TIDMAFRB TIDMAFID
RNS Number : 5942O
AFI Development PLC
22 August 2017
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR
DISTRIBUTION
IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA,
AUSTRALIA OR JAPAN
22 August 2017
AFI DEVELOPMENT PLC
("AFI DEVELOPMENT" OR "THE COMPANY")
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2017
Strong performance supported by growing contribution from
residential segment
AFI Development, a leading real estate company focused on
developing property in Russia, today announces its financial
results for the six months ended 30 June 2017.
H1 2017 financial highlights
-- Revenue for H1 2017 increased by 18% year-on-year to US$106.1
million, including proceeds from the sale of trading
properties:
- Rental and hotel operating income increased by 41% year-on-year to US$56.1 million
- AFIMALL City contribution grew by 27% year-on-year to US$39.8
million (H1 2016: US$31.3 million)
- Sale of residential properties contributed US$49.8 million to total revenue
-- Gross profit increased by 9% year-on-year to US$29.7 million (H1 2016: US$27.2 million)
-- Net profit for H1 2017 amounted to US$7.9 million, compared
to a loss of US$53.3 million in H1 2016
-- Total gross value of portfolio of properties stood at US$1.49
billion (no change compared to end-Q1 2017)
-- Cash, cash equivalents and marketable securities as of 30
June 2017 amounted to US$25.5 million (vs. US$29.6 million at
end-Q1 2017)
H1 2017 operational highlights
-- Construction and pre-sales at Bolshaya Pochtovaya and Botanic
Garden, launched in late Q1 2017, are progressing well. As of 16
August 2017, 13 apartments have been pre-sold at Bolshaya
Pochtovaya and 40 at Botanic Garden
-- At Odinburg, construction and marketing of Building 6 started
during Q2 2017. Delivery of apartments in Building 2 continued
throughout the quarter. As of 16 August 2017, the number of sale
contracts signed amounted to 717 (99% of total) in Building 1, 594
(84% of total) in Building 2 and 7 (3% of total) in Building 6
-- At the AFI Residence Paveletskaya residential development,
construction works and pre-sale of apartments continue to plan; 270
residential units have been pre-sold as of 16 August 2017
-- AFIMALL City continues to demonstrate NOI growth, from
US$24.6 million in H1 2016 to US$29.4 million in H1 2017
-- At the Aquamarine III office complex, a multi-year lease of
circa 8,200 sq.m of office space was signed with Deutsche Bank in
July 2017
Commenting on today's announcement, Lev Leviev, Executive
Chairman of AFI Development, said:
"We are delighted with the continued turnaround across our
business, which is reflected in improvement in all key performance
indicators during the first half of this year. A more favourable
macroeconomic environment in Russia has supported continued
successful execution of our strategy and we are particularly
pleased with the marked improvement in our residential operations
and the sustained improvement in overall efficiency levels. We
expect income from residential sales to play an important role in
providing future revenue growth and steady cash flow as we continue
to deliver our development pipeline."
H1 2017 Results Conference Call:
AFI Development will hold a conference call for analysts and
investors to discuss its H1 2017 financial results on Wednesday, 23
August 2017.
Details for the conference call are as follows:
Date: Wednesday, 23 August 2017
Time: 3pm BST (5pm Moscow)
Dial-in Tel: International: +44 (0)20 3003 2666
UK toll free: 0808 109 0700
US toll-free: 1 866 966 5335
Russia toll-free: 8 10 8002 4902044
Password: AFI
Please dial in 5-10 minutes prior to the start time giving your
name, company and stating that you are dialling into the AFI
Development conference call quoting the reference AFI.
Prior to the conference call, the H1 2017 Investor Presentation
of AFI Development will be published on the Company website at
http://www.afi-development.com/en/investor-relations/reports-presentations
on 23 August 2017 by 11am BST (1pm Moscow time).
- ends -
For further information, please contact:
AFI Development, +7 495 796 9988
Ilya Kutnov, Corporate Affairs/Investments Director (Responsible
for arranging the release of this announcement)
Citigate Dewe Rogerson, London +44 20 7638 9571
David Westover
Sandra Novakov
Isabelle Andrews
This announcement contains inside information.
About AFI Development
Established in 2001, AFI Development is one of the leading real
estate development companies operating in Russia.
AFI Development is listed on the Main Market of the London Stock
Exchange and aims to deliver shareholder value through a commitment
to innovation and continuous project development, coupled with the
highest standards of design, construction and quality of customer
service.
AFI Development focuses on developing and redeveloping high
quality commercial and residential real estate assets across
Russia, with Moscow being its main market. The Company's existing
portfolio comprises commercial projects focused on offices,
shopping centres, hotels and mixed-use properties, and residential
projects. AFI Development's strategy is to sell the residential
properties it develops and to either lease the commercial
properties or sell them for a favourable return.
AFI Development is a leading force in urban regeneration,
breathing new life into city squares and neighbourhoods and
transforming congested and underdeveloped areas into thriving new
communities. The Company's long-term, large-scale regeneration and
city infrastructure projects establish the necessary groundwork for
the successful launch of commercial and residential properties,
providing a strong base for the future.
Legal disclaimer
Some of the information in these materials may contain
projections or other forward-looking statements regarding future
events, the future financial performance of the Company, its
intentions, beliefs or current expectations and those of its
officers, directors and employees concerning, among other things,
the Company's results of operations, financial condition,
liquidity, prospects, growth, strategies and business. You can
identify forward looking statements by terms such as "expect",
"believe", "anticipate", "estimate", "intend", "will", "could,"
"may" or "might" or the negative of such terms or other similar
expressions. These statements are only predictions and that actual
events or results may differ materially. Unless otherwise required
by applicable law, regulation or accounting standard, the Company
does not intend to update these statements to reflect events and
circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events. Many factors could cause the
actual results to differ materially from those contained in
projections or forward-looking statements of the Company,
including, among others, general economic conditions, the
competitive environment, risks associated with operating in Russia
and market change in the industries the Company operates in, as
well as many other risks specifically related to the Company and
its operations.
Executive Chairman's statement
Relative macroeconomic stability coupled with our continuous
efforts to streamline our operations have resulted in virtually all
financial indicators demonstrating solid improvement during the
first half of the year. While our commercial and hotel properties
delivered 41% revenue growth relative to H1 2016, total revenue
grew by 18% to US$106.1 million.
The residential segment of our operations generated almost 47%
of our total revenue. With four residential projects currently in
active development, income from residential sales and their
profitability have become increasingly important drivers of our
financial performance.
Our gross profit for the quarter grew by 9% to US$29.7 million
relative to H1 2016, reflecting a strong revenue increase and our
continued focus on efficiency optimisation and cost control. Net
profit was US$7.9 million for the first six months of the year,
compared to a loss of US$53.3 million in H1 2016.
We believe that our residential portfolio under development will
provide steady cash flow from ongoing residential sales in the
future, while the high quality of our recently launched
business-class projects in Moscow, namely Bolshaya Pochtovaya and
Botanic Garden, are expected to further improve profitability and
overall performance.
Projects update
AFIMALL City
AFIMALL City's performance continues to improve, reflected in
increased revenue (US$39.8 million) and NOI (US$29.4) for H1 2017.
Occupancy at the end of H1 2017 was at 87%, a 5% increase since the
end of Q1 2017.
Recent new openings at AFIMALL City include a 1,300 sqm "Golden
Apple" luxury fragrance and beauty store, a Levon's Highlands
Cuisine café and Finish childrenswear retailer, Reima.
Odinburg
During Q2 2017, the Company started construction of Building 6
and continued to deliver apartments in Building 2. As of 22 August
2017, the number of apartments sold in Building 1 is 717 (99% of
total), 594 (84% of total) in Building 2 and 7 (3% of total) in
Building 6.
Construction of the kindergarten (Phase 1) continues, while the
start of construction of Building 3 is planned for Q3 2017.
AFI Residence Paveletskaya (Paveletskaya II)
Construction work and marketing of the AFI Residence
Paveletskaya development continue to plan. As of the date of
publication of this report, 210 contracts for pre-sales of
residential units have been signed.
Aquamarine III (Ozerkovskaya III)
In July 2017, Deutsche Bank leased circa 8,200 sq.m in the
complex, having selected Aquamarine III for its IT unit.
AFI Development continues to market available office space in
the complex to potential buyers and tenants.
Bolshaya Pochtovaya
The main construction phase and pre-sale of apartments were
launched in Q1 2017. As of 16 August 2017, 13 apartments have been
pre-sold to customers.
The Bolshaya Pochtovaya project is a business class residential
development in the Central Administrative District of Moscow, which
is planned to have 136.6 thousand sq.m of gross buildable area
(84.9 sq.m of gross sellable area).
Botanic Garden
The main construction phase and pre-sale of apartments were
launched in Q1 2017. As of 16 August 2017, 40 apartments have been
pre-sold to customers.
The Botanic Garden project is a business class residential
development in the Northern Administrative District of Moscow. It
is planned to have 200.6 thousand sq.m of gross buildable area and
116 thousand sq.m of gross sellable area.
Tverskaya Plaza II
In Q2 2017, the Company obtained development rights for the
project, which has been approved for development by the Moscow
constructions authorities as a "recreational centre" with gross
buildable area of 21 thousand sq.m. This change in the project
status led to a change in the valuation approach (the project was
previously valued as premises for lease) and a respective valuation
gain of US$10.9 million.
Market overview - general Moscow real estate
Macroeconomic environment
OECD has raised the 2017 GDP forecast for Russia to +1.4%,
quoting improving consumption and investment levels.
The rouble was relatively stable during Q2 2017, supported by
steady oil prices. The RUR/USD spot rate during Q2 2017 fluctuated
between 56 and 60. The rate at 30.06.2017 was RUR59.09 (vs.
RUR56.38 on 31.03.2017).
Following the reduction in the key lending rate to 9.0% by the
Central Bank of Russia ("CBR") in June 2017, this rate was left
unchanged in July, reflecting further stabilisation in the
macroeconomy.
Annualised consumer price inflation reached 4.4% in June 2017,
against a CBR target of 4%.
(Source: OECD, the Bank of Russia, RBC)
Moscow office market
A 50% increase in take up in H1 2017 to 947 thousand sq.m
relative to H1 2016 was driven mainly by the financial sector.
However, Cushman & Wakefield reports negative net absorption of
263 thousand sq.m for the period. No new office space was delivered
in Q2 2017 with delivery for H1 2017 amounting to just 21 thousand
sq.m, a record low in recent years.
Vacancy rates in class A and B offices remain high. According to
CBRE, in Class A properties the average vacancy rate recorded in Q2
2017 was 18.4% (vs 19.0 % in Q1 2017) with Class B properties at
14.3% (versus 14.7% in Q1 2017).
However, rents remained relatively stable throughout H1 2017.
Asking rents for non-prime central Class A premises were at
US$600-750 per sq.m p.a. Asking rents for Class A office buildings
outside the city centre were at US$400-600 per sq.m p.a and
$200-400 per sq.m p.a. for Class B buildings. Although
rouble-denominated leases continue to dominate on the market, their
share has actually decreased to 77% in Q2 2017 from 97% in Q1
2017.
(Source: CBRE, JLL, C&W)
Moscow retail market
Whilst no shopping centres were opened in Moscow in H1 2017, 23
new international brands entered the market during the period.
These included the Italian fur retailer Ahimsa, which opened its
first shop in Russia in AFIMALL.
The vacancy rate across Moscow shopping centres as of the end of
H1 2017 was at 8.8%.
The most common lease structure continues to include a
combination of a low minimum rent coupled with turnover rent, with
fixed exchange rates commonly offered to tenants.
(Source: CBRE, JLL, C&W)
Moscow and Moscow Region residential market
Moscow
At the end of Q2 2017, supply to the "Old Moscow" primary
residential market (excluding "apartments") was about 2.84 million
sq.m (c. 44,700 residential units), a 6% increase vs Q1 2017.
Supply to the "New Moscow" market was about 523.2 thousand sq.m, a
9% decrease vs Q1 2017.
By the end of Q2 2017, the weighted average asking price in the
newly built business class residential market in Moscow amounted to
RUR244,700 per sq.m p.a. (circa US$4,147). This represents a 1%
decrease vs Q1 2017 in rouble terms. In the comfort class, the
weighted average asking price was RUR151.4 per sq.m p.a. (circa
US$2,566).
The Moscow region
The primary market supply (newly built residential units) in the
Moscow region amounted to 3.1 million sq.m in Q2 2017, a decrease
of 2% vs Q1 2017.
The weighted average price per sq.m in the Moscow region for the
quarter remained stable vs Q1 2017 in rouble terms at RUR85,000
(circa US$1,440).
(Source: Miel Real Estate)
Lev Leviev
Executive Chairman of
the Board
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the period from 1 January 2017 to 30 June 2017
C O N T E N T S
Independent auditors' report on review of condensed consolidated
interim financial information
Condensed consolidated income statement
Condensed consolidated statement of comprehensive income
Condensed consolidated statement of changes in equity
Condensed consolidated statement of financial position
Condensed consolidated statement of cash flows
Notes to the condensed consolidated interim financial
statements
Independent auditors' report on review of condensed consolidated
interim financial information to the members of AFI DEVELOPMENT
PLC
Introduction
We have reviewed the accompanying condensed consolidated
statement of financial position of AFI Development PLC as at 30
June 2017, the condensed consolidated statements of income,
comprehensive income, changes in equity and cash flows for the
six-month period then ended, and notes to the interim financial
statements ('the condensed consolidated interim financial
statements'). The Company's Board of Directors is responsible for
the preparation and presentation of this condensed consolidated
interim financial statements in accordance with IAS 34 "Interim
Financial Reporting". Our responsibility is to express a conclusion
on this condensed consolidated interim financial statements based
on our review.
Scope of Review
We conducted our review in accordance with the International
Standard on Review Engagements 2410, "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity". A
review of interim financial statements consists of making
inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
and consequently does not enable us to obtain assurance that we
would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the accompanying condensed consolidated
interim financial statements as at 30 June 2017 are not prepared,
in all material respects, in accordance with IAS 34 "Interim
Financial Reporting".
Emphasis of Matter
Without qualifying our conclusion, we draw attention to note
2(i) to the condensed consolidated interim financial statements
which describes that the Group has recognised a net profit after
tax of US$7,932 thousand for the six-month period ended 30 June
2017, its cash and cash equivalents and marketable securities
improved to US$25,475 thousand. However, its current liabilities
increased to US$726,588 thousand due to the reclassification of the
Ozerkovskaya III and AFIMALL City loans as their maturity is due in
January and April 2018 respectively. Unless renegotiated, the Group
will be required to make a lump sum payment of the principal of the
loans with a current balance of US$631,738 thousand. These
conditions along with other matters as set forth in note 2(i),
indicate the existence of a material uncertainty that may cast
significant doubt about the Group's ability to continue as a going
concern.
Maria H. Zavrou, FCCA
Certified Public Accountant and Register Auditor
For and on behalf of
KPMG Limited
Certified Public Accountants and Registered Auditors
14 Esperidon Street
1087 Nicosia, Cyprus
21 August 2017
CONDENSED CONSOLIDATED INCOME STATEMENT
For the period from 1 January 2017 to 30 June 2017
For the For the
three months six months
ended ended
1/4/17- 1/4/16- 1/1/17- 1/1/16-
30/6/17 30/6/16 30/6/17 30/6/16
US$ US$ US$ US$ '000
'000 '000 '000
Note
Revenue 6 58,571 62,342 106,069 89,707
Other income 387 300 542 2,484
Operating expenses 8 (14,160) (10,032) (26,422) (17,725)
Carrying value of trading
properties sold (26,972) (39,384) (47,303) (45,566)
Administrative expenses 7 (2,576) (1,747) (3,122) (3,411)
Other expenses (1,678) (594) (2,063) (607)
Total expenses (45,386) (51,757) (78,910) (67,309)
Share of the after tax
profit of joint ventures - 1,241 1,957 2,299
Gross Profit 13,572 12,126 29,658 27,181
Gain on 100% acquisition
of previously held interest
in a joint venture 22 - - 7,532 -
Profit on disposal of
investment property - 1,738 - 1,738
Increase/(decrease) in
fair value of properties 11,12 42,686 (40,585) (927) (100,860)
Results from operating
activities 56,258 (26,721) 36,263 (71,941)
Finance income 185 16,789 5,713 37,984
Finance costs (31,853) (11,077) (24,774) (21,746)
Net finance (costs)/income 9 (31,668) 5,712 (19,061) 16,238
Profit/(loss) before
tax 24,590 (21,009) 17,202 (55,703)
Tax (expense)/benefit 10 (17,689) (422) (9,270) 2,411
Profit/(loss) for the
period 6,901 (21,431) 7,932 (53,292)
Profit/(loss) attributable
to:
Owners of the Company 6,546 (21,346) 7,637 (53,133)
Non-controlling interests 355 (85) 295 (159)
6,901 (21,431) 7,932 (53,292)
Earnings per share
Basic and diluted earnings
per share (cent) 0.63 (2.04) 0.73 (5.07)
The notes form an integral part of the condensed consolidated
interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period from 1 January 2017 to 30 June 2017
For the For the
three months six months
ended ended
1/4/17- 1/4/16- 1/1/17- 1/1/16-
30/6/17 30/6/16 30/6/17 30/6/16
US$ US$ US$ US$
'000 '000 '000 '000
Profit/(loss) for the period 6,901 (21,431) 7,932 (53,292)
Other comprehensive income
Items that are or may be reclassified
subsequently to profit or
loss
Realised translation differences
on 100% acquisition of previously
held interest in a joint venture (4,271) -
transferred to income statement - -
Foreign currency translation
differences for foreign operations (12,838) 9,561 6,537 23,957
Other comprehensive income
for the period (12,838) 9,561 2,266 23,957
Total comprehensive income
for the period (5,937) (11,870) 10,198 (29,335)
Total comprehensive income
attributable to:
Owners of the parent (6,263) (11,813) 9,938 (29,303)
Non-controlling interests 326 (57) 260 (32)
(5,937) (11,870) 10,198 (29,335)
The notes form an integral part of the condensed consolidated
interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period from 1 January 2017 to 30 June 2017
Non-controlling
Attributable to the owners interests Total
of the Company equity
Share Share Capital Translation Retained
Capital Premium Reserve Reserve Earnings Total
US$ US$ US$ US$ US$ US$ US$ US$
'000 '000 '000 '000 '000 '000 '000 '000
Balance at 1
January 2017 1,048 1,763,409 (9,201) (311,331) (667,801) 776,124 (3,827) 772,297
Total
comprehensive
income for the
period
Profit for the
period - - - - 7,637 7,637 295 7,932
Other
comprehensive
income - - - 2,301 - 2,301 (35) 2,266
Total
comprehensive
income for the
period - - - 2,301 7,637 9,938 260 10,198
Transactions with owners
of
the Company Changes in
ownership interests
Acquisition
of
non-controlling
interests (note
23) - - (10,145) - - (10,145) 3,435 (6,710)
Balance at 30
June 2017 1,048 1,763,409 (19,346) (309,030) (660,164) 775,917 (132) 775,785
Balance at 1
January 2016 1,048 1,763,409 (9,201) (338,951) (620,786) 795,519 (3,919) 791,600
Total
comprehensive
income for the
period
Loss for the
period - - - - (53,133) (53,133) (159) (53,292)
Other
comprehensive
income - - - 23,830 - 23,830 127 23,957
Total
comprehensive
income for the
period - - - 23,830 (53,133) (29,303) (32) (29,335)
Transactions with owners
of
the Company Contributions
and distributions
Share option
expense - - - - 530 530 - 530
Balance at 30
June 2016 1,048 1,763,409 (9,201) (315,121) (673,389) 766,746 (3,951) 762,795
The notes form an integral part of the condensed consolidated
interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2017
30/6/17 31/12/16
Note US$ '000 US$ '000
Assets
Investment property 11 926,110 915,350
Investment property under
development 12 159,900 232,900
Property, plant and equipment 13 76,367 31,215
Long-term loans receivable 26 15,763
VAT recoverable 40 9
Non-current assets 1,162,443 1,195,237
Trading properties 14 21,428 6,854
Trading properties under construction 15 302,723 243,327
Other investments 6,265 6,088
Inventories 980 665
Short-term loans receivable 766 7
Trade and other receivables 16 51,562 42,427
Current tax assets 1,352 2,542
Cash and cash equivalents 17 19,230 10,619
Current assets 404,306 312,529
Total assets 1,566,749 1,507,766
Equity
Share capital 1,048 1,048
Share premium 1,763,409 1,763,409
Translation reserve (309,030) (311,331)
Capital reserve (19,346) (9,201)
Retained earnings (660,164) (667,801)
Equity attributable to owners
of the Company 18 775,917 776,124
Non-controlling interests (132) (3,827)
Total equity 775,785 772,297
Liabilities
Long-term loans and borrowings 19 23,701 627,074
Deferred tax liabilities 29,397 14,934
Deferred income 11,278 10,455
Non-current liabilities 64,376 652,463
Short-term loans and borrowings 19 633,958 748
Trade and other payables 20 45,914 30,957
Advances from customers 46,716 51,301
Current liabilities 726,588 83,006
Total liabilities 790,964 735,469
Total equity and liabilities 1,566,749 1,507,766
The condensed consolidated interim financial statements were
approved by the Board of Directors on 21 August 2017.
The notes form an integral part of the condensed consolidated
interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from 1 January 2017 to 30 June 2017
1/1/17- 1/1/16-
30/6/17 30/6/16
Note US$ '000 US$ '000
Cash flows from operating activities
Profit/(loss) for the period 7,932 (53,292)
Adjustments for:
Depreciation 13 409 370
Net finance costs 9 18,672 (16,424)
Share option expense - 530
Decrease in fair value of properties 11,12 927 100,860
Share of profit in joint ventures (1,957) (2,299)
Gain on 100% acquisition of
previously held interest in (7,532) -
a joint venture
Profit on disposal of investment
property - (1,738)
Profit on sale of property,
plant and equipment - (25)
Tax expense/(benefit) 10 9,270 (2,411)
27,721 25,571
Change in trade and other receivables 1,192 1,185
Change in inventories 98 (24)
Change in trading properties
and trading properties under
construction 3,854 25,013
Change in advances and amounts
payable to builders of trading
properties under construction (5,157) 4,530
Change in advances from customers (6,062) (33,154)
Change in trade and other payables 3,208 566
Change in VAT recoverable (1,661) (2,003)
Change in deferred income 555 (238)
Cash generated from operating
activities 23,748 21,446
Taxes paid (909) (189)
Net cash from operating activities 22,839 21,257
Cash flows from investing activities
Acquisition of subsidiary net
of cash acquired 22 (786) -
Proceeds from sale of other
investments 5,944 14,464
Proceeds from disposal of investment
property - 1,099
Proceeds from sale of property,
plant and equipment 55 92
Interest received 314 2,891
Change in advances and amounts
payable to builders 16,20 2,483 (1,457)
Payments for construction of
investment property under development 12 (1,711) (1,547)
Payments for the acquisition/renovation
of investment property 11 (291) (62)
Dividends received from joint
ventures - 213
Change in VAT recoverable 389 (134)
Acquisition of property, plant
and equipment 13 (88) (229)
Acquisition of other investments (6,051) (5,729)
Proceeds from repayments of
loans receivable 4,178 132
Payments for loans receivable (1,784) (3)
Net cash from investing activities 2,652 9,730
The notes form an integral part of the condensed consolidated
interim financial statements.
1/1/17- 1/1/16-
30/6/17 30/6/16
Note US$ '000 US$ '000
Cash flows from financing activities
Acquisition of non-controlling
interests 23 (1,369) -
Proceeds from loans and borrowings 13,737 -
Repayment of loans and borrowings (4,944) (11,550)
Interest paid (24,462) (22,054)
Net cash used in financing
activities (17,038) (33,604)
Effect of exchange rate fluctuations 158 (1,437)
Net increase/(decrease) in
cash and cash equivalents 8,611 (4,054)
Cash and cash equivalents at
1 January 10,619 26,545
Cash and cash equivalents at
30 June 18 19,230 22,491
The notes form an integral part of the condensed consolidated
interim financial statements.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
For the period from 1 January 2017 to 30 June 2017
1. INCORPORATION AND PRINCIPAL ACTIVITY
AFI Development PLC (the "Company") was incorporated in Cyprus
on 13 February 2001 as a limited liability company under the name
Donkamill Holdings Limited. In April 2007 the Company was
transformed into public company and changed its name to AFI
Development PLC. The address of the Company's registered office is
165 Spyrou Araouzou Street, Lordos Waterfront Building, 5(th)
floor, Flat/office 505, 3035 Limassol, Cyprus. As of 7 September
2016 the Company is a 64.88% subsidiary of Flotonic Limited, a
private holding company registered in Cyprus, 100% owned by Mr Lev
Leviev. Prior to that, the Company was a 64.88% subsidiary of
Africa Israel Investments Ltd ("Africa-Israel"), which is listed in
the Tel Aviv Stock Exchange ("TASE"). The remaining shareholding of
"A" shares is held by a custodian bank in exchange for the GDRs
issued and listed in the London Stock Exchange ("LSE"). On 5 July
2010 the Company issued by way of a bonus issue 523,847,027 "B"
shares, which were admitted to a premium listing on the Official
List of the UK Listing Authority and to trading on the main market
of LSE. On the same date, the ordinary shares of the Company were
designated as "A" shares.
These condensed consolidated interim financial statements
("interim financial statements") as at and for the six months ended
30 June 2017 comprise the Company and its subsidiaries (together
referred to as the "Group") and the Group's interest in jointly
controlled entities.
The principal activity of the Group is real estate investment
and development. The principal activity of the Company is the
holding of investments in subsidiaries and joint ventures.
2. basis of Accounting
i. Going concern basis of accounting
The Group had experienced, during the several past years,
difficult trading conditions driven by macro-economic and
geopolitical developments affecting the Russian economy as a whole
and a deterioration in demand for real estate assets across the
country. Whilst the general economy has shown some signs of
stabilisation during the year 2016 and for the first half of 2017
with higher oil prices, strengthening of Rubble and inflation on a
downward trend, the performance of the real estate sector remains
weak.
The Group has recognised a net profit after tax of US$7,932
thousand for the six month period ended 30 June 2017, its cash and
cash equivalents and marketable securities improved to US$25,475
thousand. However, its current liabilities increased to US$726,588
thousand due to the reclassification of the Ozerkovskaya III and
AFIMALL City loans as their maturity is due in January and April
2018 respectively. Unless renegotiated, the Group will require to
make a lump sum payment of the principal of the loans with a
current balance of US$631,738 thousand. These conditions, along
with other matters set forth below, indicate the existence of
material uncertainty which may cast significant doubt about the
Group's ability to continue as a going concern.
As described in more detail in the Company's announcements and
its year end consolidated financial statements for the year ended
31 December 2016, a series of events, negotiations and signed
addendums with VTB bank for the Ozerkovskaya III and AFIMALL City
loan facilities took place during 2016. Management explores all
options in relation to repaying the Loan Facilities when they fall
due in 2018, which may include the disposal of certain assets or
projects or refinance of the loans. Preliminary negotiations with
the banks have started and the Company has received indicative
terms of refinancing. Management considers its available options on
how to approach the loans at maturity and secure further financing
to continue in operational existence for the foreseeable
future.
Management estimates that the Group will generate sufficient
operating cash flows so as to meet the Loan Facilities interest
payments and continue the construction of projects classified as
"Trading properties under construction" as described in Note 15,
which are "Odinburg", "Paveleskaya phase II", "Pochtovaya" and
"Botanic Garden".
Considering all the above conditions and assumptions, the
interim consolidated financial statements have been prepared on a
going concern basis, which assumes that the Group will be in a
position to refinance or negotiate the loans at maturity, secure
further financing for its project under construction and
development and achieve the sales volumes and prices as budgeted to
generate enough cash to cover its working capital requirements in
order for the Group to be in a position to continue its operations
in the foreseeable future. It is noted that no reclassifications or
adjustments were included with reference to the values of the
Group's assets and liabilities, which may be required if the Group
is not able to continue operating as a "going concern".
ii. Statement of compliance
These interim financial statements have been prepared in
accordance with IAS 34 "Interim Financial Reporting" and should be
read in conjunction with the Group's last annual consolidated
financial statements as at and for the year ended 31 December 2016
('last annual financial statements'). They do not include all of
the information required for a complete set of IFRS financial
statements. However, selected explanatory notes are included to
explain events and transactions that are significant to an
understanding of the changes in the Group's financial position and
performance since the last financial statements.
iii. Functional and presentation currency
These consolidated financial statements are presented in United
States Dollars which is the Company's functional currency. All
financial information presented in United States Dollars has been
rounded to the nearest thousands, except when otherwise
indicated.
Foreign operations
Each entity of the Group determines its own functional currency
and items included in the financial statements of each entity are
measured using its functional currency. Where the functional
currency of an entity of the Group is other than US Dollars, which
is the presentation currency of the Group, then the financial
statements of the entity are translated in accordance with IAS 21
'The effects of changes in foreign exchange rates".
The table below shows the exchange rates of Russian Roubles,
which is the functional currency of the Russian subsidiaries of the
Group, to the US Dollar which is the presentation currency of the
Group:
Exchange rate % change % change
Russian Roubles quarter six months/
As of: for US$1 year
30 June 2017 59.0855 4.8 (2.6)
31 March 2017 56.3779 (7.1)
31 December 2016 60.6569 (16.8)
30 June 2016 64.2575 (11.8)
Average rate during:
Six-month period ended 30 June 2017 57.9862 (17.5)
Three-month period ended 31 March 2017 58.8366 (21.2)
Six-month period ended 30 June 2016 70.2583 22.4
3. use of judgements and estimates
In preparing these interim financial statements, management has
made judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets and liabilities, income and expenses. Actual results may
differ from these estimates.
The significant judgments made by management in applying the
Group's accounting policies and the key sources of estimation
uncertainty were the same as those that applied to the consolidated
financial statements as at and for the year ended 31 December
2016.
a. Measurement of fair values
The Group has an established control framework with respect to
the measurement of fair values. This includes a valuation team that
has overall responsibility for overseeing all significant fair
value measurements, including Level 3 fair values, and reports
directly to the chief financial officer.
The valuation team regularly reviews significant unobservable
inputs and valuation adjustments. If third party information, such
as broker quotes or pricing services, is used to measure fair
values, then the valuation team assesses the evidence obtained from
the third parties to support the conclusion that these valuations
meet the requirements of IFRS, including the level in the fair
value hierarchy in which such valuations should be classified.
Significant valuation issues are reported to the Group Audit
Committee.
When measuring the fair value of an asset or a liability, the
Group uses market observable data as far as possible. Fair values
are categorised into different levels in a fair value hierarchy
based on the inputs used in the valuation techniques as
follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
a. Measurement of fair values (continued)
If the inputs used to measure the fair value of an asset or a
liability might be categorised in different levels of the fair
value hierarchy, then the fair value measurement is categorised in
its entirety in the same level of the fair value hierarchy as the
lowest level input that is significant to the entire
measurement.
The Group recognises transfers between levels of the fair value
hierarchy at the end of the reporting period during which the
change has occurred.
4. significant accounting policies
The accounting policies applied in these interim financial
statements are the same as those applied in the Group's
consolidated financial statements as at and for the year ended 31
December 2016.
Standards issued but not yet effective
A number of new standards and amendments to standards are
effective for annual periods beginning after 1 January 2017 and
earlier application is permitted; however, the Group has not early
adopted any new or amended standards in preparing these condensed
consolidated interim financial statements.
The Group has no updates to information provided in the
consolidated financial statements as at and for the year ended 31
December 2016 about the standards issued but not yet effective that
may have a significant impact on the Group's consolidated financial
statements.
5. OPERATING SEGMENTS
The Group has 5 reportable segments, as described below, which
are the Group's strategic business units. The following summary
describes the operation in each of the Group's reportable
segments:
-- Development Projects - Residential projects: Include
construction and selling of residential properties.
-- Asset Management: Includes the operation of investment property for lease.
-- Hotel Operation: Includes the operation of Hotels.
-- Land bank: Includes the investment and holding of property for future development.
-- Other: Includes the management services provided for the projects.
Information regarding the results of each reportable segment is
included below. Performance is measured based on segment profit
before income tax, as included in the internal management reports
that are reviewed by the Group's management team. Segment profit is
used to measure performance as management believes that such
information is the most relevant in evaluating the results of
certain segments relative to other entities that operate within
these industries. Inter-segment pricing is determined on an arm's
length basis.
Development Asset management Hotel Operation Land bank Other Total
projects
Residential
projects
30/6/17 30/6/16 30/6/17 30/6/16 30/6/17 30/6/16 30/6/17 30/6/16 30/6/17 30/6/16 30/6/17 30/6/16
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
External
revenues 50,323 51,074 40,633 32,078 13,447 5,306 1,531 1,139 135 110 106,069 89,707
Inter-segment
revenue - - 9,976 2,412 2 29 3,512 426 3,958 - 17,448 2,867
Segment
(loss)/profit
before tax (294) 78 11,170 (27,263) 4,869 1,271 2,228 (30,639) (3,847) (2,999) 14,126 (59,552)
30/6/17 31/12/16 30/6/17 31/12/16 30/6/17 31/12/16 30/6/17 31/12/16 30/6/17 31/12/16 30/6/17 31/12/16
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Segment
assets 367,611 355,567 910,419 912,240 78,210 27,158 196,081 185,693 1,084 624 1,553,405 1,481,282
Segment
liabilities 86,553 66,971 673,014 667,779 31,979 - - - 713 387 792,259 735,137
Reconciliation of reportable segment profit or loss
1/1/17- 1/1/16-
30/6/17 30/6/16
US$ US$ '000
'000
Total profit/(loss) before tax for
reportable segments 14,126 (59,552)
Unallocated amounts:
Other profit or loss (6,413) 1,550
Gain on 100% acquisition of previously
held interest in a 7,532 -
joint venture
Share of profit of joint ventures,
net of tax 1,957 2,299
Profit/(loss) before tax 17,202 (55,703)
6. REVENUE
For the For the
three months six months
ended ended
1/4/17- 1/4/16- 1/1/17- 1/1/16-
30/6/17 30/6/16 30/6/17 30/6/16
US$ '000 US$ US$ '000 US$
'000 '000
Investment property rental
income 21,716 16,905 42,691 34,567
Sales of trading properties
(note 14) 27,918 42,427 49,783 49,724
Hotel operation income 8,900 2,944 13,446 5,306
Construction consulting/management
fees 37 66 149 110
58,571 62,342 106,069 89,707
7. ADMINISTRATIVE EXPENSES
For the For the
three months six months
ended ended
1/4/17- 1/4/16- 1/1/17- 1/1/16-
30/6/17 30/6/16 30/6/17 30/6/16
US$ '000 US$ US$ '000 US$
'000 '000
Consultancy fees 98 552 189 688
Legal fees 306 190 882 279
Auditors' remuneration 263 81 340 149
Valuation expenses 1 56 37 56
Directors' remuneration 341 352 666 692
Depreciation 22 32 57 62
Insurance 38 67 75 113
Provision for Doubtful
Debts 1,026 (583) 40 (583)
Share option expense - 248 - 530
Donations 12 341 15 641
Other administrative expense 469 411 821 784
2,576 1,747 3,122 3,411
8. OPERATING EXPENSES
For the For the
three months six months
ended ended
1/4/17- 1/4/16- 1/1/17- 1/1/16-
30/6/17 30/6/16 30/6/17 30/6/16
US$ '000 US$ US$ '000 US$
'000 '000
Maintenance, utility and
security expenses 4,998 2,672 9,316 5,582
Agency and brokerage fees 410 137 644 271
Advertising expenses 1,345 1,841 2,261 2,765
Salaries and wages 3,935 2,593 7,373 4,985
Consultancy fees 121 132 282 233
Depreciation 189 155 352 309
Insurance 130 255 278 489
Rent 508 389 960 710
Property and other taxes 2,508 1,846 4,926 2,359
Other operating expenses 16 12 30 22
14,160 10,032 26,422 17,725
9. FINANCE COST AND FINANCE INCOME
For the For the
three months six months
ended ended
1/4/17- 1/4/16- 1/1/17- 1/1/16-
30/6/17 30/6/16 30/6/17 30/6/16
US$ '000 US$ '000 US$ US$
'000 '000
Interest income 185 502 500 1,246
Net foreign exchange gain - 16,287 5,209 36,738
Net change in fair value - - 4 -
of financial assets
Finance income 185 16,789 5,713 37,984
Interest expense on loans
and borrowings (12,643) (10,862) (24,385) (21,324)
Net foreign exchange loss (18,895) - - -
Net change in fair value
of financial assets (47) (122) - (236)
Other finance costs (268) (93) (389) (186)
Finance costs (31,853) (11,077) (24,774) (21,746)
Net finance (costs)/income (31,668) 5,712 (19,061) 16,238
10. tAX EXPENSE / (BENEFIT)
For the For the
three months six months
ended ended
1/4/17- 1/4/16- 1/1/17- 1/1/16-
30/6/17 30/6/16 30/6/17 30/6/16
US$ '000 US$ '000 US$ US$
'000 '000
Current tax expense
Current year 1,763 71 2,244 128
Deferred tax expense/(benefit)
Origination and reversal
of temporary differences 15,926 351 7,026 (2,539)
Total income tax expense/(benefit) 17,689 422 9,270 (2,411)
11. INVESTMENT PROPERTY
Reconciliation of carrying amount
30/6/17 31/12/16
US$ '000 US$ '000
Balance 1 January 915,350 933,700
Renovations/additional cost 291 370
Disposals (5,341) (500)
Fair value adjustment 3,912 (92,801)
Effect of movement in foreign
exchange rates 11,898 74,581
Balance 30 June / 31 December 926,110 915,350
The disposal represents an agreement based on which the Group
acquired the additional 26% interest in Bizar LLC increasing its
ownership to 100% in exchange for one of the four buildings owned
by Bizar LLC refer to note 23 for further details on the
acquisition of NCI.
The increase due to the effect of the foreign exchange
fluctuation is a result of the Rouble strengthening compared to the
US Dollar by 2.6% during the first half of 2017.
The investment property was revalued by independent appraisers
on 30 June 2017 resulting in an increase of the fair value of the
properties of US$16,101 thousand. The increase was recognised
mainly to "Tverskaya Plaza II" project which received a
construction permit and hence revalued and of "AFIMALL" project as
a result of increase in occupancy rate, growing footfall and
stabilizing retail turnover. The fair value adjustment above is
presented net of the foreign exchange effect offsetting the
increase thereof.
12. INVESTMENT PROPERTY UNDER DEVELOPMENT
30/6/17 31/12/16
US$ '000 US$ '000
Balance 1 January 232,900 238,925
Construction costs 1,711 4,554
Transfer to trading properties (74,100) -
under construction (note 15)
Fair value adjustment (4,839) (30,244)
Effect of movements in foreign
exchange rates 4,228 19,665
Balance 30 June / 31 December 159,900 232,900
On 31 March 2017 the Group transferred "Bolshaya Pochtovaya"
project to trading properties under construction. The transfer was
performed following the change in use evidenced by the commencement
of development with a view to sell. The amount of US$74,100
thousand represents the fair value of the project at the date of
the transfer. The fair value was based on the valuation provided by
the independent appraisers on 31 December 2016 which according to
management assessment was not significantly different from the fair
value at the date of change in use.
The investment property under development was revalued by
independent appraisers on 30 June 2017. The fair value of the
portfolio increased slightly by US$1,100 thousand compared to 31
December 2016. However the fair value adjustment recorded above was
negative due to the effect of the foreign exchange fluctuation as a
result of the rouble strengthening compared to the US Dollar by
2.6% during the first half of 2017 offsetting the increase
thereof.
13. PROPERTY, PLANT AND EQUIPMENT
30/6/17 31/12/16
US$ '000 US$ '000
Balance 1 January 31,215 26,280
Effect of acquisition of subsidiary -
(note 22) 45,580
Additions 88 262
Depreciation for the period
/ year (409) (696)
Disposals (55) (85)
Effect of movements in foreign
exchange rates (52) 5,454
Balance 30 June / 31 December 76,367 31,215
14. TRADING PROPERTIES
30/6/17 31/12/16
US$ '000 US$ '000
Balance 1 January 6,854 2,062
Transfer from trading properties
under construction (note 15) 63,202 53,480
Disposals (48,653) (49,475)
Effect of movements in exchange
rates 25 787
Balance 30 June / 31 December 21,428 6,854
Trading properties comprise unsold apartments and parking
spaces. The transfer from trading properties under construction
represents the completion of the construction of a number of flats,
offices and parking places of "Odinburg" project. During the period
the sale of 540 flats, 5 offices and 38 parking places were
recognised, upon transferring of the rights to the buyers according
to the signed acts of transfer, in the income statement.
15. TRADING PROPERTIES UNDER CONSTRUCTION
30/6/17 31/12/16
US$ '000 US$ '000
Balance 1 January 243,327 204,392
Transfer from investment property 74,100 -
under development (note 12)
Transfer from inventory of real
estate - 21,543
Transfer to trading properties
(note 14) (63,202) (53,480)
Construction costs 44,799 54,428
Effect of movements in exchange
rates 3,699 16,444
Balance 30 June / 31 December 302,723 243,327
Trading properties under construction comprise "Odinburg",
"Paveletskaya Phase II", "AFI Residence Botanic Garden" and
"Bolshaya Pochtovaya" projects which involve primarily the
construction of residential properties. For further details on the
transfer of the "Bolshaya Pochtovaya" project refer to note 12.
16. TRADE AND OTHER RECEIVABLES
30/6/17 31/12/16
US$ '000 US$ '000
Advances to builders 35,347 27,019
Amounts receivable from related
parties (note 26) 115 267
Trade receivables, net 3,193 3,427
Other receivables 3,920 3,955
VAT recoverable 5,425 4,067
Tax receivables 3,562 3,692
51,562 42,427
Trade receivables net
Trade receivables are presented net of an accumulated provision
for doubtful debts of US$0 thousand (31/12/2016: US$8,285
thousand).
17. CASH AND CASH EQUIVALENTS
30/6/17 31/12/16
Cash and cash equivalents consist US$ '000 US$ '000
of:
Cash at banks 19,048 10,356
Cash in hand 182 263
19,230 10,619
18. SHARE CAPITAL AND RESERVES
30/6/17 31/12/16
1. Share capital US$ '000 US$ '000
Authorised
2,000,000,000 shares of US$0.001
each 2,000 2,000
Issued and fully paid
523,847,027 A shares of US$0.001
each 524 524
523,847,027 B shares of US$0.001
each 524 524
1,048 1,048
2. Employee Share option plan
All options have vested during the year 2016. A significant
number of options has expired during the year after the lapse of
the ten years period with the remaining options expiring in
November.
3. Translation reserve
The translation reserve comprises all foreign currency
differences arising from the translation of the financial
statements of foreign operations to the Group presentation currency
and the foreign exchange differences on loans designated as loans
to an investee company which are accounted for as part of the
investor's investment (IAS21.15) as their repayment is not planned
or likely to occur in the foreseeable future. These foreign
exchange differences are recognised directly to Translation
Reserve.
4. Retained earnings
Retained earnings are available for distribution at each
reporting date. No dividends were proposed, declared or paid during
the six-month period ended 30 June 2017.
5. Capital reserve
Represents the effect of the acquisition, in 2015, of the 10%
non-controlling interests in Bioka Investments Ltd and its
subsidiary Nordservice LLC previously held at 90% and the effect of
the acquisitions during the period of the 5% non-controlling
interests in Beslaville Management Limited and its subsidiary
Zheldoruslugi LLC previously held at 95% and of the 26%
non-controlling interest in Bizar LLC previously held at 74%, refer
to note 23 for further details.
19. LOANS AND BORROWINGS
30/6/17 31/12/16
US$ '000 US$ '000
Non-current liabilities
Secured bank loans 23,701 627,074
Current liabilities
Secured bank loans 633,660 459
Unsecured loans from other non-related
companies 298 289
633,958 748
The following changes to the loans took place during the six
month period ended 30 June 2017:
(i) A secured loan from Sberbank was signed on 20 March 2017 by
one of the Group's subsidiary AFI RUS Management. This loan
facility agreement offered a credit line totaling RUR 1.090
billion, which is drawn down in two tranches so as to finance the
construction of Phase 2 of "Odinburg" project. During the period a
drawdown of the first tranche of US$8,105 thousand (RUR 470
million) was effected. The loan is provided in RUR and bears an
annual interest rate of 11.5% with a right to increase by 1-2%. The
loan facility has variable quarterly principal payments based on
percentages of loan balance, commencing from 20 September 2017 to
19 March 2020.. In addition the interest is payable on a quarterly
basis throughout the term of the facility.
(ii) On 28 February 2017 the Group received a loan from VTB Bank
PJSC ("VTB") to finance the acquisition of the additional 50% stake
in the "Plaza Spa Kislovodsk" project. The loan, in the amount of
US$22.5 million, is provided in US dollars for 5 years (the term
can be extended for an additional 5 years subject to agreement
between the parties), it bears an annual interest rate of 3 months
Libor + 4.5%, has quarterly principal payments (ranging from US$363
thousand in Q2 2017 to US$786 thousand in Q4 2021), and a balloon
payment of US$11,254 thousand at maturity. The interest is to be
paid quarterly.
(iii) Ozerkovskaya III loan facility a secured loan received by
subsidiary Krown Investments LLC from VTB on 25 January 2013 and
AFIMALL City loan facility a secured loan received by subsidiary
Bellgate Constructions Ltd were reclassified to current liabilities
as based on loan agreements, their maturity fall due within the
next twelve months, on 26 January 2018 and 1 April 2018
respectively.
20. TRADE AND OTHER PAYABLES
30/6/17 31/12/16
US$ '000 US$ '000
Trade payables 8,367 8,490
Payables to related parties (note
26) 284 427
Amount payable to builders 11,180 5,962
Provision 15,150 7,833
VAT and other taxes payable 6,219 5,681
Other payables 4,714 2,564
45,914 30,957
Provision represents the estimated cost of construction of
common use areas of the Odinburg project such as hospital, school
and kindergarten which is an obligation of the Group to build and
make available for use by the residents.
21. FINANCIAL INSTRUMENTS
Carrying amounts and fair values
The following table shows the carrying amounts and fair values
of financial assets and financial liabilities, including their
levels and the fair value hierarchy for financial instruments
measured at fair value. It does not include fair value information
for financial assets and financial liabilities not measured at fair
value if the carrying amount is a reasonable approximation of fair
value.
Carrying amount Fair value
------------------------------------------------------------------------------ --------------------------------------
Non-current Current assets
assets
------------ ---------------------------------------------------------------- -------- -------- -------- --------
Trade Other Cash
and investments, and
Loans other Including cash Loans Level Level Level
receivable receivables derivatives equivalents receivable Total 1 2 3 Total
------------ ------------ ------------- ------------ ----------- -------- -------- -------- -------- --------
30 June 2017 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial
assets
measured
at fair
value
Investment
in listed
debt
securities - - 6,245 - - 6,245 6,245 6,245
Financial
assets not
measured at
fair value
Loans
receivable 26 - - - 766 792
Trade and
other
receivables - 7,228 - - - 7,228
Cash and
cash
equivalents - - - 19,230 - 19,230
------------ ------------ ------------- ------------
26 7,228 6,245 19,230 766 33,495
------------ ------------ ------------- ------------ ----------- -------- -------- -------- -------- --------
31 December
2016
Financial
assets
measured
at fair
value
Investment
in listed
debt
securities - - 6,068 - - 6,068 6,068 - - 6,068
Financial
assets not
measured at
fair value
Loans
receivable 15,770 - - - - 15,770
Trade and
other
receivables - 7,649 - - - 7,649
Cash and
cash
equivalents - - - 10,619 - 10,619
------------ ------------ ------------- ------------
15,770 7,649 6,068 10,619 - 40,106
------------ ------------ ------------- ------------ ----------- -------- -------- -------- -------- --------
Carrying amounts and fair values (continued)
Carrying amount Fair value
--------------------------------------------------------- ----------------------------------------
Non-current Current liabilities
liabilities
------------- ------------------------------------------
Interest Trade Interest
bearing and bearing
loans and other loans Total Level Level Level Total
borrowings payables and borrowings 1 2 3
------------- ----------- ---------------- ----------- -------- -------- -------- ----------
30 June 2017 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial
liabilities not
measured at
fair value
Interest
bearing loans
and borrowings (23,701) - (633,958) (657,659) (654,773)
Trade and other
payables - (39,695) - (39,695)
------------- ----------- ---------------- ----------- -------- -------- -------- ----------
(23,701) (39,695) (633,958) (697,354)
------------- ----------- ---------------- ----------- -------- -------- -------- ----------
31 December
2016
Financial
liabilities not
measured at
fair value
Interest
bearing loans
and borrowings (627,074) - (748) (627,822) (614,771)
Trade and other
payables - (25,276) - (25,276)
------------- ----------- ---------------- ----------- -------- -------- -------- ----------
(627,074) (25,276) (748) (653,098)
------------- ----------- ---------------- ----------- -------- -------- -------- ----------
22. ACQUISITION OF SUBSIDIARIES
On 28 February 2017, the Group acquired the additional 50% of
the "Plaza Spa Kislovodsk" project by acquiring the shares and
voting rights of Nouana Limited, Craespon Management Limited,
Emvial Limited and Sanatoriy Plaza LLC. As a result, the Group's
equity interest in the above mentioned entities increased from 50%
to 100%, obtaining their control. Principal activity of Nouana
Limited, Craespon Management Limited and Emvial Limited is that of
holding of investments while Sanatoriy Plaza LLC is the owner of
"Plaza Spa Kislovodsk" project. The Project is an operating spa
resort hotel in the Caucasian mineral waters region, in the town of
Kislovodsk. It has 275 guest rooms and a gross buildable area of
25,000 sq.m.
This acquisition enables the Group to consolidate 100% of the
Project, manage it at its sole discretion and consolidate 100% of
its revenues. Revenue attributed to the acquired 50% stake, based
on the 2016 annual results, was US$9 million. The gross profit
attributed to the acquired 50% stake in the Project, based on the
2016 annual results, was US$4.4 million.
a. Consideration transferred
The Group paid an amount of US$5,632 thousand for the
acquisition itself of the 50% equity stakes in the previously held
joint ventures. In order to finance the acquisition the Group has
received a loan of US$22,500 thousand, from VTB Bank PJSC. The
remainder of the loan was used to repay the outstanding debt of
Sanatoriy Plaza LLC to the joint venture partner in the project, in
the amount of US$16,868 thousand, prior to the acquisition of the
equity stakes.
US$ '000
Cash 5,632
Cash and cash equivalents acquired
(note b) (4,846)
Net consideration 786
b. Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets
and liabilities assumed at the date of acquisition
US$ '000
Property, plant and equipment 45,580
VAT recoverable 33
Inventory 392
Trade and other receivables 307
Cash and cash equivalents 4,846
Loans and borrowings (16,868)
Deferred tax liabilities (8,807)
Trade and other payables (1,675)
Total identifiable net assets acquired 23,808
c. Goodwill
Goodwill arising from the acquisition has been recognised as
follows:
US$ '000
Consideration transferred (note a) 5,632
Fair value of existing interest in
joint ventures 20,903
Fair value of identifiable net assets
(note b) (23,808)
Goodwill 2,727
Impairment (2,727)
-
At acquisition the gain on the Group's previously held 50%
interest in the joint venture was US$10,259 thousand, which
comprised US$7,803 thousand fair value gain on net assets less the
$1,815 thousand carrying amount of the equity accounted investee at
the date of acquisition plus US$4,271 thousand of translation
reserve reclassified to profit or loss. The gain is presented net
of impairment of goodwill of US$2,727 which was the result of the
100% acquisition. The Board of Directors has decided to impair the
resulting goodwill to zero considering the amount paid above the
fair value of the net assets acquired, represents a premium paid to
acquire control of the entity which was over and above its market
value.
23. ACQUISITION OF NON-CONTROLLING INTERESTS (NCI)
During the period, the Group acquired an additional 5% interest
in Beslaville Management Limited and its Russian subsidiary
Zheldoruslugi LLC, increasing its ownership from 95% to 100% and
26% interest in Bizar LLC increasing its ownership from 74% to
100%. The carrying amount of Beslaville Management Limited's
together with its subsidiary and Bizar's net assets in the Group's
financial statements on the date of acquisition was negative
(US$60,660) thousand and (US$1.546) thousand respectively.
The following table summarises the effect of changes in the
Company's ownership interest in Beslaville Management Limited,
Zheldoruslugi LLC and Bizar LLC.
US$ '000
Carrying amount of NCI acquired (($60,660)
thousand * 5% & ($1,546) thousand $26%) (3,435)
Consideration paid to NCI (6,710)
A decrease in equity attributable to
owners of the Company (10,145)
The decrease in equity attributable to owners of the Company
comprised of a negative capital reserve of US$10,145 thousand.
24. CONTINGENCIES
There weren't any contingent liabilities as at 30 June 2017.
25. FINANCIAL RISK MANAGEMENT
The Group's financial risk management objectives and policies
are consistent with that disclosed in the consolidated financial
statements as at and for the year ended 31 December 2016.
Russian business and economic environment
The Group's operations are primarily located in the Russian
Federation. Consequently, the Group is exposed to the economic and
financial markets of the Russian Federation which display
characteristics of an emerging market. The legal, tax and
regulatory frameworks continue development, but are subject to
varying interpretations and frequent changes which together with
other legal and fiscal impediments contribute to the challenges
faced by entities operating in the Russian Federation.
The Russian economy continues to recover. In Q1 2017, GDP
increased by 0.5% YoY. A preliminary estimate released by the
Federal Statistics Service (Rosstat) on 11 August showed that GDP
increased 2.5% year-on-year in Q2. The growth is expected to resume
in 2017, according to Oxford Economics forecast of 1.3% growth in
2017.
Standard & Poor's credit rating for Russia stands at BB+
with positive outlook, while Moody's (Ba1) and Fitch's (BBB-)
credit ratings for Russia were set with stable outlook.
The Central Bank of Russia continued its path of interest rate
cuts, decreasing the key rate from 9.25% to 9% in June 2017. The
consumer prices inflation in June 2017 was at 4.4% (annualised)
(with CBR target at 4%).
Retail turnover entered the recovery stage with a 1.2% growth in
June. Real wages indicate potential gains in consumer activity,
however, consumer debt repayments will likely delay the recovery of
retail activity.
The real estate investors see the market bottoming out and lower
rouble volatility compared to H1 2016. As a result, there was
improved investor sentiment in all commercial real estate sectors
and several deals from 2016 were closed in H1 2017, raising the
overall number of completed transactions. In Q2 2017, Russia's real
estate investments more than doubled vs Q2 2016 and reached
USD1.4bn, according to JLL calculations. In H1 2017 total
investment volume amounted to 2.2 bn with domination of retail
transactions accounting for 41% of the total volume. The office
sector accounted for 32%.
The interim financial statements reflect management's assessment
of the impact of the Russian business environment on the operations
and the financial position of the Group. The future business
environment may differ from management's assessment.
26. RELATED PARTIES
30/6/17 31/12/16
(i) Outstanding balances with US$ '000 US$ '000
related parties
Assets
Amounts receivable from joint
ventures - 11
Amounts receivable from other
related companies (note 16) 115 256
Long term loans receivable from
joint ventures - 15,745
30/6/17 31/12/16
(i) Outstanding balances with US$ '000 US$ '000
related parties (continued)
Liabilities
Amounts payable to joint ventures - 102
Amounts payable to other related
companies (note 20) 284 325
Deferred income from related
company 40 145
(ii) Transactions with the key 1/1/17- 1/1/16-
management personnel 30/6/17 30/6/16
US$ '000 US$ '000
Key management personnel compensation
Short-term employee benefits 1,342 1,335
Share option scheme expense - 530
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of the entity, directly or indirectly, including any
director (whether executive or otherwise) of that entity. The
person is a member of the key management personnel of the entity or
its parent (includes the immediate, intermediate or ultimate
parent). Key management is not limited to directors; other members
of the management team also may be key management.
1/1/16- 1/1/15-
(iii) Other related party transactions 30/6/16 30/6/15
US$ '000 US$ '000
Revenue
Related companies - rental income 234 293
Related companies - other income 1 -
Joint venture - consulting services 31 83
Joint venture - interest income 211 645
Expenses
Ultimate holding company - administrative
expenses - 117
Joint venture - operating expenses 10 26
27. SUBSEQUENT EVENTS
There were no material events that took place after the six
month period and until the date of the approval of these interim
financial statements by the Board of Directors on 21August
2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UAVWRBUAWUAR
(END) Dow Jones Newswires
August 22, 2017 02:00 ET (06:00 GMT)
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