operating profit
before revaluation of investment property increased to USD 11.9
million (2020: USD 9.6 million).
The revaluation of the investment property portfolio, resulted
in a loss of USD 9.0 million (6 months 2020: gain of USD 30.1
million), caused by the rise in value of the Hryvna against the USD
dollar. However, the revaluation effect was offset by foreign
exchange gains in the amount of USD 10.2 million included in Other
Comprehensive Income. The total value of investment property
portfolio comprised USD 281.6 million (31 December 2020: USD 275.5
million).
The Company has continued to make excellent progress in bringing
the cost of borrowings down with the average cost of bank loans
decreasing from an average of 10.1% as at 31 December 2020 to 8.3%
as at 30 June 2021.
Cash flow from operating activities was USD 10.0 million with
Group cash balances as at 30 June 2021 of USD 15.0 million (31
December 2020: USD 12.0 million).
Net asset value increased to USD 125.2 million (31 December
2020: USD 119.4 million).
Operating Review
Each year our shopping centres welcome tens of millions of
visitors. To maintain and grow this level of interest and loyalty,
which Arricano has achieved over the last years, requires hard work
and a continual focus on evolving the customer experience. In 2021,
despite the distractions of managing the impact of the pandemic, 41
new tenants were introduced into the portfolio.
New additions improve retail mix within each mall by expanding
the most successful product categories. In the Rayon shopping mall,
the fast fashion and electronics categories were expanded and in
the Prospect shopping mall, the well-known French sports retailer
Decathlon opened in May 2021 with a 2,000 sqm retail space, quickly
adding to both visitor numbers and operating income.
As the challenges associated with the pandemic have reduced, key
categories such as fast fashion, sporting goods, home appliances
and electronics, and goods for home and interior have shown
positive turnover growth in comparison to 2020 when shopping
centres were under greater restrictions.
Alongside introducing new tenants into the retail mix, the Group
continued to focus on direct dialogue with individual tenants with
a focus on promoting closer working partnerships. Sharing of data
is also key to evolving tenant partnerships. In the period under
review, the Group has been testing and implementing new analytical
products for tracking customer behavior, tenant turnover and
providing a greater analysis of footfall across multiple different
categories, as well as conversion into sales and other trading
indicators, all in real time.
It is worth noting there has been a gradual recovery in the
F&B segment as well as a moderate recovery in cinemas and
entertainment centres, though they continue to operate with some
restrictions relating to social distancing.
Operational experience gained in 2020 and the reduced impact of
the pandemic enabled the introduction of a smart-leasing strategy.
Each tenant was judged individually when providing assistance in
rent relief based on their sales performance which, together with a
general improvement in trading by all tenants, led to very low
vacancy rates in the portfolio.
The safety of all visitors and employees remains the Group's
first priority. Alongside adhering to strict PPE protocols,
Arricano introduced vaccination points across all shopping centres
with the assistance of local authorities and support of the
Ministry of Health. As part of this initiative, all Arricano
shopping centre employees were given an opportunity to be
vaccinated.
Arricano continues to focus on promoting offline shopping
through multiple communication venues, including cultural and art
exhibitions. Recently, a new unique project in the Prospect
shopping mall drew out the influences fashion and professional life
have had on each other. This was a very popular project and, along
with other similar projects, has helped to increase footfall and
visit times.
While development projects have naturally slowed over the past
18 months, the Group is progressing the Lukianivka project, Kyiv.
Although there have been a number of delays, commitment to the
project remains unchanged and it is still expected to open in
2023.
As part of the Group's ESG policy, we continue to support our
shopping centres' communities with charitable and educational
activities, which also help to strengthen local loyalty, stimulate
footfall and increase both visit times and number of stores
visited. We also continue to engage with consumers around social
responsibility topics focusing on brands with strong social
responsibility credentials and/or extensive charitable works.
People
The first half-year of 2021 was still challenging for the
Company, but the successful performance of the Group reflects high
levels of commitment and hard work from all employees of Arricano
and on behalf of the Board I would like to thank them.
Changes to the Board
In July 2021, Urmas Somelar decided to retire as a Director and
as Chairman of the Board for personal reasons.
The Board has agreed that Mr Georgios Komodromos, an independent
non-executive director of the Company, will succeed Mr Somelar as
Chairman pending the appointment of a permanent independent
successor.
Management and the Directors would like to thank Mr Somelar for
his contribution and valuable advice over the last few years.
Outlook
Though the market situation and shopping centres performance
within the remaining months of 2021 directly depends on the
pandemic dynamics and any potential restrictions, with our focus on
long-term partnerships with our tenants, I feel confident we will
continue to perform and are well placed to make a good start in
2022.
30 June 2021 31 December
Note
(unaudited) 2020
(in thousands of USD)
Assets
Non-current assets
Investment property 4 281,581 275,452
Long-term VAT receivable 4,297 4,130
Property and equipment 113 94
Intangible assets 118 126
Total non-current assets 286,109 279,802
Current assets
Trade and other receivables 1,270 1,673
Prepayments made and other assets 594 479
VAT receivable 308 576
Assets classified as held for sale 1,591 1,529
Income tax receivable 391 380
Cash and cash equivalents 14,988 12,062
Total current assets 19,142 16,699
Total assets 305,251 296,501
30 June 2021 31 December
Note
(unaudited) 2020
(in thousands of USD)
Equity and Liabilities
Equity
Share capital 67 67
Share premium 183,727 183,727
Non-reciprocal shareholders contribution 59,713 59,713
Retained earnings 66,756 67,142
Other reserves (61,983) (61,983)
Foreign currency translation differences (123,046) (129,272)
Total equity 125,234 119,394
Non-current liabilities
Long-term borrowings 5 70,266 73,458
Long-term trade and other payables 6 15,935 15,330
Long-term advances received 281 -
Other long-term liabilities 7 31,469 31,462
Deferred tax liability 6,243 5,796
Total non-current liabilities 124,194 126,046
Current liabilities
Short-term loans and borrowings 5 35,317 32,360
Short-term trade and other payables 6 4,001 3,712
Taxes payable other than income tax 4,246 5,015
Short-term advances received 6,158 5,503
Other short-term liabilities 7 6,101 4,471
Total current liabilities 55,823 51,061
Total liabilities 180,017 177,107
Total equity and liabilities 305,251 296,501
These consolidated interim condensed financial statements were
approved by the Board of Directors on 22 September 2021 and were
signed on its behalf by:
George Komodromos Juri Pold
Director Director
Six months
Six months ended 30 ended
Note June 2021
30 June
2020
(unaudited) (unaudited)
(in thousands of USD, except for earnings per share)
Revenue 8 16,906 14,237
(Loss) / Gain on revaluation of investment property (9,027) 30,096
Goods, raw materials and services used (483) (378)
Operating expenses (3,463) (3,122)
Employee costs (1,019) (1,031)
Depreciation and amortization (57) (66)
Profit from operating activities 2,857 39,736
Finance income 9 2,381 103
Finance costs 10 (6,362) (12,702)
(Loss) / Profit before income tax (1,124) 27,137
Income tax gain / (expense) 11 738 (5,054)
(Loss) / Profit for the period (386) 22,083
Other comprehensive income
Items that may be reclassified to profit or loss:
Foreign exchange (losses)/gains on monetary items that form part of net investment 11,322 (33,427)
in the foreign operation, net of tax effect
Foreign currency translation differences (5,096) 14,397
Total items that may be reclassified to profit or loss 6,226 (19,030)
Other comprehensive income 6,226 (19,030)
Total comprehensive income for the period 5,840 3,053
Weighted average number of shares (in shares) 103,270,637 103,270,637
Basic and diluted earnings per share, USD (0.0037) 0.21
Six months Six months
ended ended
Note
30 June 2021 30 June
2020
(unaudited) (unaudited)
(in thousands of USD)
Cash flows from operating activities
Profit before income tax (1,124) 27,137
Adjustments for:
Interest income, excluding foreign exchange gain 9 (338) (103)
Interest expenses, excluding foreign exchange loss 10 6,362 5,574
Loss/ (gain) on revaluation of investment property 4(a) 9,027 (30,096)
Depreciation and amortization 57 66
Unrealised foreign exchange (gain)/loss (1,982) 7,115
Allowance for bad debts 133 22
Operating cash flows before changes in working capital 12,135 9,715
Change in trade and other receivables and prepayments made and other assets 342 (807)
Change in VAT receivable 221 (995)
Change in trade and other payables 285 (95)
Change in advances received 825 (238)
Change in other liabilities 1,256
-
Change in taxes payable (835) 549
Income tax paid (605) (679)
Interest paid (2,401) (2,166)
Cash flows from operating activities 9,967 6,540
Cash flows from investing activities
Acquisition of investment property, excluding capitalized borrowing costs and (4,059) (10,423)
settlements of payables due to constructors
Acquisition of property and equipment and intangible assets (68) (22)
Interest received 96 103
Cash flows used in investing activities (4,031) (10,342)
Six months ended Six months ended
Note
30 June 2021 30 June 2020
(unaudited) (unaudited)
(in thousands of USD)
Cash flows from financing activities
Proceeds from borrowings 3,192 8,000
Repayment of borrowings (6,398) (5,991)
Cash flows from/ (used in) financing activities (3,206) 2,009
Net increase in cash and cash equivalents 2,730 (1,793)
Cash and cash equivalents at 1 January 12,062 6,905
Effect of movements in exchange rates on cash and cash equivalents 196 (217)
Cash and cash equivalents at 30 June 14,988 4,895
Attributable to equity holders of the parent
Non-reciprocal Foreign
Share Share shareholders Retained Other currency Total
capital premium contribution earnings reserves translation
differences
(in thousands of USD)
Balances at 1 January 2020 67 183,727 59,713 46,962 (61,983) (100,581) 127,905
Total comprehensive income for the period
Profit for the period (unaudited) 22,083 22,083
Foreign exchange gains on monetary items that
form part of net investment in the foreign (33,427) (33,427)
operation, net of tax effect (unaudited)
Foreign currency translation differences 14,397 14,397
(unaudited)
Total other comprehensive income (19,030) (19,030)
Total comprehensive income for the period 22,083 (19,030) 3,053
Balances at 30 June 2020 (unaudited) 67 183,727 59,713 69,045 (61,983) (119,611) 130,958
Attributable to equity holders of the parent
Non-reciprocal Foreign
Share Share shareholders Retained Other currency Total
capital premium contribution earnings reserves translation
differences
(in thousands of USD)
Balances at 1 January 2021 67 183,727 59,713 67,142 (61,983) (129,272) 119,394
Total comprehensive income for the period
Profit for the period (unaudited) (386) (386)
Foreign exchange gains on monetary items that
form part of net investment in the foreign 11,322 11,322
operation, net of tax effect (unaudited)
Foreign currency translation differences (5,096) (5,096)
(unaudited)
Total other comprehensive income 6,226 6,226
Total comprehensive income for the period (386) 6,226 5,840
Balances at 30 June 2021 (unaudited) 67 183,727 59,713 66,756 (61,983) (123,046) 125,234
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
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 30 June 2021, the Group operates shopping centres in Kyiv,
Simferopol, Zaporizhzhya and Kryvyi Rig with a total leasable area
of over 148,100 square meters and is in the process of development
of two new investment projects in Kyiv and Odesa, with one more
project to be developed. b. Business environment
The Group's operations are primarily located in Ukraine.
Consequently, the Group is exposed to the economic and financial
markets of Ukraine, which display characteristics of an emerging
market. The political and economic situation in Ukraine has been
subject to significant turbulence in recent years. The legal, tax
and regulatory frameworks continue development, but are subject to
varying interpretations and frequent changes which, together with
other legal and fiscal impediments, contribute to the challenges
faced by entities operating in Ukraine. Additionally, an armed
conflict in certain parts of Lugansk and Donetsk regions, which
started in spring 2014, has not been resolved and 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.
Various events in March 2014 led to the accession of the Republic
of Crimea to the Russian Federation, which was not recognised by
Ukraine and many other countries. Consequently, operations in the
country involve risks that do not typically exist in other
markets.
Despite this, the world's economy was significantly affected by
COVID-19 pandemic. After the economic crisis held in 2020, in the
first half-year 2021 there was a strengthening of the Ukrainian,
Russian Federation and Cyprus operating environments. The local
authorities are introducing some operating restrictions from time
to time, however, these restrictions allow the businesses to
operate at least at the minimum level.
During 6 months period ended 30 June 2021, the Ukrainian hryvnia
and the Russian Ruble have strengthened against US dollar, a
positive indicator of the economic situation in the areas of
operations of the Group's shopping centres.
The management of the company is already seeing consumer
confidence returning, evidenced by the gradual increase in visitor
numbers across Company's portfolio. As before, the strategy remains
centred around improving customer experiences. Management seeks
innovative ways to influence and stimulate consumers, encouraging
them to visit the shopping centres and once inside focus on
creating the right balance between retail, leisure and
socialising.
These consolidated interim condensed financial statements
reflect management's current assessment of the impact of the
business environment on the operations and the financial position
of the Group. The future business environment may differ from
management's assessment.
2 Basis of preparation
(a) Statement of compliance
These consolidated interim condensed financial statements have
been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted by the European Union (EU) and should be read in
conjunction with the Group's last annual consolidated financial
statements as at and for the year ended 31 December 2020 ("last
annual financial statements"). Selected explanatory notes are
included to explain events and transactions that are significant to
an understanding of the changes in financial position and
performance of the Group since the last annual financial statements
as at and for the year ended 31 December 2020. These consolidated
interim condensed financial statements do not include all the
information required for full annual financial statements prepared
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union (EU).
The results for the six-month period ended 30 June 2021 are not
necessarily indicative of the results expected for the full
year.
(b) Judgements and estimates
Preparing the consolidated interim condensed financial
statements requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, income and expense
and the disclosure of contingent assets and liabilities. Actual
results may differ from these estimates.
In preparing these consolidated interim condensed financial
statements, significant judgments made by management in applying
the Group's accounting policies and the key sources of estimation
uncertainty were the same as those that applied to the consolidated
financial statements as at and for the year ended 31 December 2020.
c. Functional and presentation currency
The functional currency of Arricano Real Estate PLC is the US
dollar (USD). The Group entities are located in Ukraine and in the
Russian Federation and have the Ukrainian Hryvnia (UAH) and Russian
Rouble (RUB) as their functional currencies, since substantially
all transactions and balances of these entities are denominated in
the aforementioned currencies. The Group entities located in
Cyprus, Estonia, Isle of Man and BVI have the US dollar as their
functional currency, since substantially all transactions and
balances of these entities are denominated in US dollar.
For the benefits of principal users, the management choose to
present the consolidated interim condensed financial statements in
USD, rounded to the nearest thousand.
In translating the consolidated interim condensed 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 incomeand 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 interim condensed financial statements are as
follows:
Currency 30 June 2021 31 December 2020
UAH 27.18 28.27
RUB 72.37 73.88
Average USD exchange rates for the six months period ended 30
June are as follows:
Currency 2021 2020
UAH 27.78 25.98
RUB 74.33 69.34
As at the date that these consolidated interim condensed
financial statements are authorised for issue, 22 September 2021,
the exchange rate is UAH 26.71 to USD 1.00 and RUB 73.21 to USD
1.00. d. Going concern
As at 30 June 2021, the Group's current liabilities exceeded its
current assets by USD 36,681 thousand (unaudited).
At the same time, the Group had positive equity of USD 125,234
thousand (unaudited) as at 30 June 2021, and generated positive
cash flows from operating activities of USD 9,967 thousand
(unaudited) for the six months then ended.
Management is undertaking the following measures in order to
ensure the Group's continuing operation on a going concern
basis:
-- Management makes all efforts to keep occupancy rates of its
shopping centers at current levels. Besides,the Group managed to
gradually increase its rental rates during the reporting period for
existing tenants.
-- The Group expects it will be able to draw on existing
facilities granted from entities under commoncontrol, should this
be required for operational and other needs of the Group.
-- In accordance with the forecast for 2021 that is being
revised on ongoing basis, taking into accountalready existing and
potential future impact of COVID-19 on the Group's financial
performance, the Group plans toearn revenue that together with
other measures undertaken by the Group's management, including
negotiations withlenders, will give an ability to settle the
Group's current liabilities in the normal course of business.
-- In addition, management expects that certain lenders will not
exercise their right to require settlementof accrued interest for
total amount of USD 8,126 thousand, and thus according to the
respective agreements, after1 August 2021 this accrued interest
will be capitalised and reclassified to non-current liabilities in
accordancewith contractual terms (see Note 15).
Management believes that notwithstanding any material
uncertainty that may cast significant doubt about the Group's
ability to continue as a going concern in the foreseeable future
exists, the measures that management undertakes, as described
above, will allow the Group to maintain positive working capital,
generate positive operating cash flows and continue business
operations on going concern basis.
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. e.
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(b) - investment property; and
-- Note 12(a) - fair values. f. 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 six months ended 30 June 2021 and the year
ended 31 December 2020, the Group operated in and was managed as
one operating segment, being property investment.
3 Significant accounting policies
The accounting policies applied in these consolidated interim
condensed financial statements are the same as those applied in the
Group's consolidated financial statements as at and for the year
ended 31 December 2020.
The changes in accounting policies are also expected to be
reflected in the Group's consolidated financial statements as at
and for the year ending 31 December 2021.
A number of other new pronouncements are effective from 1
January 2021 but they do not have a material effect on the Group's
financial statements.
4 Investment property
(a) Movements in investment property
Movements in investment properties for the six months ended 30
June 2021 are as follows: fair value loss on revaluation in the
amount of USD 9,027 thousand (unaudited) (six months ended 30 June
2020: fair value gain on revaluation in the amount of USD 30,096
thousand (unaudited)); currency translation gain in the amount of
USD 10,179 thousand (unaudited) (six months ended 30 June 2020:
loss USD 33,049 thousand (unaudited)); and additions in the amount
of USD 4,987 thousand (unaudited) (six months ended 30 June 2020:
USD 8,040 thousand(unaudited)).
As at 30 June 2021, in connection with loans and borrowings, the
Group pledged as security investment property with a carrying value
of USD 160,500 thousand (unaudited) (31 December 2020: USD 160,500
thousand) (refer to Note 13(a)). a. Determination of fair value
The fair value measurement, developed for determination of fair
value of the Group's investment property, is categorised within the
Level 3 category due to the 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 the Level 2 category. As at 30 June
2021, the fair value of investment property categorised within the
Level 2 category is USD 29,400 thousand (unaudited) (31 December
2020: USD 29,400 thousand).
The most recent independent revaluation of investment property
took place as at 31 December 2020. To assist with the estimation of
the fair value of the Group's investment property, 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.
Group Management carefully considered investment property
revaluation as at 30 June 2021. In light of the analysis of the
retail property market, Group Management took a decision not to
engage an independent property appraiser as at 30 June 2021. The
reason for the decision is that the estimated value of property
denominated in USD did not change significantly as compared to 31
December 2020.
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 where 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 2020, the estimation of fair value was made
using a net present value calculation based on certain assumptions,
the most important of which were as follows:
-- monthly weighted average rental rates per shopping centers,
excluding turnover income, ranging from USD 9to USD 19 per sq.m.,
comprising minimum rental rate of USD 3 and maximum rental rate of
USD 203 per sq.m., whichwere based on contractual and market rental
rates, adjusted for discounts or fixation of rental rates in
Ukrainianhryvnia at a pre-agreed exchange rate, occupancy rates
ranging from 98.1% to 100%, capitalisation rates rangingfrom 12.5%
to 16.5% p.a. which represented key unobservable inputs for
determination of fair value; and
-- all relevant licences and permits, to the extent not yet
received, will be obtained, in accordance withthe timetables set
out in the investment project plans.
As at 30 June 2021, the fair value of investment property,
denominated in the functional currency, amounted to UAH 5,440,695
thousand (unaudited) and RUB 3,314,651 thousand (unaudited) (31
December 2020: UAH 5,660,575 thousand and RUB 3,383,507 thousand).
The decrease in fair value of investment property in Ukrainian
Hryvnia and in Russian Rouble resulted from the change in the
currency exchange rates.
Sensitivity at the date of valuation
The valuation model used to assess the fair value of investment
property as at 31 December 2020 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 propertieswould be USD 2,206
thousand lower. If rental rates are 1% higher, then the fair value
of investment propertieswould USD 2,206 thousand higher.
-- If the capitalisation rate applied is 1% higher than that
used in the valuation models, the fair value ofinvestment
properties would be USD 15,294 thousand lower. If the
capitalisation rate is 1% less, then the fairvalue of investment
properties would USD 17,785 thousand higher.
-- If the occupancy rate is 1% higher than that used in the
valuation model, the fair value of investmentproperties would be
USD 1,997 thousand higher. If the occupancy rates are 1% less, then
the fair value ofinvestment properties would be USD 1,998 thousand
lower.
5 Loans and borrowings
This note provides information about the contractual terms of
loans.
30 June
(in thousands of USD) 31 December
2021 2020
(unaudited)
Non-current
Secured bank loans 24,350 27,293
Unsecured loans from related parties 21,420 21,420
Unsecured loans from third parties 24,496 24,745
70,266 73,458
Current
Secured bank loans (current portion of secured long-term bank loans) 22,938 19,631
Unsecured loans from related parties (including current portion of long-term loans from 9,727 11,630
related parties)
Unsecured loans from third parties 2,652 1,099
35,317 32,360
105,583 105,818
Terms and debt repayment schedule
As at 30 June 2021, the terms and debt repayment schedule of
bank loans are as follows (unaudited):
(in thousands of USD) Currency Nominal and effective interest Contractual year of Carrying
rate maturity value
Secured bank loans
Secured bank loans USD 6.5%-8.0% 2023-2026 39,377
Secured bank loans UAH 13.25% 2025 7,911
47,288
Unsecured loans from related
parties
Unsecured loans from related USD 10.50% 2021-2023 30,845
parties
Unsecured loans from related USD 10.0% on demand
parties 252
Unsecured loans from related UAH/USD 0-3.2% 2019
parties 50
31,147
Unsecured loans from third parties
Unsecured loan from third party USD 10.50% 2021-2023 26,946
Unsecured loans from third parties USD 3.0% 2022
202
27,148
105,583
As at 31 December 2020, the terms and debt repayment schedule of
loans and borrowings are as follows:
(in thousands of USD) Currency Nominal and effective interest Contractual year of Carrying
rate maturity value
Secured bank loans
Secured bank loans USD 7.50%-11.25% 2023-2025 38,656
Secured bank loans UAH 13.25% 2025 8,268
46,924
Unsecured loans from related
parties
Unsecured loans from related USD 10.5% 2021-2023 32,788
parties
Unsecured loans from related USD 10.0% on demand 212
parties
Unsecured loans from related UAH/USD 0-3.2% 2019 50
parties
33,050
Unsecured loans from third parties
Unsecured loan from third party USD 10.50% 2023 25,645
Unsecured loans from third parties USD 3.0% 2022 199
25,844
105,818
For a description of assets pledged by the Group in connection
with loans and borrowings refer to Note 13(a). a. Joint Stock
Company "Taskombank"
During the 6 months period ended 30 June 2021, the Group signed
an amendment to the loan agreement with Joint Stock Company
"Taskombank" stipulating a decrease in the annual interest rate
from 9.75% to 8.0%.
During the 6 months period ended 30 June 2021, the Group signed
an amendment to the loan agreement with Joint Stock Company
"Taskombank" stipulating a decrease in the annual interest rate
from 11.25% to 8.0%. The loan is syndicated with PJSC "Universal
Bank". b. Joint Stock Company "State Savings Bank of Ukraine"
During the 6 months period ended 30 June 2021, the Group
received tranches on the existing loan facility with a bank in the
amount of USD 3,192 thousand to finance the construction of the
Lukianivka shopping and entertainment centre. The tranche facility
expires on 25 July 2026.
Besides this, the Group signed an amendment to the loan
agreement with Joint Stock Company "State Saving Bank of Ukraine"
stipulating a decrease in the annual interest rate from 7.5% to
6.5%..
In accordance with the loan agreement, the lender may require
early repayment of the loan facility amount. Respectively, the
total loan amount of USD 17,020 thousand is presented within the
current liabilities as at 30 June 2021.
During the 6 months period ended 30 June 2021 a number of
covenants under loan agreements with banks were amended.
6 Trade and other payables
As at 30 June 2021, included in payables for construction works
are accrued financial charges under construction agreement with
third parties amounting to USD 15,928 thousand (31 December 2020:
USD 15,323 thousand). In 2017-2018, the constructors claimed the
Group to reimburse finance and foreign currency losses incurred by
constructors due to untimely fulfillment of obligations by the
Group companies under construction agreements, as well as fee for
restructuring of accounts payable. As a result of negotiation
accomplished on 12 July 2017, interest rate of 10.00% per annum was
imposed on charges payable, they were converted to USD and maturity
was postponed to 31 December 2025.
7 Other liabilities
As at 30 June 2021, other liabilities mainly comprise the amount
of principal and the amount of interest of the deferred
consideration that is payable in respect of the acquisition in 2013
of Wayfield Limited and its subsidiary Budkhol LLC, amounting to
USD 31,305 thousand (unaudited) and USD 3,008 thousand (unaudited),
respectively (31 December 2020: USD 31,305 thousand and USD 1,378
thousand, respectively). As at 30 June 2021 and 31 December 2020,
deferred consideration is presented in accordance with its final
contractual maturity and bears 10.5% interest rate per annum.
8 Revenue
The revenue for the 6 months period ended 30 June is represented
as follows:
2021 2020
(in thousands of USD)
Rental income:
Fixed lease payments 12,013 9,725
Variable lease payments 1,177 969
13,190 10,694
Revenue from contract with customers:
Common parts exploitation services 3,566 3,415
Marketing services 150 128
3,716 3,543
16,906 14,237
The Group's operations are those described in the last annual
financial statements. The major amount of the Group's revenue is
represented by rental income from investment properties that falls
within the requirements of IFRS 16 Leases and amounts to USD 13,190
thousand (unaudited) for the six months ended 30 June 2021 (six
months ended 30 June 2020 (unaudited): USD 10,694 thousand).
All other types of services are derived from contracts with
customers and fall within the scope of IFRS 15 Revenue.
9 Finance income
During six months ended June 2021 finance income comprised
foreign exchange gain of USD 2,043 thousand, interest income of USD
229 thousand, other finance income of USD 109 thousand (unaudited)
(six months ended 30 June 2020: interest income of USD 103
thousand).
10 Finance expenses
During six months ended 30 June 2021 finance expenses comprised
interest expenses of USD 6,362 thousand (unaudited) (six months
ended 30 June 2020: interest expenses of USD 5,585 thousand and
foreign exchange loss of USD 7,117 thousand (unaudited).
11 Income tax expenses
During six months ended 30 June 2021 income tax expenses mainly
comprised deferred income tax benefit of USD 1,242 thousand
(unaudited) (six months ended 30 June 2020: deferred income tax
expense of USD 4,677 thousand (unaudited)) and current income tax
expense of USD 504 thousand (six months ended 30 June 2020: USD 377
thousand)
12 Financial risk management
During the six months ended 30 June 2021, the Group had no
significant changes in financial risk management policies as
compared to 31 December 2020.
(a) 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
interim condensed 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.
The following table shows the carrying amounts and fair values
of financial assets and financial liabilities, including their
levels in the fair value hierarchy. It does not include fair value
information for financial assets and financial liabilities not
measured at fair value if the carrying amount is a reasonable
approximation of fair value:
30 June 2021 31 December 2020
Fair value Fair value
Carrying amount Carrying amount
Level 2 Level 2
(in thousands of USD)
Financial liabilities not measured at fair value
Non -current
Secured bank loans 24,350 24,838 27,293 30,804
Unsecured loans from related parties 21,420 23,768 21,420 20,049
Unsecured loans from third parties 24,496 27,413 24,745 24,791
Payables for construction works 15,935 17,641 15,330 18,082
Deferred consideration 31,305 34,932 31,305 31,376
Other long-term liabilities 164 164 157 157
117,670 128,756 120,250 125,259
Current
Secured bank loans (current portion of long-term
22,938 13,756 19,631 23,189
bank loans)
Unsecured loans from related parties
(including current portion of long-term loans 9,727 10,511 11,630 11,108
from related parties)
Unsecured loans from third parties 2,652 2,570 1,099 1,141
Deferred consideration 3,008 3,356 1,369 1,381
38,325 30,193 33,729 36,819
155,995 158,949 153,979 162,078
13 Commitments and contingencies
(a) Pledged assets
In connection with loans and borrowings, the Group pledged the
following assets:
30 June 2021 (unaudited) 31 December 2020
(in thousands of USD)
Investment property (note 4(a)) 160,500 160,500
Bank balances 1,132 212
161,632 160,712
As at 30 June 2021 (unaudited) and 31 December 2020, the Group
had also pledged the following:
-- Rights on future income of Prisma Alfa LLC under all lease
agreements for the period of validity of loanagreement between
Prisma Alfa LLC with Raiffeisen Bank Aval.
-- Investments in the following subsidiaries: Comfort Market
Luks LLC and PrJSC Livoberezhzhiainvest (31December 2020: PrJSC
Ukrpangroup, Comfort Market Luks LLC and PrJSC
Livoberezhzhiainvest).
(b) Construction commitments
The Group entered into contracts with third parties to construct
a shopping centre in Kyiv and a shopping centre in Odesa for the
total amount of USD 50,761 thousand as at 30 June 2021 (unaudited)
(31 December 2020: USD 53,255 thousand). b. 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,
is 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 interim condensed financial statements, if the
authorities were successful in enforcing their interpretations,
could be significant. ii. 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.
In addition, a number of new laws introducing changes to the
Russian tax legislation have been 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 the 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.
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
interim condensed financial statements, if the authorities were
successful in enforcing their interpretations, could be
significant. iii. Republic of Cyprus
Operations of the Group in Cyprus are mainly limited to
provision of intra-group financing, transactions related to the
Assofit legal case and various management activities. Transactions
performed by the Cyprus entities of the Group fall within the
jurisdiction of Cyprus tax authorities. The Cyprus tax system can
be characterised by numerous taxes, legislation may be applied
retrospectively, and can be open to wide interpretation. VAT and
income tax declarations are subject to review and investigation by
authorities that are enacted by law to impose severe fines,
penalties and interest charges. A tax year remains open for review
by the Tax department during the six subsequent calendar years,
however under certain circumstances a tax year may remain open
longer.
Additionally, a new transfer pricing legislation was enacted in
Cyprus from 30 June 2017, which requires entities to conduct
intra-group financing transactions on the arm's length principle (a
principle under which transactions are performed at market rates,
as would have been performed between unrelated entities). The
legislation requires taxpayers to prepare and submit to the tax
authorities transfer pricing study documents justifying margins
applied to the intra-group financing. The compliance of margins
applied to the arms' length principle could be subject to scrutiny
on the basis of unjustified tax benefit concept. Given the fact
that the above rule has been in force for a limited period of time,
currently, there is no established practice of its application by
the tax authorities, and there can be no assurance that the tax
authorities' interpretations of the approaches will concur with
those used by the Group, which could result in the accrual of fines
and penalty interest on the Group.
During the prior years, the Group incurred certain foreign legal
expenses, where the VAT accounted for on these expenses was fully
claimed. Management believes that the Group properly claimed the
VAT accounted for on these expenses, on the basis of the plans to
further collect reimbursement of the said expenses, being purely of
legal nature, from the respective parties in full.
Management believes that it has adequately provided for tax
liabilities based on its interpretation of tax legislation,
official pronouncements and court decisions.
14 Related party transactions
(a) Control relationships
The Group's largest shareholders are Retail Real Estate OU,
Dragon Capital Investments Limited, Deltamax Group OU, Mr. Rauno
Teder and Mr. Jüri Põld. The Group's ultimate controlling party is
the Estonian individual Mr. Rauno Teder.
During the year ended 31 December 2020, Hillar Teder transferred
his equity interest in Retail Real Estate OU to Rauno Teder. As a
result, Rauno Teder, who already had held 15.92% of the issued
voting rights of the Parent Company (7.48% - directly and 8.34%
through Deltamax Group OU), acquired interest of 55.04% in the
Parent Company (though RRE), thus increasing his aggregate interest
to 70.86% of the Parent Company.
(b) Transactions with management and close family members
Key management remuneration
Key management compensation included in the consolidated
condensed statement of profit or loss and other comprehensive
income for the six months ended 30 June 2021 is represented by
salary and bonuses of USD 293 thousand (unaudited) (six months
ended 30 June 2020: USD 252 thousand (unaudited)).
Directors' interests
The direct and indirect interest of the members of the Board in
share capital of the Company as at 31 December 2020 and 30 June
2021 and as at the date of signing of these consolidated interim
condensed financial statements is as follows:
Name Type of interest Effective shareholding rate
Mr. Jüri Põld Direct shareholding 7.07%
(c) Transactions and balances with entities under common
control
Outstanding balances with entities under common control are as
follows:
30 June 2021 31 December
(unaudited) 2020
(in thousands of USD)
Short-term loans receivable 11,344 11,208
Trade receivables 1 1
Other receivables 8,160 8,160
Provision for impairment of trade and other receivables and loans receivable from (19,503) (19,366)
related parties
2 3
Long-term loans and borrowings 21,420 21,420
Short-term loans and borrowings 9,727 11,630
Trade and other payables 214 218
Advances received 25 24
31,386 33,292
Expenses incurred and income earned from transactions with
entities under common control for the six months ended 30 June are
as follows:
2021 2020
(unaudited) (unaudited)
(in thousands of USD)
Interest expense (1,502) (1,553)
All outstanding balances with related parties are priced on an
arm's length basis and are to be settled in cash in accordance with
contractual terms. None of the balances are secured.
15 Subsequent events
Subsequently to the reporting date, the maturities of certain
amounts of accrued interest on loans and borrowings and other
payables, that were presented within current liabilities as at 30
June 2021, were changed to 1 August 2023, because of non-execution
of the contractual rights of the lenders to require settlement of
these amounts by 1 August 2021. As at 30 June 2021, such accrued
interest is represented within loans and borrowings from related
parties amounting to USD 2,717 thousand, loans and borrowings from
third parties amounting to USD 2,401 thousand and other current
liabilities amounting to USD 3,008 thousand. This has improved the
liquidity position of the Group.
-----------------------------------------------------------------------------------------------------------------------
ISIN: CY0102941610
Category Code: IR
TIDM: ARO
LEI Code: 213800F8AMPULEKXFX22
OAM Categories: 1.2. Half yearly financial reports and audit reports/limited reviews
Sequence No.: 122690
EQS News ID: 1235157
End of Announcement EQS News Service
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