TIDMAFRB TIDMAFID
RNS Number : 8677B
AFI Development PLC
07 April 2017
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR
DISTRIBUTION
IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA,
AUSTRALIA OR JAPAN
7 April 2017
AFI DEVELOPMENT PLC
("AFI DEVELOPMENT" OR "THE COMPANY")
PRELIMINARY STATEMENT OF RESULTS FOR THE YEARED 31 DECEMBER
2016
Strong revenue growth driven by 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 2016.
Financial highlights:
-- Revenue for the year, including proceeds from the sale of
trading properties, reached US$138.3 million (48.2% increase
year-on-year):
- Sale of trading properties (residential real estate) contributed US$54.5 million
- Rental and hotel operating income declined 10.0% year-on-year
to US$83.6 million, mainly due to the rouble depreciation
- AFIMALL City contribution stood at US$66.2 million (2015:
US$71.3 million), down 7.1% year-on-year
-- Gross profit increased by 17.4% year-on-year to US$49.4
million (2015: US$42.1 million), reflecting mainly the strong
contribution from residential sales and further focus on
efficiency
-- Largely due to valuation losses in H1 2016, net loss for 2016
amounted to US$47.9 million, against a loss of US$466.7 million in
2015
-- Total gross value of portfolio of properties increased
marginally to US$1.44 billion, against US$1.43 billion as of the
end of 2015
-- Cash, cash equivalents and marketable securities as of 31
December 2016 stood at US$16.7 million
Operational highlights
-- At Odinburg, all of the pre-sold apartments in Building 1
have now been delivered to customers. The number of sale contracts
signed amounted to 715 (99% of total) in Building 1 and 480 (67% of
total) in Building 2 as of 5 April 2017
-- At the AFI Residence Paveletskaya residential development,
the main construction phase and pre-sales of residential units
continue to plan; 172 units ("flats" and "apartments"(1) ) have
been pre-sold to date
-- AFIMALL City has increased its occupancy to 84% and welcomed
several new retailers to the Mall during the fourth quarter:
- NOI declined to US$50.1 million in 2016, from US$53.3 million
in 2015, mainly due to slightly decreased average rent in dollar
terms across the centre
-- In March 2017, the main construction phase started at AFI
Residence Pochtovaya and Botanic Garden residential projects in
Moscow.
Commenting on today's announcement, Lev Leviev, Executive
Chairman of AFI Development, said:
"Revenue growth of 48.2% for the year, supported by residential
sales, stemmed from our continued focus on development and
marketing of our core residential projects. Although our
macroeconomic environment remains challenging, we are encouraged by
the more positive trends in Russia's economic indicators in 2016.
We expect continued gradual recovery to positively impact Russian
real estate markets. Beyond the short-term, we believe that the
Moscow real estate market continues to offer significant growth
potential due to its size, its position as the largest financial
centre in Russia and as one of the largest capital cities in
Europe".
FY 2016 Results Conference Call
AFI Development will hold a conference call for analysts and
investors to discuss its full year 2016 results, following their
publication.
The details for the conference call are as follows:
Date: Monday, 10 April 2017
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 2016 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 10 April 2016.
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
In 2016, the Russian macroeconomic environment started to show
signs of recovery. Higher oil prices and a stronger rouble led to a
lower than expected GDP decline of 0.8% (IMF) and moderate
inflation of 5.4%. At the same time, the negative impact of
international sanctions continued to impede growth and recovery of
the economy.
In this environment, the residential real estate segment
remained resilient, supported by the more accommodating
macroeconomic climate. Recovery in the retail segment was largely
attributable to improved consumer sentiment, more favourable rouble
exchange rates, and continued interest from international
retailers. However, in the office segment, high vacancy rates and
low delivery levels remained.
An important development for the Company in 2016 was the
resolution of negotiations with VTB Bank. In March 2016, the Bank
notified the Company of a potential acceleration of the loans
provided for the AFIMALL City and Ozerkovskaya III projects,
totalling US$614 million. In September 2016, an agreement was
reached through amendment to terms of the loans and provision of
additional guarantees and collaterals for the Bank. As a result,
the Company has retained all assets and was able to resume its
focus on construction and marketing of residential projects and on
managing yielding commercial properties.
Our continued focus on the development of residential projects
is reflected in the progress achieved at our Odinburg development,
through the completed construction of Building 2 (delivery of
apartments started in March 2017) and the ongoing construction and
pre-sale of apartments at the AFI Residence Paveletskaya. The sales
of residential units have contributed US$54.5 million to our
revenue in 2016. In Q1 2017, construction commenced at our other
two residential projects in Moscow: AFI Residence Pochtovaya and
the Botanic Garden.
Our yielding properties performed well throughout 2016, given
the current environment; occupancy at AFIMALL City reached 84% and
the footfall continued to grow. The hotels also performed well,
with occupancy above 75%.
Revenue in 2016 grew by 48.2% year-on-year to US$138.3 million,
supported by strong residential sales. Our gross profit increased
by 17.4%, reaching US$49.4 million for the year. Nevertheless, due
to valuation losses in H1 2016, we finished the year with a net
loss of US$47.9 million.
Looking to 2017, we expect market conditions to gradually
improve and the general macroeconomic environment to remain
somewhat challenging. Whilst demand for commercial real estate
remains subdued, we will continue to adapt our strategy to ensure
sustainable growth of our business in the future.
Valuation
As at 31 December 2016, based on the Jones Lang LaSalle LLC
("JLL") independent appraisers' report, the value of AFI
Development's portfolio of investment properties stood at US$0.92
billion, while the value of the portfolio of investment property
under development stood at US$0.23 billion.
Consequently, the total value of the Company's assets, mainly
based on independent valuation as of 31 December 2016, was US$1.4
billion, compared to US$1.4 million as at 31 December 2015.
For additional information, please refer to the "Portfolio
Valuation" section in the Management Discussion and Analysis (the
"MD&A").
Liquidity
We ended 2016 with approximately US$16.7 million of cash, cash
equivalents and marketable securities on our balance sheet and a
debt to equity level of 81%. This position reflects the Company's
ability to successfully balance liquidity requirements from a
number of sources.
Our financing strategy aims to maintain 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 February 2017, AFI Development Plc announced that its
subsidiary, Sanatory Plaza LLC ("Plaza"), received a loan from VTB
Bank PJSC ("VTB") to finance the acquisition of a 50% stake in the
Plaza Spa Kislovodsk project ("the Project") from its partner in
the Project, which was completed on 28 February 2017. The loan, in
the amount of US$22.5 million, was 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$260 thousand in Q3 2017 to US$822 thousand in Q3 2021), and
a balloon payment of US$11.254 million at maturity. The interest is
to be paid quarterly. The loan was primarily used to repay the
outstanding debt of Plaza to the Project partner's companies
(US$16.9 million), prior to acquisition of the equity stake. The
remainder of the loan was used to finance the acquisition itself:
50% equity stakes in both Nuana Limited and Craespon Management
Limited (which together control 100% of Plaza) were purchased by
AFI Development's subsidiaries for US$5.6 million in cash.
-- In March 2017, AFI Development announced completion of the
acquisition of the remaining 5% stake in the Tverskaya Plaza IV
project from its partner, for US$1.5 million in cash. AFI
Development acquired 5% of the shares in Beslaville Management
Limited, a subsidiary holding rights to the project, increasing its
share from 95% to 100%.
-- In March 2017 the Company subsidiary AFI RUS Management LLC
signed a facility agreement for a credit line of RUR470 million
from Sberbank PJSC, with a 2 years term, to finance construction of
the Odinburg project.
Portfolio Update
AFIMALL City
A significant number of leases signed during 2011, when AFIMALL
opened its doors to the public, expired in 2016. As a result, Mall
management invested significant resources during the year in
maintaining stable occupancy levels (84% at the end of 2016)
through the renewal of leases or re-leasing to new tenants.
Marketing and promotional efforts at the Mall focused on
attracting a family audience at weekends, as well as on targeted
sales promotions in the fashion segment.
The footfall at the Mall continues to grow; average monthly
footfall in December 2016 was 3% higher than in December 2015.
A number of new retailers recently opened outlets at the Mall,
including a furniture and home improvement hypermarket, Hoff Home
(1,200 sq.m); a book shop "Knizhny Labirint" (300 sq.m); an Armani
Exchange boutique (170 sq.m) and an innovative confectionary shop
"Alenka" (200 sq.m).
AQUAMARINE III (OZERKOVSKAYA III)
Following the disposal of Building 1 to diamond miner ALROSA,
AFI Development retains title to the remaining three buildings of
the complex, which have a combined GBA of 61,579 sq.m and GLA of
46,247 sq.m. The Company is currently in negotiations with
potential buyers and tenants with regards to these buildings.
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), continued to produce strong results in 2016. The
Caucasus resorts, in particular, continued to benefit from
increasing levels of Russian domestic tourism. Since February 2017,
AFI Development owns 100% of the Plaza Spa Kislovodsk project,
following its acquisition of the remaining 50% stake.
ODINBURG
The construction works of Phase 1 ("Korona") and supporting
infrastructure are underway. Construction of both Building 1 and
Building 2 are complete. All apartments sold in Building 1 have
been delivered to customers, and delivery of apartments in Building
2 commenced in March 2017. At present, a Kindergarten is being
built as part of Phase 1, while the development team prepares the
next buildings for construction launch - these will be Building 6
(to be launched in Q2 2017) and Building 3 (to be launched in Q3
2017).
As of the date of publication of this report, 715 out of 723
contracts for sales of apartments in Building 1 have been signed,
while for Building 2, 480 of 706 contracts are signed.
AFI RESIDENCE PAVELETSKAYA (PAVELETSKAYA PHASE II)
In December 2015, AFI Development successfully launched the main
construction phase of the project. Flat and "apartment"(2)
pre-sales started simultaneously with the construction launch. The
project continues to be marketed as "AFI Residence Paveletskaya".
As of the date of publication of this report, 172 contracts
combined for pre-sales of both "flats" and "apartments" have been
signed.
BOLSHAYA POCHTOVAYA
During 2016, the Company completed all preparatory steps
required to launch the main construction stage. After receiving a
construction permit in December 2016, the construction of the first
phase was launched in Q1 2017. Marketing of apartments is scheduled
to start in Q2 2017.
BOTANIC GARDEN
Following revision of the project in 2016, AFI Development
obtained an updated construction permit and launched the main
construction phase in March 2017. Marketing of apartments has
started as well.
Market Overview - General Moscow Real Estate
Macroeconomic Environment
With an estimated GDP decline of 0.8% (IMF), the Russian economy
contracted less than expected in 2016, as gains in oil prices
impacted positively on the economy. Inflation continued to decline,
reaching 5.4% by year-end, helped by the appreciation of the rouble
during the fourth quarter.
The country's macroeconomic environment remained negatively
impacted by international sanctions. Real disposable incomes
continued to shrink by around 5-6%, causing further contractions in
sales volumes and impeding economic growth. Despite gradual
improvement towards the end of the year, the Central Bank of Russia
maintained its conservative monetary policy, with the key lending
rate at 10%.
As market volatility subsides, Russian real estate investment
volumes continue to rise. In 2016, investment levels reached
US$4.2bn, a 74% increase versus 2015. Of this investment, 80%
occurred in AFI Development's core market of Moscow.
(Sources: Russia Real Estate Investment Market, Q4 2016, JLL;
Oxford Economics Russia Country Economic Forecast, February
2017)
Moscow Office Market
Demand in the Moscow office market saw an improvement in 2016,
reflected in the 22% year-on-year increase in take-up to 1.06
million sq. m. At the same time, the volume of new office
completions reached a record low of 317,300 sq.m. The Class A
segment was a key contributor to this decline, with new delivery at
70,500 sq.m; four times lower than in 2015. This high demand and
low supply resulted in an improvement in the vacancy rate to 15.9%,
1.8ppts below 2015 levels (for combined Classes A and B).
Renewals and renegotiation volumes decreased in 2016, as did
their contribution to total transactions, which was at 27%, down
from 39% in 2015.
US dollar denominated leases accounted only for 10% of leased
space in 2016 as rouble denominated leases continued to dominate
the market. Strengthening of the rouble helped office rental rates
to stabilise during the year.
Finally, the opening of the Moscow Central Circle line (MCC)
railroad during the second half of 2016 represents another key
improvement in infrastructure. The new commuter train, integrated
into the main Moscow transport infrastructure, provides further
access to existing offices in the Moscow-City area.
(Source: Moscow Office Market, Q4 2016, CBRE Martketview; The
MCC and the Moscow Real Estate Market, December 2016, JLL, IMF)
Moscow Retail Market
Despite delivery of 473,000 sq. m of new shopping space (2015:
441,000 sq. m), rental rates for Moscow shopping centres remained
broadly stable throughout 2016 (prime rent: RUR195,000; average
rent: RUR74,000) with vacancy rates at year-end at 10.2%.
Continued interest in the Moscow retail market is reflected in
the market entry of 34 new international retailers in 2016, the
majority of which came from Italy, France and the UK.
In addition to the office market, the opening of the Moscow
Central Circle line has implications for the City's retail
dynamics. The opening of a MCC station near AFIMALL City has
further improved access to the Mall. Areas surrounding MCC stations
offer growth potential for real estate developers and are expected
to drive future construction and development of retail centres.
(Source: Moscow Retail Market, Q4 2016, CBRE Martketview; Moscow
Shopping Centre Market, Q4 2016, JLL; The MCC and the Moscow Real
Estate Market, December 2016, JLL)
Moscow Residential Market
At the end of Q4 2016, the supply on the "Old Moscow" primary
residential market (excluding "apartments") was about 2.4 million
sq.m (about 37,692 residential units), an increase of 2% compared
to the end of Q3 2016. The supply in "New Moscow" was about 588.2
thousand sq.m.
By the end of Q4 2016, the weighted average asking price in
Moscow's newly built business class residential market amounted to
RUR250,600 (US$4,030) per sq.m. Compared with the end of Q3 2016,
the average price increase in roubles was 1%. In the comfort class,
the weighted average asking price was RUR156,000 (US$2,510) per
sq.m.
The level of mortgage financed acquisitions of residential units
increased by 32.6% in 2016 versus 2015, due to continued state
support through the mortgage lending support programme (introduced
in 2015) and a wide spectrum of special offers by developers.
(Sources: Miel Real Estate - Overview of newly built housing of
Moscow, January 2017, Blackwood - Overview of the Moscow
Residential Market, Q4 2016)
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
7 April 2017
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Overview
As at 31 December 2016, the Company's portfolio consisted of 8
investment properties, 6 investment properties under development, 2
trading properties under development, 1 inventory of real estate
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 2016, was
US$1.4 billion(3) . About 64% of the assets book value is
attributed to yielding properties.
Revenues for 2016 increased by 48.2% year-on-year to US$138.3
million, mainly as a result of residential disposals. The average
exchange rate of RUB to USD increased by 10.0% during 2016. AFI
Development recorded a 17% year-on-year decrease in gross profit to
US$49.4 million as a result of this. Cash, cash equivalents and
marketable securities decreased by 60.7% to US$16.7 million as at
31 December 2016, due to debt servicing and financing of
construction work partly from own capital, and as a result of a
sale of bonds in the amount of US$18.1 million and US$4.2 million
worth of bonds maturing during the period.
In 2016, AFI Development incurred a net loss of US$47.9 million,
compared to net loss of US$466.7 in 2015.
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 -0.8 -3.8
------------------------------------ ---------------- ----------------
Consumer prices growth (inflation) 7.2 15.5
------------------------------------ ---------------- ----------------
Source: The International Monetary Fund
The following factors affected our performance in 2016:
-- In Q1 and Q2 2016, the Company transferred the pre-sold
apartments in Building 1 of the Odinburg project to customers,
allowing it to recognise revenue from sales of residential units in
the amount of $54.0 million.
-- Due to an agreement reached with VTB Bank PJSC in September
2016, the Company did not make principal payments in Q2, Q3 and Q4
under the loan agreements at the Ozerkovskaya III and AFIMALL City
projects, which resulted in cash outflow reduction of US$ 25.2
million for 2016.
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 283,182 sq.m (including parking), and GLA of nearly 107,000
sq.m, the project has a shopping gallery of nearly 400 shops and an
11-screen movie theatre with 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.
Many leases that began in 2011 (the opening year of AFIMALL)
expired and had to be renewed in 2016. Mall management achieved
stable occupancy levels (84% at the end of 2016) through the
renewal of leases or re-leasing to new tenants.
Marketing and promotional efforts at the Mall focused on
attracting a family audience at weekends, as well as on targeted
sales promotions in the fashion segment.
The footfall at the Mall continues to grow; average monthly
footfall in December 2016 was 3% higher than in December 2015.
A number of new retailers recently opened outlets at the Mall: a
furniture and home improvement hypermarket, Hoff Home (1,200 sq.m);
a book shop "Knizhny Labirint" (300 sq.m); an Armani Exchange
boutique (170 sq.m) and an innovative confectionary shop "Alenka"
(200 sq.m) are among the most notable.
The transportation infrastructure in the Moscow City continued
to improve in 2016: the new central ring railroad began operations
in September, with a station "City" in close vicinity to the
AFIMALL.
According to independent appraisers JLL, the market value of
AFIMALL City as of 31 December 2016 was US$666.5 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 three
Class A buildings of 46,247 sq.m of combined lettable space(4) and
common underground parking for 446 cars. 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 an aspirational environment among Moscow's commercial
developments.
AFI Development is in negotiations with potential buyers and
tenants regarding selling or leasing the project either in full or
in parts.
According to independent appraisers JLL, the market value of the
remaining buildings of the Complex as of 31 December 2016 was
US$198.5 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 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 slowdown in international business activity in Moscow
and growing competition, the hotel demonstrated strong performance
in 2016, with average occupancy at 76%.
The balance sheet value of the project as of 31 December 2016
was US$15.3 million.
PLAZA SPA HOTEL ZHELEZNOVODSK
Plaza Spa Zheleznovodsk is a sanatorium project which 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 9,526 sq.m of gross buildable area. The spa provides
diagnostic assessment and treatment of urological diseases.
During 2016 the hotel performed well, with strong occupancy
levels which reached an average of 76% for the year. The hotel
continued to benefit from the growing domestic demand for quality
resorts.
The balance sheet value of the project as of 31 December 2016
was US$11.1 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.
Similarly to Plaza Spa Zheleznovodsk, the hotel demonstrated
strong performance, with average annual occupancy at 78% for the
year.
Since February 2017, AFI Development owns 100% of the project,
after acquiring a 50% stake from its partner.
The balance sheet value of the Company share in the project
(50%) as of 31 December 2016 was US$13.8 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 comprising of two schools, two kindergartens, a
medical centre and other facilities.
The project involves 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
154,774 sq.m (2,712 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 1 ("Korona") construction and supporting infrastructure
construction works are underway. Construction of both Building 1
and Building 2 are complete. All apartments sold in Building 1 have
been delivered to customers, and delivery of apartments in Building
2 commenced in March 2017. At present, a Kindergarten is being
built as part of Phase 1, while the development team prepares the
next buildings for construction launch - these will be Building 6
(to be launched in Q2 2017) and Building 3 (to be launched in Q3
2017).
As of the date of publication of this report, 715 out of 723
contracts for sales of apartments in Building 1 have been signed,
while for Building 2, 480 of 706 contracts are signed.
The balance sheet value of the project as of 31 December 2016
was US$150.2 million.
PAVELETSKAYA II (AFI RESIDENCE PAVELETSKAYA)
Paveletskaya Phase II 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 50,370 sq.m and total General
Sellable Area (GSA) of 30,824 sq.m. This phase is planned to
include 175 flats, 220 apartments and 5,847 sq.m of flexible
commercial space.
Phase II - is planned to have GBA of 52,080 sq.m and total GSA
of 27,593 sq.m. This phase is planned to include flats and 1,403
sq.m of flexible commercial space.
Phase III - is planned to have GBA of 31,060 sq.m and total GSA
of 20,452 sq.m. This phase is planned to include flats and 9,842
sq.m of flexible commercial space.
At AFI Residence Paveletskaya there are two types of residential
units: fully residentially zoned units referred to as "flats" and
commercially zoned units that, according to common market practice
in Russia, are sold and referred to as "apartments" and can be used
for permanent residence. Pre-sales of both "flats" and "apartments"
started simultaneously with the construction launch. As of the date
of publication of this report, 172 contracts for pre-sales of both
"flats" and "apartments" have been signed.
The balance sheet value of the project as of 31 December 2016
was US$76.7 million.
BOLSHAYA POCHTOVAYA (AFI RESIDENCE POCHTOVAYA)
Bolshaya Pochtovaya is a mixed-use project (predominantly
residential). It is located in an attractive neighbourhood in the
central administrative district of Moscow. The area benefits from a
developed infrastructure: 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.
During 2016 the Company completed all preparatory steps required
to launch the main construction stage. After receiving a permit in
December 2016, the construction of the first phase was launched in
Q1 2017. The marketing of apartments is scheduled to start in Q2
2017.
Based on an independent valuation of the Company portfolio by
JLL as of 31 December 2016, the fair value of Bolshaya Pochtovaya
is US$74.1 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 200,635(5) sq.m: 107,350 sq.m of residential area, 8,611
sq.m of commercial premises and 794 underground and above ground
parking lots.
Following revision of the project in 2016, AFI Development
obtained an updated construction permit and launched the main
construction phase in March 2017.
The balance sheet value of the project as of 31 December 2016
was US$21.5 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 61,810
sq.m (including underground parking of approximately 521 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. AFI Developments plans to start
construction of this project as soon as it has secured debt
financing on favourable terms and the market situation
improves.
Based on an independent valuation of the Company's portfolio by
Jones Lang LaSalle as of 31 December 2016, the fair value of
Tverskaya Plaza Ic is US$66.0 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
The Company has completed necessary steps for securing the land
lease agreement with Moscow authorities.
Based on an independent valuation of the Company portfolio by
Jones Lang LaSalle, as of 31 December 2016, the fair value of the
Company share in Plaza IV (95%) was US$61.3 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 2016, the fair value of Kossinskaya is
US$28.3 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 2016
Following the year-end the following key events occurred:
-- In February 2017, AFI Development Plc announced that its
subsidiary, Sanatory Plaza LLC ("Plaza"), received a loan from VTB
Bank PJSC ("VTB") to finance the acquisition of a 50% stake in the
Plaza Spa Kislovodsk project ("the Project") from its partner in
the Project, which was completed on 28 February 2017. The loan, in
the amount of US$22.5 million, was 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$260 thousand in Q3 2017 to US$822 thousand in Q3 2021), and
a balloon payment of US$11.254 million at maturity. The interest is
to be paid quarterly. The loan was primarily used to repay the
outstanding debt of Plaza to the Project partner's companies
(US$16.9 million), prior to acquisition of the equity stake. The
remainder of the loan was used to finance the acquisition itself:
50% equity stakes in both Nuana Limited and Craespon Management
Limited (which together control 100% of Plaza) were purchased by
AFI Development's subsidiaries for US$5.6 million in cash.
-- In March 2017, AFI Development announced completion of the
acquisition of the remaining 5% stake in the Tverskaya Plaza IV
project from its partner, for US$1.5 million in cash. AFI
Development acquired 5% of the shares in Beslaville Management
Limited, a subsidiary holding rights to the project, increasing its
share from 95% to 100%.
-- In March 2017 the Company subsidiary AFI RUS Management LLC
signed a facility agreement for a credit line of RUR470 million
from Sberbank PJSC, with a 2 years term, to finance construction of
the Odinburg project.
Disposals and Acquisitions
During 2016, the Company disposed of a building on Sadovaya
Samotechnaya Street in Moscow, which was purchased in 2014 in
relation to the Botanic Garden Project: The Company subsidiary ZAO
"Moskovsky tkatsko-otdelochny kombinat" sold the building on 7
April 2016 for RUR86 million including VAT (approximately US$1.3
million).
During 2016, the Company did not make any acquisitions.
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. We recognise rental income from leased
investment properties under operating leases in our statement of
comprehensive income on a straight line basis over the term of the
lease. Rental income also includes income from hotel
operations.
-- 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. When we receive down payments in
connection with the sale of trading property that is under
construction, we record this figure in current liabilities on our
balance sheet at the time of sale.
-- 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 joint ventures and one Cyprus
company 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 a revised Russian VAT
legislation, VAT can also be claimed during the period of
construction provided that all required documentation is presented
to the VAT authorities. We have accordingly included recoverable
VAT as an asset on our balance sheet, the size of which we expect
will slightly decrease as the development of our projects advances
and necessary documents will be obtained.
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. However,
the recognition of such costs as expenses may result in accumulated
tax losses for Russian tax purposes that we may be able to carry
forward against estimated future profits, resulting in deferred tax
assets. However, such tax losses may only be carried forward to
offset gains for a ten-year period and they may only be utilised in
the Russian subsidiary/branch in which such tax losses were
generated.
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 2016 and
2015
US$ million For the For the Change 2016 / 2015
year ended year ended
31 December 31 December
2016 2015
----------------------- ------------------------------------------ ------------------------------------------ -----------------------------------------------------
Revenue
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Construction
consulting/management
services 0.2 0.1 0.1 48.2%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Rental income 83.6 92.9 (9.3) (10.0)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Sale of residential 54.5 0.7 53.8 7980.0%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
138.3 93.7 44.6 47.6%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Expenses
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Other income 3.5 3.1 0.5 16.9%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Operating expenses (38.8) (40.5) 1.7 (4.1)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Administrative 4.1
expenses (6.6) (10.6) (38.1)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
including Bad
debt provisions
and write-offs 1.3 0.1 1.2 1218.0%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Cost of sales
of residential (49.5) (0.6) (48.9) 8025.3%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Other expenses (1.3) (1.6) 0.3 (19.3)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
(92.7) (50.4) (42.3) 84.0%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Share of the after 5.1
tax (loss)/profit
of joint ventures 3.7 (1.3) (383.1)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Gross profit 49.4 42.1 7.3 17.4%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Profit on disposal
of investments
in subsidiaries 1.8 - 1.8 1815.2%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Valuation loss
on properties (123.0) (434.4) 311.3 (71.7)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Impairment loss
on inventory of
real estate - (12.7) 12.7 (100.0)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Results from operating
activities (71.9) (404.9) 333.0 (82.2)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Finance income 2.1 4.2 (2.1) (49.2)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Finance expense (44.6) (46.2) 1.6 (3.4)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
FX Gain/( Loss) 63.7 (110.3) 174.0 (157.7)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Net finance
income/(costs) 21.2 (152.3) 173.5 (113.9)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Profit before
income tax (50.7) (557.2) 506.5 (90.3)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Income tax expense 2.8 90.5 (87.8) (97.0)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
Loss from continuing
operations (47.9) (466.7) 418.7 (89.7)%
----------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ---------
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.
US$ million For the year For the year Change 2016/2015
ended 31 December ended 31 December
2016 2015
--------------------------- ----------------------- ----------------------- -----------------------
US$ million %%
--------------------------- ----------------------- ----------------------- ------------- --------
Investment property
------------------------------------------------------------------------------------------------------
AFIMALL City 66.2 71.3 (5.1) (7.1)%
--------------------------- ----------------------- ----------------------- ------------- --------
H2O office building 0.9 1.2 (0.3) (23.8)%
--------------------------- ----------------------- ----------------------- ------------- --------
Berezhkovskya office
building 1.8 2.3 (0.6) (24.3)%
--------------------------- ----------------------- ----------------------- ------------- --------
Paveletskaya I 0.0 1.4 (1.3) (96.8)%
--------------------------- ----------------------- ----------------------- ------------- --------
Premises at Bolshaya
Pochtovaya 1.0 2.7 (1.7) (61.9)%
--------------------------- ----------------------- ----------------------- ------------- --------
Premises at Plaza
IV (Gruzinsky Val) 0.0 0.0 (0.0) (9.5)%
--------------------------- ----------------------- ----------------------- ------------- --------
Premises at Tverskaya
Zastava Square 1.7 1.9 (0.2) (8.9)%
--------------------------- ----------------------- ----------------------- ------------- --------
Ozerkovskaya (Aquamarine)
III 0.5 0.6 (0.2) (25.1)%
--------------------------- ----------------------- ----------------------- ------------- --------
Other land bank
assets 0.1 0.2 (0.1) (36.0)%
--------------------------- ----------------------- ----------------------- ------------- --------
Hotels
------------------------------------------------------------------------------------------------------
Aquamarine hotel 5.0 5.1 (0.1) (2.7)%
--------------------------- ----------------------- ----------------------- ------------- --------
Plaza Spa Hotel
(Zheleznovodsk) 6.3 6.2 0.1 1.6%
--------------------------- ----------------------- ----------------------- ------------- --------
Total 83.6 92.9 (9.3) (10.0)%
--------------------------- ----------------------- ----------------------- ------------- --------
Sale of residential
US$ million For the year For the year Change 2016/2015
ended 31 ended 31 December
December 2015
2016
--------------------- ----------------------- ----------------------- ---------------------------
US$ million %%
--------------------- ----------------------- ----------------------- ----------------- --------
Revenue
--------------------- ----------------------- ----------------------- ----------------- --------
Ozerkovskaya II 0.5 0.6 (0.1) (23.3)%
--------------------- ----------------------- ----------------------- ----------------- --------
4 Winds residential - 0.1 (0.1) 100.0%
--------------------- ----------------------- ----------------------- ----------------- --------
Odinburg 54.0 - 54.0 100.0%
--------------------- ----------------------- ----------------------- ----------------- --------
Total 54.5 0.7 53.8 7980.0%
--------------------- ----------------------- ----------------------- ----------------- --------
Sale of residential. Our income from sale of residential
increased by US$53.8 million, from US$0.7 million in 2015 to
US$54.5 million in 2016, due to sale of residential units in the
Odinburg project.
Operating expenses. Our operating expenses decreased by 4.1%
year-on-year to US$38.8 million in 2016 (2015: US$40.5 million), as
a result of cost savings.
Administrative expenses. Our administrative expenses decreased
by 38.1 % year-on-year to US$6.6 million in 2016 (2015: US$10.6
million). The decrease is attributable to increase in reverse of
bad debt provision from US0.1 in 2015 to US$1.3 in 2016, as well as
other cost saving initiatives across the Company.
Net valuation gain/(losses) on properties. Net result of
investment property valuation changed from a loss of US$434.4
million in 2015 to a loss of US$123.0 million in 2016. For
additional information, please refer to "Portfolio Valuation"
section below.
Impairment loss on inventory of real estate. Net result of real
estate impairment increased from a loss of US$12.7 million in 2015
to US$0.0 million in 2016 due to reversal of the Botanic Garden
project from Investment of real estate to Trading property under
construction, and corresponding change in recognition policy. For
additional information, please refer to "Portfolio Valuation"
section below.
Finance income. Our finance income decreased by 49.2 %
year-on-year to US$2.1 million in 2016 (2015: US$4.2 million). The
decrease was a result of the change in the Company financial
investments portfolio.
Finance expense. Our finance expense decreased by 3.4 %
year-on-year to US$44.6 million in 2016 (2015: US$46.2 million), as
a result of Russian Rouble devaluation versus the US Dollar (the
average exchange rate of RUB to USD increased by 10.0% during
2016.
FX Gain/(Loss). We recorded a foreign exchange gain of US$63.7
million in 2016, against a loss of US$110.3 million in 2015. This
was a result of Russian Rouble appreciation versus the US Dollar
during 2016.
Income tax expense. Our current tax expense decreased to a
reverse of US$0.6 million compared to accrual of US$0.8million in
2015. This was due to correction of tax expenses in a Group company
for a prior year.
Profit/Loss for the year. Due to the factors described above, we
recorded a US$47.9 million net loss for 2016 compared to net loss
of US$466.7 million for 2015.
Liquidity and Capital Resources
Cash flows
Summary of cash flows for 2016 and 2015
US$ thousand For the year For the year
ended 31 December ended 31 December
2016 2015
-------------------------------------- ------------------- -------------------
Net cash from operating activities 35,185 34,374
-------------------------------------- ------------------- -------------------
Net cash from/(used in) investing
activities 9,126 (14,815)
-------------------------------------- ------------------- -------------------
Net cash from/(used in) financing
activities (58,035) (80,003)
-------------------------------------- ------------------- -------------------
Effect of exchange rate fluctuations 2,202 233
-------------------------------------- ------------------- -------------------
Net increase/(decrease) in cash
and cash equivalents (15,926) (60,211)
-------------------------------------- ------------------- -------------------
Cash and cash equivalents at
1 January 26,545 86,756
-------------------------------------- ------------------- -------------------
Cash and cash equivalents at
31 December* 10,619 26,545
-------------------------------------- ------------------- -------------------
* Note: the cash and cash equivalents do not include US$6.1
million (2015: US$15.9 million) fair value of marketable
securities.
Net cash from operating activities
Net cash from operating activities increased to US$35.2 million
in 2016, from US$34.4 million in 2015. The increase is attributable
to the fact that sales of residential units in Odinburg, nominated
in Russian rouble, created higher USD positive cash flow due to
rouble appreciation.
Net cash from investing activitiesNet cash inflow from investing
activities amounted to US$ 9.1 million and is attributable to cash
receipt from the sale and maturity of investments in marketable
securities.
Net cash used in financing activities
Net cash used in financing activities increased to a negative
US$58.0 million in 2016 from a negative US$80.0 million in 2015 due
to Company repayment of part of principal amount and interests
during 2016.
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 2016 with of approximately US$16.7 million
in cash, cash equivalents and marketable securities on our balance
sheet and a debt(6) to equity level of 81%.
The Company's financing strategy aims to maximise the amount of
debt financing for projects under construction while maintaining
healthy loan-to-value levels. After delivery and commissioning, the
aim is to refinance properties at more favourable terms, including
longer amortisation periods, lower interest rates and higher
principal balloon payments. Property rights and shares of property
holding companies are mainly used as collateral for the debt. We
strongly prefer, whenever possible, to use non-recourse project
level financing.
As of December 31, 2016 our debt portfolio was as follows:
Project Lending Max debt Total Available Nominal Currency Maturity
bank limit balance (US$ mn) Interest
as of rate
Dec-31,
2016
--------------------- ---------- --------- --------- ---------- ---------- --------- -----------
(US$ mn) (US$ (dd.mm.yy)
mn)
--------------------- ---------- --------- --------- ---------- ---------- --------- -----------
AFIMALL VTB Bank RUR 21
City JSC billion 159.1 0 9.5% RUR 01.04.2018
--------------------- ---------- --------- --------- ---------- ---------- --------- -----------
276.9 3-month US$
LIBOR +
5.02%
--------------------- ---------- --------- --------- ---------- ---------- --------- -----------
3-month
Krown Investments VTB Bank LIBOR +
LLC JSC 220.0 191.5 0 7% US$ 26.01.2018
--------------------- ---------- --------- --------- ---------- ---------- --------- -----------
The total balance of secured debt financing reached US$627.5
million as at 31 of December 2016, including US$627.1 million of
Principal Debt and US$0.4 million of accrued interest with average
interest rate 7.74% per annum as at 31.12.2016 (7.28% per annum as
at 31.12.2015) (for more details see note 28 to our consolidated
financial statements).
As at 31 December 2016, our loans and borrowings were payable as
follows:
US$ thousand As at 31 As at 31 December
December 2015
2016
---------------------------- ---------- ------------------
Less than one year 0.7 224,315
---------------------------- ---------- ------------------
Between one and five years 627,074 389,799
---------------------------- ---------- ------------------
Total 627,822 614,114
---------------------------- ---------- ------------------
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 2016, based on the JLL independent
appraisers' report, the value of AFI Development's portfolio of
investment properties stood at US$915.1 million, while the value of
the portfolio of investment property under development stood at
US$232.9 million.
Consequently, the total value of the Company's assets, based
predominantly on independent valuation as of 31 December 2016,
remained unchanged year-on-year at US$1.4 billion.
Property Valuation Valuation Change Balance sheet Balance
31/12/2016, 31/12/2015, in valuation, value 31/12/2016, sheet value
US Dollars US Dollars % US Dollars 31/12/2015,
US Dollars
=== ======================= =============== =============== =============== =================== ==============
Investment property
1 H2O 9,223,126[7] 8,925,606 3% 9,300,000 9,000,000
Ozerkovskaya
2 Phase III 198,500,000 199,300,000 0% 198,500,000 199,300,000
3 Berezhkovskaya 12,136,000[8] 11,470,000 6% 16,400,000 15,500,000
4 AFIMALL City 666,500,000 685,200,000 -3% 666,500,000 685,200,000
Paveletskaya
5 I 11,900,808[9] 11,504,114 3% 12,000,000 11,600,000
6 Plaza II 9,200,000 9,200,000 0% 9,200,000 9,200,000
7 Plaza Ib 3,450,000 3,400,000 1% 3,450,000 3,400,000
8 Sadovaya -Samotechnaya - 500,000 -100% - 500,000
=== ======================= =============== =============== =============== =================== ==============
Total 910,909,934 929,499,720 -2% 915,350,000 933,700,000
=== ======================= =============== =============== =============== =================== ==============
Investment property under development
9 Plaza Ic 66,000,000 65,500,000 1% 66,000,000 65,500,000
10 Plaza IIa - 1,900,000 -100% - 1,900,000
11 Plaza IV 61,275,000[10] 65,170,000 -6% 64,500,000 68,600,000
12 Kossinskaya 28,300,000 27,800,000 2% 28,300,000 27,800,000
13 Bolshaya Pochtovaya 73,885,110[11] 71,460,000 4% 74,100,000 71,460,000
=== ======================= =============== =============== =============== =================== ==============
Total 229,460,110 231,830,000 -1% 232,900,000 235,260,000
=== ======================= =============== =============== =============== =================== ==============
Trading property & Trading property under development
14 Odinburg n/a n/a - 150,181,009 148,452,242
Ozerkovskaya
15 II n/a n/a - 1,791,074 2,062,354
Paveletskaya
16 Phase II n/a 55,477,600[12] - 76,666,586 55,940,000
17 Botanic Garden n/a n/a - 21,542,643 -
--- ----------------------- --------------- --------------- --------------- ------------------- --------------
Total - 55,477,600 -100% 250,181,313 206,454,596
=== ======================= =============== =============== =============== =================== ==============
Inventory of real estate
18 Botanic Garden - 18,570,000 -100% - 18,570,000
=== ======================= =============== =============== =============== =================== ==============
Total - 18,570,000 -100% - 18,570,000
=== ======================= =============== =============== =============== =================== ==============
Land Bank Properties
19 Ruza n/a n/a - - 3,665,000
=== ======================= =============== =============== =============== =================== ==============
Total - - 0% - 3,665,000
=== ======================= =============== =============== =============== =================== ==============
Hotels
20 Aquamarine Hotel n/a n/a - 15,289,552 13,075,377
Plaza Spa Hotel
21 in Kislovodsk([13]) n/a n/a - 13,823,785 11,560,988
Plaza Spa Hotel
22 Zheleznovodsk n/a n/a - 11,095,402 9,093,415
Park Plaza hotel
23 in Kislovodsk n/a n/a - 3,947,127 3,319,081
24 Versailles project n/a n/a - - -
in Kislovodsk
=== ======================= =============== =============== =============== =================== ==============
Total - - - 44,155,866 37,048,861
Grand Total 1,140,370,044 1,235,377,320 -8% 1,442,587,178 1,434,698,457
=== ======================= =============== =============== =============== =================== ==============
Principal Business Risks and Uncertainties Affecting the
Company
This section presents information about the Company's exposure
to each of the risks listed below, the Group's objectives, policies
and processes for measuring and managing risks.
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
The Company limits its exposure to credit risk by only investing
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, except as disclosed
in note 33 to the Company's Audited Financial Statements for year
2014.
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 2016, there were two outstanding guarantees:
one for the amount of US$1 million in favour of VTB Bank PJSC under
a loan facility agreement of Bellgate Construction Limited (AFIMALL
City) and the second for the amount of US$ 192 million, also in
favour of VTB Bank PJSC, under a loan facility agreement of Krown
Investments LLC (Ozerkovskaya III).
In February 2017, AFI Development provided an additional
guarantee in favour of VTB Bank PJSC for the loan amounting to
US$22.5 million, taken by its subsidiary Sanatory Plaza LLC to
finance the acquisition of the 50% stake in the Plaza Spa
Kislovodsk project (including repayment of debt to the exiting
partner's company). This guarantee will remain in place until all
security agreements under this loan are entered into and
registered, expected by the end of April 2017.
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 2014, 27% of
our financial liabilities were fixed rate. For more detail see note
33 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 and Russian
Rouble.
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 2016 or in
the period since 31 December 2016.
AFI DEVELOPMENT PLC
Annex A to the MD&A
31.12.2016 - Very significant property disclosure
1. AFIMALL City
(Data based Current Comparative data
on 100%. Share quarter
of the Company
in the property
- 100%)
--------- --------------------------------------------
Q4 2016 Q3 2016 Q2 2016 Q1 2016 Q4 2015
--------------------- --------- -------- --------- ----------- ----------
Value of the
property (000'USD) 666,500 656,800 656,800 666,000 685,200
--------------------- --------- -------- --------- ----------- ----------
NOI in the
period (000'US$) 12,275 13,247 10,971 13,600[14] 12,259
--------------------- --------- -------- --------- ----------- ----------
Revaluation
gains (losses)
in the period
(000'US$) (3,679) (5,438) (24,700) (40,960) (276,764)
--------------------- --------- -------- --------- ----------- ----------
Occupancy
rate at the
end of the
period (%) 84% 82% 78% 82% 78%
--------------------- --------- -------- --------- ----------- ----------
Rate of return
(%) 7.5% 7.7% 7.5% 8.2% 7.8%
--------------------- --------- -------- --------- ----------- ----------
Average rent
per sq.m.
(US$/annum) 858 880 941 828 1,103
--------------------- --------- -------- --------- ----------- ----------
Average rent
per sq.m.
in agreements
signed in
the period
(US$/annum) 803 685 487 248[15] 989
--------------------- --------- -------- --------- ----------- ----------
AFI DEVELOPMENT PLC
FINANCIAL STATEMENTS
For the year ended 31 December 2016
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 (appointed on 20/1/17)
Avraham Noach Novogrocki (resigned on 12/9/16)
Christakis Klerides (resigned on 13/7/16)
Moshe Amit (resigned on 31/12/16)
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 2016.
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. As described
in more detail in note 34 "Group composition" up to 7 September
2016, the Company was a 64.88% subsidiary of Africa Israel
Investments Ltd ("Africa-Israel"), which is listed in the Tel Aviv
Stock Exchange ("TASE").
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 2016, the Company's portfolio consisted of 7
investment properties, 4 investment properties under development, 3
trading properties under construction, and 3 hotel projects.
FINANCIAL RESULTS
The Group's results are set out in the consolidated income
statement on page 13. The loss of the Group for the year before
taxation amounted to US$50,697 thousand (2015: US$557,188
thousand). The loss after taxation attributable to the Group's
owners amounted to US$47,872 thousand (2015: US$464,087
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 will be in a position to refinance or negotiate the loans at
maturity, secure further financing for its project under
construction and development and achieve the sales volumes and
prices as budgeted to generate enough cash to cover its working
capital requirements in order for the Group to be in a position to
continue its operations in the foreseeable future.
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 September 2014
(the "Code") applied to the Company during the period under review;
the updates to the UK Corporate Governance Code published in April
2016 apply to the Company for the financial year commencing 1
January 2017.
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.
MANAGEMENT REPORT
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 34 "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 2016 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. The Directors, Mr Avraham Noach
Novogrocki, Mr Christakis Klerides and Mr Moshe Amit resigned
during the current year as indicated on page 1. Mr David Tahan was
appointed on 20 January 2017. 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 33 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 40 of the consolidated financial statements.
RELATED PARTY TRANSACTIONS
Disclosed in note 39 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, 6 April 2017
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 2016, the names of which are listed below,
confirm that, to the best of our knowledge:
a) The consolidated financial statements on pages 12 to 76:
(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 .............................................................
6 April 2017
Independent Auditors' Report
To the Members of AFI Development Plc
Report on the audit if the consolidated financial statements and
the separate financial statements of AFI Development Plc
Opinion
We have audited the accompanying consolidated financial
statements of AFI Development Plc ("the Company") and its
subsidiaries (the "Group"), and the separate financial statements
of AFI Development Plc (the "Parent Company"), which are presented
on pages 12 to 100 and comprise the consolidated statement of
financial position and the separate statement of financial position
of the Parent Company as at 31 December 2016, and the consolidated
statements of income statement, comprehensive income, changes in
equity and cash flows and the separate statements of income
statement, comprehensive income, changes in equity and cash flows
of the Parent Company for the year then ended, and 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 Parent
Company as at 31 December 2016, 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 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.
Material Uncertainty Related to Going Concern
We draw attention to note 2(i) in the consolidated financial
statements which indicates that the Group incurred a net loss of
US$47,942 thousand during the year ended 31 December 2016, driven
by a decrease in the value of Group's property assets by US$123,045
thousand and the continuous decline of the Group's cash and cash
equivalents and marketable securities down to US$16,687 thousand.
Furthermore, the maturity of the Group's loans and borrowings,
early 2018 will require the Group to make a lump sum payment of the
principal of the loans with a current balance of US$627,533
thousand. As stated in note 2(i), these events or conditions, along
with other matters as set forth in note 2(i), indicate that a
material uncertainty exists that may cast significant doubt on the
Company's ability to continue as a going concern. Our opinion is
not modified in respect of this matter.
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. In addition to the matter described in the "Material
uncertainty related to going concern" section, we have determined
the matters described below to be the key audit matters to be
communicated in our report.
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 assessing whether the valuation
of US$915,350 thousand and approach used was in accordance
investment property under development with Royal Institution of Chartered
portfolio of US$232,900 thousand Surveyors (RICS) and suitable
representing 80.3% of the Group's for use in determining the
total assets as at 31 December carrying value for the purpose
2016. The valuation of the of the consolidated financial
Group's properties is inherently statements under IFRSs. We
subjective due to, among other evaluated the competence, objectivity
factors, the individual nature and independence of the Group's
of each property, its location external property valuers and
and the expected future rental also considered fee arrangements
revenue for that particular between the valuers and other
property. For developments, engagements which might exist.
factors include projected costs We carried out procedures,
to complete and timing until on a sample basis, to satisfy
practical completion. ourselves of the accuracy of
The existence of significant the property information supplied
estimation uncertainty, could to valuers by the Group. For
result in a material misstatement, properties under development
warrants specific audit focus we assessed the consistency
in this area. of the information for construction
contracts and budgets which
were supplied to the valuers
to the Group's records. We
assessed using also our own
experts the appropriateness
of the valuation methodologies
and assumptions used based
on our experience and knowledge
of the market and by comparing
them to market data. We held
discussions on key findings
with the external property
valuers and challenging various
key inputs such as discount,
vacancy and exit capitalisation
rates used on each property
within the property portfolio.
--------------------------------------- ---------------------------------------
Revenue recognition
--------------------------------------------------------------------------------
See note 7 to the consolidated financial statements
--------------------------------------------------------------------------------
The key audit matter How the matter was addressed
in our audit
--------------------------------------- ---------------------------------------
The Group recognised during Our audit procedures included,
the current year revenue from considering the appropriateness
sale of trading properties of the Group's revenue recognition
(residential flats, offices, accounting policies and compliance
parking spaces) of US$54,484 with the policies in terms
thousand. Recognition of such of applicable accounting standards.
type of sales occurs when the We performed audit procedures
significant risks and rewards connected with the year-end
of ownership of flats have timing of revenue recognition.
been transferred to the buyer. Our substantive test of revenue
Due to the judgement involved included substantiating transactions
there is a risk of recognising with underlying documentation
revenue in the wrong accounting (signed contracts and "acts
period. of transfer") to obtain evidence
Due to the abovementioned risk for the transfer of ownership
factor we consider the timing to buyers and assessing the
of revenue recognition to constitute revenue recognised with the
a key audit matter. signed contracts.
--------------------------------------- ---------------------------------------
Provisioning for taxation
--------------------------------------------------------------------------------
Refer to note 3 assumptions and estimation uncertainty -
tax; and note 5 significant accounting policies - tax; and
note 13 Tax Benefit, note 29 Deferred Tax Assets and Liabilities,
note 33 Financial Instruments - Fair values and Risk Management
- Taxation contingencies in the Russian Federation.
--------------------------------------------------------------------------------
The key audit matter How the matter was addressed
in our audit
--------------------------------------- ---------------------------------------
Provisioning for taxation requires Our audit work included assessing
complex judgements to be taken the adequacy of the design
in respect of the various tax and implementation of controls
jurisdictions in which the over accounting for taxation.
Group operates. The provisions We evaluated the appropriateness
are judgemental as a result of management's assumptions
of their nature and technical and estimates in their assessment
complexity. and valuation of the tax risks
within the Group including
review of correspondence on
the status of tax compliance
and tax audits in the various
jurisdictions in which the
Group operates, and benchmarking
against our assessment of the
range of potential outcomes
in respect of the uncertain
tax treatments adopted. We
involved KPMG tax specialists
within the audit team to provide
detailed knowledge and expertise
in assessing tax treatments
in certain jurisdictions.
--------------------------------------- ---------------------------------------
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 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 consolidated financial statements and the
separate 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 consolidated financial statements and the separate financial
statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a
manner that achieves fair presentation.
-- Obtain sufficient appropriate evidence regarding the
financial information of the entities or business activities 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. We describe these matters in our auditors' report unless
law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
Report on Other Legal Requirements
Pursuant to the additional requirements of the Auditors and
Statutory Audits of Annual and Consolidated Accounts Laws of 2009,
L.42(I)/2009, as amended from time to time ("Law 42(I)/2009"), we
report the following:
-- We have obtained all the information and explanations we
considered necessary for the purposes of our audit.
-- In our opinion, proper books of account have been kept by the
Company, so far as appears from our examination of these books.
-- The Company's consolidated financial statements and separate
financial statements are in agreement with the books of
account.
-- In our opinion and to the best of our information and
according to the explanations given to us, the consolidated
financial statements and separate financial statements give the
information required by the Companies Law, Cap. 113, in the manner
so required.
-- In our opinion, the Management report on pages 2 to 4, 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 financial statements.
-- In the light of the knowledge and understanding of the
business and the Company's environment obtained in the course of
our audit, we have not identifies material misstatements in the
management report.
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 Matter
This report, including the opinion, has been prepared for and
only for the Company's members as a body in accordance with Section
34 of Law 42(I)/2009 and for no other purpose. We do not, in giving
this opinion, accept or assume responsibility for any other purpose
or to any other person to whose knowledge this report may come
to.
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
6 April 2017
AFI DEVELOPMENT PLC
CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2016
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 2016
2016 2015
Note US$ '000 US$ '000
Revenue 7 138,296 93,726
Other income 8 3,545 3,125
Operating expenses 9 (38,836) (40,505)
Carrying value of trading properties
sold 22 (49,475) (609)
Administrative expenses 10 (6,589) (10,640)
Other expenses 11 (1,330) (1,649)
Total expenses (96,230) (53,403)
Share of the after tax profit/(loss)
of joint ventures 17 3,742 (1,321)
Gross Profit 49,353 42,127
Profit on disposal of investment 1,801 -
property
Decrease in fair value of properties 15,16 (123,045) (434,364)
Impairment loss on properties 20,23 - (12,651)
Net valuation loss on properties (123,045) (447,015)
Results from operating activities (71,891) (404,888)
Finance income 65,802 4,496
Finance costs (44,608) (156,796)
Net finance income/(costs) 12 21,194 (152,300)
Loss before tax (50,697) (557,188)
Tax benefit 13 2,755 90,509
Loss for the year (47,942) (466,679)
Loss attributable to:
Owners of the Company (47,872) (464,087)
Non-controlling interests (70) (2,592)
(47,942) (466,679)
Earnings per share
Basic and diluted earnings per share
(cent) 14 (4.57) (44.30)
The notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2016
2016 2015
US$ '000 US$ '000
Loss for the year (47,942) (466,679)
Other comprehensive income/(expense)
Items that are or may be reclassified subsequently
to profit or loss
Realised translation difference on disposal
of subsidiaries
transferred to income statement - (275)
Foreign currency translation differences
for foreign operations 27,782 (23,907)
Other comprehensive income/(expense) for
the year 27,782 (24,182)
Total comprehensive expense for the year (20,160) (490,861)
Total comprehensive (expense)/income attributable
to:
Owners of the Company (20,252) (488,158)
Non-controlling interests 92 (2,703)
(20,160) (490,861)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2016
Attributable to the owners of the Non-controlling Total
Company interests equity
Share Share Capital Translation Retained
capital premium reserve reserve Earnings/Accumula-ted Total
losses
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Balance at 1
January
2015 1,048 1,763,409 - (314,880) (158,982) 1,290,595 (8,817) 1,281,778
Total
comprehensive
expense for the
period
Loss for the
period - - - - (464,087) (464,087) (2,592) (466,679)
Other
comprehensive
expense - - - (24,071) - (24,071) (111) (24,182)
Total
comprehensive
expense for the
period - - - (24,071) (464,087) (488,158) (2,703) (490,861)
Transactions with owners of the
Company
Contributions and distributions
Share option
expense - - - - 2,283 2,283 - 2,283
Changes in
ownership
interest
Acquisition of
non-controlling
interests (note
27) - - (9,201) - - (9,201) 7,601 (1,600)
Balance at 31
December
2015 1,048 1,763,409 (9,201) (338,951) (620,786) 795,519 (3,919) 791,600
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
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER
2016
2016 2015
Note US$ '000 US$ '000
Assets
Investment property 15 915,350 933,700
Investment property under development 16 232,900 238,925
Property, plant and equipment 18 31,215 26,280
Long-term loans receivable 19 15,763 14,316
Inventory of real estate 20 - 18,570
VAT recoverable 21 9 33
Non-current assets 1,195,237 1,231,824
Trading properties 22 6,854 2,062
Trading properties under construction 23 243,327 204,392
Other investments 24 6,088 15,921
Inventories 665 477
Short-term loans receivable 19 7 101
Trade and other receivables 25 42,427 29,017
Current tax assets 13 2,542 1,622
Cash and cash equivalents 26 10,619 26,545
Current assets 312,529 280,137
Total assets 1,507,766 1,511,961
Equity
Share capital 27 1,048 1,048
Share premium 27 1,763,409 1,763,409
Translation reserve 27 (311,331) (338,951)
Capital reserve 27 (9,201) (9,201)
Accumulated losses 27 (667,801) (620,786)
Equity attributable to owners of
the Company 776,124 795,519
Non-controlling interests 35 (3,827) (3,919)
Total equity 772,297 791,600
Liabilities
Long-term loans and borrowings 28 627,074 389,799
Deferred tax liabilities 29 14,934 25,567
Deferred income 32 10,455 8,543
Non-current liabilities 652,463 423,909
Short-term loans and borrowings 28 748 224,315
Trade and other payables 30 30,957 18,163
Advances from customers 31 51,301 53,974
Current liabilities 83,006 296,452
Total liabilities 735,469 720,361
Total equity and liabilities 1,507,766 1,511,961
The consolidated financial statements were approved by the Board
of Directors on 6 April 2017.
........................ ...............................
Lev Leviev David Tahan
Chairman Director
The notes on pages 19 to 77 are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2016
2016 2015
Note US$'000 US$'000
Cash flows from operating activities
Loss for the year (47,942) (466,679)
Adjustments for:
Depreciation 18 696 963
Net finance (income)/costs 12 (21,574) 151,904
Share option expense 857 2,283
Decrease in fair value of properties 15,16 123,045 434,364
Impairment losses on properties 20,23 - 12,651
Share of (profit)/loss in joint ventures 17 (3,742) 1,321
Profit on disposal of investment property (1,801) -
Profit on sale of property, plant and
equipment (17) (16)
Tax benefit 13 (2,755) (90,509)
46,767 46,282
Change in trade and other receivables 837 (1,420)
Change in inventories (84) (3)
Change in trading properties and trading
properties under construction 22,23 (10,546) (35,497)
Change in advances and amounts payable
to builders of trading properties under
construction 12,657 (3,552)
Changes in advances from customers (12,262) 29,455
Change in trade and other payables 613 (1,264)
Change in VAT recoverable on trading (2,596) 2,947
Change in deferred income 172 (1,753)
Cash generated from operating activities 35,558 35,195
Taxes paid (373) (821)
Net cash from operating activities 35,185 34,374
Cash flows from investing activities
Proceeds from sale of other investments 22,301 15,239
Proceeds from disposal of investment 1,099 -
property
Proceeds from sale of property, plant
and equipment 102 17
Interest received 4,625 4,122
Change in advances and amounts payable
to builders (2,080) (2,879)
Payments for construction of investment
property under development 16 (4,554) (10,906)
Payments for the acquisition/renovation
of investment property 15 (370) (2,013)
Change in VAT recoverable on construction (124) 2,617
Acquisition of property, plant and
equipment 18 (262) (56)
Dividends received from joint ventures 17 380 3,250
Acquisition of other investments 24 (12,642) (24,147)
Payments for loan receivable (508) (154)
Proceeds from repayment of loans receivable 1,159 95
Net cash from/(used in) investing activities 9,126 (14,815)
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
For the year ended 31 December 2016
2016 2015
Note US$'000 US$'000
Cash flows from financing activities
Acquisition of non-controlling interests - (1,600)
Proceeds from loans and borrowings 28 - 10,000
Repayment of loans and borrowings (13,090) (43,318)
Interest paid (44,945) (45,085)
Net cash used in financing activities (58,035) (80,003)
Effect of exchange rate fluctuations (2,202) 233
Net decrease in cash and cash equivalents (15,926) (60,211)
Cash and cash equivalents at 1 January 26,545 86,756
Cash and cash equivalents at 31 December 26 10,619 26,545
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
34 "Group Composition".
2. BASIS OF ACCOUNTING
i. Going concern basis of accounting
The Group continues to experience 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 with
higher oil prices 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$48 million
for the year ended 31 December 2016 driven by a decrease in the
value of Group's property assets by US$123 million and the
continuous decline of cash and cash equivalents and marketable
securities down to US$16.7 million. These were a continuation of
the year ended 31 December 2015 results, where AFI Development PLC
reported net losses of US$467 million, which predominately related
to a decrease in the value of the Group's property assets by
approximately US$500 million to US$1,400 million. Cash and cash
equivalents and marketable securities also declined by US$50.8
million during 2015 to US$42.5 million as at 31 December 2015.
Furthermore, as described in the below paragraphs, between the
period from 29 March 2016, when the Company received the VTB Bank
letter, and up until the signing of an addendum to the loan
agreements on the 27 September 2016, the Company went through an
extensive series of negotiations with VTB Bank on the loan
facilities of Ozerkovskaya III and AFIMAL City. In addition, the
maturity of the loans, early 2018 will require the Group to make a
lump sum payment of the principal of the loans with a current
balance of $627,533 thousand. These conditions, along with other
matters set forth below, indicate the existence of material
uncertainty which may cast significant doubt about the Group's
ability to continue as a going concern.
As described in more detail in the Company's announcements and
its interim financial statements for the three quarters ended 31
March, 30 June and 30 September 2016, a series of events and
negotiations with VTB bank for its the Ozerkovskaya III and AFIMALL
City loan facilities took place.
On 29 March 2016, the Company received a letter from the Bank
VTB PJSC ("the Bank"). The letter stated that the Bank had reached
a conclusion that Bellgate Construction Limited and Krown
Investments LLC (the borrowers under the AFIMALL City and the
Ozerkovskaya III loan facilities respectively) had experienced, in
the opinion of the Bank, material adverse changes in their
financial conditions and there had appeared other circumstances
that indicated that their obligations under the loan facility
agreements could be not met on time. According to the letter, the
Bank proposed that the Company "implement steps aimed at removing
possible negative consequences of the aforesaid circumstances, no
later than 30 calendar days from today", otherwise the Bank will
exercise its right under the loan facility agreements to claim
early repayment of the loans.
Following the above letter and further to a series of
negotiations and discussions between the Company and the Bank, the
Group ended up with two possible alternatives to follow, the
"Disposal Transaction" or the "Personal Guarantee" described in
brief below.
"The Disposal Transaction" announced on 15 July 2016 involved an
agreement which would release the AFI Development Group from all of
its obligations in respect of the loans taken by Krown Investments
Limited and Bellgate Constructions Limited, which amounted to
US$619.1 thousand as at 14 July 2016, in exchange for the Disposal
to VTB Bank PJSC ("VTB") of the following properties:
-- AFIMALL City Shopping Centre, a shopping and entertainment
centre in the business district of Moscow;
-- Ozerkovskaya III, a completed Class A office complex in Moscow; and
-- Aquamarine Hotel, a modern 4-star hotel, located in the Ozerkovskaya complex.
In this respect the Company issued a class1 circular on the 15
July 2016 and the transaction was approved at the General Meeting
held on 1 August 2016.
"The Personal Guarantee" as announced on 2 August 2016, took
place in parallel to the Disposal Transaction where the Company had
been informed that at a meeting on 1 August 2016 between the
Executive Chairman of the Company, Mr Lev Leviev and VTB, Mr Leviev
executed a unilateral Guarantee Deed - a personal guarantee and
indemnity deed under English law from Mr Leviev to VTB, pursuant to
which Mr Leviev had agreed to guarantee the obligations of Krown
under the Ozerkovskaya III Loan Facility for a period of 12 months
(the "Guarantee Deed"). . In addition the Group executed addenda to
the loan facility agreements and respective security agreements
with VTB, according to which the due date for the Principal
Payments have been deferred to 30th September 2016 (the
"Deferrals") and not to enforce for prior breaches of such
facilities (the "Standstill").
Further to the above, on the 27 September 2016, the Company and
VTB signed an addendum to the Ozerkovskaya III and AFIMALL City
Loan Facilities. The addenda, as disclosed in detail in note 28,
Loans and Borrowings, provided the deferral of the quarterly
principal payments due on the Loan Facility Agreements to maturity
of each of the Loans and the removal of the existing covenants to
the Ozerkovskaya III Loan Facility, in consideration for which VTB
has sought additional security in respect of the Loans which now
includes cross default provisions between each of the Loans and a
suretyship from Bellgate Constructions Limited ("Bellgate"), which
holds the AFIMALL City project, in respect of the Ozerkovskaya III
Loan Facility.
In addition, Mr Leviev has, on the same date, provided VTB with
a Guarantee, pursuant to which Mr Leviev has undertaken to
guarantee, for a period of 10 months, the obligations of Krown
under the Ozerkovskaya III Loan Facility. The Guarantee, which is
enforceable for 12 months, provides additional security to VTB in
respect of the Ozerkovskaya III Loan Facility. Prior to this and as
described in note 34 "Group Composition" Mr Leviev acquired
679,748,454 shares in the Company, previously held by Africa Israel
Investments Ltd, which represents 64.88% of the Company's share
capital.
As a result of the above amendments to the Loan Facility
Agreements and the Guarantee being entered into, the Board of
Directors of AFI Development decided not to proceed with the
Disposal transaction announced on 15 July 2016 and the loans were
reclassified from short term to long term liabilities.
Management anticipates that any additional financing budgeted
based on its estimated operating cash flows will be secured by new
bank facilities and loans, some of which are well into negotiations
with banks including VTB. Management expects to continue the
construction of projects classified as "Trading properties under
construction" as described in Note 23, which are "Odinburg",
"Paveleskaya phase II" and "Pochtovaya" and commence the
construction of "Botanic Garden".
Management estimates that the Group will generate sufficient
operating cash flows so as to meet the Loan Facilities interest
payments. Management explores all options in relation to repaying
the Loan Facilities when they fall due in 2018, which may or may
not include the disposal of certain assets or projects or refinance
of AFIMALL City loan. Management considers its available options
and is developing a plan on how to approach the loans at maturity
and secure further financing to continue in operational existence
for the foreseeable future.
Considering all the above conditions and assumptions, the
consolidated financial statements have been prepared on a going
concern basis, which assumes that the Group will be in a position
to refinance or negotiate the loans at maturity, secure further
financing for its project under construction and development and
achieve the sales volumes and prices as budgeted to generate enough
cash to cover its working capital requirements in order for the
Group to be in a position to continue its operations in the
foreseeable future. It is noted that no reclassifications or
adjustments were included with reference to the values of the
Group's assets and liabilities, which may be required if the Group
is not able to continue operating as a "going concern".
ii. Statement of compliance
These 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 6 April 2017.
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 17 - classification of the joint arrangements;
-- Note 36 - 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 2016 is included in the following
notes:
-- Note 18 - valuation of land and buildings and buildings under construction
-- Note 22 - valuation of trading properties
-- Note 23 - valuation of trading properties under construction
-- Note 13 - provision for tax liabilities
-- Note 25 - recoverability of receivables
-- Note 29 - utilisation of tax losses
-- Note 38 - recognition and measurement of contingencies
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 24 - other investments
-- Note 27 - share-based payment arrangements
-- Note 33 - financial instruments
4. STANDARDS ISSUED BUT NOT YET EFFECTIVE
Adoption of new and revised International Financial Reporting
Standards and Interpretations
As from 1 January 2016, the Group adopted all changes to
International Financial Reporting Standards (IFRSs) as adopted by
the EU which are relevant to its operations.
IFRS 14 "Regulatory Deferral Accounts" was effective for annual
periods beginning on or after 1 January 2016 but was not adopted by
the EU as it was decided not to launch the endorsement process of
this interim standard and to wait for the final standard.
The following Standards, Amendments to Standards and
Interpretations have been issued but are not yet effective for
annual periods beginning on 1 January 2016. 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). IFRS 9 replaces the existing
guidance in IAS 39. IFRS 9 includes revised guidance on the
classification and measurement of financial instruments, a new
expected credit loss model for calculating impairment on financial
assets, and new general hedge accounting requirements. It also
carries forward the guidance on recognition and derecognition of
financial instruments from IAS 39.
-- 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.
Standards and Interpretations not adopted by the EU
-- IAS 7 (Amendments) "Disclosure Initiative" (effective for
annual accounting periods beginning on or after 1 January 2017).
The amendments require disclosures that enable users of financial
statements to evaluate changes in liabilities arising from
financing activities, including both changes arising from cash flow
and non-cash changes.
-- IAS 12 (Amendments) "Recognition of Deferred Tax Assets for
Unrealised Losses" (effective for annual accounting periods
beginning on or after 1 January 2017). The amendments clarify the
accounting for deferred tax assets for unrealised losses on debt
instruments measured at fair value.
-- Annual Improvements to IFRSs 2014-2016 Cycle (effective for
annual periods beginning on or after 1 January 2017 (IFRS 12) and 1
January 2018 (IFRS 1 and IAS 28)). The annual improvements impact
three standards. The amendments to IFRS 1 remove the outdated
exemptions for first-time adopters of IFRS. The amendments to IFRS
12 clarify that the disclosure requirements for interest in other
entities also apply to interests that are classified as held for
sale or distribution. The amendments to IAS 28 clarify that the
election to measure at fair value through profit or loss an
investment in associate or a joint venture that is held by an
entity that is a venture capital organisation, or other qualifying
entity, is available for each investment in an associate or joint
venture on an investment-by-investment basis, upon initial
recognition.
-- IFRS 2 (Amendments) "Classification and Measurement of
Share-based Payment Transactions" (effective for annual periods
beginning on or after 1 January 2018). The amendments cover three
accounting areas: a) measurement of cash-settled share-based
payments; b) classification of share-based payments settled net of
tax withholdings; and c) accounting for a modification of a
share-based payment from cash-settled to equity-settled. The new
requirements could affect the classification and/or measurements of
these arrangements - and potentially the timing and amount of
expense recognised for new and outstanding awards.
-- IFRS 4 (Amendments) "Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts" (effective for annual periods
beginning on or after 1 January 2018). The amendments intend to
address concerns about the different effective dates of IFRS 9 and
the forthcoming new insurance contracts standard (expected as IFRS
17). The amendments provide two options for entities that issue
insurance contracts within the scope of IFRS 4: a) an option
permitting entities to reclassify from profit or loss to other
comprehensive income some of the income or expenses arising from
designated financial assets (overlay approach) or b) an optional
temporary exemption from applying IFRS 9 whose predominant activity
is issuing contracts within the scope of IFRS 4 (deferral
approach).
-- IFRS 15 (Clarifications) "Revenue from Contracts with
Customers" (effective for annual periods beginning on or after 1
January 2018). The amendments in Clarifications to IFRS 15 address
three of the five topics identified i.e. identifying performance
obligations, principal versus agent considerations, and licensing.
The clarifications provide some transition relief for modified
contracts and completed contracts. Additionally, the IASB concluded
that it was not necessary to amend IFRS 15 with respect to the
collectability or measuring non-cash consideration.
-- IAS 40 (Amendments) "Transfers of Investment Property"
(effective for annual periods beginning on or after 1 January
2018). The amendments clarify when a company should transfer a
property asset 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, it is
clarified that the revised examples of evidence of a change in use
in the amended version of IAS 40 are not exhaustive.
-- 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 is the date on which the company initially recognises 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.
-- IFRS 16 "Leases" (effective for annual periods beginning on
or after 1 January 2019). IFRS 16 introduces a single, on-balance
lease sheet accounting model for lessees. 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 optional 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. 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 Board of Directors expects that the adoption of the above
financial reporting standards in future periods will not have a
significant effect on the financial statements of the Company
except of the adoption of IFRSs 9, 15 and 16 which could affect the
consolidated financial statements. The extent of the impact has not
been determined.
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 2016 60.6569 (16.8)
31 December 2015 72.8827 29.5
Average rate during:
Year ended 31 December 2016 67.0349 10.0
Year ended 31 December 2015 60.9579 58.7
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.
Intangible assets and goodwill
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
Income received in advance is classified under non-current and
current liabilities as deferred income and comprise rental income
received for future periods and amounts received in advance for the
sale of trading properties, for which recognition of revenue has
not yet commenced.
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 (continued)
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
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------- -------- ----------- ---------- ------------ -------- ---------- ----------- ----------- ---------- ---------- ----------- --------------
External
revenues 56,544 4,900 67,878 74,010 11,298 11,346 2,361 3,325 215 145 138,296 93,726
Inter-segment
revenue 6,077 5,485 915 469 4 2 5,295 5,813 6,397 6,787 18,688 18,556
---------------- -------- ----------- ---------- ------------ -------- ---------- ----------- ----------- ---------- ---------- ----------- --------------
Segment revenue 62,621 10,385 68,793 74,479 11,302 11,348 7,696 9,138 6,572 6,932 156,984 112,282
Segment (loss)
profit
before tax (688) (48,127) (8,411) (437,077) 3,069 2,458 (41,620) (65,364) (6,196) (6,480) (53,846) (554,590)
Interest income 2 1 8 3 1 - 2,134 3,735 - - 2,145 3,739
Interest
expense - - (44,012) (45,733) - - (24) (50) - - (44,036) (45,783)
Depreciation (53) (37) (79) (116) (498) (732) (6) (16) (60) (62) (696) (963)
Share of
profit/(loss)
of
joint-ventures - - - - 3,742 (1,321) - - - 3,742 (1,321)
Other material
non-cash items:
Impairment loss
on
properties - (12,651) - - - - - - - (12,651)
Decrease in
fair value of
properties (3,970) (35,203) (91,254) (325,359) - - (27,821) (73,802) - (123,045) (434,364)
Segment assets 355,567 255,591 912,240 916,855 27,158 23,610 185,693 281,230 624 496 1,481,282 1,477,782
Capital
expenditure 60,278 38,056 370 7,020 - - 818 4,538 - - 61,466 49,614
Segment
liabilities 66,971 64,187 667,779 643,102 - - - 12,319 387 628 735,137 720,236
---------------- -------- ----------- ---------- ------------ -------- ---------- ----------- ----------- ---------- ---------- ----------- ------------
Reconciliations of reportable segment revenues, profit or loss,
assets and liabilities and other material items.
2016 2015
US$'000 US$'000
Revenues
Total revenue for reportable segments 156,984 112,282
Elimination of inter-segment revenue (18,688) (18,556)
Consolidated revenue 138,296 93,726
Profit before tax
Total profit before tax for reportable segments (53,846) (554,590)
Unallocated amounts:
Other profit or loss (593) (1,277)
Share of the after tax profit/(loss) of
joint ventures 3,742 (1,321)
Consolidated loss before tax (50,697) (557,188)
Assets
Total assets for reportable segments 1,481,282 1,477,782
Other unallocated amounts 26,484 34,179
Consolidated total assets 1,507,766 1,511,961
Liabilities
Total liabilities for reportable segments 735,137 720,236
Other unallocated amounts 332 125
Consolidated total liabilities 735,469 720,361
Reportable Adjustments Consolidated
segment totals
totals
US$'000 US$'000 US$'000
Other material items 2016
Interest income 2,145 - 2,145
Interest expense 44,036 - 44,036
Capital expenditure 61,466 - 61,466
Depreciation 696 - 696
Decrease in fair value of properties 123,045 - 123,045
Reportable Adjustments Consolidated
segment totals
totals
US$'000 US$'000 US$'000
Other material items 2015
Interest income 3,739 - 3,739
Interest expense 45,783 - 45,783
Capital expenditure 49,614 - 49,614
Depreciation 963 - 963
Decrease in fair value of properties 434,364 - 434,364
Impairment loss on properties 12,651 - 12,651
Geographical segments
Geographically the Group operates only in Russia and has no
significant revenue or assets in other countries or geographical
areas. Therefore no geographical segment reporting is
presented.
Major customer
There was no concentration of revenue from any single customer
in any of the segments.
7. REVENUE
2016 2015
US$ '000 US$ '000
Investment property rental income 72,299 81,561
Sales of trading properties (note
22) 54,484 674
Hotel operation income 11,298 11,346
Construction consulting/management
fees 215 145
138,296 93,726
8. OTHER INCOME
2016 2015
Other income consists of: US$ '000 US$ '000
Penalties charged to tenants 147 345
Reimbursement of depositary fees 480 750
Reimbursement of property tax 1,770 -
Profit on sale of property, plant and
equipment 17 16
Sundries 1,131 2,014
3,545 3,125
9. OPERATING EXPENSES
2016 2015
US$ '000 US$ '000
Maintenance, utility and security expenses 12,147 13,743
Agency and brokerage fees 623 701
Advertising expenses 5,496 3,672
Salaries and wages 10,276 10,724
Consultancy fees 504 499
Depreciation 578 849
Insurance 635 622
Rent 1,429 1,566
Property and other taxes 6,338 7,863
Other operating expenses 810 266
38,836 40,505
10. ADMINISTRATIVE EXPENSES
2016 2015
US$ '000 US$ '000
Consultancy fees 1,841 894
Legal fees 814 475
Auditors' remuneration 519 695
Valuation expenses 94 124
Directors' remuneration 1,361 1,472
Salaries and wages 25 6
Depreciation 118 114
Insurance 208 193
Provision for Doubtful Debts-(reversal) (1,304) (99)
Share option expense 857 2,283
Donations 674 2,811
Other administrative expenses 1,382 1,672
6,589 10,640
11. OTHER EXPENSES
2016 2015
US$ '000 US$ '000
Prior years' VAT non recoverable (note
21) 121 125
Sundries 1,209 1,524
1,330 1,649
12. FINANCE INCOME AND FINANCE COSTS
2016 2015
US$ '000 US$ '000
Interest income 2,145 3,739
Net change in fair value of financial assets - 408
Translation reserve reclassified upon disposal
of subsidiaries - 275
Loans payable written off - 74
Foreign exchange gain 63,657 -
Finance income 65,802 4,496
Interest expense on loans and borrowings (44,036) (45,783)
Net change in fair value of financial assets (174) -
Other finance costs (380) (396)
Loans receivable written off (18) -
Foreign exchange loss - (110,617)
Finance costs (44,608) (156,796)
Net finance income/(costs) 21,194 (152,300)
The net foreign exchange gain recognised during 2016 is a result
of the weakening of the US Dollar to the Russian Rouble by 17%,
during 2016. 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 2016 the
Group did not capitalise any amount (2015 Nil) of financing costs
to the projects that are in construction phase.
13. TAX BENEFIT
2016 2015
US$ '000 US$ '000
Current tax (benefit)/expense
Current year 282 844
Adjustment for prior years (865) (91)
(583) 753
Deferred tax benefit
Origination and reversal of temporary differences (2,172) (91,262)
Total tax benefit (2,755) (90,509)
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.
2016 2015
% US$ '000 % US$ '000
Loss for the year after tax (47,942) (466,679)
Total tax benefit (2,755) (90,509)
Loss before tax (50,697) (557,188)
Tax using the Company's domestic tax
rate (12.5) (6,332) (12.5) (69,463)
Effect of tax rates in foreign jurisdictions (5.4) (2,754) (7.6) (42,580)
Tax exempt income (79.0) (40,060) (4.9) (27,544)
Non-deductible expenses 89.16 45,201 6.5 36,012
Change in estimates related to prior
years (1.7) (865) - -
Current year losses for which no deferred
tax asset recognised 4.05 2,055 2.3 13,066
(5.4) (2,755) (16.2) (90,509)
The current tax asset of US$2,542 thousand as at 31 December
2016 (2015: asset US$1,622 thousand), represents the net amount of
income tax overpayment in respect of current and prior periods.
14. EARNINGS PER SHARE
2016 2015
Basic earnings per share US$ '000 US$ '000
Loss attributable to ordinary shareholders (47,872) (464,087)
Weighted average number of ordinary shares Shares Shares
in thousands in thousands
Weighted average number of shares 1,047,694 1,047,694
Earnings per share (cent) (4.57) (44.30)
Diluted earnings per share are not presented as the assumed
conversion of the employee share options outstanding would have an
anti-dilutive effect i.e. increase in earnings per share.
15. INVESTMENT PROPERTY
Reconciliation of carrying amount
2016 2015
US$ '000 US$ '000
Balance 1 January 933,700 1,375,416
Renovations/additional cost 370 2,013
Disposals (500) -
Fair value adjustment (92,801) (332,361)
Effect of movement in foreign exchange
rates 74,581 (111,368)
Balance 31 December 915,350 933,700
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 2016. 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 17%, during 2016 (2015: strengthening 30%).
The main reason for the fair value loss are market driven
changes in the valuation assumptions reflecting the continuing
pressure on rental rates per square metre. In the retail segment
the increasing switch of retail rents to roubles in most shopping
centres has also undermined market rents. At the AFIMALL there was
a divergence between the existing and new leases, with significant
discounts having to be offered to lease currently vacant space,
compared with higher rental rates agreed with the existing tenants.
In 2016 a number of existing leases expired and were prolonged at
lower base rental rates reflecting discounts, which influenced
negatively the Estimated Rental Value "ERV" of the Mall though
decreasing the amount of discounts provided in the end the same net
income. In the office segment the process of switching rents from
US dollars to roubles continued, however market rental rates
remained stable while overall vacancy rates slightly decreased.
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$915,350
thousand (2015: US$933,700 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 table shows 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 prime value would increase/(decrease)
The valuation class-$640, class A $510, class B $200-$290, Retail if:
model $100-$10,000 * Average rental rates were higher/(lower)
considers
the present
value of * Expected market rental growth office 0-5% average, * Expected market rental growth were higher/(lower)
net cash retail 0-3% average, no ERV growth for AFIMALL
flows to be
generated * Void periods were shorter/(longer)
from each * Vacancy rate (class prime A 5% class B 10-12.1% )
property,
taking into * The vacancy rates were lower/(higher)
account * Risk-adjusted discount rates (14%-18%)
rental
rates and * The risk-adjusted discount rates were lower (higher)
expected * All-Risk Yield 9.5%-15.5%
rental
growth rate, * All-risk yields were lower/(higher)
occupancy
rate and void
periods
together
reflected in
vacancy
rates,
construction
cost, opening
and
completion
dates, lease
incentive
costs such
rent free
periods,
taxes and
other
costs not
paid by
tenants.
The expected
net cash
flows are
discounted
using the
risk-adjusted
discount
rates plus
the
final year
stream is
discounted
with an
all-risk
yield. Among
other
factors,
discount rate
estimation
considers
type of
property
offered
(retail,
commercial,
office)
quality of
building
and its
location,
tenant
credit
quality and
lease
terms.
Investment properties at fair value are categorised in the
following:
2016 2015
US$ '000 US$ '000
Retail properties 666,500 685,200
Office space properties 248,850 248,500
915,350 933,700
Fair value sensitivity Analysis
Presented below is the effect on the fair value of the main
investment property project, of an increase/(decrease) in the below
inputs at the reporting date. This analysis assumes that all other
variables remain constant.
AFI Mall City
Rate used in
fair value
calculation
Increase of as at 31/12/2016 Decrease of
Capitalization Rates 1 % 10% 1%
Fair value (US$
'000) 630,000 666,500 711,200
Rate used in
fair value
calculation
Average rental rates Decrease of as at 31/12/2016 Increase of
per sq.m 5% US$1,103 sq.m. 5%
Fair value (US$
'000) 644,300 666,500 688,800
Decrease of Increase of
10% 10%
622,100 666,500 711,000
Rate used in
fair value
calculation
Decrease of as at 31/12/2016 Increase of
Occupancy rates 2% 92.5% 2%
Fair value (US$
'000) 651,600 666,500 681,500
16. INVESTMENT PROPERTY UNDER DEVELOPMENT
2016 2015
Reconciliation of carrying amount US$ '000 US$ '000
Balance 1 January 238,925 431,474
Construction costs 4,554 10,906
Transfer to trading properties under construction
(note 23) - (69,300)
Fair value adjustment (30,244) (102,003)
Effect of movements in foreign exchange
rates 19,665 (32,152)
Balance 31 December 232,900 238,925
The investment property under development was revalued by
independent appraisers on 31 December 2016. The cumulative
adjustments, for all projects, are shown in line "Fair value
adjustment" in the table above. The main reasons for the fair value
adjustments, are described in note 15 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 17%, during 2016 (2015: strengthening 30%).
Fair value hierarchy
The fair value measurement for investment property under
development of US$232,900 thousand (2015: US$238,925 thousand) has
been categorised as a level 3 fair value based on the inputs to the
valuation technique used.
Level 3 fair value
The table presented above is the reconciliation from the opening
balances to the closing balances for level 3 fair values, since all
fair values of investment properties under development of the
Group, are categorised as level 3.
Valuation technique and significant unobservable inputs
The valuation technique used in measuring the fair value of
investment property under development, the significant unobservable
inputs used, as well as the inter-relationship between key
unobservable inputs and fair value measurement are discussed in
note 15. In addition, the following inputs for investment property
under development.
Geographical Fair Discount Rate of return
for
location value rate representative
year
US$ '000 % %
Russia 232,900 18-24 9.5-13.5
17. SHARE OF INVESTMENT IN JOINT VENTURES
The Group's joint ventures comprise the 50% interest in Nouana
Limited and Craespon Management Ltd with their subsidiary
Sanatorium Plaza LLC, owner of a hotel in Kislovodsk.
The following table summarises the financial information of the
joint ventures as included in their own financial statement,
adjusted for fair value adjustments at acquisition. The table also
reconciles the summarised financial information to the Group's
interest in joint ventures:
2016 2015
US$ '000 US$ '000
Percentage ownership interest 50% 50%
Non-Current assets 18,277 15,326
Current assets (including cash and cash
equivalents -
2016:$6,924 thousand, 2015: $7,498 thousand) 7,791 8,210
Non-Current liabilities (including non-current
financial liabilities excluding trade
and other payables and provisions-
2016:$32,347 thousand, 2015: $35,014 thousand) (34,100) (36,450)
Current liabilities (including current
financial liabilities) (1,783) (1,440)
Net liabilities (100%) (9,815) (14,354)
Group's share of net liabilities (50%) (4,908) (7,177)
Fair value adjustments at acquisition 4,705 3,916
Interest in joint ventures (203) (3,261)
Restriction of share of loss 203 3,261
Carrying amount of interest in joint ventures - -
Revenue 18,272 18,098
Depreciation (174) (173)
Interest expense (2,676) (2,844)
Income tax expense (1,948) (2,002)
Profit/(loss) and total comprehensive
income (100%) 7,483 (2,642)
Group's share of profit and total comprehensive
income (50%) 3,742 (1,321)
Dividends received by the Group 380 3,250
18. PROPERTY, PLANT AND EQUIPMENT
Buildings Land & Office Motor Total
under Buildings Equipment Vehicles
construction
US$ '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
Buildings Land & Office Motor Total
under Buildings Equipment Vehicles
construction
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Cost
Balance at 1 January 2015 4,242 32,144 2,568 1,124 40,078
Additions - 33 23 - 56
Transfer from trading properties
(note 22) - 212 - - 212
Disposals - (226) (1) (33) (260)
Effect of movement in foreign
exchange rates (923) (7,611) (603) (251) (9,388)
Balance at 31 December 2015 3,319 24,552 1,987 840 30,698
Accumulated depreciation
Balance at 1 January 2015 - 2,031 2,092 854 4,977
Charge for the year - 712 162 89 963
Disposals - (226) - (33) (259)
Effect of movement in foreign
exchange rates - (545) (514) (204) (1,263)
Balance at 31 December 2015 - 1,972 1,740 706 4,418
Carrying amount
At 31 December 2015 3,319 22,580 247 134 26,280
19. LOANS RECEIVABLE
2016 2015
US$ '000 US$ '000
Long-term loans
Loans to joint ventures (note 39) 15,745 14,246
Loans to non-related companies 18 70
15,763 14,316
Short-term loans
Loans to joint ventures (note 39) - 98
Loans to non-related companies 7 3
7 101
Terms and loan repayment schedule
Terms and conditions of outstanding loans were as follows:
Currency Nominal Year 2016 2015
of
interest maturity US$ '000 US$ '000
rate
Unsecured loans to joint
ventures USD 11.5% 2020 11,300 9,942
RUR 14% 2020 4,445 4,304
RUR 2.35% 2016 - 98
Unsecured loans to non-related
companies RUR - 2017 7 49
RUR 8.8% 2016 - 15
RUR 2.5% 2020 10 6
RUR 0.1-5.5% 2019 8 3
15,770 14,417
20. INVENTORY OF REAL ESTATE
Represented the rights to the project "AFI Residence Botanic
Garden" which was land for future development in the North-Eastern
Administrative District of Moscow and was presented at net
realisable value. As at 31 December 2016 the project was
reclassified to Trading Properties under Construction based on
Board approval to commence construction of the project during the
year 2017.
21. 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 25.
22. TRADING PROPERTIES
2016 2015
US$ '000 US$ '000
Balance 1 January 2,062 2,979
Transfer from trading properties under construction 53,480 -
(note 23)
Reclassification to property, plant and equipment - (212)
Disposals (49,475) (609)
Effect of movements in exchange rates 787 (96)
Balance 31 December 6,854 2,062
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 700 flats, 3 offices and 47 parking places were
recognised, upon transferring of the rights to the buyers according
to the signed acts of transfer, in the income statement.
23. TRADING PROPERTIES UNDER CONSTRUCTION
2016 2015
US$ '000 US$ '000
Balance 1 January 204,392 133,036
Transfer from inventory of real estate (note 21,543 -
20)
Transfer from investment property under development
(note 16) - 69,300
Transfer to trading properties (note 22) (53,480) -
Construction costs 54,428 33,670
Impairment loss - (13,400)
Effect of movements in exchange rates 16,444 (18,214)
Balance 31 December 243,327 204,392
Trading properties under construction comprise "Odinburg",
"Paveletskaya Phase II" and "AFI Residence Botanic Garden" projects
which involve primarily the construction of residential
properties.
As at 31 December 2016 the project "AFI Residence Botanic
Garden" was reclassified from Inventory of real estate based on
Board approval to commence construction of the project during the
year 2017, for further details refer to note 20.
The properties were tested for impairment at year end based on
internal valuation. No impairment loss was recognised in the profit
or loss so as to present the properties at their lower of cost or
net realisable value.
24. OTHER INVESTMENTS
The movement in other investments is comprised of acquisition of
US$12.6 million, sale of bonds of US$18.1 million and maturity of
bonds for US$4.2 million during the year. These are carried at fair
value and any changes during the year are recognised in the profit
or loss as finance income or expenses.
25. TRADE AND OTHER RECEIVABLES
2016 2015
US$ '000 US$ '000
Advances to builders 27,019 18,383
Amounts receivable from related parties (note
39) 267 337
Trade receivables net 3,427 3,381
Other receivables 3,955 3,037
VAT recoverable (note 21) 4,067 858
Tax receivable 3,692 3,021
42,427 29,017
Trade receivables net
Trade receivables are presented net of an accumulated provision
for doubtful debts of US$8,285 thousand (2015: US$11,402
thousand).
26. CASH AND CASH EQUIVALENTS
2016 2015
Cash and cash equivalents consist of: US$ '000 US$ '000
Cash at banks 10,356 26,374
Cash in hand 263 171
Cash and cash equivalents as per statement
of cash flows 10,619 26,545
27. SHARE CAPITAL AND RESERVES
2016 2015
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 2016.
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 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.
As of 31 December 2016 the following options were
outstanding:
-- During 2007 and 2008 options over GDRs with an exercise price
of US$7 which have already vested, one-third on the second
anniversary of the date of grant, a further one-third on the third
anniversary and the remaining one-third, on the fourth anniversary
of the date of grant provided that the participants remained in
employment until the vesting date. The vesting was not subject to
any performance conditions. On 31 December 2016 1,017,240 options,
0.1% of the issued share capital, were outstanding which have
already vested and have a contractual life of ten years from the
date of grant.
-- On 21 May 2012, the Board of Directors approved the grant of
additional options to Company's employees. Options over 16,763,104
B shares, 1.6% of the issued share capital, were granted with an
exercise price equal to US$0.7208, vesting one-third on the second
anniversary of the date of grant, a further one-third on the third
anniversary and the remaining one-third, on the fourth anniversary
of the date of grant provided that the participants remain in
employment until the vesting date. The vesting is not subject to
any performance conditions. Their contractual life is five years
from the date of grant. Up until 31 December 2016 2,095,388 options
were cancelled, and the remaining 14,667,716 options have
vested.
-- On 22 November 2012, the Board of Directors approved the
grant of additional options to the Company's executive chairman.
Options over 31,430,822 B shares, 3% of the issued share capital,
were granted with an exercise price equal to US$0.5667, vesting
one-third on the second anniversary of the date of grant, a further
one-third on the third anniversary and the remaining one-third, on
the fourth anniversary of the date of grant provided that the
participants remain in employment until the vesting date. The
vesting is not subject to any performance conditions. All options
have vested and have a contractual life of five years from the date
of grant.
If a participant ceases to be employed his options will normally
lapse subject to certain exceptions. In the event of a takeover,
reorganisation or winding up vested options may be exercised or
exchanged for new equivalent options where appropriate. Shares/GDRs
issued under the plan will rank equally with all other shares at
the time of issue. The Board of Directors may satisfy, (with the
consent of the participant), an option by paying the participant in
cash or other assets the gain as an alternative of issuing and
transferring the shares/GDRs.
4. Translation reserve
The translation reserve comprises all foreign currency
differences arising from the translation of the financial
statements of foreign operations to the Group presentation currency
and the foreign exchange differences on loans designated as loans
to an investee company which are accounted for as part of the
investor's investment (IAS21.15) as their repayment is not planned
or likely to occur in the foreseeable future. These foreign
exchange differences are recognised directly to Translation
Reserve.
5. Retained earnings
The amount at each reporting date is available for distribution.
No dividends were proposed, declared or paid during the year ended
31 December 2016.
6. Capital reserve
Represents the effect of the acquisition of the 10%
non-controlling interests in Bioka Investments Ltd and its
subsidiary Nordservice LLC previously held at 90%.
28. LOANS AND BORROWINGS
2016 2015
US$ '000 US$ '000
Non-current liabilities
Secured bank loans 627,074 389,799
Current liabilities
Secured bank loans 459 224,076
Unsecured loans from other non-related companies 289 239
748 224,315
a. The outstanding loans on 31 December 2016 comprise of two
loans as follows:
AFIMALL City Loan Facility
A secured loan from VTB Bank JSC ("the Bank") signed on 22 June
2012 by one of the Group's subsidiary, Bellgate Construction Ltd
("Bellgate"). This loan facility agreement offered a credit line
totalling RUR 21 billion, which was drawn down in 5 tranches, each
with a designated purpose: the majority of the funds were
designated to refinance existing loans previously issued by the
Bank. The remaining funds were designated for the refinancing of
construction costs related to the AFIMALL City parking and for the
financing of the outstanding payments constituting part of the
consideration for the acquisition of the parking.
The Company had discretion over the currency of each tranche,
and the credit line was drawn down 65% in US dollars and 35% in
Russian roubles. The loan facility has differentiated interest
rates which are currency dependent: 9.5% for loans drawn down in
Russian roubles and 3 months LIBOR plus 5.02% (6.7% up to 2/9/2013)
for loans drawn down in US dollars.
Based on the loan agreement the interest on the loans is payable
on a quarterly basis, throughout the term of the credit line.
Bellgate has undertaken to make equal quarterly payments of US$6.5
million from 2014 to 2016, on account of the principal of the
loans, while it has been agreed that the remainder of the loan will
mature in April 2018.
The terms of the loan facility agreement are substantially
similar to those of the loan facility agreement entered into in
February 2012 with the Bank in relation to the financing of the
acquisition of the AFIMALL City parking. However, certain
conditions of the new loan facility will differ from the
aforementioned loan, including the following:
a) The guarantee of AFI Development Plc over the obligations of
Bellgate under the loan facility agreement will be in the amount of
US$1 million, the nominal value of Bellgate's shares;
b) Additional mortgage over the premises of "Aquamarine" Hotel
will be registered in favour of the Bank. This shall be removed in
the case that Bellgate redeems US$20 million of principal;
c) Additional guarantee will be provided to the Bank by Semprex
LLC, a Russian company which is an indirect subsidiary of AFI
Development Plc, and owner of the "Aquamarine" Hotel. This shall be
removed in the case that Bellgate redeems US$20 million of
principal;
d) The turnover covenant has been changed from monthly bank
accounts turnovers of not less than RUR 200 million to quarterly
revenues (including VAT) exceeding agreed thresholds, determined as
amounts gradually increasing from RUR 651 million for Q3 2012 to
the amount of RUR1,139 million for Q1 2018. The penalty for not
meeting the covenant is changed from 1% additional interest for the
next month to 0.5% additional interest for the next quarter.
The loan facility agreement contains other generally acceptable
terms, such as the borrower undertaking to maintain the aggregate
value of the pledged assets, securing the loan facility, providing
the lender with periodic reporting and similar common
conditions.
As of 31 December 2016, Bellgate is in compliance with the
covenants of this loan.
Ozerkovskaya III loan facility
On 25 January 2013, Krown Investments LLC ("Krown"), a 100%
subsidiary, acquired a secured loan from VTB Bank JSC ("the Bank")
for refinancing the repayment of borrowings due to related parties.
This loan agreement offers a credit line of US$220 million, which
was drawn down during the first quarter of 2013. The agreed
interest is three-month LIBOR plus 5.7% p.a., payable every
quarter. The loan repayment date was originally in 731 days from
the date of signing the loan agreement. Securities provided to the
Bank are on the 100% of the shares of Krown and on
properties/buildings of Ozerkovskaya (Aquamarine) phase III. A
decrease in the market value of the pledged buildings by more than
15% will enable the bank to demand repayment of the loan before the
agreed maturity date. In case of disposal of the pledged building,
at least 70% of sale proceeds should be directed to the Bank for
the repayment of the loan.
An amount of US$15 million was repaid during 2013 out of the
proceeds from sale of Building 1 of the Ozerkovskaya (Aquamarine)
phase III.
In January 2015, prior to maturity, the subsidiary signed an
addendum to the loan facility agreement with the Bank, extending
the term of the loan to 26 January 2018. In addition to extending
the term of the loan, the new addendum amended the payment
schedule, interest rate conditions and introduced new covenants.
The payment schedule anticipated repayments of the principal
starting from the 4th quarter of 2015, while the new covenants
included a "Debt Service Coverage Ratio" of 1.2 also applicable as
from the 4th quarter of 2015 and a "Loan to Value ratio" of 65%
applicable from January 2015. In line with the addendum, on 26th
January 2015 Krown paid US$10 million to the Bank, being a partial
repayment of the outstanding loan amount, thus reducing the total
to US$195 million. Approximately 90% of the principal is to be paid
at maturity.
Based on the independent valuation as at 31 December 2015, of
the Ozerkovskaya III project, Krown, has not met the Loan to Value
covenant and the Bank had the right to require a partial repayment
of the principal of the loan sufficient to rectify the breach of
the covenants, within 90 calendar days from the date of the Bank
notification. The DSCR ratio covenant of the Krown loan agreement
has not been met either, based on the performance results of Q4
2015. Krown was, therefore, in breach of both covenants in its loan
facility agreement. Based on this, the total amount of the
outstanding loan (US$192 million) was reclassified to current
liabilities as at 31 December 2015.
Further to the breach of covenants and the events described in
note 2i "Going concern basis of accounting" the following addendums
were signed with VTB Bank on 27 September 2016.
Krown Investments LLC ("Krown") and VTB have signed an addendum
to the Ozerkovskaya III Loan Facility pursuant to which:
(i) the existing covenants (being the debt service coverage
ratio and the loan to value covenants) which Krown is currently in
breach of, have been removed;
(ii) all quarterly principal payments due under the facility
including the quarterly principal payment due on 30 June 2016 and
which has not been paid, will be deferred to maturity, being 26
January 2018; and
(iii) the Company will provide additional security to VTB in consideration of the above.
All other terms of the facility, including interest payments,
remain the same.
Pursuant to the additional security, a new share pledge by the
Company over 100% of the share capital of Bellgate has been entered
into with VTB (the "Bellgate Share Pledge"). The Bellgate Share
Pledge continues to cover the obligations of Bellgate pursuant to
the AFIMALL City Loan Facility (with any liability arising now
being satisfied by, inter alia, the transfer of the pledged shares
to VTB), and now also covers the obligations of Krown in respect of
the Ozerkovskaya III Loan Facility. In addition, within 60 calendar
days of this addendum, the Company and VTB executed the following
agreements which provide additional security, being a:
-- Share pledge agreement over 100% of the share capital of each
of Titon LLC (which holds the Company's interest in the Kossinskaya
project) and Semprex LLC (which holds the Company's interest in the
Aquamarine Hotel);
-- Mortgage agreement over the Kossinskaya project;
-- Suretyship agreements with each of Titon LLC, Rognestar
Finance Limited (the parent company of Titon LLC), Bellgate,
Semprex LLC and Aquamare Tre Ltd (the parent company of Semprex
LLC) for the full amount of the Ozerkovskaya III Loan Facility;
-- Second ranking mortgage agreement over AFIMALL City and the Aquamarine Hotel; and
-- Pledge agreement over the equipment used to operate the Kossinskaya project.
Bellgate Construction Limited ("Bellgate"), which holds AFIMALL
City Shopping Centre, a shopping and entertainment centre in Moscow
City, the business district of Moscow, and VTB have signed on 27
September 2016 an addendum to the AFIMALL City Loan Facility
pursuant to which:
(i) all quarterly principal payments due under the facility,
including the quarterly principal payment due on 30 June 2016 and
which has not been paid, will be deferred to maturity, being 1
April 2018; and
(ii) the Company will provide additional security to VTB in
consideration of the above.
All other terms of the facility, including covenants and
interest payments, remain the same.
Within 60 calendar days of this addendum, the Company and VTB
also executed the following agreements:
-- Second ranking pledge agreement over 100% of the share
capital of each of Krown and Titon LLC (which holds the Kossinskaya
project);
-- Pledge agreement over 100% of the share capital of each of
Semprex LLC and AFI FM LLC (the property management company for the
AFIMALL City Shopping Centre);
-- Suretyship agreements with each of Krown, AFI FM LLC,
Inscribe Limited (parent company of AFI FM LLC), Titon LLC,
Rognestar Finance Limited and Aquamare Tre Ltd for the full amount
of the AFIMALL City Loan Facility;
-- Second ranking mortgage agreement over each of the
Ozerkovskaya III project and the Kossinskaya project; and
-- Second ranking pledge agreement over the equipment used to
for operate the Kossinskaya project.
The Guarantee and New Loan
In addition to the addendum to the Loan Facility Agreements
described above, Mr Leviev has, on the same date, provided VTB with
the Guarantee, being a personal guarantee and indemnity deed under
English law from Mr Leviev to VTB, pursuant to which Mr Leviev has
undertaken to guarantee, for a period of 10 months, the obligations
of Krown under the Ozerkovskaya III Loan Facility. The Guarantee,
which is enforceable for 12 months, provides additional security to
VTB in respect of the Ozerkovskaya III Loan Facility.
Should VTB enforce the Guarantee, the payment by Mr Leviev of
any amounts under the Guarantee will lead to a discharge of Krown's
respective payment obligations under the Ozerkovskaya III Loan
Facility and any such payment made by Mr Leviev to VTB under the
Guarantee will be deemed the granting of a new loan between the
Company and Mr Leviev (the "New Loan"). If, as a result of the
enforcement of the Guarantee, the Ozerkovskaya III Loan Facility is
repaid in full by Mr Leviev, all claims of VTB under the security
documents in respect of Krown's secured obligations under the
Ozerkovskaya III Loan Facility will fall away.
The New Loan will accordingly only become effective in the event
that VTB enforces the Guarantee and Mr Leviev makes a payment to
VTB. The New Loan, if drawn, would be unsecured, accrue interest at
an annual rate of 7% plus three month LIBOR payable quarterly, be a
maximum amount of US$220 million, being equal to the maximum value
of the Ozerkovskaya III Loan Facility, and repayable in full on or
before 26 January 2018. The interest rate and maturity date of the
New Loan are the same as the Ozerkovskaya III Loan Facility.
As a result of the above amendments to the Loan Facility
Agreements and the Guarantee being entered into the loans were
reclassified from short term to long term liabilities.
b. Terms and debt repayment schedule
Terms and conditions of outstanding loans were as follows:
Currency Nominal Year 2016 2015
of
interest maturity US$ '000 US$ '000
rate
Secured loan from VTB Bank to
Bellgate RUR 9.5% 2018 159,102 132,413
3m USD
Secured loan from VTB Bank to LIBOR+
Bellgate USD 5.02% 2018 276,886 283,386
3m USD
Secured loan from VTB Bank to LIBOR+
Krown USD 7% 2018 191,545 193,376
Secured loan from Julius to Bank refinancing
AFID Finance USD rate+0.75% on demand - 4,700
Other RUR 3-12% on demand 289 239
627,822 614,114
2016 2015
The loans and borrowings are payable as follows: US$ '000 US$ '000
Less than one year 748 224,315
Between one and five years 627,074 389,799
More than five years - -
627,822 614,114
29. DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax (assets) and liabilities are attributable 2016 2015
to the following:
US$ '000 US$ '000
Investment property 73,531 100,109
Investment property under development 3,165 47
Property, plant and equipment 952 571
Inventory of real estate - 1,115
Trading properties (391) (1,203)
Trading properties under construction 16,056 9,359
Trade and other receivables (5,777) (6,326)
Trade and other payables 1,737 1,020
Loans and borrowings - (13)
Other items (40) (21)
Tax losses carried forward (74,299) (79,091)
Deferred tax liability 14,934 25,567
30. TRADE AND OTHER PAYABLES
2016 2015
US$ '000 US$ '000
Trade payables 8,490 7,815
Payables to related parties (note 39) 427 657
Amount payable to builders 13,795 3,297
VAT and other taxes payable 5,681 4,613
Other payables 2,564 1,781
30,957 18,163
The above are payable within one year and bear no interest.
Payables to related parties
Include an amount of US$28 thousand (31/12/15: US$27 thousand)
payable to Danya Cebus Rus LLC, related party of the Group, for
contracts signed in relation to the construction of Group's
projects.
31. ADVANCES FROM CUSTOMERS
Represent advances received from customers for the sale of
residential properties at "Odinburg" project. During the year the
Group has sold 248 flats and 20 parking places and received
additional down payments from customers.
32. DEFERRED INCOME
Represents rental income received in advance, which corresponds
to periods after the reporting date.
33. FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT
Accounting classifications and fair values
The following table shows the carrying amounts and fair values
of financial assets and financial liabilities, including their
levels in the fair value hierarchy. It does not include fair value
information for financial assets and financial liabilities not
measured at fair value if the carrying amount is a reasonable
approximation of fair value.
Carrying amount Fair value
---------------------------------------------------------------------------------- ----------------------------------
Other
Trade investments, Cash Other
Loans and Including and cash financial
Receivable other derivatives equivalents liabilities Total Level Level Level Total
receivables 1 2 3
------------ ------------- ------------- ------------- ------------- -------- ------- ------- ------- -------
31 December US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
2016
Financial
assets
measured at
fair value
-------- -------- -------- -------- ---------- ---------
Investment
in listed
debt
securities - - 6,068 - - 6,068 6,068 - - 6,068
-------- -------- -------- -------- ---------- ---------
Financial
assets not
measured
at fair
value
Loans
receivable 15,770 - - - - 15,770
Trade and
other
receivables - 7,649 - - - 7,649
Cash and
cash
equivalents - - - 10,619 - 10,619
-------- -------- -------- -------- ---------- ---------
15,770 7,649 - 10,619 - 34,038
-------- -------- -------- -------- ---------- ---------
Financial
liabilities
not measured
at fair
value
Interest
bearing
loans and
borrowings - - - - (627,822) (627,822) - (614,771) - (614,771)
Trade and
other
payables - - - - (25,276) (25,276)
- - - - (653,098) (653,098)
-------- -------- -------- -------- ---------- ---------
)
Carrying amount Fair value
---------------------------------------------------------------------------------- ----------------------------------
Other
Trade investments, Cash Other
Loans and Including and cash financial
Receivable other derivatives equivalents liabilities Total Level Level Level Total
receivables 1 2 3
------------ ------------- ------------- ------------- ------------- -------- ------- ------- ------- -------
31 December US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
2015
Financial
assets
measured at
fair value
-------- -------- -------- -------- ---------- ----------
Investment
in listed
debt
securities - - 15,901 - - 15,901 15,901 - - 15,901
-------- -------- -------- -------- ---------- ----------
Financial
assets not
measured
at fair
value
Loans
receivable 14,417 - - - - 14,417
Trade and
other
receivables - 6,755 - - - 6,755
Cash and
cash
equivalents - - - 26,545 - 26,545
-------- -------- -------- -------- ---------- ----------
14,417 6,755 - 26,545 - 47,717
-------- -------- -------- -------- ---------- ----------
Financial
liabilities
not measured
at fair
value
Interest
bearing
loans and
borrowings - - - - (614,114) (614,114) - (583,635) - (583,635)
Trade and
other
payables - - - - (13,550) (13,550)
- - - - (627,664) (627,664)
-------- -------- -------- -------- ---------- ----------
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 2016, the ageing of trade and other receivable
that were not impaired was as follows:
2016 2015
US$ '000 US$ '000
Neither past due nor impaired 2,027 1,802
Past due 1-30 days 166 33
Past due 31-90 days 729 971
Past due 91-120 days 4,727 3,948
7,649 6,754
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 2015 354 12,699
Reversal of impairment loss recognised (99) -
Exchange difference effect (200) (1,309)
Balance at 31 December 2015 55 11,390
Impairment loss/(reversal) recognised 366 (1,669)
Exchange difference effect 34 (1,460)
Balance at 31 December 2016 455 8,261
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$10,356 thousand at 31 December
2016 (2015: US$26,374. 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 2016:
-- A secure 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.
-- A secure bank loan facility from VTB Bank JSC initially for
US$205 million, current balance US$192 million, acquired for
refinancing the construction costs for Ozerkovskaya III
project.
The following are the remaining contractual maturities of
financial liabilities at the reporting date, including estimated
interest payments and excluding the impact of netting
agreements:
31 December 2016 Carrying Contractual 6 months 6-12
Amount Cash flow or less months 1-2 years 2-5 years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Secured bank loans 627,533 (683,605) (23,378) (23,640) (636,587) -
Unsecured loans 289 (289) (289) - - -
Trade and other payables 25,276 (25,276) (25,276) - - -
31 December 2015 Carrying Contractual 6 months 6-12
Amount Cash flow or less months 1-2 years 2-5 years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Secured bank loans 613,875 (703,977) (42,696) (37,766) (47,463) (576,052)
Unsecured loans 239 (239) (239) - - -
Trade and other payables 13,550 (13,550) (13,550) - - -
Market risk
Market price risk is the risk that the value of financial
instruments will fluctuate as a result of changes in market prices
such as foreign exchange rates, interest rates and equity prices.
The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while
optimising the return.
Currency risk
The Group is exposed to currency risk to the extent that there
is a mismatch between the currencies in which loans receivable,
sales, purchases of material and construction services and
borrowings are denominated and the respective functional currencies
of Group companies. The functional currencies of Group companies
are primarily the Russian Roubles and US Dollars. The currencies in
which these transactions are primarily denominated are Russian
Roubles, US Dollars and Euro.
Exposure to currency risk
The summary quantitative date about the Group's exposure to
currency risk as reported to the management of the Group is as
follows:
RUR US$ EUR
US$ '000 US$ '000 US$ '000
31 December 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)
31 December 2015
Cash and cash equivalents 66 14,973 209
Loans receivable - 13,203 46
Trade receivables - 3,942 -
Loans and borrowings (8,974) (472,383) -
Trade payables 151 (14,536) (25)
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 2015.
Profit for Equity
the year
US$ '000 US$ '000
31 December 2016
Russian Roubles 626 -
US dollar (51,509) -
Euro (12) -
Profit for Equity
the year
US$ '000 US$ '000
31 December 2015
Russian Roubles 824 -
US dollar (50,534) -
Euro 7 -
A 10% weakening of the Russian Rubble, US dollar or Euro against
all other currencies at 31 December 2015 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
2016 2015
US$ '000 US$ '000
Fixed rate instruments
Financial assets 29,994 47,195
Financial liabilities (159,391) (132,652)
(129,397) (85,457)
Variable rate instruments
Financial assets - -
Financial liabilities (468,431) (481,462)
(468,431) (481,462)
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 2015.
Equity Profit
for
the year
US$ '000 US$ '000
31 December 2016
Variable rate instruments - (4,684)
31 December 2015
Variable rate instruments - (4,815)
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.
34. 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
2016 2015
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) 99.17 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 90 Russian Federation
12. OOO Plaza SPA 100 100 Russian Federation
13. OOO Semprex 100 100 Russian Federation
14. OOO Zheldoruslugi 95 95 Russian Federation
15. OOO Bizar 74 74 Russian Federation
16. AFI D Finance SA 100 100 British Virgin Islands
On 7 September 2016, Mr Leviev, the Company's controlling
shareholder, and Africa Israel Investments Ltd ("AI") completed an
agreement according to which, Mr Leviev acquired AI's entire
holding of securities of AFI Development (the "Purchased
Securities"). The transaction provided that in consideration for
the Purchased Securities Mr Leviev paid AI, through Flotonic
Limited a fully owned private company, NIS550 million, an effective
price of US$0.2148 per share. As a result, Flotonic Limited now
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
AI 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$0.295 per 1 "B" ordinary share.
The call option has been assigned by AI to trustees on behalf of AI
bondholders and the trustees may exercise the Call Option within
three years from the date of completion of the Purchase Transaction
upon instructions of the AI bondholders.
35. NON-CONTROLLING INTERESTS
There were no individually significant subsidiaries which have
material NCI.
36. OPERATING LEASES
Leases as lessee
Non-cancellable operating lease rentals are payable as
follows:
2016 2015
US$ '000 US$ '000
Less than a year 6,017 4,764
Between one and five years 17,613 22,017
More than five years 27,042 32,747
50,672 59,528
Amount recognised as an expense during
the year 1,429 1,566
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 two 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:
2016 2015
US$ '000 US$ '000
Less than a year 68,426 85,343
Between one and five years 134,456 127,608
More than five years 29,301 25,412
232,183 238,363
Amount recognised as income during the year 72,299 81,561
37. CAPITAL COMMITMENTS
Up to 31 December 2016 the Group has entered into a number of
contracts for the construction of investment or trading
properties:
Project name Commitment
2016 2015
US$ '000 US$ '000
Odinburg 2,158 33,645
Kosinskaya 839 244
TVZ Plaza IC 1,122 730
Serebryakova 21,856 5,060
Pavaletskaya II 28,196 32,200
TVZ Plaza IV 24 89
TVZ Plaza II 761 384
Bolshaya Pochtovaya 115 1,538
Starokaluzhskoye shosse 5 -
55,076 73,890
38. CONTINGENCIES
There were not any contingent liabilities as at 31 December
2016.
39. RELATED PARTIES
Outstanding balances with related parties 2016 2015
US$ '000 US$ '000
Assets
Amounts receivable from joint ventures 11 10
Amounts receivable from ultimate holding
company - 203
Amounts receivable from other related
companies 256 124
Long term loans receivable from joint
ventures 15,745 14,246
Short term loans receivable from joint
ventures - 98
2016 2015
US$ '000 US$ '000
Liabilities
Amounts payable to joint ventures 102 6
Amounts payable to ultimate holding company - 492
Amounts payable to other related companies 325 159
Deferred income from related company 145 125
Transactions with the key management personnel 2016 2015
US$ '000 US$ '000
Key management personnel compensation
comprised:
Short-term employee benefits 2,631 2,798
Share option scheme expense 857 2,283
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 2016 2015
US$ '000 US$ '000
Revenue
Joint venture - consulting services 173 145
Joint venture - interest income 1,339 1,422
Related company - rental income 699 802
Expenses
Related company - administrative expenses 157 -
Ultimate holding company - administrative
expenses - 330
Joint venture - operating expenses 54 59
Other related party transactions 2016 2015
US$ '000 US$ '000
Construction services capitalised
Related company - construction services - 954
40. SUBSEQUENT EVENTS
Subsequent to 31 December 2016 there were no events that took
place which have a bearing on the understanding of these financial
statements except of the following:
-- In February 2017, AFI Development Plc announced that its
subsidiary, Sanatory Plaza LLC ("Plaza"), has received a loan from
VTB Bank PJSC ("VTB") to finance the acquisition of the other 50%
stake in the Plaza Spa Kislovodsk project ("the Project") from its
partner in the project, which was completed on 28 February 2017.
The Group already owned 50% stake in the project and with this
acquisition now owns 100%. The loan, in the amount of US$22.5
million, was provided in US dollars for 5 years (the term can be
extended for 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$260
thousand in Q3 2017 to US$822 thousand in Q3 2021), and a balloon
payment of US$11.254 million at maturity. The interest is to be
paid quarterly. The loan was used primarily to repay the
outstanding debt of Plaza to the companies of AFI Development's
partner in the project, in the amount of US$16.9 million, prior to
the acquisition of the equity stake. The remainder of the loan was
used to finance the acquisition itself: the 50% equity stakes in
both Nouana Limited and Craespon Management Limited (which together
control 100% of Plaza) were purchased by AFI Development's
subsidiaries for US$5.6 million in cash.
-- In March 2017, AFI Development Plc announced that it had
completed the acquisition of the remaining 5% stake in the
Tverskaya Plaza IV project from its partner, for US$1.5 million in
cash. AFI Development Plc acquired 5% of the shares in Beslaville
Management Limited, a subsidiary holding rights to the project,
increasing its share from 95% to 100%. This acquisition resulted in
the recognition of US$1,725 thousand gain in the profit or
loss.
-- In March 2017 the Company's subsidiary, AFI RUS Management
LLC, signed a facility agreement for a credit line of RUR470
million from Sberbank PJSC, with a 2 years term, to finance
construction of the Odinburg project.
AFI DEVELOPMENT PLC
For the year ended 31 December 2016
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 2016, the names of which are listed below,
confirm that, to the best of our knowledge:
d) The separate financial statements on pages 80 to 100:
(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 .............................................................
6 April 2017
SEPARATE INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME
OF THE PARENT COMPANY
For the year ended 31 December 2016
2016 2015
Note US$ '000 US$ '000
Revenue 4 478,382 3,250
Other income 482 849
Other expenses (82) -
Administrative expenses 5 (6,912) (9,654)
Impairment of investment in subsidiaries 7 (560,663) (502,445)
Loss on disposal of investment in
subsidiaries 7 - (236)
(567,657) (512,335)
Results from operating activities (88,793) (508,236)
Finance income 254 742
Finance costs (8,777) (7,480)
Net finance costs 6 (8,523) (6,738)
Loss for the year (97,316) (514,974)
Other comprehensive income - -
Total comprehensive expense for
the year (97,316) (514,974)
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 2016
Share Accumulated
capital Share premium losses Total
US$ '000 US$ '000 US$ '000 US$ '000
Balance at 1 January 2015 1,048 1,763,409 93,239 1,857,696
Total comprehensive income
for the year - - (514,974) (514,974)
Transactions with owners of
the Company
Contributions and distributions
Share option expense - - 2,283 2,283
Balance at 31 December 2015 1,048 1,763,409 (419,452) 1,345,005
Balance at 1 January 2016 1,048 1,763,409 (419,452) 1,345,005
Total comprehensive expense
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
SEPARATE STATEMENT OF FINANCIAL POSITION OF THE PARENT
COMPANY
As at 31 December 2016
2016 2015
Note US$ '000 US$ '000
Assets
Investment in subsidiaries 7 1,242,182 1,313,453
Trade and other receivables 8 210,947 210,635
Refundable tax 2,215 2,215
Cash and cash equivalents 9 2,057 6,905
Total current assets 215,219 219,755
Total assets 1,457,401 1,533,208
Equity
Share capital 1,048 1,048
Share premium 1,763,409 1,763,409
Accumulated losses (515,911) (419,452)
Total equity 10 1,248,546 1,345,005
Liabilities
Loans and borrowings 11 109,337 86,975
Total non--current liabilities 109,337 86,975
Short-term loans and borrowings 11 - 97,390
Trade and other payables 12 99,518 3,838
Total current liabilities 99,518 101,228
Total liabilities 208,855 188,203
Total equity and liabilities 1,457,401 1,533,208
The financial statements were approved by the Board of Directors
on 6 April 2017.
.......................... ..........................
Lev Leviev David Tahan
Chairman Director
SEPARATE STATEMENT OF CASH FLOWS OF THE PARENT COMPANY
For the year ended 31 December 2016
2016 2015
Note US$ '000 US$ '000
Cash flows from operating activities
Loss for the year (97,316) (514,974)
Adjustments for:
Unrealised exchange (gain)/loss 6 (46) 36
Loss on disposal of investments in subsidiaries 7 - 236
Impairment of investment in subsidiaries 7 560,663 502,445
Dividend income 4 (478,382) (3,250)
Interest income 6 (208) (742)
Interest expense 6 8,756 7,390
Share option expense 5 857 2,283
(5,676) (6,576)
Change in trade and other receivables (448) (5,367)
Change in trade and other payables 554 807
Net cash used in operating activities (5,570) (11,136)
Cash flows from investing activities
Additional contribution of capital to
existing subsidiaries 7 (3,001) (18,592)
Proceeds from repayment of loans receivable 3,300 -
Dividends received 4 - 3,250
Interest received 6 235 986
Net cash from/(used) in investing activities 534 (14,356)
Cash flows from financing activities
Repayment of loans and borrowings 11 (6,050) (3,979)
Proceeds from loans and borrowings 11 6,225 2,000
Interest paid 11 - (4,761)
Net cash from/(used in) financing activities 175 (6,740)
Effect of exchange rate fluctuations
on cash held 13 10
Net decrease in cash and cash equivalents (4,848) (32,222)
Cash and cash equivalents at 1 January 6,905 39,127
Cash and cash equivalents at 31 December 9 2,057 6,905
The cash and cash equivalents consists
of:
Cash at banks 2,057 6,905
NOTES TO THE SEPARATE FINANCIAL STATEMENTS OF THE PARENT
COMPANY
For the year ended 31 December 2016
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.
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.
The principal activity of the Company is the holding of
investments in subsidiaries and jointly controlled entities.
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 2016 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 2016, the Group adopted all changes to
International Financial Reporting Standards (IFRSs) as adopted by
the EU which are relevant to its operations.
IFRS 14 "Regulatory Deferral Accounts" was effective for annual
periods beginning on or after 1 January 2016 but was not adopted by
the EU as it was decided not to launch the endorsement process of
this interim standard and to wait for the final standard.
(iv) Adoption of new and revised International Financial
Reporting Standards and Interpretations (continued)
The following Standards, Amendments to Standards and
Interpretations have been issued but are not yet effective for
annual periods beginning on 1 January 2016. 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).
-- IFRS 15 "Revenue from contracts with customers" (effective
for annual periods beginning on or after 1 January 2018).
Standards and Interpretations not adopted by the EU
-- IAS 7 (Amendments) "Disclosure Initiative" (effective for
annual accounting periods beginning on or after 1 January
2017).
-- IAS 12 (Amendments) "Recognition of Deferred Tax Assets for
Unrealised Losses" (effective for annual accounting periods
beginning on or after 1 January 2017).
-- Annual Improvements to IFRSs 2014-2016 Cycle (effective for
annual periods beginning on or after 1 January 2017 (IFRS 12) and 1
January 2018 (IFRS 1 and IAS 28)).
-- IFRS 2 (Amendments) "Classification and Measurement of
Share-based Payment Transactions" (effective for annual periods
beginning on or after 1 January 2018).
-- IFRS 4 (Amendments) "Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts" (effective for annual periods
beginning on or after 1 January 2018).
-- IFRS 15 (Clarifications) "Revenue from Contracts with
Customers" (effective for annual periods beginning on or after 1
January 2018).
-- IAS 40 (Amendments) "Transfers of Investment Property"
(effective for annual periods beginning on or after 1 January
2018).
-- IFRIC 22 "Foreign Currency Transactions and Advance
Consideration" (effective for annual periods beginning on or after
1 January 2018).
-- IFRS 16 "Leases" (effective for annual periods beginning on or after 1 January 2019).
The Board of Directors expects that the adoption of the above
financial reporting standards in future periods will not have a
significant effect on the financial statements of the Company.
(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
2016 2015
US$ '000 US$ '000
Dividend income 478,382 3,250
During the year, the Company transferred its investment in
subsidiary Bellgate Constructions Limited to another subsidiary,
Vardia Limited for a total consideration of US$500,000 thousand.
Being a common control transaction the difference between the cost
of investment and the disposal price was recognised as a deemed
dividend received.
During the year 2015 the Company received dividends from its
subsidiary AFI Development Hotels Limited which were recognised as
income upon declaration and approval.
5. ADMINISTRATIVE EXPENSES
2016 2015
US$ '000 US$ '000
Consultancy and brokerage fees 1,723 758
Donations 640 2,796
Legal fees 623 343
Share option expense 857 2,283
Directors' remuneration 1,361 1,472
Auditors' remuneration 320 463
Valuation expenses 91 123
Insurance 168 151
Other administrative expenses 1,129 1,265
6,912 9,654
6. NET FINANCE COSTS
2016 2015
US$ '000 US$ '000
Interest income 208 742
Net foreign exchange gain 46 -
Finance income 254 742
Interest expense on loans and borrowings (8,756) (7,390)
Other finance costs (21) (22)
Net foreign exchange loss - (68)
Finance costs (8,777) (7,480)
Net finance costs (8,523) (6,738)
7. INVESTMENT IN SUBSIDIARIES
2016 2015
US$ '000 US$ '000
Balance at 1 January 1,313,453 1,686,863
Additional investment in existing subsidiaries 511,010 129,271
Disposal of investment in subsidiaries (21,618) (236)
Impairment (560,663) (502,445)
Balance at 31 December 1,242,182 1,313,453
During the year, 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 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 2016 the Company recognised an impairment loss of
US$560,663 thousand (31/12/2015: US$502,445 thousand) due to a
decrease in the fair value of the properties held by its
subsidiaries as at that date, the deemed dividend received and an
estimate of impairment of the receivables of AFI D Finance S.A. in
which the Company impaired its investment. Refer to the Russian
Business Environment section in this note for further details of
the unfavourable conditions which contributed to the drop in fair
value of the subsidiaries' projects.
The details of the subsidiaries are as follows:
Investment Country of incorporation Principal 2016 2015
activities US$ '000 US$ '000
Investment in
holding companies Cyprus Holding of investments/Financing 218,979 229,166
Investment in
real estate companies Russian Federation Real estate development 215,569 218,042
Investment in
financing companies BVI Financing 807,634 866,245
1,242,182 1,313,453
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
2016 2015
US$ '000 US$ '000
Receivables from related parties (Note 13) 210,378 210,359
Other receivables 569 276
210,947 210,635
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
2016 2015
US$ '000 US$ '000
Cash and cash equivalents consists of:
Cash at banks 2,057 6,905
10. SHARE CAPITAL AND RESERVES
2016 2015
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
On 7 September 2016, Mr Leviev, the Company's controlling
shareholder, and Africa Israel Investments Ltd ("AI") completed an
agreement according to which, Mr Leviev acquired AI's entire
holding of securities of AFI Development (the "Purchased
Securities"). The transaction provided that in consideration for
the Purchased Securities Mr Leviev paid AI, through Flotonic
Limited a fully owned private company, NIS550 million, an effective
price of US$0.2148 per share. As a result, Flotonic Limited now
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
AI 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.
As of 31 December 2016 the following options were
outstanding.
-- During 2007 and 2008 options over GDRs with an exercise price
of US$7 which have already vested, one-third on the second
anniversary of the date of grant, a further one-third on the third
anniversary and the remaining one-third, on the fourth anniversary
of the date of grant provided that the participants remained in
employment until the vesting date. The vesting was not subject to
any performance conditions. On 31 December 2016 1,017,240 options,
0.1% of the issued share capital, were outstanding which have
already vested and have a contractual life of ten years from the
date of grant.
-- On 21 May 2012, the Board of Directors approved the grant of
additional options to Company's employees. Options over 16,763,104
B shares, 1.6% of the issued share capital, were granted with an
exercise price equal to US$0.7208, vesting one-third on the second
anniversary of the date of grant, a further one-third on the third
anniversary and the remaining one-third, on the fourth anniversary
of the date of grant provided that the participants remain in
employment until the vesting date. The vesting is not subject to
any performance conditions. Their contractual life is five years
from the date of grant. Up until 31 December 2016 2,095,388 options
were cancelled, and the remaining 14,667,716 options have
vested.
-- On 22 November 2012, the Board of Directors approved the
grant of additional options to the Company's executive chairman.
Options over 31,430,822 B shares, 3% of the issued share capital,
were granted with an exercise price equal to US$0.5667, vesting
one-third on the second anniversary of the date of grant, a further
one-third on the third anniversary and the remaining one-third, on
the fourth anniversary of the date of grant provided that the
participants remain in employment until the vesting date. The
vesting is not subject to any performance conditions. All options
have vested and have a contractual life of five years from the date
of grant.
If a participant ceases to be employed his options will normally
lapse subject to certain exceptions. In the event of a takeover,
reorganisation or winding up vested options may be exercised or
exchanged for new equivalent options where appropriate. Shares/GDRs
issued under the plan will rank equally with all other shares at
the time of issue. The Board of Directors may satisfy (with the
consent of the participant) an option by paying the participant in
cash or other assets the gain as an alternative of issuing and
transferring the shares/GDRs.
Retained earnings
The amount at each reporting date is available for distribution.
No dividends were proposed, declared or paid during the year ended
31 December 2016 (2015: Nil).
11. LOANS AND BORROWINGS
2016 2015
US$ '000 US$ '000
Long term liabilities
Loans from AFID Finance SA (Note 13) 109,337 86,975
Short term liabilities
Loans from Krown Investments LLC (Note 13) - 97,390
Maturity of non--current borrowings:
Within one year - 97,390
Between one and five years 109,337 86,975
109,337 184,365
The loan outstanding on 31 December 2016 represents an unsecured
loan from the Company's subsidiary, AFI D Finance S.A. The loan
bears interest of 6% per annum and is repayable on 31 December
2021.
The loan payable to Krown Investments LLC, which carried
interest of CBR * 0.8 per annum and was repayable on 31 December
2016, was fully settled by the transfer of the Company's rights to
a loan receivable from Bellgate Constructions Ltd, for further
details refer to note 12.
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
2016 2015
US$ '000 US$ '000
Payables to related parties (Note 13) 99,316 3,625
Other payables 202 213
99,518 3,838
Payables to related parties include an obligation of US$95,139
thousand to AFI D Finance S.A. arising from an assignment agreement
according to which AFID Finance S.A. assigned to the company a loan
receivable from Bellgate Constructions Limited which was later set
off with a loan payable to Krown Investments LLC, refer to note 11.
The outstanding balance bears no interest and is repayable no later
than 31 December 2017.
13. RELATED PARTIES
The transactions with related parties are as follows:
(i) Transactions with the Key Management Personnel
2016 2015
US$ '000 US$ '000
Key management personnel compensation comprised:
Short-term employee benefits 1,200 1,200
Share option scheme expense 857 2,283
(ii) Other related party transactions
2016 2015
US$ '000 US$ '000
Interest expense charged from subsidiaries (8,756) (7,390)
Consulting fees charged by related company (157) -
Consulting fees charged from holding company - (330)
Management fees charged from subsidiaries (769) (723)
Other administrative expenses charged by
related company (11) (11)
The balances with related parties are as follows:
(iii) Receivables from related parties (Note 8)
2016 2015
US$ '000 US$ '000
Receivables from subsidiaries 210,378 210,359
Receivables from subsidiaries include an amount of US$201,953
thousand from AFI D Finance S.A. representing loans assigned by the
Company to the subsidiary during the year 2015.
The balances with related parties are as follows:
(iv) Payables to related parties (Note 12)
2016 2015
US$ '000 US$ '000
Payables to subsidiaries 98,984 3,135
Payables to related company 332 -
Payables to holding company - 490
99,316 3,625
(v) Loan from related party (Note 11)
2016 2015
US$ '000 US$ '000
Name
AFI D Finance S.A. 109,337 86,975
Krown Investments LLC - 97,390
109,337 184,365
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 2016, there were two 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) and the second for the amount of US$192 million, also in
favour of VTB Bank PJSC, under a loan facility agreement of Krown
Investments LLC (Ozerkovskaya III).
In February 2017, AFI Development provided an additional
guarantee in favour of VTB Bank PJSC for the loan amounting to
US$22.5 million, taken by its subsidiary Sanatory Plaza LLC to
finance the acquisition of the 50% stake in the Plaza Spa
Kislovodsk project (including repayment of debt to the exiting
partner's company). This guarantee will remain in place until all
security agreements under this loan are entered into and
registered, expected by the end of April 2017.
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.
16. CONTINGENT LIABILITIES
The Company had no contingent liabilities as at 31 December
2016.
17. EVENTS AFTER THE REPORTING PERIOD
Subsequent to 31 December 2016 there were no events that took
place which have a bearing on the understanding of these financial
statements except of the following:
-- In February 2017, AFI Development Plc announced that its
subsidiary, Sanatory Plaza LLC ("Plaza"), has received a loan from
VTB Bank PJSC ("VTB") to finance the acquisition of a 50% stake in
the Plaza Spa Kislovodsk project ("the Project") from its partner
in the project, which was completed on 28 February 2017. The loan,
in the amount of US$22.5 million, was provided in US dollars for 5
years (the term can be extended for 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$260 thousand in Q3 2017 to US$822 thousand in Q3 2021), and
a balloon payment of US$11.254 million at maturity. The interest is
to be paid quarterly. The loan was used primarily to repay the
outstanding debt of Plaza to the companies of AFI Development's
partner in the project, in the amount of US$16.9 million, prior to
the acquisition of the equity stake. The remainder of the loan was
used to finance the acquisition itself: the 50% equity stakes in
both Nouana Limited and Craespon Management Limited (which together
control 100% of Plaza) were purchased by AFI Development's
subsidiaries for US$5.6 million in cash.
-- In March 2017, AFI Development Plc announced that it had
completed the acquisition of the remaining 5% stake in the
Tverskaya Plaza IV project from its partner, for US$1.5 million in
cash. AFI Development Plc acquired 5% of the shares in Beslaville
Management Limited, a subsidiary holding rights to the project,
increasing its share from 95% to 100%.
-- In March 2017 the Company's subsidiary, AFI RUS Management
LLC, signed a facility agreement for a credit line of RUR470
million from Sberbank PJSC, with a 2 years term, to finance
construction of the Odinburg project.
[1] At AFI Residence Paveletskaya there are two types of
residential units: fully residentially zoned units referred to as
"flats" and commercially zoned units that, according to common
market practice in Russia, are sold and referred to as "apartments"
and can be used for permanent residence.
([2]) At AFI Residence Paveletskaya there are two types of
residential units: fully residentially zoned units referred to as
"flats" and commercially zoned units that, according to common
market practice in Russia, are sold and referred to as "apartments"
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] After the disposal of Building 1 to ALROSA in 2013.
[5] According to the updated City development plan
[6] Debt includes all loans and borrowings. For further details
please see note 28 to the Financial Statements.
[7] Valuation figures represent Company's share (99.17%)
[8] Valuation figures represent Company's share (74.00%)
[9] Valuation figures represent Company's share (99.17%)
[10] Valuation figures represent Company's share (95.00%)
[11] Valuation figures represent Company's share (99.71%)
[12] Valuation figures represent Company's share (99.17%)
[13] The project portfolio includes 50% owned joint ventures,
which are accounted for by equity method
[14] Changed after adjustments of OPEX in the first quarter of
2016
[15] Represented mainly by exhibition areas (6(th) floor, ci. 4
ths. sqm) leased by single tenant
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR IFMBTMBJMTBR
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April 07, 2017 02:00 ET (06:00 GMT)
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