TIDMAFRB TIDMAFID
RNS Number : 1001L
AFI Development PLC
17 April 2018
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR
DISTRIBUTION
IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA,
AUSTRALIA OR JAPAN
17 April 2018
AFI DEVELOPMENT PLC
("AFI DEVELOPMENT" OR "THE COMPANY")
PRELIMINARY STATEMENT OF RESULTS FOR THE YEARED 31 DECEMBER
2017
Strong operational results supported by improved commercial
income and residential sales
AFI Development, a leading real estate company focused on
developing property in Russia, has today announced its preliminary
audited financial results for the year ended 31 December 2017.
Financial highlights:
-- Revenue for the year, including proceeds from the sale of
trading properties, reached US$179.1 million (30% increase
year-on-year):
- Sales of trading properties (residential real estate) contributed US$61.8 million
- Rental and hotel operating income increased 40% year-on-year to US$117.0 million
- AFIMALL City contribution increased to US$81.8 million (2016:
US$66.2 million), a 24% increase year-on-year
-- Gross profit increased by 24% year-on-year to US$61.0 million (2016: US$49.4 million)
-- Largely as a result of increased financing costs and a higher
income tax, the Company incurred a net loss of US$4.7 million in
2017, an improvement on the loss of US$47.9 million recorded in
2016
-- Total gross value of portfolio of properties was largely
unchanged at US$1.42 billion, a slight decrease from the 2016
figure of US$1.44 billion
-- Cash, cash equivalents and marketable securities as of 31
December 2017 stood at US$106.0 million
Operational highlights
-- All four of the Company's residential projects, Odinburg, AFI
Residence Paveletskaya, Bolshaya Pochtovaya and Botanic Garden, are
in the active construction and sales stage.
-- Construction and pre-sales at projects launched in 2017,
Bolshaya Pochtovaya and Botanic Garden, are progressing to plan. As
of 10 April 2018, 48 apartments (26% of Phase I) are pre-sold at
Bolshaya Pochtovaya and 78 apartments (10% of Phase I) at Botanic
Garden.
-- At Odinburg, construction of Building 6 (phase II) started in
the second quarter, while the construction of Building 3 (phase I)
commenced in the third quarter. As of 10 April 2018, the number of
signed sale contracts stood at 676 (96% of total) in Building 2,
144 (64% of total) in Building 6 and 134 (14% of total) in Building
3.
-- The planned construction and pre-sale of apartments at AFI
Residence Paveletskaya, proceeded according to schedule with 404
residential unit pre-sale contracts (63% of units under pre-sales)
signed as of 10 April 2018.
-- AFIMALL City continues to record solid NOI growth, reaching
US$63.0 million in 2017, up from US$50.1 million in 2016.
Commenting on today's announcement, Lev Leviev, Executive
Chairman of AFI Development, said:
"We are pleased to report growth in revenue and gross profit for
2017, facilitated by strong residential sales and a somewhat
improving macroeconomic environment. The strong performance
registered in 2017 by our flagship AFIMALL City project and
increasing revenue from the residential sales give us some optimism
for 2018. However, we remain cautious on the macroeconomic recovery
in Russia and are conservatively optimistic on the Moscow real
estate market going forward into 2018."
FY 2017 Results Conference Call
AFI Development will hold a conference call for analysts and
investors to discuss its full year 2017 results, following their
publication.
The details for the conference call are as follows:
Date: Wednesday, 18 April 2018
Time: 15:00 UK (17:00 Moscow)
International: +44 (0)20 3003 2666
UK toll free: 0808 109 0700
US toll-free: 1 866 966 5335
Dial-in Tel: Russia toll-free: 8 10 8002 4902044
Password: AFI
Please dial in 5/10 minutes prior to the commencement time
giving your name, company and stating that you are dialling into
the AFI Development conference call quoting the reference AFI.
The FY 2017 investor presentation will be published on the
Company's website:
http://www.afi-development.com/en/investor-relations/reports-presentations
at 11.00 UK (13.00 Moscow) on 18 April 2018.
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
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 future.
Forward-looking Statements
This document and the documents following may contain certain
"forward-looking statements" with respect to the Company's
financial condition, results of operations and business, and
certain of the Company's plans and objectives with respect to these
items.
Forward-looking statements are sometimes, but not always,
identified by their use of a date in the future or such words as
"anticipates", "aims", "due", "could", "may", "should", "expects",
"believes", "intends", "plans", "targets", "goal" or "estimates."
By their very nature forward-looking statements are inherently
unpredictable, speculative and involve risk and uncertainty because
they relate to events and depend on circumstances that will occur
in the future.
There are a number of factors that could cause actual results
and developments to differ materially from those expressed or
implied by these forward-looking statements. These factors include,
but are not limited to, changes in the economies and markets in
which the Company operates; changes in the regulatory and
competition frameworks in which the Company operates; changes in
the markets from which the Company raises finance; the impact of
legal or other proceedings against or which affect the Company; and
changes in interest and exchange rates.
Any written or verbal forward-looking statements, made in this
document or made subsequently, which are attributable to the
Company or persons acting on their behalf are expressly qualified
in their entirety by the factors referred to above. The Company
does not intend to update any forward-looking statements.
Executive Chairman's Statement
For the Russian economy in general, 2017 was a year of
stabilisation as inflation fell to rates not seen in years (2.51%,
Rosstat) and oil prices settled at a comfortable level. The Russian
Central Bank has been gradually reducing the key lending rate
(currently 7.25%), however it remains high relative to inflation.
In 2017 the Russian economy returned to growth, though at modest
rates (1.33% according to the World Bank).
For AFI Development, the year was marked by launch of
construction and sales at two additional residential projects in
Moscow, the Botanic Garden and Bolshaya Pochtovaya, bringing the
number of actively constructed residential projects to four. The
sales of residential and parking units now play a significant role
in our revenue generation alongside the revenue accrued from rent
and hotel operations.
This past year we made significant progress at our Odinburg
development where we delivered Building 2 and began the
construction and pre-sale of Building 6 and Building 3. At AFI
Residence Paveletskaya we are also preparing to deliver the first
apartments to customers in several completed buildings. Meanwhile
at the Botanic Garden and Bolshaya Pochtovaya projects,
construction and pre-sale remain on schedule.
Revenue for the Company in 2017 grew by 30% year-on-year to
US$179.1 million, supported by strong residential sales while gross
profit increased by 24% to US$ 61 million.
Our yielding properties performed well throughout 2017, with
strong figures from our flagship project, the AFIMALL City, which
generated US$ 81.8 million in revenue, up 24% from the prior year.
Our hotels also demonstrated good performance, accruing US$ 29.3
million in revenue.
Looking ahead to 2018, we expect further stabilisation in the
Russian macroeconomy. As demand for commercial real estate
registers a slow improvement, we will continue to adapt our
strategy to ensure the sustainable growth of our business in the
future.
Valuation
As at 31 December 2017, based on the Jones Lang LaSalle LLC
("JLL") independent appraisers' report and on accounting book value
of properties, the value of AFI Development's portfolio of
investment properties stood at US$0.82 billion, while the value of
the portfolio of investment property under development stood at
US$0.16 billion.
Consequently, the total value of the Company's assets, mainly
based on independent valuation as of 31 December 2017, was US$1.42
billion, compared to US$1.44 billion as at 31 December 2016.
For additional information, please refer to the "Portfolio
Valuation" section in the Management Discussion and Analysis (the
"MD&A").
Liquidity
We ended 2017 with approximately US$106.0 million of cash, cash
equivalents and marketable securities on our balance sheet and a
debt[1] to equity level of 75%. This position reflects the
Company's ability to successfully balance liquidity requirements
from a number of sources.
Our financing strategy aims to maximise the amount of debt
financing for projects under construction, while maintaining
healthy loan-to-value levels. After delivery and commissioning, we
aim to refinance the properties at more favourable terms, including
longer amortisation periods, lower interest rates and higher
principal balloon payments. Property rights and shares of property
holding companies are mainly used as collateral for the debt. We
strongly prefer, whenever possible, to use non-recourse project
level financing.
For additional information, please refer to the "Liquidity"
section of the MD&A.
Key developments since financial year end
Following the year-end, the following key events occurred:
-- In January 2017, AFI Development Plc announced that it had
reached an agreement to restructure its loan agreements with VTB
Bank PJSC ("VTB") in relation to the AFIMALL City project and the
Ozerkovskaya III project. It has been agreed that the Company
subsidiary Bellgate Constructions Limited ("Bellgate", the owner of
AFIMALL City) signs a new loan facility agreement ("the New Loan"),
which would be used to refinance the existing Bellgate loan from
VTB and to repay its loan from AFI Development. Bellgate will
receive the New Loan in five tranches, in Euros and in Russian
Roubles. The blended interest rate on the New Loan is circa 5.6%
(assuming current EUR/RUR exchange rate and current Russian Central
Bank key lending rate). The interest and the principal of the New
Loan are to be paid quarterly, while the term of the loan is 5
years. After drawdown of all the tranches, Bellgate will have loan
obligations in Russian Roubles of a maximum amount of RUR9.6
billion and in Euros in the equivalent of US$360 million. AFI
Development used the funds received by Bellgate to repay the
remainder of Ozerkovskaya III loan.This was made on 26 January.
Taking into account partial repayment of this loan from proceeds
received from disposal of two buildings at Ozerkovskaya III in
December 2017, the Ozerkovskaya III loan at VTB has now been fully
repaid.
-- In January 2018 the Company's subsidiary MKPK PJSC (the owner
of the AFI Residence Paveletskaya Project) received a loan from VTB
Bank PJSC in the amount of RUR711 billion to refinance the
previously incurred costs for the construction of the project. The
loan bears floating interest rate of the Russian Central Bank key
lending rate + 1.5%. The principal on the loan is payable monthly,
while the interest is payable quarterly. The loan matures in July
2019.
Portfolio Update
AFIMALL City
During 2017 our flagship project, AFIMALL City, demonstrated
solid growth in footfall, revenue and NOI.
Average daily footfall in December 2017 was 18% higher than in
December 2016, reflecting improved consumer sentiment and the
continued development of the Moscow City area (such as improving
transportation infrastructure and the opening of new office
space).
Revenue grew 25% year-on-year (US$ 82.7 million for 2017) and
NOI increased 26% year-on-year (US$63.0 for 2017). Occupancy stood
at 89% at the end of 2017
A number of new retailers entered the mall during the past year
including: Gulliver and Reima children goods outlets, Otto Berg
men's fashion, a large fragrance and beauty shop "Golden Apple" and
Tumi travel accessories.
AQUAMARINE III (OZERKOVSKAYA III)
The project saw a significant turnaround in 2017: following a
major lease agreement with Deutsche Bank in July, the Company
agreed to dispose of buildings 2 and 4 to one of the leading
Russian banks for RUR7.89 billion (circa US$135 million) in
November 2017. The transaction was successfully completed in
February 2018.
The Company currently owns one remaining building in the complex
(GBA 18,805 sq.m including underground parking), which is leased to
Deutsche Bank, Brown-Forman and other tenants.
Following the restructuring of the loans of Aquamarine III and
of AFIMALL City with VTB Bank PJSC, the loan at Aquamarine III has
been fully repaid in January 2018.
HOTELS
AFI Development's hospitality portfolio, which consists of one
Moscow city-hotel (Aquamarine) and two resorts in the Caucasus
mineral waters region (Plaza Spa Kislovodsk and Plaza Spa
Zheleznovodsk), performed well in 2017. The Plaza Spa Kislovodsk
project has been fully owned by AFI Development since February 2017
following the acquisition of the remaining 50% stake.
ODINBURG
At Odinburg, construction work and marketing continued
throughout the year. Building 2 of Phase 1 was delivered in the
third quarter of 2017. Construction of Building 6 (phase II)
started in the second quarter, while the construction of Building 3
(phase I) - in the third quarter. Currently, the Company actively
markets Building 2 (completed apartments), Building 6 and Building
3 (pre-sales). As of 10 April 2018, the number of signed sale
contracts amounted to 676 (96% of total) in Building 2, 144 (64% of
total) in Building 6 and 134 (14% of total) in Building 3.
AFI RESIDENCE PAVELETSKAYA (PAVELETSKAYA PHASE II)
In December 2015, AFI Development successfully launched the main
construction phase of the project. The pre-sale of apartments and
"special units"[2] began simultaneously with the onset of
construction and the project continues to be marketed as "AFI
Residence Paveletskaya".
In 2017, construction work and marketing at AFI Residence
Paveletskaya proceeded according to schedule. As of 10 April 2018,
404 residential unit pre-sale contracts (63% of units under
pre-sales) were signed.
The Company is preparing to initiate the delivery of apartments
to customers in the beginning of Q2 2018.
BOLSHAYA POCHTOVAYA
The main construction phase and pre-sale of apartments was
launched in Q1 2017 at Bolshaya Pochtovaya. During 2017, the
construction and marketing of the projected progressed according to
plan and as of 10 April 2018, 105 apartments (54% of Phase I) had
been pre-sold to customers.
BOTANIC GARDEN
The main construction phase and pre-sale of apartments at
Botanic Garden began in Q1 2017 with the development and marketing
of the project progressing as expected. As of 10 April 2018, 142
apartments (18% of Phase I) had been pre-sold to customers.
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 a gross
buildable area of 22 thousand sq.m.
Market Overview - General Moscow Real Estate
Macroeconomic Environment
After two years of contraction, the Russian economy exhibited
tepid signs of recovery in 2017, with GDP growing by 1.8% (IMF).
Reduced financial outflows combined with higher oil prices allowed
economic activity to stabilise and a 0.5% rise in real wages
alongside falling inflation proved conducive to consumption.
Inflation fell by more than expected in 2017 to 4.2%, while
consumer debt grew for the first time in two years in Q4 2017.
Investment volumes expanded by 27% year-on-year to EUR4.06
billion in 2017, however foreign capital comprised only 14% of
total investment for the year and such figures remain considerably
below the EUR10 billion recorded in 2013.
The gradual recovery of the Russian economy is expected to
continue in 2018, with GDP growth forecast to reach approximately
1.7% for the year.
(Sources: Russian Federation: In Search of a New Growth Model,
February 2018, IMF; Marketbeat - Commercial Real Estate Russia,
January 2018, Cushman & Wakefield)
Moscow Office Market
Demand in the Moscow office market continued to improve in 2017
as uptake rose by 21% to 1.28 million sqm. Supply also recorded a
notable recovery as the total volume of new office completions grew
by 29% year-on-year to 408,000 sqm.
Demand for Class A and B+ office space remained the driving
force behind the Moscow office market. The two classes equated to
90% of all deals agreed in 2017 and contributed to a decline in the
overall office vacancy rate from 15.5% to 13.8%.
Rents remained relatively stable throughout 2017, with foreign
currency denominated leases amounting to only 7% of total leased
space. Class A rental rates reached RUB24,000-40,000 per sqm. per
year with Class B+ rents at RUB12,000-25,000 per sqm. per year.
(Source: Moscow Office Market, Q4 2017, JLL; Marketbeat -
Commercial Real Estate Russia, January 2018, Cushman &
Wakefield)
Moscow Retail Market
Despite the completion of three new shopping centres in Moscow
this past year, total new retail construction in Moscow more than
halved in 2017 year-on-year as developers focused on optimising
their existing portfolios.
The vacancy rate in quality Moscow shopping centres reached 9.4%
by year-end.
The Russian retail market recorded turnover growth of 1.2%
year-on-year in 2017, and the entry of 49 new international brands
such as Disney and Under Armour into the Moscow retail market
reflects the sustained interest in the sector held by global
firms.
(Source: Marketbeat - Commercial Real Estate Russia, January
2018, Cushman & Wakefield)
Moscow Residential Market
By the end of Q4 2017 supply on the 'Old Moscow' residential
market stood at 2.84 million sq.m, largely in-line with supply in
Q3 2017. The 'New Moscow' residential market however registered a
decline in supply of 12.3% in Q4 2017 from the previous quarter as
only a single new project entered the market in the period.
The weighted average asking price for newly built business-class
properties reached RUR 247,500 per sq.m. (US$4,267) at the end of
Q4 2017, a 1.7% increase from the quarter prior.
(Source: Overview of Newly Built Housing in Moscow, December
2017, Miel Real Estate)
Board of Directors
The Directors of AFI Development as at the date of this
announcement are as set out below:
Mr. Lev Leviev, Executive Chairman of the Board
Mr. Panayiotis Demetriou, Senior Non-Executive Independent
Director
Mr. David Tahan, Non-Executive Independent Director
Lev Leviev
Executive Chairman of the Board
17 April 2018
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Overview
As at 31 December 2017, the Company's portfolio consisted of 7
investment properties, 4 investment properties under development, 4
trading properties under development and 4 hotel projects. The
portfolio comprises commercial projects focused on offices,
shopping centres, hotels and mixed-use properties, as well as
residential projects, in prime locations in Moscow. The total value
of the Company's assets, based predominantly on independent
valuation as of 31 December 2017, was US$1.4 billion[3]. About 58%
of the assets book value is attributed to yielding properties.
Revenues for 2017 increased by 30. % year-on-year to US$179.1
million, mainly as a result of strengthening of the rouble against
the US dollar and addition of full revenue from Plaza Spa
Kislovodsk operations. The average exchange rate of the Russian
rouble to US dollar decreased by 13% during 2017. Mainly due to
these two factors, AFI Development recorded a 24% year-on-year
decrease in gross profit to US$61,0 million. Cash, cash equivalents
and marketable securities increased by 535% to US$106.0 million as
at 31 December 2017 as a result of a sale of two buildings at
Aquamarine III Business Centre in the amount of circa US$135
million
In 2017, AFI Development incurred a net loss of US$4.7 million,
compared to net loss of US$47.9 million in 2016.
Key Factors Affecting our Financial Results
Our results have been affected, and are expected to be affected
in the future, by a variety of factors, including, but not limited
to, the following:
Macroeconomic Factors
Our properties and projects are mainly located in the Russian
Federation. As a result, Russian macroeconomic trends and
country-specific risks significantly influence our performance.
The following table sets out certain macroeconomic information
for the Russian Federation as of and for the dates indicated:
Year ended 31 Year ended 31
December 2016, December 2015,
% %
Real Gross Domestic Product
growth 1.8 -0.8
---------------- ----------------
Consumer prices growth (inflation) 4.2 7.2
---------------- ----------------
Source: The International Monetary Fund
The following factors affected our performance in 2017:
-- In February 2017 the Company completed the acquisition of 50%
stake in the Plaza Spa Kislovodsk project from its partner,
increasing its stake in the project to 100%. The transaction
involved a payment of US$5.6 million in cash for project companies'
shares and repayment of debt in the amount of US$16.9 million. The
acquisition was financed by a loan from VTB Bank PJSC.
-- At the Odinburg project, Building 2 of Phase 1 was delivered
to customers in Q3 2017, which enabled the Company to recognise
revenue from sale of trading properties in the amount of US$61.4
million.
Key Portfolio Updates
YIELDING ASSETS
AFIMALL City
AFIMALL City is a major retail centre located in the high-rise
business district of Moscow, "Moscow-City". With a total GBA of
nearly 275,046 sq.m (including parking), and GLA of nearly 107,000
sq.m, the project has a shopping gallery of nearly 460 shops, an
11-screen movie theatre and a number of additional outstanding
leisure facilities. AFIMALL City is one of Europe's largest and
most ambitious retail developments in recent years. The Mall
introduces a new standard of quality to the Russian retail sector
and offers visitors a combined shopping, dining and entertainment
experience unmatched in any other retail development in Moscow.
During 2017 our flagship project, AFIMALL City, demonstrated
solid growth in footfall, revenue and NOI.
Average daily footfall in December 2017 was 18% higher than in
December 2016, reflecting improving consumer sentiment and the
further development of the Moscow City area (such as improving
transportation infrastructure and the opening of new office
space).
Revenue grew 25% year-on-year (US$ 82.7 million for 2017) and
NOI increased 26% year-on-year (US$63.0 for 2017). Occupancy at the
end of 2017 stood at 89%.
A number of new retailers entered the mall during the year,
including: Gulliver and Reima children goods outlets, Otto Berg
men's fashion, a large fragrance and beauty shop "Golden Apple" and
Tumi travel accessories.
According to independent appraisers JLL, the market value of
AFIMALL City as of 31 December 2017 was US$696.0 million.
AQUAMARINE III (OZERKOVSKAYA III)
Ozerkovskaya (Aquamarine) III is an office complex forming part
of the "Aquamarine" mixed-use development, located on the
Ozerkovskaya embankment in the very heart of the historical
Zamoskvorechie district of Moscow. The project consists of four
Class A buildings and common underground parking. The project
creates very attractive working conditions through state-of-the-art
architecture, innovative design and efficient use of space. Due to
these characteristics, "Aquamarine III" sets new standards for
quality and creates an aspirational environment among Moscow's
commercial developments.
The project saw a significant turnaround in 2017. Following a
major lease agreement with Deutsche Bank in July, Company agreed to
dispose of buildings 2 and 4 to one of the leading Russian banks
for RUR7.89 billion (circa US$135 million) in November 2017. The
transaction was successfully completed in February 2018.
The Company currently owns one remaining building in the complex
(GBA 18,805 sq.m including underground parking), which is leased to
Deutsche Bank, Brown-Forman and other tenants.
Following the restructuring of the loans of Aquamarine III and
of AFIMALL City with VTB Bank PJSC, the loan at Aquamarine III was
fully repaid in January 2018.
According to independent appraisers JLL, the market value of the
remaining building of the Complex as of 31 December 2017 was
US$63.2 million.
HOTELS
The Company's portfolio includes three hospitality projects, one
located in Moscow and the remaining two in the Caucasus Mineral
Waters region.
AQUAMARINE HOTEL
The Aquamarine Hotel is a modern, 4 star hotel located in the
heart of Moscow. It is part of the company's mixed-use Aquamarine
development, which also houses an A-class office centre, Aquamarine
III, and the completed elite residential complex Aquamarine II.
The Hotel provides high level services and offers 159 spacious
rooms, a fitness-centre, spa-centre, bar, restaurant, and
conference rooms. It is located in the Zamoskvorechie district
which is a 20 minute walk from both the Kremlin and the Tretyakov
Gallery, and a 5 minute walk from the Novokuznetskaya and
Tretyakovskaya metro stations. The Hotel has added to the
infrastructure of the historical district and is convenient for
both business travellers and tourists.
Despite a slowdown in international business activity in Moscow
and growing competition in the market, the hotel demonstrated
strong performance in 2017, with average occupancy of 75%.
The balance sheet value of the project as of 31 December 2017
was US$15.8 million.
PLAZA SPA HOTEL ZHELEZNOVODSK
Plaza Spa Zheleznovodsk is a sanatorium project that was
launched in the summer of 2012 and is located in Zheleznovodsk, in
the Caucasus mineral waters region. The hotel comprises 134 guest
rooms on 11,701 sq.m of gross buildable area. The spa provides
diagnostic assessment and treatment of urological diseases.
During 2017 the hotel performed in-line with expectations with
occupancy levels reaching an average of 70% for the year. The
performance of the hotel was negatively influenced by increasing
competition in the sector and weaker domestic demand in comparison
to recent years.
The balance sheet value of the project as of 31 December 2017
was US$11.8 million.
PLAZA SPA KISLOVODSK
The Plaza Spa is located in the city centre of Kislovodsk, in
the Caucasus mineral waters region. The facility began operations
in 2008 after a full reconstruction and now has a total of 275
rooms spread over 25,000 sq.m.
Today, the Plaza Spa Kislovodsk is a popular spa hotel which has
established new standards of quality and hospitality for the entire
region. It offers an extensive range of medical services focused on
the treatment of cardiac diseases. Diagnostic and treatment
equipment is continually updated, and staff regularly attend
training sessions for new methods of treatment to aid patient
rehabilitation.
In 2017 the hotel performed well, with average annual occupancy
at 73% for the year.
Since February 2017, AFI Development has owned 100% of the
project, after acquiring a 50% stake from its partner.
The balance sheet value of the Company share in the project as
of 31 December 2017 stood at US$44.9 million.
DEVELOPMENT PROJECTS
ODINBURG
In October 2013, AFI Development began construction at
"Odinburg", one of the Company's largest residential projects, with
a total area of over 33 hectares, located 11 km west of Moscow in
the town Odintsovo.
The development is planned to include multi-functional
infrastructure comprised of two schools, two kindergartens, a
medical centre and other facilities.
The project involves the construction of a multi-storey
residential micro district consisting of two phases:
Phase I - Construction of a 22-section residential building
named Korona (Crown) and of the infrastructure for the
kindergartens and schools. This will have a total sellable area of
153,839 sq.m (2,846 apartments);
Phase II - Construction of 8 residential buildings and of
infrastructure for the kindergartens, schools and outdoor
multi-level parking. This will have a total sellable area of
307,226 sq.m (6,474 apartments). Each phase includes commercial
premises on the ground floor that are planned to be sold to end
users.
Phase I ("Korona") construction and supporting infrastructure
construction works are already underway. Building 2 of Phase 1 was
delivered in the third quarter of 2017. Construction of Building 6
(phase II) started in the second quarter, while the construction of
Building 3 (phase I) - in the third quarter. Currently, the Company
actively markets Building 2 (completed apartments), Building 6 and
Building 3 (pre-sales).
The balance sheet value of the project as of 31 December 2017
amounted to US$108.8 million.
PAVELETSKAYA II (AFI RESIDENCE PAVELETSKAYA)
AFI Residence Paveletskaya is a modern residential complex in
proximity to Moscow city centre on Paveletskaya Embankment. The
project is located in Danilovsky Subdistrict (the South
Administrative district of Moscow), between the Garden ring and the
Third Transportation Ring and is easily accessible by private or
public transport. The property is currently under construction.
The project consists of three phases:
Phase I - includes several residential buildings with total
General Buildable Area (GBA) of 52,928 sq.m and total General
Sellable Area (GSA) of 31,306 sq.m. This phase is planned to
include 175 apartments, 220 special units and 6,095 sq.m of
flexible commercial space.
Phase II - is planned to have GBA of 51,839 sq.m and total GSA
of 27,593 sq.m. This phase is planned to include apartments and
1,403 sq.m of flexible commercial space.
Phase III - is planned to have GBA of 30,495 sq.m and total GSA
of 20,452 sq.m. This phase is planned to include apartments and
9,842 sq.m of flexible commercial space.
In December 2015, AFI Development successfully launched the main
construction phase of the project. The pre-sale of apartments and
"special units"[4] began alongside the launch of construction.
During 2017, construction work and the marketing of AFI
Residence Paveletskaya progressed as planned. The Company is
preparing to start the delivery of apartments to customers in the
beginning of Q2 2018.
The balance sheet value of the project as of 31 December 2017
was US$115 million.
BOLSHAYA POCHTOVAYA (AFI RESIDENCE POCHTOVAYA)
Bolshaya Pochtovaya is a mixed-use project (predominantly
residential) located in an attractive neighbourhood in the central
administrative district of Moscow. The area benefits from developed
nfrastructure including transport, shops and cultural/leisure
amenities as well as a nearby river which significantly enhances
the views from the project. It boasts a GBA of 136,581 sq.m on a
land area of 5.65 hectares. The construction will be realised in
four phases:
Phase I - includes several residential buildings with total
General Buildable Area (GBA) of 40,788 sq.m and total General
Sellable Area (GSA) of 25,969 sq.m. This phase is planned to
include apartments, 8,578 sq.m of flexible commercial space and a
kindergarten.
Phase II - is planned to have GBA of 37,373 sq.m and total GSA
of 21,483 sq.m. This phase is planned to include apartments and
3,382 sq.m of flexible commercial space.
Phase III - is planned to have GBA of 35,629 sq.m and total GSA
of 22,719 sq.m. This phase is planned to include apartments and
2,953 sq.m of flexible commercial space.
Phase IV - is planned to have GBA of 22,792 sq.m and total GSA
of 14,744 sq.m. This phase is planned to include apartments and
1,002 sq.m of retail space.
The main construction phase and pre-sale of apartments was
launched in Q1 2017 at Bolshaya Pochtovaya with the marketing of
the project proceeding according to schedule.
The balance sheet value of the project as of 31 December 2017
amounted to US$84.3 million.
BOTANIC GARDEN
Botanic Garden is a residential project, located in the
North-Eastern Administrative District of Moscow, approximately 8 km
from the Third Transportation Ring, near the major transportation
route of the district Prospect Mira, within walking distance of
Botanicheskuiy Sad and Sviblovo metro stations. The future
residential complex has a land plot of 3.2 Ha and a gross building
(GBA) of 206,356 sq.m: 111,105 sq.m of residential area, 8,842 sq.m
of commercial premises and 794 underground and above ground parking
lots.
The project is being constructed in two phases:
Phase I - includes several residential buildings with total
General Buildable Area (GBA) of 138,221 sq.m and total General
Sellable Area (GSA) of 73,877 sq.m. This phase is planned to
include apartments and 8,402 sq.m of flexible commercial space.
Phase II - is planned to have GBA of 68,135 sq.m and total GSA
of 46,070 sq.m. This phase is planned to include apartments and 440
sq.m of flexible commercial space.
The construction and marketing the of Botanic Garden continued
to advance in-line with expectations in 2017.
The balance sheet value of the project as of 31 December 2017
was US$ 50.4 million.
TVERSKAYA PLAZA IC
Tverskaya Plaza Ic is a Class A office development complex
located in the cultural and business quarter of the Tverskoy
sub-district. The complex is located within a 4-minute walk of
Belorusskaya metro station, which serves as the main transport hub
linking the city centre with one of Moscow's main airports -
Sheremetievo International Airport. The project has a GBA of
50,2200 sq.m (including underground parking of approximately 467
parking spaces) and an estimated GLA of 37,035 sq.m
Following the registration of a 10-year land lease agreement,
the Company successfully finalised the development concept,
received the necessary construction permit and completed all
pre-construction works.
Following some improvement in the Moscow office market, and
given the excellent location of the project, AFI Development is
preparing the project for construction launch and intends to start
building in Q3 2018, provided that the required debt financing is
secured.
Based on an independent valuation of the Company's portfolio by
Jones Lang LaSalle as of 31 December 2017, the fair value of
Tverskaya Plaza Ic is US$66.3 million.
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 a gross
buildable area of 22 thousand sq.m.
Plaza II is a retail-entertainment project envisaging
construction of a 7-storey building with one underground level with
a total GBA of 22,000 sq.m, providing 14,000 sq.m of Gross Leasable
Area.
Based on an independent valuation of the Company portfolio by
Jones Lang LaSalle, as of 31 December 2017, the fair value of the
Company share in Plaza IV was US$21.7 million.
TVERSKAYA PLAZA IV
Plaza IV is a Class A office development with supporting ground
level retail zones, located at 11, Gruzinsky Val. The project has a
GBA of 108,000 sq.m (including underground parking) and an
estimated GLA of 61,350 sq.m
In March 2017 the Company acquired the remaining 5% in the
project from its partner, consolidating ownership of the
project.
Based on an independent valuation of the Company portfolio by
Jones Lang LaSalle, as of 31 December 2017, the fair value of the
Company share in Plaza IV was US$67 million.
KOSSINSKAYA
Kossinskaya is mixed-use building totalling 108,528 sq.m with
nine aboveground floors and a single underground level. The
property was constructed in 2005.
Based on an independent valuation of the Company portfolio by
JLL as of 31 December 2017, the fair value of Kossinskaya is
US$28.7 million.
LAND BANK
In addition to multiple yielding properties and projects under
development, AFI Development also has a land bank which consists of
projects that are not currently under development.
By retaining full flexibility regarding future development of
these projects, the Company remains well placed to benefit from
further recovery in the regional real estate markets. Given its
strong track record in bringing projects to completion, this
represents a significant competitive advantage for AFI
Development.
AFI Development's strategy with respect to its land bank is to
activate projects only upon securing necessary financing and having
full confidence in the demand levels of prospective tenants or
buyers.
Key Events Subsequent to 31 December 2017
Following the year-end the following key events occurred:
-- In January 2017, AFI Development Plc announced that it had
reached an agreement to restructure its loan agreements with VTB
Bank PJSC ("VTB") in relation to the AFIMALL City project and the
Ozerkovskaya III project. It has been agreed that the Company
subsidiary Bellgate Constructions Limited ("Bellgate", the owner of
AFIMALL City) signs a new loan facility agreement ("the New Loan"),
which would be used to refinance the existing Bellgate loan from
VTB and to repay its loan from AFI Development. Bellgate will
receive the New Loan in five tranches, in Euros and in Russian
Roubles. The blended interest rate on the New Loan is circa 5.6%
(assuming current EUR/RUR exchange rate and current Russian Central
Bank key lending rate). The interest and the principal of the New
Loan are to be paid quarterly, while the term of the loan is 5
years. After drawdown of all the tranches, Bellgate will have loan
obligations in Russian Roubles of a maximum amount of RUR9.6
billion and in Euros in the equivalent of US$360 million. AFI
Development used the funds received by Bellgate to repay the
remainder of Ozerkovskaya III loan. This was made on 26 January.
Taking into account partial repayment of this loan from proceeds
received from disposal of two buildings at Ozerkovskaya III in
December 2017, the Ozerkovskaya III loan at VTB has now been fully
repaid.
-- In January 2018 the Company's subsidiary MKPK PJSC (the owner
of the AFI Residence Paveletskaya Project) received a loan from VTB
Bank PJSC in the amount of RUR711 billion to refinance the
previously incurred costs for the construction of the project. The
loan bears floating interest rate of the Russian Central Bank key
lending rate + 1.5%. The principal on the loan is payable monthly,
while the interest is payable quarterly. The loan matures in July
2019.
Disposals and Acquisitions
In February 2017 the Company completed the acquisition of 50%
stake in the Plaza Spa Kislovodsk project from its partner,
increasing its stake in the project to 100%. The transaction
involved a payment of US$5.6 million in cash for project companies'
shares and repayment of debt in the amount of US$16.9 million. The
acquisition was financed by a loan from VTB Bank PJSC.
In March 2017, the Company acquired remaining 5% stake in the
Tverskaya Plaza IV project from its partner, for US$1.5 million,
increasing its share in the project to 100%.
In May 2017, Company completed a series of transactions to
become 100% owner of the Berezhkovskaya project, an operating
office complex in Moscow, following an agreement with its partners
in the project. According to the transactions, the partner received
a title to office premises totalling 3,468.5 sq.m in the project,
while Company received the partner's 26% share in the project
company, Bizar LLC. The new total area of the premises at the
Berezhkovskaya project is 7,910 sq.m.
In November 2017, the Company agreed to dispose of buildings 2
and 4 at the Aquamarine III (Ozerkovskaya III) Business Centre in
Moscow to one of the leading Russian banks for RUR7.89 billion
(circa US$135 million). The transaction was successfully completed
in February 2018.
Presentation of Financial Information
Our consolidated financial statements were prepared in
accordance with International Financial Reporting Standards
("IFRS"), as adopted by the European Union ("EU"), and the
requirements of the Companies Law of Cyprus, Cap. 113. IFRS differs
in various material respects from US GAAP and UK GAAP.
Financial policies and practices
Revenue Recognition
The key elements of our revenue recognition policies are as
follows:
-- Rental income. Rental income from investment property is
recognised as revenue on a straight-line basis over the term of the
lease. Lease incentives granted are recognised as an integral part
of the total rental income, over the term of the lease.
-- Income from hotel operations. Income from hotel operations
comprises of accommodation, treatments and other services offered
at the hotels operated by the Group, as well as sales of food and
beverages, and are recognised on acceptance of the service by the
client.
-- Sales of trading properties. We recognise revenue from the
sales of trading properties in our statement of comprehensive
income when the risks and rewards of ownership of the property are
transferred to the buyer.
-- Construction Management fee. Revenue from construction
management is recognised in profit or loss in proportion to the
stage of completion of the transaction at the reporting date. The
stage of completion is assessed by reference to surveys of work
performed.
Operating expenses
Operating expenses consist mainly of employee wages, social
benefits and property operating expenses, including property tax,
which are directly attributable to revenues. We recognise as
expenses in our statement of comprehensive income the costs of
employees who have provided construction consulting and
construction management services with respect to our investment and
trading properties. We also recognise property operating costs
(including outsourced building maintenance), utilities, security
and other tenant services related to our properties that generate
rental income, as expenses on our statement of comprehensive
income.
Administrative expenses
Our administrative expenses comprise primarily of general and
administrative expenses such as, audit and consulting, marketing
costs, charity, travelling and entertainment, office equipment, as
well as depreciation expenses related to our office use motor
vehicles, bad debt provisions and other provisions.
Profit on disposal of investment in subsidiaries
We recognise profit or loss from the sale of interests in our
subsidiaries when the risks and rewards of ownership are
transferred to the buyer in the transaction.
Share of the after tax (loss)/profit of joint ventures
A joint venture is an arrangement in which the Group has joint
control, whereby the Group has rights to the net assets of the
arrangement, rather than rights to its assets and obligations for
its liabilities.
Interests in joint ventures are accounted for using the equity
method. They are initially recognised at cost, which includes
transaction costs. Subsequent to initial recognition, the
consolidated financial statements include the Group's share of the
profit or loss and OCI of equity-accounted investees, until the
date on which joint control ceases.
Gross Profit
Gross profit is the result of the Group's operations and
comprises revenue and other income net of all cost for trading
properties sold and operating, administrative and other expenses,
recognised in profit or loss during the year.
Revaluation of investment property
An external, independent valuation company (with appropriate
recognised professional qualifications and recent experience in the
location and categories of properties being valued) values the
Company's investment property portfolio every six months. The fair
values are based on market values, being the estimated amount for
which a property could be exchanged on the date of the valuation in
a transaction between a willing buyer and a willing seller after
proper marketing, wherein the parties had each acted knowledgeably,
prudently and without compulsion. The difference between revalued
fair value of investment property and its book value is recognised
as gain or loss in the statement of comprehensive income.
Operating profit before net finance costs
Operating profit before net finance costs is calculated by
adding revenue, other income, profit on disposal of investment in
subsidiaries and valuation gains on investment property, and
subtracting operating expenses, administrative expenses and other
expenses.
Finance income
Our finance income comprises net foreign exchange gain, if any,
and interest income. We recognise foreign exchange gains and
losses, principally in connection with US Dollar or other foreign
currency denominated payables and receivables of our Russian
subsidiaries, whose functional currency is the Russian Rouble. Our
interest income is derived primarily from interest on our bank
deposits and interest on loans to our joint ventures.
Finance expenses
Our finance expense comprises net foreign exchange loss, if any,
and interest expense on outstanding loans less interest
capitalised. We recognise foreign exchange gains and losses
principally in connection with US Dollar denominated payables and
receivables of our Russian subsidiaries, whose functional currency
is the Russian Rouble. We capitalise our interest expense with
respect to our development projects that are under construction,
for which amounts are not reflected as expenses in our statement of
comprehensive income. When funds are borrowed specifically for a
particular project, we capitalize all actual borrowing costs
related to the project less income earned on the temporary
investment of such borrowings and when funding for a project is
obtained from our general funds, we capitalise only funding costs
related to the particular project based on the weighted average of
the borrowing costs applicable to our general funds. Capitalisation
of borrowing costs commences when the activities to prepare the
asset are in process and expenditures and borrowing costs are
incurred. Capitalisation of borrowing costs may continue until the
assets are ready for their intended use.
Foreign currency gain or loss on financial assets and financial
liabilities is reported on a net basis as either finance income or
finance expense depending on whether foreign currency movements are
in a net gain or net loss position.
Income tax expense
Income taxes are calculated based on tax legislation applicable
to the country of residence of each of our subsidiaries and, as a
company based and organised in Cyprus, we are subject to income tax
in Cyprus. We and our Cypriot subsidiaries are currently subject to
a statutory corporate income tax rate of 12.5% in Cyprus. Our
Russian subsidiaries were subject to corporate income tax at a rate
of 20%.
Capitalisation of Costs for Properties under Development
We capitalise all costs directly related to the purchase and
construction of properties developed as both investment properties
and trading properties, including costs to acquire land rights and
premises, design costs, permit costs, costs of general contractors,
costs relating to the lease of the underlying land and the majority
of employee costs related to such projects.
In addition, we capitalise financing costs related to
development projects only during the period of construction. We do
not, however, commence the capitalising of financing costs related
to expenditures on a project until construction has begun. Since
the Company's adoption of IAS 40 from 1 January 2009, upon
completion of construction works, property classified as investment
property under development (which are those properties that are
being constructed or developed for future use to earn rental income
or for capital appreciation) is appraised to market value and
reclassified as an investment property and any gain or loss on
appraisal is recognised in our statement of comprehensive income.
Trading properties, which include those projects where we intend to
sell the entire project as a whole or in part (this principally
includes our residential development projects), are represented on
our balance sheet at the lower of cost and net realizable value,
which is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and sale.
Exchange Rates
Our consolidated financial statements are presented in US
Dollars, which is our functional currency. The functional currency
of our Russian subsidiaries and three Cyprus companies is the
Russian Rouble. The balance sheets of our Russian subsidiaries are
translated into US Dollars in accordance with IAS 21, whereby
assets and liabilities are translated into US Dollars at the rate
of exchange prevailing at the balance sheet date and income and
expense items are translated into US Dollars at the average
exchange rate for the period. If the volatility of the exchange
rates is high for a given year or period, the Company uses the
average rate for shorter periods i.e. quarters or months for income
and expense items. All resulting foreign currency exchange rate
differences are recognised directly in our shareholders' equity
under the line item "translation reserve."
When a foreign operation is disposed of in its entirety or
partially such that control or joint control is lost, the
cumulative amount in the translation reserve related to that
foreign operation is reclassified to profit or loss as part of the
gain or loss on disposal. The monetary assets and liabilities of
our Russian subsidiaries that are denominated in currencies other
than Russian Roubles are initially recorded by our subsidiaries at
the exchange rate between the Russian Rouble and such foreign
currency prevailing at such date. Such monetary assets and
liabilities are then retranslated into Russian Roubles at the
exchange rate prevailing at each subsequent balance sheet date. We
recognise the resulting exchange rate differences between the dates
at which such assets or liabilities were originally recorded and at
subsequent balance sheet dates as foreign exchange losses and gains
in our statement of comprehensive income. In particular, during the
period under review, we have recognised foreign exchange rate gains
and losses in connection with US Dollar denominated payables and
receivables of our Russian subsidiaries.
Recovery of VAT
We pay VAT to the Russian authorities with respect to
construction costs and expenses incurred in connection with our
projects, which, according to Russian tax law, can be recovered
upon completion of construction. Under Russian VAT legislation, VAT
can also be claimed during the period of construction provided that
all required documentation is presented to the VAT authorities.
Deferred Taxation
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation
purposes.
Under Russian tax law, capitalisation of certain costs in
relation to the design, construction and financing of projects that
are capitalised for the purposes of consolidated financial
statements under IFRS is not allowed. As a result, our tax bases in
the related assets may be lower than our accounting bases for IFRS
purposes, which would result in deferred tax liabilities. Deferred
tax assets are recognised for unused tax losses, unused tax credits
and deductible temporary differences to the extent that it is
probable that future taxable profits will be available against
which they can be used.
Measurement of fair values
Our future results of operations may be affected by our
measurement of the fair value of our investment properties and
changes in the fair value of such properties. Upon completion of
construction, the projects that we have classified as investment
property under development are reassessed at fair value and
reclassified as investment property, and any gain or loss as a
result of reassessment is recognised in our statement of
comprehensive income.
Any change in fair value of the investment property under
development is thereafter recognised as a gain or loss in the
statement of comprehensive income. Accordingly, fair value
measurements of investment properties under development may
significantly affect results of operations even if the Company does
not dispose of such assets.
We have 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 CFO. 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 such
valuations meet the requirements of IFRS, including the level in
the fair value hierarchy in which such valuations should be
classified.
Results of Operations
Description of Statement of comprehensive income Line Items
Summary of statement of comprehensive income for 2017 and
2016
US$ million For the For the Change 2017 / 2016
year ended year ended
31 December 31 December
2017 2016
Revenue
-------------------- --------------------- -------------- ---------
Construction consulting/management
services 0.2 0.2 (0.0) -22.9%
-------------------- --------------------- -------------- ---------
Rental income 117.0 83.6 33.4 40.0%
-------------------- --------------------- -------------- ---------
Sale of residential 61.8 54.5 7.4 13.5%
-------------------- --------------------- -------------- ---------
179.1 138.3 40.8 29.5%
-------------------- --------------------- -------------- ---------
Other income 3.8 3.5 (0.3) 7.7%
-------------------- --------------------- -------------- ---------
Expenses
-------------------- --------------------- -------------- ---------
Operating expenses (57.1) (38.8) (18.2) 46.9%
-------------------- --------------------- -------------- ---------
Administrative
expenses (6.0) (6.6) 0.6 -8.9%
-------------------- --------------------- -------------- ---------
(including Bad
debt provisions
and write-offs) (0.1) 1.3 (1.5) -111.3%
-------------------- --------------------- -------------- ---------
Cost of sales
of residential (58.4) (49.5) (8.9) 18.0%
-------------------- --------------------- -------------- ---------
Other expenses (2.4) (1.3) (1.1) 79.3%
-------------------- --------------------- -------------- ---------
(120.0) (92.7) (27.3) 29.5%
-------------------- --------------------- -------------- ---------
Share of the after
tax (loss)/profit
of joint ventures 2.0 3.7 (1.8) -47.7%
-------------------- --------------------- -------------- ---------
Gross profit 61.0 49.4 11.6 23.6%
-------------------- --------------------- -------------- ---------
Profit on disposal
of investments
in subsidiaries (3.9) 1.8 (5.7) -318.4%
-------------------- --------------------- -------------- ---------
Profit on purchase
of 50% of JV 7.5 - 7.5 100.0%
-------------------- --------------------- -------------- ---------
Valuation gain/(loss)
on properties 2.0 (123.0) 125.1 -101.6%
-------------------- --------------------- -------------- ---------
Impairment loss
on inventory of
real estate - - - 0.0%
-------------------- --------------------- -------------- ---------
Results from operating
activities 66.6 (71.9) 138.5 -192.6%
-------------------- --------------------- -------------- ---------
Finance income 1.2 2.1 (1.0) -44.7%
-------------------- --------------------- -------------- ---------
Finance expense (50.8) (44.6) (6.2) 13.9%
-------------------- --------------------- -------------- ---------
FX Gain/( Loss) 12.4 63.7 (51.3) -80.6%
-------------------- --------------------- -------------- ---------
Net finance income/(costs) (37.3) 21.2 (58.5) -275.9%
-------------------- --------------------- -------------- ---------
Profit before
income tax 29.3 (50.7) 80.0 -157.8%
-------------------- --------------------- -------------- ---------
Income tax expense ( 34.0) 2.8 (36.7) -1333.8%
-------------------- --------------------- -------------- ---------
Loss from continuing
operations (4.7) (47.9) 43.3 1028%
-------------------- --------------------- -------------- ---------
Revenue - General Overview
To date, we have derived revenues from three sources: rental
income, sale of residential properties and construction consulting
and management fees.
Rental income
We derive rental income from our investment properties and
hotels that we acquired or developed in the past. In 2017 financial
year, we have purchased 50% stake in the Plaza Spa Kislovodsk
project from its partner, increasing its stake in the project to
100% and therefore started to show revenue and expenses by line.
Previously only net effect of financial operation had been shown in
one separate line (Share of the after tax profit/ (loss) of Joint
Ventures).
US$ million For the year For the year Change 2017/2016
ended 31 December ended 31 December
2017 2016
US$ million %
------------ -------
Investment property
AFIMALL City 81.8 66.2 15.6 23.5%
------------------- ------------------- ------------ -------
Premises at Tverskaya
Zastava Square 2.0 1.7 0.2 14.6%
------------------- ------------------- ------------ -------
Berezhkovskya office
building 1.9 1.8 0.1 4.9%
------------------- ------------------- ------------ -------
Ozerkovskaya (Aquamarine)
III 1.0 0.5 0.5 116.1%
------------------- ------------------- ------------ -------
H2O office building 0.9 0.9 0.1 6.1%
------------------- ------------------- ------------ -------
Premises at Tverskaya
Plaza IV 0.1 0.0 0.0 47.8%
------------------- ------------------- ------------ -------
Other land bank
assets 0.0 0.1 (0.1) -54.4%
------------------- ------------------- ------------ -------
Premises at Bolshaya
Pochtovaya 0.0 1.0 (1.0) -99.9%
------------------- ------------------- ------------ -------
Hotels
Plaza Spa Hotel
(Kislovodsk) 17.1 - 17.1 100.0%
------------------- ------------------- ------------ -------
Plaza Spa Hotel
(Zheleznovodsk) 6.5 6.3 0.2 3.5%
------------------- ------------------- ------------ -------
Aquamarine hotel 5.6 5.0 0.6 13.0%
------------------- ------------------- ------------ -------
Total 117.0 83.6 34.0 40.0%
------------------- ------------------- ------------ -------
Sale of residential
US$ million For the year For the year Change 2017/2016
ended 31 ended 31 December
December 2016
2017
US$ million %
------------- ------
Revenue
------------- ------------------------- ------------- ------
Odinburg 61.4 54.0 7.4 13.6%
------------- ------------------------- ------------- ------
Ozerkovskaya II 0.5 0.5 (0.0) -1.3%
------------- ------------------------- ------------- ------
Total 61.8 54.5 7.4 13.5%
------------- ------------------------- ------------- ------
Sale of residential. Our income from sale of residential
increased by US$7.4 million, from US$54.5 million in 2016 to
US$61.8 million in 2017, due to sale of residential units in the
Odinburg project.
Operating expenses. Our operating expenses increased by 46.9%
year-on-year to US$57.1 million in 2017 (2016: US$38.8 million).
Almost half of operating expense' rise is explained by share
buyback in the Plaza Spa Kislovodsk project. Other point causing
increase in operating costs relates to start of sales for the
projects AFI Residence Paveletskaya, Bolshaya Pochtovaya and
Botanic Garden. We hired sales managers and expanded our
advertising compaing.
Administrative expenses. Our administrative expenses decreased
by 8.9 % year-on-year to US$6.0 million in 2017 (2016: US$6.6
million). The decrease is attributable to the fact that in 2016
there was onetime consulting related to discharge of loans issued
to the Company by VTB bank, as well as other cost saving
initiatives across the Company. Additionally, improved bad debt
collection in 2017 led to zero bad debt provision in 2017.
Net valuation gain/ (losses) on properties. Net result of
investment property valuation changed from a loss of US$123.0
million in 2016 to a gain of US$2.0 million in 2017. For additional
information, please refer to "Portfolio Valuation" section
below.
Finance income. Our finance income decreased by 44.7 %
year-on-year to US$1.2 million in 2017 (2016: US$2.1 million). The
decrease was a result of consolidation of 100% stake in the Plaza
Spa Kislovodsk project in Q1 2017, following which the interest
paid by the Joint Venture of this project became eliminated as
inter-company interest.
Finance expense. Our finance expense increased by 13.9 %
year-on-year to US$50.8 million in 2017 (2016: US$44.6 million), as
a result of hedging US$ loans obligation from VTB bank against
exchange risk and overall rouble strengthening versus the dollar.
Additionally, the finance expenses increased due to new loans taken
for the Plaza Spa Kislovodsk and Plaza Spa Zheleznovodsk
projects.
FX Gain/ (Loss). We recorded a foreign exchange gain of US$12.4
million in 2017, against a gain of US$63.7 million in 2016. This
was a result of Russian Rouble appreciation versus the US Dollar
during 2017.
Income tax expense. Our current tax expense increased by US$
13.4 million to US$ 12.9 million, while deferred tax expense
increased by US$ 23.3 million to US$ 21.1 million. This was mainly
due changes in the Russian tax law effective 1 January 2017,
according to which an entity can set-off the accumulated losses
only against 50% of profit (previously against 100%). Additionally,
sale of non-residential premises to an end-user at Ozerkovskaya III
Business Centre in Q4 2017 incurred a Russian capital gain tax
(qualified as corporate profit tax in Russia) in the amount of
US$3.8 million (offset by the previously accumulated deferred tax).
Moreover, an analysis of tax expenses was performed, part of the
past expenses were written-off and as a result, the Group accrued
additional deferred tax liabilities.
Profit/Loss for the year. Due to the factors described above, we
recorded a US$ 4.7 million net loss for 2017 compared to net loss
of US$47.9 million for 2016.
Liquidity and Capital Resources
Cash flows
Summary of cash flows for 2017 and 2016
US$ thousand For the year For the year
ended 31 December ended 31 December
2017 2016
Net cash from operating activities 95,762 35,185
------------------------------- --------------------------------
Net cash from/(used in) investing
activities 127,588 9,126
------------------------------- --------------------------------
Net cash from/(used in) financing
activities (125,272) (58,035)
------------------------------- --------------------------------
Effect of exchange rate fluctuations 13,229 (2,202.0)
------------------------------- --------------------------------
Net increase/(decrease) in cash
and cash equivalents 84,849 (15,926)
------------------------------- --------------------------------
Cash and cash equivalents at
1 January 10,619 26,545
------------------------------- --------------------------------
Cash and cash equivalents at
31 December* 95,468 10,619
------------------------------- --------------------------------
* Note: the cash and cash equivalents do not include US$10.5
million (2016: US$6.1 million) fair value of marketable
securities.
Net cash from operating activities
Net cash from operating activities increased to US$95.8 million
in 2017, from US$35.2 million in 2016. The increase is attributable
to the sales start of the projects, and we are receiving advances
from customers.
Net cash from investing activities
Net cash outflow from investing activities amounted to US$ 127.6
million as a result of a sale of two buildings at Aquamarine III
Business Centre.
Net cash used in financing activities
Net cash used in financing activities increased to a negative
US$125.3 million in 2017 from a negative US$58.0 million in 2016
due to Company repayment of part of principal amount and interests
during 2017.
Capital Resources
Capital Requirements
We require capital to finance capital expenditures, consisting
of cash outlays for capital investments in active real estate
development projects; repayment of debt; changes in working
capital; and general corporate activities.
Real estate development is a capital-intensive business, and we
expect to have significant ongoing liquidity and capital
requirements in order to finance our active development
projects.
For the foreseeable future, we expect that we will continue to
rely on our financing activities to support our investing and
operating activities. We also expect that our capital expenditures
in connection with the development of real estate properties will
comprise the majority of our cash outflows for the foreseeable
future.
AFI Development ended 2017 with of approximately US$106.0
million in cash, cash equivalents and marketable securities on our
balance sheet and a debt([5]) to equity level of 75%.
The Company's financing strategy aims to maximise the amount of
debt financing for projects under construction while maintaining
healthy loan-to-value levels. After delivery and commissioning, the
aim is to refinance properties at more favourable terms, including
longer amortisation periods, lower interest rates and higher
principal balloon payments. Property rights and shares of property
holding companies are mainly used as collateral for the debt. We
strongly prefer, whenever possible, to use non-recourse project
level financing.
As of December 31, 2017 our debt portfolio was as follows:
Project Lending Max debt Total Available Nominal Currency Maturity
bank limit balance (US$ mn) Interest
as of rate
Dec-31,
2017
(US$ mn) (US$ (dd.mm.yy)
mn)
--------- --------- ------------
AFIMALL City
/ Bellgate
Constractions VTB Bank RUR21
Ltd JSC billion 167.5 0 9.5% RUR 27/12/2022
27/12/2022
----------------------------------- --------- --------- ---------- -------------- --------- ------------
276.9 3mLibor+5.02% USD
---------- --------- --------- ---------- -------------- --------- ------------
Ozerkovskaya
III / Crown
Investments VTB Bank
LLC JSC 220 83.4 0 3mLibor+7% USD 26/01/2018
---------- --------- --------- ---------- -------------- --------- ------------
Plaza Spa
Hotel (Kislovodsk)
/ Sanatorium VTB Bank
Plaza LLC JSC 22.5 21.4 0 3mLibor+4.5% USD 25/12/2021
---------- --------- --------- ---------- -------------- --------- ------------
11.6 11.5 5.50% USD 25/06/2022
----------------------------------- --------- --------- ---------- -------------- --------- ------------
Plaza Spa
Hotel (Zheleznovodsk)
/ Sanatorium
Plaza SPA VTB Bank
LLC JSC 18.4 18.2 0 5.5% USD 25/06/2022
---------- --------- --------- ---------- -------------- --------- ------------
The total balance of secured debt financing reached US$578.95
million as at 31 of December 2017, including US$578.6 million of
Principal Debt and US$0.32 million of accrued interest with average
interest rate 6.9% per annum as at 31.12.2017 (7.05% per annum as
at 31.12.2016) (for more details see note 26 to our consolidated
financial statements).
As at 31 December 2017, our loans and borrowings were payable as
follows:
US$ thousand As at 31 As at 31 December
December 2016
2017
Less than one year 86,774 749
---------- ----------------------------
Between one and five years 492,484 627,074
---------- ----------------------------
Total 579,258 627,822
---------- ----------------------------
Portfolio Valuation
From the current reporting period onwards, Jones Lang LaSalle
LLC ("JLL") have been appointed as the Company independent
appraisers. As at 31 December 2017, based on the JLL independent
appraisers' report, the value of AFI Development's portfolio of
investment properties stood at US$818.1 million, while the value of
the portfolio of investment property under development stood at
US$163.2 million.
Consequently, the total value of the Company's assets, based
predominantly on independent valuation as of 31 December 2017,
remained unchanged year-on-year at US$1.4 billion.
Property Valuation Valuation Change in Balance sheet Balance sheet
31/12/2017, US 31/12/2016, US valuation, % value value
Dollars Dollars 31/12/2017, US 31/12/2016, US
Dollars Dollars
=== ================= ================= ================= ================== ================= =================
Investment property
1 AFIMALL City 696,000,000 666,500,000 4% 696,000,000 666,500,000
2 Ozerkovskaya III 63,200,000 198,500,000 -68% 63,200,000 198,500,000
Tverskaya Plaza
3 II 21,700,000 9,200,000 136% 21,700,000 9,200,000
4 Berezhkovskaya 11,900,000 12,136,000 -2% 11,900,000 16,400,000
5 Paveletskaya I 11,712,379 11,900,808 -2% 11,810,000 12,000,000
6 H2O 9,808,249 9,223,126 6% 9,890,000 9,300,000
Tverskaya Plaza
7 Ib 3,560,000 3,450,000 3% 3,560,000 3,450,000
=== ================= ================= ================= ================== ================= =================
Total 817,880,628 910,909,934 -10% 818,060,000 915,350,000
=== ================= ================= ================= ================== ================= =================
Investment property under development
Tverskaya Plaza
8 IV 67,000,000 61,275,000 9% 67,000,000 64,500,000
Tverskaya Plaza
9 Ic 66,300,000 66,000,000 0% 66,300,000 66,000,000
10 Kossinskaya 28,700,000 28,300,000 1% 28,700,000 28,300,000
Starokaluzhskoye
11 shosse 1,240,000 - 100% 1,240,000 -
Bolshaya
12 Pochtovaya - 73,885,110 -100% - 74,100,000
=== ================= ================= ================= ================== ================= =================
Total 163,240,000 229,460,110 -29% 163,240,000 232,900,000
=== ================= ================= ================= ================== ================= =================
Trading property & Trading property under development
AFI Residence
13 Paveletskaya n/a n/a - 114,983,691 76,666,586
14 Odinburg n/a n/a - 108,815,920 150,181,009
Bolshaya
15 Pochtovaya n/a n/a - 84,336,992 -
16 Botanic Garden n/a n/a - 50,364,056 21,542,643
17 Ozerkovskaya II n/a n/a - 2,027,075 1,791,074
=== ================= ================= ================= ================== ================= =================
Total - - - 360,527,734 250,181,312
=== ================= ================= ================= ================== ================= =================
Hotels
Plaza Spa Hotel
18 Kislovodsk n/a n/a - 44,942,392 13,823,785
19 Aquamarine Hotel n/a n/a - 15,750,733 15,289,552
Plaza Spa Hotel
20 Zheleznovodsk n/a n/a - 11,774,505 11,095,402
Park Plaza hotel
21 Kislovodsk n/a n/a - 4,240,732 3,947,127
=== ================= ================= ================= ================== ================= =================
Total - - - 76,708,362 44,155,866
=== ================= ================= ================= ================== ================= =================
Grand Total 981,120,628 1,140,370,044 -14% 1,418,536,096 1,442,587,178
=== ================= ================= ================= ================== ================= =================
Principal Business Risks and Uncertainties Affecting the
Company
Risk management framework
The Board of Directors is ultimately responsible for the
establishment and oversight of the Company's risk management
framework and is for developing and monitoring the Company's risk
management policies.
The Company's risk management policies are established to
identify and analyse the risks faced by the Company, to set
appropriate risk limits and controls, and to monitor risks and
adherence to limits. Risk management policies and systems are
reviewed regularly to reflect changes in market conditions and the
Company's activities. The Company, through its training and
management standards and procedures, aims to develop a disciplined
and constructive control environment in which all employees
understand their roles and obligations.
The Company's Audit Committee oversees management monitoring of
compliance with the Company's risk management policies and
procedures, and reviews the adequacy of the risk management
framework in relation to the risks faced by the Group. The
Company's Audit Committee is assisted in its oversight role by
Internal Audit. Internal Audit undertakes both regular and ad hoc
reviews of risk management controls and procedures, the results of
which are reported to the Audit Committee and the whole Board of
Directors. The Board of Directors requests management to take
corrective actions as necessary and submit follow up reports to the
Audit Committee and the Board, addressing deficiencies found.
Credit risk
Credit risk is the risk of financial loss to AFI Development if
a customer or counterparty to a financial instrument fails to meet
its contractual obligations and arises principally from the
Company's receivables from customers and investment securities.
Trade and other receivables
Financial assets that are potentially subject to credit risk
consist principally of trade and other receivables. The carrying
amount of trade and other receivables represents the maximum amount
exposed to credit risk. Credit risk arises from cash and cash
equivalents as well as credit exposures with respect to rental
customers, including outstanding receivables. The Company has
policies in place to ensure that, where possible, rental contracts
are made with customers with an appropriate credit history. Cash
transactions are limited to high-credit-quality financial
institutions. The utilisation of credit limits is regularly
monitored.
AFI Development has no other significant concentrations of
credit risk, although collection of receivables could be influenced
by economic factors.
Investments
During 2017, the Company limited its exposure to credit risk by
investing only in liquid securities and with counterparties that
have a high credit rating. Management actively monitors credit
ratings and given that the Group has only invested in securities
with high credit ratings, management does not expect any existing
counterparty to fail to meet its obligations.
In February 2018 the Board of Directors approved a new cash
management and investment policy allowing the Company to invest 20%
of its available cash into medium and high risk instruments,
including externally managed investment products.
Guarantees
The Company's policy is to provide financial guarantees only to
wholly-owned subsidiaries in exceptional cases. In negotiations
with lending banks, the Company aims to avoid recourse to AFI
Development on loans taken by subsidiaries.
As at 31 December 2017, there were three outstanding guarantees:
one for the amount of US$1 million in favour of VTB Bank PJSC under
a loan facility agreement of Bellgate Construction Limited (AFIMALL
City), the second for the amount of US$83.1 million in favour of
VTB Bank PJSC, under a loan facility agreement of Krown Investments
LLC (Ozerkovskaya III) and the third for the amount of US$
51.1million also in favour of VTB Bank PJSC, under a loan facility
agreements of Sanatorium Plaza LLC and Sanatorium Plaza SPA
LLC.
In January 2018, AFI Development provided an additional
guarantee in favour of VTB Bank PJSC for the loan amounting to
US$12.2 million, taken by its subsidiary OJSC MKPK to refinance the
incurred construction costs. In Q1 2018 guarantees of AFI
Development under a loan facility agreement of Bellgate
Construction Limited (AFIMALL City) and under a loan facility
agreement of Krown Investments LLC (Ozerkovskaya III) were
terminated due to repayment of debt under loan facility
agreements.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. AFI Development's
approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the
Company's reputation. Prudent liquidity risk management implies
maintaining sufficient cash, the availability of funding through an
adequate amount of committed credit facilities and the ability to
close out market positions. Due to the dynamic nature of the
underlying businesses, the Company aims to maintain flexibility in
its funding requirements by keeping cash and committed credit lines
available.
Management monitors AFI Development's liquidity position on a
daily basis and takes necessary actions, if required. The Company
structures its assets and liabilities in such a way that liquidity
risk is minimised.
Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates and equity prices will
affect the Company's income or the value of its holdings of
financial instruments. The objective of market risk management is
to manage and control market risk exposures within acceptable
parameters, while optimising the available returns for
shareholders. We are exposed to market risks from changes in both
foreign currency exchange rates and interest rates. We do not use
financial instruments, such as foreign exchange forward contracts,
foreign currency options and forward rate agreements, to manage
these market risks. To date, we have not utilised any derivative or
other financial instruments for trading purposes.
Interest rate risk
We are subject to market risk deriving from changes in interest
rates, which may affect the cost of our current floating rate
indebtedness and future financing. As of 31 December 2017, 34 % of
our financial liabilities were fixed rate. For more detail see note
31 to our consolidated financial statements.
Currency risk
The Company is exposed to currency risk on future commercial
transactions, recognised monetary assets and liabilities and net
investments in foreign operations that are denominated in a
currency other than the respective functional currencies of AFI
Development's entities, primarily the US Dollar, Russian Rouble and
the Euro.
Operational risk
Operational risk is the risk of direct or indirect loss arising
from a wide variety of causes associated with the Company's
processes, personnel, technology and infrastructure, and from
external factors other than credit, market and liquidity risks such
as those arising from legal and regulatory requirements and
generally accepted standards of corporate behaviour. Operational
risks arise from all of the Group's operations.
The Company's objective is to manage operational risk so as to
balance the need to avoid financial losses and damage to the
Group's reputation with overall cost effectiveness.
The primary responsibility for the development and
implementation of controls to address operational risk is assigned
to senior management within each business unit. This responsibility
is supported by the development of overall Company standards for
the management of operational risk. Compliance with Company
standards is supported by a programme of periodic reviews
undertaken by way of internal audits. The results of the internal
audit reviews are discussed with the management of the business
unit to which they relate, with summaries submitted to the Audit
Committee and the Board of Directors.
Critical Accounting Policies
Critical accounting policies are those policies that require the
application of our management's most challenging, subjective or
complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may
change in subsequent periods. Critical accounting policies involve
judgments and uncertainties that are sufficiently sensitive to
result in materially different results under different assumptions
and conditions. We believe that our most critical accounting
policies are those described below.
A detailed description of certain of the main accounting
policies we use in preparing our consolidated financial statements
is set forth in notes 3 and 5 to our consolidated financial
statements.
Estimates regarding fair value
We make estimates and assumptions regarding the fair value of
our investment properties that have a significant risk of causing a
material adjustment to the amounts of assets and liabilities on our
balance sheet. In particular, our investment properties under
development (which currently comprise the majority of our projects)
are remeasured at fair value upon completion of construction and
the gain or loss on remeasurement is recognised in our income
statement, as appropriate. In forming an opinion on fair value, we
consider information from a variety of sources including, among
others, the current prices in an active market, third party
valuations and internal management estimates.
The principal assumptions underlying our estimates of fair value
are those related to the receipt of contractual rentals, expected
future market rentals, void/vacancy periods, maintenance
requirements and discount rates that we deem appropriate. We
regularly compare these valuations to our actual market yield data,
actual transactions and those reported by the market. We determine
expected future market rents on the basis of current market rents
for similar properties in the same location and condition. For
further details, please refer to Note 3 to our consolidated
financial statements.
Impairment of financial assets
We recognise impairment losses with respect to financial assets,
including loans receivable and trade and other receivables, in our
income statement if objective evidence indicates that one or more
events have had a negative effect on the estimated future cash
flows of that asset. We test significant financial assets for
impairment on an individual basis and assess our remaining
financial assets collectively in groups that share similar credit
characteristics. Impairment losses with respect to financial assets
are calculated as the difference between the asset's carrying
amount and the present value of the estimated future cash flows of
the asset discounted at the original effective interest rate of
that asset.
Estimating the discounted present value of the estimated future
cash flows of a financial asset is inherently uncertain and
requires us both to make an estimate of the expected future cash
flows from the asset and also to choose a suitable discount rate in
order to calculate the present value of those cash flows. Changes
in one or more of these estimates can lead us to either recognizing
or avoiding impairment charges
Impairment of non-financial assets
We recognise impairment loss with respect to non-financial
assets, including investment property under development and trading
properties under construction, if the carrying amount of the asset
exceeds its recoverable amount. The recoverable amount of an asset
is the greater of its value in use and its fair value less costs to
sell. In assessing value in use, we discount estimated future cash
flows of the asset 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. The carrying amounts of
impaired non-financial assets are reduced to their estimated
recoverable amount either directly or through the use of an
allowance account and we include the amount of such loss in our
income statement for the period.
We assess at each reporting date whether there is any indication
that a non-financial asset may be impaired. If any such indication
exists, we then estimate the recoverable amount of the asset.
Estimating the value in use requires us to make an estimate of the
expected future cash flows from the asset and also to choose a
suitable discount rate in order to calculate the present value of
those cash flows. The development of the value in use amount
requires us to estimate the life of the asset, its expected cash
flows over that life and the appropriate discount rate, which is
primarily based on our weighted average cost of capital, itself
subject to additional estimates and assumptions. Changes in one or
all of these assumptions can lead to us either recognizing or
avoiding impairment charges.
Deferred income taxes
We are required to estimate our income taxes in each of the
jurisdictions in which we operate. This process involves a
jurisdiction-by-jurisdiction estimation of actual current tax
exposure and the assessment of the temporary differences resulting
from differing treatment of items, such as capitalization of
expenses, among others, for tax and financial reporting purposes.
These differences result in deferred tax assets and liabilities,
which are included within our consolidated balance sheet. We must
assess, in the course of our tax planning process, our ability and
the ability of our subsidiaries to obtain the benefit of deferred
tax assets based on expected future taxable profit and available
tax planning strategies. If, in our management's judgment, the
deferred tax assets recorded will not be recovered, a valuation
allowance is recorded to reduce the deferred tax asset.
Significant management judgment is required in determining our
provision for income taxes, deferred tax assets, deferred tax
liabilities and valuation allowances to reflect the potential
inability to fully recover deferred tax assets. In our consolidated
financial statements, the analysis is based on the estimates of
taxable income in the jurisdictions in which we operate and the
period over which the deferred tax assets and liabilities will be
recoverable.
If actual results differ from these estimates, or we adjust
these estimates in future periods, we may need to establish an
additional valuation allowance which could adversely affect our
financial position and results of operations.
Share-based payment transactions
The fair value of employee share options is measured using a
binomial lattice model. The fair value of share appreciation rights
is measured using the Black-Scholes formula. Measurement inputs
include share price on the measurement date, exercise price of the
instrument, expected volatility (based on weighted average historic
volatility adjusted for changes expected due to publicly available
information), weighted average expected life of the instruments
(based on historic experience and general option holder behaviour),
expected dividends and the risk-free interest rate (based on
government bonds). Service and non-market performance conditions
attached to the transactions are not taken into account in
determining fair value.
Related Party transactions
There were no related party transactions (as defined in the UK
Listing Rules) in the financial year ended 31 December 2017 or in
the period since 31 December 2017.
AFI DEVELOPMENT PLC
FINANCIAL STATEMENTS
For the year ended 31 December 2017
C O N T E N T S
Board of Directors and Professional Advisers
Management's Report
Directors' Responsibility Statement
Independent Auditors' Report
Consolidated Financial Statements
Separate Financial Statements of the Parent Company
BOARD OF DIRECTORS AND PROFESSIONAL ADVISERS
Board of Directors Lev Leviev - Chairman
Panayiotis Demetriou
David Tahan
Secretary Fuamari Secretarial Limited
Independent Auditors KPMG Limited
Bankers Joint Stock Company VTB Bank
Joint Stock Commercial Savings Bank of the Russian Federation
(sberbank)
Otkritie FC Bank
Registered Office Spyrou Araouzou 165,
Lordos Waterfront Building,
3035 Limassol,
Cyprus
MANAGEMENT REPORT
The Board of Directors of AFI Development Plc (the "Company")
presents to the members its annual report together with the audited
consolidated financial statements of the Company for the year ended
31 December 2017.
PRINCIPAL ACTIVITY AND NATURE OF OPERATIONS OF THE COMPANY
The principal activities of the Group, which remained unchanged
from last year, are real estate investment and development. The
principal activity of the Company is the holding of investments in
subsidiaries.
EXAMINATION OF THE DEVELOPMENT, POSITION AND PERFORMANCE OF THE
ACTIVITIES OF THE GROUP
AFI Development is one of the leading real estate development
companies operating in Russia. Established in 2001, AFI Development
is a publicly traded subsidiary of Flotonic Limited.
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, quality and 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 in prime locations in Moscow. 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.
As at 31 December 2017, the Company's portfolio consisted of 7
investment properties, 4 investment properties under development, 4
trading properties under construction, and 4 hotel projects.
FINANCIAL RESULTS
The Group's results are set out in the consolidated income
statement on page 13. The profit of the Group for the year before
taxation amounted to US$29,327 thousand (2016: loss US$50,697
thousand). The loss after taxation attributable to the Group's
owners amounted to US$4,918 thousand (2016: US$47,872
thousand).
DIVIDS
The Board of Directors does not recommend the payment of a
dividend and the loss for the year is transferred to retained
earnings or accumulated losses.
MAIN RISKS, UNCERTAINTIES AND USE OF FINANCIAL INSTRUMENTS
The Group is exposed to market price risk, interest rate risk,
credit risk, liquidity risk. The most significant risks faced by
the Group and the steps taken to manage these risks and the Group's
financial risk management objectives and policies are described in
note 33 of the consolidated financial statements.
FUTURE DEVELOPMENTS
The Group is one of the leading real estate development
companies operating in Russia. It focuses on developing and
redeveloping high quality commercial and residential real estate
assets in Moscow and the Moscow Region. The strategy during the
reporting period and for the future periods is to sell the
residential properties that the Group develops and to either lease
the commercial properties that the Group develops or sell them if
the Group is able to achieve a favourable return.
GOING CONCERN
As described in note 2i the consolidated financial statements
have been prepared on a going concern basis, which assumes that the
Group is in a position to generate enough cash to cover its working
capital requirements and debt service obligations in order to
continue its operations in the foreseeable future.
SHARE CAPITAL
There were no changes to the share capital of the Company during
the current year. As at the year end the share capital of the
Company comprised of:
-- 523,847,027 "A" shares of US$0.001 and,
-- 523,847,027 "B" shares of US$0.001
All "A" shares are on deposit with BNY (Nominees) Limited and
each "A" share is represented by one GDR listed on the London Stock
Exchange ("LSE"). All "B" shares were admitted to a premium listing
of the Official list of the UK Listing Authority and to trading on
the main market of LSE.
IMPLEMENTATION AND COMPLIANCE TO THE CODE OF CORPORATE
GOVERNANCE
Although the Company is incorporated in Cyprus, its shares are
not listed on the Cyprus Stock Exchange, and therefore it is not
required to comply with the corporate governance regime of Cyprus.
Pursuant to the UK Listing Rules however, the Company is required
to comply with the UK Corporate Governance Code or to explain its
reasons for non-compliance. The Company's policy is to achieve best
practice in its standards of business integrity in relation to all
activities. This includes a commitment to follow the highest
standards of corporate governance throughout the AFI Development
group. The UK Corporate Governance Code published in April 2016
(the "Code") applies to the Company for the financial year 2017 and
onwards.
The Directors are pleased to confirm that the Company has
complied with the provisions of the Code for the period under
review, with the exception that the Executive Chairman of the
Board, Mr Leviev, was not independent on appointment (as required
by section A.3.1 of the Code) by virtue of the fact that he is an
Executive Chairman and is, indirectly, a major shareholder of the
Company. Mr Leviev holds a controlling stake in Flotonic Limited,
the major shareholder of the Company. The Directors consider Mr
Leviev to be a key member of the Company's leadership and are of
the opinion that his oversight, management role and business
reputation are important to the Company's success. The Directors
are therefore of the view that Mr Leviev should continue as
Executive Chairman as it would be beneficial for the Company.
PARTICIPATION OF DIRECTORS IN THE COMPANY'S SHARE CAPITAL
None of the Directors holds shares of the Company directly. Mr
Lev Leviev, the president of the Board, holds 64.88% indirectly
though Flotonic limited as described in detail in note 32 "Group
Composition".
BRANCHES
The Group operates five branches and/or representative offices
of Cypriot, BVI and Luxembourg entities in the Russian Federation.
These are Bellgate Construction Ltd branch, which operates AFIMALL
City project, Amerone Ltd branch, Bugis Finance branch and
Triumvirate I S.a r.I branch operating investment properties and
Bastet Estates Ltd branch acting as sale agents for residential
properties.
BOARD OF DIRECTORS
The members of the Board of Directors as at 31 December 2017 and
at the date of this report are shown on page 1. The Directors' date
of appointment or resignation, if applicable, is indicated on page
1. The term of those that have not resigned will expire on the date
of the next annual general meeting of the shareholders but all of
them are eligible for re-election. There were no significant
changes in the assignment of responsibilities and remuneration of
the Board of Directors during the current year.
OPERATING ENVIRONMENT OF THE COMPANY
Any significant events that relate to the operating environment
of the Company are described in note 31 to the consolidated
financial statements.
EVENTS AFTER THE REPORTING PERIOD
Events which took place after the reporting date and which have
a bearing on the understanding of the financial statements are
described in note 38 of the consolidated financial statements.
RELATED PARTY TRANSACTIONS
Disclosed in note 37 of the consolidated financial
statements.
INDEPENT AUDITORS
The independent auditors, KPMG Limited, have expressed their
willingness to continue offering their services. A resolution
reappointing the auditors and giving authority to the Board of
Directors to fix their remuneration will be proposed at the Annual
General Meeting.
By order of the Board
Fuamari Secretarial Limited
Secretary
Nicosia, 16 April 2018
STATEMENT BY THE MEMBERS OF THE BOARD OF DIRECTORS AND THE
COMPANY OFFICIALS RESPONSIBLE FOR THE DRAFTING OF THE CONSOLIDATED
FINANCIAL STATEMENTS IN ACCORDANCE WITH THE PROVISIONS OF CYPRUS
LAW 190(I)/2007 ON TRANSPARENCY REQUIREMENTS
We, the members of the Board of Directors and the Company
officials responsible for the drafting of the consolidated
financial statements of AFI Development Plc (the 'Company') for the
year ended 31 December 2017, the names of which are listed below,
confirm that, to the best of our knowledge:
a) The consolidated financial statements:
(i) have been prepared in accordance with the International
Financial Reporting Standards (IFRS) as adopted by the European
Union and the requirements of the Cyprus Companies Law,
(ii) give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the
undertakings included in the consolidated financial statements
taken as a whole,
b) the adoption of a going concern basis for the preparation of
the financial statements continues to be appropriate based on the
foregoing and having reviewed the forecast financial position of
the Group; and
c) the Management Report provides a fair review of the
developments and performance of the business and the position of
the Company and the undertakings included in the consolidated
financial statements taken as a whole, together with a description
of the principal risks and uncertainties that they face.
The Directors of the Company as at the date of this announcement
are as set out below:
The Board of Directors:
Executive directors
Lev Leviev - Chairman .............................................................
Non-executive independent Directors
Panayiotis Demetriou .............................................................
David Tahan
.............................................................
Company officers:
Chief executive officer
Mark Groysman .............................................................
Chief financial officer
Natalia Pirogova
.............................................................
16 April 2018
Independent Auditors' Report
To the Members of AFI Development Plc
Report on the audit of the consolidated financial statements and
the separate financial statements
Opinion
We have audited the accompanying financial statements of AFI
Development Plc ("the Company") and its subsidiaries (the "Group"),
and the separate financial statements of AFI Development Plc (the
"Company"), which are presented on pages 12 to 103 and comprise the
consolidated statement of financial position and the statement of
financial position of the Company as at 31 December 2017, and the
consolidated statements of income statement, comprehensive income,
changes in equity and cash flows and the statements of income
statement, comprehensive income, changes in equity and cash flows
of the Company for the year then ended, and notes to the financial
statements, including a summary of significant accounting
policies.
In our opinion, the accompanying consolidated financial
statements 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 2017, 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
("IFRS-EU") and the requirements of the Cyprus Companies Law, Cap.
113, as amended from time to time (the "Companies Law, Cap.
113").
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the "Auditors' Responsibilities
for the audit of the financial statements" section of our report.
We are independent of the Group and Company in accordance with the
Code of Ethics for Professional Accountants of the International
Ethics Standards Board for Accountants ("IESBA Code"), and the
ethical requirements in Cyprus that are relevant to our audit of
the consolidated financial statements and the separate financial
statements, and we have fulfilled our other ethical
responsibilities in accordance with these requirements and the
IESBA Code. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements and the separate financial
statements of the current period. These matters were addressed in
the context of our audit of the consolidated financial statements
and the separate financial statements, as a whole, and in forming
our opinion thereon and we do not provide a separate opinion on
these matters.
Valuation of properties
See Notes 15 and 16 to the consolidated financial statements
The key audit matter How the matter was addressed
in our audit
-------------------------------------
The Group's properties include Our audit procedures included
investment property portfolio evaluating the competence,
of US$818,060 thousand and capability, and objectivity
investment property under of the Group's external property
development portfolio of US$163,240 valuers, while considering
thousand together representing fee arrangements between the
69% of the Group's total assets valuers and other engagements
as at 31 December 2017. The which might exist. We carried
valuation of the Group's properties out procedures, on a sample
is inherently subjective due basis, to satisfy ourselves
to, among other factors, the of the accuracy of the property
individual nature of each information supplied to valuers
property, its location and by management. For properties
the expected future rental under development we assessed
revenue for that particular the consistency of the outstanding
property. For developments, construction costs supplied
factors include projected to the valuers to the Group's
costs to complete and timing project budget. We assessed,
until practical completion. on a sample basis, using also
The existence of significant our own experts the appropriateness
estimation uncertainty, could of the valuation methodologies
result in a material misstatement, and assumptions used based
warrants specific audit focus on our experience and knowledge
in this area. of the market and by comparing
them to market data. We held
discussions on key findings
with the external property
valuers and challenged various
key inputs such as discount,
vacancy and exit capitalisation
rates used on a sample of
properties within the property
portfolio.
-------------------------------------
Other Information
The Board of Directors is responsible for the other information.
The other information comprises the information included in the
Annual Report, but does not include the consolidated financial
statements and our auditor's report thereon.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon, except as required by the Companies
Law, Cap.113.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. Our report in
this regard is presented in the "Report on other legal requirement"
section.
Responsibilities of the Board of Directors for the consolidated
financial statements and the separate financial statements
The Board of Directors is responsible for the preparation of
consolidated financial statements and separate financial statements
that give a true and fair view in accordance with IFRS-EU 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 financial statements and
separate financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements and the
separate financial statements, the Board of Directors is
responsible for assessing the Group's and Company's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless there is intention to either liquidate the
Company or to cease operations, or there is no realistic
alternative but to do so.
The Board of Directors is responsible for overseeing the Group's
financial reporting process.
Auditors' Responsibilities for the audit of the consolidated
financial statements and the separate financial statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements and the separate financial
statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditors' report that
includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in
accordance with ISAs will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of
users taken on the basis of these consolidated financial statements
and separate financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
consolidated financial statements and the separate financial
statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's and the Group's internal
control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the Board of Directors.
-- Conclude on the appropriateness of the Board of Director's
use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on
the Company's and the Group's ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor's report to the related
disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditors' report.
However, future events or conditions may cause the Group and the
Company to cease to continue as a going concern.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves true and fair view.
-- Obtain sufficient appropriate evidence regarding the
financial information of the entities or the business activities of
the within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction,
supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the Board of Directors regarding, among
other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the Board of Directors with a statement that we
have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with the Board of Directors, we
determine those matters that were of most significance in the audit
of the consolidated financial statements and the separate financial
statements of the current period and are therefore the key audit
matters.
Report on other regulatory and legal requirements
Other regulatory requirements
Pursuant to the requirements of Article 10(2) of EU Regulation
537/2014 we provide the following information, which is required in
addition to the requirements of ISAs.
Date of our appointment and period of engagement
We were first appointed auditors of the Group by the General
Meeting of the Company's members on 16 January 2002. Our
appointment has been renewed annually by shareholder resolution.
Our total uninterrupted period of engagement is 17 years covering
the periods ending 31 December 2001 to 31 December 2017.
Consistency of the additional report to the Audit Committee
Our audit opinion is consistent with the additional report
presented to the Audit Committee dated 13 April 2018.
Provision of non-audit services ("NAS")
We have not provided any prohibited NAS referred to in Article 5
of EU Regulation 537/2014 as applied by Section 72 of the Auditors
Law of 2017, L.53(I)2017, as amended from time to time ("Law
L.53(I)/2017").
Pursuant to the London Stock Exchange Listing Rules we are
required to review:
-- The Directors' statement in relation to going concern and longer-term viability; and
-- The part of the Corporate Governance Statement relating to
the Company's compliance with the eleven provisions of the 2014 UK
Corporate Governance Code specified for our review.
We have nothing to report in respect of the above.
Other legal requirements
Pursuant to the additional requirements of law L.53(I)2017, and
based on the work undertaken in the course of our audit, we report
the following:
-- In our opinion, the consolidated management report, the
preparation of which is the responsibility of the Board of
Directors, has been prepared in accordance with the requirements of
the Companies Law, Cap. 113, and the information given is
consistent with the consolidated financial statements.
-- In the light of the knowledge and understanding of the
business and the Group's environment obtained in the course of the
audit, we have not identified material misstatements in the
management report.
-- In our opinion, the information included in the corporate
governance statement in accordance with the requirements of
subparagraphs (iv) and (v) of paragraph 2(a) of Article 151 of the
Companies Law, Cap. 113 has been prepared in accordance with the
requirements of the Companies Law, Cap, 113, and is consistent with
the consolidated financial statements.
-- In our opinion, the corporate governance statement includes all information referred to in subparagraphs (i), (ii), (iii), (vi) and (vii) of paragraph 2(a) of Article 151 of the Companies Law, Cap. 113.
Other Matter
This report, including the opinion, has been prepared for and
only for the Company's members as a body in accordance with Section
69 of Law L.53(I)/2017 and for no other purpose. We do not, in
giving this opinion, accept or assume responsibility for any other
purpose or to any other person to whose knowledge this report may
come to.
The engagement partner on the audit resulting in this
independent auditors' report is Maria H. Zavrou.
Maria H. Zavrou, FCCA
Certified Public Accountant and Registered Auditor
For and on behalf of
KPMG Limited
Certified Public Accountants and Registered Auditors
14 Esperidon Street
1087 Nicosia, Cyprus
16 April 2018
CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2017
C O N T E N T S
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2017
2017 2016
Note US$ '000 US$ '000
Revenue 7 179,051 138,296
Other income 8 3,819 3,545
Operating expenses 9 (57,054) (38,836)
Carrying value of trading properties
sold 20 (58,404) (49,475)
Administrative expenses 10 (6,005) (6,589)
Other expenses 11 (2,386) (1,330)
Total expenses (123,849) (96,230)
Share of the after tax profit of
joint ventures 1,957 3,742
Gross Profit 60,978 49,353
Gain on 100% acquisition of previously
held interest in a joint venture 33 7,532 -
(Loss)/profit on disposal of investment
property 15 (3,934) 1,801
Increase/(decrease) in fair value
of properties 15,16 11,570 (123,045)
Impairment loss on properties (9,548) -
Net valuation gain/(loss) on properties 2,022 (123,045)
Results from operating activities 66,598 (71,891)
Finance income 13,119 65,802
Finance costs (50,390) (44,608)
Net finance (costs)/income 12 (37,271) 21,194
Profit/(loss) before tax 29,327 (50,697)
Tax (expense)/benefit 13 (33,991) 2,755
Loss for the year (4,664) (47,942)
Loss attributable to:
Owners of the Company (4,918) (47,872)
Non-controlling interests 254 (70)
(4,664) (47,942)
Earnings per share
Basic and diluted earnings per share
(cent) 14 (0.47) (4.57)
The notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2017
2017 2016
US$ '000 US$ '000
Loss for the year (4,664) (47,942)
Other comprehensive income/(expense)
Items that are or may be reclassified subsequently
to profit or loss
Realised translation difference on 100%
acquisition of previously held interest (4,271) -
in a joint venture transferred to income
statement
Foreign currency translation differences
for foreign operations 14,295 27,782
Other comprehensive income for the year 10,024 27,782
Total comprehensive income/(expense) for
the year 5,360 (20,160)
Total comprehensive income/(expense) attributable
to:
Owners of the Company 5,126 (20,252)
Non-controlling interests 234 92
5,360 (20,160)
The notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
Non-controlling
Attributable to the owners of the interests Total
Company equity
Share Share Capital Translation Accumula-
capital premium reserve reserve ted losses Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
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/(expense)
for the period
Loss for the
period - - - - (47,872) (47,872) (70) (47,942)
Other
comprehensive
income - - - 27,620 - 27,620 162 27,782
Total
comprehensive
income/(expense)
for the period - - - 27,620 (47,872) (20,252) 92 (20,160)
Transactions with owners of
the Company Contributions
and distributions
Share option
expense - - - - 857 857 - 857
Balance at 31
December
2016 1,048 1,763,409 (9,201) (311,331) (667,801) 776,124 (3,827) 772,297
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
Loss for the
period - - - - (4,918) (4,918) 254 (4,664)
Other
comprehensive
income - - - 10,044 - 10,044 (20) 10,024
Total
comprehensive
income for the
period - - - 10,044 (4,918) 5,126 234 5,360
Transactions with owners of
the Company Changes in
ownership interests
Acquisition of
non-controlling
interests (note
34) - - (10,132) - - (10,132) 3,422 (6,710)
Balance at 31
December
2017 1,048 1,763,409 (19,333) (301,287) (672,719) 771,118 (171) 770,947
The notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER
2017
2017 2016
Note US$ '000 US$ '000
Assets
Investment property 15 818,060 915,350
Investment property under development 16 163,240 232,900
Property, plant and equipment 17 77,633 31,215
Long-term loans receivable 18 1,669 15,763
Intangible assets 204 -
VAT recoverable 19 48 9
Non-current assets 1,060,854 1,195,237
Trading properties 20 10,792 6,854
Trading properties under construction 21 349,735 243,327
Other investments 22 10,515 6,088
Inventories 1,318 665
Short-term loans receivable 18 1,090 7
Trade and other receivables 23 70,402 42,427
Current tax assets 4,114 2,542
Cash and cash equivalents 24 95,468 10,619
Current assets 543,434 312,529
Total assets 1,604,288 1,507,766
Equity
Share capital 25 1,048 1,048
Share premium 25 1,763,409 1,763,409
Translation reserve 25 (301,287) (311,331)
Capital reserve 25 (19,333) (9,201)
Accumulated losses (672,719) (667,801)
Equity attributable to owners of
the Company 771,118 776,124
Non-controlling interests 34 (171) (3,827)
Total equity 770,947 772,297
Liabilities
Long-term loans and borrowings 26 492,484 627,074
Deferred tax liabilities 27 42,652 14,934
Deferred income 30 12,641 10,455
Non-current liabilities 547,777 652,463
Short-term loans and borrowings 26 86,775 748
Trade and other payables 28 65,106 30,957
Advances from customers 29 123,766 51,301
Current tax liabilities 9,917 -
Current liabilities 285,564 83,006
Total liabilities 833,341 735,469
Total equity and liabilities 1,604,288 1,507,766
The consolidated financial statements were approved by the Board
of Directors on 16 April 2018.
........................ ...............................
Lev Leviev David Tahan
Chairman Director
The notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2017
2017 2016
Note US$'000 US$'000
Cash flows from operating activities
Loss for the year (4,664) (47,942)
Adjustments for:
Depreciation 17 846 696
Net finance costs/(income) 12 36,549 (21,574)
Share option expense - 857
(Increase)/decrease in fair value of
properties 15,16 (11,570) 123,045
Impairment loss on properties 21 9,548 -
Share of profit in joint ventures 33 (1,957) (3,742)
Gain on 100% acquisition of previously
held interest in a joint venture (7,532) -
Loss on disposal of investment property 3,934 (1,801)
Profit on sale of property, plant and
equipment - (17)
Tax expense/(benefit) 13 33,991 (2,755)
59,145 46,767
Change in trade and other receivables (2,407) 837
Change in inventories (217) (84)
Change in trading properties and trading
properties under construction 20,21 (36,734) (10,546)
Change in advances and amounts payable
to builders of trading properties under
construction (1,613) 12,657
Changes in advances from customers 68,843 (12,262)
Change in trade and other payables 23,164 613
Change in VAT recoverable on trading (3,975) (2,596)
Change in deferred income 1,610 172
Cash generated from operating activities 107,816 35,558
Taxes paid (3,081) (373)
Net cash from operating activities 104,735 35,185
Cash flows from investing activities
Acquisition of subsidiary net of cash
acquired 33 (786) -
Proceeds from sale of other investments 11,825 22,301
Proceeds from disposal of investment
property 114,588 1,099
Proceeds from sale of property, plant
and equipment 137 102
Interest received 631 4,625
Change in advances and amounts payable
to builders 3,495 (2,080)
Payments for construction of investment
property under development 16 (4,865) (4,554)
Payments for the acquisition/renovation
of investment property 15 (998) (370)
Change in VAT recoverable on construction (1,565) (124)
Acquisition of intangible assets (200) -
Acquisition of property, plant and
equipment 17 (484) (262)
Dividends received from joint ventures - 380
Acquisition of other investments (16,408) (12,642)
Payments for loan receivable (3,851) (508)
Proceeds from repayment of loans receivable 4,345 1,159
Net cash from investing activities 105,864 9,126
The notes are an integral part of these consolidated financial
statements.
2017 2016
Note US$'000 US$'000
Cash flows from financing activities
Acquisition of non-controlling interests (1,369) -
Proceeds from loans and borrowings 43,648 -
Repayment of loans and borrowings (117,442) (13,090)
Interest paid (50,108) (44,945)
Net cash used in financing activities (125,271) (58,035)
Effect of exchange rate fluctuations (479) (2,202)
Net increase/(decrease) in cash and cash
equivalents 84,849 (15,926)
Cash and cash equivalents at 1 January 10,619 26,545
Cash and cash equivalents at 31 December 24 95,468 10,619
The notes are an integral part of these consolidated financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 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 consolidated financial statements 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 as presented in note
32 "Group Composition".
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 2017 with higher oil prices,
strengthening of the Rouble and inflation on a downward trend, the
performance of the real estate sector remains weak.
The Group has recognised a net loss after tax of US$4.7 million
for the twelve month period ended 31 December 2017, however, due to
the disposal of two building of Ozerkovskaya III, its cash and cash
equivalents and marketable securities improved to US$106.0 million.
Its current liabilities decreased to US$86.8 million due to the
reclassification of the AFIMALL City loans to non-current
liabilities, as it was refinanced and respective agreement was
signed in December 2017 and partial repayment of Ozerkovskaya III
Loan in December 2017 (note 26).
The management estimates that the Group will continue to
generate sufficient operating cash flows
from yielding properties such as AFIMall, the hotels and BC
Ozerkovskaya III so as to meet loan interest
and principal payments of the refinanced loan and new loans. The
disposal of two buildings of Ozerkovskaya III generated sale
proceeds for partial debt repayment of Ozerkovskaya III Loan and
refinancing of the outstanding amount by AFIMALL City loan for a
5-year term (note 26). The management succeeded in reducing debt
and refinancing loans at lower interest rates and allowing
repayment of the principal and securing further operational
existence for the foreseeable future. Based on cash flow projection
for a year period the management reached a conclusion that the
Group is in a position to secure further financing for its projects
under construction by sales proceeds to generate enough cash to
cover its working capital requirements in order to continue its
operations in the foreseeable future.
Considering all the above conditions and assumptions, the
management concluded that the Group had adequate resources to
continue in operational existence for the foreseeable future and
adopted the going concern basis in preparing the consolidated
financial statements.
ii. Statement of compliance
These consolidated 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
Companies Law of Cyprus, Cap. 113.
The consolidated financial statements were authorised for issue
by the Board of Directors on 16 April 2018.
iii. Functional and presentation currency
These consolidated financial statements are presented in United
States Dollars which is the Company's functional currency. All
amounts have been rounded to the nearest thousand, unless otherwise
indicated.
3. Use of judgements and estimates
In preparing these consolidated financial statements, management
has made judgements, estimates and assumptions that affect the
application of the Group's accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to estimates are recognised prospectively.
Judgements
Information about judgements made in applying accounting
policies that have the most significant effect on the amounts
recognised in the consolidated financial statements is included in
the following notes:
-- Note 35 - lease classification
Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that
have a significant risk of resulting in a material adjustment in
the year ending 31 December 2017 is included in the following
notes:
-- Note 21 - valuation of trading properties under construction
-- Note 13 - provision for tax liabilities
-- Note 23 - recoverability of receivables
-- Note 27 - utilisation of tax losses
Measurement of fair values
A number of the Group's accounting policies and disclosures
require the measurement of fair values, for both financial and
non-financial assets and liabilities.
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.
Measurement of fair values (continued)
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 such 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's audit
committee.
When measuring the fair value of an asset or a liability, the
Group uses observable market data as far as possible. Fair values
are categorised into different levels in a fair value hierarchy
based on the inputs used in the valuation techniques as
follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a
liability fall into different levels of the fair value hierarchy,
then the fair value measurement is categorised in its entirely in
the same level of the fair value hierarchy as the lowest level
input that is significant to the entire measurement.
The Group recognises transfers between levels of the fair value
hierarchy at the end of the reporting period during which the
change has occurred.
Further information about the assumptions made in measuring fair
values is included in the following notes:
-- Note 15 - investment property
-- Note 16 - investment property under development
-- Note 22 - other investments
-- Note 31 - financial instruments
4. STANDARDS ISSUED BUT NOT YET EFFECTIVE
As from 1 January 2017, the Group adopted all changes to
International Financial Reporting Standards (IFRSs) as adopted by
the EU which are relevant to its operations. This adoption did not
have a material effect on the parent's separate financial
statements except for the adoption of IFRS 15
The following Standards, Amendments to Standards and
Interpretations have been issued by International Accounting
Standards Board ("IASB") but are not yet effective for annual
periods beginning on 1 January 2017. Those which may be relevant to
the Group are set out below. The Group does not plan to adopt these
Standards early.
Standards and Interpretations adopted by the EU
-- IFRS 9 "Financial Instruments" (effective for annual periods
beginning on or after 1 January 2018).
In July 2014, the IAS issued the final version of IFRS 9, which
replaces the existing guidance in IAS 39 "Financial Instruments:
Recognition and Measurement". IFRS 9 includes revised guidance on
the classification and measurement of financial instruments, a new
expected credit loss (ECL) model for calculating impairment on
financial assets, and new general hedge accounting requirements.
IFRS 9 largely retains the existing requirements in IAS 39 for the
classification of financial liabilities. It also carries forward
the guidance on recognition and derecognition of financial
instruments from IAS 39.
Based on assessments undertaken to date, the adoption of the
standard is not expected to have a material impact on the Group's
financial statements.
Classification - Financial assets
IFRS 9 contains a new classification and measurement approach
for financial assets that reflects the business model in which
assets are managed and their cash flow characteristics. IFRS 9
contains three principal classification categories for financial
assets: measured at amortised cost, FVOCI and FVTPL. The standard
eliminates the existing IAS 39 categories of held to maturity,
loans and receivables and available for sale. Under IFRS 9,
derivatives embedded in contracts where the host is a financial
asset in the scope of the standard are never bifurcated. Instead,
the hybrid financial instrument as a whole is assessed for
classification.
Based on assessments undertaken to date, the adoption of the
standard is not expected to have a material impact on the Group's
financial statements.
Impairment - Financial assets and contract assets
IFRS 9 replaces the 'incurred loss' model in IAS 39 with a
forward-looking ECL model. This will require considerable judgement
about how changes in economic factors affect ECLs, which will be
determined on a probability-weighted basis. The new impairment
model will apply to financial assets measured at amortised cost or
FVOCI, except for investments in equity instruments, and to
contract assets.
Under IFRS 9, loss allowances will be measured on either of the
following bases:
- 12-month ECLs: these are ECLs that result from possible
default events within the 12 months after the reporting date;
and
- lifetime ECLs: these are ECLs that result from all possible
default events over the expected life of a financial
instrument.
-- IFRS 9 "Financial Instruments" (effective for annual periods
beginning on or after 1 January 2018) continued
Impairment - Financial assets and contract assets
Lifetime ECL measurement applies if the credit risk of a
financial asset at the reporting date has increased significantly
since initial recognition and 12-month ECL measurement applies if
it has not. An entity may determine that a financial asset's credit
risk has not increased significantly if the asset has low credit
risk at the reporting date. However, lifetime ECL measurement
always applies for trade receivables and contract assets without a
significant financing component; the entity has chosen to apply
this policy also for trade receivables and contract assets with a
significant financing component. There is a rebuttable presumption
that default does not occur later than when a financial asset is 90
days past due unless an entity has reasonable and supportable
information to corroborate a more lagging default criterion.
Based on assessments undertaken to date, the adoption of the
standard is not expected to have a material impact on the Group's
financial statements.
-- IFRS 15 "Revenue from Contracts with Customers" (effective
for annual periods beginning on or after 1 January 2018), see below
for the impact.
-- IFRS 15 (Clarifications) "Revenue from Contracts with
Customers" (effective for annual periods beginning on or after 1
January 2018), see below for the impact.
-- IFRS 16 "Leases" (effective for annual periods beginning on or after 1 January 2019).
IFRS 16 replaces existing leases guidance including IAS 17
Leases, IFRIC 4 Determining whether an Arrangement contains a
Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the
Substance of Transactions Involving the Legal Form of a Lease. The
standard introduces a single, on-balance sheet lease accounting
model for lessees. IFRS 16 applies a control model to the
identification of leases, distinguishing between leases and service
contracts on the basis of whether there is an identified asset
controlled by the customer. The previous distinction between
operating and finance leases is removed for lessees. Instead, a
lessee recognises a right-of-use asset representing its right to
use the underlying asset and a lease liability representing its
obligation to make lease payments. There are recognition exemptions
for short-term leases and leases of low value items. Lessor
accounting remains similar to the current standard - i.e. lessors
continue to classify leases as finance or operating leases.
The Group is currently evaluating the expected impact of
adopting the standard on its financial statements. As such, the
expected impact of the standard is not yet known or reasonably
estimable.
-- IAS 40 (Amendments) "Transfers of Investment Property"
(effective for annual periods beginning on or after 1 January
2018).
The amendments clarify the requirements on transfers to, or
from, investment property. A transfer is made when, and only when,
there is an actual change in use i.e. an asset meets or ceases to
meet the definition of investment property and there is evidence of
the change in use. A change in management intention alone does not
support a transfer. In addition, the amendments clarify that the
revised examples of evidence of a change in use in the amended
version of IAS 40 are not exhaustive.
Based on assessments undertaken to date, the adoption of the
amendments is not expected to have a material impact on the Group's
financial statements.
-- IFRS 9 (Amendments) "Prepayment Features with Negative
Compensation" (effective for annual periods beginning on or after 1
January 2019)
In October 2017, the IASB issued "Prepayment Features with
Negative Compensation (Amendments to IFRS 9)". The amendments
address the issue that under pre-amended IFRS 9, financial assets
with such features would probably not meet the SPPI criterion and
as such would be measured at fair value through profit or loss. The
IASB believes that this would not be appropriate because measuring
them at amortised cost provides useful information about the
amount, timing and uncertainty of their future cash flows.
Financial assets with these prepayment features can therefore be
measured at amortised cost or fair value through other
comprehensive income provided that they meet the other relevant
requirements of IFRS 9. The final amendments also contain a
clarification in the accounting for a modification or exchange of a
financial liability measured at amortised cost that does not result
in the derecognition of the financial liability. Based on the
clarification, an entity recognises any adjustment to the amortised
cost of the financial liability arising from a modification or
exchange in profit or loss at the date of the modification or
exchange.
The Group is currently evaluating the expected impact of
adopting the amendments on its financial statements. As such, the
expected impact of the amendments is not yet known or reasonably
estimable.
-- IFRIC 22 "Foreign Currency Transactions and Advance
Consideration" (effective for annual periods beginning on or after
1 January 2018).
The interpretation clarifies that the transaction date, for the
purpose of determining the exchange rate, is the date of initial
recognition of the prepayment or deferred income arising from the
advance consideration. For transactions involving multiple payments
or receipts, each payment or receipt gives rise to a separate
transaction date.
Based on assessments undertaken to date, the adoption of the
interpretation is not expected to have a material impact on the
Group's financial statements.
Standards and Interpretations not adopted by the EU
-- IFRIC 23 "Uncertainty over Income Tax Treatments" (effective
for annual periods beginning on or after 1 January 2019).
IFRIC 23 clarifies the accounting for income tax treatments that
have yet to be accepted by tax authorities, whilst also aiming to
enhance transparency. The key test is whether it is probable that
the tax authority will accept the chosen tax treatment, on the
assumption that tax authorities will have full knowledge of all
relevant information in assessing a proposed tax treatment. The
uncertainty is reflected using the measure that provides the better
prediction of the resolution of the uncertainty being either the
most likely amount or the expected value. The interpretation also
requires companies to reassess the judgements and estimates applied
if facts and circumstances change. IFRIC 23 does not introduce any
new disclosures but reinforces the need to comply with existing
disclosure requirements in relation to judgements made, assumptions
and estimates used, and the potential impact of uncertainties that
are not reflected.
The Group is currently evaluating the expected impact of
adopting the interpretation on its financial statements. As such,
the expected impact of the interpretation is not yet known or
reasonably estimable.
-- Annual Improvements to IFRSs 2015-2017 Cycle (effective for
annual periods beginning on or after 1 January 2019).
In December 2017, the IASB published Annual Improvements to
IFRSs 2015-2017 Cycle, containing the following amendments to
IFRSs:
IFRS 3 "Business Combinations" and IFRS 11 "Joint Arrangements".
The amendments to IFRS 3 clarify that when an entity obtains
control of a business that is a joint operation, then the
transaction is a business combination achieved in stages and the
acquiring party remeasures the previously held interest in that
business at fair value. The amendments to IFRS 11 clarify that when
an entity maintains (or obtains) joint control of a business that
is a joint operation, the entity does not remeasure previously held
interests in that business.
IAS 12 "Income Taxes": the amendments clarify that all income
tax consequences of dividends (i.e. distribution of profits) are
recognised consistently with the transactions that generated the
distributable profits - i.e. in profit or loss, OCI or equity.
IAS 23 "Borrowing Costs": the amendments clarify that if any
specific borrowing remains outstanding after the related asset is
ready for its intended use or sale, that borrowing becomes part of
the funds that an entity borrows generally when calculating the
capitalisation rate on general borrowings.
The Group is currently evaluating the expected impact of
adopting the improvements on its financial statements. As such, the
expected impact of the improvements is not yet known or reasonably
estimable.
-- "Amendments to References to the Conceptual Framework in IFRS
Standards" (effective for annual periods beginning on or after 1
January 2020)
In March 2018 the IASB issued a comprehensive set of concepts
for financial reporting, the revised "Conceptual Framework for
Financial Reporting" (Conceptual Framework), replacing the previous
version issued in 2010. The main changes to the framework's
principles have implications for how and when assets and
liabilities are recognised and derecognized in the financial
statements, while some of the concepts in the revised Framework are
entirely new (such as the "practical ability" approach to
liabilities". To assist companies with the transition, the IASB
issued a separate accompanying document "Amendments to References
to the Conceptual Framework in IFRS Standards". This document
updates some references to previous versions of the Conceptual
Framework in IFRS Standards, their accompanying documents and IFRS
Practice Statements.
The Group is currently evaluating the expected impact of
adopting the amendments on its financial statements. As such, the
expected impact of the amendments is not yet known or reasonably
estimable.
The following standard is expected to have a material impact on
the Company's financial statements in the period of initial
application.
Estimated impact of the adoption of IFRS 15
The Group is required to adopt IFRS 15 Revenue from Contracts
with Customers from 1 January 2018. The Group has assessed the
estimated impact that the initial application of IFRS 15 (see
below) will have on its consolidated financial statements. The
estimated impact of the adoption of this standard on the Group's
equity as at 1 January 2018 is based on assessment undertaken to
date and is summarised below. The actual impact of adopting the
standard at 1 January 2018 may change because:
- the Group has not finalised the testing and assessment of controls over its IT systems; and
- the new accounting policy is subject to change until the Group
presents its first financial statements that include the date of
initial application.
Estimated impact of adoption of IFRS 15
In thousands of dollars As reported Estimated Estimated
at 31 December adjustments adjusted
2017 due to opening balance
adoption at 1 January
of IFRS 2018
15
Reserves (301,287) 97 (301,190)
---------------- ------------- -----------------
Retained earnings (672,719) 7,405 (665,315)
---------------- ------------- -----------------
NCI (171) 27 (144)
---------------- ------------- -----------------
The total estimated adjustment (net of tax) to the opening balance
of the Group's equity at 1 January 2018 is US$7,405 thousand. The
principal components of estimated adjustment are as follows:
An increase of US$7,405 thousand and US$27 thousand in retained earnings
and NCI respectively, due to earlier recognition of revenue and recognition
of significant financial component from the contracts for sale of
residential properties (DDUs). An increase in reserves of US$97 thousand
is due to foreign currency translation effect.
IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether,
how much and when revenue is recognised. It replaces existing revenue
recognition guidance, including IAS 18 Revenue, IAS 11 Construction
Contracts and IFRIC 13 Customer Loyalty Programmes. It provides
a principles-based approach for revenue recognition, and introduces
the concept of recognizing revenue for performance obligations as
they are satisfied. The recognition of such revenue is in accordance
with five steps to: 1) identifying the contract with the customer;
2) identifying each of the performance obligations included in the
contract; 3) determining the transaction price; 4) allocating the
transaction price to the performance obligations in the contract;
and 5) recognising revenue as each performance obligation is satisfied.
Clarifications to IFRS 15 provide additional application guidance
but do not change the underlying principles of the standard. The
clarifications relate principally to identifying performance obligations
(step 2), accounting for licenses of intellectual property (step
5) and agent vs principal considerations. The clarifications also
introduce additional practical expedients on transition in relation
to modified and completed contracts.
(i) Sale of trading properties
For the sales of trading properties revenue is currently recognised
when the risks and rewards of ownership are transferred to the customer.
Under IFRS 15, revenue will be recognised when a customer obtains
control of the goods. The revenue from the contracts with customers
for sale of trading properties (DDUs) will be recognised over period
of time as the contraction progresses. The Group's assessment indicates
that this will result in revenue and associated costs to fulfil
the contracts being recognised over time, i.e. before the ownership
of flats is actually transferred to the customer.
(ii) Other sources of income
Based on its assessment, the Group does not expect the application
of IFRS 15 to have a significant impact on its consolidated financial
statements in respect of rental income, hotel income and construction/management
fees.
(iii) Transition
The Group plans to adopt IFRS 15 using the cumulative method, with
the effect of initially applying this standard recognised at the
date of initial application (i.e. January 2018). As a result, the
Group will not apply the requirements of IFRS 15 to the comparative
period presented.
5. SIGNIFICANT ACCOUNTING POLICIES
The Group has consistently applied the following accounting
policies to all periods presented in these consolidated financial
statements.
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
The financial statements of subsidiaries are included in the
consolidated financial statements from the date on which control
commences until the date on which control ceases.
Non-controlling interests (NCI)
NCI are measured at their proportionate share of the acquiree's
identifiable net assets at the date of acquisition. Subsequently
the Group attributes profit or loss and each components of other
comprehensive income (OCI) to the NCI even if this results in a
deficit balance. Changes in the Group's interest in a subsidiary
that do not result in a loss of control are accounted for as equity
transactions.
Loss of control
When the Group loses control over a subsidiary, it derecognises
the assets and liabilities of the subsidiary and any related NCI
and other components of equity. Any resulting gain or loss is
recognised in profit or loss. Any interest retained in the former
subsidiary is measured at fair value when control is lost.
Interests in equity-accounted investees
The Group's interests in equity-accounted investees, comprise
interests in joint ventures.
A joint venture is an arrangement in which the Group has joint
control, whereby the Group has rights to the net assets of the
arrangement, rather than rights to its assets and obligations for
its liabilities.
Interests in joint ventures are accounted for using the equity
method. They are initially recognised at cost, which includes
transaction costs. Subsequent to initial recognition, the
consolidated financial statements include the Group's share of the
profit or loss and OCI of equity-accounted investees, until the
date on which joint control ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions and any unrealised income
and expenses arising from intra-group transactions, are eliminated.
Unrealised gains arising from transactions with equity-accounted
investees are eliminated against the investment to the extent of
the Group's interest in the investee. Unrealised losses are
eliminated in the same way as unrealised gains, but only to the
extent that there is no evidence of impairment.
Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated into the
respective functional currencies of Group entities at the exchange
rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign
currencies are translated into the functional currency at the
exchange rate at the reporting date. Non-monetary assets and
liabilities that are measured at fair value in a foreign currency
are translated into the functional currency at the exchange rate
when the fair value was determined. Non-monetary items that are
measured based on historical cost in a foreign currency are
translated at the exchange rate at the date of the transaction.
Foreign currency differences are generally recognised in profit or
loss.
Foreign operations
The assets and liabilities of foreign operations are translated
into US Dollars at the exchange rates at the reporting date. The
income and expenses of foreign operations are translated into US
Dollars at the exchange rates at the dates of the transactions or
average rate for the year for practical reasons. If the volatility
of the exchange rates is high for a given year or period the Group
uses the average rate for shorter periods i.e. quarters or months
for income and expense items.
Foreign currency differences are recognised in OCI and
accumulated in the translation reserve, except to the extent that
the translation difference is allocated to NCI.
When a foreign operation is disposed of in its entirety or
partially such that control or joint control is lost, the
cumulative amount in the translation reserve related to that
foreign operation is reclassified to profit or loss as part of the
gain or loss on disposal. If the Group disposes of part of its
interest in a subsidiary but retains control, then the relevant
proportion of the cumulative amount is reattributed to NCI. When
the Group disposes of only part of joint venture while retaining
joint control, the relevant proportion of the cumulative amount is
reclassified to profit or loss.
If the settlement of a monetary item receivable from or payable
to a foreign operation is neither planned nor likely to occur in
the foreseeable future, then foreign currency differences arising
from such item form part of the net investment in a foreign
operation. Accordingly, such differences are recognised in OCI, and
accumulated in the translation reserve.
The table below shows the exchange rates of Russian Roubles
which is the functional currency of the Russian subsidiaries of the
Group:
Exchange rate
Russian Roubles
As of: for US$1 % Change
31 December 2017 57.6002 (5.04)
31 December 2016 60.6569 (16.77)
Average rate during:
Year ended 31 December 2017 58.3529 (12.9)
Year ended 31 December 2016 67.0349 10.0
Financial Instruments
The Group classifies non-derivative financial assets into the
following categories: financial assets at fair value through profit
or loss and loans and receivables.
The Group classifies non-derivative financial liabilities into
the other financial liabilities category.
Non-derivative financial assets and financial
liabilities-Recognition and derecognition
The Group initially recognises loans and receivables on the date
when they are originated. All other financial assets and financial
liabilities are initially recognised on the trade date when the
entity becomes a party to the contractual provisions of the
instrument.
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows in a transaction in
which substantially all the risks and rewards of ownership of the
financial asset are transferred, or it neither transfers nor
retains substantially all of the risks and rewards of ownership and
does not retain control over the transferred asset. Any interest in
such derecognised financial assets that is created or retained by
the Group is recognised as a separate asset or liability.
The Group derecognises a financial liability when its
contractual obligations are discharged or cancelled or expire.
Financial assets and liabilities are offset and the net amount
presented in the statement of financial position when, and only
when, the Group currently has a legally enforceable right to offset
the amounts and intends either to settle them on a net basis or to
realise the asset and settle the liability simultaneously.
Non-derivative financial assets-measurement
Financial assets at fair value through profit or loss
A financial asset is classified as at fair value through profit
or loss if it is classified as held for trading or is designated as
such on initial recognition. Directly attributable transaction
costs are recognised in profit or loss as incurred. Financial
assets at fair value through profit or loss are measured at fair
value and changes therein, including any interest or dividend
income, are recognised in profit or loss.
Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash
equivalents comprise cash at bank, cash in hand and deposits on
demand.
Loans and receivables
These assets are initially recognised at fair value plus any
directly attributable transaction costs. Subsequent to initial
recognition, they are measured at amortised cost using the
effective interest method.
Non derivative financial liabilities-measurement
Non-derivative financial liabilities are initially measured at
fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these liabilities are measured
at amortised cost using the effective interest method.
Share capital
Ordinary shares
Incremental costs directly attributable to the issue of ordinary
shares are recognised as a deduction from equity. Income tax
relating to transaction costs of an equity transaction is accounted
for in accordance with IAS 12.
Investment Property
Investment property is initially measured at cost and
subsequently at fair value with any change therein recognised in
profit or loss.
Any gain or loss on disposal of investment property (calculated
as the difference between the net proceeds from disposal and the
carrying amount of the item) is recognised in profit or loss. When
investment property that was previously classified as property,
plant and equipment is sold, any related amount included in the
revaluation reserve is transferred to retained earnings.
When the use of a property changes from owner-occupied to
investment property, the property is remeasured to fair value and
reclassified accordingly. Any gain arising on this remeasurement is
recognised in profit or loss to the extent that it reverses a
previous impairment loss on the specific property, with any
remaining gain recognised in OCI and presented in the revaluation
reserve. Any loss is recognised in profit or loss.
When the use of a property changes such that it is reclassified
as property, plant and equipment, its fair value at the date of
reclassification becomes its cost for subsequent accounting.
Investment property under development
Property that is being constructed or developed for future use
as investment property is classified as investment property under
development and accounted for at fair value until construction or
development is complete, at which time it is reclassified as
investment property.
Certain development assets within the Group's portfolio that are
in very early stages of development process were categorised as
"land bank" without ascribing current market value to them. Any
value ascribed to such land bank projects other than their cost,
would result in a gain or loss to be recognised in profit or loss.
This approach was adopted due to abnormal market volatility and
will be reviewed in the future once market conditions are more
stable.
All costs directly related with the purchase and construction of
a property, land lease payments, and all subsequent capital
expenditure for the development qualifying as acquisition costs are
capitalised.
Capitalisation of borrowing costs
Borrowing costs are capitalised if they are directly
attributable to the acquisition, construction or production of a
qualifying asset as part of the cost of that asset. Capitalisation
of borrowing costs commences when the activities to prepare the
asset are in process and expenditures and borrowing costs are being
incurred. Capitalisation of borrowing costs may continue until the
assets are substantially ready for their intended use. If the
resulting carrying amount of the asset exceeds its recoverable
amount, an impairment loss is recognised. The capitalisation rate
is arrived at by reference to the actual rate payable on borrowings
for development purposes or, with regard to that part of the
development cost financed out of general funds, to the average
rate. The capitalised borrowing cost is limited to the amount of
borrowing cost actually incurred.
Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment are measured at cost less
accumulated depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the
acquisition of the asset. The cost of self-constructed assets
includes the cost of materials and direct labour, any other costs
directly attributable to bringing the assets to a working condition
for their intended use, the costs of dismantling and removing the
items and restoring the site on which they are located, and
capitalise borrowing costs. Purchased software that is integral to
the functionality of the related equipment is capitalised as part
of that equipment.
All hotels are treated as property, plant and equipment due to
the Group's significant influence on their management.
If significant parts of an item of property, plant and equipment
have different useful lives, then they are accounted for as
separate items (major components) of property, plant and
equipment.
Any gain or loss on disposal of an item of property, plant and
equipment is recognised in profit or loss.
Subsequent expenditure
Subsequent expenditure is capitalised only if it is probable
that the future economic benefits associated with the expenditure
will flow to the Group.
Depreciation
Depreciation is calculated to write off the cost of items of
property, plant and equipment less their estimated residual values
using the straight-line method over their estimated useful lives,
and is generally recognised in profit or loss. Leased assets are
depreciated over the shorter of the lease term and their useful
lives unless it is reasonably certain that the Group will obtain
ownership by the end of the lease term. Land is not
depreciated.
Items of property, plant and equipment are depreciated from the
date that they are available for use, or in respect of
self-constructed assets, from the date that the asset is completed
and ready for use.
The annual depreciation rates for the current and comparative
periods are as follows:
Buildings 1-2%
Office equipment 10-331/3%
Motor vehicles 331/3%
Depreciation methods, useful lives and residual values are
reviewed at each reporting date and adjusted if appropriate.
Goodwill
Goodwill arising on the acquisition of subsidiaries represents
the excess of the cost of acquisition over the Group's interest in
the net fair value of the identifiable assets, liabilities and
contingent liabilities of the acquiree. When the excess is negative
(negative goodwill), it is recognised immediately in profit or
loss.
Goodwill is measured at cost less accumulated impairment losses.
In respect of equity-accounted investees, the carrying amount of
goodwill is included in the carrying amount of the investment, and
any impairment loss is allocated to the carrying amount of the
equity-accounted investee as a whole.
Trading Properties
Trading Properties are measured at the lower of cost and net
realisable value. Cost includes expenditure incurred in acquiring
the properties and bringing them to their existing condition. In
the case of constructed trading properties, cost includes an
appropriate share of direct and borrowing costs. Net realisable
value is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated
costs necessary to make the sale.
Trading properties under construction
Trading properties under construction are defined as projects in
which the Group participates as a contractor or as a promoter, and
which include construction work with the intention to sell the
entire building as a whole or parts thereof. Each project
represents one building or a group of buildings.
A group of buildings is considered one project when the
buildings at the same building site are being constructed according
to one building plan and under one building license, and are
offered for sale at the same time. Trading properties include cost
of land or of rights to the land that constitutes the relative
portion of the area, on which the construction work on projects is
performed, plus the cost of the work executed on the projects as
well as other costs allocated thereto, less the cumulative amounts
recognised in profit or loss as cost of trading properties sold up
to the end of the reported period.
Direct costs and expenses are charged to projects on a specific
basis, whereas borrowing costs are allocated among the projects
based on the relative proportion of the costs. Non-specific
borrowing costs are capitalised to such qualifying asset, or
portion thereof which was not financed with specific credit, by
weighted-average rate of the borrowing cost up to the amount of
borrowing cost actually incurred. Where the estimated expenses for
a building project indicate that a loss is expected, an appropriate
provision is set up. Buildings that are under construction are
classified as trading properties under construction on the
statement of financial position.
Inventory of real estate
Land for future development of trading properties is classified
as "Inventory of real estate" as non-current asset when it is not
expected to develop and sell the properties within the Group's
normal operating cycle. It is presented at the lower of cost and
net realisable value.
Deferred income
Rental deposits received in advance are classified under
non-current liabilities as deferred income and comprise of rental
income received from tenants at the beginning of the lease
contracts as guarantee against future unpaid rent or damages.
Impairment
Non-derivative financial assets
Financial assets not classified as at fair value through profit
or loss, including an interest in equity-accounted investee are
assessed at each reporting date to determine whether there is
objective evidence of impairment.
Objective evidence that financial assets are impaired
includes:
-- default or delinquency by a debtor;
-- restructuring of an amount due to the Group on terms that the
Group would not consider otherwise;
-- indications that a debtor or issuer will enter bankruptcy;
-- adverse changes in the payment status of borrowers or issuers;
-- the disappearance of an active market for a security because of financial difficulties; or
-- observable data indicating that there is a measureable
decrease in the expected cash flows from a group of financial
assets.
For an investment in an equity security, objective evidence of
impairment includes a significant or prolonged decline in its fair
value below its cost.
Financial assets measured at amortised cost
The Group considers evidence of impairment for these assets at
both an individual asset and a collective level. All individually
significant assets are individually assessed for impairment. Those
found not to be impaired are then collectively assessed for any
impairment that has been incurred but not yet individually
identified. Assets that are not individually significant are
collectively assessed for impairment. Collective assessment is
carried out by grouping together assets with similar risks
characteristics.
In assessing collective impairment, the Group uses historical
information on the timing of recoveries and the amount of loss
incurred, and makes an adjustment if current economic and credit
conditions are such that the actual losses are likely to be greater
or lesser than suggested by historical trends.
An impairment loss is calculated as the difference between an
asset's carrying amount and the present value of the estimated
future cash flows discounted at the asset's original effective
interest rate. Losses are recognised in profit or loss and
reflected in an allowance account. When the Group considers that
there are no realistic prospects of recovery of the asset, the
relevant amounts are written off. If the amount of impairment loss
subsequently decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised, then the
previously recognised impairment loss is reversed through profit or
loss.
Equity-accounted investees
An impairment loss in respect of an equity-accounted investee is
measured by comparing the recoverable amount of the investment with
its carrying amount. An impairment loss is recognised in profit or
loss, and is reversed if there has been a favourable change in the
estimates used to determine the recoverable amount.
Non-financial assets
At each reporting date, the Group reviews the carrying amounts
of its non-financial assets (other than investment property,
investment property under development, VAT recoverable, inventories
and deferred tax assets) to determine whether there is any
indication of impairment. If any such indication exists, then the
asset's recoverable amount is estimated.
For impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of
other assets.
The recoverable amount of an asset is the greater of its value
in use and its fair value less costs to sell. Value in use is based
on the estimated future cash flows, 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.
An impairment loss is recognised if the carrying amount of an
asset exceeds its recoverable amount and recognised in profit or
loss.
An impairment loss is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if
no impairment loss had been recognised.
Assets held for sale
Non-current assets, or disposal groups comprising assets and
liabilities, are classified as held-for sale if it is highly
probable that they will be recovered primarily through sale rather
than through continuing use.
Such assets, or disposal groups, are generally measured at the
lower of their carrying amount and fair value less costs to sell.
Any impairment loss on a disposal group is allocated first to
goodwill, and then to the remaining assets and liabilities on a pro
rate basis, except that no loss is allocated to inventories,
financial assets, deferred tax assets, employee benefit assets,
investment property or investment property under development, which
continue to be measured in accordance with the Group's other
accounting policies. Impairment losses on initial classification as
held-for-sale or held-for-distribution and subsequent gains and
losses on remeasurement are recognised in profit or loss.
Once classified as held-for-sale, intangible assets, and
property, plant and equipment are no longer amortised or
depreciated and any equity-accounted investee is no longer equity
accounted.
Employee benefits
Short-term employee benefits
Short-term employee benefits are expensed as the related service
is provided. A liability is recognised for the amount expected to
be paid if the Group has a present legal or constructive obligation
to pay this amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
Share-based payment transactions
The grant-date fair value of equity-settled share-based payment
options granted to employees is generally recognised as an expense,
with a corresponding increase in equity, over the period that the
employees unconditionally become entitled to the options. The
amount recognised as an expense is adjusted to reflect the actual
number of share options that vest.
The fair value of the amount payable to employees in respect of
share appreciation rights, which are settled in cash, is recognised
as an expense, with a corresponding increase in liabilities, over
the period during which the employees become unconditionally
entitled to payment. The liability is remeasured at each reporting
date and at settlement date based on the fair value of share
appreciation rights. Any changes in the liability are recognised in
profit or loss.
Provisions
A provision is recognised if, as a result of a past event, the
Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. The
unwinding of the discount is recognised as finance cost.
Revenue
Sale of trading properties
Revenue from sale of trading properties is recognised in profit
or loss when the significant risks and rewards of ownership have
been transferred to the buyer.
Construction Management fee
Revenue from construction management is recognised in profit or
loss in proportion to the stage of completion of the transaction at
the reporting date. The stage of completion is assessed by
reference to surveys of work performed.
Investment Property Rental income
Rental income from investment property is recognised as revenue
on a straight-line basis over the term of the lease. Lease
incentives granted are recognised as an integral part of the total
rental income, over the term of the lease.
Hotel operation income
Income from hotel operations comprises of accommodation,
treatments and other services offered at the hotels operated by the
group and sales of food and beverages and are recognised upon
offering of the service and the acceptance by the client.
Gross Profit
Gross profit is the result of the Group's operations and
comprises revenue and other income net of all cost for trading
properties sold and operating, administrative and other expenses,
recognised in profit or loss during the year.
Finance income and finance costs
Finance income include interest income on funds invested and net
gain on financial assets at fair value through profit or loss.
Interest income is recognised as it accrues in profit or loss,
using the effective interest method.
Finance costs include interest expense on borrowings, unwinding
of the discount on provisions and deferred consideration, net loss
on financial assets at fair value through profit or loss and
impairment losses recognised on financial assets.
Borrowing costs are recognised in profit or loss using the
effective interest method, net of interest capitalised.
Foreign currency gain or loss on financial assets and financial
liabilities is reported on a net basis as either finance income or
finance cost depending on whether foreign currency movements are in
a net gain or net loss position.
Income tax
Income tax expense comprises current and deferred tax. It is
recognised in profit or loss except to the extent that it relates
to a business combination, or items recognised directly in equity
or in OCI.
Current tax
Current tax comprises the expected tax payable or receivable on
the taxable income or loss for the year and any adjustment to the
tax payable or receivable in respect of previous years. The amount
of current tax payable or receivable is the best estimate of the
tax amount expected to be paid or received that reflects
uncertainty related to income taxes, if any. It is measured using
tax rates enacted or substantively enacted at the reporting date.
Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if they
relate to income taxes levied by the same taxation authority and
the taxation authority permits the entity to make or receive a
single net payment. In Group's financial statements, a current tax
asset of one entity in the group is offset against a current tax
liability of another entity in the group if, and only if, the
entities concerned have a legally enforceable right to make or
receive a single net payment and the entities intend to make or
receive such a net payment or to recover the asset and settle the
liability simultaneously.
Deferred tax
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation
purposes.
Deferred tax is not recognised for temporary differences on the
initial recognition of assets or liabilities in a transaction that
is not a business combination and that affects neither accounting
nor taxable profit or loss and temporary differences related to
investments in subsidiaries and joint arrangements to the extent
that the Group is able to control the timing of reversal of the
temporary differences and it is probable that they will not reverse
in the foreseeable future.
Deferred tax assets are recognised for unused tax losses, unused
tax credits and deductible temporary differences to the extent that
it is probable that future taxable profits will be available
against which they can be used. Future taxable profits are
determined based on business plans for individual subsidiaries in
the Group. Deferred tax assets are reviewed at each reporting date
and are reduced to the extent that it is no longer probable that
the related tax benefit will be realised; such reductions are
reversed when the probability of future taxable profits
improves.
Unrecognised deferred tax assets are reassessed at each
reporting date and recognised to the extent that it has become
probable that future taxable profits will be available against
which they can be used.
Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, using tax
rates enacted or substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences
that would follow from the manner in which the Group expects, at
the reporting date, to recover or settle the carrying amount of its
assets and liabilities. For this purpose the carrying amount of
investment property measured at fair value is presumed to be
recovered through sale and the Group has not rebutted this
presumption.
Deferred tax assets and liabilities are offset if, and only if,
the entity has a legally enforceable right to set off current tax
liabilities and assets; and the deferred tax liabilities and assets
relate to income taxes levied by the same tax authority on either
the same taxable entity or different taxable entities, but these
entities intend to settle current tax liabilities and assets on a
net basis, or their tax assets and liabilities will be realised
simultaneously for each future period in which these differences
reverse.
The provision for taxation either current or deferred is based
on the tax rate applicable to the country of residence of each
subsidiary.
Discontinued operations
A discontinued operation is a component of the Group's business,
the operations and cash flows of which can be clearly distinguished
from the rest of the Group and which:
-- represents a separate major line of business or geographical area of operations;
-- is part of a single co-ordinated plan to dispose of a
separate major line of business or geographic area of operations;
or
-- is a subsidiary acquired exclusively with a view to re-sale.
Classification as a discontinued operation occurs at the earlier
of disposal or when the operation meets the criteria to be
classified as held-for-sale.
When an operation is classified as a discontinued operation, the
comparative statement of profit or loss and OCI is re-presented as
if the operation had been discontinued from the start of the
comparative year.
Earnings per share
The Group presents basic and diluted earnings per share (EPS)
data for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to the owners of the Company by the
weighted average number of ordinary shares outstanding during the
year. Diluted EPS is determined by adjusting the profit or loss
attributable to the owners of the Company and the weighted average
number of ordinary shares outstanding for the effects of all
dilutive potential ordinary shares, which comprise share options
granted to employees.
Segment reporting
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to
transactions with any of the Group's other components. All segments
results are reviewed regularly by the Group's management to make
decisions about resources to be allocated to the segment and assess
its performance, and for which discrete financial information is
available.
6. OPERATING SEGMENTS
The Group has five reportable segments, as described below,
which are the Group's strategic business units. The strategic
business units offer different types of real estate products and
services and are managed separately because they require different
marketing strategies as they address different types of clients.
For each strategic business unit the Group's management reviews
internal management reports on at least monthly basis. 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 or sale.
-- Hotel Operation: Includes the ownership and operation of Hotels
-- Land bank: Includes the investment in 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.
Reportable segments
Development projects Asset management Hotel Operation Land bank Other
Residential projects Total
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------------------- ----------- ---------- ---------- ----------- -------- --------- -------- ------------------ ---------- ---------- ----------- -------------------
External revenues 61,971 55,622 85,665 69,386 29,298 11,298 2,055 1,774 62 216 179,051 138,296
Inter-segment
revenue 24,241 981 5,707 9,414 4 4 26 21 10,195 8,268 40,173 18,688
--------------------- ----------- ---------- ---------- ----------- -------- --------- -------- ------------------ ---------- ---------- ----------- -------------------
Segment revenue 86,212 56,602 91,372 78,800 29,302 11,302 2,081 1,795 10,257 8,483 219,224 156,984
Segment (loss)
profit
before tax (14,259) (3,570) 37,454 (10,526) 9,360 3,069 7,643 (25,013) (9,171) (8,556) 31,027 (44,596)
Interest income 136 2 93 8 145 1 - - - - 374 11
Interest expense (188) - (47,969) (44,012) (1,511) - - - - - (49,668) (44,012)
Depreciation (49) (39) (53) (94) (685) (497) (3) (2) (56) (64) (846) (696)
Share of
profit/(loss)
of joint-ventures - - - - 1957 3,742 - - - - 1,957 3,742
Loss on disposal
of
properties - - (3,934) - - - - - - - (3,934) -
Other material
non-cash items:
Impairment loss
on
properties (9,548) - - - - - - - - - (9,548) -
Increase/(decrease)
in
fair value of
properties (2,163) (3,970) 7,041 (91,254) - - 6,692 (27,821) - - 11,570 (123,045)
Segment assets 418,891 356,250 866,433 917,890 81,487 27,452 196,326 177,076 1,270 904 1,564,407 1,479,572
Capital expenditure 97,823 58,117 998 370 - - 4,278 401 - 417 103,099 59,305
Segment liabilities 145,918 65,462 622,352 668,273 61,360 - 1,646 - 1,409 1,093 832,685 734,828
--------------------- ----------- ---------- ---------- ----------- -------- --------- -------- ------------------ ---------- ---------- ----------- -----------------
Reconciliations of reportable segment revenues, profit or loss,
assets and liabilities and other material items.
2017 2016
US$'000 US$'000
Revenues
Total revenue for reportable segments 219,224 156,984
Elimination of inter-segment revenue (40,173) (18,688)
Consolidated revenue 179,051 138,296
Profit before tax
Total profit/(loss) before tax for reportable
segments 31,027 (44,596)
Unallocated amounts:
Other profit or loss (3,657) (9,843)
Share of the after tax profit of joint ventures 1,957 3,742
Consolidated profit/(loss) before tax 29,327 (50,697)
Assets
Total assets for reportable segments 1,564,407 1,481,282
Other unallocated amounts 39,881 26,484
Consolidated total assets 1,604,288 1,507,766
Liabilities
Total liabilities for reportable segments 832,685 735,137
Other unallocated amounts 656 332
Consolidated total liabilities 833,341 735,469
Reportable Consolidated
segment Adjustments totals
totals
US$'000 US$'000 US$'000
Other material items 2017
Interest income 374 324 698
Interest expense (49,668) - (49,668)
Capital expenditure 103,099 - 103,099
Depreciation (846) - (846)
Impairment loss on properties (9,548) - (9,548)
Increase in fair value of properties 11,570 - 11,570
Reportable Consolidated
segment Adjustments totals
totals
US$'000 US$'000 US$'000
Other material items 2016
Interest income 11 2,134 2,145
Interest expense (44,012) (24) (44,036)
Capital expenditure 59,305 - 59,305
Depreciation (696) - (696)
Decrease in fair value of properties (123,045) - (123,045)
Geographical segments
Geographically the Group operates only in Russia and has no
significant revenue or assets in other countries or geographical
areas. Therefore no geographical segment reporting is
presented.
Major customer
There was no concentration of revenue from any single customer
in any of the segments.
7. REVENUE
2017 2016
US$ '000 US$ '000
Investment property rental income 87,852 72,299
Sales of trading properties (note
20) 61,844 54,484
Hotel operation income 29,189 11,298
Construction consulting/management
fees 166 215
179,051 138,296
8. OTHER INCOME
2017 2016
Other income consists of: US$ '000 US$ '000
Penalties charged to tenants 317 147
Reimbursement of depositary fees - 480
Reimbursement of property tax 1,918 1,770
Profit on sale of property, plant and
equipment - 17
Sundries 1,584 1,131
3,819 3,545
9. OPERATING EXPENSES
2017 2016
US$ '000 US$ '000
Maintenance, utility and security expenses 19,475 12,147
Agency and brokerage fees 2,354 623
Advertising expenses 6,843 5,496
Salaries and wages 15,545 10,276
Consultancy fees 651 504
Depreciation 740 578
Insurance 527 635
Rent 1,897 1,429
Property and other taxes 8,908 6,338
Other operating expenses 114 810
57,054 38,836
The average number of employees employed by the Group during the
year 2017 and 2016 were 1,159.
10. ADMINISTRATIVE EXPENSES
2017 2016
US$ '000 US$ '000
Consultancy fees 444 1,841
Legal fees 1,362 814
Auditors' remuneration 811 519
Valuation expenses 60 94
Directors' remuneration 1,334 1,361
Salaries and wages 52 25
Depreciation 106 118
Insurance 143 208
Provision for Doubtful Debts-(reversal) 147 (1,304)
Share option expense - 857
Donations 78 674
Other administrative expenses 1,468 1,382
6,005 6,589
During 2017 the Company's statutory audit firm fees for audit
services amounted to US$202 thousand (2016: US$171 thousand), for
other assurance services amounted to US$599 (2016: US$339 thousand)
and for non-audit services amounted to US$10 thousand (2016: US$9
thousand).
11. OTHER EXPENSES
2017 2016
US$ '000 US$ '000
Prior years' VAT non recoverable (note
19) 105 121
Sundries 2,281 1,209
2,386 1,330
12. FINANCE INCOME AND FINANCE COSTS
2017 2016
US$ '000 US$ '000
Interest income 698 2,145
Net change in fair value of financial assets 50 -
Translation reserve reclassified upon disposal - -
of subsidiaries
Loans payable written off - -
Foreign exchange gain 12,371 63,657
Finance income 13,119 65,802
Interest expense on loans and borrowings (49,668) (44,036)
Net change in fair value of financial assets - (174)
Other finance costs (722) (380)
Loans receivable written off - (18)
Finance costs (50,390) (44,608)
Net finance (costs)/income (37,271) 21,194
The net foreign exchange gain recognised during 2017 is a result
of the weakening of the US Dollar to the Russian Rouble by 5%,
during 2017. The recognised gain is mainly attributable to the US
Dollar denominated loans held by Russian subsidiaries or branches
where the functional currency is the Russian Rouble.
Subject to the provisions of IAS23 "Borrowing costs" in 2017 the
Group did not capitalise any amount (2016 Nil) of financing costs
to the projects that are in construction phase.
13. TAX EXPENSE
2017 2016
US$ '000 US$ '000
Current tax expense
Current year (12,799) 282
Adjustment for prior years (64) (865)
(12,863) (583)
Deferred tax expense
Origination and reversal of temporary differences (21,128) (2,172)
Total tax expense (33,991) (2,755)
The provision for taxation either current or deferred is based
on the tax rates applicable to the country of residence of each
Group entity. Cypriot entities are subject to 12.5% corporate rate
whereas Russian subsidiaries and branches are subject to 20%
corporate rate.
2017 2016
% US$ '000 % US$ '000
Loss for the year after tax (4,664) (47,942)
Total tax expense/(benefit) 33,991 (2,755)
Profit/(loss) before tax 29,327 (50,697)
Tax using the Company's domestic tax
rate 12.5 3,671 (12.5) (6,332)
Effect of tax rates in foreign jurisdictions 7.9 2,315 (5.4) (2,754)
Tax exempt income (111.1) (32,595) (56.4) (28,578)
Non-deductible expenses 195.3 57,270 48.07 24,371
Change in estimates related to prior
years 7.0 2,057 (1.7) (865)
Current year losses for which no deferred
tax asset recognised 4.3 1,273 22.5 11,403
115.9 33,991 (5.4) (2,755)
14. EARNINGS PER SHARE
2017 2016
Basic earnings per share US$ '000 US$ '000
Loss attributable to ordinary shareholders (4,918) (47,872)
Shares Shares
Weighted average number of ordinary shares in thousands in thousands
Weighted average number of shares 1,047,694 1,047,694
Earnings per share (cent) (0.47) (4.57)
15. INVESTMENT PROPERTY
Reconciliation of carrying amount
2017 2016
US$ '000 US$ '000
Balance 1 January 915,350 933,700
Renovations/additional cost 998 370
Disposals (140,026) (500)
Fair value adjustment 18,218 (92,801)
Effect of movement in foreign exchange
rates 23,520 74,581
Balance 31 December 818,060 915,350
Investment property comprises mainly retail and commercial
property which is operated by the Group and is leased out to
tenants.
The investment property was revalued by independent appraisers
on 31 December 2017. The cumulative adjustments, for all projects,
are shown in "Fair value adjustment" in the table above.
The increase/(decrease) due to the effect of the foreign
exchange rates is a result of the weakening of the US Dollar to the
Russian Rouble by 5%, during 2017 (2016: 17%).
The disposals of investment property represent the below two
transactions:
- Two out of the three buildings of Ozerkovskaya III also known
as Aquamarine III Business Centre owned by Krown Investments LLC
for a total consideration of US$135 million to one of the leading
Russian banks. According to the transaction, Krown Investments LLC
sold Building 2 and Building 4 of the office premises, underground
parking and a share of commonly owned service areas of the Business
Centre. The transaction consists of two Russian law governed
agreements: a sales-purchase agreement of 39,635.8 sq. m of gross
buildable area (including 328 underground parking units) and a
sale-purchase agreement of a circa 57% share in the title to the
premises of 3,728.6 sq. m of gross buildable area. The
consideration received amounted to Russian rouble 7.89 billion,
equivalent to US$135 million net of the applicable Russian VAT,
brokerage fees and cost of agreed repairs resulting in a loss of
approximately US$4 million before taxes.
- 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 of a
total value of US$5,341 thousand, refer to note 34 for further
details on the acquisition of NCI.
Measurement of fair value
Fair value hierarchy
The fair value of investment property was determined by
external, registered independent property appraisers, having
appropriate recognised professional qualifications and recent
experience in the location and category of the property being
valued. The independent appraisers calculate the fair value of the
Group's investment property portfolio every six months. The same
applies for investment property under development in note 16.
The fair value measurement for investment property of US$818,060
thousand (2016: US$915,350 thousand) has been categorised as a
level 3 fair value based on the inputs to the valuation technique
used.
Level 3 fair value
The table presented in reconciliation of carrying amount above
shows the reconciliation from the opening balances to the closing
balances for level 3 fair values, since all fair values of
investment properties of the Group, are categorised as level 3.
Valuation technique and significant unobservable inputs
The following tables show the valuation technique used in
measuring the fair value of investment property, as well as the
significant unobservable inputs used.
Inter-relationship
between key unobservable
Valuation Significant unobservable inputs and fair value
technique inputs measurement
-------------- ---------------------------------------------------------- -----------------------------------------------------------
Discounted The estimated fair
cash flows: * Average Rental rates per sq.m.: Office class A $510 value would increase/(decrease)
The valuation , if:
model class B $215-$303, Retail $610-$926 * Average rental rates were higher/(lower)
considers
the present
value of * Expected market rental growth: Office 3-4% average; * Expected market rental growth was higher/(lower)
net cash Retail 1-4% average
flows to be
generated * Void periods were shorter/(longer)
from each * Vacancy rate: Office class A 2%, class B 10-12.5%;
property, Retail 4.5%-6.5%
taking into * The vacancy rates were lower/(higher)
account
rental * Risk-adjusted discount rates: 12%-21%
rates and * The risk-adjusted discount rates were lower (higher)
expected
rental * All-Risk Yield 9.0%-15.25%
growth rate, * All-risk yields were lower/(higher)
occupancy
rate and void
periods
together
reflected in
vacancy
rates,
construction
cost, opening
and
completion
dates, lease
incentive
costs such
rent free
periods,
taxes and
other
costs not
paid by
tenants.
The expected
net cash
flows are
discounted
using the
risk-adjusted
discount
rates plus
the
final year
stream is
discounted
with an
all-risk
yield. Among
other
factors,
discount rate
estimation
considers
type of
property
offered
(retail,
commercial,
office)
quality of
building
and its
location,
tenant
credit
quality and
lease
terms.
Expected Risk
Rental market adjusted
Type of rates rental Vacancy discount All-risk
Investment of property $ per annum growth Rate, rates yield
property per sq.m. %
Aquamarine Office,
III Class A 510 4% 2% 12% 9%
AFI Mall Retail 756 1% 6.5% 15% 9.75%
Office
303
Office, Retail
Plaza IB Class B 926 3% 12,5% 18% 13.5%
Plaza II Retail 610 4% 4.5% 21% 9.75%
Paveletskaya Office,
I Class B 215 3% 12% 18% 15.0%
Office,
H2O Class B 215 3% 12% 17.75% 15.25%
Riverside Office,
station Class B 303 3% 10% 17.5% 13.5%
Investment properties at fair value are categorised in the
following:
2017 2016
US$ '000 US$ '000
Retail properties 696,000 666,500
Office space properties 122,060 248,850
818,060 915,350
Fair value sensitivity Analysis
Presented below is the effect on the fair value of the AFIMALL
project, of an increase/(decrease) in the below inputs at the
reporting date. This analysis assumes that all other variables
remain constant.
Capitalization
rate 8.75% 9.75% 10.75%
Market value (US$'000) 743,700 696,000 657,200
Rental income -10.00% -5.00% 0.00% 5.00% 10.00%
Market value (US$'000) 647,600 671,800 696,000 720,200 744,500
Occupancy rate 4.50% 6.50% 8.50%
Market value (US$'000) 711,400 696,000 680,700
Discount rate 14.50% 14.75% 15.00% 15.25% 15.50%
Market value (US$'000) 708,000 702,000 696,000 690,100 684,300
Fair value sensitivity Analysis continued
Presented below is the effect on the fair value of the rest of
the investment property projects, of an increase/(decrease) in the
below inputs at the reporting date. This analysis assumes that all
other variables remain constant.
In thousands of dollars
ERVs -10% -5% 0 5% 10%
Yields
-0.5 116,260 122,230 127,900 133,840 139,610
-0.25 113,520 119,380 124,920 130,460 136,310
0 111,010 116,530 122,060 127,500 133,020
0.25 108,470 113,900 119,310 124,720 130,140
0.5 106,150 111,350 116,660 121,960 127,270
16. INVESTMENT PROPERTY UNDER DEVELOPMENT
2017 2016
Reconciliation of carrying amount US$ '000 US$ '000
Balance 1 January 232,900 238,925
Construction costs 4,865 4,554
Transfer to trading properties under (74,100) -
construction (note 21)
Fair value adjustment (6,648) (30,244)
Effect of movements in foreign exchange
rates 6,223 19,665
Balance 31 December 163,240 232,900
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 of trading properties 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 31 December 2017. The cumulative
adjustments, for all projects, are shown in line "Fair value
adjustment" in the table above.
The increase due to the effect of the foreign exchange rates is
a result of the weakening of the US Dollar to the Russian Rouble by
5%, during 2017 (2016: 17%).
Fair value hierarchy
The fair value measurement for investment property under
development of US$163,240 thousand (2016: US$232,900 thousand) has
been categorised as a level 3 fair value based on the inputs to the
valuation technique used.
Level 3 fair value
The table presented above is the reconciliation from the opening
balances to the closing balances for level 3 fair values, since all
fair values of investment properties under development of the
Group, are categorised as level 3.
Valuation technique and significant unobservable inputs
The following tables show the valuation technique used in
measuring the fair value of investment property under development,
as well as the significant unobservable inputs used.
Inter-relationship
between key unobservable
Valuation Significant unobservable inputs and fair value
technique inputs measurement
-------------- ---------------------------------------------------------- -----------------------------------------------------------
Discounted The estimated fair
cash flows: * Average Rental rates per sq.m.: Office prime value would increase/(decrease)
The valuation class-$600, class B $160, Retail $140-$800 if:
model * Average rental rates were higher/(lower)
considers
the present * Expected market rental growth: Office 3-4% average;
value of Retail 3-4% average * Expected market rental growth was higher/(lower)
net cash
flows to be
generated * Vacancy rate: Office prime class A 5%, class B 10%; * Void periods were shorter/(longer)
from each Retail 0-10%
property,
taking into * The vacancy rates were lower/(higher)
account * Risk-adjusted discount rates (16%-23.5%)
rental
rates and * The risk-adjusted discount rates were lower (higher)
expected * All-Risk Yield 9.25%-13%
rental
growth rate, * All-risk yields were lower/(higher)
occupancy
rate and void
periods
together
reflected in
vacancy
rates,
construction
cost, opening
and
completion
dates, lease
incentive
costs such
rent free
periods,
taxes and
other
costs not
paid by
tenants.
The expected
net cash
flows are
discounted
using the
risk-adjusted
discount
rates plus
the
final year
stream is
discounted
with an
all-risk
yield. Among
other
factors,
discount rate
estimation
considers
type of
property
offered
(retail,
commercial,
office)
quality of
building
and its
location,
tenant
credit
quality and
lease
terms.
Rental Expected Risk
Type rates market Vacancy adjusted All-risk
Investment of $ per annum rental growth Rate, discount yield
property under of per sq.m % rates
development property
Starokaluzhskoye
shosse Retail 140-228 4% 0% 16% 11.5%
Office-
Office, 600
Class Retail
Plaza IC A - 800 4% 5% 22.5% 9.25%
Office-
Office, 600
Class Retail
Plaza IV A - 800 4% 5% 23.5% 9.25%
Office-
Office, 160
Class Retail
Kosinskaya B - 229 3% 10% 18.0% 13%
Fair value sensitivity Analysis
Presented below is the effect on the fair value of the
investment property under development projects, of an
increase/(decrease) in the below inputs at the reporting date. This
analysis assumes that all other variables remain constant.
In thousands of
dollars
ERVs -10% -5% 0 5% 10%
Yields
-0.5 155,307 170,704 186,002 201,499 216,797
-0.25 144,485 159,378 174,271 189,063 204,056
0 134,363 148,852 163,241 177,629 192,018
0.25 124,643 138,727 152,712 166,597 180,581
0.5 115,623 129,204 142,785 156,266 169,846
In addition to the above table, if the development costs were
higher by 10%, then the fair value of investment property under
development projects would be lower by US$16,000 thousand and
vice-versa.
17. PROPERTY, PLANT AND EQUIPMENT
Buildings
under Land & Office Motor
construction Buildings Equipment Vehicles Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Cost
Balance at 1 January 2017 3,947 29,725 2,426 963 37,061
Additions - 302 176 6 484
Additions due to acquisition
of previously
held interest in a joint venture - 45,418 16 146 45,580
Disposals - (167) (21) - (188)
Effect of movement in foreign
exchange rates 294 1,168 130 48 1,640
Balance at 31 December 2017 4,241 76,446 2,727 1,163 84,577
Accumulated depreciation
Balance at 1 January 2017 - 2,863 2,202 781 5,846
Charge for the year - 662 99 85 846
Disposals - (30) (21) - (51)
Effect of movement in foreign
exchange rates - 141 120 42 303
Balance at 31 December 2017 - 3,636 2,400 908 6,944
Carrying amount
At 31 December 2017 4,241 72,810 327 255 77,633
Buildings
under Land & Office Motor
construction Buildings Equipment Vehicles Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Cost
Balance at 1 January 2016 3,319 24,552 1,987 840 30,698
Additions - 48 77 137 262
Disposals - (101) (13) (179) (293)
Effect of movement in foreign
exchange rates 628 5,226 375 165 6,394
Balance at 31 December 2016 3,947 29,725 2,426 963 37,061
Accumulated depreciation
Balance at 1 January 2016 - 1,972 1,740 706 4,418
Charge for the year - 524 124 48 696
Disposals - (86) (13) (109) (208)
Effect of movement in foreign
exchange rates - 453 351 136 940
Balance at 31 December 2016 - 2,863 2,202 781 5,846
Carrying amount
At 31 December 2016 3,947 26,862 224 182 31,215
18. LOANS RECEIVABLE
2017 2016
US$ '000 US$ '000
Long-term loans
Loans to joint ventures (note 38) - 15,745
Loans to non-related companies 1,669 18
1,669 15,763
Short-term loans
Loans to non-related companies 1,090 7
Terms and loan repayment schedule
Terms and conditions of outstanding loans were as follows:
Year
Currency Nominal of 2017 2016
interest maturity US$ '000 US$ '000
rate
Unsecured loans to joint
ventures USD 11.5% 2020 - 11,300
RUR 14% 2020 - 4,445
Unsecured loans to non-related
companies
RUR 6% 2021 1,632 -
RUR 5-7% 2018 663 -
USD 3.08% 2018 427 -
RUR - 2017 - 7
RUR 2.5% 2020 28 10
RUR 0.1-5.5% 2019 9 8
2,759 15,770
19. VAT RECOVERABLE
Represents VAT paid on construction costs and expenses which
according to the Russian VAT law can be recovered upon completion
of the construction. Part of this VAT is expected to be recovered
after more than 12 months from the balance sheet date. Due to the
uncertainties in the Russian tax and VAT law, the management has
assessed the recoverability of this VAT and has provided for any
amounts that their recoverability was deemed doubtful or
questionable (see note 11). Under Russian VAT legislation, VAT can
also be claimed during the period of construction provided that all
required documentation is presented to the VAT authorities. The
Group was successful in recovering VAT during the year, and it is
estimated that part of the VAT recoverable as at the year-end will
be recovered within the next 12 months, which is classified as
trade and other receivables, note 23.
20. TRADING PROPERTIES
2017 2016
US$ '000 US$ '000
Balance 1 January 6,854 2,062
Transfer from trading properties under construction
(note 21) 63,202 53,480
Reclassification to property, plant and equipment - -
Disposals (59,747) (49,475)
Effect of movements in exchange rates 483 787
Balance 31 December 10,792 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 year
the sale of 665 flats, 8 offices and 76 parking places were
recognised, upon transferring of the rights to the buyers according
to the signed acts of transfer, in the income statement.
21. TRADING PROPERTIES UNDER CONSTRUCTION
2017 2016
US$ '000 US$ '000
Balance 1 January 243,327 204,392
Transfer from inventory of real estate - 21,543
Transfer from investment property under development 74,100 -
(note 16)
Transfer to trading properties (note 20) (63,202) (53,480)
Construction costs 96,481 54,428
Impairment (9,548) -
Effect of movements in exchange rates 8,577 16,444
Balance 31 December 349,735 243,327
Trading properties under construction comprise "Odinburg", "AFI
Residence Paveletskaya","Botanic Garden" and "Bolshaya Pochtovaya"
projects which involve primarily the construction of residential
properties for further details on the transfer of the"Bolshaya
Pochtovaya" refer to note 16.
The properties were tested for impairment at year end based on
internal valuation. An impairment loss of US$9,548 thousand was
recognised in the profit or loss so as to present the properties at
their lower of cost or net realisable value.
22. OTHER INVESTMENTS
2017 2016
US$ '000 US$ '000
Equity securities - available for sale 20 20
Investment in listed debt securities - held
for trading 5,255 6,068
Investment in fund - designated as at FVTPL 5,240 -
10,515 6,088
Investment in fund (Private Mutual Fund) designated as at FVTPL
aims to deliver around 10% p.a. absolute returns to investors via
investments into financial markets.
Listed debt securities classified as held for trading have
stated interest rates of 4.5%. (2016: 3.22%) and mature within a
year.
23. TRADE AND OTHER RECEIVABLES
2017 2016
US$ '000 US$ '000
Advances to builders 29,313 27,019
Amounts receivable from related parties (note
37) 109 267
Trade receivables net 3,458 3,427
Other receivables 21,713 3,955
VAT recoverable (note 19) 9,889 4,067
Tax receivable 5,920 3,692
70,402 42,427
Trade receivables net
Trade receivables are presented net of an accumulated provision
for doubtful debts of US$82 thousand (2016: US$8,285 thousand).
Other receivables
Other receivables include an amount of US$16 million
representing the 11.85% balance of the total consideration from the
disposal of the two buildings of Aquamarine III Business Centre,
for further details on the disposal refer to note 15.
24. CASH AND CASH EQUIVALENTS
2017 2016
Cash and cash equivalents consist of: US$ '000 US$ '000
Cash at banks 95,102 10,356
Cash in hand 366 263
Cash and cash equivalents as per statement
of cash flows 95,468 10,619
25. SHARE CAPITAL AND RESERVES
2017 2016
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 ordinary shares of US$0.001 each 524 524
523,847,027 B ordinary shares of US$0.001 each 524 524
1,048 1,048
There were no changes to the authorised or the issued share
capital of the Company during the year ended 31 December 2017.
2. Share premium
It represents the share premium on the issue of shares on 31
December 2006 for the conversion of the shareholders' loans to
capital US$421,325 thousand. It also includes the share premium on
the issued shares which were represented by GDRs listed in the LSE
in 2007. It was the result of the difference between the offering
price, US$14, and the nominal value of the shares, US$0.001, after
deduction of all listing expenses. An amount of US$1,399,900
thousand less US$57,292 thousand transaction costs was recognised
during the year 2007. On 5 July 2010 an amount of US$524 thousand
was capitalised as a bonus issue.
3. Employee Share option plan
The Company had established an employee share option plan
operated by the Board of Directors, which was responsible for
granting options and administrating the employee share option plan.
Eligible were employees and directors, excluding independent
directors, of the Company. The employees share option plan was
discretionary and options would be granted only when the Board so
determined at an exercise price derived from the closing middle
market price preceding the date of grant. No payment would be
required for the grant of the options. In any 10 year period not
more than 10 per cent of the issued ordinary share capital may be
issued or be issuable under the employee share option plan.
If a participant ceased to be employed his options would
normally lapse subject to certain exceptions. In the event of a
takeover, reorganisation or winding up vested options might be
exercised or exchanged for new equivalent options where
appropriate. Shares/GDRs issued under the plan would rank equally
with all other shares at the time of issue. The Board of Directors
might satisfy, (with the consent of the participant), an option by
paying the participant in cash or other assets the gain as an
alternative of issuing and transferring the shares/GDRs.
Following the lapse of the ten years period all options have
vested during the year 2016 and expired during the year 2017.
4. 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.
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 34 for further details.
26. LOANS AND BORROWINGS
2017 2016
US$ '000 US$ '000
Non-current liabilities
Secured bank loans 492,484 627,074
Current liabilities
Secured bank loans 86,468 459
Unsecured loans from other non-related companies 307 289
86,775 748
a. The outstanding loans on 31 December 2017 comprise of the
following:
A secured loan from VTB Bank JSC ("VTB") signed on 22 June 2012
by one of the Group's subsidiary, Bellgate Construction Ltd
("Bellgate") with a maturity date in April 2018, which was
refinanced through a new loan, signed on 28 December 2017 by the
Group's subsidiary Bellgate. This loan facility agreement
refinanced the existing Bellgate loan from VTB and will also be
used to repay the remainder of Ozerkovskaya III loan. Bellgate will
receive the New Loan in five tranches, in Euros and in Russian
Rubles. The blended interest rate on the New Loan is circa 5.6%
(assuming current EUR/RUR exchange rate and current Russian Central
Bank key lending rate). The interest and the principal of the New
Loan are to be paid quarterly, while the term of the loan is 5
years. After drawdown of all the tranches, Bellgate will have loan
obligations in Russian Rubles of a maximum amount of RUR9.6 billion
and in Euros in the equivalent of US$360 million. During January
and February, the subsidiary drew-down all above mentioned
amounts.
(i) A secured loan from VTB Bank JSC ("VTB") signed on 25
January 2013 by one of the Group's subsidiary, Krown Investments
LLC ("Krown"). In December 2017, the Group, following the disposal
of the two buildings owned by the subsidiary, repaid principal part
of the secured loan in amount of US$108 million with the remaining
balance, as explained in (i) above, was fully repaid on 26 January
2018. For more details see note 38 subsequent events.
(ii) A secured loan from VTB Bank JSC ("VTB") signed on 18 July
2017 by one of the Group's subsidiary, MKPK PJSC (the owner of the
AFI Residence Paveletskaya Project). In January 2018 MKPK PJSC
drawdown the whole amount of the agreed loan facility, being RUR711
million, so as to refinance the previously incurred costs for the
construction of the project. The loan bears floating interest rate
of the Russian Central Bank key lending rate + 1.5%. The principal
on the loan is payable monthly, while the interest is payable
quarterly. The loan matures in July 2019.
(iii) 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 RUR620 million,
which is to be 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 (RUR470 million)
was effected. The loan was provided in RUR and carried an annual
interest rate of 11.5% with a right to increase by 1-2%. As of 30
September 2017 the credit line was fully repaid and the loan
agreement was terminated in October 2017.
(iv) 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.
(v) On 23 September 2017 the Group received two loans from VTB
to repay existing intra group loans. Both loan facilities, in the
amount of US$11.6 million and US$18.4 million were provided in US
dollars and are repayable in 5 years (the terms can be extended for
an additional 5 year period subject to agreements between the
parties). The loans bear an annual interest rate of 5.5%, have
quarterly principal payments and a balloon payment at maturity. The
interest is to be paid quarterly.
The above loans contain the below covenants:
- LTV (Loan-to-Value) annually;
- NAV (Net assets value) quarterly;
- DSCR (quarterly);
- Forecast DSCR (quarterly);
- EBITDA / (Interest ltm / Loan Debt quarterly);
- Sales plan quarterly (applicable only for loan received from
subsidiary MKPK PJSC);
- Total amount of CAPEX should not be higher than indicator of
EBITDA for current quarter.
b. Terms and debt repayment schedule
Terms and conditions of outstanding loans were as follows:
Currency Nominal Year 2017 2016
of
interest maturity US$ '000 US$ '000
rate
Secured loan from VTB Bank to
Bellgate RUR 9.5% 2018-2022 167,545 159,102
3m USD
Secured loan from VTB Bank to LIBOR+
Bellgate USD 5.02% 2018-2022 276,887 276,886
3m USD
Secured loan from VTB Bank to LIBOR+
Krown USD 7% 2017-2018 83,404 191,545
Secured loan from VTB Bank to 3m USD 2018-2022
Sanatorium USD LIBOR+ 21,404 -
Plaza 4.5%
Secured loan from VTB Bank to
Sanatorium
Plaza USD 5.5% 2018-2022 11,515 -
Secured loan from VTB Bank to
Sanatorium
Plaza SPA USD 5.5% 2018-2022 18,196 -
Other RUR 3-12% on demand 308 289
579,259 627,822
The secured bank loans are secured over investment property,
investment property under development and hotels with a carrying
amount of US$696,000 thousand (2016: US$865,000 thousand), US$NIL
(2016: US$28,300 thousand) US$56,706 thousand (2016: US$15,290
thousand) respectively.
2017 2016
The loans and borrowings are payable as follows: US$ '000 US$ '000
Less than one year 86,775 748
Between one and five years 492,484 627,074
More than five years - -
579,259 627,822
27. DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax (assets) and liabilities are attributable
to the following: 2017 2016
US$ '000 US$ '000
Investment property 69,885 73,531
Investment property under development 9,890 3,165
Property, plant and equipment 10,376 952
Trading properties (1,476) (391)
Trading properties under construction 25,478 16,056
Trade and other receivables (3,702) (5,777)
Trade and other payables 1,193 1,737
Other items (29) (40)
Tax losses carried forward (68,963) (74,299)
Deferred tax liability 42,652 14,934
28. TRADE AND OTHER PAYABLES
2017 2016
US$ '000 US$ '000
Trade payables 13,756 8,490
Payables to related parties (note 37) 183 427
Amount payable to builders 15,340 13,795
VAT and other taxes payable 28,982 5,681
Other payables 6,845 2,564
65,106 30,957
The above are payable within one year and bear no interest.
VAT and other taxes payable
Include an amount of US$24,618 thousand of tax payable arising
from the disposal of the two buildings of Aquamarine III Business
Centre, for further details on the disposal refer to note 15.
29. ADVANCES FROM CUSTOMERS
Represent advances received from customers for the sale of
residential properties at "Odinburg", "AFI Residence Paveletskaya",
"Botanic Garden" and "Bolshaya Pochtovaya" projects. During the
year the Group has sold 676 flats, 311 parking places and 99
offices and received additional down payments from customers.
30. DEFERRED INCOME
Represents rental income received from tenants at the beginning
of the lease contracts as guarantee against future unpaid rent or
damages.
31. FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT
Accounting classifications and fair values
The following table shows the carrying amounts and fair values
of financial assets and financial liabilities, including their
levels in the fair value hierarchy. It does not include fair value
information for financial assets and financial liabilities not
measured at fair value if the carrying amount is a reasonable
approximation of fair value.
Carrying amount Fair value
-------------------------------------------------------------------------------- ------------------------------------
Trade Cash Other
Loans and Other and cash financial
Receivable other investments equivalents liabilities Total Level Level Level Total
receivables 1 2 3
------------ ------------- ------------- ------------ ------------ -------- ------- ------- -------- --------
31 December US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
2017
Financial
assets
measured at
fair value
Investment
in fund - - 5,240 - - 5,240 - - 5,240 5,240
Investment
in listed
debt
securities - - 5,255 - - 5,255 5,255 - - 5,255
-------- -------- -------- -------- ---------- -----------
- - 10,495 - - 10,495
-------- -------- -------- -------- ---------- -----------
Financial
assets not
measured
at fair
value
Loans
receivable 2,759 - - - - 2,759
Trade and
other
receivables - 25,280 - - - 25,280
Cash and
cash
equivalents - - - 95,468 - 95,468
-------- -------- -------- -------- ---------- -----------
2,759 25,280 - 95,468 - 123,507
-------- -------- -------- -------- ---------- -----------
Financial
liabilities
not measured
at fair
value
Interest
bearing
loans and
borrowings - - - - (579,259) (579,259) - (579,415) - (579,415)
Trade and
other
payables - - - - (25,230) (25,230)
- - - - (604,489) (604,489)
-------- -------- -------- -------- ---------- -----------
Carrying amount Fair value
-------------------------------------------------------------------------------- ------------------------------------
Trade Cash Other
Loans and Other and cash financial
Receivable other investments equivalents liabilities Total Level Level Level Total
receivables 1 2 3
------------ ------------- ------------- ------------ ------------ -------- ------- ------- -------- --------
31 December US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
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 - 10,619 - 34,038
-------- -------- -------- -------- ---------- -----------
Financial
liabilities
not measured
at fair
value
Interest
bearing
loans and
borrowings - - - - (627,822) (627,822) - (614,771) - (614,771)
Trade and
other
payables - - - - (17,728) (17,728)
- - - - (653,098) (653,098)
-------- -------- -------- -------- ---------- -----------
Financial risk management
The Group has exposure to the following risks arising from
financial instruments:
-- credit risk
-- liquidity risk
-- market risk
-- operational risk
Risk management framework
The Board of Directors has overall responsibility for the
establishment and oversight of the Group's risk management
framework and is responsible for developing and monitoring the
Group's risk management policies.
The Group's risk management policies are established to identify
and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits.
Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group's activities.
The Group, through its training and management standards and
procedures, aims to maintain a disciplined and constructive control
environment in which all employees understand their roles and
obligations.
The Audit Committee overseas how management monitors compliance
with the Group's risk management policies and procedures, and
reviews the adequacy of the risk management framework in relation
to the risks faced by the Group. The Audit Committee is assisted in
its oversight role by Internal Audit. Internal Audit undertakes
both regular and ad hoc reviews of risk management controls and
procedures, the results of which are reported to the Audit
Committee.
Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from the
Group's receivables from tenants and investments in debt
securities.
The carrying amount of financial assets represents the maximum
credit exposure.
Trade and other receivables
Financial assets which are potentially subject to credit risk
consist principally of trade and other receivables as well as
credit exposures with respect to rental customers and buyers of
residential properties including outstanding receivables. The
carrying amount of trade and other receivable represents the
maximum amount exposed to credit risk. There is no concentration of
credit risk to any single customer in any of the Group's segments.
Geographically there is no concentration of credit risk. The Group
has policies in place to ensure that sales of flats and parking
lots as well as renting of vacant spaces are made to customers and
tenants with an appropriate credit history and monitors on a
continuous basis the ageing profile of its receivables.
Impairment
At 31 December 2017, the ageing of trade and other receivable
that were not impaired was as follows:
2017 2016
US$ '000 US$ '000
Neither past due nor impaired 315 -
Past due 1-30 days 20,460 2,193
Past due 31-90 days 1,078 729
Past due 91-120 days 2,022 4,727
Past due 121 days 1,405 -
25,280 7,649
Management believes that the unimpaired amounts that are past
due by more than 30 days are still collectible in full, based on
historical payment behaviour and extensive analysis of customer
credit risk, including underlying customers' credit ratings if they
are available.
The movement in the allowance for impairment in respect of trade
and other receivables during the year was as follows:
Individual Collective
impairments impairments
US$ '000 US$ '000
Balance at 1 January 2016 12 11,390
Reversal of impairment loss recognised 12 (1,669)
Exchange difference effect - (1,460)
Balance at 31 December 2016 24 8,261
Impairment loss/(reversal) recognised 38 (8,699)
Exchange difference effect 20 438
Balance at 31 December 2017 82 -
Debt securities
The Group limits its exposure to credit risk by investing only
in liquid securities and only with counterparties that have a high
credit rating. Management actively monitors credit ratings and
given that the Group only has invested in securities with high
credit ratings, management does not expect any counterparty to fail
to meet its obligations.
Cash and cash equivalents
The Group held cash at bank of US$95,102 thousand at 31 December
2017 (2016: US$10,356. The cash and cash equivalents are held with
bank and financial institution counterparties with a high credit
rating. The utilisation of credit limits is regularly
monitored.
The Group has no other significant concentrations of credit
risk. Although collection of receivables could be influenced by
economic factors, management believes that there is no significant
risk of loss to the Group.
Guarantees
The Company's policy is to provide financial guarantees only to
wholly-owned subsidiaries.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Group's approach to managing liquidity is to
ensure, as far as possible, that it will have sufficient liquidity
to meet its liabilities when they are due, under both normal and
stressed conditions, without incurring unacceptable losses or
risking damage to the Group's reputation.
Prudent liquidity risk management implies maintaining sufficient
cash, the availability of funding through an adequate amount of
committed credit facilities and the ability to close out market
positions. Due to the dynamic nature of the underlying businesses,
the Group aims to maintain flexibility in its funding requirements
by keeping cash and committed credit lines available.
The Group's liquidity position is monitored by the management
which take necessary actions if required. The Group structures its
assets and liabilities in such a way that liquidity risk is
minimised.
The Group maintains the following lines of credit as at 31
December 2017:
-- A secured bank loan facility from VTB Bank JSC for RUR
21billion, with the majority of the funds designated for
refinancing existing loans and the rest for the financing of the
acquisition and construction AFIMALL City parking. The line was
fully used up to the end of February 2014. This loan was refinanced
through a new loan agreement signed on 28 December 2017, with all
the tranches being drawn during January-February 2018.
-- A secured bank loan facility from VTB Bank JSC initially for
US$205 million, current balance US$83.4 million, acquired for
refinancing the construction costs for Ozerkovskaya III project. It
was fully repaid in January 2018.
-- A secured loan facility from VTB Bank JSC for RUR711 million
to refinance previously incurred costs for the construction of AFI
Residence Paveletskaya project. The loan was fully drawn in January
2018.
-- A secured bank loan facility from VTB Bank JSC to finance the
acquisition of the additional 50% stake in the "Plaza Spa
Kislovodsk" project in the amount of US$ 22.5 million.
-- Secured bank loan facilities from VTB Bank JSC in the amount
of US$11.6 million and US$18.4 million to repay existing intra
group loans.
The following are the remaining contractual maturities of
financial liabilities at the reporting date, including estimated
interest payments and excluding the impact of netting
agreements:
31 December 2017 Carrying Contractual 6 months 6-12
Amount Cash flow or less months 1-2 years 2-5 years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Secured bank loans 578,952 (718,279) (26,717) (25,194) (46,721) (619,647)
Unsecured loans 307 (307) (307) - - -
Trade and other payables 25,230 (25,230) (25,230) - - -
31 December 2016 Carrying Contractual 6 months 6-12
Amount Cash flow or less months 1-2 years 2-5 years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Secured bank loans 627,533 (683,605) (23,378) (23,640) (636,587) -
Unsecured loans 289 (289) (289) - - -
Trade and other
payables 17,728 (17,728) (17,728) - - -
As disclosed in note 26 the Group has secured bank loans that
contain loan covenants. A future breach of a covenant may require
the Group to repay the loan earlier than indicated in the above
table.
Market risk
Market price risk is the risk that the value of financial
instruments will fluctuate as a result of changes in market prices
such as foreign exchange rates, interest rates and equity prices.
The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while
optimising the return.
Currency risk
The Group is exposed to currency risk to the extent that there
is a mismatch between the currencies in which loans receivable,
sales, purchases of material and construction services and
borrowings are denominated and the respective functional currencies
of Group companies. The functional currencies of Group companies
are primarily the Russian Roubles and US Dollars. The currencies in
which these transactions are primarily denominated are Russian
Roubles, US Dollars and Euro.
Exposure to currency risk
The summary quantitative date about the Group's exposure to
currency risk as reported to the management of the Group is as
follows:
RUR US$ EUR
US$ '000 US$ '000 US$ '000
31 December 2017
Cash and cash equivalents 62 32,140 426
Trade receivables 161 2,613 128
Loans and borrowings (7,082) (393,209) -
Trade payables (115) (6,478) (270)
31 December 2016
Cash and cash equivalents 48 3,230 156
Loans receivable - 11,504 -
Trade receivables 2,935 608 33
Loans and borrowings (6,726) (468,431) -
Trade payables (210) (10,496) (176)
Sensitivity analysis
The following shows the magnitude of changes in respect of a
number of major factors influencing the Group's profit before
taxes. The assessment has been made on the year-end figures.
A 10% strengthening of the Russian Rubble, US dollar or Euro
against all other currencies at 31 December would have affected the
measurement of financial instruments denominated in a foreign
currency and affected equity and profit or loss by the amounts
shown below.
This analysis assumes that all other variables, in particular
interest rates, remain constant and ignores any impact of forecast
sales, purchases of material and construction services. The
analysis is performed on the same basis for 2016.
Profit
for Equity
the year
US$ '000 US$ '000
31 December 2017
Russian Roubles 634 -
US dollar (40,548) -
Euro 11 -
Profit
for Equity
the year
US$ '000 US$ '000
31 December 2016
Russian Roubles 626 -
US dollar (51,509) -
Euro (12) -
A 10% weakening of the Russian Rubble, US dollar or Euro against
all other currencies at 31 December 2016 would have the equal but
opposite effect on the above currencies to the amounts shown above,
on the basis that all other variables remain constant.
Interest rate risk
Interest rate risk is the risk that the value of financial
instruments will fluctuate due to changes in market interest rates.
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. Group's management monitors
the interest rate fluctuations on a continuous basis and acts
accordingly.
Profile
At the reporting date the interest rate profile of the Group's
interest-bearing financial instruments is as follows:
Carrying amount
2017 2016
US$ '000 US$ '000
Fixed rate instruments
Financial assets 95,821 29,994
Financial liabilities (197,564) (159,391)
(101,743) (129,397)
Variable rate instruments
Financial assets - -
Financial liabilities (381,695) (468,431)
(381,695) (468,431)
Cash flow sensitivity analysis for variable rate instruments
An increase of 100 basis points in interest rates at the
reporting date would have increased/ (decreased) equity and profit
for the year by the amounts shown below. This analysis assumes that
all other variables, in particular foreign currency rates, remain
constant. The analysis is performed on the same basis for 2016.
Profit
Equity for
the year
US$ '000 US$ '000
31 December 2017
Variable rate instruments - (3,817)
31 December 2016
Variable rate instruments - (4,684)
A decrease of 100 basis points in interest rates at the
reporting date would have the equal but opposite effect on the
above instruments to the amounts shown above, on the basis that all
other variables remain constant.
Operational risk
Operational risk is the risk of direct or indirect loss arising
from a wide variety of causes associated with the Group's
processes, personnel, technology and infrastructure, and from
external factors other than credit, market and liquidity risks such
as those arising from legal and regulatory requirements and
generally accepted standards of corporate behaviour. Operational
risks arise from all of the Group's operations.
The Group's objective is to manage operational risk so as to
balance the avoidance of financial losses and damage to the Group's
reputation with overall cost effectiveness and to avoid control
procedures that restrict initiative and creativity.
The primary responsibility for the development and
implementation of controls to address operational risk is assigned
to senior management within each business unit. This responsibility
is supported by the development of overall Group standards for the
management of operational risk in the following areas:
-- requirements for appropriate segregation of duties, including
the independent authorisation of transactions
-- requirements for the reconciliation and monitoring of transactions
-- compliance with regulatory and other legal requirements
-- documentation of controls and procedures
-- requirements for the periodic assessment of operational risks
faced, and the adequacy of controls and procedures to address the
risks identified
-- requirements for the reporting of operational losses and proposed remedial action
-- development of contingency plans
-- training and professional development
-- ethical and business standards
-- risk mitigation, including insurance where this is effective
Compliance with Group standards is supported by a programme of
periodic reviews undertaken by Internal Audit. The results of
Internal Audit reviews are discussed with the management of the
business unit to which they relate, with summaries submitted to the
Audit Committee and senior management of the Group.
Capital management
The Board's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the business.
There were no changes in the Group's approach to capital
management during the year. Neither the Company nor any of its
subsidiaries are subject to externally imposed capital
requirements.
The Company is committed to delivering the highest standards in
boardroom practice and financial transparency through:
-- clear and open communication with investors;
-- maintaining accurate quarterly financial records which
transparently and honestly reflect the financial position of its
business; and
-- endeavouring to maximise shareholder returns.
A full programme of investor relations activity ensures
appropriate contact with institutional and private shareholders,
with regular meetings, presentations and disclosure of important
information. Great care is taken to provide suitably detailed
information on the Group's activities and results to enable various
stakeholders to understand the performance and prospects of the
Group.
Russian Business 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 conflict in Ukraine and related events has increased the
perceived risks of doing business in the Russian Federation. The
imposition of economic sanctions on Russian individuals and legal
entities by the European Union, the United States of America,
Japan, Canada, Australia and others, as well as retaliatory
sanctions imposed by the Russian government, has resulted in
increased economic uncertainty including more volatile equity
markets, a depreciation of the Russian Rouble, a reduction in both
local and foreign direct investment inflows and a significant
tightening in the availability of credit. In particular, some
Russian entities may be experiencing difficulties in accessing
international equity and debt markets and may become increasingly
dependent on Russian state banks to finance their operations. The
longer term effects of recently implemented sanctions, as well as
the threat of additional future sanctions, are difficult to
determine.
The consolidated 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.
Taxation contingencies in the Russian Federation
The taxation system in the Russian Federation continues to
evolve and is characterised by frequent changes in legislation,
official pronouncements and court decisions, which are sometimes
contradictory and subject to varying interpretation by different
tax authorities.
Taxes are subject to review and investigation by a number of
authorities, which have the authority to impose severe fines,
penalties and interest charges. A tax year generally remains open
for review by the tax authorities during the three subsequent
calendar years. Recent events within the Russian Federation suggest
that the tax authorities are taking a more assertive and
substance-based position in their interpretation and enforcement of
tax legislation.
Transfer pricing legislation enacted in the Russian Federation
starting from 1 January 2012 provides for major modifications
making local transfer pricing rules closer to OECD guidelines, but
creating additional uncertainty in practical application of tax
legislation in certain circumstances.
These transfer pricing rules provide for an obligation for the
taxpayers to prepare transfer pricing documentation with respect to
controlled transactions and prescribe the basis and mechanisms for
accruing additional taxes and interest in case prices in the
controlled transactions differ from the market level.
The transfer pricing rules apply to cross-border transactions
between related parties, as well as to certain cross-border
transactions between independent parties, as determined under the
Russian Tax Code (no threshold is set for the purposes of prices
control in such transactions). In addition, the rules apply to
in-country transactions between related parties if the accumulated
annual volume of the transactions between the same parties exceeds
a particular threshold (RUB 1 billion in 2014 and thereon).
The compliance of prices with the arm's length level could be as
well subject to scrutiny on the basis of unjustified tax benefit
concept.
In addition, a number of new laws introducing changes to the
Russian tax legislation have been recently adopted. In particular,
starting from 1 January 2015 changes aimed at regulating tax
consequences of transactions with foreign companies and their
activities were introduced, such as concept of beneficial ownership
of income, taxation of controlled foreign companies, tax residency
rules, etc. These changes may potentially impact the Group's tax
position and create additional tax risks going forward. This
legislation and practice of its application is still evolving and
the impact of legislative changes should be considered based on the
actual circumstances.
All these circumstances may create tax risks in the Russian
Federation that are substantially more significant than in other
countries. Management believes that it has provided adequately for
tax liabilities based on its interpretations of applicable Russian
tax legislation, official pronouncements and court decisions.
However, the interpretations of the tax authorities and courts,
especially due to reform of the supreme courts that are resolving
tax disputes, could differ and the effect on these consolidated
financial statements, if the authorities were successful in
enforcing their interpretations, could be significant.
32. GROUP COMPOSITION
Name: Country:
Ultimate controlling party: Lev Leviev Israel
Holding company: Flotonic Limited (see note below) Cyprus
Significant Subsidiaries Ownership interest Country of
incorporation
2017 2016
1. OOO AFI RUS 100 100 Russian Federation
2. OOO Avtostoyanka Tverskaya Zastava 100 100 Russian
Federation
3. OOO Krown Investments 100 100 Russian Federation
4. OAO Moskovskiy Kartonazhno-poligraphiche
skiy Kombinat (MKPK) 99.18 99.17 Russian Federation
5. Bellgate Constructions Limited 100 100 Cyprus
6. OOO Regionalnoe AgroProizvodstvennoe
Objedinenie (RAPO) 100 100 Russian Federation
7. Scotson Limited 100 100 Cyprus
8. OOO Titon 100 100 Russian Federation
9. ZAO MTOK 99.71 99.71 Russian Federation
10. Triumvirate I S.a r.I 100 100 Russian Federation
11. OOO Nordservice 100 100 Russian Federation
12. OOO Plaza SPA 100 100 Russian Federation
13. OOO Semprex 100 100 Russian Federation
14. OOO Zheldoruslugi 100 95 Russian Federation
15. OOO Bizar 100 74 Russian Federation
16. AFI D Finance SA 100 100 British Virgin Islands
Flotonic Limited, a fully owned private company of Mr Leviev,
holds 336,948,796 Global Depository Receipts (issued over "A"
ordinary shares) and 342,799,658 Depository Interests (issued over
"B" ordinary shares), representing in aggregate 64.88% of the
Company's issued share capital.
Additionally, Mr Leviev has personally granted a call option to
Africa Israel Investments Ltd ("AI"), previous holding company, in
respect of 51,933,807 GDRs and 52,835,598 B ordinary shares
(approximately 10% of the Company's issued share capital) at a
price of US$0.216 per 1 GDR and US$0.295 per 1 "B" ordinary share.
The call option has been assigned by AI to trustees on behalf of AI
bondholders and the trustees may exercise the Call Option within
three years from the date of completion of the Purchase Transaction
upon instructions of the AI bondholders.
33. ACQUISITION OF JOINT VENTURES
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
US$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.
34. NON-CONTROLLING INTERESTS
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$1,496) thousand respectively.
The following table summarises the effect of changes in the
Company's ownership interest in Beslaville Management Limited,
Zheldoruslugi LLC and Bizar LLC.
US$ '000
Carrying amount of NCI acquired (($60,660) thousand
* 5% &
($1,496) thousand * 26%) (3,422)
Consideration paid to NCI (6,710)
A decrease in equity attributable to owners of
the Company (10,132)
The decrease in equity attributable to owners of the Company
comprised of a negative capital reserve of US$10,132 thousand.
35. OPERATING LEASES
Leases as lessee
Non-cancellable operating lease rentals are payable as
follows:
2017 2016
US$ '000 US$ '000
Less than a year 6,165 6,017
Between one and five years 13,688 17,613
More than five years 45,716 27,042
65,569 50,672
Amount recognised as an expense during
the year 1,897 1,429
The ownership of land in the Russian Federation is rare and
especially within Moscow region, in which all of the property with
only a few exceptions, is owned by the City of Moscow. The majority
of land is occupied by private entities pursuant to lease
agreements between occupants, of the building located on the land,
and the City of Moscow. The Group has several long-term operating
leases for land. These leases are entered into with the intention
and right to develop the land and carry out construction. Typically
they run for an initial period of one to five years which is the
period of development and upon completion of development the
developer has the right to renew for a long term period of usually
up to 49 years. Under both leases the lessee is required to make
periodic lease payments, generally on a quarterly basis to the City
of Moscow.
There is also the option of long term land lease prior to
commencement of construction which the developer can acquire with a
lump sum payment that is determined from time to time by the City
of Moscow and is based on the size of the land, its location and
the proximity to amenities. The Group has five such land rights and
they run for period of 49 years.
Leases as lessor
The Group leases out investment property under operating leases,
see note 15. The future minimum lease payments under
non-cancellable leases are as follows:
2017 2016
US$ '000 US$ '000
Less than a year 75,827 68,426
Between one and five years 181,910 134,456
More than five years 48,500 29,301
306,237 232,183
Amount recognised as income during the year 87,852 72,299
36. CAPITAL COMMITMENTS
Up to 31 December 2017 the Group has entered into a number of
contracts for the construction of investment or trading
properties:
Project name Commitment
2017 2016
US$ '000 US$ '000
Odinburg 51,724 2,158
Kosinskaya 337 839
TVZ Plaza IC 116 1,122
Serebryakova 104,625 21,856
Pavaletskaya II 10,180 28,196
TVZ Plaza IV 624 24
TVZ Plaza II 343 761
Bolshaya Pochtovaya 52,908 115
Starokaluzhskoye shosse 27 5
220,884 55,076
37. RELATED PARTIES
Outstanding balances with related parties 2017 2016
US$ '000 US$ '000
Assets
Amounts receivable from joint ventures - 11
Amounts receivable from other related
companies 109 256
Long term loans receivable from joint
ventures - 15,745
2017 2016
US$ '000 US$ '000
Liabilities
Amounts payable to joint ventures - 102
Amounts payable to other related companies 183 325
Deferred income from related company 101 145
Transactions with the key management personnel 2017 2016
US$ '000 US$ '000
Key management personnel compensation
comprised:
Short-term employee benefits 2,662 2,631
Share option scheme expense - 857
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.
Other related party transactions 2017 2016
US$ '000 US$ '000
Revenue
Joint venture - consulting services 31 173
Joint venture - interest income 211 1,339
Related company - other income 1 -
Related company - rental income 408 699
Expenses
Related company - administrative expenses - 157
Joint venture - operating expenses 10 54
Other related party transactions 2017 2016
US$ '000 US$ '000
Construction services capitalised
Related company - construction services - -
38. SUBSEQUENT EVENTS
Subsequent to 31 December 2017 there were no events that took
place which have a bearing on the understanding of these financial
statements except of the following:
-- In January 2018, the Company's subsidiary MKPK PJSC (the
owner of the AFI Residence Paveletskaya Project) received a loan
from VTB Bank PJSC in the amount of RUR711 billion to refinance the
previously incurred costs for the construction of the project. The
loan bears floating interest rate of the Russian Central Bank key
lending rate + 1.5%. The principal on the loan is payable monthly,
while the interest is payable quarterly. The loan matures in July
2019.
-- On 26 January 2018 Group's subsidiary, Krown Investments LLC
repaid remaining part of the secured loan in amount of US$83
million through refinancing as explained in note 26 (i).
SEPARATE FINANCIAL STATEMENTS OF THE PARENT COMPANY
For the year ended 31 December 2017
C O N T E N T S
Directors' Responsibility Statement
Separate Income Statement and Statement of Comprehensive
Income of the Parent Company
Separate Statement of Changes in Equity of the Parent
Company
Separate Statement of Financial Position of the
Parent Company
Separate Statement of Cash Flows of the Parent Company
Notes to the Separate Financial Statements of the
Parent Company
STATEMENT BY THE MEMBERS OF THE BOARD OF DIRECTORS AND THE
COMPANY OFFICIALS RESPONSIBLE FOR THE DRAFTING OF THE SEPARATE
FINANCIAL STATEMENTS IN ACCORDANCE WITH THE PROVISIONS OF CYPRUS
LAW 190(I)/2007 ON TRANSPARENCY REQUIREMENTS
We, the members of the Board of Directors and the Company
officials responsible for the drafting of the separate financial
statements of AFI Development Plc (the 'Company') for the year
ended 31 December 2017, the names of which are listed below,
confirm that, to the best of our knowledge:
d) The separate financial statements:
(iii) have been prepared in accordance with the International
Financial Reporting Standards (IFRS) as adopted by the European
Union and the requirements of the Cyprus Companies Law,
(iv) give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the
undertakings included in the consolidated financial statements
taken as a whole,
e) the adoption of a going concern basis for the preparation of
the separate financial statements continues to be appropriate based
on the foregoing and having reviewed the forecast financial
position of the Company; and
The Directors of the Company as at the date of this announcement
are as set out below:
The Board of Directors
Executive directors
Lev Leviev - Chairman .............................................................
Non-executive independent directors
Panayiotis Demetriou .............................................................
David Tahan
.............................................................
Company officers
Chief executive officer
Mark Groysman .............................................................
Chief financial officer
Natalia Pirogova
.............................................................
16 April 2018
SEPARATE INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME
OF THE PARENT COMPANY
For the year ended 31 December 2017
2017 2016
Note US$ '000 US$ '000
Revenue 4 17,347 478,382
Other income - 482
Other expenses (31) (82)
Administrative expenses 5 (4,505) (6,912)
Impairment of investment in subsidiaries 7 (899,156) (560,663)
(903,692) (567,657)
Results from operating activities (886,345) (88,793)
Finance income - 254
Finance costs (5,957) (8,777)
Net finance costs 6 (5,957) (8,523)
Loss for the year (892,302) (97,316)
Other comprehensive income - -
Total comprehensive expense for
the year (892,302) (97,316)
The notes are an integral part of these separate financial
statements of the parent company.
SEPARATE STATEMENT OF CHANGES IN EQUITY OF THE PARENT
COMPANY
For the year ended 31 December 2017
Share Accumulated
capital Share premium losses Total
US$ '000 US$ '000 US$ '000 US$ '000
Balance at 1 January 2016 1,048 1,763,409 (419,452) 1,345,005
Total comprehensive income
for the year - - (97,316) (97,316)
Transactions with owners of
the Company
Contributions and distributions
Share option expense - - 857 857
Balance at 31 December 2016 1,048 1,763,409 (515,911) 1,248,546
Balance at 1 January 2017 1,048 1,763,409 (515,911) 1,248,546
Total comprehensive expense
for the year - - (892,302) (892,302)
Balance at 31 December 2017 1,048 1,763,409 (1,408,213) 356,244
The notes are an integral part of these separate financial
statements of the parent company.
SEPARATE STATEMENT OF FINANCIAL POSITION OF THE PARENT
COMPANY
As at 31 December 2017
2017 2016
Note US$ '000 US$ '000
Assets
Investment in subsidiaries 7 371,778 1,242,182
Trade and other receivables 8 8,433 210,947
Refundable tax 2,215 2,215
Cash and cash equivalents 9 897 2,057
Total current assets 11,545 215,219
Total assets 383,323 1,457,401
Equity
Share capital 1,048 1,048
Share premium 1,763,409 1,763,409
Accumulated losses (1,408,213) (515,911)
Total equity 10 356,244 1,248,546
Liabilities
Loans and borrowings 11 22,182 109,337
Total non--current liabilities 22,182 109,337
Trade and other payables 12 4,897 99,518
Total current liabilities 4,897 99,518
Total liabilities 27,079 208,855
Total equity and liabilities 383,323 1,457,401
The financial statements were approved by the Board of Directors
on 16 April 2018.
.......................... ..........................
Lev Leviev David Tahan
Chairman Director
The notes are an integral part of these separate financial
statements of the parent company.
SEPARATE STATEMENT OF CASH FLOWS OF THE PARENT COMPANY
For the year ended 31 December 2017
2017 2016
Note US$ '000 US$ '000
Cash flows from operating activities
Loss for the year (892,302) (97,316)
Adjustments for:
Net foreign exchange loss/(gain) 6 16 (46)
Impairment of investment in subsidiaries 7 899,156 560,663
Dividend income 4 (17,347) (478,382)
Interest income 6 - (208)
Interest expense 6 5,924 8,756
Share option expense 5 - 857
(4,553) (5,676)
Change in trade and other receivables 564 (448)
Change in trade and other payables 518 554
Net cash used in operating activities (3,471) (5,570)
Cash flows from investing activities
Additional contribution of capital to
existing subsidiaries 7 (33,906) (3,001)
Additional shareholding in subsidiary 7 (1,500) -
Proceeds from repayment of loans receivable - 3,300
Proceeds from disposal of investments
in subsidiaries 4 24,001 -
Interest received 6 - 235
Net cash from investing activities (11,405) 534
Cash flows from financing activities
Repayment of loans and borrowings 11 - (6,050)
Proceeds from loans and borrowings 11 13,735 6,225
Net cash from financing activities 13,735 175
Effect of exchange rate fluctuations
on cash held (19) 13
Net decrease in cash and cash equivalents (1,160) (4,848)
Cash and cash equivalents at 1 January 2,057 6,905
Cash and cash equivalents at 31 December 9 897 2,057
The cash and cash equivalents consists
of:
Cash at banks 897 2,057
The notes are an integral part of these separate financial
statements of the parent company.
NOTES TO THE SEPARATE FINANCIAL STATEMENTS OF THE PARENT
COMPANY
For the year ended 31 December 2017
1. INCORPORATION AND PRINCIPAL ACTIVITIES
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, 5th 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.
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.
The principal activity of the Company is the holding of
investments in subsidiaries.
2. BASIS OF ACCOUNTING
(i) Going concern
The financial statements have been prepared on a going concern
basis, as detailed in note 2(i) of the consolidated financial
statements.
(ii) Statement of compliance
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union (EU) and the requirements of the Cyprus
Companies Law, Cap.113.
Users of these parent's separate financial statements should
read them together with the Group's consolidated financial
statements as at and for the year ended 31 December 2017 in order
to obtain a proper understanding of the financial position, the
financial performance and the cash flows of the Company and the
Group.
(iii) Basis of measurement
The financial statements have been prepared under the historical
cost convention, except in the case of investments, which are
stated at cost less provision for impairment in value and
receivables which are stated after the provision for
impairment.
(iv) Adoption of new and revised International Financial
Reporting Standards and Interpretations
As from 1 January 2017, the Company adopted all changes to
International Financial Reporting Standards (IFRSs) as adopted by
the EU which are relevant to its operations. This adoption did not
have a material effect on the parent's separate financial
statements except for the adoption of IFRS 9 "financial
instruments".
(iv) Adoption of new and revised International Financial
Reporting Standards and Interpretations (continued)
The following Standards, Amendments to Standards and
Interpretations have been issued by International Accounting
Standards Board ("IASB") but are not yet effective for annual
periods beginning on 1 January 2017. Those which may be relevant to
the Company are set out below. The Company does not plan to adopt
these Standards early.
Standards and Interpretations adopted by the EU
-- IFRS 9 "Financial Instruments" (effective for annual periods
beginning on or after 1 January 2018), see below for the
impact.
-- IFRS 15 "Revenue from Contracts with Customers" (effective
for annual periods beginning on or after 1 January 2018).
IFRS 15 establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. It replaces
existing revenue recognition guidance, including IAS 18 Revenue,
IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty
Programs. It provides a principles-based approach for revenue
recognition, and introduces the concept of recognizing revenue for
performance obligations as they are satisfied. The recognition of
such revenue is in accordance with five steps to: 1) identifying
the contract with the customer; 2) identifying each of the
performance obligations included in the contract; 3) determining
the transaction price; 4) allocating the transaction price to the
performance obligations in the contract; and 5) recognising revenue
as each performance obligation is satisfied.
Based on assessments undertaken to date, the adoption of the
standard is not expected to have a material impact on the Company's
financial statements.
-- IFRS 15 (Clarifications) "Revenue from Contracts with
Customers" (effective for annual periods beginning on or after 1
January 2018).
Clarifications to IFRS 15 provide additional application
guidance but do not change the underlying principles of the
standard. The clarifications relate principally to identifying
performance obligations (step 2), accounting for licenses of
intellectual property (step 5) and agent vs principal
considerations. The clarifications also introduce additional
practical expedients on transition in relation to modified and
completed contracts.
Based on assessments undertaken to date, the adoption of the
clarifications is not expected to have a material impact on the
Company's financial statements.
-- IFRS 9 (Amendments) "Prepayment Features with Negative
Compensation" (effective for annual periods beginning on or after 1
January 2019)
In October 2017, the IASB issued "Prepayment Features with
Negative Compensation (Amendments to IFRS 9)". The amendments
address the issue that under pre-amended IFRS 9, financial assets
with such features would probably not meet the SPPI criterion and
as such would be measured at fair value through profit or loss. The
IASB believes that this would not be appropriate because measuring
them at amortised cost provides useful information about the
amount, timing and uncertainty of their future cash flows.
Financial assets with these prepayment features can therefore be
measured at amortised cost or fair value through other
comprehensive income provided that they meet the other relevant
requirements of IFRS 9. The final amendments also contain a
clarification in the accounting for a modification or exchange of a
financial liability measured at amortised cost that does not result
in thederecognition of the financial liability. Based on the
clarification, an entity recognises any adjustment to the amortised
cost of the financial liability arising from a modification or
exchange in profit or loss at the date of the modification or
exchange.
The Company is currently evaluating the expected impact of
adopting the amendments on its financial statements. As such, the
expected impact of the amendments is not yet known or reasonably
estimable.
Standards and Interpretations not adopted by the EU
-- IFRIC 23 "Uncertainty over Income Tax Treatments" (effective
for annual periods beginning on or after 1 January 2019).
IFRIC 23 clarifies the accounting for income tax treatments that
have yet to be accepted by tax authorities, whilst also aiming to
enhance transparency. The key test is whether it is probable that
the tax authority will accept the chosen tax treatment, on the
assumption that tax authorities will have full knowledge of all
relevant information in assessing a proposed tax treatment. The
uncertainty is reflected using the measure that provides the better
prediction of the resolution of the uncertainty being either the
most likely amount or the expected value. The interpretation also
requires companies to reassess the judgements and estimates applied
if facts and circumstances change. IFRIC 23 does not introduce any
new disclosures but reinforces the need to comply with existing
disclosure requirements in relation to judgements made, assumptions
and estimates used, and the potential impact of uncertainties that
are not reflected.
The Company is currently evaluating the expected impact of
adopting the interpretation on its financial statements. As such,
the expected impact of the interpretation is not yet known or
reasonably estimable.
-- "Amendments to References to the Conceptual Framework in IFRS
Standards" (effective for annual periods beginning on or after 1
January 2020)
In March 2018 the IASB issued a comprehensive set of concepts
for financial reporting, the revised "Conceptual Framework for
Financial Reporting" (Conceptual Framework), replacing the previous
version issued in 2010. The main changes to the framework's
principles have implications for how and when assets and
liabilities are recognised and derecognized in the financial
statements, while some of the concepts in the revised Framework are
entirely new (such as the "practical ability" approach to
liabilities". To assist companies with the transition, the IASB
issued a separate accompanying document "Amendments to References
to the Conceptual Framework in IFRS Standards". This document
updates some references to previous versions of the Conceptual
Framework in IFRS Standards, their accompanying documents and IFRS
Practice Statements.
The Company is currently evaluating the expected impact of
adopting the amendments on its financial statements. As such, the
expected impact of the amendments is not yet known or reasonably
estimable.
The following standard is expected to have a material impact on
the Company's financial statements in the period of initial
application.
A. Estimated impact of the adoption of IFRS 9
The Company is required to adopt IFRS 9 Financial Instruments
from 1 January 2018. The Company has assessed the estimated impact
that the initial application of IFRS 9 will have on its separate
financial statements. The estimated impact of the adoption of this
standard on the Company's equity as at 1 January 2018 is based on
assessments undertaken to date and is summarised below. The actual
impact of adopting the standard at 1 January 2018 may change
because:
- the Company has not finalised the testing and assessment of
controls over its new IT systems; and
- the new accounting policies are subject to change until the
Company presents its first financial statements that include the
date of initial application.
In thousands of dollars As reported Estimated Estimated adjusted
at 31 December adjustments opening balance
2017 (US$'000) due to at 1 January
adoption of 2018(US$'000)
IFRS 9(US$'000)
Accumulated losses (1,408,213) (7,840) (1,416,053)
B. IFRS 9 Financial instruments
IFRS 9 Financial Instruments sets out requirements for
recognising and measuring financial assets, financial liabilities
and some contracts to buy or sell non-financial items. This
standard replaces IAS 39 Financial Instruments: Recognition and
Measurement.
(i) Classification - Financial assets
IFRS 9 contains a new classification and measurement approach
for financial assets that reflects the business model in which
assets are managed and their cash flow characteristics. IFRS 9
contains three principal classification categories for financial
assets: measured at amortised cost, FVOCI and FVTPL. The standard
eliminates the existing IAS 39 categories of held to maturity,
loans and receivables and available for sale.
Based on its assessment, the Company believes that the new
classification requirements will not have a material impact on its
accounting for cash and cash equivalents and trade and other
receivables.
(ii) Impairment - Financial assets
IFRS 9 replaces the 'incurred loss' model in IAS 39 with a
forward-looking 'expected credit loss' (ECL) model. This will
require considerable judgement about how changes in economic
factors affect ECLs, which will be determined on a
probability-weighted basis. The new impairment model will apply to
financial assets measured at amortised cost or FVOCI, except for
investments in equity instruments, and to contract assets.
Under IFRS 9, loss allowances will be measured on either of the
following bases:
- 12-month ECLs: these are ECLs that result from possible
default events within the 12 months after the reporting date;
and
- lifetime ECLs: these are ECLs that result from all possible
default events over the expected life of a financial
instrument.
The Company believes that impairment losses are likely to
increase and become more volatile for assets in the scope of the
IFRS 9 impairment model. Based on the impairment methodology
described below, the Company has estimated that application of IFRS
9's impairment requirements at 1 January 2018 results in additional
impairment losses as follows.
In thousands of dollars Estimated additional
impairment recognised
at 1 January 2018(US$'000)
Trade and other receivables 8,030
Cash and cash equivalents 1
Gross additional impairment losses 8,031
Trade and other receivables
The estimated ECLs for trade and other receivables were
calculated based on actual credit loss experience over the prior
years.
Cash and cash equivalents
The cash and cash equivalents are held with bank and financial institution
counterparties as at 31 December 2017. The estimated impairment on
cash and cash equivalents was calculated based on the 12-month expected
loss basis and reflects the short maturities of the exposures. The
Company considers that its cash and cash equivalents have low credit
risk based on the external credit ratings of the counterparties.
(iii)Classification - Financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification of financial liabilities. However, under IAS 39
all fair value changes of liabilities designated as at FVTPL are
recognised in profit or loss, whereas under IFRS 9 these fair value
changes are generally presented as follows:
- The amount of change in the fair value that is attributable to
changes in the credit risk of the liability is presented in OCI;
and
- The remaining amount of change in the fair value is presented
in profit or loss.
The Company has not designated any financial liabilities at
FVTPL and it has no current intention to do so.
(iv)Transition
Changes in accounting policies resulting from the adoption of IFRS
9 will generally be applied retrospectively, except as described
below.
The Company will take advantage of the exemption allowing it not
to restate comparative information for prior periods with respect
to classification and measurement (including impairment) changes.
Differences in the carrying amounts of financial assets and
financial liabilities resulting from the adoption of IFRS 9 will
generally be recognised in retained earnings and reserves as at 1
January 2018.
The following assessments have to be made on the basis of the
facts and circumstances that exist at the date of initial
application.
- The determination of the business model within which a financial asset is held.
(v) Use of estimates and judgements
The preparation of financial statements in conformity with IFRSs
requires management to make 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 deviate from such estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
In particular, information about critical judgements in applying
accounting policies that have the most significant effect on the
amounts recognised in the financial statements are described
below:
-- Income taxes
Significant judgement is required in determining the 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 recognises 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 income tax provisions in the
period in which such determination is made.
-- Impairment of investments in subsidiaries
The Company periodically evaluates the recoverability of
investments in subsidiaries whenever indicators of impairment are
present. Indicators of impairment include 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 an asset is not recoverable.
If facts and circumstances indicate that investment in subsidiaries
may be impaired, the estimated future undiscounted cash flows
associated with these subsidiaries would be compared to their
carrying amounts to determine if a write-down to fair value is
necessary.
(vi) Functional and presentation currency
These 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 thousand, except when otherwise indicated.
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied
consistently to all periods presented in these financial statements
and in stating the financial position of the Company.
Subsidiary companies
Investments in subsidiary companies are stated at cost less
provision for impairment in value, which is recognised as an
expense in the period in which the impairment is identified.
Finance income and finance costs
Finance income comprises interest income on bank deposits.
Interest income is recognised as it accrues in profit or loss,
using the effective interest method.
Finance costs comprise interest expense on borrowings. Borrowing
costs are recognised in profit or loss using the effective interest
method.
Foreign currency gains and losses are reported on a net basis as
either finance income or finance cost depending on whether foreign
currency movements are in a net gain or net loss position.
Foreign currency translation
(i) Functional and presentation currency
Items included in the Company's financial statements are measured
using the currency of the primary economic environment in which
the entity operates ('the functional currency'). The financial
statements are presented in United States Dollars, rounded
to the nearest thousand, which is the Company's functional
and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of
the transactions. 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 recognised in profit
or loss.
Revenue
Dividend income
Dividend income is recognised in profit or loss when the right
to receive payment is established i.e. dividends are declared and
approved by the investee companies.
Tax
Tax liabilities and assets for the current and prior periods are
measured at the amount expected to be paid to or recovered from the
taxation authorities, using the tax rates and laws that have been
enacted, or substantively enacted, by the reporting date. Current
tax includes any adjustments to tax payable in respect of previous
periods.
Dividends
Dividend distribution to the Company's shareholders is
recognised in the Company's financial statements in the year in
which they are approved by the Company's shareholders.
Financial instruments
Financial assets and financial liabilities are recognised when
the Company becomes a party to the contractual provisions of the
instrument.
(i) Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash
equivalents comprise cash at bank.
(ii) Borrowings
Borrowings are recorded initially at the proceeds received, net
of transaction costs incurred. Borrowings are subsequently stated
at amortised cost. Any differences between the proceeds (net of
transaction costs) and the redemption value is recognised in profit
or loss over the period of the borrowings using the effective
interest method.
Derecognition of financial assets and liabilities
Financial assets
A financial asset (or, where applicable a part of a financial
asset or part of a group of similar financial assets) is
derecognised when:
-- the rights to receive cash flows from the asset have expired;
-- the Company retains the right to receive cash flows from the
asset, but has assumed an obligation to pay them in full without
material delay to a third party under a 'pass through' arrangement;
or
-- the Company has transferred its rights to receive cash flows
from the asset and either (a) has transferred substantially all the
risks and rewards of the asset, or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset, but
has transferred control of the asset.
Financial liabilities
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original
liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognised in
profit or loss.
Impairment of assets
Assets that have an indefinite useful life are not subject to
amortisation and are tested annually for impairment. Assets that
are subject to depreciation or amortisation are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss
is recognised for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset's fair value less costs to sell and value in
use. For the purposes of assessing impairment, assets are grouped
at the lowest levels for which there are separately identifiable
cash flows (cash--generating units).
Offsetting financial instruments
Financial assets and financial liabilities are offset and the
net amount reported in the statement of financial position if, and
only if, there is a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle on a net
basis, or to realise the asset and settle the liability
simultaneously. This is not generally the case with master netting
agreements, and the related assets and liabilities are presented
gross in the statement of financial position.
Non-current assets held for sale
Non-current assets are classified as held for sale if their
carrying amount will be recovered through a sale transaction rather
than through continuing use. This condition is regarded as met only
when the sale is highly probable and the asset is available for
immediate sale in its present condition. Management must be
committed to the sale, which should be expected to qualify for
recognition as a completed sale within one year from the date of
classification. Non-current assets classified as held for sale are
presented separately in the statement of financial position and are
to be measured at the lower of the asset's previous carrying amount
and fair value less costs to sell.
Share capital
Ordinary shares are classified as equity. The difference between
the fair value of the consideration received by the Company and the
nominal value of the share capital being issued is taken to the
share premium account.
Non--current liabilities
Non--current liabilities represent amounts that are due more
than twelve months from the reporting date.
Comparatives
Where necessary, comparative figures have been adjusted to
conform to changes in presentation in the current year.
4. REVENUE
2017 2016
US$ '000 US$ '000
Dividend income 17,347 478,382
During the current year, the Company transferred its investment
in subsidiary Severus Trading Limited to another subsidiary,
Kentoralia Limited for a total consideration of US$24,000 thousand.
Being a common control transaction the difference between the cost
of investment and the disposal price was recognised as a deemed
dividend received.
During the year 2016, the Company transferred its investment in
subsidiary Bellgate Constructions Limited to another subsidiary,
Vardia Limited for a total consideration of US$500,000 thousand.
Being a common control transaction the difference between the cost
of investment and the disposal price was recognised as a deemed
dividend received.
5. ADMINISTRATIVE EXPENSES
2017 2016
US$ '000 US$ '000
Consultancy and brokerage fees 193 1,723
Donations - 640
Legal fees 1,118 623
Share option expense - 857
Directors' remuneration 1,334 1,361
Auditors' remuneration 559 320
Valuation expenses 52 91
Insurance 106 168
Other administrative expenses 1,143 1,129
4,505 6,912
6. NET FINANCE COSTS
2017 2016
US$ '000 US$ '000
Interest income - 208
Net foreign exchange gain - 46
Finance income - 254
Interest expense on loans and borrowings (5,924) (8,756)
Other finance costs (17) (21)
Net foreign exchange loss (16) -
Finance costs (5,957) (8,777)
Net finance costs (5,957) (8,523)
7. INVESTMENT IN SUBSIDIARIES
2017 2016
US$ '000 US$ '000
Balance at 1 January 1,242,182 1,313,453
Additional investment in existing subsidiaries 35,406 511,010
Disposal of investment in subsidiaries (6,654) (21,618)
Impairment (899,156) (560,663)
Balance at 31 December 371,778 1,242,182
During the current year, the Company acquire, the remaining 5%
shareholding in its subsidiary Beslaville Management Ltd for a
total consideration of US$1,500 thousand.
In addition, during the current year, the Company made capital
contributions for a total amount of US$23.134 thousand to its
Russian subsidiaries Krown Investment LLC and Tverskaya Zastava LLC
and increase its investment in Cypriot subsidiary Doralo Ltd with
the issuance of 9,100 ordinary shares for a nominal value of EUR1
and share premium of EUR999 per share.
During the current year, the Company transferred its 100%
holding in its subsidiary Severus Trading Ltd to its subsidiary
Kentoralia Ltd for a total consideration of US$24,000 thousand.
Being a common control transaction the difference of US$17,347
thousand between the cost of investment and the disposal price was
recognised as a deemed dividend received in profit or loss.
During the year 2016, based on an internal restructuring plan,
the Company transferred its 100% holding in its subsidiary Bellgate
Constructions Limited to subsidiary Vardia Limited for a total
consideration of US$500,000 thousand. Being a common control
transaction the difference of US$478,382 thousand between the cost
of investment and the disposal price was recognised as a deemed
dividend received in profit or loss. Following this internal
restructuring plan, the Company contributed on 30 December 2016 the
amount of US$500,000 thousand to its subsidiary AFI D Finance S.A,
which was previously received as deemed dividend.
At 31 December 2017 the Company recognised an impairment loss of
US$899,156 thousand (31/12/2016: US$560,663 thousand) due to a
decrease in the fair value of the properties held by its
subsidiaries as at that date, the deemed dividend received and an
estimate of impairment of the loan receivables of AFI D Finance
S.A. in which the Company impaired its investment. Refer to the
Russian Business Environment section in this note for further
details of the unfavourable conditions which contributed to the
drop in fair value of the subsidiaries' projects.
The details of the subsidiaries are as follows:
Investment Country of incorporation Principal 2017 2016
activities US$ '000 US$ '000
Investment in Holding of
holding companies Cyprus investments/Financing 211,225 218,979
Investment in
real estate companies Russian Federation Real estate development 159,995 215,569
Investment in
financing companies BVI Financing 558 807,634
371,778 1,242,182
The exposure to the Russian Business Environment in relation to
the investment in real estate investment and development entities
in Russia is presented in note 14 of these financial
statements.
8. TRADE AND OTHER RECEIVABLES
2017 2016
US$ '000 US$ '000
Receivables from related parties (Note 13) 8,344 210,378
Other receivables 89 569
8,433 210,947
During the current year, the receivable balance from related
party AFI D Finance S.A. for US$201,953 thousand was fully settled
by way of offset with the whole trade payable amount of US$95,139
thousand, refer to note 12, and part of the loan payable to AFI D
Finance S.A for US$106,814 thousand, refer to note 11.
The exposure of the Company to credit risk and impairment losses
in relation to trade and other receivables is reported in note 14
of the financial statements.
9. CASH AND CASH EQUIVALENTS
2017 2016
US$ '000 US$ '000
Cash and cash equivalents consists of:
Cash at banks 897 2,057
10. SHARE CAPITAL AND RESERVES
2017 2016
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
ordinary
shares of
US$0.001 each 524 524
523,847,027 B
ordinary
shares of
US$0.001 each 524 524
1,048 1,048
Flotonic Limited, a fully owned private company of Mr Leviev,
holds 336,948,796 Global Depository Receipts (issued over "A"
ordinary shares) and 342,799,658 Depository Interests (issued over
"B" ordinary shares), representing in aggregate 64.88% of the
Company's issued share capital.
Additionally, Mr Leviev has personally granted a call option to
Africa Israel Investments Ltd ("AI"), previous holding company, in
respect of 51,933,807 GDRs and 52,835,598 B ordinary shares
(approximately 10% of the Company's issued share capital) at a
price of US$0.216 per 1 GDR and US$0.295 per 1 "B" ordinary share.
The call option has been assigned by AI to trustees on behalf of AI
bondholders and the trustees may exercise the Call Option within
three years from the date of completion of the Purchase Transaction
upon instructions of the AI bondholders.
Share premium
It represents the share premium on the issue of shares on 31
December 2006 for the conversion of the shareholders' loans to
capital US$421,325 thousand. It also includes the share premium on
the issued shares which were represented by GDRs listed in the LSE
in 2007. It was the result of the difference between the offering
price, US$14, and the nominal value of the shares, US$0.001, after
deduction of all listing expenses. An amount of US$1,399,900
thousand less US$57,292 thousand transaction costs was recognised
during the year 2007. On 5 July 2010 an amount of US$524 thousand
was capitalised as a result of a bonus issue.
Employee Share option plan
The Company has established an employee share option plan
operated by the Board of Directors, which is responsible for
granting options and administrating the employee share option plan.
Eligible are employees and directors, excluding independent
directors, of the Company. The employees share option plan is
discretionary and options will be granted only when the Board so
determines at an exercise price derived from the closing middle
market price preceding the date of grant. No payment will be
required for the grant of the options. In any 10 year period not
more than 10 per cent of the issued ordinary share capital may be
issued or be issuable under the employee share option plan.
If a participant ceases to be employed his options will normally
lapse subject to certain exceptions. In the event of a takeover,
reorganisation or winding up vested options may be exercised or
exchanged for new equivalent options where appropriate. Shares/GDRs
issued under the plan will rank equally with all other shares at
the time of issue. The Board of Directors may satisfy (with the
consent of the participant) an option by paying the participant in
cash or other assets the gain as an alternative of issuing and
transferring the shares/GDRs.
Following the lapse of the ten years period all options have
vested during the year 2016 and expired during the year 2017.
11. LOANS AND BORROWINGS
2017 2016
US$ '000 US$ '000
Long term liabilities
Loans from AFID Finance SA (Note 13) 22,182 109,337
Maturity of non--current borrowings:
Within one year - -
Between one and five years 22,182 109,337
22,182 109,337
During the current year, the Company's subsidiary, AFI D Finance
S.A., granted an additional tranche of US$13,735 thousand and the
Company settled part of the existing loan payable amounting to
US$106,814 thousand by way of offset with its receivable balance
from AFI D Finance S.A., refer to note 8.
The loan outstanding on 31 December 2017 represents the
unsecured loan from AFI D Finance S.A. The loan bears interest of
6% per annum and is repayable on 31 December 2021.
The exposure of the Company to interest rate risk in relation to
financial instruments is reported in note 14 of the financial
statements.
12. TRADE AND OTHER PAYABLES
2017 2016
US$ '000 US$ '000
Payables to related parties (Note 13) 4,428 99,316
Other payables 469 202
4,897 99,518
Payables to related parties included an obligation of US$95,139
thousand to AFI D Finance S.A. arising from an assignment agreement
according to which AFID Finance S.A. assigned to the Company a loan
receivable from Bellgate Constructions Limited which was later set
off with a loan payable to Krown Investments LLC. During the year,
the full amount of US$95,139 thousand was set off with the trade
receivable balance from AFI D Finance S.A, refer to note 8.
13. RELATED PARTIES
The transactions with related parties are as follows:
(i) Transactions with the Key Management Personnel
2017 2016
US$ '000 US$ '000
Key management personnel compensation comprised:
Short-term employee benefits 1,200 1,200
Share option scheme expense - 857
(ii) Other related party transactions
2017 2016
US$ '000 US$ '000
Interest expense charged from subsidiaries (5,924) (8,756)
Consulting fees charged by related company - (157)
Management fees charged from subsidiaries (773) (769)
Other administrative expenses charged by related
company (32) (11)
The balances with related parties are as follows:
(iii) Receivables from related parties (Note 8)
2017 2016
US$ '000 US$ '000
Receivables from subsidiaries 8,344 210,378
The balances with related parties are as follows:
(iv) Payables to related parties (Note 12)
2017 2016
US$ '000 US$ '000
Payables to subsidiaries 4,096 98,984
Payables to related company 332 332
4,428 99,316
(v) Loan from related party (Note 11)
2017 2016
US$ '000 US$ '000
Name
AFI D Finance S.A. 22,182 109,337
14. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial risk factors
The Company is exposed to the following risks from its use of
financial instruments:
-- Credit risk
-- Liquidity risk
-- Market risk
The Board of Directors has overall responsibility for the
establishment and oversight of the Company's risk management
framework.
The Company's risk management policies are established to
identify and analyse the risks faced by the Company, to set
appropriate risk limits and controls, and monitor risks and
adherence to limits. Risk management policies and systems are
reviewed regularly to reflect changes in market conditions and the
Company's activities.
Credit risk
Credit risk arises when a failure by counter parties to
discharge their obligations could reduce the amount of future cash
inflows from financial assets on hand at the reporting date. The
Company has no significant concentration of credit risk. Cash
balances are held with high credit quality financial institutions
and the Company has policies to limit the amount of credit exposure
to any financial institution.
Trade and other receivables
The Company establishes an allowance for impairment that
represents its estimate of incurred losses in respect of trade and
other receivables. The main components of this allowance are a
specific loss component that relates to individually significant
exposures and a collective loss component established for groups of
similar assets in respect of losses that have been incurred but not
yet identified.
Cash and cash equivalents
Credit risk arises from cash and cash equivalents. Cash
transactions are limited to high-credit-quality financial
institutions. The utilisation of credit limits is regularly
monitored.
Guarantees
The Company's policy is to provide financial guarantees only to
wholly-owned subsidiaries. In negotiations with lending banks, the
Company aims to avoid recourse to AFI Development on loans taken by
subsidiaries.
As at 31 December 2017, there were three outstanding guarantees:
one for the amount of US$1 million in favour of VTB Bank PJSC under
a loan facility agreement of Bellgate Construction Limited (AFIMALL
City), the second for the amount of US$ 83,1 million in favour of
VTB Bank PJSC, under a loan facility agreement of Krown Investments
LLC (Ozerkovskaya III) and the third for the amount up to the book
value of the loans which equals US$ 51,1 million also in favour of
VTB Bank PJSC, under a loan facility agreements of Sanatorium Plaza
LLC and Sanatorium PlazaSPA LLC.
In January 2018, AFI Development provided an additional
guarantee in favour of VTB Bank PJSC for the loan amounting to
US$12.2 million, taken by its subsidiary OJSC MKPK to refinance the
incurred construction costs. In Q1 2018 guarantees of AFI
Development under a loan facility agreement of Bellgate
Construction Limited (AFIMALL City) and under a loan facility
agreement of Krown Investments LLC (Ozerkovskaya III) were
terminated due to repayment of debt under loan facility
agreements.
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 Company has procedures with the object of minimising
such losses such as maintaining sufficient cash and other highly
liquid current assets and by having available an adequate amount of
committed credit facilities.
Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates and equity prices will
affect the Company's income or the value of its holdings of
financial instruments.
Interest rate risk
Interest rate risk is the risk that the value of financial
instruments will fluctuate due to changes in market interest rates.
Borrowings issued at variable rates expose the Company to cash flow
interest rate risk. Borrowings issued at fixed rates expose the
Company to fair value interest rate risk. The Company's management
monitors the interest rate fluctuations on a continuous basis and
acts accordingly.
Currency risk
Currency risk is the risk that the value of financial
instruments will fluctuate due to changes in foreign exchange
rates. Currency risk arises when future commercial transactions and
recognised assets and liabilities are denominated in a currency
that is not the Company's measurement currency. The Company is
exposed to foreign exchange risk arising from various currency
exposures primarily with respect to the Euro and the Russian
Rouble. The Company's management monitors the exchange rate
fluctuations on a continuous basis and acts accordingly.
Capital management
The Company manages its capital to ensure that it will be able
to continue as a going concern while increasing the return to
shareholders through the strive to improve the debt equity ratio.
The Company's overall strategy remains unchanged from last
year.
Russian Subsidiaries' Business Environment
The real estate projects of the Company's subsidiaries are
primarily located in the Russian Federation. Consequently, the
Company 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 conflict in Ukraine and related events has increased the
perceived risks of doing business in the Russian Federation. The
imposition of economic sanctions on Russian individuals and legal
entities by the European Union, the United States of America,
Japan, Canada, Australia and others, as well as retaliatory
sanctions imposed by the Russian government, has resulted in
increased economic uncertainty including more volatile equity
markets, a depreciation of the Russian Rouble, a reduction in both
local and foreign direct investment inflows and a significant
tightening in the availability of credit. In particular, some
Russian entities may be experiencing difficulties in accessing
international equity and debt markets and may become increasingly
dependent on Russian state banks to finance their operations. The
longer term effects of recently implemented sanctions, as well as
the threat of additional future sanctions, are difficult to
determine.
Continuation of the above-mentioned events, and/or an increase
in the severity thereof, could have an adverse effect on various
facets of the Company's subsidiaries' activities and/or data
appearing in the financial statements, among others, as
follows:
-- An unfavourable impact on the revenues due to a decline in
the demand in the commercial sector and residential sector;
-- An increase in the costs with respect to its activities in Russia;
-- A decrease in the value of the real estate properties as a
result of the decrease in the revenues and/or an increase in the
risk premium in the economy and, in turn, an increase in the
discount rate taken into account when determining the value;
-- An increase in the financing expenses and/or an adverse
impact on the available sources of financing;
-- From an accounting standpoint, a devaluation of the ruble
could have a negative impact on the Company's shareholders'
equity.
The Company is monitoring the economic developments in Russia,
in general, and in the real estate market, in particular. It is
noted that due to the uncertainty prevailing in light of the events
described above, the Company is reviewing the development plans and
timetables of a number of its projects. Due to the inability to
predict the duration or the manner of the future development of
political and economic events, the Company is not able, at this
stage, to estimate the future impact of these matters on its
Russian subsidiaries.
15. FAIR VALUES
The fair values of the Company's financial assets and
liabilities approximate their carrying amounts at the reporting
date.
[1] Debt includes all loans and borrowings. For further details
please see note 26 to the Financial Statements.
[2] At AFI Residence Paveletskaya there are two types of
residential units: fully residentially zoned units referred to as
"apartments" and commercially zoned units that, according to common
market practice in Russia, are sold and referred to as "special
units" and can be used for permanent residence.
[3] According to the IFRS rules, Investment property and
Investment property under development are presented on a fair value
basis, Trading property, Trading property under construction and
Property, plant and equipment are presented on a cost basis.
[4] At AFI Residence Paveletskaya there are two types of
residential units: fully residentially zoned units referred to as
"apartments" and commercially zoned units that, according to common
market practice in Russia, are sold and referred to as "special
units" and can be used for permanent residence.
[5] Debt includes all loans and borrowings. For further details
please see note 26 to the Financial Statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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