Arricano Real Estate Plc (ARO) Arricano Real Estate Plc: Interim
Results 30-Sep-2022 / 07:00 GMT/BST Dissemination of a Regulatory
Announcement that contains inside information in accordance with
the Market Abuse Regulation (MAR), transmitted by EQS Group. The
issuer is solely responsible for the content of this
announcement.
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30 September 2022 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
2022
Arricano is one of the leading real estate developers and
operators of shopping centres in Ukraine with over 147,000 square
metres of gross leasable area under operation and land for a
further three sites under development.
Highlights
-- The war in Ukraine has created significant uncertainty and
distress. Nevertheless, all of Arricano'sshopping malls have
remained open and continue to trade, albeit at reduced volumes.
-- The Company is financially and operationally well positioned
to manage the business through the currentcrisis, subject to no
material escalation of the war.
-- Group revenue decreased by 22% to USD 13.2 million (1H 2021:
USD 16.9 million)
-- Underlying operating profit before revaluation of investment
property decreased by 27% to USD 8.7 million(1H 2021: USD 11.9
million)
-- Group average occupancy was 98.4% as at 30 June 2022 (2021:
99.5%)
-- Investment property revaluation loss of USD 91.1 million due
to the reassessment of the value of theGroup's properties due to
the current crisis
-- Net asset value decreased to USD 83.2 million (31 December
2021: USD 163.8 million)
Ganna Chubotina, Chief Executive Officer of Arricano,
commented:
"Our operational performance has been dramatically impacted by
the military invasion of Ukraine by Russia. For four of the six
months under review, our team and tenants have been operating under
extraordinarily stressful circumstances where, to keep working,
required dedication, selflessness and unconditional faith in our
people and country. Thanks to their often heroic efforts, we
managed to keep the business operating through the initial months
of the crisis and are now well positioned to emerge again, once the
war ends, with the ability to continue to grow and focus on our
long-term goals.
"I would like to thank all of Arricano's stakeholders for their
perseverance and contribution to the future prosperity of Ukraine
and the Company."
This announcement contains inside information for the purposes
of Article 7 of the UK version of Regulation (EU) No 596/2014 which
is part of UK law by virtue of the European Union (Withdrawal) Act
2018, as amended ("MAR"). Upon the publication of this announcement
via a Regulatory Information Service, this inside information is
now considered to be in the public domain.
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/Safia Colebrook
Chief Executive's Statement
I am extremely proud of the results the Company has produced
during this tragic period following the invasion of our country by
Russia. The Arricano team has come together under unique and often
frightening circumstances, united by a common purpose to not be
cowed by the invasion or let it halt our business, ensuring our
shopping malls have continued to trade throughout the six months
under review.
The financial results reflect the events of the war and, as the
threat to Kyiv reduced, numbers of shoppers increased, leading to
improved sales and cash flow recovery.
Today, our shopping centres are operating closer to normality
with occupancy at 98.4% and reasonably high visitor numbers,
resulting in turnover and cash flow rates being partially restored.
I would like to believe that we have passed the acute phase of the
crisis, at least in the regions where our shopping malls operate,
however, the war continues.
Therefore, our focus remains on operating as efficiently as
possible whilst maximising income; supporting our tenants, teams
and shopping centre communities by providing the best possible
services and safe working environments.
Results
Recurring revenues for the period reduced by 22% to USD 13.2
million (1H 2021: USD 16.9 million) primarily as a result of
temporary rent concessions given to tenants. Underlying operating
profit before revaluation of investment property was USD 8.7
million (1H 2021: USD 11.9 million).
The revaluation of the investment property portfolio resulted in
a loss of USD 91.1 million (1H 2021: loss of USD 9.0 million),
caused by the multiple negative financial impacts of the invasion
by Russia (see Note 4). The total value of investment property
portfolio comprised USD 231.1 million (31 December 2021: USD 323.9
million).
Cash flow from operating activities was USD 8.0 million with
Group cash balances as at 30 June 2022 of USD 12.6 million (31
December 2021: USD 8.5 million).
Net asset value decreased to USD 83.2 million (31 December 2021:
USD 163.8 million), reflecting the portfolio revaluation.
Operational Review
Today, we believe the role of our shopping malls in their
respective communities have an increased social importance and a
unique mission to help maintain stability and bring people
together. For many people they represent a sense of normal life and
Arricano is therefore focused on continuing to support the local
communities connected to its malls by creating and leading
educational and other social projects to encourage togetherness,
enjoyment and making each mall a focal point for all.
This can be seen in the RayON shopping mall where a "Big Family
Initiative" project was launched on 30 July 2022, the aim of which
was to create a show of public support. This project was popular
and successfully brought the local community together, whilst
raising much needed money for a national military and medical
clinical centre ("GVKG").
Educational initiatives took place in the City Mall and Sun
Gallery shopping malls, involving local art schools and other
creative groups located close to the respective malls.
The Prospekt mall launched the "Learn and Help" project
involving a series of seminars on pre-hospital care, the purpose of
which was to educate individuals on how to act in an emergency,
teaching basic first aid skills and thereby developing vital
knowledge across the community to be used to help save lives.
The safety of our customers and staff remains, as ever, our
priority. The invasion has resulted in additional safety
precautions and the Company ensures all requirements relating to
air radar alert evacuations (as well as COVID-19) are met,
primarily by communicating to our customers the current schedule of
mall working hours, safety measures and evacuation rules in a calm,
caring and supportive manner.
Arricano has also continued to focus on the execution of its
core strategies, including being a socially responsible company
focused on creating a better environment for our communities and
society.
Corporate and social responsibility actions are implemented
under the Company's framework of corporate governance and are
designed to ensure effective interaction and constant dialogue with
our communities, aimed at helping to solve the most urgent social
problems and support for those who need it most.
Shopping mall visitor numbers sharply decreased initially
following the conflict in Ukraine. However, as the threat to Kyiv
receded in July, visitor numbers began to recover, reflecting the
return of people to their homes, having in many cases migrated to
safer parts of the country. We continue to see a positive trend in
visitor numbers on a month-to-month basis which has in turn led to
a partial recovery in sales and cash flow from operations.
War has a significant impact on consumer behavior, resulting in
a combination of lower purchasing power and reduced consumer
confidence naturally leading to a decline in sales. There was a 22%
decrease in revenue in comparison with the same period last year
but, since the half year end, there has been a more positive
trend.
Despite the events in the first half of the year, the Company
opened 19 new retail units across the shopping centre portfolio,
including a mix of local and international brands: Ukrzoloto,
Anabel Arto, Brand Store, BraBraBra, Zolota Krayina, Provocator,
Diverse, Yabloki, ODH, Sushi to Go, Doner Kebab and Greek House.
The total area of the stores that opened is 988 square metres.
People
On behalf of the Board, I would like to thank everyone involved
with the Company, for their commitment to the business and their
bravery in continuing to work.
Outlook
The business is stable and, since the half-year, trading has
improved. Given the ongoing conflict in Ukraine, it is difficult to
predict the future; however, the Company is well placed to recover
to previous levels, when the war concludes. Until then, Arricano
will continue to support all of its tenants, teams and the
communities connected to and surrounding its shopping centres.
Consolidated interim condensed financial statements as at and
for the six months ended 30 June 2022
Consolidated condensed statement of financial position as at 30
June 2022
30 June 2022 31 December
Note
(unaudited) 2021 (audited)
(in thousands of USD)
Assets
Non-current assets
Investment property 4 231,081 323,982
Long-term VAT receivable 1,260 1,124
Property and equipment 73 64
Intangible assets 50 85
Total non-current assets 232,464 325,255
Current assets
Trade and other receivables 2,149 1,740
Prepayments made and other assets 918 695
VAT receivable 520 594
Assets classified as held for sale 1,478 1,585
Income tax receivable 1,078 632
Cash and cash equivalents 12,649 8,530
Total current assets 18,792 13,776
Total assets 251,256 339,031
30 June 2022 (unaudited) 31 December
Note
2021 (audited)
(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 28,857 105,057
Other reserves (61,983) (61,983)
Foreign currency translation differences (127,170) (122,794)
Total equity 83,211 163,787
Non-current liabilities
Long-term borrowings 5 65,612 69,709
Long-term trade and other payables 6 17,312 17,009
Long-term advances received 704 697
Other long-term liabilities 7 34,732 34,743
Deferred tax liability 1,548 12,437
Total non-current liabilities 119,908 134,595
Current liabilities
Short-term loans and borrowings 5 29,269 24,690
Short-term trade and other payables 6 3,465 3,337
Taxes payable other than income tax 1,854 1,344
Short-term advances received 7,133 6,663
Other short-term liabilities 7 6,416 4,615
Total current liabilities 48,137 40,649
Total liabilities 168,045 175,244
Total equity and liabilities 251,256 339,031
These consolidated interim condensed financial statements were
approved by the Board of Directors on 29 September 2022 and were
signed on its behalf by:
George Komodromos Frank Lewis
Director Director
Consolidated interim condensed financial statements as at and
for the six months ended 30 June 2022
Consolidated condensed statement of profit and loss and other
comprehensive income for the six months ended 30 June 2022
Six months Six months
Note ended ended
30 June 2022
30 June 2021
(unaudited) (unaudited)
(in thousands of USD, except for earnings per share)
Revenue 8 13,210 16,906
Loss on revaluation of investment property 4 (91,106) (9,027)
Goods, raw materials and services used (433) (483)
Operating expenses (2,763) (3,463)
Employee costs (1,241) (1,019)
Depreciation and amortization (45) (57)
Profit from operating activities (82,378) 2,857
Finance income 9 284 2,381
Finance costs 10 (5,918) (6,362)
Loss before income tax (88,012) (1,124)
Income tax gain 11 11,823 738
Loss for the period (76,189) (386)
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 in the (23,215) 11,322
foreign operation, net of tax effect
Foreign currency translation differences 18,839 (5,096)
Total items that may be reclassified to loss or profit (4,376) 6,226
Other comprehensive income (loss) (4,376) 6,226
Total comprehensive income (loss) for the period (80,565) 5,840
Weighted average number of shares (in shares) 103,270,637 103,270,637
Basic and diluted earnings (loss) per share, USD (0.7378) (0.0037)
Consolidated interim condensed financial statements as at and
for the six months ended 30 June 2022
Consolidated condensed statement of cash flows for the six
months ended 30 June 2022
Six months Six months
Note ended ended
30 June 2022 30 June 2021
(unaudited) (unaudited)
(in thousands of USD)
Cash flows from operating activities
Profit (loss) before income tax (88,012) (1,124)
Adjustments for:
Interest income, excluding foreign exchange gain 9 (284) (338)
Interest expenses, excluding foreign exchange loss 10 5,361 6,362
Loss/ (gain) on revaluation of investment property 4(a) 91,106 9,027
Depreciation and amortization 45 57
Unrealised foreign exchange (gain)/loss 874 (1,982)
Allowance for bad debts 133 133
Operating cash flows before changes in working capital 9,223 12,135
Change in trade and other receivables and prepayments made and other assets (931) 342
Change in VAT receivable (37) 221
Change in trade and other payables 113 285
Change in advances received 849 825
Change in other liabilities
(25) -
Change in taxes payable 513 (835)
Income tax paid (577) (605)
Interest paid (1,111) (2,401)
Cash flows from operating activities 8,017 9,967
Cash flows from investing activities
Acquisition of investment property, excluding capitalized borrowing costs and (1,697) (4,059)
settlements of payables due to constructors
Acquisition of property and equipment and intangible assets (3) (68)
Interest received 65 96
Cash flows used in investing activities (1,635) (4,031)
Six months ended Six months ended
Note
30 June 2022 30 June 2021
(unaudited) (unaudited)
(in thousands of USD)
Cash flows from financing activities
Proceeds from borrowings 6,720 3,192
Repayment of borrowings (8,620) (6,398)
Cash flows from used in financing activities (1,900) (3,206)
Net increase in cash and cash equivalents 4,482 2,730
Cash and cash equivalents at 30 June 8,530 12,062
Effect of movements in exchange rates on cash and cash equivalents (363) 196
Cash and cash equivalents at 30 June 12,649 14,988
Consolidated interim condensed financial statements as at and
for the six months ended 30 June 2022
Consolidated condensed statement of changes in equity for the
six months ended 30 June 2022
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
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 2022 67 183,727 59,713 105,057 (61,983) (122,794) 163,787
Total comprehensive income for the period
Profit for the period (unaudited) (76,189) (76,189)
Foreign exchange gains on monetary items that
form part of net investment in the foreign (23,215) (23,215)
operation, net of tax effect (unaudited)
Foreign currency translation differences 18,839 18,839
(unaudited)
Total other comprehensive income (76,189) (4,376) (80,565)
Total comprehensive income for the period (76,189) (4,376) (80,565)
Balances at 30 June 2022 (unaudited) 67 183,727 59,713 28,857 (61,983) (127,170) 83,222
Consolidated interim condensed financial statements as at and
for the six months ended 30 June 2022
Notes to the consolidated interim condensed financial statements
1. Background a. Organisation and operations
Arricano Real Estate PLC ("Arricano", the "Company" the "Parent
Company" or, together with its subsidiaries, the "Group") 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 2022, the Group operates shopping centres in Kyiv,
Simferopol, Zaporizhzhya and Kryvyi Rig with a total leasable area
of over 147,000 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.
On 21 February 2022, the Russian Federation officially
recognised two Ukrainian breakaway regions of Luhansk and Donetsk
and authorised the use of military forces in those territories. On
24 February 2022, Russian troops invaded Ukraine and commenced
military activities in multiple locations. These ongoing activities
have led to casualties, significant dislocation of the population,
damage to infrastructure, introduction of certain administrative
restrictions on currency conversion transactions and payments
abroad by the National Bank of Ukraine and overall significant
disruption to economic activity in Ukraine. This has had a
detrimental impact on the political and business environment in
Ukraine, including on the ability of many entities to continue
business as usual. In response to military actions, the Decree of
the President of Ukraine No. 64/2022 imposed martial law, which has
now been extended until 21 November 2022.
With the beginning of the military invasion of Russian troops,
all rating agencies have worsened Ukraine's credit rating. On 20
May 2022, Moody's Investors Service downgraded Ukraine's credit
rating to Caa3, on 27 May 2022, Standard & Poor's downgraded
Ukraine's credit rating to CCC+ with a review of the possible
downgrade, on 22 July 2022, Fitch downgraded Ukraine's credit
rating to C.
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 negatively affect the Group's results and
financial position in a manner not currently determinable.
These unaudited consolidated interim condensed 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.
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 2021 ("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 2021. 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 2022 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 2021.
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 2022 31 December 2021
UAH 29.25 27.28
RUB 51.16 74.29
Average USD exchange rates for the six months period ended 30
June are as follows:
Currency 2022 2021
UAH 28.91 27.78
RUB 76.57 74.33
As at the date that these consolidated interim condensed
financial statements are authorised for issue, 29 September 2022,
the exchange rate is UAH 26.57 to USD 1.00 and RUB 58.45 to USD
1.00. d. Going concern
As at 30 June 2022, the Group's current liabilities exceeded its
current assets by USD 29,345 thousand. At the same time, the Group
had positive equity of USD 83,211 thousand as at 30 June 2022, and
generated positive cash flows from operating activities of USD
8,017 thousand for the six months then ended.
In current circumstances the Group conducts its operating
activities in territories which are not significantly affected by
the military actions, as described in Note 1(b). Taking this into
account, the Group's management has considered the uncertainty
related to the consequences of military invasion and concluded that
the Group is expected to be able to continue as a going concern
based on the following considerations:
-- Although it is extremely difficult to predict the duration of
the war, in its adverse but plausiblescenario, the Group's
management expects the war to continue until the end of 2022 and
for the Group to be able toconduct its operating activities in the
non-occupied territory of Ukraine during this period. Management
plans thatthe Group will earn revenue that together with other
measures undertaken by the Group's management,
includingnegotiations with lenders and banks about postponing of
debt repayments, will give an ability to settle the
Group'sliabilities in the normal course of business.
-- The Group's management believes that the recovery of business
activity continues as rental revenue hasstabilised or even improved
in the last few months compared to first months of the war. As at
the date theseunaudited consolidated financial statements are
authorised for issue, all of Arricano's shopping centers
wereoperational, with an occupancy rate greater than 95%. The
Group's revenues decreased by 22% in for the 6 months2022 period
primarily as a result of temporary rent concessions given to
tenants.
-- The Group`s management have also been working with tenants,
suppliers and bank lenders to negotiate termsof continuing
cooperation, possible restructuring of working conditions and
repayment of debts, etc.
-- In addition to restructuring of bank loans already made in
the 6 months to 30 June 2002 (see Notes 5 and15), management
expects that bank lenders will continue to support the Group by
extending the repayment schedulesof outstanding loans.
-- The Group expects to have sufficient financial resources to
finance its operations during the militaryinvasion and in the
foreseeable future, even in a more severe scenario. The main
sources of funding are expected tobe cash balances and ongoing
rental income from tenants.
-- In addition, the Group's management received a waiver from
the Joint Stock Company"State Savings Bank of Ukraine" of the
condition that the lender can request repayment of the full amount
of theloan within 3 months and as result USD 15,9 million (31
December 2021: USD 16,5 million) of the loan recognised
asshort-term liabilities is expected to be repayable after 31
December 2022.
-- As at the date the financial statements were authorized for
issue, the Group's management does not intendto suspend or
liquidate its activities in Ukraine.
However, as at that date, it is also difficult to predict the
period and duration of military aggression in Ukraine. Continuation
of military aggression will result in prolongation of existing
administrative restrictions from the National Bank of Ukraine,
including a ban on any payments to the Group's foreign
counterparties, as well as additional administrative restrictions
which may be introduced by the Ukrainian authorities. Further,
prolongation of military activities may result in the Group's
inability to restart its full-scale operating activities, as a
result of significant disruption to the Group's supply chain or
significant damage to the Group's infrastructure, as well as
insufficient human resources to conduct the daily operating
activities of the Group. 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, and therefore it
may be unable to realise its assets and discharge its liabilities
in the normal course of business.
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 war in Ukraine could
negatively affect the Group's results and financial position in a
manner not currently determinable, including its ability to
continue as a going concern. These 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.
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 orliability, 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 (unobservableinputs).
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 2022 and the year
ended 31 December 2021, 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 2021.
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 2022.
A number of other new pronouncements are effective from 1
January 2022 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 2022 are as follows: fair value loss on revaluation in the
amount of USD 91,106 thousand (unaudited) (six months ended 30 June
2021: fair value loss on revaluation in the amount of USD 9,027
thousand (unaudited)); currency translation loss in the amount of
USD 3,485 thousand (unaudited) (six months ended 30 June 2021: gain
USD 10,179 thousand (unaudited)); and additions in the amount of
USD 1,697 thousand (unaudited) (six months ended 30 June 2021: USD
4,987 thousand(unaudited)).
As at 30 June 2022, in connection with loans and borrowings, the
Group pledged as security investment property with a carrying value
of USD 155,579 thousand (unaudited) (31 December 2021: USD 204,700
thousand) (refer to Note 13(a)).
(b) 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
2022, the fair value of investment property categorised within the
Level 2 category is USD 29,400 thousand (unaudited) (31 December
2021: USD 29,400 thousand).
The most recent independent revaluation of investment property
took place as at 31 December 2021. 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.
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 2021, 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 12to USD 25 per sq.m.,
which were based on contractual and market rental rates, adjusted
for discounts or fixation ofrental rates in Ukrainian hryvnia at a
pre-agreed exchange rate, occupancy rates ranging from 98.6% to
100%, andcapitalisation rates ranging from 12.5% to 16.5% p.a.
which represented key unobservable inputs for determinationof fair
value;
-- all relevant licenses and permits, to the extent not yet
received, will be obtained, in accordance withthe timetables as set
out in the investment project plans.
Group Management carefully considered investment property
revaluation as at 30 June 2022. In light of the analysis of the
retail property market and the current situation in Ukraine, Group
Management took a decision not to engage an independent property
appraiser as at 30 June 2022. The reason for the decision is that
the retail property market for the properties similar to Group's
investment properties is not properly functioning at the current
moment with no transactions being made.
As at 30 June 2022, the estimation of fair value of the Group
retail properties in Ukraine was made using a net present value
calculation based on certain assumptions, the most important of
which were as follows:
-- Net rental income will recover to the previous levels, which
have been used in the estimation of fairvalue as as 31 December
2021 in 4 years.
-- The capitalisation rates will return to the same level which
have been used in the estimation of fairvalue as as 31 December
2021 in 4 years.
-- The discount rate used in the net present value calculation
was set at 20% to account for increased riskto the Group operations
due to the war in Ukraine.
Loss on revaluation of investment property includes a write off
of all Group assets related to Russia in total amount of USD 43.0
million. The Group has assessed that in current situation, where
there is no control over the cash flows and operations of the
Group's Russian entities, the sum of estimated future cash flows
from Russian entities is expected to be zero.
As at 30 June 2022, the fair value of investment property,
denominated in the functional currency, amounted to UAH 5,455,427
thousand (USD 231,081 thousand).
Sensitivity at the date of valuation
The valuation model used to assess the fair value of investment
property as at 31 December 2021 is particularly sensitive to
unobservable inputs in the following areas:
-- If the capitalisation rate applied is 1% higher than that
used in the valuation models, the fair value ofinvestment
properties would be USD 11,669 thousand lower. If the
capitalisation rate is 1% less, then the fairvalue of investment
properties would USD 13,601 thousand higher.
-- If the discount rate applied is 1% higher than that used in
the valuation models, the fair value ofinvestment properties would
be USD 3,534 thousand lower. If the capitalisation rate is 1% less,
then the fair valueof investment properties would USD 3,650
thousand higher.
5 Loans and borrowings
This note provides information about the contractual terms of
loans.
(in thousands of USD) 30 June 31 December 2021
2022 (audited)
(unaudited)
Non-current
Secured bank loans 25,453 22,256
Unsecured loans from related parties 13,050 20,343
Unsecured loans from third parties 27,109 27,110
65,612 69,709
Current
Secured bank loans (current portion of secured long-term bank loans) 24,010 21,744
Unsecured loans from related parties (including current portion of long-term loans 2,358 1,479
from related parties)
Unsecured loans from third parties 2,901 1,467
29,269 24,690
94,881 94,399
Terms and debt repayment schedule
As at 30 June 2022, 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 value
rate maturity
Secured bank loans
Secured bank loans USD 5%-6.8% 2024-2026 42,535
Secured bank loans UAH 13.25% 2025 6,928
49,463
Unsecured loans from related
parties
Unsecured loans from related USD 10.50% 2023 15,098
parties
Unsecured loans from related USD 10% on demand 267
parties
Unsecured loans from related UAH/USD 0-3.2% 2019
parties 43
15,408
Unsecured loans from third parties
Unsecured loan from third party USD 10.50% 2023 29,802
Unsecured loans from third parties USD 3% 2022 208
30,010
94,881
As at 31 December 2021, 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 5%-6.8% 2024-2026 36,313
Secured bank loans UAH 13.25% 2025 7,687
44,000
Unsecured loans from related
parties
Unsecured loans from related USD 10.50% 2023 21,516
parties
Unsecured loans from related USD 10% on demand 259
parties
Unsecured loans from related UAH/USD 0-3.2% 2019 47
parties
21,822
Unsecured loans from third parties
Unsecured loan from third party USD 10.50% 2023 28,370
Unsecured loans from third parties USD 3% 2022 207
28,577
94,399
For a description of assets pledged by the Group in connection
with loans and borrowings refer to Note 13(a). a. Joint Stock
Company "Tascombank"
During the six months period ended 30 June 2022 the Group signed
an amendment to the loan agreement to postpone principal repayments
in total of USD 560 thousand to June 2024. b. Joint Stock Company
"State Savings Bank of Ukraine"
During the six months period ended 30 June 2022 the Group signed
amendments to the loan agreements to postpone interest and
principal repayments in total of USD 1,455 thousand to
2024-2026.
In accordance with the loan agreement, the lender may require
early repayment of the loan facility amount. Respectively, the
total loan amount of USD 15,950 thousand is presented within
current liabilities as at 30 June 2022 (31 December 2021: USD
16,350 thousand).
(?) Joint Stock Company "Alfa-Bank"
During the period ended 30 June 2022 the Group signed a number
of amendments to the loan agreement in order to postpone the
principal amount payments most recently until July 2022 in respect
of USD 1,052 thousand.
6 Trade and other payables
As at 30 June 2022, included in payables for construction works
are accrued financial charges under construction agreement with
third parties amounting to USD 16,849 thousand (unaudited) (31
December 2021: USD 16,546 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 2022, 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 34,592 thousand (unaudited) and USD 3,324 thousand (unaudited),
respectively (31 December 2021: USD 34,592 thousand and USD 1,522
thousand, respectively). As at 30 June 2022 and 31 December 2021,
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 (unaudited):
2022 2021
(in thousands of USD)
Rental income:
Fixed lease payments 8,907 12,013
Variable lease payments 1,162 1,177
10,069 13,190
Revenue from contract with customers:
Common parts exploitation services 3,048 3,566
Marketing services 93 150
3,141 3,716
13,210 16,906
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 10,069
thousand (unaudited) for the six months ended 30 June 2022 (six
months ended 30 June 2021 (unaudited): USD 13,190 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 2022 finance income comprised
interest income of USD 198 thousand, other finance income of USD 86
thousand (unaudited) (six months ended 30 June 2021: foreign
exchange gain of USD 2,043 thousand (unaudited), interest income of
USD 229 thousand (unaudited), other finance income of USD 109
thousand (unaudited)).
10 Finance expenses
During the six months ended 30 June 2022 finance expenses
comprised interest expenses of USD 5,361 thousand (unaudited) and
foreign exchange loss of USD 557 thousand (unaudited) (six months
ended 30 June 2021: interest expenses of USD 6,362 thousand
(unaudited)).
11 Income tax expenses
During the six months ended 30 June 2022 income tax expenses
mainly comprised deferred income tax benefit of USD 12,341 thousand
(unaudited) (six months ended 30 June 2021: deferred income tax
benefit of USD 1,242 thousand (unaudited)) and current income tax
expense of USD 518 thousand (six months ended 30 June 2021: USD 504
thousand).
12 Financial risk management
During the six months ended 30 June 2022, the Group had no
significant changes in financial risk management policies as
compared to 31 December 2021.
13 Commitments and contingencies a. Pledged assets
In connection with loans and borrowings, the Group pledged the
following assets:
30 June 2022 31 December 2021 (audited)
(unaudited)
(in thousands of USD)
Investment property (note 4(a)) 155,579 204,700
Bank balances 2,224 1,958
157,803 206,658
As at 30 June 2022 (unaudited) and 31 December 2021, 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. 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 53,074 thousand as at 30 June 2022 (unaudited)
(31 December 2021: USD 57,998 thousand). c. 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. i. 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. ii. 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 2021, Hillar Teder transferred
his equity interest in Retail Real Estate OU to Rauno Teder. As a
result, Rauno Teder, who had already held 15.92% of the issued
voting rights of the Parent Company (7.48% - directly and 8.34%
through Deltamax Group OU), acquired an 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 2022 is represented by
salary and bonuses of USD 493 thousand (unaudited) (six months
ended 30 June 2021: USD 365 thousand (unaudited)).
Directors' interests
The direct and indirect interests of the members of the Board in
the share capital of the Company as at 31 December 2021 and 30 June
2022 and as at the date 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 31 December
2022 2021
(unaudited)
(in thousands of USD)
Short-term loans receivable 11,609 11,479
Trade receivables 1 1
Other receivables 8,160 8,160
Provision for impairment of trade and other receivables and loans receivable from related (19,768) (19,637)
parties
2 3
Long-term loans and borrowings 13,050 20,344
Short-term loans and borrowings 2,358 1,479
Trade and other payables 168 214
Advances received 24 27
15,600 22,064
Expenses incurred and income earned from transactions with
entities under common control for the six months ended 30 June are
as follows:
2022 2021
(unaudited) (unaudited)
(in thousands of USD)
Interest expense (878) (1,502)
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
In August 2022 the Group signed an amendment to its loan
agreement with "Tascombank" to postpone principal repayments in the
amount of USD 900 thousand to January 2023.
In September 2022 the Group signed an amendment to its loan
agreement with Raiffeisen Bank Aval to postpone principal
repayments of the loan due in 2022 in the amount of USD 1,168
thousand to January 2023.
-----------------------------------------------------------------------------------------------------------------------
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.: 191460
EQS News ID: 1453493
End of Announcement EQS News Service
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