TIDMXXIC
RNS Number : 1010I
XXI Century Investments Public Ltd
28 June 2013
XXI Century Investments Public Limited
("XXI Century" or the "Company")
Final Results for the year ended 31 December 2012
The Board is pleased to announce its annual audited results for
the year ended 31 December 2012. Copies of the Annual Report and
Accounts are being posted to shareholders today and are available
for download from the Company's website: www.21.com.ua.
Enquiries:
For further information, please contact:
XXI Century Investments Public Limited +380 44 2000 457
ir@21.com.ua
Iryna Tkachenko, Investor Relations Manager
Shore Capital & Corporate Limited +44 (0) 20 7408 4090
Anita Ghanekar
Toby Gibbs
REPORT OF THE BOARD OF DIRECTORS FOR THE YEAR ENDED 31 DECEMBER
2012
The Board of Directors of XXI Century Investments Public Limited
(the "XXI Century" or "Company" or "XXIC") is pleased to present to
shareholders the Company's annual report together with the
consolidated financial statements of the Company and its
subsidiaries (collectively referred to as the "Group"), for the
year ended 31 December 2012.
Principal activities
The principal activities of the holding company, XXI Century
Investments Public Limited, which manages and controls subsidiary
and associated companies and their management in Ukraine, are
unchanged from our last report. The main activities of the
subsidiary and associated companies of the Company involve real
estate investment, development and property management, and are
focused on the retail, residential and mixed-use segments in
Ukraine. These segments are leading the recovery in the Ukrainian
property sector and are well positioned to benefit from further
improvement in market sentiment. The Group controls a diversified
portfolio of real estate properties comprising of one operating
retail shopping center: Kvadrat Perova, and various sites earmarked
for sale or development involving retail, residential, offices,
hotel, mixed-use complexes and logistics facilities.
XXI Century established its real estate operations in 1999. In
December 2005 the Company raised USD 139 million (35.7% of free
float) through an Initial Public Offering on the AIM Market of
London Stock Exchange. In May 2007 the Company placed 3-year USD
175 million Guaranteed Secured Notes with a coupon of 10% p.a.
Review of Developments - Strategy, Portfolio, Operations, and
Performance
1. Overview
In 2012 the Company continued implementing the strategic plan
for growth.
The restructuring and recapitalization of the Company's
operations, which were finalized in January 2011, breathed new life
into XXIC following three years of operating in a challenging
environment brought about by the global financial crisis. The
advent of strategic investors and the positive impact of their USD
20 million equity injection, together with the conversion of the
Company's USD 175 million Guaranteed Secured Notes and Warrants
into equity, and associated restructuring of bank loans, positively
transformed the Company's financial position.
At the beginning of 2012 a new significant investor became
involved in the Company. DCH IMMO Limited, a company indirectly
beneficially owned by Mr. Aleksander Yaroslavskyy, acquired 4,000
ordinary shares (50 per cent of the issued share capital) in Ovaro
Holding Limited for approximately USD 10.3 million and thus became
a beneficial holder of 30.05% of the share capital of the Company.
DCH IMMO Limited is a part of the one of the largest industrial and
financial groups in Ukraine and attracting such an investor into
the Group has assisted placing the Company into a better financial
position to withstand market risks in the near to medium term and
also places it in a stronger position in negotiations with banks,
tenants, investors and other institutions.
2. Strategy
With the advent of new significant strategic investors and the
ensuing changes at Board level and in senior management, the
Company has maintained its revival strategy and business model,
designed to protect its assets, and safeguard cash flow necessary
to maintain operations, meet its ongoing financial obligations and
to be able to develop prospective sites.
The key elements of the Company's revival strategy:
-- Focus on the retail segment, as it is the most attractive
segment and one where the Company has prospective sites,
experience, reputation and potential for development and
growth;
-- Prioritizing developing and building revenue generating projects;
-- Reducing the operational costs of the Company and carrying
value of the projects (i.e. optimization of the Company's land
lease payments);
-- Sale of non-core sites to reduce operating costs and generate revenues;
-- Focus on developing projects in the capital region where
there is a strong demand for retail and residential projects;
-- Establishing strategic partnerships with international
retailers and strong national and regional brands.
The Company has already established a partnership with Auchan,
an international retail chain of supermarkets and hypermarkets. The
Investment Agreement in relation to the development of an Auchan
hypermarket on the Vyrlytsa lake, Bazhana Lane highway site in Kiev
(the "Vyrlytsa Project") was signed in April 2012. There are also
ongoing negotiations on the development of other sites in Kyiv and
regions in Ukraine.
In January 2013 the Company signed an Investment Agreement with
a major DIY operator, Leroy Merlin that wishes to strengthen its
competitive position in Ukraine. The Company intends to establish a
strategic partnership with Leroy Merlin and the initial plan is to
develop prospective sites in the Company`s portfolio. There are
ongoing negotiations with Auchan and Leroy Merlin in respect of
bank guarantees exchange, that is key condition to obtain
financing.
In November 2012 the Company's subsidiary Barwen Holding Limited
signed a loan agreement with the subsidiary of the Company's
significant shareholder DCH IMMO Limited (the "Loan Agreement"),
according to which the Group will be provided with USD 38 million
for the development of the Vyrlytsa Project subject to certain
conditions (Note 15).
The Board and the management of the Company believe that
establishing strategic partnerships with international retailers as
anchors in planned XXIC`s shopping centers is to be the best
strategy to build value for the Company's shareholders. It is
anticipated that these anchor partners will attract other strong
brand names as tenants and will reduce rental risks in addition to
facilitating securing the nessesary financing for development.
The management of the Company is exploring options as to
financing arrangements with several leading local and foreign banks
operating in Ukraine. Evidently, the availability of bank financing
in Ukraine for the development and construction of projects is
limited by the substantial write-offs and delinquencies that local
banks experienced following the impact of the global financial
crisis on Ukraine's economy. The Company is also exploring other
financing options.
3. Portfolio changes
There have been no changes to the Company's property portfolio
since 31 December 2012, except for the impairment of the Aquapark
Kyiv project which was effected as at 31 December 2012 (Note
15).
The decision on termination of the investment activity in
Aquapark project as well as in five more projects, namely
"Garant-Invest" LLC, "House & K" LLC, "Megagrad" LLC (project
"Kiyanovsky"), "Ukrainian-German Building Company" LLC (project
"Kvadrat-Sumi"), The Fifth Element" LLC (project "Poltava") was
approved by the Board of Directors on 20 June 2013. The decision
made envisage that the termination of the investment activity in
the projects mentioned will be procured by way of liquidation of
the mentioned entities or disposal of the corporate rights in them
to the third parties for the nominal value to withdraw these
entities from the XXI Century Group with further liquidation.
Although Ukrainian real estate values have begun to recover from
the meltdown conditions of the last few years, this recovery is
most evident in the retail and residential segments, and it is
underpinned by growth in household spending and an increased
propensity in bank lending to the retail and commercial sectors.
The Board and management believe that the current uncertainty in
global financial and capital markets, slow improvements in such
segments as offices and warehouses and low interest of investors in
developing projects located in regionsoutside of Kiev and major
cities are reflected in the value of the Company`s property
portfolio and, accordingly, the valuation of the majority of the
projects has been revised accordingly.
In view of improving property prices, management intends to
begin pruning of the Company's property portfolio so that it
reflects the Company's strategy to focus on core strengths and
opportunities. The sale of non-core sites will reduce the Company`s
operating costs and, at the same time, is expected to generate
revenue to provide funding for the start-up of selected retail and
residential projects.
The Net Asset Value (NAV) of the Group, attributable to equity
holders of the Company, excluding minorities, has decreased to USD
223 million at 31 December 2012, compared to USD 255 million at 31
December 2011. The decrease of NAV in 2012 was accounted mostly by
revaluation of the Company's investment properties and reflects the
current situation in the Ukrainian real estate market rather than
the Company's operations.
The Board and management believe that in general the long-term
outlook for the Ukrainian real estate market is quite favourable.
Indeed, we expect that property values will gradually improve
unless the sovereign debt crisis in some EU countries deteriorates
further.
4. Bank Debt Restructuring
As was announced on 1 March 2013 the Company has ongoing
negotiations with Eurobank Cyprus (EFG) in relation to extending
the term of the US$ 54 million loan with EFG for a further 12
months. It is expected that new Amendment agreement to the Loan
agreement will be signed based on amending certain provisions of
the Loan Agreement relating to the terms and conditions of the
repayment of the Revolving Facility Amount.
Currently the Company is on the final stage of the process of
signing the relevant Amendment Agreement with Eurobank Cyprus
(EFG).
5. Notes and Warrants Restructuring
On 24 May 2007, the Company raised USD 175,000,000 via a three
year Eurobond issue with 10% coupon rate, which was successfully
placed with investors in the Far East, Europe, Scandinavia and the
United Kingdom. In 2009 the Company restructured repayments of the
Eurobonds. On 3 July 2009, the Bondholders approved a repayment
schedule commencing on 24 November 2010 and ending on 24 November
2014.
Following the approved restructuring on January 25, 2011 the
Company proceeded with the issue of ordinary shares to its
Noteholders and its Warrantholders.
The shares issued to the Noteholders were 111,656,657 ordinary
shares of USD 0.01 each. During the Meeting of the Noteholders
dated 25 January 2011, it was confirmed that Noteholders, holding
in aggregate USD 146,339,000 in Nominal Amount of Notes, had
submitted the Eligibility Confirmations pursuant to the Noteholders
Circular confirming that they were eligible to receive Depositary
Interests in exchange for the Notes entitling them to receive
111,656,657 New Shares. As a result on 25 January 2011 the Board of
Directors approved the issue of 111,656,657 ordinary shares of USD
0.01 each, amounting to USD 1,116,657.
The shares issued to the Warrantholders were 2,724,462 shares of
USD 0.01 each. During the Meeting of the Warrantholders dated 25
January 2011, it was confirmed that Warrantholders holding in
aggregate 104,587 Warrants had submitted the Eligibility
Confirmations pursuant to the Warrantholders Circular confirming
that they are eligible to receive Depositary Interests in exchange
for the Warrants, entitling them to receive 2,724,462 New Shares.
As a result on 25 January 2011 the Board of Directors approved the
issue of 2,724,462 ordinary shares of USD 0.01 each amounting to
USD 27,245.
In respect to other the shareholders who had submitted
confirmation of their eligibility in order to receive Depositary
Interests this process was completed and the subsequent delivery of
DI's was made in May 2011.
In respect to the Ineligible Shareholders who had not submitted
the eligibility confirmation a mandatory exchange of notes and
warrants to Depositary Interests according to conditions of
Extraordinary Meetings of Note and Warrant holders was applied.
Respective share issues which in aggregate comprised 14 770 046
Depositary Interests, were made in September 2011. Mandatory
exchange stipulated the Ineligible Shareholders to receive cash
proceeds from the sale of DIs on the open market. To facilitate the
sales of DIs Renaissance Securities has been engaged as a broker by
the Company.
During 2012 the Company focused mainly on strengthening the
Company's liquidity, restructuring of the loans and debts accrued
over the crisis years as well as achieving strategic agreements
with business partners. During the last 12 months financial markets
have continued to remain volatile. The Board and the management of
the Company are optimistic that global market trends will gradually
improve.
In connection with significantly volatile stock markets, the low
share price of XXIC and the lack of liquidity, it was deemed
reasonable by the Company to postpone the date of disposal of the
XXIC shares, until conditions change and the disposal can be
effected in an orderly manner. The Company continues to assess the
appropriate time to dispose the XXIC`s shares in order to meet its
obligations to the Ineligible Shareholders and to maximize value
for these shareholders. It is currently anticipated by the Company
that the actual implementation of the disposal programme may take
place in second half of 2013.
6. Portfolio Valuation
The Group's real estate portfolio was appraised by CB Richard
Ellis. As at 31 December 2012 the value of the Group's share of
properties in its portfolio stood at USD 299 million compared to
USD 335 million at the previous year end. Net Asset Value (NAV) of
the Group, excluding minorities, decreased to USD 223 million at 31
December 2012 compared to USD 255 million at 31 December 2011, as a
result of a decline in investment property values. The main
contributor to the NAV decline and the net loss was the reduced
valuation of the Company's investment property portfolio,
reflecting a more conservative scenario applied by the Company's
independent appraiser.
Compared to the previous period there have been certain changes
to the portfolio valuation as at 31 December 2012.
Vyrlytsa mixed use project valuation has been increased from USD
93.5 million to USD 98.1 million. The valuation of the project was
substantially increased due to the Company attracting international
retail chains Auchan and Leroy Merlin, which are envisaged to be
key investors and anchor tenants for the planned shopping and
entertainment centre. Also taken into consideration was the signing
of the USD 38 million Loan Agreement with DCH IMMO Limited for the
development of the project. Further, the Group has already invested
more than USD 3 million of its own funds in the development of the
site and is pleased to announce that the first stage of the
engineering preparation works are complete.
The Kiyanivsky project valuation has been reduced from USD 8.1
million to USD 5.0 million due to the changes in Company`s plans to
target project optimization and operating cost reduction. The
Kiyanivsky project has the most expensive monthly land payments
(Notes 15 and 32) within the Company's portfolio and requires
significant financial resources.
The Alupka project valuation has been decreased from USD 15.1
million to USD 11.6 million due to the observed fall in realised
sale prices of apartments in the Ukrainian residential property
market (Notes 15 and 32).
The valuations of the following group of projects have been
decreased as a result of a more conservative approach being applied
by the Appraiser to reflect the overall state of the Ukraine
reflecting the tendencies on the local real estate market.
- Sevastopol mixed use project valuation has been decreased from
USD 9.7 million to USD 5.5 million
- Kvadrat-Miloslavskaya project valuation has been decreased
from USD 21.1 million to USD 18.8 million
- Dnipropetrovsk logistics complex valuation has been decreased
from USD 6.6 million to USD 5.1 million
- Lviv mixed-use project valuation has been decreased from USD
14.3 million to USD 8.0 million
- Voznesenskiy Yar project valuation has been decreased from USD
24.2 million to USD 20.8 million
- The Brovarsky poject valuation has been decreased from USD 6.0 million to USD 2.6 million
Other changes to individual project valuations were of an
insignificant and technical nature.
The Directors believe that the general outlook for the Ukrainian
real estate market is reasonably favourableacross the real estate
spectrum. Indeed, as economic growth accelerates in a long-term
time horizon, property values are expected to improve and this
shall be accordingly reflected in the Group's portfolio
valuations.
7. Financial Operations and Going Concern
Until the advent of Ovaro's investment in the Company in 2011,
the Company's financial position was precarious: weak cash flow -
generated from sale of non-core sites at distressed prices into a
weak market - was barely sufficient to support the day to day
operations of the Company. The USD 20 million cash investment by
Ovaro Holding Limited, and the associated conversion of the USD 175
million Guaranteed Secured Notes and Warrants into XXIC shares,
together with the ring-fencing of the Eurobank EFG loan,
substantially reduced pressures on the Company's liquidity and
working capital levels. Notwithstanding the significant
accomplishments, the Board and management are keen to continue to
deleverage and are exploring a variety of options to further reduce
of outstanding liabilities, in order to improve liquidity and
provide funding for start-up of revenue generating properties.
Changes in the Company'sconsolidated financial position are
reflected in the accompanying financial statements: net loss for
the year ended 31 December 2012 was USD 42.3 million compared to a
loss ofUSD 25.3 million for the year ended 31 December 2011. Total
liabilities have been reduced through the debt conversion into
equity (Note 25). As a result, total liabilities have been reduced
to USD 83 millionat 31 December 2012 compared to USD 90 million at
31 December 2011.
The Company has also made substantial progress in reducing
administrative expenses showing the decrease from USD 4.8 million
for the year 2011 to USD 4 million for the year 2012. Deleveraging
the Company`s balance sheet and optimization of costs were key
elements in the recapitalization and restructuring of XXIC and its
operating activities in 2012.
The Group incurred a net loss of USD 42,269 thousand for the
year ended 31 December 2012, represented mostly by depreciation of
itsproperty assets, which is a reflection of the post-crisis period
trendsin the real estate and fund market of Ukraine. The Company
incurred a loss of USD 20,138 thousand for the year ended 31
December 2012, which is the cosequence of the reasons mentioned
above. Notwithstanding these conditions, the management of the
Company decided to prepare the consolidated and separate financial
statements of the Company on a going concern basis which
contemplates the realization of assets and the settlement of
liabilities in the normal course of business. The recoverability of
the Group's assets, as well as the future operations of the Group,
may be significantly affected by the current and future economic
environment. The consolidated financial statements do not include
any adjustments should the Group be unable to continue as a going
concern.
The Directors have assessed the balance sheet and forecasts
showing the likely future cash flows of the Company and the Group
at the date of signing of the Directors Report and Accounts and
have concluded that it is appropriate to prepare the financial
statements of the Group on a going concern basis. General economic
conditions have been extremely uncertain since 2008 and may
continue for some time to come. The property and banking sectors
have been at the forefront of the turmoil created by the "credit
crunch" and all traditional norms and practices have been
disrupted. The Group has remained close to its banks and has sought
and been given reassurances over the facilities enjoyed by the
Group. To date the Company has received considerable assistance and
support by the banks on an informal basis, but is aware that the
normal sanction and credit approval processes are not operating
consistently or with certainty (Note 2.2).
Corporate Governance and Senior Management
The Directors recognise the importance of sound corporate
governance. The Company has complied with theCorporate Governance
Guidelines for AIM Companies published by the Quoted Companies
Alliance, where appropriate for a company of the size of XXIC. The
Directors are committed to maintaining the highest standards of
corporate governance in future.
All investment decisions are authorized by the Board of
Directors, which comprises directors with extensive experience in
property investment, development and management as well as general
investment, company law and administration.
The members of the Company's Board of Directors as at the date
of this report are presented on page 3. In 2012 the composition of
the Board of Directors of the Company was subject to certain
changes, as set out below:
-- Mr. Oleg Salmin, Mr. Oleg Puchev, (Executive Directors) and
Mr. Emmanuel Blouin (Non-Executive Director) were members of the
Board throughout the whole year 2012.
-- The following were appointed as members of the Board of
Directors during the year 2012 and up tothe date of this
report:
Name Position Date appointed
------------------------ ------------------------ ---------------
Socrates Solomides Non-Executive Director 28 December
2012
------------------------ ------------------------ ---------------
Aleksander Yaroslavskyy Non-Executive Director, 11 June 2012
Chairman
------------------------ ------------------------ ---------------
Artem Aleksandrov Non-Executive Director 11 June 2012
------------------------ ------------------------ ---------------
-- The following who were members of the Board of Directors on 1
January 2012 resigned on the dates indicated:
Name Position Date resigned
--------------------- ----------------------- -----------------
Roman Nasyrov Non-Executive Director 11 June 2012
--------------------- ----------------------- -----------------
Helen Volska Non-Executive Director 28 December 2012
--------------------- ----------------------- -----------------
Maxim Naumenko Executive Director 28 December 2012
--------------------- ----------------------- -----------------
Yiannos Georgallides Non-Executive Director 17 April 2013
--------------------- ----------------------- -----------------
Recognizing the difficult operating environment and numerous
complex challenges facing the Company, the Board and the management
have strived to keep all the Company's stakeholders well informed
of developments in the Company via regulatory updates and public
announcements. Additional information on the Company is also
readily available and updated regularly on its web-site
www.21.com.ua
In keeping with the Company's objectives to ensure and maintain
good corporate governance practices, Independent Directors chair
and form the majority of members in the Audit Committee and the
Remuneration and Nomination Committee. Emmanuel Blouin, Independent
Director chairs the Audit Committee which also includesSocrates
Solomides, Independent Director. Socrates Solomides, Independent
Director, chairs the Remuneration and Nomination Committee which
also includes Emmanuel Blouin, Independent Director.
An announcement on the results of the AGM for the year 2011 was
issued and details of the Agenda and Resolutions which were passed
may be found on the Company's web site www.21.com.ua.
Post Balance Sheet Events
The most significant events occurring after 31 December 2012 are
presented below:
Investment agreements
The Company signed the Investment Agreement with a French DIY
Operator, Leroy Merlin, established in Ukraine. The Investment
Agreement relatesto the development of theLeroy Merlinhypermarket
on the Vyrlytsa Project. The size of the land plot which is leased
by the Company from the Ukrainian authorities, including the land
plot under development for theLeroy Merlin hypermarket (and other
potential related developments) is approximately 147,346 square
meters (14.7346 hectares). The size of the whole development area
including theLeroy Merlin hypermarket (and all other potential
related developments) is approximately 98,487 square meters
(without parking). The size of the land plot under development with
Leroy Merlin is approximately 1.6354 hectares. The size of the
premises of the Leroy Merlin hypermarket is approximately 15,058
square meters. The development costs of the hypermarket amount to
approximately USD 28,865,884 which will under the Investment
Agreement be provided byLeroy Merlin to the Company in stages
dependent on completion of each phase of the development.
EFG Loan
The Company announced that it is in discussions with Eurobank
Cyprus Ltd ("EFG") in relation to extending the term of the USD 54
million loan for the further 12 months. The loan with EFG is
secured against the Kvadrat-Perova shopping centre and the land
plots designated for the Kvadrat Simferopol project. The loan was
restructured in December 2010, the term of the loan was prolonged
till February 2013 and a revised schedule of repayments was
adopted. It is expected that the loan maturity will be extended to
28 February 2014 (Notes 27 and 35).
Directorate change
Mr. Yiannos Georgallides resigned from the position of
Non-Executive Director on 17 April 2013.
Termination of the investment activity of the Company in certain
projects
Significant spending on maintaining of certain projects and
required lease payments are disproportionate to potential future
value given various issues with complicated terrain of the land
plots, difficulties in finding potential investors for the
development of the sites and obtaining all necessary permits.
Following the revival strategy adopted by the Company to reduce
ongoing costs of non-core projects with a view to optimizing the
Company's development portfolio.the Board of Directors has resolved
to terminate the Company`s investment activity in the following
projects:
-- "Garant-Invest" LLC, "House & K" LLC;
-- "Aqua-Sherl" LLC (project "Aquapark");
-- "Megagrad" LLC (project "Kiyanovsky");
-- "Ukrainian-German Building Company" LLC (project "Kvadrat-Sumi"); and
-- "The Fifth Element" LLC (project "Poltava");
Termination will be effected by way of liquidation of the
relevant companies or disposal of the corporate rights in them to
third parties for a nominal value with further liquidation
occurring outside the Group.
Three of the projects listed above were included in the
Company's appraised investment property as at 31 December 2012 with
the following values:
"Megagrad" LLC, project "Kiyanovsky" USD 5,000 thousand
-------------------------------------- --------------------
"Ukrainian-German Building Company" USD 1,300 thousand
LLC, project "Sumy mixed-use"
-------------------------------------- --------------------
"Piaty Element" LLC, project "Poltava USD 17,200 thousand
mixed-use"
-------------------------------------- --------------------
Total: USD 23,500 thousand
-------------------------------------- --------------------
The Company bears regular significant costs on the maintenance
of the above projects, which have now been deemed to be
unprofitable, as the required lease payments are now
disproportionate to potential future value. The disposal of the
projects will enable the Company to conserve funds and focus on its
core strategic projects which could potentially provide better
returns in the future. The Directors anticipate completing the
disposals within the next six months and further announcements will
be made as required.
The effect on the Group's portfolio of investments will be
incorporated in the Group's financial statements for the year ended
31 December 2013.
Outlook
With the advent of new strategic investors, the restructuring of
the Group's liabilities and the agreements with Auchan and Leroy
Merlin, the Board and the management believe that prospects for the
revival of the Group are substantially improved. Notwithstanding
the significant risks that the Group still faces, primarily linked
to the Ukrainian macro situation.
The Board and the managementwould like to emphasize that
reaching this importantmilestone would not have been possible
without the strong support and cooperation of all Company`s
professional advisors, in addition to all stakeholders.
Though Ukraine's real estate sector is still vulnerable to
weaknesses in its major markets, the Directors and management
anticipate that the Ukrainian real estate market and property
values are on apath of slow recovery. The Directors believe that in
light of the property price improvements the general long-term
outlook for the Ukrainian real estate market and its participants
is cautiously optimistic and that property values should
improve.
The Board and the management believe that the Company's
prospects are now substantially improved and the Company is now in
a better position to withstand the risks and challenges that may
impact its marketplace as a result of global economic and political
uncertainty and difficulties.
The principal objective of the Company for the coming years lies
in realising and monetising the value of the assets in its
portfolio for the benefit of the shareholders. In the year 2013 the
Company is planning to start full-scale construction of Vyrlytsa
project, to continue searching for purchasers for non-core and
non-perspective sites to increase effectiveness and to focus on
revenue generating projects.
Branches
The Group did not operate through any branches during the
year.
Independent Auditors
The Independent Auditors, Baker Tilly Klitou, have expressed
their willingness to continue in office. A resolution giving
authority to the Board of Directors to fix their remuneration will
be proposed at the Annual General Meeting.
By Order of the Board of Directors,
Oleg Salmin
Nicosia, 27 June 2013
Declaration of the Members of the Board of Directors and the
person responsible for the preparation of the consolidated
financial statements and separate financial statements of the
Company
We, the Members of the Board of Directors and the person
responsible for the preparation of the consolidated financial
statements of XXI CENTURY INVESTMENTS PUBLIC LIMITED for the year
ended 31 December 2012, based on our opinion, which is a result of
diligent and scrupulous work, declare that the elements written in
the consolidated financial statements are true and complete.
Board of Directors members:
Aleksander Yaroslavskyy
--------------------------
Oleg Salmin
--------------------------
Artem Aleksandrov
--------------------------
Oleg Puchev
--------------------------
Emmanuel Blouin
--------------------------
Socrates Solomides
--------------------------
Person responsible for the preparation of the consolidated and
separate financial statements for the year ended 31 December
2012:
Oleg Salmin
--------------
Nicosia, 27 June 2013
Independent auditor's report
To the Members of XXI Century Investments Public Limited
Report on the consolidated financial statements and the separate
financial statements of XXI Century Investments Public Limited
We have audited the accompanying consolidated financial
statements of XXI Century Investments Public Limited and its
subsidiaries ("the Group"), and the separate financial statements
of XXI Century Investments Public Limited ("the Company"), which
comprise the consolidated statement of financial position and the
statement of financial position of the Company as at 31 December
2012, and the consolidated statements of comprehensive income,
changes in equity and cash flows, and the statements of
comprehensive income, changes in equity and cash flows of the
Company for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Board of Directors' responsibility for the financial
statements
The Board of Directors is responsible for the preparation of
consolidated and separate financial statements of the Company that
give a true and fair view in accordance with International
Financial Reporting Standards as adopted by the European Union and
the requirements of the Cyprus Companies Law, Cap. 113, and for
such internal control as the Board of Directors determines is
necessary to enable the preparation of consolidated and separate
financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these
consolidated and separate financial statements of the Company based
on our audit. We conducted our audit in accordance with
International Standards on Auditing. Those Standards require that
we comply with ethical requirements and plan and perform the audit
to obtain reasonable assurance about whether the consolidated and
separate financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the
consolidated and separate financial statements, whether due to
fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation of
consolidated and separate financial statements that give a true and
fair view in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An
audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made
by the Board of Directors, as well as evaluating the overall
presentation of the consolidated and separate financial
statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements and the
separate financial statements give a true and fair view of the
financial position of the Group and the Company as at 31 December
2012, and of their financial performance and their cash flows for
the year then ended in accordance with International Financial
Reporting Standards as adopted by the European Union and the
requirements of the Cyprus Companies Law, Cap. 113.
Emphases of Matters
Without qualifying our opinion we draw your attention to the
following matters:
(a) Valuation of investment properties
As disclosed in Note 4 "Significant accounting policies" and
Note 15 "Investment property" to the consolidated and separate
financial statements, the valuation of the investment properties
which were prepared by the independent Chartered Surveyors, CB
Richard Ellis LLC, are based on various assumptions, including some
"special assumptions", and limiting conditions. Therefore, in the
event that any of these assumptions do not materialise or the
limiting conditions are realised then the valuations should be
revised accordingly. The uncertainty relating to the effects on the
Group's results and position in such an event cannot be
quantified.
(b) Going concern
The Group incurred a net loss of USD 42,269 thousand for the
year ended 31 December 2012, which is the fifth consecutive year
where the Group incurred a net loss (the net loss of years 2011,
2010, 2009, and 2008 were USD 25,316 thousand, USD 53,305 thousand,
USD 41,249 thousand and USD 1,556 thousand respectively) and, as of
that date the Group's current liabilities exceeded its current
assets by USD 56,730 thousand. These conditions, along with other
matters as set forth in Note 2.2 "Going Concern", indicate the
existence of a material uncertainty which may cast significant
doubt as to the Company's ability to continue as a going
concern.
(c) Loan financing facility from a shareholder
As disclosed in Note 15 "Investment Properties", on 12 November
2012 the Company's subsidiary Barwen Holding Limited signed a loan
agreement with one of the Company's significant shareholders, DCH
IMMO Limited, according to which the Group will be provided with
USD 38 million for the development of the Vyrlytsa project subject
to certain conditions. As at 31 December 2012 and the date of
signing these consolidated and separate financial statements these
conditions have not been fulfilled and there is uncertainty
relating to the timing of release of these funds for the further
development of the Vyrlytsa project.
(d) Restructuring of bank loan
As discussed in Note 27 "Borrowings" and Note 35 "Subsequent
events" to the consolidated and separate financial statements, as
at 31 December 2012 the Company had a bank loan with Eurobank
Cyprus (EFG) ("the Bank") amounting to USD 54,302 thousand, which
matured on 28 February 2013. On maturity the Company was unable to
fulfill the total repayment of the outstanding bank loan, though
the Company continued to pay installments to the Bank in the post
balance sheet period, amounting to a total of USD 2,261 thousand.
The Company has entered into renegotiations with the Bank to
restructure the outstanding bank loan and to extend its maturity
period to 28 February 2014. As at the date of signing these
consolidated and separate financial statements, the Company and the
Bank have not reached a final restructuring agreement. As a result
there is uncertainty as to the effects on the Group of this delay
in reaching a restructuring agreement.
(e) Contingencies
As disclosed in Note 32 "Contingencies" to the consolidated and
separate financial statements certain leases were expired as at 31
December 2012 and although such leases have expired during the
current reporting period, they have not as yet been renewed. The
Management of the Group has confirmed that the delays encountered
for the renewal are mainly bureaucratic.
Land leases held for relatively short terms place an obligation
upon the lessee to complete development by a prescribed date. The
rights to complete a development may be lost or, at least delayed
if the lessee fails to complete a permitted development within the
timescale set out by the ground lease. In addition, in the event
that a development has not commenced upon the expiry of a lease
then the City Authorities are entitled to decline the granting of a
new lease on the basis that the land is not used in accordance with
its designation. Furthermore, where all necessary permissions and
consents for the development are not in place, the City Authorities
refuse renewal of the ground lease. However, the Management of the
Group believes that the possibility of such action is remote.
The uncertainty relating to the effects on the Group's results
and position in the event that the land leases are not renewed
cannot be quantified.
(f) Termination of certain leases
As disclosed in Note 35 "Subsequent events", on 20 June 2013,
the Board of Directors approved the termination of the Group's
investment activity in the projects "Garant Invest" LLC, "Dim I K"
LLC, "Aqua Sherl" LLC, "Megagrand" LLC, "Ukrainian German Building
Company" LLC, "Piaty Element" LLC by way of liquidation of the
mentioned entities or disposal of the corporate rights in them to
third parties. The total value of the investment properties held by
the aforementioned companies as at 31 December 2012 amounts to USD
23,500 thousand based on the report by the independent valuer as at
that date (Note 15). The effect on the Group's portfolio of
investments will be incorporated in the interim financial
statements of the Group for the six month period ended 30 June
2013, with the exception of "Aqua Sherl" LLC which was fully
impaired in year 2012 (Note 15 (4) and 15 (6)).
Report on other legal requirements
Pursuant to the requirements of the Auditors and Statutory
Audits of Annual and Consolidated Accounts Law of 2009, we report
the following:
-- We have obtained all the information and explanations we
considered necessary for the purposes of our audit.
-- In our opinion, proper books of account have been kept by the Company.
-- The consolidated and the separate financial statements are in
agreement with the books of account.
-- In our opinion and to the best of our information and
according to the explanations given to us, the consolidated and the
separate financial statements give the information required by the
Cyprus Companies Law, Cap. 113, in the manner so required.
-- In our opinion, the information given in the report of the
Board of Directors is consistent with the consolidated and the
separate financial statements.
Other matter
This report, including the opinion, has been prepared for and
only for the Company's members as a body in accordance with Section
34 of the Auditors and Statutory Audits of Annual and Consolidated
Accounts Law of 2009 and for no other purpose. We do not, in giving
this opinion, accept or assume responsibility for any other purpose
or to any other person to whose knowledge this report may come
to.
Andreas Philippou
Certified Public Accountant and Registered Auditor
for and on behalf of
Baker Tilly Klitou
Certified Public Accountants and Registered
Auditors
Corner C Hatzopoulou & 30 Grivas Dighenis Avenue
CY-1066, Nicosia
Cyprus
Nicosia, 27 June 2013
Consolidated and Separate Statements of Comprehensive Income
Group Company
------------------- ------------------
Note 2012 2011 2012 2011
-------- -------- -------- -------
Revenue from operations 8 6,935 8,274 - -
Cost of operations 9 (1,949) (2,205) - -
Net gain/(loss) from fair
value adjustment on investment
property 15 (37,804) (24,644) - -
Distribution costs 10 (311) (329) - (22)
Administrative expenses 11 (3,991) (4,805) (2,119) (2,454)
Other operating (expense)/income,
net 12 1,716 19,179 (17,546) 23,745
Loss on disposal of subsidiaries 34 - (8,293) - -
Loss on disposal of associates 19 - (2,970) - (1,655)
Operating (loss)/gain (35,404) (15,793) (19,665) 19,614
Finance (expense)/income,
net 13 (6,961) (9,960) (473) 2,927
Share of net result of
associates 19 - 882 - -
Loss before income tax (42,365) (24,871) (20,138) 22,541
Income tax (expense)/credit 14 96 (445) - -
(Loss)/profit for the year (42,269) (25,316) (20,138) 22,541
-------- -------- -------- -------
Other comprehensive income
Exchange differences on
translating foreign operations (390) (981) - -
Other comprehensive income
for the year, net of tax (390) (981) (20,138) 22,541
-------- -------- -------- -------
Total comprehensive income
for the year (42,659) (26,297) (20,138) 22,541
======== ======== ======== =======
Loss attributable to:
Equity holders (39,369) (23,804) (20,138) 22,541
Non-controlling interests (2,900) (1,512) - -
Net (loss)/profit for the
year (42,269) (25,316) (20,138) 22,541
======== ======== ======== =======
Total comprehensive income
attributable to:
Equity holders (39,730) (24,715) (20,138) 22,541
Non-controlling interests (2,929) (1,582) - -
-------- -------- -------- -------
Total comprehensive income
for the year (42,659) (26,297) (20,138) 22,541
======== ======== ======== =======
Earnings per ordinary share: 25
Basic, USD (0.07) (0.05) (0.03) 0.05
Diluted, USD (0.07) (0.05) (0.03) 0.05
-------- -------- -------- -------
Earnings per ordinary share
for total comprehensive
income 25
Basic, USD (0.07) (0.05) (0.03) 0.05
Diluted, USD (0.07) (0.05) (0.03) 0.05
-------- -------- -------- -------
Consolidated and Separate Statements of Financial Position
Group Company
---- ---------------- ----------------
Note 2012 2011 2012 2011
---- ------- ------- ------- -------
Assets
Non-current assets
Investment property 15 299,240 335,260 - -
Property, plant and equipment 16 454 541 - -
Intangible assets 17 2 9 - -
Investments in subsidiaries 18 - - 55,698 69,181
Investments in associates 19 - - - -
Loans receivable 20 276 557 75,007 71,222
Trade and other receivables 23 - - 1,145 1,145
Prepayments to constructors 21 148 57 - -
Deferred tax assets, net 14 178 79 - -
VAT recoverable 22 2,526 683 - -
Total non-current assets 302,824 337,186 131,850 141,548
------- ------- ------- -------
Current assets
Premises and other stock 235 213 - -
Loans receivable 20 93 29 - -
Trade and other receivables 23 4,077 4,880 19,081 19,087
Cash and cash equivalents 24 3,460 10,652 2,947 9,951
Total current assets 7,865 15,774 22,028 29,038
------- ------- ------- -------
Total assets 310,689 352,960 153,878 170,586
======= ======= ======= =======
Consolidated and Separate Statements of Financial
Position(continued)
Group Company
---- -------------------- --------------------
Note 2012 2011 2012 2011
---- --------- --------- --------- ---------
Equity and liabilities
Equity attributable to equity
holders of the Company
Share capital 25 5,520 4,466 5,520 4,466
Share premium 25 204,787 204,787 204,787 204,787
Warrants 25 - 9 - 9
Other reserves 26 205,126 198,256 205,126 198,256
Translation reserves 26 (220,689) (220,328) 332 332
Retained earnings/ (accumulated
losses) 28,106 67,475 (324,549) (304,411)
--------- --------- --------- ---------
Total equity attributable
to equity holders of the
Company 222,850 254,665 91,216 103,439
Non-controlling interest 5,109 8,038 - -
--------- --------- --------- ---------
Total equity 227,959 262,703 91,216 103,439
--------- --------- --------- ---------
Liabilities
Non-current liabilities
Long-term borrowings 27 1,070 55,280 3,470 57,675
Finance lease liabilities 28 17,065 17,087 - -
18,135 72,367 3,470 57,675
--------- --------- --------- ---------
Current liabilities
Short-term borrowings 27 54,890 7,259 54,302 2,685
Finance lease liabilities 28 1,788 1,560 - -
Trade and other payables 29 6,989 8,140 3,955 5,852
Income tax payable 30 928 931 935 935
--------- --------- --------- ---------
64,595 17,890 59,192 9,472
--------- --------- --------- ---------
Total liabilities 82,730 90,257 62,662 67,147
--------- --------- --------- ---------
Total equity and liabilities 310,689 352,960 153,878 170,586
========= ========= ========= =========
On 27 June 2013, the Board of Directors of XXI Century
Investments Public Limited authorized these financial statements
for issue.
Oleg Salmin Oleg Puchev
Director Director
The notes on pages 27 to 118 are integral part of the
consolidated and separate financial statements.
Consolidated Statement of Changes in Equity
Attributable to the equityholders
of the Company
---------------------------------------------------------
Share Share Warrants Other Translation Retained Total Non-controlling Total
capital premium reserve reserve earnings interest equity
(1) (Note (2)
26)
------- ------- -------- ------- ----------- -------- ---------- ----------------- ----------
Balances as at
31 December 2010/
1 January 2011 404 187,471 27 - (219,417) 91,279 59,764 9,620 69,384
------- ------- -------- ------- ----------- -------- ---------- ----------------- ----------
Comprehensive
income:
Loss for the year - - - - - (23,804) (23,804) (1,512) (25,316)
Other
comprehensive
income:
Foreign currency
translation
difference
(Note 26) - - - (911) - (911) (70) (981)
------- ------- -------- ------- ----------- -------- ---------- ----------------- ----------
Total
comprehensive
income - - - (911) (23,804) (24,715) (1,582) (26,297)
------- ------- -------- ------- ----------- -------- ---------- ----------------- ----------
Transactions with
owners:
Reinstatement
of warrants prior
to conversion
into equity - - 16 - - - 16 - 16
Share issue and
conversion of
Eurobonds into
equity (Notes
25, 26) 4,062 17,316 (34) 198,256 - - 219,600 - 219,600
Total transactions
with owners 4,062 17,316 (18) 198,256 - - 219,616 - 219,616
------- ------- -------- ------- ----------- -------- ---------- ----------------- ----------
Balances as at
31 December 2011 4,466 204,787 9 198,256 (220,328) 67,475 254,665 8,038 262,703
------- ------- -------- ------- ----------- -------- ---------- ----------------- ----------
Comprehensive
income:
Loss for the year - - - - - (39,369) (39,369) (2,900) (42,269)
Other
comprehensive
income:
Foreign currency
translation
difference
(Note 26) - - - (361) - (361) (29) (390)
------- ------- -------- ------- ----------- -------- ---------- ----------------- ----------
Total
comprehensive
income - - - (361) (39,369) (39,730) (2,929) (42,659)
------- ------- -------- ------- ----------- -------- ---------- ----------------- ----------
Transactions with
owners:
Write-off of
warrants
at conversion
into equity/
settlement - - (9) - - - (9) - (9)
Share issue and
conversion of
Liabilities into
equity (Notes
25, 26) 1,054 - - 6,870 - - 7,924 - 7,924
Total transactions
with owners 1,054 - (9) 6,870 - - 7,915 - 7,915
------- ------- -------- ------- ----------- -------- ---------- ----------------- ----------
Balances as at
31 December 2012 5,520 204,787 - 205,126 (220,689) 28,106 222,850 5,109 227,959
------- ------- -------- ------- ----------- -------- ---------- ----------------- ----------
(1) In accordance with the Cyprus Companies Law, Cap. 113,
Section 55 (2) the share premium, reserve can only be used by the
Company in (a) paying up unissued shares of the Company to be
issued to members of the Company as fully paid bonus shares; (b)
writing off the expenses of, or the commission paid or discount
allowed on, any issue of shares or debentures of the Company; and
(c) providing for the premium payable on redemption of any
redeemable preference shares or of any debentures of the
Company.
(2) Companies which do not distribute 70% of their profits after
tax, as defined by the Special Contribution for the Defense of the
Republic Law, during the two years after the end of the year of
assessment to which the profits refer, will be deemed to have
distributed this amount as dividend. Special contribution for
defense at 20% for the tax years 2012 and 2013 and 17% and 14% for
2014 and thereafter (upto 31 August 2011 the rate was 15% and was
increased to 17% for the period thereafter to 31 December 2011)
will be payable on such deemed dividend to the extent that the
shareholders (individuals and companies) at the end of the period
of two years from the end of the year of assessment to which the
profits refer, are Cyprus tax residents. The amount of this deemed
dividend distribution is reduced by any actual dividend paid out of
the profits of the relevant year at any time. This special
contribution for defense is paid by the Company for the account of
the shareholders.
The notes on pages 27 to 118 are integral part of the
consolidated and separate financial statements.
Separate Statement of Changes in Equity
Share Share premium Warrants Translation Retained Total
capital (1) Other reserve reserve earnings
(Note 26) (2)
-------- ------------- -------- ------------- ----------- --------- ---------
Balances as at 31
December 2010/ 1 January
2011 404 187,471 27 - 332 (326,952) (138,718)
-------- ------------- -------- ------------- ----------- --------- ---------
Comprehensive income:
Profit for the year - - - - - 22,541 22,541
-------- ------------- -------- ------------- ----------- --------- ---------
Total comprehensive
income - - - - 22,541 22,541
-------- ------------- -------- ------------- ----------- --------- ---------
Transactions with
owners:
Reinstatement of warrants
prior to conversion
into equity - - 16 - - - 16
Share issue and conversion
of Eurobonds into
equity (Notes 25,26) 4,062 17,316 (34) 198,256 - - 219,600
-------- ------------- -------- ------------- ----------- --------- ---------
Total transactions
with owners 4,062 17,316 (18) 198,256 - - 219,616
-------- ------------- -------- ------------- ----------- --------- ---------
Balances as at 31
December 2011 4,466 204,787 9 198,256 332 (304,411) 103,439
-------- ------------- -------- ------------- ----------- --------- ---------
Comprehensive income:
Profit for the year - - - - - (20,138) (20,138)
-------- ------------- -------- ------------- ----------- --------- ---------
Total comprehensive
income - - - - (20,138) (20,138)
-------- ------------- -------- ------------- ----------- --------- ---------
Transactions with
owners:
Write-offof warrants
at conversion into
equity settlement - - (9) - - - (9)
Share issue and conversion
of liabilitiesinto
equity (Notes 25,26) 1,054 - - 6,870 - - 7,924
-------- ------------- -------- ------------- ----------- --------- ---------
Total transactions
with owners 1,054 - (9) 6,870 - - 7,915
-------- ------------- -------- ------------- ----------- --------- ---------
Balances as at 31
December 2012 5,520 204,787 - 205,126 332 (324,549) 91,216
-------- ------------- -------- ------------- ----------- --------- ---------
(1) In accordance with the Cyprus Companies Law, Cap. 113,
Section 55 (2) the share premium, reserve can only be used by the
Company in (a) paying up unissued shares of the Company to be
issued to members of the Company as fully paid bonus shares; (b)
writing off the expenses of, or the commission paid or discount
allowed on, any issue of shares or debentures of the Company; and
(c) providing for the premium payable on redemption of any
redeemable preference shares or of any debentures of the
Company.
(2) Companies which do not distribute 70% of their profits after
tax, as defined by the Special Contribution for the Defense of the
Republic Law, during the two years after the end of the year of
assessment to which the profits refer, will be deemed to have
distributed this amount as dividend. Special contribution for
defense at 20%for the tax years 2012 and 2013 and 17% and 14% for
2014 and thereafter (upto 31 August 2011 the rate was 15% and was
increased to 17% for the period thereafter to 31 December 2011)
will be payable on such deemed dividend to the extent that the
shareholders (individuals and companies) at the end of the period
of two years from the end of the year of assessment to which the
profits refer, are Cyprus tax residents. The amount of this deemed
dividend distribution is reduced by any actual dividend paid out of
the profits of the relevant year at any time. This special
contribution for defense is paid by the Company for the account of
the shareholders.
The notes on pages 27 to 118 are integral part of the
consolidated and separate financial statements.
Consolidated and Company Statements of Cash Flows
Group Company
Note 2012 2011 2012 2011
----- -------- -------- -------- --------
Profit/(loss) before tax (42,365) (24,871) (20,132) 22,541
Adjustments for:
Decrease/(increase) in fair
value of investment property 15 37,804 24,644 - -
Interest income 13 (2) (135) (3,530) (6,719)
Foreign currency (gain)/loss 13 (42) 674 - -
Increase in bad debt provision 12 455 4,706 - 410
Reversal of impairment of loans
granted 12 - - - (8,482)
Write-off warrants 25 - - (9) -
Unrecoverable VAT - - - -
12
Loss on assignment of loan
receivable 1. - 1,554 - 1,554
Impairment of investments in
subsidiaries 12 - - 13,483 2,567
Interest expense 13 3,979 6,964 3,980 5,713
Finance lease capitalisation 15 117
Finance charge on lease 13 2,782 2,411 - -
Finance lease liabilities capitalization
effect 15 (759) - - -
Gain on sale of property, plant
and equipment 12 161 (15) - -
Loss/(profit) on subsidiaries'
disposal 18,34 8,293 - -
Loss on associates' disposal 19 2,970 - 1,655
Depreciation and amortization 16,17 88 108 - -
Share in net result in associates 19 (882) - -
VAT assets recovery income 12 (2,494)
Trade payables write-off 12 (115) - - (22,166)
Bank borrowings and Eurobonds
write-off - (34,143) - -
Accrual/(reversal) for lawsuit 12 - (363) - -
Impairment/(reversal of impairment)
of investment property 15 283 10,611 - -
Operating profit/(loss) before
working capital changes (108) 972 (6,208) (2,927)
Decrease/(increase) in VAT
recoverable 22 (1,843) 1,066 - 9
Decrease in advances for construction 21 (91) - - -
Increase in trade and other
receivables 23 803 (1,221) (3) 193
Increase/(decrease) in trade
and other accounts payables 29 (1,151) (3,093) (1,996) (3,151)
Interest paid - (4,733) - (3,482)
Income and defense taxes paid 14 - (12) - -
Cash flows used in operating
activities (2,390) (7,021) (8,207) (9,358)
-------- -------- -------- --------
The notes on pages 27 to 118 are integral part of the consolidated
and separate financial statements.
Consolidated and Separate Statements of Cash Flows
(continued)
Group Company
Note 2012 2011 2012 2011
---- -------- -------- ------- -------
Investing activities
(Acquisitions)/disposals
of investment property 15 (1,589) (2,251) - -
Loans granted 20 - 1,660 (3,785) (3,891)
Purchase of property, plant
and equipment and intangible
assets - (115) - -
Proceeds from disposal of
associate - 400 - 400
Proceeds from sales of investment
in subsidiary undertakings
less cash disposed 35 - 14,000 - -
Interest received 13 2 10 - -
Cash flows from/(used in)
investing activities (1,587) 13,704 (3,785) (3,491)
-------- -------- ------- -------
Financing activities
Share issue 25 7,923 20,000 7,924 20,000
Proceeds/(repayment) from
borrowings 27 (11,264) (17,046) (2,933) 1,277
Cash flows from financing
activities (3,341) 2,954 4,991 21,277
-------- -------- ------- -------
Effect of foreign exchanges
rates on cash and cash equivalents 126 (739) (3) (2)
-------- -------- ------- -------
Net increase/(decrease)
in cash and cash equivalents (7,192) 8,898 (7,004) 8,426
Cash and cash equivalents
at the beginning of the
year 24 10,652 1,754 9,951 1,525
Less cash and cash equivalents
at the beginning of year
for subsidiary undertakings
disposed - - - -
Cash and cash equivalents
at end of year 24 3,460 10,652 2,947 9,951
======== ======== ======= =======
Notes to the Consolidated Financial Statements and Separate
Financial Statements
1. General Information
The Company was incorporated in Cyprus on 2 August 2002 as a
private limited liability company in accordance with the provisions
of the Cyprus Companies Law, Cap. 113 under the name "XXI Century
Investments LLC". On 1 November 2005 the Company's name was changed
to "XXI Century Investments Public Limited" and was re-registered
as a public limited liability company. On 16 December 2005 the
Company listed its shares on the Alternative Investment Market
(AIM) of the London Stock Exchange.
The Company's registered office and principal place of business
is Ledra House, 15 Agiou Pavlou Street Agios Andreas, CY-1105
Nicosia, Cyprus.
The principal activity of the Group is to develop and manage a
diversified portfolio of real assets, comprising shopping centers,
high-end residential complexes and commercial properties. The Group
is operating in Ukraine.
The consolidated financial statements of the Company as at and
for the year ended 31 December 2012 comprise the Company and its
subsidiaries (together referred to as the "Group").
As at 31 December 2010 the Company was controlled by Mr. Lev
Partskhaladze who owned 50.47% of the Company's shares. The
remaining 49.53% of the shares was widely spread.
As part of the Group's restructuring, share capital increases
were effected on 25 January 2011, 6 May 2011 and 19 August 2011
(refer to Note 25). Following these share capital increases and as
31 December 2011 the Company was controlled by Ovaro Holdings
Limited, which owns 60.1% of the Company's shares. The remaining
39.9% of the shares is widely held by the Eligible Eurobondholders
and Warrantholders, who converted debt into equity, specifically
30.85%, and other investors.
On 24 May 2007, the Company raised USD 175 million via a three
year Eurobond issue with 10% coupon rate, which was successfully
placed with investors in the Far East, Europe, Scandinavia and the
UK. In 2009, the Company restructured repayment of the Eurobonds.
On 3 July 2009, the holders of the Eurobonds ("Bondholders")
approved a deferred repayment schedule commencing on 24 November
2010 and ending on 24 November 2014. On 25 January 2011 Bondholders
and Warrantholders approved conversion of Eurobonds into equity
(Note 25 and Note 27).
Following further issue of share capital in the year 2012, for
the conversion of certain debt liabilities into equity, the
shareholding of Ovaro Holding Limited as at 31 December 2012 and as
at the date of signing these statements decreased to 58.26 % of the
Company's shares.
As at 31 December 2012, the Group employed 70 people (31
December 2011: 78).
The consolidated and separate financial statements were approved
for issue by the Board of Directors on 27 June 2013.
Business environment
Risks related to the Group's operating environment in
Ukraine
Since obtaining independence in 1991, Ukraine has undergone
substantial political transformation from a constituent republic of
the former Soviet Union to an independent sovereign state and has
been progressively developing into a market economy. Although
substantial progress has been made since independence in reforming
Ukraine's economy, along with the country's political and judicial
systems to some extent, Ukraine still lacks the necessary legal
infrastructure and regulatory framework essential to support market
institutions, effective transition to a market economy and
broad-based social and economic reforms.
Conditions for the Ukrainian economy have been extremely
unstable during the course of 2011 and this instability has
continued in 2012. Despite signs of stabilization, major concerns
remain over the performance of the Ukrainian economy at a macro
level. The economy has remained very energy intensive and is still
insufficiently diversified, with exports remaining centered on
metallurgical products. Consequently, the economy remains
vulnerable to fluctuations in steel prices and to shocks resulting
from Russia's control over the supply of gas. In terms of business
environment, high taxes, legal uncertainties and bureaucratic
impediments have conspired to create a difficult business
environment in which to operate. In addition, the lack of an
enduring political consensus on reforms has created uncertainty
over the modernization of the economy.
Operating environment of the Parent Company
The Cyprus economy has been adversely affected over the last few
years by the international credit crisis and the instability in the
financial markets. During 2012 there was a considerable tightening
of financing availability from Cypriot financial institutions,
mainly resulting from financial instability in relation to the
Greek sovereign debt crisis, including the impairment of Greek
Government Bonds, and its impact on the Cyprus economy. In
addition, following its credit downgrades, the ability of the
Republic of Cyprus to borrow from international markets has been
significantly affected.
The Cyprus Government entered into negotiations with the
European Commission, the European Central Bank and the
International Monetary Fund (the "Troika"), in order to obtain
financial support. The negotiations resulted in an agreement and
decision of the Eurogroup on 25 March 2013 on the key elements
necessary for a future macroeconomic adjustment programme which
includes the provision of financial assistance to the Republic of
Cyprus of up to EUR10 billion. The programme aims to address the
exceptional economic challenges that Cyprus is facing, and to
restore the viability of the financial sector, with a view to
restoring sustainable economic growth and sound public finances in
the coming years.
The Eurogroup decision on Cyprus includes plans for the
restructuring of the financial sector and safeguards deposits below
EUR100.000 in accordance with European Union legislation. In
addition, the Cypriot authorities have reaffirmed their commitment
to step up efforts in the areas of fiscal consolidation, structural
reforms and privatisations. The Eurogroup requested the Cypriot
authorities and the European Commission, in liaison with the
European Central Bank and the International Monetary Fund, to
finalize the relevant Memorandum of Understanding in April 2013,
which will then be followed by the formal approval of the Board of
Directors of the European Stability Mechanism as well as by the
ratification by Eurozone member states through national
parliamentary (or equivalent) approval.
On 12 April 2013 the Eurogroup welcomed the agreement that has
been reached between Cyprus and the Troika institutions regarding
the macroeconomic adjustment programme for Cyprus, and stated that
the necessary elements were in place to launch the relevant
national procedures required for the formal approval of the
European Stability Mechanism financial assistance facility
agreement.
On 22 March 2013 legislation was enacted by the House of
Representatives concerning restrictive measures in respect of
transactions executed through the banking institutions operating in
Cyprus. The extent and duration of the restrictive measures are
decided by the Minister of Finance and the Governor of the Central
Bank of Cyprus and were enforced on 28 March 2013. The Company's
management is monitoring the developments in relation to these
capital controls and is assessing the implications on the Company's
operations.
The uncertain economic conditions in Cyprus, the unavailability
of financing, the impairment loss incurred on bank deposits and the
imposition of the above mentioned capital controls together with
the current instability of the banking system and the anticipated
overall economic recession, could affect the ability of the Company
to obtain new borrowings or re-finance its existing borrowings at
terms and conditions similar to those applied to earlier
transactions.
The Company's management believes that it is taking all the
necessary measures to effectively restructured its bank loan
financing, in order to manage its cash flow obligations.
Impact of the ongoing global financial and economic crisis
The ongoing global liquidity crisis which commenced in the
middle of 2008 has resulted in, among others things, a lower level
of capital market funding, lower liquidity levels across the
banking sector, and, at times, higher interbank lending rates and
very high volatility in stock and currency markets. The
uncertainties in the global financial markets have also led to bank
failures and bank rescues in the United States of America, Western
Europe, Russia, Ukraine and elsewhere. The full extent of the
impact of the ongoing financial crisis is proving to be difficult
to anticipate or completely guard against. Since September 2008,
there has been increased volatility in currency markets and the
Ukrainian Hryvna has depreciated significantly against some major
currencies.
The volume of wholesale financing has significantly reduced
since August 2008. Such circumstances may affect the ability of the
Group to obtain new borrowings and re-finance its existing
borrowings at terms and conditions similar to those applied to
earlier transactions.
Debtors and clients of the Group may be adversely affected by
the financial and economic environment, lower liquidity situation
which could in turn impact their ability to repay the amounts owed.
Deteriorating operating economic conditions for clients may also
have an impact on Management's cash flow forecasts and assessment
of the impairment of financial and non-financial assets. To the
extent that information is available, Management has properly
reflected revised estimates of expected future cash flows in its
impairment assessments.
The market in Ukraine for many types of real estate has been
severely affected by the recent volatility in global financial
markets. As such the carrying value of land and buildings measured
at fair value has been updated to reflect market conditions at the
reporting date. However, in certain cases, the absence of reliable
market-based data has required the Group to amend its valuation
methodologies (Note 4, Note 15).
Management is unable to reliably determine the effects on the
Group's future financial position of any further deterioration in
the liquidity of the financial markets and the increased volatility
in the currency and equity markets. Management believes it is
taking all the necessary measures to support the sustainability and
growth of the Group's business in the current circumstances.
Real estate risks
General considerations relating to property investment
Several factors may affect the economic performance and value of
the Group's properties including, inter alia, the following:
-- risks associated with construction activity at the
properties, including delays, the imposition of liens and defects
in workmanship;
-- the ability to collect rent from tenants, on a timely basis or at all;
-- the amount of rent and the terms on which lease renewals and
new leases are agreed being less favourable than current
leases;
-- cyclical fluctuations in the property market generally and
changes in the national, regional and local economic and political
climate;
-- local conditions, such as an oversupply of similar properties
or a reduction in demand for the properties;
-- the attractiveness of the property to tenants or residential purchasers;
-- decreases in capital valuations of property;
-- changes in availability and costs of financing, which may
affect the sale or refinancing of properties;
-- covenants, conditions, restrictions and easements relating to the properties;
-- changes in governmental legislation and regulations,
including but not limited to, designated use, allocation,
environmental usage, taxation and insurance;
-- the risk of bad or unmarketable title due to failure to
register or perfect our interests or the existence of prior claims,
encumbrances or charges of which we may be unaware at the time of
purchase;
-- the possibility of occupants in the properties, whether
squatters or those with legitimate claims to possession;
-- our ability to pay for adequate maintenance, insurance and
other operating costs, including taxes, which could increase over
time; and
-- terrorism and acts of nature, such as earthquakes and floods
that may damage the properties.
The occurrence of any of the above risks may adversely affect
the Group's results of operations, financial condition and
prospects.
Construction, development and investment risks
The Group is subject to the general risks associated with
construction and development projects. Development and construction
activities may involve, inter alia, the following risks:
-- the Group may be unable to proceed with the development of
properties because it may not be able to obtain financing upon
favourable terms or at all;
-- the Group may incur construction costs for a development
project which exceed the original estimates due to increased
material, labour or other costs, which could make completion of the
project uneconomical because the Group may not be able to increase
prices to compensate for the increase in construction costs;
-- the Group may be unable to obtain, or face delays in
obtaining, required zoning, land-use, building, occupancy and other
governmental permits and authorisations, which could result in
increased costs and could require to abandon the activities
entirely with respect to a project;
-- the Group faces challenges by the Ukrainian authorities in
connection with re-zoning or designated use allocation it has
obtained or may obtain in the future for land previously
categorised as agricultural land;
-- the Group may be unable to complete construction and leasing
of a property on schedule, resulting in increased debt service
expense, construction or renovation costs and potential fines,
and/or termination of existing investment agreements, resulting in
claims by third parties for damages, or termination of the
respective land leases;
-- the Group's plans to demolish existing structures for
redevelopment on certain properties could expose us to significant
costs and liabilities and loss of rights to the underlying land on
which such buildings were constructed;
-- the Group may lease developed properties at below anticipated rental rates; and
-- occupancy rates and rents at newly completed properties may
fluctuate depending on a number of factors, including market and
economic conditions, which may result in the Group's investments
not being profitable.
Any negative change in one or more of the factors listed above
may adversely affect the Group's results of operations, financial
condition and prospects.
2. Basis of preparation
2.1 Statement of compliance and preparation of consolidated and
separate financial statements
The consolidated and separate financial statements have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union ("EU") and the
requirements of the Cyprus Companies Law, Cap.113.
The consolidated and separate financial statements have been
prepared on a going concern basis (see section below) and under the
historical cost convention, as modified by the revaluation of
investment properties. These consolidated financial statements are
presented in thousands of United States Dollars ("USD"), except for
earnings per share amounts and unless otherwise indicated.
The consolidated financial statements comprise of consolidated
income statement and consolidated statement of comprehensive
income, shown as one statement, the consolidated statement of
financial position, the consolidated statement of changes in
equity, the consolidated statement of cash flows and the notes as
at and for the year ended 31 December 2012.
The Group classifies expenses by the nature of expenses
method.
The cash flows from operating activities are determined using
the indirect method. Consolidated net income is therefore adjusted
by non-cash items, such as measurement gains or losses, changes in
provisions, as well as changes from receivables and liabilities. In
addition, all income and expenses from cash transactions that are
attributable to investing and financing activities are determined
by using the direct method.
The preparation of consolidated financial statements in
conformity with IFRS as adopted by the EU requires the use of
certain critical accounting estimates and requires management to
exercise its judgment in the process of applying the Group's
accounting policies. It also requires the use of assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Although these estimates are
based on management's best knowledge of current events and actions,
actual results may ultimately differ from those estimates.
The areas involving a higher degree of judgment or complexity or
areas, where assumptions and estimates are significant to the
consolidated financial statements are disclosed in Note 6.
2.2 Going concern
The Group incurred a loss of USD 42,269 thousand for the year
ended 31 December 2012, while the Company incurred a loss of USD
20,138 thousand for the year ended 31 December 2012 and as of that
date, the Group's current liabilities exceeded its current assets
by USD 56,730 thousand. At the Company level, the Company shows a
healthy position as the Company's current liabilities exceeded its
current assets by USD 37,164 thousand. Despite the existence of the
shortfall of the current assets to the current liabilities at the
Group level, the Management of the Company decided to prepare the
consolidated and separate financial statements of the Company on a
going concern basis.
These consolidated financial statements have been prepared on a
going concern basis, which contemplates the realisation of assets
and the settlement of liabilities in the normal course of business.
The recoverability of Group's assets, as well as the future
operations of the Group, may be significantly affected by the
current and future economic environment. The consolidated financial
statements do not include any adjustments should the Group be
unable to continue as going concern.
The Directors have assessed the balance sheet and forecasts
showing the likely future cash flows of the Company and the Group
at the date of signing the Directors Report and Accounts and have
concluded that it is appropriate to prepare the financial
statements of the Group on a going concern basis. General economic
conditions have been extremely uncertain for some time and may
continue for a period which is difficult to estimate. The property
and banking sectors have been at the forefront of the turmoil
created by the "credit crunch" and all traditional norms and
practices have been disrupted. The Group has remained close to its
banks and has sought and been given reassurances over the
facilities enjoyed by the Group. To date we have received
considerable assistance and support by our banks on an informal
basis, but are aware that the normal sanction and credit approval
processes are not operating consistently or with certainty.
2.3 Adoption of new and revised IFRSs
During the year ended 31 December 2012 the Group adopted all the
new and revised International Financial Reporting Standards (IFRS)
that are relevant to its operations and are effective for
accounting periods beginning on 1 January 2012.
This adoption did not have a material effect on the accounting
policies of the Group.
New standards and interpretations not yet adopted
At the date of approval of these financial statements the
following financial reporting standards were issued by the
International Accounting Standards Board but were not yet
effective:
(i) Adopted by the European Union
New Standards
-- IFRS 10, "Consolidated Financial Statements" (effective for
annual periods beginning on or after 1 January 2013).
-- IFRS 11, "Joint Agreements" (effective for annual periods
beginning on or after 1 January 2013).
-- IFRS 12, "Disclosure of Interests in Other entities"
(effective for annual periods beginning on or after 1 January
2013).
-- IFRS 13, "Fair Value Measurement" (effective for annual
periods beginning on or after 1 January 2013).
-- IAS 27, "Separate Financial Statements" (effective for annual
periods beginning on or after 1 January 2013).
-- IAS 28, "Investments in Associates and Joint Ventures"
(effective for annual periods beginning on or after 1 January
2013).
Amendments
-- Amendment to IAS 1 "Financial Statements Presentation" on
Presentation of Items of Other Comprehensive Income (effective for
annual periods beginning on or after 1 July 2012).
-- Amendment to IFRS 7 "Financial Instruments: Disclosures" on
Offsetting Financial Assets and Financial Liabilities (effective
for annual periods beginning on or after 1 January 2013).
-- Amendment to IAS 19 "Employee Benefits"(effective for annual
periods beginning on or after 1 January 2013).
-- Transition Guidance : Amendments to IFRS 10, IFRS 11 and IFRS
12 (issued on 28 June 2012), (effective for annual periods
beginning on or after 1 January 2013 ).
-- Improvements to IFRSs 2009 - 2011 (issued on 17 May 2012),
(effective for annual periods beginning on or after 1 January
2013).
-- Amendment to IFRS 1 First Time adoption of International
Financial Reporting Standards - "Government Loans" (effective for
annual periods beginning on or after 1 January 2013).
-- Amendment to IAS 32 "Financial Instruments: Presentation" on
Offsetting Financial Assets and Financial Liabilities (effective
for annual periods beginning on or after 1 January 2014).
New IFRICs
-- IFRIC 20 "Stripping Costs in the Production Phase of a
Surface Mine" (effective for annual periods beginning on or after 1
January 2013).
(ii) Not adopted by the European Union
New Standards
-- IFRS 9 "Financial Instruments" (and subsequent amendments to
IFRS 9 and IFRS 7) (effective for annual periods beginning on or
after 1 January 2015).
Amendments
-- Investment Entities : Amendments to IFRS 10, IFRS 12 and IAS
27 (issued on 31 October 2012), (effective for annual periods
beginning on or after 1 January 2014 ).
-- Recoverable Amount Disclosures for Non-Financial Assets
(Amendments to IAS 36) (issued on 29 May 2013), (effective for
annual periods beginning on or after 1 January 2014).
New IFRICs
-- IFRIC Interpretation 21 Levies (issued on 20 May 2013),
(effective for annual periods beginning on or after 1 January
2014).
The Board of Directors will examine the effect of adoption of
these financial reporting standards in future periods, on the
financial statements of the Group.
3. Basis of consolidation
(i) Subsidiaries
Subsidiaries are all entities (including special purpose
entities) over which the Group has the power to govern the
financial and operating policies generally accompanying a
shareholding of more than one half of the voting rights. The
existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether
the Group controls another entity.
Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. They are de-consolidated from
the date that control ceases. The purchase method of accounting is
used to account for the acquisition of subsidiaries by the Group.
The cost of an acquisition is measured as the fair value of the
assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable
to the acquisition. Identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date,
irrespective of the extent of any non-controlling interest. The
excess of the cost of acquisition over the fair value of the
Group's share of the identifiable net assets acquired is recorded
as goodwill. If the cost of acquisition is less than the fair value
of the net assets of the subsidiary acquired, the difference is
recognized directly in the statementof comprehensive income.
Inter-company transactions, balances and unrealized gains on
transactions between Group companies are eliminated. Unrealized
losses are also eliminated. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the
policies adopted by the Group.
Principal subsidiaries (group companies)
As at 31 December 2012 and 31 December 2011, the principal
subsidiaries and joint ventures of the Group were
as follows:
Subsidiary Project Segment Percentage of Country
effective interest of
as at incorporation
------------------------------------------------------------------ -------------------- ----------- -------------------- -------------
31 31
December December
2012 2011
------------------------------------------------------------------ ------------------- ----------- -------- ---------- -------------
Avrora OJSC Kvadrat-Perova Retail 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Akropol LLC - - 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Aqwa Sherl LLC Aquapark Kyiv Retail 51.00 51.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Barwen Holding Holding
Limited company 100.00 100.00 Cyprus
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Yaroslaviv
Evrogradobud LLC Val Residential 100.00 100.00 Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Investment Group Ukraine
East LLC Berezneva Retail 100.00 100.00 4.
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Megagrad LLC Kyianivsky Hotel 100.00 100.00 Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Retail,
offices,
Mriya Invest LLC Virlytsia mixed-use residential 100.00 100.00 Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Mriya Invest Service
LLC - - 100.00 - Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Evrobudbusiness Petrivka business
LLC centre Offices 50.00 50.00 Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Elite-Service Posolsky dvir
LLC serviced apartments Hotel 100.00 100.00 Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Investment Company
XXI Century CJSC - - 100.00 100.00 Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Investment Fund
Capitoliy - - 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
XXI Century Development
LLC - - 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Kompanion LLC - - 50.00 50.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Khryzolit LLC Sevastopol Retail 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Brovarskiy
Kyiv-Auto LLC business centre Offices 75.00 75.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Kyivsky Fond Nerukhomosti
LLC (KFN LLC)
(1) - - 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Kvadrat-Ukraine Retail,
CJSC Lisova mixed-use offices 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Kvadrat-Myloslavska Retail
------------------------------------------------------------------ -------- ---------- -------------
Kvadrat-Khreschatik
LLC - - 99.85 99.85 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Kvadrat-Maidan
LLC - - 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Kyivski Kashtany
LLC - - 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Land Development
LLC Kvadrat-Simferopol Retail 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Ozzon-Logistics
LLC - - 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Zhytomyr highway
logistics complex
OZZON-2 LLC complex Logistics 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Ozzon-Dnipropertovsk Dnipropetrovsk
LLC logistics complex Logistics 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Mikasal Ventures Holding
Limited - company 100.00 100.00 Cyprus
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Piaty Element Residential
LLC Poltava mixed-use and retail 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Capital Market
LLC Alupka Residential 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Trest Forum LLC 100.00 100.00 Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Selhozpromresurs Simferopol
LLC logistics complex Logistics 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Shvydko-Invest Vyshhorod warehouse
LLC complexcomplex Logistics 99.00 99.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Soyuz-Premier
LLC - - 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Svyatoslavskiy
LLC - - 60.00 60.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Torgovy Centre Retail,
A CJSC Lviv mixed-use office 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Tsitadel-plus
LLC - - 66.00 66.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Ukrainian-German Retail
Building Company and
LLC Sumy mixed-use Residential 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Ukrmedbud LLC - - 90.00 90.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Westland Ukraine
LLC Cherkasy Retail 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
XXI Century LLC - - 100.00 100.00 Ukraine
------------------------------------------------------------------ -------------------- ----------- -------- ---------- -------------
Zhytlo XXI Century Voznesenky
LLC Yar Residential 100.00 100.00 Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Falodi LLC Residential 100.00 100.00 Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Garant-InvestCapital Market
LLC Alupka Residential 100.00 100.00 Ukraine
---------------- ------- ------------ ------ ------ -------
Trest Forum LLC 100.00 100.00 Ukraine
--------------------------------------- ------ ------ -------
LLC - 100.00 100.00 Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Ukruniversalbud
CJSC - - 95.00 95.00 Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Ukruniversalbud
LLC - - 75.00 75.00 Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
Dim I K LLC - - 100.00 100.00 Ukraine
------------------------------------------------------------------- ------------------- ----------- -------- ---------- -------------
(1) Kyivsky Fond Nerukhomosti LLC was not consolidated as the
Group lost the operating control over the subsidiary in 2007, as a
result of ownership disputes with its original co-owners of this
subsidiary. The case is before the court, but no final decision has
been made at present. The Management believes that it is prudent
not to consolidate this subsidiary, as no economic benefits or
liabilities are expected to the Group.
(ii) Transactions with non-controlling interests
The Group applies a policy of treating transactions with
non-controlling interests as transactions with parties external to
the Group. Disposals to minority interests result in gains and
losses for the Group and are recorded in the statementof
comprehensive income statement. Purchases of non-controlling
interests result in goodwill, being the difference between any
consideration paid and the relevant share acquired of the carrying
value of net assets of the subsidiary.
Investments in associates
Associates are all entities over which the Group has significant
influence but not control, generally accompanying a shareholding of
between 20% and 50% of the voting rights. Investments in associates
are accounted for in the consolidated financial statements using
the equity method of accounting and are initially recognized at
cost. In the Company's financial statements, investments in
associates are recognized at cost, as allowed by the exceptions of
paragraph 13 of IAS 28 "Investments in Associates". The Group's
investment in associates includes goodwill identified on
acquisition, net of any accumulated impairment loss.
The Group's share of its associates' post-acquisition profits or
losses is recognized in the statementof comprehensive income, and
its share of post-acquisition movements in reserves is recognized
in reserves. The cumulative post-acquisition movements are adjusted
against the carrying amount of the investment. When the Group's
share of losses in an associate equals or exceeds its interest in
the associate, including any other unsecured receivables, the Group
does not recognize further losses, unless it has incurred
obligations or made payments on behalf of the associate.
Unrealized gains on transactions between the Group and its
associates are eliminated to the extent of the Group's interest in
the associates. Unrealized losses are also eliminated unless the
transaction provides evidence of an impairment of the asset
transferred. Accounting policies of associates have been changed
where necessary to ensure consistency with the policies adopted by
the Group. Dilution gains and losses arising in investments in
associates are recognized in the statement of comprehensive
income.
Investments in joint ventures
Joint ventures are those entities over whose activities the
Group has joint control, established by contractual agreement and
requiring unanimous consent for strategic financial and operating
decisions.
The Group's interests in jointly controlled entities are
accounted for by applying proportionate consolidation. The Group
combines its share of the joint ventures' individual income and
expenses, assets and liabilities and cash flows on a line-by-line
basis with similar items in the Group's financial statements. The
Group recognizes the portion of gains or losses on the sale of
assets by the Group to the joint venture that is attributable to
the other ventures. The Group does not recognize its share of
profits or losses from the joint venture that result from the
Group's purchase of assets from the joint venture until it resells
the assets to an independent party. However, a loss on the
transaction is recognized immediately if the loss provides evidence
of a reduction in the net realizable value of current assets, or an
impairment loss.
4. Significant accounting policies
The following significant accounting policies have been applied
in the preparation of the consolidated financial statements. These
policies have been consistently applied to all years presented in
these financial statements, unless otherwise stated.
Consolidation
Refer to Note 3.
Segment reporting
A segment is a distinguishable component of the Group that is
engaged either in providing products or services (business segment)
or in providing products or services within a particular economic
environment (geographical segment), which is subject to risks and
rewards that are different from those of other segments. The
Group's primary format for segment reporting is based on business
segments.
Almost all activities and revenue occurr on the territory of
Ukraine.
The Group is organized on a basis of five main business segments
as follows:
-- Retail;
-- Residential properties;
-- Hotels;
-- Logistics; and
-- Office premises.
Internal charges between segments have been reflected in the
performance of each business segment.
Unallocated income and costs represent corporate income and
expenses. Segment assets consist primarily of investment property
and investment property under construction, as well as trading
properties. Segment liabilities comprise finance lease liabilities,
liabilities on residential bonds.
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The chief operating decision maker is the person or group that
allocates resources to and assesses the performance of the
operating segments of the Group. The Group has determined that its
chief operating decision maker is the Chief Executive Officer
("CEO") of the Company.
Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates (the "functional
currency"). The national currency of Ukraine, Ukrainian Hryvnia
("UAH") is the functional currency for all the Group's entities,
except for the Company and its subsidiaries Mikasal Ventures
Limited and Barwen Holding Limited, for which United States Dollar
is the functional currency. The consolidated financial statements
are presented in USD, which is the Company's functional currency
and the Group's presentation currency.
(ii) Foreign currency transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions or valuation where items are remeasured. Foreign
exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies
are recognized in the statement of comprehensive income, except
when deferred in equity as qualifying cash flow hedges and
qualifying net investment hedges.
All foreign exchange gains and losses are presented in the
comprehensive income within 'finance income or expense'.
Changes in the fair value of monetary securities denominated in
foreign currency classified as available-for-sale are analyzed
between translation differences resulting from changes in the
amortized cost of the security and other changes in the carrying
amount of the security. Translation differences related to changes
in amortized cost are recognized in profit or loss, and other
changes in carrying amount are recognized in equity.
Translation differences on non-monetary financial assets and
liabilities such as equities held at fair value through profit or
loss are recognized in profit or loss as part of the fair value
gain or loss. Translation differences on non-monetary financial
assets such as equities classified as available-for-sale are
included in the available-for-sale reserve in equity
(iii) Group companies
The results and financial position of all the Group's entities
(none of which has the currency of a hyper-inflationary economy)
that have a functional currency different from the presentation
currency are translated into the presentation currency as
follows:
a. assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that statement of
financial position;
b. income and expenses for each item of statement of
comprehensive income are translated at average exchange rates
(unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates,
in which case income and expenses are translated at the rate on the
dates of the transactions); and
c. all resulting exchange differences are recognized as a
separate component of equity. On consolidation, exchange
differences arising from the translation of the net investment in
foreign operations, and of borrowings and other currency
instruments designated as hedges of such investments, are taken to
shareholders' equity. When a foreign operation is partially
disposed of or sold, exchange differences that were recorded in
equity are recognized in the statementof comprehensive income as
part of the gain or loss on sale.
d. goodwill and fair value adjustments arising on the
acquisition of a foreign entity are treated as assets and
liabilities of the foreign entity and translated at the closing
rate.
The principal UAH exchange rates used in the preparation of the
consolidated financial statements are as follows:
31 December
--------- -------------
Currency 2012 2011
--------- ------ -----
USD 7.99 7.99
EUR 10.53 10.30
RUR 0.26 0.25
At the date of signing of these consolidated financial
statements, 27 June 2013, the exchange rate was UAH 7.99 to USD
1.00.
Foreign currency can be easily converted at a rate close to the
National Bank of Ukraine rate. At present, the UAH is not a freely
convertible currency outside Ukraine.
Revenue recognition
Revenue from operations is recognized in the consolidated
statementof comprehensive income when it is probable that the
economic benefits associated with the transaction will flow to the
Company and the amount of revenue can be measured reliably.
(i) Rental income
The rental income from operating leases is recognized in the
consolidated statementof comprehensive income on a straight line
basis over the lease term as income. Initial direct costs incurred
specifically to earn revenue from an operating lease are recognized
as an expense in the consolidated statementof comprehensive income
in the period in which they are incurred.
(ii) Revenue from residential properties sold
Revenues from construction of residential properties which have
already been sold via the bond scheme mentioned below are
recognized in the consolidated statementof comprehensive income
upon completion of the building.
(iii) Revenue from sales of residential bonds
The Company issues bonds for the residential property being
constructed. The bonds can be exchanged for the property rights in
the residential areas under construction when 100% quantity of
bonds required for selected apartment/separable piece of
residential property is accumulated. Revenue from sale of
residential bonds is recognized for the difference between the face
value and the market value they were sold for, less the discount
accrued to the date of exchange.
(iv) Interest income
Interest income is recognized on a time-proportion basis using
the effective interest rate method. When a receivable is impaired,
the Group reduces the carrying amount to its recoverable amount,
being the estimated future cash flow discounted at the original
effective interest rate of the instrument, and continues unwinding
the discount as interest income. Interest income on impaired loans
is recognized using the original effective interest rate.
(v) Dividend income
Dividend income is recognized when the right to receive payment
is established.
Net financing costs
Net financing costs comprises interest payable on borrowings
calculated using the effective interest rate method, net result
from transactions with securities, foreign exchange gains and
losses, and bank charges and commission.
The effective interest method is a method of calculating the
amortized cost of a financial asset or financial liability and of
allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts
throughout the expected life of the financial instrument, or a
shorter period where appropriate to the net carrying amount of the
financial asset or financial liability. When calculating the
effective interest rate, the Group estimates cash flows considering
all contractual terms of the financial instrument (for example,
prepayment options) but does not consider future credit losses. The
calculation includes all fees and points paid or received between
parties to the contract that are an integral part of the effective
interest rate, transaction costs and all other premiums or
discounts.
Interest income is recognized in the consolidated statementof
comprehensive income as it accrues, taking into account the
effective yield on the asset. Interest expense is recognized in the
consolidated statementof comprehensive income on an effective
interest rate basis.
Borrowing costs incurred for the construction of any qualifying
asset are capitalized during the period of time that is required to
complete and prepare the asset for its intended use. Other
borrowing costs are expensed.
The Group fully applies the provisions of IAS 23 "Borrowing
Costs" and suspends capitalization of borrowing costs during
extended periods in which active development of qualifying assets
is suspended.
Dividend distribution
Dividend distribution to the Company's shareholders is
recognized as a liability in the Company's financial statements in
the year in which dividends are appropriately authorized and are no
longer at the discretion of the Company. More specifically, interim
dividends are recognized as a liability in the period in which
these are authorized by the Board of Directors and in the case of
final dividends, these are recognized in the period in which these
are approved by the Company's shareholders.
Investment property
Property that is held for long-term rental yields or for capital
appreciation or both, and that is not occupied by the companies in
the consolidated Group, is classified as investment property.
Investment property principally comprises freehold land,
leasehold land and investment properties held for a future
redevelopment as well as operating Kvadrat shopping centres.
Land held under operating lease is classified and accounted for
as investment property when the rest of definition is met. The
operating lease is accounted for as if it were a finance lease.
Initially investment property under development is measured at
cost, including related transaction costs. After initial
recognition, investment property under development is carried out
at a revalued amount, being their fair value at the date of
statement of financial position. Investment property under
development is accounted for under IAS 40 during the period of
development. Any revaluation during the period of development is
taken to revaluation reserve in the statement of financial
position.
The property is classified in accordance to the intention of
management for its future use. Intention to use is determined by
the Board of Directors after reviewing market conditions,
profitability of the project, ability to finance the project and
obtaining required construction permits.
The time point, when the intention of the management is
finalized is the date of start of construction. At the moment of
start of construction freehold land, leasehold land and investment
properties held for a future redevelopment are reclassified into
investment property under development (IAS 40) or inventory (IAS 2)
in accordance to intention to use.
Initial measurement and recognition
Investment property is measured initially at cost, including
related transaction costs. Investment properties are derecognized
when either they have been disposed of or when the investment
property is permanently withdrawn from use and no future economic
benefit is expected from its disposal. Any gains or losses on the
retirement or disposal of an investment property are recognized in
the consolidated statementof comprehensive income in the period of
retirement or disposal.
Transfers are made to investment property when, and only when,
there is a change in use, evidenced by the end of owner occupation,
on the commencement of an operating lease to third party or
completion of construction or development. Transfers are made from
investment property when, and only when, there is a change in use,
evidenced by commencement of owner occupation or commencement of
development with a view to sale.
If an investment property becomes owner-occupied, it is
reclassified as property, plant and equipment, and its fair value
at the date of reclassification becomes its cost for accounting
purposes. At that time, it is reclassified and subsequently
accounted for as investment property.
If an item of property, plant and equipment becomes an
investment property because its use has changed, any difference
resulting between the carrying amount and the fair value of this
item at the date of transfer is recognized in equity as a
revaluation of property, plant and equipment under IAS 16. However,
if a fair value gain reverses a previous impairment loss, the gain
is recognized in the statementof comprehensive income.
Subsequent measurement
Subsequent to initial recognition, investment property and
investment property under development is stated at fair value.
Gains or losses arising from changes in the fair value of
investment property are included in the consolidated statementof
comprehensive income in the period in which they arise.
When the Group completes the construction or development of a
self constructed investment property, any difference between the
fair value of the property at that date and its previous carrying
amount is recognized in the consolidated statement of comprehensive
income.
Subsequent expenditure is charged to the asset's carrying amount
only when it is probable that future economic benefits associated
with the item will flow to the Group and the cost of the item can
be measured reliably. All other repairs and maintenance costs are
charged to the statement of comprehensive income during the
financial period in which they are incurred.
Basis of valuation
The fair values reflect market conditions at the balance sheet
date. These valuations are reviewed periodically by CB Richard
Ellis LLC, chartered surveyors.
The valuations have been carried out by CB Richard Ellis LLC
(hereafter "appraisers") as at 31 December on the basis of Market
Value in accordance with the appropriate sections of the current
Practice Statements contained within the Royal Institution of
Chartered Surveyors ("RICS") Appraisal and Valuation Standards, 7th
Edition 2011 (the "Red Book"). This is an internationally accepted
basis of valuation in compliance with International Valuation
Standards.
Valuation Methodology
According to the generally accepted valuation practice, there
are three main approaches to valuing investment properties, as
follows:
-- Income Approach
-- Cost Approach
-- Comparative (Market) Approach
The approach which was adopted in valuing properties in the
course of development is the income approach and, in particular,
the residual approach to valuation. The residual valuation approach
involves the calculation of the value of the property upon
completion of the development, through the capitalisation of an
anticipated rental income at a chosen yield, from which all costs
required to develop the property are deducted, including an
allowance, where appropriate, for a profit payment to the
developer. This approach is particularly suitable for those
properties which are in the course of construction, as are the
majority of the investment properties considered for the purposes
of this valuation.
The methodology using the residual valuation involves adopting
the more straightforward residual method, which does not entail the
use of a full discounted cash flow. Using this method, the value of
the property upon completion as at the valuation date is assessed
and then all costs necessary to be incurred in order to realize the
development of the property, allowing for an element of developer's
profit where appropriate, are deducted to leave a sum which
represents the Market Value of the site. The timing of the
differing development stages is also reflected in this method in
terms of the cost of financing the development, where incorporated,
as is any income received upon completion prior to sale. In
adopting this method the appraisers have employed the use of the
'Circle Visual Developer' valuation software and, therefore, will
refer to it as the 'Circle' method.
The 'Circle' residual method contains a variety of different
variables, such as development costs, income, capitalization
rate/exit yield. Small changes in these variables can result in
relatively significant changes in the Market Value obtained and,
therefore, each of these variables should be thoroughly researched
in order that the inputs adopted are fully supportable. For the
sensitivity analysis on major variables, please, refer to Note 5.
For the discounting rates and capitalization rates used, refer to
Note 15.
The principal variables within the 'Circle' method are all
effectively as at the date of valuation, including the
capitalization rate adopted, construction costs and rental levels.
The appraisers consider this to be a very persuasive reason to
adopt such a methodology, given the dynamic nature of the Ukrainian
property market at present and looking forward to the short and
medium term.
The realistic assumption was allowed by the appraisers for the
financing of a proportion of the development costs of each project.
Although, until relatively recently the ability to finance property
developments was limited, this situation has now changed with many
leading property lenders now present in the market. In addition,
the majority of the properties under consideration are of a highly
institutional standard and we consider that the majority of
developers seeking to develop such schemes would seek to finance
the construction costs.
Valuation Approach
In addition to the above general valuation methodology, the
appraisers would point out the following bases of valuation that
they have taken into account in arriving at Market Value:
Pre Development
In those instances where the nature of the 'Project' has been
agreed with the City Authorities, it was assumed that the subject
property will be developed in accordance with this blueprint,
unless the appraisers have considered it prudent to adopt their own
assumed concept.
The final outcome of the development of the property is
determined by the Board of Directors decision, which is based on
existing market conditions, profitability of the project, ability
to finance the project and obtaining required construction
permits.
Development
In terms of construction costs, the budgeted costs have been
taken into account in considering opinions of value. However, the
appraisers have also had regard to current construction rates
passing in the market which a prospective purchaser may deem
appropriate to adopt in constructing each individual scheme.
Although in some instances the appraisers have adopted the budgeted
costs provided, in some cases the appraisers' own opinions of costs
were used.
Where there are outstanding payments to be made in respect of
the acquisition of rights or costs of permitting, the appraisers
have adopted those figures for calculation. In addition, with
regard to outstanding costs for the provision of utilities together
with the undertaking of any road or transport works those figures
were also accounted for.
Post Development
Rental values have been assessed as at the date of valuation but
having regard to the existing occupational markets and taking into
account the likely supply and demand dynamics anticipated during
the development periods concerned.
The assumption was made that upon completion, the properties
will be let in line with market practices in terms of lease
lengths, indexation of rents and recoverability of costs. The
length of lease will vary depending upon the property type but,
generally, these tend to be for periods of between three and five
years. In terms of indexation, the appraisers have not explicitly
reflected the indexation of rents in arriving at their opinions of
value. The standard letting fees were assumed within the
valuations.
Upon completion of construction, the appraisers have adopted
their opinion of an appropriate holding period prior to the sale of
the property. This period represents their considered view of the
period a developer would hold the property in order to reach a
target occupancy level and to be able to demonstrate a stable
income flow to potential investors.
In arriving at their estimates of gross development value
("GDV"), the appraisers have capitalized their opinion of net
operating income, having deducted any anticipated non-recoverable
expenses, such as land payments, and permanent void allowance,
which has then been capitalized into perpetuity. All rents are
exclusive of VAT.
The capitalization rates adopted in arriving at the opinions of
GDV reflect the appraisers' opinions of the rates at which the
properties could be sold for on the assumption that they are
completed as at the date of valuation. The current property
investment market is highly dynamic and current investor appetite
is significant, driven by a perceived hardening of yields in the
short term, limited supply of stock and a growing weight of funds
looking to be invested. Taking these factors into account, the
adopted capitalization rates reflect the appraisers' opinions of
where they consider rates to be at present, although as a result of
a lack of transparency in the market, and a relatively limited
number of concluded transactions, this is a subjective exercise to
a certain extent.
In terms of residential properties, the sales prices per sq. m.
again reflect current market conditions and represent those levels
the appraisers consider to be achievable at present. It was assumed
that there are no irrecoverable operating expenses and that all
costs will be recovered from the occupiers/owners by way of a
service charge.
The valuations take into account the requirement to pay ground
rental payments and these are assumed not to be recoverable from
the occupiers. In terms of ground rent payments, the appraisers
have assessed these on the basis of information available, and if
not available they have calculated these payments based on current
legislation defining the basis of these assessments. Property tax
is not presently payable in Ukraine.
Other considerations
In arriving at opinions of Market Value, the appraisers have
also arrived at opinions of current estimated net annual rent.
These are assessed on the assumption that they are the best rent at
which a new letting of an interest in property would have been
completed at the date of valuation assuming:
-- a willing landlord;
-- that prior to the date of valuation there had been a
reasonable period (having regard to the nature of the property and
the state of the market) for the proper marketing of the interest,
for the agreement of the price and terms and for the completion of
the letting;
-- that the state of the market, levels of value and other
circumstances were, on any earlier assumed date of entering into an
agreement for lease, the same as on the valuation date;
-- that no account is taken of any additional bid by a
prospective tenant with a special interest;
-- that where relevant the length of term and principal
conditions assumed to apply to the letting and other tenants terms
are the same as those set out in the rent review clause contained
in the occupational lease which we confirm are not exceptionally
onerous or beneficial for letting of the type and class of the
subject property and;
-- that both parties to the transaction had acted knowledgeably,
prudently and without compulsion.
Assumptions, Sources of Information and Limitations
The valuations are based on various critical assumptions and
limiting conditions, as described below:
The valuation of certain of the Properties was prepared on the
basis of a number of assumptions, additional to the above, referred
to as "Special Assumptions". In this respect, a "Special
Assumption" is defined in the Red Book as an Assumption that
either:
-- requires the valuation to be based on facts that differ
materially from those facts that exist at the date of valuation,
or
-- is one that a prospective purchaser (excluding a purchaser
with a special interest) could not reasonably be expected to make
at the date of valuation, having regard to prevailing market
circumstances.
With regard to this Valuation Report, the appraisers are of the
opinion that the "Special Assumptions" set out below are valid,
realistic and relevant, however, the current fair value of the four
properties subject to special assumptions would be lower than the
stated values in the Valuation Report as at 31 December 2012.
The valuers applied Special Assumptions for such already expired
finance leases, as follows:
-that the Group already made request to the local authorities
regarding the prolongation of lease terms;
-that as at the valuation date the Group still provides the land
lease payments for the landplots.
The impact on the "Special Assumptions" on the valuation
affected 4 investment properties as at 31 December 2012 and such
details were disclosed at the end of this Note 15.
Adopted development commencement dates and construction periods
in respect of each property have been made in isolation of the
remaining properties also subject to development. As a result, the
valuations reported do not reflect the effect of numerous
properties being developed simultaneously or being released to the
market at the same time.
An assumption that was made details all matters likely to affect
value within their collective knowledge such as prospective
lettings, outstanding requirements under legislation and planning
decisions have been made available and that the information is up
to date.
In those instances where full ownership rights for the existent
improvements are held but the granting of a ground lease is awaited
we have assumed that there will be no unforeseeable additional
costs or delays in comparison to those generally experienced and
that such rights are in due course obtained.
In those instances where investment contracts are held for the
development of properties, the valuations are on the basis that a
ground lease and an ownership certificate will be obtained by the
developer upon completion of the development and this is in line
with normal market practice in Ukraine.
The majority of investment properties are held by way of ground
leasehold interests granted by the City Authorities. As at 31
December 2012 the ground rental payments for several leased land
plots are lower than new tax rates (from 3% to 12%, effective since
adoption of the Tax Code of Ukraine on 1 April 2011), and can be
subject of review in upward direction. Since most of the finance
lease agreements of the Group were signed before the Tax Code of
Ukraine implementation, the new legislation remains ambiguous on
whether these agreements will be subject to the rates revisal prior
to the expiring. It should be noted, however, that very few
leasehold interests have yet to reach termination and, hence, the
effective ability to renew on such a basis is relatively untested.
In arriving at opinions of Market Value, the appraisers assumed
that the respective ground leases are capable of extension in
accordance with the terms of each lease. In addition, given that
such interests are not capable of assignment, it was assumed that
each leasehold interest is held by way of a special purpose vehicle
("SPV") and that the shares in the respective SPVs are capable of
assignment.
With regard to each of the properties considered, in those
instances where project documentation has been agreed with the
respective local authorities, opinions of the appraisers of value
have been arrived at on the basis of these agreed agreements.
In those instances where the properties are held in part
ownership, the valuations assume that these interests are capable
of sale in the open market without any restriction from the
co-owner and that there are no encumbrances within the share
agreements which would impact upon the saleability of the
properties concerned.
The valuation is exclusive of VAT and no allowances have been
made for any expenses of realisation or for taxation which might
arise in the event of a disposal of any property. The valuation is,
however, net of purchaser's acquisition costs.
In terms of the Assumptions and Special Assumptions, it was
confirmed that Assumptions are correct as far as they are aware. In
the event that any of the Assumptions prove to be incorrect, the
valuations contained in this valuation report should be reviewed
and modified as necessary.
Valuation was prepared with several Limitations like absence of
legal expertise, environmental, archaeological or geo-technical
surveys and feasibility analysis of projects.
Investment property under development
Following the new 2008 amendments to IAS 40 "Investment
Property", as of 1 January 2009 investment property under
development started to be accounted for under the fair value model
(where that fair value is reliably determinable), with changes in
fair value being recognized in statement of comprehensive income.
The investment property under development line item was
reclassified, as at 1 January 2009, into the investment property
line of statement of financial position.
Previously, the investment property under development was
accounted for in accordance with IAS 16 "Property, plant and
equipment" using the revaluation model as at 31 December 2008.
The initial cost of investment property under development
comprise the cost of leasing the land and the development costs of
the building, which includes raw materials, direct labor cost, and
other indirect costs of construction.
Initially investment property is measured at cost and thereafter
at fair value by applying fair value model for a subsequent
measurement.
Stocks from residential constructions contracts
Contract costs are recognized when incurred. Stocks from
residential constructions contracts are stated at the lower of cost
and net realizable value. Net realizable value is the estimated
selling price in the ordinary course of business, less the
estimated costs of completion and selling expenses.
Stocks from residential constructions contracts comprise the
construction costs which include raw materials, direct labor cost,
depreciation of plant and equipment and other indirect costs of
construction.
Premises in stock
Costs of premises in stock are recognized when construction is
completed. Premises in stock are stated at the lower of cost and
net realizable value. Net realizable value is the estimated selling
price in the ordinary course of business, less selling
expenses.
Property, plant and equipment
Items of property, plant and equipment, namely vehicles,
computers and office equipment and furniture and fittings are
measured at cost, less accumulated depreciation and provision for
impairment, where required.
Subsequent expenditure
Expenditure incurred to replace a component of an item of
property, plant and equipment that is accounted for separately, is
capitalized with the carrying amount of the replaced component
being written off. Other subsequent expenditure is capitalized when
it is possible that future economic benefits associated with the
item will arise to the Group and the cost of the item can be
measured reliably from the expenditure. All other expenditure
including repairs and maintenance expenditure, is recognized in the
consolidated statement of comprehensive income as an expense as
incurred.
Depreciation
Depreciation is charged to the consolidated statement of
comprehensive income on a straight-line basis over the estimated
useful lives of the individual assets. Depreciation commences on
the date of acquisition or, in respect of internally constructed
assets, from the time an asset is completed and ready for use. The
estimated useful lives are as follows:
Number
Category: of years
Vehicles 5-7 years
Computers and office equipment 3-5 years
Furniture and fittings 5 years
The assets' residual values and useful lives are reviewed, and
adjusted if appropriate, at least at each financial year-end.
An asset's carrying amount is written down immediately to its
recoverable amount if its carrying amount is greater than its
estimated recoverable amount.
Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in the
statementof comprehensive income.
Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the acquirer's share of the net identifiable
assets, liabilities and contingent liabilities of the acquired
subsidiary or associate at the date of exchange. Goodwill on
acquisitions of subsidiaries is presented separately in the
consolidated of financial position. Goodwill on acquisitions of
associates is included in investments in associates. Goodwill is
carried at cost less accumulated impairment losses, if any.
The excess of the acquirer's interest in the net fair value of
the identifiable assets, liabilities and contingent liabilities
acquired over cost is recognized immediately in the consolidated
statement of comprehensive income.
The Group tests goodwill for impairment at least annually and
whenever there are indications that goodwill may be impaired.
Goodwill is allocated to the acquirer's cash-generating units, or
groups of cash-generating units, that are expected to benefit from
the synergies of the business combination. Such units or group of
units represent the lowest level at which the Group monitors
goodwill and are not larger than a segment. Gains or losses on
disposal of an operation within a cash-generating unit to which
goodwill has been allocated include the carrying amount of goodwill
associated with the operation disposed of, generally measured on
the basis of the relative values of the operation disposed of and
the portion of the cash-generating unit which is retained.
(b) Computer software
The Group's capitalized computer software has definite useful
lives. Acquired computer software licenses are capitalized on the
basis of the costs incurred to acquire and bring them to use.
Intangible assets are amortized using the straight-line method
over their useful lives estimated at 3 years.
If impaired, the carrying amount of intangible assets is written
down to the higher of value in use and fair value less costs to
sell.
Financial Instruments
Classification
(a) Financial assets
The Group classifies its investments in financial assets in
equity and debt securities in the following categories: financial
assets at fair value through income statement, held-to-maturity
investments, available for-sale financial assets, loans and
receivables. The classification depends on the purpose for which
the investments were acquired. Management determines the
classification of investments at initial recognition and
re-evaluates this designation at every date of statement of
financial position.
(i) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for
trading and those designated at fair value through profit or loss
at inception. A financial asset is classified in the held for
trading category if acquired principally for the purpose of
generating a profit from short-term fluctuations in price. Assets
in this category are classified as current assets if they are
either held for trading or are expected to be realized within
twelve months of the date of statement of financial position.
Gains or losses arising from changes in the fair value of the
'financial assets at fair value through profit or loss' category
are presented in the statement comprehensive income within 'other
(losses)/gains - net' in the period in which they arise. Dividend
income from financial assets at fair value through profit or loss
is recognized in the statement comprehensive income as part of
other income when the Group's right to receive payments is
established.
The Group did not hold financial assets in this category during
years 2012 and 2011.
(ii) Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets
with fixed or determinable payments and fixed maturity that the
Group's management has the positive intent and ability to hold to
maturity, other than loan and receivables originated by the Group.
Such investments are included in non-current assets, except for
maturities within twelve months from the date of statement of
financial position, which are classified as current assets.
The Group did not hold financial assets in this category during
years 2012 and 2011.
(iii) Available-for-sale financial assets
Investments intended to be held for an indefinite period of
time, which may be sold in response to needs for liquidity or
changes in interest rates, are classified as available-for-sale;
these are included in non-current assets unless management has the
express intention of holding the investment for less than 12 months
from the date of statement of financial position or unless they
will need to be sold to raise operating capital, in which case they
are included in current assets.
The Group did not hold financial assets in this category during
years 2012 and 2011.
(iv) Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for maturities
greater than 12 months after the end of the reporting period. These
are classified as non-current assets. Loans and receivables
comprise "trade and other receivables", "loans receivable\", "VAT
recoverable", "Prepayments to constructors" and "Cash and cash
equivalents".
(b) Financial liability
Financial liability is any liability that is a contractual
obligation to deliver cash or another financial asset to another
entity or to exchange financial instruments with another entity
under conditions that are potentially unfavorable.
Initial recognition
Financial assets at fair value through profit and loss are
initially recorded at fair value. All other financial assets and
liabilities are initially recorded at fair value plus transaction
costs. Fair value at initial recognition is best evidenced by the
transaction price. A gain or loss on initial recognition is only
recorded if there is a difference between fair value and
transaction price which can be evidenced by other observable
current market transactions in the same instrument or by a
valuation technique whose inputs include only data from observable
markets. All purchases and sales of financial instruments that
require delivery within the time frame established by regulation or
market convention (regular way purchases and sales) are recorded at
trade date, which is the date that the Group commits to deliver a
financial instrument. All other purchases and sales are recognized
on the settlement date with the change in value between the
commitment date and settlement date not recognized for assets
carried at cost or amortized cost, recognized in the consolidated
statement of comprehensive income for trading investments, and
recognized in equity for assets classified as
available-for-sale.
Subsequent measurement
Subsequent to initial recognition all financial assets at fair
value through profit or loss and all available-for-sale instruments
are measured at fair value, except for those instruments that do
not have a quoted market price in an active market and whose fair
value cannot be reliably measured are stated at cost, including
transaction costs, less impairment losses. All non-trading
financial liabilities, loans and receivables and held-to-maturity
assets are measured at amortized cost less impairment losses.
Amortized cost is calculated using the effective interest rate
method. Premiums and discounts, including initial transaction
costs, are included in the carrying amount of the related
instrument and amortized based on the effective interest rate of
the instrument.
Derecognition
Financial assets are derecognized when the rights to receive
cash flows from the financial assets have expired or where the
Group has transferred substantially all risks and rewards of
ownership. A financial liability is derecognized when it is
extinguished, i.e. when the obligation specified in the contract is
discharged or cancelled or expires.
Fair value measurement principles
The fair value of financial instruments is based on their quoted
market price at the balance sheet date without any deduction for
transaction costs. If a quoted market price is not available, the
fair value of the instrument is estimated using pricing models or
discounted cash flow techniques. Where discounted cash flow
techniques are used, estimated future cash flows are based on
management's best estimates and the discount rate is a market
related rate at the balance sheet date for an instrument with
similar terms and conditions. Where pricing models are used, inputs
are based on market related measures at the date of statement of
financial position.
Loans receivable
Loans originated by the Group by providing financial support
directly to the borrower are categorized as loans and are carried
at amortized cost. This is defined as the fair value of cash
consideration given to originate those loans as is determined by
reference to market prices at origination date. All loans are
recognized when cash is advanced to the borrower. An allowance for
loan impairment is established if there is objective evidence that
the Group will not be able to collect all amounts due according to
the original contractual terms of loans. The amount of the
provision is the difference between the carrying amount and the
recoverable amount, being the present value of the expected cash
flows including amounts recoverable from guarantees and collateral,
discounted at the original effective interest rate of loans.
Trade and other receivables
Trade receivables are recognized initially at fair value and
subsequently measured at amortized cost using the effective
interest method, less provision for impairment. A provision for
impairment of trade receivables is established when there is
objective evidence that the Group will not be able to collect all
amounts due according to the original terms of the receivables.
Significant financial difficulties of the debtor, probability that
the debtor will enter bankruptcy or financial reorganization, and
default or delinquency in payments are considered indicators that
the trade receivable is impaired. The amount of the provision is
the difference between the asset's carrying amount and the present
value of estimated future cash flows, discounted at the original
effective interest rate. The carrying amount of the asset is
reduced through the use of an allowance account, and the amount of
the loss is recognized in the consolidated statement of
comprehensive income within other operating expenses. When a trade
receivable is uncollectible, it is written off against the
allowance account for trade receivables. Subsequent recoveries of
amounts previously written off are credited against other operating
expenses in the comprehensive income.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, call deposits
held with banks, other short-term highly liquid investments with
original maturities of three months or less, and bank overdrafts.
Bank overdrafts are shown within borrowings in current liabilities
in statement of financial position. The Group did not have any bank
overdrafts as at 31 December 2012 and 31 December 2011.
Impairment of tangible and intangible assets excluding
goodwill
At each date of statement of financial position, the Group
reviews the carrying amounts of its tangible and intangible assets
to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where it is not
possible to estimate the recoverable amount of an individual asset,
the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset. If the
recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount
of the asset (cash-generating unit) is reduced to its recoverable
amount.
An impairment loss is recognized immediately in the statement of
comprehensive income, unless the relevant asset is carried at a
revalued amount, in which case the impairment loss is treated as a
revaluation decrease. Where an impairment loss subsequently
reverses, the carrying amount of the asset (cash generating unit)
is increased to the revised estimate of its recoverable amount, but
so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been
recognized for the asset (cash-generating unit) in prior years. A
reversal of an impairment loss is recognized immediately in profit
or loss, unless the relevant asset is carried at a revalued amount,
in which case the reversal of the impairment loss is treated as a
revaluation increase.
Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares are shown in
equity as a deduction, net of tax, from the proceeds in share
premium.
Share premium
Share premium is the difference between the fair value of the
consideration receivable for the issue of shares and the nominal
value of the shares. The share premium account can only be resorted
to for limited purposes, which do not include distribution of
dividends and is otherwise subject to the provisions of the Cyprus
Companies Law on the reduction of share capital.
Earnings per share
The Group presents basic and diluted earnings per share ("EPS")
for its ordinary shares.
Basic earnings per share amounts are calculated by dividing net
profit for the year attributable to ordinary equity holders of the
Company by the weighted average number of ordinary shares
outstanding during the year.
Diluted earnings per share amounts are calculated by dividing
the net profit attributable to ordinary equity holders of the
Company by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of
ordinary share that would be issued on conversion of all the
dilutive potential ordinary shares into ordinary shares.
Revaluation reserve
Revaluation reserve consists of revaluation results on
investment property under development.
Trade and other payables
Trade and other payables are recognized initially measured at
fair value and subsequently measured at amortized cost using the
effective interest method.
Advances from customers
Payments received in advance on development contracts for which
no revenue has been recognized yet, are recorded as advances from
customers as at the date of statement of financial position and
carried under creditors. Payments received in advance on
development contracts for which revenue has been recognized, are
recorded as prepayments from clients to the extent that they exceed
revenue that was recognized in the statement of comprehensive
income as at the date of statement of financial position.
Borrowings
Borrowings are recorded initially as the proceeds received, net
of transaction costs incurred. Borrowings are subsequently stated
at amortized cost. Any differences between the proceeds (net of
transaction costs) and the redemption value is recognized in the
consolidated statement of comprehensive incomeover the period of
the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognized
as transaction costs of the loan, to the extent that it is probable
that some or all facility will be drawn down. In this case, the fee
is deferred until drawn-down occurs. To the extent there is no
evidence that it is probable that some or all of the facility will
be drawn down, the fee is capitalized as prepayment for liquidity
services and amortized over the period of the facility to which it
relates.
Borrowings are classified as current liabilities unless the
Group has an unconditional right to defer settlement of the
liability for at least 12 months after the date of statement of
financial position.
Leases
(a) Finance leases
A lease is classified as a finance lease if it transfers
substantially all risks and rewards incidental to ownership. Upon
initial recognition the leased asset is measured at an amount equal
to the lower of its fair value and the present value of the minimum
lease payments. Subsequent to initial recognition, the asset is
accounted for in accordance with the accounting policy applicable
to that asset.
(c) Operating leases
Leases where a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the
consolidated statement of comprehensive income on a straight-line
basis over the period of the lease.
The Group as a Lessor
(i) Finance lease
Amounts due from lessees under finance leases are recorded as
receivables at the amount of the Group's net investment in the
leases. Finance lease income is allocated to accounting periods so
as to reflect a constant periodic rate of return on the Group's net
investment outstanding in respect of the leases.
(ii) Operating lease
Rental income from operating leases is recognized on a
straight-line basis over the term of the relevant lease. Initial
direct costs incurred in negotiating and arranging an operating
lease are added to the carrying amount of the leased asset and
recognized on a straight-line basis over the lease term.
The Group as a Lessee
(i) Finance lease
Assets held under finance leases are recognized as assets of the
Group at their fair value at the inception of the lease or, if
lower, at the present value of the minimum lease payments. The
corresponding liability to the lessor is included in the balance
sheet as a finance lease obligation. Lease payments are apportioned
between finance charges and reduction of the lease obligation so as
to achieve a constant rate of interest on the remaining balance of
the liability. Finance charges are charged to consolidated income
statement, unless they are directly attributable to qualifying
assets, in which case they are capitalized in accordance with the
Group's general policy on borrowing costs.
Lease payments are analyzed between capital and interest
components so that the interest element of the payment is charged
to the consolidated statement of comprehensive income over the
period of the lease and represents a constant proportion of the
balance of capital repayments outstanding. The capital part reduces
the amount payable to the lessor.
(ii) Operating lease
Leases in which a significant portion of the risks and rewards
of ownership are retained by another party, the lessor, are
classified as operating leases. Payments, which include
prepayments, are charged to the statement of comprehensive income
on a straight line basis over the lease term.
Taxation
Taxation has been provided for in the consolidated financial
statements in accordance with Ukraine and Cypriot legislation
currently in force.
The charge for taxation in the consolidated statement of
comprehensive income comprises current tax and charges for deferred
tax.
Current tax expense is the expected tax payable on the taxable
income for the period, using tax rates applicable at the balance
sheet date, and any adjustment to tax payable in respect of
previous years. Current tax expense comprises corporation tax
levied in Cyprus at 10% and in Ukraine at 21% as at 31 December
2012 (25% since 1 January 2011 till 31 March 2011, 23% since 1
April 2011 till 31 December 2011) and Cyprus special contribution
for defense tax which is imposed on interest income at 10% and
rental income reduced by 25% at 3%.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the consolidated financial statements and the corresponding tax
bases used in the computation of taxable profit, and is accounted
for using the balance sheet liability method. Deferred tax
liabilities are generally recognized for all taxable temporary
differences and deferred tax assets are recognized to the extent
that it is probable that taxable profits will be available against
which deductible temporary differences can be utilized. Such assets
and liabilities are not recognized if the temporary difference
arises from goodwill, from the initial recognition of assets and
liabilities in a transaction that affects neither the tax profit
nor the accounting profit, and is not considered a business
combination and from differences relating to investments in
subsidiaries to the extent that they will probably not reverse in
the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
date of statement of financial position and reduced to the extent
that it is no longer probable that sufficient taxable profits will
be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realized. Deferred tax is charged or credited in the statement of
comprehensive income, except when it relates to items charged or
credited directly to reserves, in which case the deferred tax is
also dealt with in reserves.
Value added tax
VAT is levied at the following rates:
-- 20% on Ukrainian domestic sales and imports of goods, works
and services and 0% on export of goods and provision of works or
services to be used outside Ukraine; and
-- 18% on Cyprus domestic sales and imports of goods, works and
services and 0% on export of goods and provision of works or
services to be used outside Cyprus.
A taxpayer's VAT liability equals the total amount of VAT
collected within a reporting period, and arises on the earlier of
the date of shipping goods to a customer or the date of receiving
payment from the customer. A VAT credit is the amount that a
taxpayer is entitled to offset against his VAT liability in a
reporting period. Rights to VAT credit arise on the earlier of the
date of payment to the supplier or the date goods are received.
Provisions
Provisions for environmental restoration, restructuring costs
and legal claims are recognized when: the group has a present
legal or constructive obligation as a result of past events; it
is probable that an outflow of resources will be required to settle
the obligation; and the amount has been reliably estimated. Restructuring
provisions comprise lease termination penalties and employee termination
payments. Provisions are not recognized for future operating losses.
Where there are a number of similar obligations, the likelihood
that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is
recognized even if the likelihood of an outflow with respect to
any one item included in the same class of obligations may be
small.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value
of money and the risks specific to the obligation. The increase
in the provision due to passage of time is recognized as interest
expense.
Comparative information
Where necessary, comparative figures have been adjusted to
conform to changes in presentation in the current period.
5. Financial risk management
5.1 Financial risk factors
The Group's activities expose it to a variety of financial
risks: market risk (including foreign exchange risk, price risk,
cash flow interest rate risk, fair value interest rate risk and
country risk), credit risk, liquidity risk, operational risk,
compliance risk, litigation risk, reputation risk, share ownership
risk and other risks arising from the financial instruments it
holds. The Group's overall risk management program focuses on the
unpredictability of financial markets and seeks to minimize
potential adverse effects on the Group's financial performance.
Risk management is carried out by a central treasury department
(Group Treasury) under policies approved by the Board of Directors.
Group Treasury identifies, evaluates and hedges financial risks in
close co-operation with the Group's operating units. The Board
provides written principles for overall risk management, as well as
written policies covering specific areas, such as foreign exchange
risk, interest rate risk, credit risk, and investment of excess
liquidity.
The reports on the risk management are produced periodically, on
a legal entities level, to the key management personnel of the
Group.
(a) Market risk
(i) Foreign exchange risk
The main activities of the Group are carried in Ukraine, with
the Company being a tax resident in the Republic of Cyprus. The
Group has certain investments in foreign operations, whose net
assets are exposed to foreign currency translation risk.
Therefore, the Group is exposed to foreign exchange risk,
primarily with respect to the USD, UAH and EUR. Foreign exchange
risk arises when future commercial transactions, recognized assets
and liabilities and net investments in foreign operations, are
denominated in a currency that is not the entity's functional
currency.
The Group's management monitors the exchange rate fluctuations
on a continuous basis and enters into currency hedging transactions
in case if exchange rate fluctuations are significant to the Group,
mainly through transactions of its foreign subsidiaries, as well as
deposit or borrowing agreements.
Group
The Group's financial assets and liabilities are included in the
table below, categorized by the Group's exposure to foreign
currency risk at 31 December 2012:
Currency
As at 31 December 2012 UAH USD EUR Total
-------------------------------- ------- ------- ---- -------
USD equivalent
Financial assets - loans and
receivables:
Loans receivable (Note 20) 369 - - 369
Trade and other receivables
(Note 23) 175 3,902 - 4,077
Prepayments to constructors
(Note 21) 148 - - 148
VAT recoverable (Note 22) 2,526 - - 2,526
Cash and cash equivalents
(Note 24) 514 2,938 8 3,460
------- ------- ---- -------
Total financial assets 3,732 6,840 8 10,580
------- ------- ---- -------
Financial liabilities - other
financial liabilities:
Bank borrowings (Note 27) - 54,302 - 54,302
Other borrowings (Note 27) 595 1,063 - 1,658
Finance lease liabilities
(Note 28) 18,853 - - 18,853
Trade and other payables (Note
29) 3,599 3,390 - 6,989
Total financial liabilities 23,046 58,756 - 81,802
------- ------- ---- -------
The Group's financial assets and liabilities are included in the
table below, categorized by the Group's exposure to foreign
currency risk at 31 December 2011:
Currency
As at 31 December 2011 UAH USD EUR Total
-------------------------------- ------- ------- ---- -------
USD equivalent
Financial assets - loans and
receivables:
Loans receivable (Note 20) 586 - - 586
Trade and other receivables
(Note 23) 568 4,312 - 4,880
Prepayments to constructors
(Note 21) 57 - - 57
VAT recoverable (Note 22) 683 - - 683
Cash and cash equivalents
(Note 24) 671 9,944 37 10,652
------- ------- ---- -------
Total financial assets 2,565 14,256 37 16,858
------- ------- ---- -------
Financial liabilities - other
financial liabilities:
Bank borrowings (Note 27) - 54,923 - 54,923
Other borrowings (Note 27) 6,553 1,063 - 7,616
Finance lease liabilities
(Note 28) 18,647 - - 18,647
Trade and other payables (Note
29) 3,614 4,478 48 8,140
Total financial liabilities 22,814 60,464 48 89,326
------- ------- ---- -------
Company
The Company's financial assets and liabilities are included in
the table below, categorized by the Company's exposure to foreign
currency risk at 31 December 2012:
Currency
As at 31 December 2012 UAH USD EUR Total
------------------------------- ---- ------- ---- -------
USD equivalent
Financial assets - loans
and receivables:
Loans receivable (Note 20) - 75,007 - 75,007
Trade and other receivables
(Note 23) - 19,081 - 19,081
Cash and cash equivalents
(Note 24) 2 2,936 9 2,947
---- ------- ---- -------
Total financial assets 2 97,024 9 97,035
---- ------- ---- -------
Financial liabilities -
other financial liabilities:
Bank borrowings (Note 27) - 54,302 - 54,302
Other borrowings (Note 27) - 3,470 - 3,470
Trade and other payables
(Note 29) - 3,955 - 3,955
---- ------- ---- -------
Total financial liabilities - 61,727 - 61,727
---- ------- ---- -------
The Company's financial assets and liabilities are included in
the table below, categorized by the Company's exposure to foreign
currency risk at 31 December 2011:
Currency
As at 31 December 2011 UAH USD EUR Total
------------------------------- ----- -------- ---- --------
USD equivalent
Financial assets - loans
and receivables:
Loans receivable (Note 20) - 71,222 - 71,222
Trade and other receivables
(Note 23) - 20,232 - 20,232
Cash and cash equivalents
(Note 24) - 9,914 37 9,951
----- -------- ---- --------
Total financial assets - 101,368 37 101,405
----- -------- ---- --------
Financial liabilities -
other financial liabilities:
Bank borrowings (Note 27) - 54,923 - 54,923
Other borrowings (Note 27) - 5,437 - 5,437
Trade and other payables
(Note 29) - 5,852 - 5,852
----- -------- ---- --------
Total financial liabilities - 66,212 - 66,212
----- -------- ---- --------
The sensitivity analysis prepared by management for foreign
currency risk illustrates how changes in the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates.
At 31 December 2012, if the UAH had weakened/strengthened by 10%
against the USD with all other variables held constant, the closing
balances of financial assets would increase/decrease by USD
186/(152) thousand, respectively (2011: USD 285/(233) thousand,
respectively). At 31 December 2012, if the UAH had
weakened/strengthened by 10% against the USD with all other
variables held constant, the closing balances of financial
liabilities would increase/decrease by USD 1,828/(1,496) thousand,
respectively (2011: USD 2,539/(2,078) thousand, respectively).
(ii) Price risk
The Group is exposed to property rentals and capitalization
yield risk.
As at 31 December 2012, if the rental price had changed by 10%
or the capitalization yield had increased/decreased by 1%, with all
other variables held constant, the fair value of the projects would
have been as follows:
Project Capitalization
Rental price yield
Carrying
value as
at 31 December
2012 (Note
-10% 10% -1% 1% 15)
Berezneva mixed-use 1,200 4,000 5,500 1,500 2,600
Brovarskiy business
centre (1,200) 6,400 6,100 (400) 2,600
Kvadrat-Perova 39,900 46,500 45,900 40,700 43,100
Kvadrat Simferopol (200) 7,400 8,300 (400) 3,600
Posolsky dvir serviced
apartments 9,900 23,400 20,300 13,600 16,700
Lisovamixed-use (2,200) 12,200 12,200 (1,000) 5,100
Lviv mixed-use 1,600 14,400 14,800 2,300 8,000
Petrivka business centre 6,200 19,500 19,000 7,700 12,900
Sevastopol mixed-use 1,800 9,200 9,100 2,400 5,500
Virlytsia mixed-use 43,100 152,900 127,700 60,600 98,100
Vyshhorod warehouse
complex - - - - 3,200
Zhytomyr highway logistics
complex 1,200 12,600 11,000 3,300 5,800
Dnipropetrovsk logistics
complex (5,500) 14,800 12,100 (1,800) 5,100
Simferopol logistics
complex 1,600 5,800 7,200 600 3,700
Kvadrat Cherkasy (900) 3,700 3,800 (700) 1,400
Kvadrat-Myloslavska 18,800 18,800 24,300 14,200 18,800
Aquapark Kyiv - - - - -
Kyianivsky - - - - 5,000
Poltava mixed-use - - - - 17,200
Sumy mixed-use - - - - 1,300
Total 115,300 351,600 327,300 142,600 259,700
-------- -------- -------- -------- ----------------
Provided that rental price of commercial property decrease by
10%, that may lead to decrease of carrying value of investment
property at 31 December 2012 by 55.6% or USD 144,400 thousand. The
increase of rental price by 10% may lead to increase of carrying
value of investment property at 31 December 2012 by 35.4% or USD
91,900 thousand.
The decrease of capitalization yield by 1% may result into
increase of carrying value of investment property at 31 December
2012 by 26.0% or USD 67,600 thousand. The increase of
capitalization yield by 1% may result into decrease of carrying
value of investment property at 31 December 2011 by 54.9% or USD
117,100 thousand.
For residential projects, the sales price had changed by 10%
with all other variables held constant, the fair value of the
projects at 31 December 2012 would have been as follows:
Project Sales price
Carrying value
as at 31 December
2012 (Note
-10% 10% 15)
Alupka 2,100 21,100 11,600
Voznesensky Yar 10,200 31,400 20,800
Yaroslaviv Val 4,620 9,720 7,140
------- ------- -------------------
Total 16,920 62,220 39,540
------- ------- -------------------
Provided that sales price of residential property had decreased
by 10%, it may lead to decrease of carrying value of investment
property at 31 December 2012 by 57.2% or USD 22,620 thousand. The
increase of sales price of residential property by 10% may lead to
increase of carrying value of investment property at 31 December
2011 by 57.3% or USD 22,660 thousand.
At 31 December 2012, the Group does not hold equity investments
which are publicly traded. The Group is not exposed to commodity
price risk.
(iii) Cash flow and fair value interest rate risk
The Group's interest rate risk arises from loans issued to
contractors and long-term borrowings. Borrowings issued at variable
rates expose the Group to cash flow interest rate risk. Borrowings
issued at fixed rates expose the Group to fair value interest rate
risk. During 2010 the Group's borrowings at fixed rate comprised of
Eurobonds and were denominated in USD. The Group's borrowings at
variable rates during 2012 and 2011 comprised of bank borrowings
and were denominated in USD, EUR and UAH. At 31 December 2011 and
2012, the Group has bank USD denominated borrowings under interest
rate based on LIBOR rate.
The Group analyses its interest rate exposure on a dynamic
basis. Various scenarios are simulated taking into consideration
refinancing, renewal of existing positions, alternative financing
and hedging. Based on these scenarios, the Group calculates the
impact on profit and loss of a defined interest rate shift.
Trade and other payables are interest-free and have settlement
dates within one year.
(iv) Country risk
The principal activities of the Group are conducted in Ukraine.
These types of markets (emerging markets) are subject to greater
risk than the developed markets, including political, economic and
legal risk. The legal system of Ukraine is in transition and is
therefore subject to greater risks and uncertainties than a more
mature legal system. The risks associated with the Ukrainian legal
system include, but are not limited to:
(a) inconsistencies between and among the Constitution of
Ukraine and various laws, presidential decrees, governmental,
ministerial and local orders, decisions, resolutions and other
acts;
(b) provisions in the laws and regulations that are ambiguously
worded or lack specificity and thereby raise difficulties when
implemented or interpreted;
(c) difficulty in predicting the outcome of judicial application
of Ukrainian legislation;
(d) the fact that not all Ukrainian resolutions, orders and
decrees and other similar acts are readily available to the public
or available in understandably organized form.
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from
cash and cash equivalents, deposits with banks and financial
institutions, loans receivable, as well as credit exposures to
contractors and rental customers, including outstanding receivables
and committed transactions.
Credit risk is managed on a Group basis and structures the
levels of credit risk it accepts by placing limits on its exposure
to a single counterparty or groups of counterparties. The Group has
policies in place to ensure that loan and rental contracts are made
with customers with an appropriate credit history. The Group has
policies that limit the amount of credit exposure to any financial
institution. If counterparties are independently rated, these
ratings are used. Otherwise, if there is no independent rating,
risk control assesses the credit quality of the counterparty taking
into account its financial position, past experience and other
factors. Cash transactions are limited to high-credit-quality
financial institutions. The utilization of credit limits is
regularly monitored.
The analysis of loans issued by the Group to the third parties
at 31 December 2012 and 31 December 2011 is provided in the Note
20.
The analysis by credit quality of financial assets is as
follows:
Group
Year 2012 Neither past Past due Impaired Total
due nor impaired not impaired
----------------------------- ------------------ -------------- --------- -------
Prepayments to constructors
(1) 148 - 1,731 1,879
VAT recoverable (1) 2,526 - - 2,526
Trade and other receivables
(1) 4,077 - 1,359 5,436
Loans receivable (1) 369 - - 369
Cash and cash equivalents
(2) 3,460 - - 3,460
------------------ -------------- --------- -------
10,580 - 3,090 13,670
================== ============== ========= =======
Year 2011 Neither past Past due Impaired Total
due nor impaired not impaired
----------------------------- ------------------ -------------- --------- -------
Prepayments to constructors
(1) 57 - 1,719 1,776
VAT recoverable (1) 683 - 830 1,513
Trade and other receivables
(1) 4,880 - 904 5,784
Loans receivable (1) 586 - 592 1,178
Cash and cash equivalents
(2) 10,652 - - 10,652
------------------ -------------- --------- -------
16,858 - 4,045 20,903
================== ============== ========= =======
(1) Without external ratings
(2) With external ratings of Moody's as follows:
2012 2011
------ -------
-- VAT recoverable
- Ukraine: B2 2,526 1,513
====== =======
-- Cash and cash equivalents
Credit Suisse A.G.: 2012: B+; 2011:
B 2,884 9,867
Others 576 785
------ -------
3,460 10,652
====== =======
Company
Year 2012 Neither past Past due Impaired Total
due nor impaired not impaired
----------------------------- ------------------ -------------- --------- --------
Trade and other receivables
(1) 20,226 - 410 20,636
Loans receivable (1) 75,007 - 56,918 131,925
Cash and cash equivalents
(2) 2,947 - - 2,947
------------------ -------------- --------- --------
98,182 - 57,328 155,508
================== ============== ========= ========
Year 2011 Neither past Past due Impaired Total
due nor impaired not impaired
--------------------------- ------------------ -------------- --------- --------
Trade and other
receivables (1) 20,232 - 410 20,642
Loans receivable
(1) 71,222 - 56,918 128,140
Cash and cash equivalents
(2) 9,951 - - 9,951
------------------ -------------- --------- --------
101,405 - 57,328 158,733
================== ============== ========= ========
(1) Without external ratings
(2) With external ratings of Moody's as follows:
2012 2011
------ ------
-- Cash and cash equivalents
Barclays Bank PLC: C 62 62
Credit Suisse A.G.: B 2,884 9,867
Others 1 22
------ ------
2,947 9,951
====== ======
(c) Liquidity risk
Liquidity risk is the risk that arises when the maturity of
assets and liabilities does not match. An unmatched position
potentially enhances profitability, but can also increase the risk
of losses. The Group has procedures with the object of minimizing
such losses such as maintaining sufficient cash and other highly
liquid current assets and by having available an adequate amount of
committed credit facilities.
Forecasted liquidity reserves as at 31 December 2012 is as
follows:
2013 2014-2015
--------- -----------
Opening balance for the period 3,570 17,015
--------- -----------
Operating proceeds 8,199 30,918
Operating and administrative outflows (7,317) (17,234)
Investment outflows (13,000) (120,000)
Investment proceeds 21,150 44,200
Financing proceeds 9,000 121,800
Repayments of debts and dividends (4,587) (63,324)
Closing balance for the period 17,015 13,375
--------- -----------
This forecasted liquidity reserves are based on the project
portfolio currently presented on the balance sheet as at 31
December 2012. However, the Group has certain projects in the
future pipeline portfolio and their development could influence the
anticipated cash flows.
The Group's liquidity position is monitored on a daily basis by
the management. A summary table with maturity of financial assets
and liabilities presented below is used by key management personnel
to manage liquidity risks and is derived from managerial reports at
entity level.
31 December
----------------
2012 2011
------- -------
Financial assets - non-current
Loans receivable (Note 20) 276 557
Prepayments to constructors (Note
21) 148 57
VAT recoverable (Note 22) 2,526 683
2,950 1,297
Financial assets - current
Trade receivables - maturity within
one year (Note 23) 4,077 4,880
Loans receivable - maturity within
one year (Note 20) 93 29
Cash and cash equivalents - maturity
within one year (Note 24) 3,460 10,652
------- -------
7,630 15,561
------- -------
Financial liabilities - non-current
Borrowings (Note 27)
Between 1 and 2 years 6 54,218
Between 2 and 5 years 1,064 1,062
Over 5 years - -
------- -------
1,070 55,280
------- -------
Finance lease liabilities - non-current
(Note 28)
Between 1 and 5 years 5,078 5,043
Later than 5 years 11,987 12,044
------- -------
17,065 17,087
------- -------
31 December
---------------------------
2012 2011
------------ -------------
Financial liabilities - current
Short-term borrowings - maturity
within one year (Note 27) 54,890 7,259
Trade and other payables - maturity
within one year (Note 29) 6,989 8,140
Finance lease liabilities - maturity
within one year (Note 28) 1,788 1,560
63,667 16,959
------------ -------------
(d) Operational risk
Operational risk is the risk that derives from the deficiencies
relating to the Group's information technology and control systems
as well as the risk of human error and natural disasters. The
Group's systems are evaluated, maintained and upgraded
continuously.
(e) Compliance risk
Compliance risk is the risk of financial loss, including fines
and other penalties, which arise from non--compliance with laws and
regulations of the state. The risk is limited to a significant
extent due to the supervision applied by the Compliance Officer, as
well as by the monitoring controls applied by the Group.
(f) Litigation risk
Litigation risk is the risk of financial loss, interruption of
the Group's operations or any other undesirable situation that
arises from the possibility of non--execution or violation of legal
contracts and consequentially of lawsuits. The risk is restricted
through the contracts used by the Group to execute its
operations.
(g) Reputation risk
The risk of loss of reputation arising from the negative
publicity relating to the Group's operations (whether true or
false) may result in a reduction of its clientele, reduction in
revenue and legal cases against the Group. The Group applies
procedures to minimize this risk.
(h) Share ownership risk
The risk of share ownership arises from the investment in
shares/participation of the Group and is a combination of credit,
price and operational risk as well as the risk of compliance and
loss of reputation. The Group applies procedures of analysis,
measurement and evaluation of this risk in order to minimize
it.
(i) Other risks
The general economic environment prevailing in Cyprus and
internationally may affect the Group's operations to a great
extent. Concepts such as inflation, unemployment, and development
of the gross domestic product are directly linked to the economic
course of every country and any variation in these and the economic
environment in general may create chain reactions in all areas
hence affecting the Group.
5.2 Capital risk management
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce
debt.
The Group monitors capital on the basis of the gearing ratio.
This ratio is calculated as net debt divided by total capital. Net
debt is calculated as total borrowings (including borrowings and
trade and other payables, as shown in the consolidated balance
sheet) less cash and cash equivalents. Total capital is calculated
as equity, as shown in the consolidated statement of financial
position, plus net debt.
The gearing ratios as at 31 December 2012 and 31 December 2011
were as follows:
31 December
-----------------
2012 2011
------- --------
Long-term and short-term borrowings
(Note 27) 55,960 62,539
Financial lease liabilities (Note
28) 18,853 18,647
------- --------
Total borrowings 74,813 81,186
Less: cash and cash equivalents (Note
24) (3,460) (10,652)
------- --------
Net debt 71,353 70,534
Total equity 227,959 262,703
------- --------
Total capital 299,312 333,237
------- --------
Gearing ratio 23.84% 21.17%
The marginal increase in the gearing ratio during 2012 resulted
from the reduction in total equity due to losses as net debt is
practically unchanged.
Fair value estimation
The fair value of financial instruments traded in active markets
(such as trading and available-for-sale securities) is based on
quoted market prices at the balance sheet date. The quoted market
price used for financial assets held by the Group is the current
bid price.
The fair value of financial instruments that are not traded in
an active market is determined by using valuation techniques. The
Group uses a variety of methods and makes assumptions that are
based on market conditions existing at each balance sheet date.
Quoted market prices or dealer quotes for similar instruments are
used for long-term debt. Other techniques, such as estimated
discounted cash flows, are used to determine fair value for the
remaining financial instruments.
The carrying value less impairment provision of trade
receivables and payables are assumed to approximate their fair
values. The fair value of financial liabilities for disclosure
purposes is estimated by discounting the future contractual cash
flows at the current market interest rate that is available to the
Group for similar financial instruments.
6. Critical accounting estimates and judgments
Estimates and judgments are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
The Company makes estimates and assumptions concerning the
future. The resulting accounting estimates will, by definition,
rarely equal the related actual results. The estimates and
assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are outlined below.
Impairment of the development rights and costs
As a result of the current economic environment and market
conditions, indicators of impairment have been identified. For
these properties, the development projects' recoverable amount was
determined based on reliable estimates of future cash flows,
supported by the terms of any existing lease and other contracts
and by external evidence such as current market prices for similar
properties in the same location and condition, and using discount
rates that reflect current market assessments of the uncertainty in
the amount and timing of the cash flows.
Management has reviewed the appraisers' assumptions underlying
discounted cash flow models used in the valuation, and confirmed
that factors such as the discount rate applied have been
appropriately determined considering the market conditions at the
date of statement of financial position. Notwithstanding the above,
management considers that the valuation of its investment
properties is currently subject to an increased degree of judgment
and an increased likelihood that actual proceeds on a sale may
differ from the carrying value.
The principal assumptions underlying the recoverable amount of
the Group's development portfolio are those related to current
market level of: the projected sale and rent prices per square
meter; the construction costs per square meter; the size of the
projects; the developer profit required and the level of financing
and other costs.
Also, refer to the accounting policy on the investment
properties in Note 4 and Note 15 - Investment property, which
details the Appraiser's assumptions.
Provision for deferred tax
Deferred tax is not provided in respect of the revaluation of
the investment property and investment property under construction
as the Group is able to control the timing of the reversal of this
temporary difference and the management has intention not to
reverse the temporary difference in the foreseeable future. The
properties are located on special purpose entities ("SPE"). The
management estimates that the assets will be realized through a
share deal rather than through an asset deal. Should SPE be
disposed of, the gains generated from the disposal will be exempted
from any tax.
Income taxes
Significant judgment is required in determining provision for
income taxes. There are transactions and calculations for which the
ultimate tax determination is uncertain during the ordinary course
of business. The Company recognizes liabilities for anticipated tax
audit issues based on estimates of whether additional taxes will be
due. Where the final tax outcome of these matters is different from
the amounts that were initially recorded, such differences will
impact the current and deferred income tax assets and liabilities
in the period in which such determination is made.
Value added tax
Significant judgment is required in determining of recoverable
amount of valued added tax receivable. For some transactions amount
of valued added tax receivable is subject to confirmation by the
tax authorities and there is some uncertainty in calculations for
the exact amount of value added tax receivable. Where such
uncertainty exists the Group recognizes provision for value added
tax receivable in order to adjust it to the recoverable amount.
Impairment of investments in subsidiaries
The Company periodically evaluates the recoverability of
investments in subsidiaries whenever indicators of impairment are
present. Indicators of impairment includes such items as declines
in revenues, earnings or cash flows or material adverse changes in
the economic or political stability of a particular country, which
may indicate that the carrying amount of the asset is not
recoverable. If facts and circumstances indicate that investment in
subsidiary may be impaired, the estimated future undiscounted cash
flows associated with these subsidiaries would be compared to their
amounts to determine if a writedown to fair value is necessary.
7. Segmental information
The Group adopted IFRS 8 "Operating Segments" and has determined
the operating segments based on the reports reviewed by the
Management, which are used for making strategic decisions.
Segmental information for 2012 is as follows:
Retail Residential Offices Logistics Hotels Total
----------- ----------- ---------- ---------- ---------- -----------
Revenue - external 6,692 - 243 - - 6,935
Inter-segment
sales - - - - - -
----------- ----------- ---------- ---------- ---------- -----------
Total revenue 6,692 - 243 - - 6,935
----------- ----------- ---------- ---------- ---------- -----------
Segment results 4,847 - 166 - - 5,013
Net gain/(loss)
from fair value
adjustment on
investment property (12,794) (10,349) (8,177) (3,194) (3,290) (37,804)
=========== =========== ========== ========== ========== ===========
Unallocated amounts:
Depreciation
and amortization
expenses (88)
Unallocated other
corporate expenses (2,524)
Operating loss (35,403)
-----------
Unallocated operating
expenses (6,866)
Loss for the
year (42,269)
-----------
Segment assets
Investment properties 119,900 63,440 76,400 17,800 21,700 299,240
Unallocated corporate
assets 11,450
Consolidated
total assets 310,690
-----------
Segment liabilities
Finance lease
liabilities 8,099 3,106 5,565 502 1,581 18,853
Liabilities on
bonds issued
to purchase subsidiary - -
----------- ----------- ---------- ---------- ---------- -----------
Unallocated corporate
liabilities 63,878
Consolidated
total liabilities 82,731
-----------
Other information:
Capital expenditure 619 104 865 - - 1,588
----------- ----------- ---------- ---------- ---------- -----------
Segmental information for 2011 is as follows:
Retail Residential Offices Logistics Hotels Total
------- ----------- ------- --------- ------- --------
Revenue - external 7,767 - 299 208 - 8,274
Inter-segment
sales - - - - - -
------- ----------- ------- --------- ------- --------
Total revenue 7,767 - 299 208 - 8,274
------- ----------- ------- --------- ------- --------
Segment results 5,572 (10) 299 208 - 6,069
Net gain/(loss)
from fair value
adjustment on
investment property (1,184) (13,625) (3,421) (1,225) (5,189) (24,644)
======= =========== ======= ========= ======= ========
Unallocated amounts:
Loss on disposal
of subsidiary
and associate (11,263)
Depreciation
and amortization
expenses (108)
Unallocated other
corporate expenses 14,153
Operating loss (15,793)
--------
Unallocated operating
expenses (9,523)
Loss for the
year (25,316)
--------
Segment assets
Investment properties 126,400 75,460 87,400 21,000 25,000 335,260
Unallocated corporate
assets 17,700
Consolidated
total assets 352,960
--------
Segment liabilities
Finance lease
liabilities 7,108 4,517 3,635 947 2,440 18,647
Liabilities on
bonds issued
to purchase subsidiary 514 514
Unallocated corporate
liabilities 71,096
------------------------ ------- ----------- ------- --------- ------- --------
Consolidated
total liabilities 90,257
--------
Other information:
Capital expenditure 111 22 236 - - 369
------- ----------- ------- --------- ------- --------
8. Revenue from operations
Revenue from operations is as follows:
1.
Group Company
------------------------------- ------------------------
2012 2011 2012 2011
--------------- -------------- ----------- -----------
Rental income (a) 6,935 8,274 - -
Total 6,935 8,274 - -
--------------- -------------- ----------- -----------
(a) For the year ended 31 December 2012, rental income was primarily generated from the shopping
mall of Kvadrat-Perova, amounting to a total of USD 6,501 thousand.
For the year ended 31 December 2011, rental income was primarily generated from the shopping
malls of Kvadrat-Perova and Kvadrat-Lukianivka, amounting to a total of USD 7,767 thousand.
During the year ended 31 December 2011, Kvadrat-Lukianivka project was disposed.
(b) During the year ended 31 December 2012, the total floor area which was available for earning
rental income under operating lease contracts, where the Group is the Lessor was 32,886 square
meters (2011: 32,886 square meters). The floor area actually being rented was 30,901 square
meters representing an occupancy rate of 93.9% (2011: 30,970 square meters, occupancy rate
of 94.2%)
(c) The period of the leases whereby the Group leases out its investment property under operating
leases ranges between 3 and 20 years. For more details refer to Note 31.
9. Cost of operations
Cost of operations is as follows:
1.
Group Company
---------------------- ----------
2012 2011 2012 2011
---------- ---------- ---- ----
Utilities (1,949) (2,195) - -
Cost of premises sold - (10) - -
Total cost of operations (1,949) (2,205) - -
---------- ---------- ---- ----
10. Distribution costs
Distribution costs are as follows:
1.
Group Company
2012 2011 2012 2011
----- ----- ---- ----
Advertising expenses (311) (329) - (22)
Total distribution
costs (311) (329) - (22)
----- ----- ---- ----
11. Administrative expenses
Administrative expenses are as follows:
1.
Group Company
---------------- ----------------
2012 2011 2012 2011
------- ------- ------- -------
Employee benefit expense
(1) (1,462) (1,970) (1,013) (924)
Legal and professional
services (1,086) (727) (881) (717)
Rent (285) (273) - -
Insurances (279) (138) (27) (35)
Maintenance expenses (262) (152) (50) -
Auditor's remuneration (122) (145) (103) (110)
Auditor's remuneration
- prior years - (48) - (48)
Depreciation of property,
plant and equipment (Note
16) (81) (92) - -
Traveling expenses (17) (22) (11) (21)
Amortization of intangible
assets (Note 17) (7) (5) - -
Welfare - (12) - -
Other general and administrative
expenses (390) (1,221) (34) (599)
Total administrative expenses (3,991) (4,805) (2,119) (2,454)
------- ------- ------- -------
(1) The employee benefit expense is included into
"administrative expenses" as shown in the above table. These
employee benefit expenses comprise of the following:
1.
Group Company
------------ -----------
2012 2011 2012 2011
----- ----- ----- ----
Salary and other benefits 1,340 1,701 1,013 924
Social security costs 122 269 - -
Total employee benefits
expense 1,462 1,970 1,013 924
For the key management personnel remuneration, refer to the Note
33.
12. Other operating (expense)/ income, net
1.
Group Company
2012 2011 2012 2011
VAT assets recovery income
(a) 2,494 - - -
Impairment of investments in
subsidiaries (Note 18) - - (13,483) (2,566)
Loss on assignment of loan
receivable - (1,554) - (1,554)
Increase in bad debt provision
(b) (455) (1,370) - -
Write-off of receivables(c) - (1,000) (4,000) -
Trade payables write-off 115 - - -
Increase in bad debt provision
on loans receivable
(Note 20) - (372) - (2,373)
Reversal of impairment of loans
granted (Note 20) - - - 8,482
Provision for receivables on
disposal of investment in subsidiary
(Note 23) - (410) - (410)
Bank borrowings written-off
(d) - 11,977 - -
Write-off of liabilities to
Ineligible Bondholders and
Warrantholders (Note 25 (4)) - 22,166 - 22,166
Impairment of investment property
(Note 15) (283) (10,611) - -
Reversal/(provision) in respect
of lawsuits(e) - 363 - -
Disposal of the project equipment
(f) (161)
Other operating income/ (expense) 6 (10) (63) -
Total other operating expenses 1,716 19,179 (17,546) 23,745
(a) The VAT assets recovery income occurred because of a VAT
asset recognition made by the Ukrainian Tax Authorities for Avrora
OJSCa Group subsidiary. These amounts werenot recognized as VAT
assets in previous years due to theambiguous interpretation of the
Ukrainian tax legislation (see Note 5 (iv) for country risks
detailed description). During the year ended 31 December 2012 the
Group has obtained the reconciliation from the Ukrainian Tax
Authorities which confirms the interpretation of the tax
legislation and results in VAT assets. See also Note 22 for the VAT
balance amounts details.
(b) The increase in the Group's provision for bad debt in 2012
and 2011 was mainly related to impairment of trade receivables
(Note 23).
(c) The write-off of receivables relates to the balances of
previous Group's subsidiaries, which were considered as
unrecoverable upon disposal of these subsidiaries in year 2011.
During the year 2011, Mikasal Ventures Limited, one of the
Company's subsidiaries, was assigned by Grenheim Investments
Limited and LLC Iurydychna Companiya Corpius the rights of the debt
liability owed by Kvadrat Ukraine, another Group subsidiary, to ISC
Ukrsibbank. The total amount of the debt liability assigned to
Mikasal Ventures Limited was USD 5,283,730 , out of which the
amount of USD 1,283,730 was paid during the year 2011, and the
remaining amount of USD 4.000 thousand was outstanding as at 31
December 2011. During the year 2012, due to the fact that Grenheim
Investments Limited and LLC Iurydychna Companiya Corpius are
associated companies of Ovaro Holding Limited (one of the Company's
shareholders), and agreement was signed in order for the debt
liability of USD 4,000 thousand payable by Mikasal Ventures Limited
to Grenheim Investments Limited and LLC Iurydychna Companiya
Corpius, to be duly satisfied and waived by the issue of new
ordinary shares of USD 0.01 each in the capital of XXI Investments
Public Limited to Ovaro Holding Limited in the year 2012 the amount
of USD 4,000 thousand for the Company in the respect of the debt
waiver for the Mikasal, subsidiary of the Company.
Effectively, XXI Century Investments Public Limited has settled
the obligation on behalf of Mikasal Ventures Limited and has
thereafter proceeded to waive the receivable from Mikasal Ventures
Limited.
As a result of this waiver the receivable from Mikasal Ventures
Limited was written-off in the Company's income statement of the
year 2012.
(d) Amounts of USD 11,977 thousand at the Group level in the
year 2011 were written-off in terms of settlement of bank loans
from Ukrsisbbank (Note 27).
(e) An accrual was made in year 2010 for probable payables in
respect of lawsuits. During the year 2011, for one of the lawsuits
the decision was favourable for the Group and hence a reversal of
USD 363 thousand was made.
(f) According to the technical requirements issued in the
process of construction of the Kvadrat-Perova project (Note 15) the
subsidiary company Avrora CJSC has transferred part of electric
equipmentas a part of general electric network to the state
electric monopolist Kievenergo.
13. Finance (expense)/ income, net
Net finance (expense)/ income is as follows:
1.
Group Company
2012 2011 2012 2011
Interest income on loans to
subsidiaries extended - - 3,530 9,092
Interest income on loans to
related parties - 132 - -
Interest income on deposit 2 3 - -
Finance charge on finance lease
(Note 28) (2,782) (2,410) - -
Foreign exchange gain/(loss) (42) (674) (5) (41)
Bank charges and commissions (41) (44) (18) (13)
Interest expenses on bank loans
(Note 27) (3,979) (4,733) (3,980) (3,482)
Interest expense on Eurobonds
(Note 27) - (2,231) - (2,231)
Other finance (expense)/ income (119) (3) - (398)
Total finance (expense)/ income (6,961) (9,960) (473) 2,927
14. Income and deferred tax benefit/ (expense)
(a) Income tax expense is as follows:
1.
Group Company
2012 2011 2012 2011
Corporation income tax
- current (6) (10) - -
Deferred tax benefit/
(charge) 102 (435) - -
Total income tax benefit/
(expense) in the consolidated
and company statement
of comprehensive income 96 (445) - -
The profit of the Company and its Cyprus incorporated
subsidiaries is subject to corporation tax at the rate of 10% (year
2011: 10%). The profit from its Ukrainian operations is subject to
taxation at the tax rates applicable in Ukraine is 21% in 2012 (23%
since 1 April 2011 up to 31 December 2012 with adoption of the Tax
Code, 25% since 1 January 2011 up to 31 March 2011, - before the
Tax Code came into effect). In the future the following income tax
rates were set by the Tax Code: 19% in 2013, and 16% in 2014 and
later on.
For the tax purposes in Cyprus under certain conditions interest
may be subject to defence tax contribution at the rate of 15% (10%
to 30 August 2011). In such cases, this interest will be exempt
from corporation tax. In certain cases dividends received from
abroad may be subject to defence contribution at the rate of 20%
for the tax years 2012 and 2013 and 17% for 2014 and thereafter (in
2011 the rate was 15% up to August 2011 and 17% thereafter).
Gains on disposal of qualifying titles (including shares, bonds,
debentures, rights thereon etc) are exempt from Cyprus income
tax.
Deferred tax is not provided any more in respect of the
revaluation of the investment property and investment property
under construction as the Group is able to control the timing of
the reversal of this temporary difference and the management has
intentions not to reverse the temporary difference in the
foreseeable future. The properties are located on special purpose
entities ("SPE"). The management estimates that the assets will be
realized through a share deal rather than through an asset deal.
Should SPE be disposed of, the gains generated from the disposal
will be exempted from any tax.
(b) Reconciliation of effective tax rate: The tax on the Group's
and Company's loss before tax differs from the theoretical amount
that would arise using the applicable tax rates as follows:
1.
Group Company
2012 2011 2012 2011
Profit/ (loss) before tax (41,427) (24,871) (6,422) 22,541
Tax calculated at domestic
tax rates applicable to profits
in the respective countries (8,897) (7,556) (963) 2,259
Tax effect of allowance and
income not subject to tax - (12,599) - (3,696)
Tax effect of expenses not
deductible for tax purposes 8,993 19,710 963 1,437
Total income tax expense/(benefit)
in the consolidated and company
statement of comprehensive
income 96 (445) - -
(c) Recognized deferred tax assets and liabilities
As at 31 December 2012 and 2011, deferred tax assets and
liabilities of the Group are attributable to the following
items:
1. 1. 1. 1. 1. 1.
Assets Liabilities Net
Translation
difference Total, Net
2012 2011 2012 2011 2012 2011
Trade and other
accounts receivable
provision 178 79 - - - 178 79
Total 178 79 - - - 178 79
15. Investment property
Group
Type of As at Additions Net Disposals Impairment Fair Translation As at
projects 1 January effect (7) (6) value difference 31
2012 of adjustment to December
changes presentation 2012
in currency
finance
lease
terms
Residential
projects
Voznesensky
Yar(i) 24,200 - - - - (3,391) (9) 20,800
Yaroslaviv
Val 7,260 - 7 - - (124) (3) 7,140
Alupka (2) 15,100 - - - - (3,495) (5) 11,600
Hotels
Kyianivsky(3) 8,100 - - - - (3,099) (1) 5,000
Posolsky
dvir serviced
apartments
(5) 16,900 - - - - (193) (7) 16,700
Mixed use
complex
Virlytsia
mixed-use
(1) 93,500 1,524 858 - - 2,258 (40) 98,100
Poltava
mixed-use 20,700 - - - - (3,493) (7) 17,200
Lisova
mixed-use 5,400 - - - - (298) (2) 5,100
Sumy mixed-use 1,700 - - - - (399) (1) 1,300
Lviv mixed-use 14,300 22 - - - (6,318) (4) 8,000
Offices
Brovarskiy
business
centre 6,000 - - - - (3,398) (2) 2,600
Petrivka
business
centre 15,900 - - - - (2,994) (6) 12,900
Logistics
Dnipropetrovsk
logistics
complex 6,600 - - - - (1,498) (2) 5,100
Zhytomyr
highway
logistics
complex (i) 6,400 - - - - (598) (2) 5,800
Vyshhorod
warehouse
complex 4,200 - - - - (999) (1) 3,200
Simferopol
logistics
complex 3,800 - - - - (99) (1) 3,700
Retail
properties
Kvadrat-Perova
(7) 43,000 - - (156) - 273 (17) 43,100
Kvadrat-
Myloslavska 21,100 - 11 - - (2,304) (7) 18,800
Berezneva 4,500 39 - - - (1,938) (1) 2,600
Sevastopol
(i) 9,700 3 - - - (4,201) (2) 5,500
Cherkasy 1,500 - - - - (99) (1) 1,400
Type of As at Additions Net Disposals Impairment Fair Translation As at
projects 1 January effect (7) (6) value difference 31
2012 of adjustment to December
changes presentation 2012
in currency
finance
lease
terms
Kvadrat
Simferopol
(i) 4,400 - - - - (798) (2) 3,600
Aquapark
Kyiv (4),
(6) 1,000 - (117) - (283) (600) - -
Total 335,260 1,588 759 (156) (283) (37,804) (124) 299,240
Type of projects As at Additions Net Disposals Impairment Fair Translation As at
1 effect (7) (6) value difference 31 December
January of adjustment to presentation 2011
2011 changes currency
in
finance
lease
terms
Residential
projects
Voznesensky
Yar (i) 23,700 - - - - 585 (85) 24,200
Yaroslaviv
Val 7,380 - - - - (94) (26) 7,260
Alupka (2) 29,500 - - - - (14,336) (64) 15,100
Hotels
Kyianivsky
(3), (6) 24,000 - - - (10,611) (5,248) (41) 8,100
Posolsky
dvir serviced
apartments
(5) 16,900 - - - - 60 (60) 16,900
Mixed use
complex
Virlytsia
mixed-use
(Note 35) 91,400 296 1,201 - - 931 (328) 93,500
Berezneva
mixed-use 4,800 - - - - (284) (16) 4,500
Poltava mixed-use 20,600 - - - - 173 (73) 20,700
Lisova mixed-use 5,700 - - - - (281) (19) 5,400
Sevastopol
mixed-use(i) 9,600 - - - - 134 (34) 9,700
Sumy mixed-use 1,800 - 161 - - (255) (6) 1,700
Lviv mixed-use 14,100 - - - - 250 (50) 14,300
Offices
Brovarskiy
business
centre 9,400 - - - - (3,376) (24) 6,000
Petrivka
business
centre 16,200 72 - - - (315) (57) 15,900
Melnykova
business
centre(7) 4,800 - - (4,600) - (188) (12) -
Logistics
Dnipropetrovsk
logistics
complex 7,100 - - - - (476) (24) 6,600
Zhytomyr
highway logistics
complex (i) 6,900 - - - - (477) (23) 6,400
Vyshhorod
warehouse
complex 4,200 - - - - 15 (15) 4,200
Type of projects As at Additions Net Disposals Impairment Fair Translation As at
1 effect (7) (6) value difference 31 December
January of adjustment to presentation 2011
2011 changes currency
in
finance
lease
terms
Simferopol
logistics
complex 4,100 - - - - (286) (14) 3,800
Retail properties
Kvadrat-Perova 44,000 - - - - (848) (152) 43,000
Kvadrat-
Myloslavska 21,000 - 3 - - 171 (74) 21,100
Cherkasy
mixed used 1,300 - - - - 205 (5) 1,500
Kvadrat-Lukyanivka
(7) 18,500 - - (18,200) - (281) (19) -
Kvadrat Simferopol
(i) 4,100 - - - - 315 (15) 4,400
Aquapark
Kyiv (4),
(5) 1,600 - 141 - - (738) (3) 1,000
Total 392,680 368 1,506 (22,800) (10,611) (24,644) (1,239) 335,260
The above investment properties comprise of investment
properties held under finance leases with the municipality
authorities and owned investment properties, as presented in the
table below:
2012 2011
Investment properties held under finance
lease 263,540 290,560
Owned investment properties (i) 35,700 44,700
Total 299,240 335,260
(i) The owned investments properties are indicated in the above tables by (i).
Termination of projects
Following the revival strategy adopted by the Company to reduce
ongoing costs of non-core projects with a view to optimizing the
Company's development portfolio.the Board of Directors has resolved
to terminate the Company`s investment activity in the following
projects:
-- "Garant-Invest" LLC, "House & K" LLC;
-- "Aqua-Sherl" LLC (project "Aquapark");
-- "Megagrad" LLC (project "Kiyanovsky") - market value is USD 5,000 thousand;
-- "Ukrainian-German Building Company" LLC (project
"Kvadrat-Sumi") - market value is USD 1,300 thousand; and
-- "The Fifth Element" LLC (project "Poltava") - market value is USD 17,200 thousand.
Termination will be effected by way of liquidation of the
relevant companies or disposal of the corporate rights in them to
third parties for a nominal value with further liquidation
occurring outside the Group.
The Company bears regular significant costs on the maintenance
of the above projects, which have now been deemed to be
unprofitable, as the required lease payments are now
disproportionate to potential future value. The disposal of the
projects will enable the Company to conserve funds and focus on its
core strategic projects which could potentially provide better
returns in the future. The directors anticipate completing the
disposals within the next six months and further announcements will
be made as required.
The effect on the Group's portfolio of investments will be
incorporated in the Group's financial statements for the year ended
31 December 2013.
In the course of the activities of the Group there were payments
made to third parties for the purpose of achieving the Group's
objectives. These payments were made for the achievement of
approval process and all of them have been properly authorized by
the Board of Directors and properly approved by the Audit
Committee.
The Group adopted IAS 23 "Borrowing costs" (revised in 2007) and
capitalises borrowing costs relating to qualifying assets for which
commencement date for capitalisation is on or after 1 January 2009.
The Group also capitalised borrowing costs in prior years, adopting
the option of capitalisation allowed by the IAS 23. Hence the
adoption of the revised IAS 23 had no effect on the Group's
financial position, as such. Nevertheless, given the downturn of
the Group's operating activities that led to the suspension of the
development of its qualifying assets for an extended period, the
Group suspended the capitalisation of borrowing costs as of August
2008. This suspension continued throughout the years ended 31
December 2011, 31 December 2012 and the post balance sheet
period.
(1) Vyrlytsa project
The land plots corresponding to the "Vylrytsa project" have been
managed by the Company since 2005. XXI Century has always had
strong intentions to develop the project and has conducted
negotiations with potential investors and partners since 2005. Due
to the global financial crisisthe Company had to postpone its plans
to develop the project.
After the attracting the new strategic and significant investor,
restructuring of corporate debtand recapitalization, the Company
became significantly deleveraged and was able to focus on
development rather than revival.
Taking into consideration the growth observed in the retail
segment of the Ukrainian real estate market, the lack of high
quality retail development sites with required footprint and the
presence of interested anchor tenants and investors, the Company
has decided to focus on the development of retail projects in its
portfolio, the Vyrlytsa project is the Company's first such
development.
The mixed-use complex Vyrlitsya is envisaged to include a
shopping and entertainment centre "Kvadrat", office and exhibition
complex, hotel, concert hall, underground and outdoor parking,
modern quay and park. According to the approved concept, the
shopping and entertainment centre "Kvadrat" will formthe first
stage of the development tof this mixed-use complex.
The Company managed to attract two large European retail
operators (Auchan SA and French DIY operatorLeroyMerlin) to become
anchor tenants and investors in the project.
In April 2012, the Company's wholly owned subsidiary
(Mriya-Invest LLC) signed the Investment Agreement with a
subsidiary of Auchan SA, an international retail chain of
supermarkets and hypermarkets, with its head office in France.
On 10 January 2013, the Company's wholly owned subsidiary
(Mriya-Invest LLC) signed separate Investment Agreement with French
DIY operator Leroy Merlin, established in Ukraine.
According to the Investment Agreement signed with Auchan SA
(Auchan Real Estate F.C.A.U), the development cost of the
hypermarket amounts to approximately USD 30 million, which will be
provided by Auchan to the Company in stages dependent on completion
of each phase of the development.
According to the Investment Agreement signed with Leroy Merlin,
the development cost of the hypermarket amounts to approximately
USD 28.9 million, which will under the Investment Agreement be
provided by Leroy Merlin to the Company in stages dependent on
completion of each phase of the development.
On 12 November 2012, the Company's subsidiary Barwen Holding
Limited, signed a Loan Agreement with Pamigton Holdings Limited (a
wholly-owned subsidiary of DCH IMMO which is one of the significant
Company's shareholder), according to which, the Group will receive
USD 38 million for the development of the Vyrlytsa project subject
to certain conditions.
As at 31 December 2012 and the date of signing these
consolidated and separate financial statements the security
guarantees of the loan has not been granted by formalized
agreements and there is uncertainty about when these will be
granted so that the Group can thereafter commence drawing funds for
progressing the development of the Vyrlytsa project. As a result,
the development progress of the Vyrlytsa project, which is the only
project currently, being developed by the Group, cannot be
accurately ascertained, though the Company's Management believes
that the relevant guarantees will be formalized in the near future
and the funds will be released.
The complex will be located on the left bank of Dnieperriver by
the lake Vyrlytsa. The front of the land plot faces the M. Bazhana
Lane - one of the largest highways inKyiv, which provides
communications between the Left and Right bank of the city via
South Bridge. The site is located in one of the most densely
populated and rapidly growing residential areas in Kyiv. The
district also has wide and developed social and transport
infrastructure. The complex will have excellent transport
accessibility and will be connected to two Vyrlytsa underground
station exits. The current site is envisaged to become a "gateway"
to the capital of Ukraine from the international airport
Boryspil.
In development of the project the Company has completed the
following milestones:
-- Signed Investment agreements with Auchan SA and Leroy
Merlin;
-- Signed Loan Agreement with the subsidiary of DCH IMMO
Limited;
-- Framework architectural project concept for the Vyrlytsa
projecthas been finalized and approved;
-- Agreement with consulting company Jones Lang LaSalle for
providing of brokerage services is negotiated;
-- 90% of initial data for the design of the shopping centre
obtained;
-- More than 50% of preliminary ground works for the project
have been completed;
-- Preliminary arrangements with utility providers are
concluded
-- Pile field engagements are achieved.
The Board of Directors believes that the combination of strong
well known partners together with the project's location creates
basis for the project's success.
Land Lease Agreements
The site "Vyrlytsia project" consists of 4 land plots:
-Land plot #0034, has a total area of 19.72 hectares. The land
plot is apportioned for Mriya Invest LLC, under the authority of
Kyiv Council for 25 years from 2005.
-Land plot #0069, has a total area of 4.1 hectares. The Land
Lease expired in 2011. The Company applied for a prolongation of
the lease agreement and according to a resolution of Kyiv Council,
passed on 1 September 2012, the Land Lease Agreement was prolonged
for 5 years. The corresponding Additional Agreement wassigned on 20
November 2012.
-Land plot #0036, has a total area of 6.1 hectares. The Land
Lease expired in 2010. The Company applied for a prolongation of
the lease agreement and according to a resolution of Kyiv Council,
passed on 1 November 2012, the Land Lease Agreement was prolonged
for 10 years. The corresponding Additional Agreement is expected to
be singed shortly. The Company continues to pay land lease payments
for the plot.
-Land plot #0065 and adjacent areas with total area around 2.1
hectares. According to the resolution of Kyiv Council, passed on 1
November 2012, the Company has obtained a permit for development of
project of land use plan related to sitting of the land plot.
(2) Alupka project
The subsidiaries of the Group, Capital Market LLC and Trest
Forum LLC in 2011 started participating in a legal process which is
ongoing till the present moment. This process concerns the Alupka
project as a result of conflicts between the Alupka City Council
and the Committee on Land Resources of Crimea, in respect of the
land rights. Hence, there is a risk for the dissolution of the
Alupka project finance lease agreement and there is uncertainty in
whose favour the Court decision will be issued, though the Group's
external lawyers hold the position that there is a high probability
that the court decision will favour the Group. For more details,
refer to Note 32.
(3) Kiyanovskiy project
In connection with probable changes in the City development plan
of Kyiv there is uncertainty, that the Group will be able to get
permission documents for the construction of Kyyanivskiy mixed-use
project. As at 31 December 2011 the land plot area of Kyyanivskiy
mixed-use complex has been already reduced from 5.5808 hectares to
2.4693 hectares according to the Decision of the Kyiv Council,
which resulted in impairment of this project. Additionally in 2013
legal proceeding in relation to this lease agreement was initiated.
For more details, refer to Note 32.
(4) Aquapark Kyiv project
During the year 2009, the Aquapark Kyiv project was fully
impaired on the basis that the Company's Management had significant
doubts about whether the land lease agreement which expired during
2009 would be renewed. During the year 2010, the land lease
agreement was actually renewed and hence theAquapark Kyiv project
was reinstated.
During the year 2012, the Aquapark Kyiv project was fully
impaired on the basis that the Company's Management had significant
doubts about the project prospective given that the land lease
agreement expired with no options for renewal. The relevant
Resolution approving the termination of the investment activity of
the Company in certain projects was adopted by the directors in
June 2013.
(5) Posolskiy Dvir project
In March 2013 LLC Elit-Service (Posolskiy Dvir project) has
initiated a litigation process against Kiev City Council regarding
cancellation of the resolution of the Kiev City Council on unlawful
termination of the lease agreement. For more details, refer to Note
32.
(6) Impairments
In the year 2012 the Aquapark Kyiv project was fully impaired as
the Group lost its finance lease right as at 31 December 2012,
following the conclusion of the court case.
As at 31 December 2011 the land plot are of Kyyanovskiy
mixed-use complex has been already reduced from 5.5808 hectars to
2.4693 hectars according to the Decision of the Kyiv Council, which
resulted in impairment of this project.
(7) Disposals
According to the technical requirements issued in the process of
construction of the Kvadrat-Perova projectthe subsidiary company
Avrora CJSC has transferred part of electric equipment as a part of
general electric network to the state electric monopolist
Kievenergo (Note 12 (f)).
In the year 2011 the Group has sold its 100% share in
Soyuz-Inform LLC (project Kvadrat-Lukyanovka and project Melnikova
business center) in terms of settlement of bank loans from
Ukrsibbank for USD 14 million on 4 July 2011 (Note 27 (b)).
Valuation of the investment properties
Valuation of the investment property as at 31 December 2012 and
31 December 2011 was carried out by CB Richard Ellis LLC, who are
independent professionally qualified appraisers, who hold
recognized relevant professional qualification and have extensive
experience in these locations and categories of the investment
properties valued. The fall in the fair value of the investment
property portfolio was mainly caused by deep financial crisis and
fall in prices at Ukrainian real estate market in 2008, which
continued in 2012, 2011, 2010 and 2009 the downward trend in
prices.
These valuations are based on various assumptions, including
some Special Assumptions, for finance leases which were expired at
the year end and limiting conditions, as disclosed in Note 4 -
"Significant accounting policies". Therefore, in the event that any
of these assumptions and Special Assumptions do not materialise or
the limiting conditions are realised, then the valuations should be
revised accordingly.
The most critical assumptions used for the valuations are as
follows:
-- The adopted development commencement dates and construction
periods in respect of each investment property do not consider the
associated financial risks involved in raising the appropriate
funds needed to complete such huge development plans on time.
-- The majority of the investment properties are held, by way of
ground leasehold interests granted by the City Authorities. As at
31 December 2012 the ground rental payments for several leased land
plots are lower than new tax rates (from 3% to 12%, effective since
adoption of the Tax Code of Ukraine on 1 April 2011), and can be
subject of review in upward direction. Since most of the finance
lease agreements of the Group were signed before the Tax Code of
Ukraine implementation, the new legislation remains ambiguous on
whether these agreements will be subject to the rates revisal prior
to the expiring.
It should be noted, however, that most leasehold interests are
long term and have yet to reach termination; hence the effective
ability to renew on such a basis is relatively untested.
A number of land leases are held for relatively short-term and
place an obligation upon the Group to complete development by a
prescribed date. As disclosed in Note 32 to the consolidated and
separate financial statements certain leases were already expired
as at 31 December 2012 or were short-term as at 31 December 2012
and though have expired in the period following the reporting date,
they have not as yet been renewed. The Management of the Group is
in the process of renewal of these leases and has strong confidence
that these land lease agreements will be prolonged on the basis
that the Group has a priority right for the renewal of these land
lease agreements.
In arriving at the valuations, CB Richard Ellis LLC has assumed
that the respective ground leases are capable of extension in
accordance with the terms of each lease.
-- The valuers applied Special Assumptions for such already
expired finance leases, as follows:
-that the Group already made request to the local authorities
regarding the prolongation of lease terms;
-that as at the valuation date the Group still provides the land
lease payments for the landplots.
The impact on the "Special Assumptions" on the valuationaffected
4 investment properties as at 31 December 2012 and such details
were disclosed at the end of this Note 15.
-- In some instances the Group is still in the process of
obtaining rights and planning permissions to a number of investment
properties. CB Richard Ellis LLC has valued these investment
properties on the assumption that these rights and planning
permissions were obtained or were in the process of being
obtained.
-- CB Richard Ellis LLC, in arriving in their valuation, has
applied an approach as to discount ratio determination in relation
to the risk involved in each phase of the project as well as to
other valuation parameters.
-- IAS 40 "Investment Property" defines fair value as the amount
for which an asset could be exchanged between knowledgeable willing
parties in an arm's length transaction. The fair value of
investment property shall reflect market conditions at the
reporting date.
-- CB Richard Ellis LLC has valued each investment property
separately and the aggregated value of the investment properties
should not be regarded as the value of the portfolio in the context
of a single transaction.
The most critical limiting conditions of the valuations are as
follows:
-- The method used for the calculation of the value of
investment properties under construction/development is based upon
the development potential and has a somewhat restricted nature due
to the fact that the development projects have to be successfully
implemented.
-- The value determined is a market value only in case of full,
timely and successful implementation of the project developments
according to the Group's plans and highest and best use. Any
changes on the investment properties areas and/or timing, will
affect the investment property values.
-- CB Richard Ellis LLC did not examine the sites in order to
determine the condition of the ground, nor did they undertake
environmental, archaeological or geo-technical surveys. Hence the
valuation assumed that these aspects were satisfactory and also
that the sites are clear of underground mineral or other working
and substances.
-- CB Richard Ellis LLC did not undertake feasibility studies
for any of the projects including the level of underground waters
and planning regulations. They assumed that there is technical and
legal possibility to build all projects as proposed.
-- The investment properties have been valued on the basis that
there will not be any abrupt changes in the country's economic,
social and political policies during the forecast period.
Also for a sensitivity analysis on some assumption parameters,
refer to Note 5.1 (a) - (ii).
The carrying value of the investment properties as at 31
December 2012 and 31 December 2011 were determined according to the
valuation reported by the external appraisers, which were inclusive
of the related finance lease liabilities recognised in respect of
the investment properties held under finance lease (USD 18,858
thousand as at 31 December 2012 and USD 18,647 thousand as at 31
December 2011, Note 28).
The Appraiser's main and general assumptions as at 31 December
2012, are as follows:
Type of project Valuation Discounting Capitalisation Forecasted Stage* Remaining
approach rate rate terms budgeted
of completion costs USD
(2) (1)
Residential projects
Held
Voznesensky for
Yar Income 10% 0% Q4 2016 development 84,017,462
Held
for
Yaroslaviv Val Income 10% 0% Q1, 2016 development 29,010,526
Held
for
Alupka mixed-use Income 10% 0% Q1, 2017 development 87,260,259
Hotels
Held
Posolsky dvir for
serviced apartments Income 10% 13% Q4, 2015 development 44,162,806
Mixed use complex
Virlytsia mixed-use
Under
Retail Income 10% 12% Q3, 2015 development 119,645,658
Under
Residential Income 10% 0% Q1, 2019 development 193,961,554
Under
Office Income 10% 12% Q4,2018 development 292,872,388
Lisova mixed-use
Held
for
Retail Income 10% 12% Q2, 2015 development 47,092,649
Held
for
Office Income 10% 13% Q4, 2016 development 29,901,901
Lviv mixed-use
Held
for
Retail Income 10% 12% Q2, 2015 development 39,222,335
Held
for
Office Income 10% 13% Q2, 2015 development 29,171,367
Kyianivsky
Hotel Comparison n/a Held -
for
development
Office Comparison n/a Held -
for
development
Poltava mixed-use Comparison n/a Held -
for
development
Sumy mixed-use Comparison n/a Held -
for
development
Offices
Held
Brovarskiy business for
centre Income 10% 12% Q1, 2016 development 35,032,687
Held
Petrivka business for
centre Income 10% 12% Q1, 2016 development 56,458,392
Logistics
Held
Dnipropetrovsk for
logistics complex Income-Comparison 10% 14% Q2, 2015 development 87,272,874
Held
Zhytomyr highway for
logistics complex Income-Comparison 10% 14% Q2, 2015 development 44,665,717
Held
Simferopol logistics for
complex Income 10% 14% Q2, 2015 development 40,568,679
Vyshhorod warehouse Comparison n/a Held -
complex for
development
Retail properties
Held
for
Sevastopol Income 10% 13% Q3, 2015 development 38,680,905
Held
for
Berezneva Income 10% 13% Q4, 2017 development 13,976,512
Kvadrat-Perova Income 14% 12% Q1, 2008 Operating -
Held
for
Kvadrat-Myloslavska Income 10% 12% Q3, 2015 development 42,761,678
Held
Cherkasy mixed for
used Income 10% 14% Q2, 2015 development 29,363,397
Held
for
Kvadrat Simferopol Income 10% 13% Q2, 2015 development 53,500,801
Aquapark Kyiv Comparison - Held -
for
development
Total 1,438,600,547
The Appraiser's main and general assumptions as at 31 December
2011, are as follows:
Type of project Valuation approach Discounting Capitalisation Forecasted Stage * Remaining
rate rate terms of budgeted
completion costs USD (1)
(2)
Residential projects
Under
Voznesensky Yar Income 10% - Q4 2015 development 81,851,091
Held for
Yaroslaviv Val Income 10% - Q1, 2015 development 28,991,788
Held for
Alupka mixed-use Income 10% - Q1, 2016 development 87,171,109
Hotels
Posolsky dvir Held for
serviced apartments Income 10% 13% Q4, 2014 development 46,359,858
Held for
Kyianivsky Income 10% 13% Q4, 2014 development 51,472,956
Mixed use complex
Virlytsia mixed-use
Under
Retail Income 10% 12% Q4, 2014 development 110,095,224
Under
Residential Income 10% - Q1, 2019 development 193,958,040
Under
Office Income 10% 12% Q4, 2017 development 294,392,080
Berezneva mixed-use
Held for
Retail Income 10% 12% Q4, 2015 development 14,798,516
Held for
Residential Income 10% - Q4, 2015 development 89,754,589
Held for
Office Income 10% 13% Q3, 2014 development 80,448,784
Lisova mixed-use
Held for
Retail Income 10% 12% Q4, 2014 development 47,092,649
Held for
Office Income 10% 13% Q4, 2015 development 17,934,870
Sevastopol mixed-use
Under
construction
Retail Income 10% 12% Q1, 2015 (frozen) 41,432,764
Under
construction
Residential Income 10% - Q4, 2014 (frozen) 25,124,858
Lviv mixed-use
Under
construction
Retail Income 10% 12% Q2, 2014 (frozen) 37,187,871
Under
construction
Office Income 10% 13% Q2, 2014 (frozen) 28,602,387
Poltava mixed-use Comparison - - n/a Held for -
development
Sumy mixed-use Comparison - - n/a Held for -
development
Offices
Brovarskiy business Held for
centre Income 10% 12% Q1, 2016 development 35,032,687
Petrivka business Held for
centre Income 10% 12% Q1, 2015 development 56,153,053
Logistics
Dnipropetrovsk Held for
logistics complex Income-Comparison 10% 14% Q2, 2014 development 87,258,504
Zhytomyr highway Held for
logistics complex Income-Comparison 10% 14% Q2, 2014 development 44,245,430
Simferopol logistics Held for
complex Income-Comparison 10% 14% Q3,2014 development 40,568,679
Vyshhorod warehouse Comparison - - Q2, 2014 Held for -
complex development
Retail properties
Kvadrat-Perova Income 14% 12% Q1, 2008 Operating -
Under
construction
Kvadrat-Myloslavska Income 10% 12% Q1, 2014 (frozen) 42,475,129
Held for
Cherkasy mixed used Income 0% 13% Q2, 2014 development 29,244,917
Held for
Kvadrat Simferopol Income 10% 13% Q4, 2014 development 53,488,961
Aquapark Kyiv Comparison - - n/a Held for -
development
Total 1,665,136,794
* Definitions
Operating properties - fully commissioned buildings, which can
be sold or let;
Properties under construction - pre-construction works were
started as at valuation date;
Properties under construction (frozen) - properties with
approved design and permission documents (expired).
Pre-construction works has already started, but it was frozen due
to lack of funding;
Properties under development - properties being developed
(investment contracts, developing design), however no construction
works has took place yet;
Properties held for development - represent by land plots
without any improvements and permission documentation.
(1) Remaining budgeted costs represent expected costs,
discountedto present value, according to the projects' budgets that
are to be incurred for commissioning the projects, as and when the
Group implements its strategic plans for developments and has the
appropriate funds available to develop these projects.
(2) For the purposes of valuation of projects it is assumedthat
projects are going to be developedat once, irrespective of the
Group's strategy for developments and availiable of funds. The
statedforecasted terms of completion represent the projected
deadlines for the completionof the projects, i.e. for residential
projects is the date when all the premises are sold, for other
types of projects the date of launching them into operation.
The key projects' characteristics as at 31 December 2012 and 31
December 2011 used in the valuation, are not endorsed with the
Council Authorities, but represent the vision of the Group and
valuation company CBRE and are based on the most efficient use of
the investment properties.
Appriser's main revenue assumptions:
Value of rental rates for retail and offices segments as well as
residential segment's sales prices adopted for the valuation are
based on the market research held by the Appraiser. For the
sensitivity analysis of rental rates and sales pricessee Note 5,
(ii) Price risk.
Retail segment
31 December 2012 31 December 2011
Hypermarket Entertainment Average Hypermarket Entertainment Average Rental
Area Rental Rental Rate, Rental Rate, Area Rental Rental Rate, $/sq
Rate, $/sq $/sq m $/sq m per Rate, $/sq Rate, m per month,
m month, MALL m $/sq m MALL
10,0-15,0 7,0-10,0 22,9-43,1 10,0-15,0 8,0-12,0 25,2-41,5
Offices segment
31 December 2012 31 December 2011
ERV, $/sq Rental Rate ERV, $/sq Rental Rate
m per month for Parking m per month for Parking
Lot, $/sq Lot, $/sq
m per month m per month
14,0-20,9 45,0-142,5 14,3-20,9 47,5-142,5
Residential segment
31 December 2012 31 December 2011
Residential Retail price, Parking Residential Retail Parking price,
price, $/sq $/sq m per price, $/parking price, $/sq price, $/parking
m month lot m $/sq m lot
per month
1400-2800 1800-3000 13000-28000 1400-2800 1800-3000 13000-30000
Investment property projects subject to Special Assumptions:
Projectname Subsidiary Valuation Expiry date (Note 32)
per appriser
as at 31
December
2012, thousand
USD
Virlytsia Mriya-Invest 98,100 This project comprises of 3 sub-leases
mixed-use LLC with one(6.17 ha) being short-term
with expiry dates of 13 October
2010 and two(19.72 ha and 4.10
ha) being long-term expiring on
19 November 2030 and 11 April
2016.
Lisova mixed-use Kvadrat 5,100 This project comprises of 2 sub-leases
Ukraine with one (0.19 ha) being short-term
CJSC with expiring on 7 October 2011
and the other one (5.44 ha) being
long-term expiring on 7 October
2020.
Lviv mixed-use Torgoviy 8,000 This project comprises of 2 sub-leases
Center A with one (0.57 ha) being short-term
CJSC with expiring on 5 July 2012 and
the other one (4.60 ha) being
long-term expiring on 5 July 2017.
Brezneva Investment 2,600 This project comprises of 2 sub-leases
mixed-use group East with one (0.12 ha) being short-term
LLC and expired on 26 November 2012
and the other one (7.81 ha) being
long-term expiring on 20 May 2024.
TOTAL 113,800
The valuer has concluded that the current fair value of the
above listed properties subject to the "Special assumptions" would
be lower than the stated values.
16. Property, plant and equipment
The table below represents the movements in the carrying amounts
of the Group's property, plant and equipment:
Computer Furniture
Vehicles equipment and fittings Total
As at 1 January 2011
Cost 86 523 500 1,109
Accumulated depreciation (34) (258) (300) (592)
Net book amount 52 265 200 517
Year ended 31 December
2011
Opening net book amount 52 265 200 517
Additions - 318 7 325
Disposals - (202) (4) (206)
Depreciation charge (Note
11) (3) (35) (54) (92)
Effect of translation
to presentation currency - (2) (1) (3)
Closing net book amount 49 344 148 541
As at 31 December 2011
/1 January 2012
Cost 86 639 503 1,228
Accumulated depreciation (37) (295) (355) (687)
Net book amount 49 344 148 541
Additions - - 9 9
Disposals - (10) (5) (15)
Depreciation charge (Note
11) (7) (48) (26) (81)
Effect of translation
to presentation currency - - - -
Closing net book amount 42 286 126 454
As at 31 December 2012
Cost 86 629 507 1,222
Accumulated depreciation (44) (343) (381) (768)
Net book amount 42 286 126 454
The depreciation charge for the year is included into
"administrative expenses" in the onsolidated statement of
comprehensive income (Note 11).
17. Intangible assets
The table below represents the movements in the carrying amounts
of the Group's intangible assets:
Software
As at 1 January 2011
Cost 61
Accumulated amortization (43)
Net book amount 18
Year ended 31 December 2011
Opening net book amount 18
Disposals (5)
Amortization charge (Note 11) (5)
Effect of translation to presentation currency 1
Closing net book amount 9
As at 31 December 2011 / 1 January 2012
Cost 53
Accumulated amortization (44)
Net book amount 9
Year ended 31 December 2012
Opening net book amount 9
Disposals -
Amortization charge (Note 11) (7)
Effect of translation to presentation currency
Closing net book amount 2
As at 31 December 2012
Cost 53
Accumulated amortization (51)
Net book amount 2
The amortization charge for the year is included into
"administrative expenses" in the onsolidated statement of
comprehensive income (Note 11).
18. Investments in subsidiaries
1.
Company
2012 2011
As at 1 January 69,181 86,746
Disposals (refer to (2) below) - (14,999)
Impairment of investments in subsidiaries
(a) (Note 12) (13,483) (2,566)
As at 31 December 55,698 69,181
(a) Management believes that the above impairment represents the
probable impairment of the Group's subsidiaries as at 31 December
2012 and 31 December 2011, the net assets values of which include
the fair values of the investment properties as at 31 December 2012
and 31 December 2011, based on the valuations performed by an
independent appraiser. Had the assumptions of the appraiser been
different, the impairment charge incorporated above would have been
different (Notes 4, 6 and 15).
The details of the subsidiaries of the Company are as follows,
after impairment:
Name Country of incorporation Principal activities 2012 2011 2012 2011
Holding, % Holding, %
Aqwa Sherl LLC (b) Ukraine Real Estate Development 51 51 - -
Avrora OJSC (b) Ukraine Real Estate Development 57,83 57,83 - -
Barwen Holding Limited Cyprus Holding Company 100 100 19,894 19,894
Capital Market LLC Ukraine Real Estate Development 99 99 2,624 13,648
Elite Service LLC Ukraine Real Estate 99 99 5 5
Evrobudbusiness LLC Ukraine Real Estate Development 50 50 120 120
Falodi LLC Ukraine Real Estate Development 99 99 2,902 2,902
Investment Company XXI
Century CJSC (b) Ukraine Real Estate Development 100 100 - -
Investment Fund Capitoly
(2.1 below) Ukraine Real Estate Development - - - -
Khrizolit LLC Ukraine Real Estate Development 99,5 99,5 2,919 2,919
Kvadrat-- Khreschatik LLC Ukraine Real Estate Development 99,85 99,85 44 44
Kvadrat--Maydan LLC (b) Ukraine Real Estate development 100 100 - -
Kvadrat--Ukraine CJSC Ukraine Real Estate Development 89,15 89,15 392 392
Kyiv--Avto LLC Ukraine Real Estate Develpment 75 75 3,939 3,939
Kyivski Kashtany LLC (b) Ukraine Real Estate Development 99 99 - -
Kyivsky Fond Nerukhomosti
LLC (Note 3 (i)-1) Ukraine Real Estate Development 100 100 - -
Land Development LLC Ukraine Real Estate Development 99,99 99,99 927 927
Mikasal Ventuers Limited Cyprus Holding Company 100 100 - -
Ozzon--Logistics LLC Ukraine Real Estate Development 99,5 99,5 5 5
Piaty Element LLC (5(th)
Element) Ukraine Real Estate Development 79,94 79,94 4,591 4,591
Selkhozpromresurs LLC Ukraine Real Estate Development 99 99 2,423 2,423
Shvydko--Invest LLC Ukraine Real Estate Development 99 99 67 67
Spetsproekt Plus LLC (2.2
below) Ukraine Real Estate Development - - - -
Svyatoslavskiy LLC Ukraine Real Estate Development 60 60 2 2
Torgovy Centre A CSJC Ukraine Real Estate Development 100 100 4,951 4,951
Trest Forum LLC Ukraine Real Estate Development 49 49 1,224 3,234
Ukrainian German Building
Company Ukraine Real Estate Development 99,9 99,9 513 962
Westland Ukraine LLC Ukraine Real Estate Develoment 99,99 99,99 820 820
XXI Century Development
CJSC Ukraine Real Estate Development 99 99 15 15
XXI Century LLC Ukraine Real Estate Development 100 100 838 838
Zhylto XXI Century LLC Ukraine Real Estate Development 99 99 6,483 6,483
Total 55,698 69,181
(b) The above noted subsidiaries indicated with (b) were fully
impaired.
(1) Additions
(1.1) Additions in the years 2012 and 2011
During the years 2012 and 2011 the Company did not acquire any
subsidiary companies.
(2) Disposals
(2.1) Disposals in the year 2011
During the year 2011 the Company disposed the whole of its
holding, the 100% of the share capital of Investment Fund Capitoly
to Barwen Holding Limited, one of its Cyprus incorporated
subsidiaries, for the total amount of USD 14,999 thousand. The sale
was effected at no profit or loss.
(3) Increase in the share capital of subsidiaries
(3.1) Increase in the share capital of subsidiaries in year
2012
There was no increase in share capital in the subsidiaries in
the year 2012. The information as to the increase in share capital
of the Company please see in Note 25.
19. Investment in associate
Group
There were no associates as at 31 December 2012 in the
Group.
"Prominvestgroup" LLC was the only associate as at 1 January
2011. The Group disposed its share in "Prominvestgroup" LLC during
2011.
The table below summarizes the movements in the carrying amounts
of the Group's investments in associates:
"Prominvestgroup"
LLC
Carrying amount as at 1 January 2011 2,490
Share of after tax results of associates 882
Disposal of associate (1) (3,360)
Effect of translation to presentation currency (12)
Carrying amount as at 31 December 2011 -
(1) During the year 2010, the Company disposed part of its 50%
share in "Prominvestgroup" LLC (the Company's subsidiary) at that
time. "Prominvestgroup" LLC has 100% ownership in subsidiary
"Prominvestgroup-1" CJSC, which holds the investment property
project "Luteranska". Following on the disposal, the Company share
of ownership became 12.5% and as at December 2010, this investment
was accounted as an associate.
During the year 2011 the Company disposed of its remaining 12.5%
ownership in "Prominvestgroup" LLC, to an unrelated party, for a
sale consideration of USD 400 thousand. The loss on sale at the
Group level amounted to
USD 2,970 thousand.
Company
Company
2012 2011
As at 1 January - 2,055
Disposal of associate (2) - (2,055)
As at 31 December - -
(2) During the year 2011 the Company disposed of its 12.5%
ownership in "Prominvestgroup" LLC, to an unrelated party, for a
sale consideration of USD 400 thousand. The loss on sale at the
Company level amounted to
USD 1,655 thousand.
20. Loans receivable
Group Company
2012 2011 2012 2011
Loans receivable
- gross 369 1,178 125,816 122,031
Less: allowance
for doubtful loans
receivables (1)
(Note 12) - (592) (50,809) (50,809)
Loans receivable,
net 369 586 75,007 71,222
Analyzed as:
Non-current portion 276 557 75,007 71,222
Current portion 93 29 - -
Total 369 586 75,007 71,222
(1) The allowance for doubtful loans receivable at the Company
level has been determined at the basis that certain loans were
receivable from subsidiary companies, which were fully impaired.
During the year 2011, at a Company level, there was a reversal of
the provision incurred in prior year, due to repayments received
amounting to USD 8,482 thousand. Also, additionalprovision
amounting to USD 2,373 thousand was incurred in the year 2011 (Note
12).
Group
The Group's loans receivable (current and non-current) are
interest free and unsecured for years ended 31 December 2012 and 31
December 2011. The non-current loans receivable are repayable after
31 December 2013.
The carrying amounts and fair value of the non-current loans
granted are as follows:
Carrying amount Fair value
2012 2011 2012 2011
Loans to third parties 369 307 369 307
Loans to related
parties - 279 - 279
Total 369 586 369 586
Company
The Company loans receivable are receivable from its
subsidiaries. All loans bear interest varying from 3.8% to 10.5%,
except for one loan, which is interest free. The carrying value of
the loans receivable approximate their fair values.
During the year 2011 the principals of the loans receivable from
Mikasal Ventures Limited were fully repaid except from one loan.
Hence provisions made in the years prior to 2011, were reversed
during the year 2011. The loan balances remaining outstanding from
Mikasal Ventures Limited amounting to USD 2,841 thousand are in
respect of outstanding interest accrued over the years. The loan
agreement terms for all loans receivable were amended to prolong
the repayment of the outstanding loan balances in the years 2013
and 2014.
21. Prepayments to constructors
Group Company
2012 2011 2012 2010
Prepayments to constructors
- gross 1,879 1,776 - -
Less: allowance for
doubtful debts (1,731) (1,719) - -
Prepayments to constructors,
net 148 57 - -
The prepayments to constructors were made in respect of
projects, where construction work was in progress. Despite the
Group's financial difficulties during the last few years, including
year 2012, work on certain projects was performed and as a result
prepayments to constructors were released. The main subsidiary
which held projects where construction work was performed in years
2012 and 2011 is Mriya-Invest LLC, and the project is the Vyrlytsia
mixed-use project (Auchan hypermarket), Note 15 (1).
The movement on the Group provision for impairment of
prepayments to constructors is as follows:
Group Company
2012 2011 2012 2011
At 1 January 1,719 539 - -
Provision for prepayments
to constructors (1) - 1,215 - -
Effect of translation to presentation
currency 12 (35) - -
At 31 December 1,731 1,719 - -
(1) The provision for prepayments to constructors arose in view
of disputed amounts with the constructors upon the progress of the
construction work (Note 12 (b)).
22. Value Added Tax Recoverable
As at 31 December 2012 and as at 31 December 2011, the Group
estimates that its accumulated Value Added Tax ("VAT") recoverable
will be recovered in more than 12 months.
Group Company
2012 2011 2012 2011
VAT Recoverable - non-current
portion 2,526 683 - -
Discount value - - - -
VAT Recoverable - non-current
portion, net 2,526 683 - -
Less: allowance for doubtful - - - -
receivables (1)
Carrying amount 2,526 683 - -
VAT Recoverable - current - - - -
portion
Total VAT Recoverable 2,526 683 - -
The increase in VAT assets is connected mainly with a
confirmation obtained from the Ukrainian Tax Authorities in respect
of Aurora OJSC, a Group subsidiary.
These amounts recoverable were not accounted for as VAT assets
in previous years due to the ambiguous interpretations of the
Ukrainian tax legislation. See also Note 12 for additional
details.
As a result of downturn in the Group's activities, the
Management of the Group believes that the VAT receivable balance is
non-current. This is in view of uncertainties around the timing of
future sales that would give a rise to output VAT in the Group's
subsidiaries, which is to be off-set against the VAT recoverable.
Consequently, due to these uncertainties, no discounting has been
performed and the effects of discounting would be expected to be
immaterial.
(1) The movement on the Group provision for impairment of VAT
recoverable is as follows:
Group Company
2012 2011 2012 2011
At 1 January - 830 - -
Receivable VAT written-off
as uncollectable (2) - (830) - -
Effect of translation to presentation - - - -
currency
At 31 December - - - -
(2) The "receivable VAT written-off as uncollectable" during the
year 2011, was written-off from the gross VAT recoverable.
23. Trade and other receivables
Trade and other accounts receivables are as follows:
Group Company
2012 2011 2012 2011
Non-current
Receivables from disposed investments
in subsidiary, to related party
(Note 33) - - 1,145 1,145
Total non-current trade receivables,
net - - 1,145 1,145
Current
Trade receivables 1,085 1,014 - -
Less: allowance for doubtful
receivables (950) (494) - -
Trade receivables, net 135 520 - -
Receivables on disposal of
investment of subsidiaries
to third parties (1) 4,204 4,241 4,100 4,100
Receivables on disposal of
investment of subsidiaries
to related party (Note 33) - - 14,999 14,999
Less: allowance for doubtful
receivables (410) (410) (410) (410)
Receivables on disposal of
investment of subsidiary, net 3,794 3,831 18,689 18,689
Total trade receivables and
receivables on disposal of
investment of subsidiary -
net 3,929 4,351 18,689 18,689
Advances for construction of
residential properties - 12 - -
Receivables from shareholders
(Note 33) 148 148 148 148
Receivable from related parties
(Note 33)
Receivable from related parties
(Note 37)
d prepayments - 5 - -
Other accounts receivable - 364 244 250
Carrying amount 4,077 4,880 19,081 19,087
(1) The receivables on disposed investments in subsidiaries to
third parties, mainly include the amount of USD 4,100 thousand in
respect of the sales of Kharkiv projectsto Mellon Real Estate and
Rodnex Investments Limited, which occurredin 2009. The Group has
initiated a lawsuit to receive these outstanding receivables. The
provision of USD 410 thousand was made in the year 2011 against
this outstanding receivable.
The fair values of trade and other receivables approximate to
their carrying amounts.
As at 31 December 2012, trade receivables of USD 950 thousand
(2011: USD 494 thousand) were impaired and provided for. The
individually impaired receivables mainly relate to prepayments made
to developers of construction contracts, which have working capital
problems. It was assessed that a portion of the receivables is
expected to be recovered.
The movement on the Group's provision for impairment of trade
and other receivables is as follows:
(i) Provision for trade receivables:
Group Company
2012 2011 2012 2011
At 1 January 494 524 - -
Provision for trade and other
receivables 455 - - -
Unused amount reversed - (29) - -
Effect of translation to presentation
currency 1 (1) - -
At 31 December 950 494 - -
(ii) Provision for receivables on disposal of investment of
subsidiary:
Group Company
2012 2011 2012 2011
At 1 January 410 - 410 -
Provision for receivables
on disposal of investment
of subsidiary - 410 - 410
At 31 December 410 410 410 410
The provision of USD 410 thousands was created in the year 2011
as an estimate of court costs, which are probable to occur as the
Company has strong intention to sue the partiesto whom it sold two
investments in subsidiaries in prior years, in order to receive
funds due from the resale of investments in subsidiaries.
As at 31 December 2012, the Group did not have any trade and
other receivables which are past due but not impaired (31 December
2011: nil).
The creation and release of provision for impaired receivables
has been included in other operating costs in the Consolidated
statement of comprehensive income. Amounts charged to the allowance
account are generally written off when there is no expectation of
recovering additional cash. The other classes within trade and
other receivables do not contain impaired assets.
The maximum exposure to credit risk at the reporting date is the
fair value of each class of receivable mentioned above. The Group
does not hold any collateral as security.
The carrying amounts of the Group's and the Company's trade and
other receivables are denominated mainly in Ukrainian Hryvnia and
United States Dollars as shown in Note 5.
24. Cash and cash equivalents
Cash and cash equivalents include the following for the purposes
of the Consolidated and Company statements of cash flows:
Group Company
2012 2011 2012 2011
Cash at bank:
Call deposits 158 1 - -
Escrow account 7 7 7 -
Current accounts 3,295 10,644 2,940 9,951
Total 3,460 10,652 2,947 9,951
The interest rate on call deposit was 4%-9.5% (31 December 2011:
4%-9.5%).
25. Share capital and share premium
The details of the Company's share capital and share premium are
as follows:
(a) Share capital and share premium
31 December
2012 2011
Number, Share Share Number, Share
thousand capital, premium, thousand capital, Share premium,
of shares USD thousand USD of shares USD thousand USD
Authorized
Ordinary shares
of nominal
value of USD
0.01 each:
At 1 January 550,000 5,500 - 50,000 500 -
Increase in
year 619,891 6,199 - 500,000 5,000 -
At 31 December 1,169,891 11,699 - 550,000 5,500 -
Issued and
fully paid
Ordinary shares
of nominal
value of USD
0.01 each:
On January
1 446,581 4,466 204,787 40,417 404 187,471
Issue of shares
in year(c) 105,423 1,054 - 406,164 4,062 17,316
At December
31 552,004 5,520 204,787 446,581 4,466 204,787
Authorized share capital
As at 31 December 2012, the authorized share capital of the
Company was 1,169,890,813 ordinary shares of USD 0.01 each (31
December 2011: 550,000,000 ordinary shares of USD 0.01 each). On
the 2 July 2012 the authorized share capital of the Company was
increased by 2,004,665 ordinary shares of USD 0.01 each to
552,004,665 ordinary shares of USD 0.01 each. On 6 December 2012
the authorised share capital of the Company was further increased
by 617,886,178 ordinary shares of USD 0.01 each to 1,168,890,843
ordinary shares per 0.01 USD each.
Issued share capital
The issued and fully paid ordinary shares of the Company as at
31 December 2012 were 552,004,665 (as at 31 December 2011:
446,581,201 issued and fully paid shares).
The holders of ordinary shares are entitled to receive dividends
as declared and are entitled to one vote per share at the Annual
and General Meetings of the Company.
(b) Warrants
2012, Number, thousand of 2012 2011, Number, thousand of 2011
warrants warrants
At 1 January 34 9 163 27
Change in fair value of warrants - - - 16
Write-offof warrants and
conversion into shares/
settlement (34) (9) (129) (34)
At 31 December - - 34 9
In prior years the Company issued 163,241 warrants to the
Eurobond Notesholders (Note 27), giving them entitlement to
4,244,266 shares in the Company upon exercising the warrants. The
value of the warrants amounted to USD 8,422 as at 31 December 2012
and USD 8,422 as at 31 December 2011.
The Warrantholders were settled as part of the approved
restructuring of 25 January 2011 as described in (d) below.
(c) Issue of shares in year 2012
On 5 July 2012 the Company proceeded with the issue of
105,423,464 ordinary shares of USD 0.01 in certified form, in order
to settle debts to various parties as described below:
1. Debt Conversion Agreement with Ovaro Holdings Ltd, Grenheim
Investments Limited, LLC Iurydychna Companiya "Corpius" and Mikasal
Ventures Limited in which the following was agreed:
Ovaro Holding Limited, the majority shareholder of the Company,
agreed to settle Grenheim Investments Limited on behalf of the
Company's subsidiary, Mikasal Ventures Limited, the amount of USD
4.000.000 (Note 12 (c)) and the Company issued on the name of Ovaro
Holding Limited 53.216.156 shares.
2. Debt Conversion Agreement with Reachcom Public Limited in which the following was agreed:
The Company had an outstanding payable amount to Dorvell
amounting to USD 1.958.184 which related to the Put and Call Option
Agreement regarding the subsidiary companies Elite Service LLC and
Piaty Element LLC and the Elite loan. According to an Assignment
Agreement dated 6 March 2012, this payable amount was transferred
to Reachcom Public Limited. In order for the Company to settle this
debt, on 27 April 2012 the Company entered into a Debt Conversion
Agreement with Reachcom Public Limited. According to this agreement
the Company issued 26.051.743 ordinary shares in the name of
Reachcom Public Limited.
Also, the Company had an outstanding payable amount to
Renaissance Capital Financial Consultant Limited amounting to USD
1.234.841, in relation to the financial advisory services provided
by the Renaissance Group for the restructuring of the Group in the
year 2009. On 27 January 2012, the Company entered into the
Renaissance Deed of Amendment pursuant to which the Company will
waive this debt via the issue of shares. Furthermore, on 22
February 2012, Renaissance Capital Financial Consultant Limited and
Reachcom Public Limited entered into an Assignment Agreement in
which Renaissance assigned all of its rights and benefits under the
Services Agreement to Reachcom Public Limited. On 27 April 2012 the
Company entered into a Debt Conversion Agreement with Reachcom
Public Limited. According to this agreement the Company issued
16.428.373 ordinary shares in the name of Reachcom Public
Limited
Thus, the total outstanding payable amount to Reachcom Public
Limited by the Company was USD 3.193.024 and the total number of
the ordinary shares that the Company issued in order to waive this
debt was 42.480.116. Thereafter on 20 June 2013 these shares were
transferred from Reachcom Public Limited to Computershare Company
Nominees Limited (Note 35).
3. Debt Conversion Agreement with Olena Volska in which the following was agreed:
The Company had an outstanding debt payable to Olena Volska
amounting to USD 37.203 in respect of outstanding salary,
Directors' fees and/or expenses. On 27 April 2012 entered into a
Debt Conversion agreement with Olena Volska in order to waive this
debt via the issue of 494.950 ordinary shares.
4. Debt Conversion Agreement with Jaroslav Kinach in which the following was agreed:
The Company had an outstanding debt payable to Jaroslav Kinach
amounting to USD 101.000 in respect of outstanding salary,
Directors' fees and/or expenses. On 27 April 2012 entered into a
Debt Conversion agreement with Jaroslav Kinach in order to waive
this debt via the issue of 1.343.708 ordinary shares.
5. Debt Conversion Agreement with Yiannos Georgallides in which the following was agreed:
The Company had an outstanding debt payable to Yiannos
Georgallides amounting to USD 42.943 in respect of outstanding
salary, Directors' fees and/or expenses. On 27 April 2012 entered
into a Debt Conversion agreement with Yiannos Georgallides in order
to waive this debt via the of issue of 571.313 ordinary shares.
6. Debt Conversion Agreement with Mandetin Finance SA (a company
associate with Emmanuel Blouin) in which the following was
agreed:
The Company had an outstanding debt payable to Emmanuel Blouin
amounting to USD 550.000 in respect of outstanding salary,
Directors' fees and/or expenses. On 27 April 2012 entered into a
Debt Conversion agreement with Mandetin Finance SA in order to
waive this debt via the issue of 7.317.221 ordinary shares.
As a result of conversion, application was made to the London
Stock Exchange for the 105,423,464 New Ordinary Shares, which rank
pari passu with the Company's existing issued ordinary shares.
Following the admission of the New Ordinary Shares, the total
number of ordinary shares admitted to trading on AIM increased to
552,004,665. The total number of voting rights in the Group is
552,004,665.
(d) Issue of shares in year 2011
Following the restructuring approved at the Extraordinary
Shareholders Meeting of 25 January 2011, the Company proceeded with
the issue of ordinary shares to its Eligible Noteholders, its
Eligible Warrantholders and to its new Strategic Investor, as set
below. Also the Ineligible Noteholders and Ineligible Warantholders
would receive a cash settlement amount as also described below:
Noteholders
No. of shares Nominal Value Share premium Total
USD USD USD
Eligible NoteHolders * (1)
Ordinary shares issued on:
- 25 Januay 2011 111,656,657 1,116,567 - 1,116,567
- 6 May 2011 7,940,541 79,405 - 79,405
119,597,198 1,195,972 - 1,195,972
Eligible Warrantholders * (2)
Ordinary shares issued on:
- 25 Januay 2011 2,724,462 27,245 - 27,245
- 6 May 2011 677,560 6,775 - 6,775
3,402,022 34,020 - 34,020
Ordinary shares issued to Strategic Investor (3)
- 25 January 2011 268,395,302 2,683,953 17,316,047 20,000,000
268,395,302 2,683,953 17,316,047 20,000,000
Total share issues made to new shareholders 391,394,522 3,913,945 17,316,047 21,229,992
No. of shares Nominal Value Share premium Total
USD USD USD
Additional ordinary shares issued for the purpose of
settling the Ineligible Noteholders &
Ineligible Warrant holders via a cash settlement:
Ineligible Noteholders * (4)
- 19 August 2011 13,927,802 139,278 - 139,278
Ineligible Warrantholders * (4)
- 19 August 2011 842,244 8,422 - 8,422
14,770,046 147,700 - 147,700
Total issue of shares to Noteholders, Warrantholders and
Strategic Investor, made during 2011 406,164,568 4,061, 646 17,316, 047 21, 377, 693
*Definitions:
Eligible Noteholders
Are the Noteholders who confirm that are eligible lawfully to
receive the New Ordinary Shares (issued in the form of Depositary
Interests) in exchange for the Notes held by submitting an
Eligibility Confirmation confirming that it is so eligible by the
Second Expiration Date;
Ineligible Noteholders
Are any Noteholders other than Eligible Noteholders.
Eligible Warrantholders
Are the Warrantholders who confirm that are eligible lawfully to
receive the New Ordinary Shars (issued in the form of DIs) in
exchange for the Warrants held by it by submitting an Eligibility
Confirmation confirming that it is so eligible prior to the
Expiration Time on the Second Expiration date;
Ineligible Warrantholders
Are any Warrantholders other than Eligible Warrantholders.
1. Eligible Noteholders
A total of 119,597,198 ordinary shares were issued to Eligible
Noteholders in two parts as explained below:
(i) On 25 January 2011 the shares issued to the Noteholders were
111,656,657 ordinary shares of USD 0.01 each. During the Meeting of
the Noteholders on 10 January 2011, it was confirmed that
Noteholders holding in aggregate USD 146,339,000 in Nominal Amount
of Notes submitted Eligibility Confirmations pursuant to the
Noteholders Circular confirming that they are eligible to receive
Depositary Interests in exchange for the Notes held by them
entitling them to receive 111,656,657 New Shares in form of
Depositary Interests in exchange for Notes held by them, at a ratio
763 Depositary Interests for each USD 1,000 of the Nominal Amount
of the outstanding Notes held by each Eligible Noteholder.
As a result on 25 January 2011 the Board of Directors approved
the issue of 111,656,657 ordinary shares of USD 0.01 each,
amounting to USD 1,116,567.
(ii) On 6 May 2011 shares were issued to the remaining Eligible
Noteholders holding in aggregate USD 10,407,000, at the ratio of
763 Depositary Interests, for each USD 1,000 of Nominal Value. As a
result, on 6 May 2011 7,940,541 ordinary shares of USD 0.01 each
amounting to USD 79,405, were issued.
2. Eligible Warrantholders
A total of 3,402,022 ordinary shares were issued to the Eligible
Warrantholders in two parts, as explained below:
(i) On 25 January 2011 the shares issued to the Warrantholders
were 2,724,462 shares of USD 0.01 each. During the Meeting of the
Warrantholders on 10 January 2011, it was confirmed that
Warrantholders holding in aggregate 104,587 Warrants submitted
Eligibility Confirmations pursuant to the Warrantholders Circular
confirming that they are eligible to receive Depositary Interests
in exchange for the Warrants held by them, entitling them to
receive 2,724,462 New Shares in form of Depositary Interests in
exchange for Warrants held by them, at a ratio 26 Depositary
Interests for each USD Warrant held by each Eligible
Warrantholder.
As a result on 25 January 2011 the Board of Directors approved
the issue of 2,724,462 of ordinary shares of USD 0.01 amounting to
USD 27,245.
(ii) On 6 May 2011 shares were issued to the remaining Eligible
Warrantholders holding in aggregate USD 26,060 Warrants, entitling
them to receive 677,560 New Shares at the ratio of 26 Depositary
Interests, for each Warrant held. As a result, on 6 May 2011
677,560 ordinary shares of USD 0.01 each amounting to USD 6,775
were issued.
3. Strategic Investor
On 25 January 2011 the Company entered into a transaction with a
strategic investor, Ovaro Holding Limited, where the strategic
investor injected USD 20 million into the Company in exchange of
63.42% in the Company's share capital. In this respect the Company
issued a total number of 268,395,302 ordinary shares of USD 0.01
each amounting to nominal value of USD 2,683,953. The shares were
issued at premium of USD 0.064516952 each, amounting to a total
share premium of USD 17,316,047.
As noted in paragraphs (1) and (2) above, on 6 May 2011 the
Company's Board of Directors approved an additional increase in the
Company's share capital. In this respect 8,618,101 ordinary shares
were issued at nominal value of USD 0.01 each and distributed to
Eligible Noteholders and Warrantholders. Following this share
issue, the ownership of Ovaro Holding Limited became 62.16% as of 6
May 2011.
For the subsequent changes in the shaeholders as at 31 December
2011 and 31 Deceber 2012 please refer to Note 33.
4. Ineligible Noteholders and Ineligible Warrantholders
Based on the terms of the restructuring, the Company shall,
instead of delivering shares in exchange for its Notes and its
Warrants, pay to the Ineligible Noteholders and Ineligible
Warrantholders a cash settlement amount, being an amount equal to
the net sale proceeds received by or on behalf of the Company from
the sale of the shares issued for this purpose. Such sale shall be
conducted on open market terms by an independent broker, but
without any liability on the part of the Company for any loss on
depreciation in value in respect of the shares to be issued for the
purpose of such sale. The cash settlement amount shall be paid to
each Ineligible Noteholders and Ineligible Warrantholders as soon
as it is reasonably practicable following the completion of the
relevant sale.
The gain or loss that will arise on the cash settlement to the
Ineligible Noteholders and Ineligible Warrantholders, in order to
extinguish their liability, will be recognised in the statement of
comprehensive income of the year in which the gain or loss will
arise.
Following on the above, the Company has issued a total of
14,770,046 ordinary shares as detailed below:
(i) On 19 August 2011, 13,927,802 ordinary shares were issued by
the Company, for the purpose of settling the liability of the
Ineligible Noteholders as explained in the above paragraph. The
Ineligible Noteholders hold in aggregate USD 18,254,000 in nominal
amount of Notes, and they are entitled to receive a cash settlement
from the open market sale of 13,927,802 ordinary shares, computed
as 763 shares for each USD1,000 of nominal value of the outstanding
Notes.
(ii) On 19 August 2011, 842,244 ordinary shares were issued by
the Company, for the purpose of settling the liability to the
Ineligible Warrantholders as explained in the above paragraph. The
Ineligible Warrantholders hold in aggregate 32,394 Warrants, and
they are entitled to receive a cash settlement from the open market
sale of 842,244 ordinary shares computed as 26 shares for each
outstanding Warrants.
Following on the above arrangement for the settlement, out of a
total liability due to Ineligible Bondholders and Warrantholders
amounting to USD 23,330 and amount of USD 22,166 was written-off to
the income statement of the year 2011. The write-off represented
the difference between the fair value of the quoted Company shares
being USD 1,064 thousand (Note 27) and original liability which is
subject to settlement.
Direct and indirect interest of the Directors in the Company's
issued share capital
The direct and indirect interest of the Directors in the issued
share capital of the Company as at the following dates was as
follows:
27 June 2013 31 December 31 December
2012 2011
(in per cent)
Mr. Oleg Salmin (1) 29.13 29.13 60.1
Mr. Alexander Yaroslavskyy
(1) 29.13 29.13 -
Mr. Lev Partskhaladze - - 4.57
Mr. Andriy Myrgorodskyy - - 0.27
(1) Ovaro Holding Limited is equially owned by Mr. Oleg Salmin and Mr. Alexander Yaroslavskyy.
Shareholders with holding of at least 5% of the issued share
capital of the Company:
27 June 2013 31 December 31 December
2012 2011
(in per cent)
Ovaro Holding Limited
(1) 58.26 58.26 60.1
Mr. Lev Partskhaladze - - 4.57
Earnings per share
The calculation of earnings per share both basic and diluted, as
at 31 December 2012 was based on the profit/(loss) attributable to
ordinary shareholders of USD (39,649) thousand (31 December 2011:
USD (23,804) thousand) and a weighted average number of shares
outstanding of 550,999 thousand (31 December 2011: 409,004
thousand).
Group
31 December 2012 31 December 2011
Weighted Earnings, Weighted Earnings,
average in thousands average in thousands
number of USD number of USD
of shares, attributable EPS basic of shares, attributable EPS basic
thousand to ordinary and diluted, thousand to ordinary and diluted,
of shares shareholders in USD of shares shareholders in USD
Loss for the year 550,999 (39,369) (0.07) 409,004 (23,804) (0.05)
Total comprehensive
income 550,999 (39,730) (0.07) 409,004 (24,715) (0.05)
Company
31 December 2012 31 December 2011
Weighted Earnings, Weighted Earnings,
average in thousands average in thousands
number of USD number of USD
of shares, attributable of shares, attributable
thousand to ordinary EPS, thousand to ordinary EPS,
of shares shareholders in USD of shares shareholders in USD
Loss for the year 550,999 (20,138) (0.03) 409,004 (22,541) 0.05
Total comprehensive
income 550,999 (20,138) (0.03) 409,004 (22,541) 0.05
26. Other reserves
Group
Other reserve (i) Translation reserve Total
Balances as at
1 January 2011 - (219,417) (219,417)
Foreign currency translation differences (911) (911)
Effect of exchange Bonds for Shares (i) 198,256 - 198,256
Balances as at 31 December 2011 / 1 January 2012 198,256 (220,328) (22,072)
Foreign currency translation differences - (361) (361)
Share issue and convertion of liabilities into equity
(Note 25) 6,870 - 6,870
Balances as at 31 December 2012 205,126 (220,689) (15,563)
(i) The "other reserve" has been created as a result of the
exchange of Bonds for Shares in the Company in the year 2011 (Note
25). The difference between the fair value of the Eligible Bonds
for exchange into Shares being USD 199,452 thousand as at the date
of Extraordinary Shareholders Meeting held on 25 January 2011 and
the shares issued at nominal value amounting to USD 1,196 thousand
is the above "other reserve".
Company
Other reserve Translation reserve Total
Balances as at 1 January 2011 - 332 332
Effect of exchange of Bonds for Shares (i - as above) 198,256 - 198,256
Balances as at 31 December 2011 198,256 332 198,588
Share issue and convertion of liabilities into equity
(Note 25) 6,870 - 6,870
Balances as at 31 December 2012 205,126 332 205,458
27. Borrowings
Group Company
2012 2011 2012 2011
Non-current
Bank loans (1) - 54,196 - 54,196
Liabilities to Ineligible
Noteholders (2) 1,063 1,063 1,063 1,063
Loan from third parties 7 21 - -
Loan from subsidiary (Note
33) - - 2,407 2,416
Total non-current 1,070 55,280 3,470 57,675
Current
Bank loans (1) 54,302 727 54,302 727
Liabilities on bonds issued
on purchase of subsidiary,
face value 515 515 - -
Payables to third parties 73 6,017 - 1,958
Total current 54,890 7,259 54,302 2,685
Total 55,960 62,539 57,772 60,360
Bank borrowings
As at 31 December 2012, the Group had outstanding current loans
balances amounting to USD 54,302 thousand due to:
(1) Bank loans
(a) Eurobank EFG Cyprus Limited
USD 54,302 thousand (2011: USD 54,196 thousand) (obtained USD
60,000 thousand of total revolving facility amount USD 60,000
thousand) relate to the loan agreement between Eurobank EFG Cyprus
Limited and XXI Century Investments Public Limited dated 20 May
2008. The accrued interest as at 31 December 2012 amounting to USD
212 thousand (as at 31 December 2011: USD 727 thousand) is included
in current bank loans (see section below). The loan was secured
against notary signing and proper registration of the pledge
shopping centre Kvadrat Perova, the property rights for shopping
centre Kvadrat Perova 100% of lease agreement and assignment under
lease agreements by the way of signing trilateral amendments to the
lease agreements, property rights of 100% shares Avrora OJSC,
company-owner of shopping centre Kvadrat Perova.
In accordance to initial agreement with the bank the annual
interest rates is LIBOR USD 3M + 5,5% and the due dates were: USD
4,000 thousand - 23 May 2009, USD 4,000 thousand - 23 November
2009, USD 4,000 thousand - 23 May 2010, balance (including all
other charges, fees and expenses) with a balloon payment - 23 May
2011.
However, in December 2009, the Company successfully completed
restructuring of the loan from Eurobank EFG Cyprus LTD. The
following terms of initial agreement were revised or amended:
-- Final maturity date of the loan was changed for the 20 September 2012;
-- Interest rate. The initial margin was LIBOR USD 3m + 5,5%,
however, effective as of 26 May 2009, the bank elected to raise the
margin to 7.5% over LIBOR USD 3m. Under the amended agreement, the
margin will be fixed at 7.2% over LIBOR USD 3m. However, during the
first 24 months after signing, of this total margin 7.2%, 6.0% will
be payable while the remaining margin of 1.2% will be capitalized
and paid at the end of this 24 month period.
-- Schedule of interest payments was changed for monthly instead of quarterly;
-- Revised schedule of repayment of principal amount was adopted
as 27 monthly instalments of USD 667 thousand commencing on the 20
of June 2010 and a catch-up balloon payment at maturity date;
-- As additional collateral to the bank, 100% of LLC Land
Development was provided, which is the owner of Kvadrat Simferopol
project and pledge of Simferopol land plot;
-- The bank received the right to appoint two members to the
Supervisory Board of AvroraOJSC to oversee their existing
collateral.
In December 2010 the Company has reached another agreement with
Eurobank over restructuring of the loan. The following terms of
previous agreements were revised or amended:
-- Final maturity date of the agreement was connected to
Termination date, which was defined as the date falling 24 months
after the date of completion of the recapitalisation of the Company
by Renaissance Capital Group, but no later than 28 February
2013;
-- Revised schedule of repayment of principal amount was adopted
as monthly instalments of different amounts. Total amounts of
repayment of principal per years is presented as follows: USD 547
thousand in 2010, USD 770 thousand in 2011, USD 727 thousand in
2012 and USD 54,163 thousand in 2013. In these payments were also
included non-compliance fees for violation of previously agreed
repayment schedule.
As was announced on 1 March 2013 the Company is in discussion
with Eurobank Cyprus (EFG) in relation to extending the term of the
US$ 54 mln loan with EFG for a further 12 months. It is expected
that new Amendment agreement to the Loan agreement will be signed
based on amending certain provisions of the Loan Agreement relating
to the terms and conditions of the repayment of the Revolving
Facility Amount. It is expected that the loan maturity will be
extended to 28 February 2014.
Please also refer to Note 35.
(b) Ukssibbank CJSC
During the year 2011 the Group successfully restructured
multi-currency term loans, which were originally provided by
UkrSibbank PJSC to wholly-owned subsidiaries of the Group. In
accordance to agreement reached with UkrSibbank PJSC the loans
outstanding amounting to USD 32.7 million as at April 2011, were
assigned by UkrSibbank PJSC to two independent third parties,
namely Grenheim Investment Limited and Law Firm Korpius LLC, both
of which are controlled by the same independent group.
In view of the complexity of the arrangements, the assignment
and restructuring was executed in several stages. In the first
stage, UkrSibbank PJSC assigned the term loans of Kyivsky Kashtany
LLC, Khrizolit LLC, Torgovy Centre A CJSC and Kvadrat Ukraine CJSC,
all of which totaled USD 32.7 million to the two third parties,
mentioned in the above paragraph.
In the second stage the Group immediately repaid USD 15.3
million of loans. Further to that, the two independent third
parties, "Greinheim Investment Limited" and "Law Firm Korpius LLC",
assigned the amount of USD 13.4 million to another wholly-owned
subsidiary of the Company, Mikasal Ventures Limited. USD 8.2
million of this amount was cancelled, and Mikasal was obliged to
repay the amount of USD 5.2 million. Out of this amount, USD 1.3
million was repaid during the year and the Group agreed to pay the
remaining balance of USD 4 million prior to 12 May 2012. This USD 4
million outstanding balance of the loan is secured by the pledge of
corporate rights of the afore mentioned wholly-owned
subsidiaries.
As a result of the above transaction, liability of the Group
amounting to USD 12 million (Note 12: USD 11,997 thousand) were
written-off.
In the third stage, in order to fund the USD 16.6 million (being
USD 15.3 plus USD 1.3) repayment of loans mentioned above, the
Group has also sold its shopping centre, Kvadrat Lukyanivka, to
Monkar Limited for USD 14 million (Note 34.2 and 34.3). It also
executed an option agreement which enables XXIC to repurchase
Kvadrat Lukyanivka in the fifth year following the date of
sale.
The original loans from UkrSibbank PJSC were as follows:
(i) USD nil thousand (2010: USD 1,528 thousand) (obtained UAH
20,970 thousand and USD 848 thousand of total loan amount USD 5,000
thousand) relate to the multicurrency loan agreement between
UkrSibbank and Torgovy Centre A CJSC dated 5 December 2007. The
loan was secured against property (Kvadrat-Lukyanivka, fair value
as determined by the independent appraiser at 31 December 2010 was
USD 18,500 thousand and guaranteed by Soyuz-Inform LLC as at 31
December 2010.
The annual interest rates are LIBOR USD 12M + 6,5% for USD
loans, 10% for EUR loans, 13% for UAH loans and the due date was 5
December 2012.
(ii) USD nil thousand (2010: USD 1,528 thousand (obtained UAH
10,750 thousand and USD 2,784 thousand of total loan amount USD
5,000 thousand) relate to the multicurrency loan agreement between
UkrSibbank and Khryzolit LLC dated 5 December 2007. The loan was
secured against property (Kvadrat-Lukyanivka), fair value as
determined by the independent appraiser at 31 December 2010 was USD
18,500 thousand and guaranteed by Soyuz-Inform LLC as at 31
December 2010.
The annual interest rates are LIBOR USD 12M + 6,5% for USD
loans, 10% for EUR loans, 13% for UAH loans and the due date is 5
December 2012.
(iii) USD nil thousand (2010: USD 1,528 thousand (obtained UAH
1,052 thousand and USD 4,791 thousand of total loan amount USD
5,000 thousand) relate to the multicurrency loan agreement between
UkrSibbank and Kyivski Kashtany LLC dated 5 December 2007. The loan
was secured against property (Kvadrat-Lukyanivka, fair value as
determined by the independent appraiser at 31 December 2010 was USD
18,500 thousand and guaranteed by Soyuz-Inform LLC as at 31
December 2010.
The annual interest rates are LIBOR USD 12M + 6,5% for USD
loans, 10% for EUR loans, 13% for UAH loans and the due date is 5
December 2012.
(2) Eurobonds borrowings
On 24 May 2007, the Group issued 10% Eurobonds at a face value
of USD 175,000 thousand to finance its expansion program and
working capital requirements ("The Notes"). The Notes were
repayable on 24 May 2010.
In July 2009, the Group successfully restructured its
obligations on Eurobonds 2011 (USD 175 million). Basic terms of
restructuring are:
-- the extension of the final maturity date of the Notes to 24
November 2014 and the adoption of an amortisation schedule under
which instalments of principal will fall due for repayment on 24
November 2010, 24 November 2011, 24 November 2012, 24 November 2013
and 24 November 2014;
-- the capitalisation of interest on the Notes that would have
been due for payment on 8 July 2009 and the inclusion of a right
for the Company to capitalise interest on the Notes on each
subsequent interest payment date falling prior to 24 November
2014;
-- the change of the interest rate from 10 per cent. per annum to 9 per cent. per annum; and
-- the introduction of a right for the Noteholders to nominate a
non-executive director to the Board of Directors of the
Company;
-- The introduction of a mandatory prepayment obligation in
respect of 50% of excess proceeds from disposals and from new
financings otherwise than for the development of existing
projects.
On 16 December 2010 the Group entered intoa transaction with
strategic investor, Ovaro Holding Limited. Based on the agreement
reached on 25 January 2011, the strategic investor injected USD 20
million in exchange of 62.16% of the share capital of the Company
via a share capital increase effected on 25 January 2011. The
strategic investor is indirectly owned by Renaissance Capital (25%)
and Steltex Investments Limited (75%). Steltex Investments Limited
is a Ukrainian group owned by a reputable businessman, Oleh
Salmin.
As part of the transaction, Eligible Noteholders and
Warrantholders exchanged the Notes (Eurobonds 2011 (USD 175
million) against newly issued shares. Collectively, Eligible
Noteholders and Warrantholders owned 28.41% of the Company. The
conversion of Notes into equity was approved at the Noteholders and
Warrantholders meeting on 25 January 2011. For more details refer
to Note 25.
The remainder of the share capital after new share issue has
been split between the Management of the Group (5.08%) and existing
minority shareholders (4.35%).
The transaction was approved by current shareholders at
extraordinary shareholders meeting on 25 January 2011.
The remaining amount of USD 1,063 thousand as at 31 December
2011 relates to the outstanding liability due to the Ineligible
Noteholders for the unconverted Eurobonds as of 31 December 2011.
For more details refer to Note 25, (4).
Maturity of the long-term borrowings is as follows:
Group Company
31 December 2012 31 December 2011 31 December 2012 31 December 2011
Between one to two years 7 54,217 - 54,196
Between two and five years 1,063 1,063 1,063 3,479
Total 1,070 55,280 1,063 57,675
The carrying amounts and fair value of the Group non-current
borrowings are as follows:
Carrying amount Fair value
31 December 31 December 31 December 31 December
2012 2011 2012 2011
Eurobonds - - - -
Liabilities
to Ineligible
Noteholders 1,063 1,063 1,063 1,063
Bank borrowings - 54,196 - 54,196
Loan from third
parties 7 21 7 21
Total 1,070 55,280 1,070 55,280
The fair value of current borrowings equal their carrying
amount, as the impact of discounting is not significant. The fair
values are based on cash flows discounted using a rate based on the
borrowing rate of 15% (31 December 2011: 15%).
The carrying amounts of short-term borrowings approximate their
fair value.
The carrying amounts of the Group's borrowings are denominated
in the following currencies:
Group Company
31 December
2012 31 December 2011 31 December 2012 31 December 2011
United States Dollars 55,364 61,945 55,960 60,360
UAH 596 594 - -
Euro - - - -
Total 55,960 62,539 55,960 60,360
28. Finance lease liabilities
Group
2012 2011
30 June 2007 29.
Minimum Future Minimum Future
lease finance lease finance
payments charges Principal payments charges Principal
Current:
Less than one year 3,412 (1,624) 1,788 3,205 (1,645) 1,560
Non-current:
Later than one year
and not later than
five years 10,156 (5,079) 5,078 10,548 (5,505) 5,043
Later than five
years 24,286 (12,299) 11,987 26,267 (14,223) 12,044
34,442 (17,378) 17,065 36,815 (19,728) 17,087
Total 37,854 (19,002) 18,853 40,020 (21,373) 18,647
The finance interest charges on the finance lease liabilities,
incurred during the year ended 31 December 2012, amounts to USD
2,782 thousand (2011: USD 2,410 thousand) (Note 13).
29. Trade and other payables
Trade and other payables are as follows:
Group Company
2012 2011 2012 2011
Payroll and other taxes
payable 631 8 - -
Prepaid rentals on operating
leases 1,442 1,221 - -
Other accounts payable
(1) 3,946 5,676 1,526 3,282
Accrual for lawsuit (2) 783 783 518 518
Accruals 187 110 124 110
Payables to related parties
(subsidiaries) (Note
33) - - 1,600 1,600
Payables to Directors
(Note 33(a)) - 342 187 342
Total 6,989 8,140 3,955 5,852
(1) The other accounts payable mainly include payables to
constructors and payables to financial consultants upon the issue
of Eurobonds and financial restructuring.
(2) An accrual was made in year 2010 for probable payable in
respect of lawsuit, refer also to Note 12.
30. Income tax payable
Income tax payable amounting to USD 928 thousand at the Group
level and USD 935 thousand at the Company level as at 31 December
2012 (2011: Group level USD 931 thousand and USD 935 thousand for
Company level), mainly represents corporation tax of USD 314
thousand (2011: USD 314 thousand) and defense tax of USD 621
thousand (2011: USD 621 thousand) for the years 2006 and 2007 (Note
14).
31. Commitments
Operating lease commitments - where a Group Company is a
lessor
During the years 2012 and 2011, the Group as a Lessor, had the
following operating leases:
2012 2011
Investment property under operating Investment property under operating
Name of subsidiary lease Name of subsidiary lease
Avrora OJSC Kvadrat Perova Avrora OJSC Kvadrat Perova
Kvadrat-Ukraine CJSC Kvadrat Lukyanovka
Souyz-Inform LLC (1) Kvadrat Lukyanovka
(1) The future minimum lease payments under the above
non-cancelable agreements amount to USD 14,618 thousand as at 31
December 2012 (31 December 2011: 31,099). The whole amount is
receivable within 3-20 years (Note 8).
The future aggregate minimum rentals receivable under
non-cancelable operating leases are as follows:
Group Company
2012 2011 2011 2010
-
No later than 1 year 5,144 6,188 - -
Later than 1 year and
no later than 5 years 7,635 10,943 - -
Later than 5 year 1,838 13,968 - -
Total 14,617 31,099 - -
Social commitments
The Group makes contributions to mandatory and voluntary social
programs. The Group's social assets, as well as local social
programs, benefit the community at large and are not normally
restricted to the Group's employees. Management expects that the
Group will continue to fund these social programs for the
foreseeable future. These costs are recorded in the period they are
incurred.
Guarantees
The Group has entered into guarantee agreements with the banks,
which granted loans to individuals, who purchased residential
apartments fromthe Group. Such guarantee contracts issued by the
Group are credit insurance that provides for specified payments to
be made to reimburse the holder for a loss it incurs because a
specified debtor fails to make payment when due under the original
or modified terms of a debt instrument. These agreements resulted
in the guarantees amounting to USD 4,002 thousand as at 31 December
2012 (31 December 2011: 4,933).
Investment agreements
Following the bank guarantees exchange (in accordance with the
investment agreements with Real Estate F.C.A.U LLC (Auchan) and
Leroy Merlin LLC), the Group is obliged to the future commitments.
The amount of the future commitments as at 31 December 2012 can be
identified in the range from USD 58 million to USD 59 million, that
is dependent on the fulfilment of conditions of the investment
agreements, particularly transferring ownership rights for land
plots to the Investors, obtaining as least 30% level of SEC
occupancy, meeting the opening date deadline, etc.
32. Contingencies
(a) Litigation
(ii) Various legal proceedings
The Group is involved in various legal proceedings in the
ordinary course of business, which give rise to contingent
liabilities in respect of legal claims.
The management of the Company believe that the result of any
legal proceedings will have no material effect on the Group's
financial position or results of operations.
(iii) Litigation for the Alupka project (Note 15 (2))
The subsidiaries of the Group, Capital Market LLC and Trest
Forum LLC, are currently participating in a legal process
concerning the Alupka project. On 28 December 2006 the Alupka City
Council transferred the rights for the land from the State-Owned
Enterprise "Livadiia" to the Land bank of the Alupka City Council,
based on its Decision of 28 December 2006. In year 2007 the
landplot was given under finance lease to the above mentioned
companies of the Group for the period of 49 years. The plaintiff,
Deputy of the Prosecutor in Yalta representing State interests of
Republic Committee on land resources of the Crimea, challenges the
Decision of the Alupka City Council for cancellation. In November
2012 the hearings on court proceedings were temporary suspended
until obtaining of results of appropriate court complex expertise
on case and enforcement of the decision of Administrative district
court of ARC #2 -1701/12/0170/3. Hence, there is a risk for the
dissolution of the Alupka project finance lease agreement and there
is uncertainty in whose favour the Court decision will be issued,
though the Group's external lawyers hold the position that there is
a high probability that the court decision will favour the
Group.
(iv) Litigation for the Kyianivskyi project (Note 15 (3))
In March 2013 a legal process against LLC Megagrad (Kyianivskyi
project) concerning termination of the lease agreement and
returning of the land plot was initiated by Deputy Prosecutor of
Kiev city. The case is at thestage of the initial hearings. At the
present moment the probable outcome of this case is unclear.
(v) Litigation for the Posolskiy Dvir project (Note 15 (5))
In March 2013 LLC Elit-Service (Posolskiy Dvir project) has
initiated a litigation process against Kiev City Council regarding
cancellation of the resolution of the Kiev City Council on unlawful
termination of the lease agreement. The lease agreement was
terminated by the Kiev City Council with violation of the lessee
rights according to the provisions of the agreement and current
legislation of Ukraine. The claims of LLC Elit-Service were
sustained by the court. The Company wait for issue of official
decision.
(b) Taxation
(i) Tax provisions
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 characterized by numerous taxes and
frequently changing legislation which may be applied retroactively,
open to wide interpretation and in some cases are conflicting.
Instances of inconsistent opinions between local, regional, and
national tax authorities and between the National Bank of Ukraine
and the Ministry of Finance 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 and 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,
official pronouncements and court decisions. However, the
interpretations of the relevant authorities could differ and the
effect on these consolidated financial statements, if the
authorities were successful in enforcing their interpretations,
could be significant. No provisions for potential tax assessments
have been made in these financial statements.
(ii) Tax contingencies Soyuz-Inform
According to the agreement between Mikasal Ventures Limited, the
Company's subsidiary, and Monkar Limited, the third party, for the
sale of Soyuz-Inform LLC (Note 34.2), Mikasal Ventures Limited has
the obligation to repay all possible future taxes, fees, fines and
penalties that may arise during the tax authorities reviews for the
period from 1 April 2008 to 30 June 2011. Due to the significant
complexities in the Ukrainian tax legislation and tax judgments
required to determine such tax contingent liabilities, the
Management of the Group is unable to make any estimation of
possible amounts of such tax contingencies.
(c) Land leases
A number of the land leases are held for relatively short terms
and place an obligation upon the lessee to complete development by
a prescribed date.
As at 31 December 2012, the following leases were already
expired or short-term:
Project Subsidiary Market value Project stage Lease expiry date
name per appraiser Comments
as at 31
December
2012 (Note
15)
Virlytsia Mriya-Invest 98,100 Project development, This project comprises
mixed-use LLC ground works of 3 sub-leases
permit for with one (6.17 ha)
shopping center being short-term
with expiry dates
of 13 October 2010
and two(19.72 ha
and 4.10 ha) being
long-term expiring
on 19 November 2030
and 11 April 2016.
Lisova Kvadrat-Ukraine 5,100 Concept development This project comprises
mixed-use CJSC of 2 sub-leases
with one (0.19 ha)
being short-term
and already expired
with expiring date
being on 7 October
2011 and the other
one (5.44 ha) being
long-term expiring
on 7 October 2020.
Lviv mixed Torgovy 8,000 Concept development This project comprises
use Centre of 2 sub-leases
A CJSC with one (0.57 ha)
being short-term
and already expired
with expiring date
being on 5 July
2012 and the other
one (4.60 ha) being
long-term expiring
on 5 July 2017.
Berezneva Investment 2,600 Concept development This project comprises
mixed-use Group East of 2 sub-leases
LLC with one (0.12 ha)
being short-term
and expired on 26
November 2012 and
the other one (7.81
ha) being long-term
expiring on 20 May
2024.
The above investment properties whose finance leases were
expired as at 31 December 2012, were subject to "Special
Assumptions" applied by the valuer in their valuation. For more
details refer to Note 15.
As at 31 December 2011, the following leases were
short-term:
Project Subsidiary Market value Project stage Lease expiry date
name per appraiser Comments
as at 31
December
2011 (Note
15)
Virlytsia Mriya-Invest 93,500 Project development, This project comprises
mixed-use LLC ground works of 3 sub-leases
permit for with 2 being short-term
shopping center with expiry dates
of 13 October 2010
and 11 April 2011
and one being long-term
expiring on 19 November
2030.
Lisova Kvadrat-Ukraine 5,400 Concept development This project comprises
mixed-use CJSC of 2 sub-leases
with one being short-term
with expiring on
7 October 2011 and
the other one being
long-term expiring
on 7 October 2020.
Finance lease contingent liabilities
In accordance with the Tax Code of Ukraine, effective since 1
April 2011 rates for calculation of finance lease charges have been
amended to the range from 3% to 12%. Prior to the enforcement of
this new legislation, the finance lease rates were lower than the
new tax range, with a minimum of 0,1%. Most of the finance lease
agreements of the Group were signed before the Tax Code of Ukraine
implementation and the key terms, notably finance lease rates, were
regulated by the laws in force as at the date of signing these
agreements. Though, the new legislation remains ambiguous on
whether these agreements will be subject to the rates prior to the
expiring. Some of the Group's finance lease agreements were renewed
after 1 April 2011 with the new tax rates enacted by the Tax Code
of Ukraine. According to the original finance lease agreements,
rental rates for the Group were set in the range from 1.5% to 2%.
For the land plots with expired maturity dates as at the date of
enforcement of the new legislation, the finance lease rates will be
revised upon their renewal in the line with the new rates, with the
minimum of 3%.
Following on the above change in the Tax Code of Ukraine and the
ambiguity of the new legislation on whether existing finance lease
agreements would be subject to the new increased rates and assuming
finance lease rates at a minimum 3% level and the date of
imposition of new rate is 1 January 2014, the probable input on the
Group is set out below:
(a) For all the finance lease agreements with the tax rates lower than legislative ones:
-- finance lease liabilities will increase by USD 4 524 thousand;
-- finance lease charges will increase by USD 388 thousand.
(b) Point (a) includes the expired finance lease agreements with the following financial effect:
-- finance lease liabilities will increase by USD 55 thousand;
-- finance lease charges will increase by USD 5 thousand.
These increases are the differences between the exciting rates
and a minimum of 3% rate based on the new legislation.
The Group is in standard process of renewal of land lease
agreements mentioned above and the Management of the Group has a
strong confidence that these agreements will be prolonged as the
Group has a priority right for renewal of these land lease
agreements. As of the date of signing of these financial
statements, the renewal process is still ongoing by the Kiev Land
Authorities. The Company's Management has confirmed that the delays
encountered for the renewal are mainly bureaucratic.
Land leases held for relatively short terms place an obligation
upon the lesser to complete development by a prescribed date.
It is important to note that the rights to complete a
development may be lost or, at least delayed if the lessee fails to
complete a permitted development within the timescale set out by
the ground lease. In addition, in the event that a development has
not commenced upon the expiry of a lease then the City Authorities
are entitled to decline the granting of a new lease on the basis
that the land is not used in accordance with its designation.
Furthermore, where all necessary permissions and consents for the
development are not in place, this may provide the City with
grounds for rescinding or non-renewal of the ground lease. However,
the Management believes that the possibility of such action is
remote and was made only under limited circumstances in the past.
In addition, the Management believes that rescinding or non-renewal
of the ground lease is remote if a project is on the final stage of
development or on the operating cycle. In undertaking the
valuations reported herein (Notes 4, 6 and 15), CB Richard Ellis
have made the assumption that no such circumstances will arise to
permit the City to rescind the land lease or to not grant a
renewal.
33. Balances and transactions with related parties
As part of the Group's restructuring, share capital increases
were effected on 5 July 2012 and 25 January 2011, 6 May 2011 and 19
August 2011 (refer to Note 25). Following these share capital
increases and as at the date of signing of these financial
statements, the Company is controlled by Ovaro Holdings Limited,
which owns 58.26% of the Company's shares (2011: 60.1% of the
Company's shares). The remaining 41.74% (2011: 39.9%) of the shares
is widely held by the Eligible Noteholders and Warrantholders, who
converted debt into equity, specifically 30.85% and other
investors, including parties whose debt was converted into
equity.
As at 31 December 2011 the Company was controlled by Ovaro
Holdings Limited, which owned 60.1% of the Company's shares.
As at 31 December 2012 the Company was controlled by Ovaro
Holdings Limited, which owned58.26% of the Company's shares.
For the purposes of these consolidated and separate financial
statements, parties are considered to be related if one party has
the ability to control the other party, is under common control, or
can exercise significant influence over the other party in making
financial and operational decisions. In considering each possible
related party relationship, attention is directed to the substance
of the relationship, not merely the legal form.
Management believes that agreements governing the pricing
between all related parties are in accordance with market
conditions and contractual practices existing at the time of
transactions. The Group and the Company had the following balances
and transactions with related parties:
(a) Balances with related parties:
Assets
Group
31 December
2012 2011
Entities Entities
under common Key management under common Key management
control personnel control personnel
Long-term loans extended
(Note 20) - - 279 -
Receivables from related
parties (Note 23) - - 5 -
Receivables from shareholders
(Note 23) 148 - 148 -
Total 148 - 432 -
Assets
Company
Entities under common control
31 December
2012 2011
Investments in subsidiaries (Note
18) 55,698 69,181
Long-term loans extended (Note 20) 75,007 71,222
Receivables from disposed investments
in subsidiary to related party Kvadrat
Ukraine (Note 23) 1,145 1,145
Receivables from Barwen Holding
Limited for disposed investments
in subsidiary (Note 23) 14,999 14,999
Receivables from shareholders (Note
23) 148 148
Total 146,997 156,695
Liabilities
Group
Entities under common control
31 December
2012 2011
Payables to Directors (Note 29) 187 342
Other accounts payable (Note
29) 26 -
Company
Entities under common control
31 December
2012 2011
Payables to related parties (subsidiaries),
current: (Note 29)
-Mikasal Ventures Limited 1,425 1,425
-Barwen Holdings limited 175 175
1,600 1,600
Payables to Directors (Note 29) - 342
Total 1,600 1,942
The payables to related parties are of financing nature,
interest free and repayable on demand.
Company
Entities under common control
31 December
2012 2011
Loan from subsidiary company
(Note 27):
Mikasal Ventures Limited
At 1 January 2,416 -
Loan advanced in the year (9) 2,416
At 31 December 2,407 2,416
The loan received from the subsidiary company Mikasal Ventures
Limited, bears no interest and is repayable
on 31 May 2014.
(b) Transactions with related parties:
Revenues - Group
Revenues accrued were as follows:
Group
2012 2011
Entities Entities
under common Key management under common Key management
control personnel control personnel
Goods - - - -
Total - - - -
Revenues - Company
Revenues accrued were as follows:
Company
2012 2011
Entities
under common Entities under
control common control
Finance income (Note 13) 3,530 6,719
Total 3,530 6,719
Purchases and expenses
Purchases were as follows:
Group
2012 2011
Entities
Entities under
under common Key management common Key management
control personnel control personnel
Rent (Note 11) 285 - - -
Impairment of investments
in subsidiaries - 13,483 -
Total 285 - 13,483 -
Purchases
Purchases were as follows:
(i)Acquisitions/disposals of subsidiaries:
Disposal of subsidiaries by the Company (Note 18):
Company
2012 2011
Investment Fund Capitoly - 14,999
Total - 14,999
For more detailed information regarding disposals of
subsidiaries in 2011 refer to Note 18.
(c) Key Management personnel remuneration
Total key management remuneration, included in administrative
expenses in salary and related charges (Note 11), amounted USD 512
thousand for the year ended 31 December 2012 (31 December 2011: USD
749 thousand), as analysed below:
1.
Director Salaries and other short-term
benefits
2012 2011
Executive Directors
Oleg Salmin 300 275
Maksym Naumenko 119 110
Oleg Puchev 48 40
Jaroslav Kinach - 100
467 525
Non-executive Directors
Lev Partskhaladze - 72
Olena Volska - 50
Roman Nasyrov 9 17
Yiannos Georgallides - 49
Emmanuel Blouin 36 36
45 224
Total 512 749
All remuneration of key management personnel in years 2012 and
2011 was represented by salary, which is short-term employee
benefit.
(d) Other transactions with Key Management personnel
No other transactions with key management personnel took place
during years 2012 and 2011.
34. Business combinations
34.1 Acquisition of non-controlling interest
During the years 2012 and 2011, the Group was not involved in
purchase of new controlling interests related to business
development.
34.2 Disposal of subsidiaries
There were no any disposals during the year 2012.
During the year 2011 the only subsidiary disposed to a third
party by the Group was Souyz-Inform LLC which had owned by Mikasal
Ventures Limited, the Company's subsidiary. The sale was made to
Monkar Limited for the amount of USD 14,000 thousand and the loss
on disposal USD 8,293 thousand (Note 34.3).
Company
For details of disposals of subsidiary companies made by the
Company, please refer to Note 18.
34.3 Details of the subsidiaries disposed
On 4 July 2011, the following subsidiary was disposed:
Entity name Souyz Inform LLC
Project name Melnykova business centre & Kvadrat-Lukyanivka
Group share as at 1 January 2011 100%
Group share as at 31 December 2011 0%
Investment property 22,800
PPE&IA 7
Trade and other accounts receivable 243
Cash and cash equivalents 2
Finance lease liabilities - non-current (448)
Finance lease liabilities - current (55)
Deferred tax asset/ (liability) (22)
Trade and other payables (547)
Total net assets as at the disposal date 21,980
Group`s share in net assets at disposal date 21,980
Purchase consideration in cash 14,000
Forex effect (313)
Loss on disposal of subsidiary (8,293)
35. Subsequent events
Economic environment of Cyprus
The negotiations of the Cyprus Government with the European
Commission, the European Central Bank and the International
Monetary Fund (the "Troika"), in order to obtain financial support,
resulted in an agreement and decision of the Eurogroup on 25 March
2013 on the key elements necessary for a future macroeconomic
adjustment programme which includes the provision of financial
assistance to the Republic of Cyprus of up to EUR10 billion. The
programme aims to address the exceptional economic challenges that
Cyprus is facing, and to restore the viability of the financial
sector, with a view to restoring sustainable economic growth and
sound public finances in the coming years.
The Eurogroup decision on Cyprus includes plans for the
restructuring of the financial sector and safeguards deposits below
EUR100.000 in accordance with European Union legislation. In
addition, the Cypriot authorities have reaffirmed their commitment
to step up efforts in the areas of fiscal consolidation, structural
reforms and privatisations. The Eurogroup requested the Cypriot
authorities and the European Commission, in liaison with the
European Central Bank, and the International Monetary Fund, to
finalise the relevant Memorandum of Understanding in April 2013
which will then be followed by the formal approval of the Board of
Directors of the European Stability Mechanism as well as by the
ratification by Eurozone member states through national
parliamentary (or equivalent) approval.
The uncertain economic conditions in Cyprus, the unavailability
of financing, the impairment loss incurred on bank deposits and the
imposition of the above mentioned capital controls together with
the current instability of the banking system and the anticipated
overall economic recession, could affect the ability of the Company
to obtain new borrowings or re-finance its existing borrowings at
terms and conditions similar to those applied to earlier
transactions
On 18 April 2013 legislation was enacted by the House of
Representatives to increase the corporate tax from 10% to 12.5%
with effect from 1 January 2013. Furthermore, legislation was
enacted to increase the rate of special defense contribution from
15% to 30% on interest which does not arise from the ordinary
course of business or is closely linked to it.
Investment agreements
As was announced on 10 January 2013 the Company signed the
Investment Agreement with French DIY Operator, Leroy Merlin,
established in Ukraine. The Investment Agreement is in relation to
the development of the DIY hypermarket on the Vyrlytsa Project. The
size of the land plot which is leased by the Company from the
Ukrainian authorities, including the land plot under development
for the DIY Operator hypermarket (and other potential related
developments) is approximately 147,346 square meters (14.7346
hectares). The size of the whole development area including the DIY
Operator hypermarket (and all other potential related developments)
is approximately 98,487 square meters (without parking). The size
of the land plot under development with DIY Operator is
approximately 1.6354 hectares. The size of the premises of the DIY
Operator hypermarket is approximately 15,058 square meters. The
development costs of the hypermarket amount to approximately USD
28,865,884 which will under the Investment Agreement be provided by
the DIY Operator to the Company in stages dependent on completion
of each phase of the development.
As was announced on 20 June 2013 the Company has signed the
following:
-- Additional agreement between the subsidiaries of the Company
and Auchan in which the parties agreed to exchange the finalized
bank guarantees relating to the Investment Agreement no later than
31 July 2013
-- Additional agreement between the subsidiaries of the Company
and Leroy Merlin in which the parties agreed to exchange the
finalized bank guarantees relating to the Investment Agreement no
later than 31 July 2013.
EFG loan
As was announced on 1 March 2013 the Company is in discussion
with Eurobank Cyprus (EFG) in relation to extending the term of the
USD 54 million loan with EFG for a further 12 months. It is
expected that new amendment agreement to the Loan agreement will be
signed based on certain changesrelating to the terms and conditions
of the repayment of the Revolving Facility. The expected amended
terms of the Loan agreement which have been preliminarily agreed by
the Credit Committee of the Eurobank Cyprus are as follows:
-- Final maturity date of the loan was to be changed to 28 February 2014;
-- To adopt the revised schedule of repayment of principal
amount as monthly installments of different amounts. The total
amount of repayment of principal for the term of prolongation is
USD 799 thousand;
-- The payment of all of the previously accrued commissions is
to be made not later than on 28 February 2014;
-- Under the amended agreement, the margin will be fixed at 6.8%
over LIBOR USD 1M and the additional commission of 0.4% shall be
accrued separately and shall be paid by the Borrower to the Bank
not later than on 28 February 2014;
-- The Borrower shall pay Annual Review Fees of 0,05% of the
revolving Facility Amount on each year upon the annual review of
the Revolving Facility by the Bank. All Annual Review Fees must be
paid in full not later than on 28 February 2014;
-- As additional collateral to the bank "Zhitomir Landplot"
comprising of 5 (five) land plots located in Ukraine, Kiev region,
with total area of 22 ha is to be provided;
-- Monthly repayment of the debt to Borrower made by Aurora
PJSC, the subsidiary of the Company (the "Aurora") should consist
of repayment of existing accrued interests (until accrued interest
will be fully paid). Herewith amount of repayment should correspond
to the established schedule of principal and interest payments in
this Amendment Agreement. After the period when existing accrued
interest will be repaid by Aurora, further repayment of the debt
should include principal and interest which should fully correspond
to the repayment schedule set by the Amended Agreement.
Termination of the investment activity of the Company in certain
projects
On the meeting of the Board of Directors, held on 20 June 2013,
the following resolutions were adopted:
The Board approved the termination of the Company`s investment
activity in the projects "Garant-Invest" LLC, "Dim i K" LLC,
"Aqwa-Sherl" LLC, "Megagrad" LLC, "Ukrainian-German Building
Company" LLC, "Piaty Element" LLC by way of liquidation of the
mentioned entities or disposal of the corporate rights in them to
the third parties for the nominal value to withdraw these entities
from the XXI Century Group with further liquidation. The entities
develop the following projects with the fair values as at 31
December 2012 identified by the independent Appraiser in the report
as of June 2013:
-- "Aqwa-Sherl" LLC, project "Aquapark Kyiv" - fair value is nil;
-- "Megagrad" LLC, project "Kiyanovsky" - fair value is USD 5,000 thousand;
-- "Ukrainian-German Building Company" LLC, project "Sumy
mixed-use" - fair value is USD 1,300 thousand;
-- "Piaty Element" LLC, project "Poltava mixed-use" - fair value is USD 17,200 thousand;
-- "Garant-Invest" LLC, "Dim i K" LLC have no investment properties.
The relevant changes connected to change of valuation of the
Company's property portfolio due to the decision made on
termination of the projects mentioned above will be appropriately
reflected in 1H13 Financial Statements.
The implementation of the termination of the Company's
investment activity in the aforementioned projects is the most
reasonable and appropriate way for the Group and will commence
after consultation with the Company's advisors.
The relevant change in valuation of the Company's property
portfolio will be reflected in 1H13 Financial Statements as
appropriate.
Decision on transfer of Reachcom Public Limited ordinary shares
for the purpose of their dematerialization
On the meeting of the Board of Directors held on 20 June 2013
the Directors of the Company approved the transfer of 42,480,116
ordinary shares from Reachcom Public Limited to Computershare
Company Nominees Limited.
A duly executed instrument of transfer regarding the transfer of
42,480,116 ordinary shares held by Reachcom Public Limited (the
"Transferor") to Computershare Company Nominees Limited (the
"Transferee") in view of the Transferor's wish to dematerialize its
shares was received by the Company. The relevant instrument of
transfer was duly executed by the Transferor and the
Transferee.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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