TIDMARO
RNS Number : 3800E
Arricano Real Estate PLC
09 April 2014
9 April 2014
Arricano Real Estate plc
("Arricano" or the "Company" or, together with its subsidiaries,
the "Group")
Final Results for the 12 months ended 31 December 2013
Arricano is one of the leading real estate developers and
operators of shopping centres in the Ukraine. Today, it has a
portfolio covering 113,800 sqm of leasable space within which
Arricano owns and operates four completed shopping centres, an
interest in Sky Mall with 68,000 sqm of leasable space and a
further four shopping sites under development.
Highlights
-- Recurring revenues increased to USD25.3 million (2012: USD16.4 million)
-- Profit before tax was USD4.1 million (2012: USD21.3 million)
with underlying profit before tax (excluding benefits from
revaluation of the portfolio) was USD2.4 million (2012: loss of
USD5.6 million)
-- Reporting date cash balance of USD11.8 million
-- Adjusted diluted net asset value per share was USD2.24 as at 31 December 2013
-- Total fair valuation of the Company's portfolio was USD287.8
million as at 31 December 2013 (2012: USD161.2 million), which
excludes the fair value of Sky Mall
-- Occupancy rates for 2013 rose to 98.3 per cent. (2012: 96.8 per cent.)
-- As at 31 December 2013, the Company's borrowings at project
level remain at a conservative level with a loan to value ratio of
25.2 per cent.
Rupert Cottrell, Chairman of Arricano, commented: "2013 was a
year of solid progress for Arricano, one which saw the Company
begin trading on the AIM market of the London Stock Exchange and at
the same acquire a land portfolio with planning to develop four
shopping centre and entertainment complexes, to add to the Group's
existing completed portfolio. Recurring revenues increased
significantly compared to the previous year and the Company
therefore has a stable base from which to operate."
For further information please contact:
Arricano Real Estate plc Tel: +380 44 569 6708
Yarema Kovaliv/Oleg Pryimak
Financial PR
Novella Tel: +44 (0)20 3151 7008
Tim Robertson/Ben Heath
Nominated Adviser and Joint Broker:
Smith & Williamson Corporate Finance Tel: +44 (0)20 7131 4000
Limited
Azhic Basirov / Siobhan Sergeant /
Oliver Cummings
Joint Broker:
Whitman Howard Limited Tel: +44 (0)20 7087 4555
Ranald McGregor-Smith
Chairman's Statement
Introduction
I am pleased to be able to provide Arricano's maiden set of full
year results following its admission to AIM in September 2013. The
Company has made good progress during the period under review and
has re-enforced its position as one of the leading real estate
developers and operators of shopping centre and entertainment
complexes in Ukraine.
Today, Arricano has 113,800 sqm of completed assets spread
across four shopping centres in which occupancy is high at 98.3 per
cent. that generated rental income of approximately USD25 million
for the year ended 31 December 2013. In addition to the Company's
four shopping centres, the Company also owns title rights for
185,567 sqm of development land divided into four specific sites
which are at varying stages of development and has an interest in
Sky Mall with 68,000 sqm of leasable area.
The Company's portfolio of assets was externally and
independently valued as at 31 December 2013 by Expandia LLC, part
of the CBRE Affiliate Network. The expanded portfolio was valued at
USD287.8 million, including property under construction and
prepayments that are stated at cost for total amount of USD39.2
million.
Strategy
Our commercial objective is to use the cash generative completed
portfolio to support the addition of further lettable space and the
development of new shopping centre and entertainment complexes.
2013 saw the Company successfully pursue this strategy by growing
recurring revenues through securing new tenants, improving average
letting rates and the Company's stock market listing.
As part of the listing on the AIM market of the London Stock
Exchange, the Company raised a net USD23 million through a placing
of new ordinary shares and issued 28,350,214 Ordinary Shares
(equivalent to approximately USD66 million) to Vunderbuilt S.A. in
exchange for ownership of the four development sites. Arricano as
part of this transaction also took over the benefit of certain
shareholder loans relating to these sties arranged by the
beneficiary of Vunderbuilt S.A. The IPO enabled the Company to
acquire this new land bank to develop, thereby substantially
increasing the scale of the business.
The Company's strategy has remained unchanged and the second
half of the financial year saw the Company continue to use its
asset management skills to increase the long term value of the
portfolio, manage over 440 tenants and continue to move forward the
development opportunities across the Group.
Managing risk has always been an important part of the Company's
strategy and to this end, we seek to pre-let and secure anchor
tenants for future projects and keep speculative development to a
minimum.
The Market
While there are always challenges to overcome, Arricano has been
successfully operating in the Ukraine since 2007. There have been
many changes in the market in that time but the Company has
consistently commissioned a new project every year since then. Our
aim is to build long term shareholder value and we believe Ukraine
remains severely structurally undersupplied in terms of good to
high quality retail space. Sentiment has been affected by the
current market conditions and the Company is taking a more cautious
approach to the pace of the development pipeline but existing
projects are continuing albeit with a focus on mitigating risk
where appropriate.
The Board and Management
In December 2013, Emil Budilovsky, Chief Executive Officer of
Arricano stepped down from his role with the Company for personal
reasons. His position has been covered by Yarema Kovaliv,
previously Head of the Company's legal department, on an interim
basis. The search for a new CEO is underway while at the same time
the Board is confident the Company is in safe hands under the
guidance of Yarema Kovaliv. Tetyana Kolesnyk, Head of Planning and
Reporting, has also taken on the financial management role
following the departure of Maxim Goncharuk who was Chief Financial
Officer (non-Board position).
Outlook
The Group believes that it is well positioned to capitalise on
the under developed retail real estate market in Ukraine. However,
it is likely that progress at least in the first half of the
current financial year will be slower than originally anticipated
due to the general political and economic uncertainty. The South
Gallery in Simferopol (Crimea) continues to operate as before and
we will monitor the situation there closely. Everyone connected to
the Company is hoping for a peaceful solution over the coming
months, though there is likely to be an impact on the capital
markets while issues remain unresolved. However, at the time of
release of this statement for Arricano, there has been no material
impact on the underlying trading and it remains 'business as
usual', with new leases continuing to be signed, loans extended and
rents paid.
Rupert Cottrell
Chairman
8 April 2014
Chief Executive Officer's Report
Introduction
I am pleased to be able to report on a successful year which saw
the Company list on the AIM market and substantially increase the
size and potential of the business. We began the year with five
completed assets (in the case of Sky Mall, an interest in) and at
the time of the IPO acquired a development pipeline with the
potential to establish four more shopping centre and entertainment
complexes.
From our headquarters in Kyiv, we have a successful asset
management team who have assisted in maintaining high levels of
occupancy across the portfolio, pushing through appropriate rental
increases and responding to the requirements of over 440 tenants
occupying our completed portfolio.
The Company is in a healthy position. We own and operate four
shopping centres and entertainment complexes generating strong and
predictable cashflows which support our aim to develop similar
sites in other under supplied areas in Ukraine. We are continuing
this strategy whilst ensuring we do so on a risk averse basis.
Results
In terms of the financial performance, the Company has completed
a successful year which saw recurring revenues increase
significantly to USD25.3 million (2012: USD16.4 million),
reflecting the additional revenues following the opening of RayON
trade centre in August 2012. Profit before tax was USD4.1 million
(2012: USD21.3 million) with underlying profit before tax
(excluding benefits from revaluation of the portfolio) of USD2.35
million (2012: loss of USD 5.6 million). There were a series of one
off costs in the prior year but nevertheless, the trading
performance shows the improved cash generation from the completed
portfolio.
The annual revaluation of the Group's portfolio as at 31
December 2013, valued the portfolio at USD287.8 million compared to
USD161.2 million in the prior year. The current valuation includes
the acquisition of the development land and property under
construction valued at USD86.9 million and USD38 million of direct
additions to the investment property during the period. The
revaluation on a comparable basis showed a small uplift of USD1.7
million. A value of USD20.7 million is attributed to the Company's
interest in the holding company of Sky Mall, compared to a fair
value of USD209.4 million as at 31 December 2013.
Bank debt at the year-end was USD72.7 million, the majority of
which is secured on individual assets, with interest rates in a
range of 4.73 per cent. - 11.5 per cent. and weighted average rate
of borrowings at a project level of 8.83 per cent.. Loans mature
between 2018-2020 and the Company's loan to value ratio is a
comparatively low 25 per cent. In addition there was USD11.8
million of free cash, as at 31 December 2013.
All loans are denominated in US dollars and all rents are linked
to US dollars. The Company pays a portion of its operating costs in
the Ukrainian Hryvnia specifically to cover marketing and
administrative expenses, therefore fluctuations between the US
dollar and the Hryvnia can affect the profitability of the
Company.
The Board is not recommending a dividend for this period,
however, it is the Company's intention to make distributions to
shareholders in the future in line with the profitability of the
business.
The Market
Arricano is focused on generating value for shareholders over
the long term. Our experiences of working in the Ukrainian and
neighbouring markets show that there is a strong desire amongst
consumers to adopt western shopping habits and follow similar
retail trends. Today, the Ukrainian market is severely structurally
under supplied and in establishing and extending Arricano's
presence we are seeking to address this market opportunity by
developing shopping formats that compare favourably to Western
Europe and provide innovative, modern, retail environments offering
a good mix of domestic and international retailers.
Operational Overview
We have an asset management team which is 123 people strong and
we divide our activities into three main areas: investment,
property management and development. Our focus is on maximising the
potential of the existing completed portfolio, examining
opportunities to extend this portfolio ideally on a pre-let basis
and securing appropriate rental increases in line with the success
of the individual developments.
Operating Portfolio
In the following section we have provided an overview of each
asset in the completed portfolio.
Sun Gallery (Kryvyi Rih)
Sun Gallery, opened in 2008, is one of the largest shopping
malls in Kryvyi Rih. It is located at 30-richchia Peremohy Square,
in the Saksahanskyi district in the northeastern part of Kryvyi
Rih. It has easy to access by car and has good public transport
links. The primary shopping centre catchment area includes almost
the whole territory of the Saksahanskyi district and part of the
Zhovtnevyi district. The secondary area covers the Dovhyntsivskyi
district.
The shopping centre is on two levels, spanning a total GLA of
approximately 35,500 sq. m. There are approximately 80 gallery
tenants, a children's entertainment zone, a food court with
restaurants and cafes, a bowling alley, and anchor tenants
electronics store Comfy and hypermarket Auchan.
Key statistics
-- GLA - c. 35,500 sq. m.
-- Vacancy rate as at 31 December 2013 - 2.9 per cent.
-- Average monthly rental rate - USD9.45/sq. m. as at 31 December 2013
-- Visitors (2013) - 3.79 million
-- Bank debt at 31 December 2013 - USD15.3 million
-- Valuation at 31 December 2013 - USD28.9 million
City Mall (Zaporizhzhia)
City Mall is one of the largest shopping centres in Zaporizhzhia
with a total GLA of approximately 21,400 sq. m. on a single level.
The shopping centre is located on the Dnipro river approximately 3
km from Zaporizhzhia city centre, between two densely populated
areas of Zaporizhzhia in the Zhovtnevyi administrative district (1b
Zaporizska street), with convenient accessibility by public and
private transport.
The second phase of City Mall was opened in April 2011 and
comprises a gallery with approximately 80 international and local
tenants, a food court with 10 restaurants, a children's
entertainment zone and parking which is shared with DIY superstore
Epicenter. City Mall's anchor tenants are the hypermarket Auchan,
which is the largest in the city, and the electronics store
Comfy.
Key statistics
-- GLA - c. 21,400 sq. m.
-- Vacancy rate as at 31 December 2013 - 0.54 per cent.
-- Average monthly rental rate - USD17.09/sq. m. as at 30 June 2013
-- Visitors (2013) - 4.86 million
-- Bank debt at 31 December 2013 - USD14.2 million
-- Valuation at 31 December 2013 - USD36.5 million
South Gallery (Simferopol)
The site is located in the north of Simferopol, about five
minutes' driving distance from one of the city's major crossroads,
Moskovska Square. The site is linked to the city centre and
residential areas east of the city by one of the main thoroughfares
of Simferopol. The primary shopping centre catchment area includes
northern parts of the Kyivskyi and Zaliznychnyi districts. The
secondary area covers almost the whole city, except for its very
southern parts.
South Gallery shopping centre (Phases I and II) is situated on a
land plot with a total area of 10.2 ha. Phase I of the shopping
centre tenants include Auchan (international hypermarket chain) and
a Comfy electronics store, with a small gallery. With the
completion of Phase II in February 2014 the mall is designed to
become a regional destination shopping centre with a total GLA of
approximately 32,800 sq. m.
Key statistics (Phase I)
-- GLA - c. 13,100 sq. m.
-- Vacancy rate as at 31 December 2013 - 0 per cent.
-- Average monthly rental rate - USD6.09/sq. m. as at 31 December 2013
-- Visitors (2012) - unknown*
-- Bank debt at 31 December 2013 - USD8.0 million
-- Valuation at 31 December 2013 - USD40 million (including Phase II)
* The current project does not use counters to register visitor
numbers. Although the Group's management uses estimates for visitor
numbers, these estimates are derived from turnover data obtained
directly from retailers which are not permitted to be
disclosed.
Phase II
-- GLA - c. 19,700 sq. m.
-- 70 per cent. let with a vacancy rate of 30 per cent.
RayON (Kyiv)
The RayON shopping centre was opened to the public in August
2012. The shopping centre is located in the north east of Kyiv
along the left bank of the Dnipro river, with satisfactory
transportation links.
The shopping centre has a GLA of approximately 24,100 sq. m on
two levels, with approximately 860 parking spaces. The concept for
RayON is a district shopping centre, which focuses on food,
clothing and convenience products. The shopping centre is anchored
by a Silpo foods supermarket, one of the biggest supermarket chains
in Ukraine and a member of the Fozzy group. Electronics supermarket
Comfy also operates within the shopping centre.
RayON has several restaurants and a children's entertainment
zone to complement the retail facilities. RayON is located in the
middle of the Desnjanski district, one of the most densely
populated areas in Kyiv, with an estimated catchment area of
approximately 170,000.
Key statistics
-- GLA - c. 24,100 sq. m.
-- Vacancy rate as at 31 December 2013 - 1.9 per cent.
-- Average monthly rental rate - USD31.00/sq. m. as at 31 December 2013
-- Visitors (2013) - 5.17 million
-- Bank debt at 31 December 2013 - USD24.8 million
-- Valuation at 31 December 2013 - USD68.3 million
A claim has been lodged with the Commercial Court in Kyiv
contesting the Group's ownership of RayON. On 5 March 2014, as part
of the standard procedure in respect of this type of dispute, the
Court made an interim ruling preventing any disposal of RayON.
Arricano has no intention of disposing of the asset in the short to
medium term and so is unaffected by this ruling.
Arricano is confident this case is without foundation and its
ownership of RayON is legally demonstrable; a fact further
supported by the USD25 million refinancing which involved a review
by the lender into the asset. Importantly, the Company can also
confirm RayON continues to operate as normal and it does not
anticipate any disruption to trading.
Portfolio-Investment Property
Sky Mall (Kyiv)
Sky Mall is one of the largest shopping centres in Kyiv, built
to an award-winning design by the international architectural firm
Chapman Taylor. It is home to top-quality brands, which include
TopShop and Marks & Spencer, and anchored by the hypermarket
Auchan, Comfy and stores of the Inditex Group. The first phase of
the shopping centre (hypermarket) opened in 2007 and the second
phase of the development opened in August 2010. It is located in
the Dniprovskyi district of Kyiv on Vatutina Avenue, on the left
bank of the Dnipro River. The shopping centre has good motor
vehicle access and public transport links.
The GLA of the current operating centre (Phases I and II) is
approximately 68,000 sq. m, with approximately 1,880 parking
spaces. The shopping centre spans three levels with a cinema,
children's and entertainment zone, food court, hypermarket and
gallery shops.
The Company currently owns only 49.97 per cent. of the holding
company of the asset and continues to investigate the possibility
of acquiring the remaining interests from the current co-owner.
It is anticipated that the third phase, which may be developed
provided such development will be feasible at the time, would add a
further GLA of approximately 46,500 sq. m. The third phase of
development envisages an extension of the existing gallery with the
addition of retail, leisure and entertainment space and the
development of a number of stand-alone ("big box") retailers
(furniture and DIY). Several preliminary concepts are available for
the development of the third phase.
Key statistics
-- Arricano ownership - 49.97 per cent.
-- GLA - c. 68,000 sq. m.
-- Valuation at 31 December 2013 - USD209.4 million
-- Book value at 31 December 2013 - USD20.7 million*
* A value of USD20.7 million is attributed to the Company's
interest in the holding company of Sky Mall in the Company's
financial statements.
Development Properties
Prospect/Krasnotkatska (Kyiv)
The Prospect/Krasnotkatska development property is located
directly on the inner ring road of Kyiv on the left bank of the
Dnipro river in the Desnianskyi administrative district, with good
automobile accessibility and public transport links. The area is
already recognised as a popular shopping destination, located close
to a large open-air market and a bazaar-style shopping centre (SC
Darinok).
The Prospect/Krasnotkatska development property is being
constructed on a site of about 5.79 ha and will consist of a
two-storey retail and leisure complex with a total gross building
area of approximately 44,100 sq. m. (excluding roof and surface
parking and excluding the hypermarket building referred to below),
an expected GLA of approximately 30,400 sq. m. and parking. The
construction works are in an advanced stage. The Company plans to
open the centre by the end of the third quarter of 2014.
The project has a joint venture with an SPV of retail operator
Auchan, Real Estate F.C.A.U LLC, to construct and operate their own
hypermarket block within the project with our estimated GBA of
approximately 11,700 sq. m. (excluding parking).
Land plot: 5.79 hectares
Title: leasehold title
Development: retail, leisure and entertainment
Gross construction area (GBA): c. 44,100 sq. m. (excluding roof
and surface parking and excluding the hypermarket building)
Gross leasable area (GLA): c. 30,400 sq. m. (excluding the hypermarket)
Parking: To include roof parking, surface parking and basement
parking
Type: Regional mall (hypermarket anchored)
Bank debt: up-to-USD 30 million facility from Ukrainian State
Savings Bank
Bank debt principal balance: USD 10 million
Construction start date: Q4 2012
Forecast opening date: Q4 2014
Lukianivka (Kyiv)
The Lukianivka development property is located on the right bank
of Kyiv in the Shevchenkivskyi administrative district. The land
plot has a total area of 4.14 hectares. The Group is planning to
construct its flagship shopping centre in the central business
district of Kyiv, with a more upmarket vision in terms of the
concept and tenant mix. The Lukianivka development property allows
for the construction of a multi-use complex, consisting of a
shopping and leisure centre including, inter alia, a hypermarket,
shops and shopping galleries, a leisure and entertainment area, a
food court restaurants and a service area. The property would also
have two underground parking levels and one seven-storey
residential building, construction of which will continue after
completion of the shopping centre. It is expected that the GLA of
the shopping and entertainment centre would be approximately 47,000
sq. m. The Group obtained the relevant building consent in June
2013.
Land plot: 4.14 hectares
Title: leasehold title plus title to several buildings
(historical landmarks) on the site
Development: retail, leisure and entertainment centre
Gross construction area (GBA): c.71,300 sq. m. for the shopping
centre (plus c.38,500 sq. m. GBA for parking and c.6,600 sq. m. for
the residential block)
Gross leasable area (GLA): c.47,000 sq. m.
Gross saleable area: c.5,000 sq. m.*
Parking spaces: to include roof parking and underground
parking
Type: city shopping centre (pocket hypermarket anchored) with
residential
Expected construction start date: Q4 2013
Forecast opening date: Q4 2015
* This comprises mainly residential space with a small amount of
commercial property.
Rozumovska (Odesa)
The Black Sea port of Odesa is Ukraine's fourth largest city,
with over one million inhabitants, and is a popular leisure
destination. The Rozumovska development property is located partly
on the façade of Rozumovska Street close to its intersection with
Balkovska Street, in the Malynovskyi administrative district of
Odesa, in close proximity to public transportation links.
The site is located opposite the city's main bus station.
Rozumovska Street connects directly to the highway to Kyiv.
The Group has signed a lease agreement for the land plot with a
total area of 4.5 hectares. The Rozumovska development property is
expected to be a three-storey shopping and entertainment centre
with a sufficient number of parking spaces to accommodate customer
demand. The target GLA is approximately 38,000 sq. m., including a
hypermarket, shops and shopping galleries, a leisure and
entertainment area, a food court restaurants and a service area.
The preliminary design concept of the project has been completed
and the developer is currently applying for the relevant consents
and permits, given current market conditions, completion is now
targeted for 2016.
Land plot: 4.5 hectares
Location: Odesa
Title: buildings and companies owning the site have been
purchased, but land title still needs to be allocated
Development: retail, leisure and entertainment centre
Gross construction area (GBA): c. 71,000 sq. m.
Gross leasable area (GLA): 38,000 sq. m.
Parking spaces: 1,387 (771 deck parking, 616 roof parking
spaces)
Type: Regional mall (hypermarket anchored)
Expected construction start date: Q1 2015
Forecast opening date: Q3 2016
Petrivka (Kyiv)
The Petrivka development property is located on the right bank
of the Dnipro river in Kyiv, in the Obolonskyi administrative
district. The site has an area of 5.4 ha. The Group is currently
considering the best use of the site, which could include both
residential and retail use. If the site is to be developed as a
shopping centre, the management expects the GLA to be approximately
31,450 sq. m.
Outlook
Arricano is in a good position for the long term, it has
relatively low borrowings, a cash generative portfolio of completed
shopping centres and a strong pipeline of further development
sites. The events unfolding politically will restrict and limit our
activities to a certain extent and could have significant
consequences in relation to the operations of the Group in a manner
not currently determinable. However, looking further ahead we
believe our business is in a market with significant long term
upside.
Yarema Kovaliv
Acting Chief Executive Officer
8 April 2014
Finance Report
The Company's revenue mainly consists of rental income from the
portfolio of the completed properties. During the year ended 31
December 2013 the Company's rental income comprised USD25 million
(2012: USD16 million). The increase is attributable, primarily, to
a full year of revenues from RayON which was opened in August 2012
and accounted for approximately 42 per cent. of the Group's
revenues. On a like-for-like basis, rental income increased by 11
per cent. in 2013.
In 2013, the Company recognised a gain from revaluation of
investment property of USD1.7 million (2012: USD27 million), which
demonstrates that there were no significant fluctuations on
property market during the year. The revaluation gain in 2012 was
principally as a result of the recognition of RayON, in line with
the Company's accounting policy.
The increase in rental income resulted in an increase in goods,
raw materials and services used by USD0.5 million, or 83 per cent.,
as compared to the previous year. Operating expenses were USD12.7
million (2012: USD17.9 million). The 2012 results included
allowance for bad debts of USD 6 million that was mainly
attributable to the receivables from a related party under an
ongoing bankruptcy procedure.
Employee costs increased by 40 per cent. for the year ended 31
December 2013 as compared to the previous year as a result of
performance bonuses relating to the Company's results for 2012 and,
for the relevant staff, the IPO in 2013 as well as the acquisition
of new subsidiaries.
The resultant profit from operating activities (if excluding the
revaluation gains) improved by USD13 million to a reported profit
of USD8.8 million (2012: loss of USD 4.3 million).
Finance income in the year ended 31 December 2013 fell by USD2.5
million from USD6.3 million in 2012. The finance income in 2012 was
mainly generated from the loan provided to Weather Empire. In July
2013, the Company signed an amendment to the loan agreement with
this counterparty, according to which the interest rate was reduced
from 11.85 per cent. to 3 per cent. Also in 2012 included in
financial income was a finance lease gain amounting to USD2 million
that arose due to a fall in land lease payment of the Sun Gallery
project, that was further increased in 2013.
Agreed finance costs in 2013 increased by USD2.7 million, as a
result of the agreed bank loans in 2013.
The Company's net profit for the year, ended 31 December 2013,
was USD3.2 million (2012: USD19.8 million). Adjusting for the
revaluation gains in the respective periods, the Company has
achieved an uplift in net profits of approximately USD8.5
million.
Net Asset Value as at 31 December 2013 was USD231.5 million
(2012: USD134.6 million), resulting in an Adjusted Net Asset Value
per Share of USD2.24 (2012: USD1.58). The increase in NAV was
driven principally by the placing for cash in September 2013 as
well as the acquisition of further assets.
Total assets, as at 31 December 2013, amounted to USD410
million, an increase of 64 per cent. from the year end 31 December
2012 mainly relating to the additions in investment property.
During the year ended 31 December 2013, the Company obtained USD87
million through acquisition of new subsidiaries and USD38 million
increase was achieved by direct additions. At the same time the
Company's net cash outflows for construction amounted to USD41
million.
Cash balance as at 31 December 2013 amounted to USD11.8 million
(2012: USD7.57 million).
In 2013 the Group entered to loan agreements with the following
counterparties:
1) OJSC "Bank "St. Petersburg" - for the total amount of USD25 million - to finance construction
2) PJSC "State Savings Bank of Ukraine" - for the total amount
of USD30 million - to finance construction (as at 31 December 2013
only USD10 million has been drawn down)
3) PJSC "Raiffeisen Bank Aval" - for the total amount of USD15
million - to refinance existing borrowings
4) Related parties - for the total amount of USD36.98 million- to refinance existing borrowings
Thus, during the year the Company attracted USD86 million from
borrowings, net of transaction costs, and USD57 million were
repaid.
At acquisition of subsidiaries in 2013, the Company agreed
deferred consideration of USD20 million to be paid by April 2015.
This amount was recognized within other liabilities of the
Company.
Tetyana Kolesnyk
Acting Chief Financial Officer
8 April 2014
Year Ended Year Ended
31 December 31 December
Group Income Statement 2013 2012
Note US$'000 US$'000
Revenue 17 25,299 16,421
Other income 1,233 554
Gain on revaluation of investment
property 5 1,751 26,893
Goods, raw materials and services
used (983) (536)
Operating expenses (12,727) (17,885)
Employee costs (3,789) (2,708)
Depreciation and amortisation (249) (166)
Profit from operating activities 10,535 22,573
Finance income 3,831 6,316
Finance costs (10,265) (7,562)
Profit before income tax 4,101 21,327
Income tax expense (904) (1,504)
Net profit for the year 3,197 19,823
Items that will not be reclassified
to profit or loss:
Foreign currency translation differences - 24
Total items that will not be reclassified
to profit or loss - 24
Other comprehensive income - 24
Total comprehensive income for the
year 3,197 19,847
Weighted average number of shares
(in shares) 12 84,262,942 36,354,603
Basic and diluted earnings per share
(USD) 0.03794 0.54527
As at As at
31 December 31 December
Balance Sheet 2013 2012
Note US$'000 US$'000
Assets
Non-current assets
Investment property 5 287,799 161,216
Available-for-sale financial assets 6 20,727 20,727
Deferred tax asset 1,520 956
Long-term loans receivable 7 1,519 1,473
Long-term VAT recoverable 10,882 5,630
Property and equipment 537 455
Intangible assets 64 91
Restricted deposits 10 820 -
Total non-current assets 323,868 190,548
Current assets
Inventories 4 91
Trade and other receivables 4,324 3,637
Loans receivable 7 48,469 43,766
Prepayments made and other assets 9 10,116 651
VAT recoverable 4,612 3,825
Cash and cash equivalents 10 11,840 7,565
Restricted deposits 10 663 -
Assets classified as held for sale 8 5,833 -
Total current assets 85,861 59,535
Total assets 409,729 250,083
Equity and Liabilities
Equity
Share capital 11 67 54
Share premium 183,727 159,981
Additional paid-in capital 59,713 59,713
Retained earnings 50,509 47,312
Other reserves (61,983) (131,980)
Foreign currency translation differences (512) (512)
Total equity 231,521 134,568
Non-current liabilities
Long-term borrowings 13 62,391 33,008
Advances received 15 2,900 3,534
Finance lease liability 14 11,248 3,252
Other long-term liabilities 16 10,222 -
Deferred tax liability 5,443 3,975
Total non-current liabilities 92,204 43,769
Current liabilities
Short-term borrowings 13 40,623 43,324
Trade and other payables 13,745 23,993
Tax payables 272 133
Advances received 15 20,628 4,294
Current portion of finance lease liability 14 89 2
Other liabilities 16 10,151 -
Liabilities classified as held for
sale 496 -
Total current liabilities 86,004 71,746
Total liabilities 178,208 115,515
Total equity and liabilities 409,729 250,083
Year Ended Year Ended
31 December 31 December
Consolidated Cash Flow Statement 2013 2012
Note US$'000 US$'000
Cash flows from operating activities
Profit before income tax 4,101 21,327
Adjustments for:
Finance income (3,831) (6,316)
Finance costs 10,265 7,562
Gain on revaluation of investment
property 5 (1,751) (26,893)
Loss on sale of investment property - 51
Depreciation and amortization 249 166
Write-off of prepayments - 1,161
Allowance for bad debts 541 6,149
Operating cash flows before changes
in working capital 9,574 3,207
Change in inventories 87 (76)
Change in trade and other receivables (923) (4,973)
Change in prepayments made and other
assets (496) (1,376)
Change in VAT recoverable 1,966 1,564
Change in trade and other payables (1,202) 1,614
Change in advances received 1,064 126
Change in other liabilities (31) -
Income tax paid - (12)
Interest paid (11,578) (3,578)
Cash flows used in operating activities (1,539) (3,504)
Cash flows from investing activities
Acquisition of subsidiaries, net
of cash acquired 4,233 -
Acquisition of investment property (41,172) (9,889)
Acquisition of property and equipment (296) (432)
Proceeds from sale of investment
property - 214
Change in prepayments made and other
assets (5,217) -
Change in advances received 4,801 -
Loans granted (240) (498)
Loans repaid 85 1,450
Change in VAT recoverable (5,426) (4,368)
Placement of the restricted deposit (1,483) -
Interest received 156 -
Cash flows used in investing activities (44,559) (13,523)
Cash flows from financing activities
Proceeds from issue of shares, net
of equity costs 22,243 32
Proceeds from borrowings, net of
transaction costs 85,945 50
Repayment of borrowings (57,015) (7,663)
Finance lease payments (797) (514)
Other movements (3) -
Cash flows from (used in) financing
activities 50,373 (8,095)
Net increase (decrease) in cash and
cash equivalents 4,275 (25,122)
Cash and cash equivalents at 1 January 7,565 32,687
Cash and cash equivalents at 31 December 11,840 7,565
Non-cash movements
During the year ended 31 December 2013, acquisition of
investment property of USD 5,144 thousand was financed through
finance leases (2012: USD 1,686 thousand).
Attributable to equity holders of the Company
-----------------------------------------------------------------------------------
Foreign
Additional currency
Share Share paid-in Retained Other translation
capital premium capital earnings reserves differences Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balances at 1 January
2012 9 89,994 59,713 27,489 (61,980) (536) 114,689
Total comprehensive
income for the
year
Net profit - - - 19,823 - - 19,823
Foreign currency
translation differences - - - - - 24 24
Total other comprehensive
income - - - - - 24 24
Total comprehensive
income for the
period - - - 19,823 - 24 19,847
Transactions with
owners, recognised
directly in equity
Contribution from
shareholders 45 69,987 - - - - 70,032
Shares to be forfeited - - - - (70,000) - (70,000)
Total transactions
with owners 45 69,987 - - (70,000) - 32
Balances at 31
December 2012 54 159,981 59,713 47,312 (131,980) (512) 134,568
Attributable to equity holders of the Company
----------------------------------------------------------------------------------------
Foreign
Additional currency
Share Share paid-in Retained Other translation
capital premium capital earnings reserves differences Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balances at 1 January
2013 54 159,981 59,713 47,312 (131,980) (512) 134,568
Total comprehensive
income for the
year
Net profit and
total other comprehensive
income - - - 3,197 - - 3,197
Total comprehensive
income for the
period - - - 3,197 - - 3,197
Transactions with
owners, recognised
directly in equity
Forfeiture of shares
(see note 11) (13) (69,987) - - - - 70,000
Reversal of reserve
for unpaid shares
(see note 11) - - - - 70,000 - (70,000)
Contribution from
shareholders 26 93,733 - - - - 93,759
Other movements - - - - (3) - (3)
Total transactions
with owners 13 23,746 - - 69,997 - 93,756
Balances at 31
December 2013 67 183,727 59,713 50,509 (61,983) (512) 231,521
1 Background
(a) Organization and operations
Arricano Real Estate PLC (formerly Arricano Trading Limited)
("Arricano" or the" Company") is a public company that was
incorporated in Cyprus under the provisions of the Cyprus Companies
Law, Cap.113, and is admitted to trading on the AIM market of the
London Stock Exchange ("London AIM"). The Company's registered
address is office 1002, 10(th) floor, Nicolaou Pentadromos Centre,
Thessalonikis Street, 3025 Limassol, Cyprus. Arricano and its
subsidiaries and special purposes entities are referred to as the
Group, and their principal place of business is in Ukraine.
The main activities of the Group are investing in the
development of new properties in Ukraine and leasing them out. As
at 31 December 2013, the Group operates four trade centres in Kyiv,
Simferopol, Zaporizhzhya and Kryvyi Rig with a total area of over
113,800 square meters and is in the process of development of four
new investment projects in Kyiv and Odesa.
(b) Ukrainian business environment
Ukraine's political and economic situation has deteriorated
significantly since the Government's decision not to sign the
Association Agreement and the Deep and Comprehensive Free Trade
Agreement with the European Union in late November 2013. Political
and social unrest combined with rising regional tensions has
deepened the ongoing economic crisis and has resulted in a widening
of the state budget deficit and a depletion of the National Bank of
Ukraine's foreign currency reserves and, as a result, a further
downgrading of the Ukrainian sovereign debt credit ratings. In
February 2014, following the devaluation of the national currency,
the National Bank of Ukraine introduced certain administrative
restrictions on currency conversion transactions and also announced
a transition to a floating foreign exchange rate regime. The final
resolution and the effects of the political and economic crisis are
difficult to predict but may have further severe effects on the
Ukrainian economy.
Whilst management believes it is taking appropriate measures to
support the sustainability of the Group's business in the current
circumstances, a continuation of the current unstable business
environment could negatively affect the Group's results and
financial position in a manner not currently determinable. These
consolidated financial statements reflect management's current
assessment of the impact of the Ukrainian business environment on
the operations and the financial position of the Group. The future
business environment may differ from management's assessment. These
consolidated financial statements do not include any adjustments
for the impact of events in Ukraine that have occurred after the
reporting date.
(c) Cyprus business environment
The Cyprus economy has been adversely affected from the crisis
in the Cyprus banking system in conjunction with the inability of
the Republic of Cyprus to borrow from international markets. As a
result, the Republic of Cyprus entered into negotiations with the
European Commission, the European Central Bank and the
International Monetary Fund (the "Troika"), for financial support,
which resulted into an agreement and the Eurogroup decision of 25
March 2013. The decision included the restructuring of the two
largest banks in Cyprus through "bail in". During 2013 the Cyprus
economy contracted further with a decrease in the Gross Domestic
Product.
The negotiations of the Cyprus Government with the European
Commission, the European Central Bank and the International
Monetary Fund (the "Troika"), in order to obtain financial support,
resulted in an agreement and decision of the Eurogroup on 25 March
2013 on the key elements necessary for a future macroeconomic
adjustment programme which includes the provision of financial
assistance to the Republic of Cyprus of up to EUR10 billion. The
programme aims to address the exceptional economic challenges that
Cyprus is facing, and to restore the viability of the financial
sector, with a view to restoring sustainable economic growth and
sound public finances in the coming years.
On 22 March 2013 legislation was enacted by the House of
Representatives concerning restrictive measures in respect of
transactions executed through the banking institutions operating in
Cyprus. The extent and duration of the restrictive measures are
decided by the Minister of Finance and the Governor of the Central
Bank of Cyprus and were enforced on 28 March 2013. The temporary
restrictive measures, with respect to banking and cash transactions
include restrictions on cash withdrawals, the cashing of cheques
and transfers of funds to other credit institutions in Cyprus and
abroad. They also provide for the compulsory partial renewal of
certain maturing deposits.
The Eurogroup decision on Cyprus includes plans for the
restructuring of the financial sector and safeguards deposits below
EUR100.000 in accordance with European Union legislation. In
addition, the Cypriot authorities have reaffirmed their commitment
to step up efforts in the areas of fiscal consolidation, structural
reforms and privatizations.
On 12 April 2013 the Eurogroup welcomed the agreement that was
reached between Cyprus and the Troika institutions regarding the
macroeconomic adjustment programme for Cyprus. Subsequently all the
necessary procedures for the formal approval of the Board of
Directors of the European Stability Mechanism were completed, as
well as the ratification by Eurozone member states. Following the
completion of the above procedures, the first tranche of the
financing of the Republic of Cyprus was released in line with the
provisions of the Memorandum.
Following the positive outcome of the first and second quarterly
reviews of the Cyprus economic programme by the European
Commission, the European Central Bank and the International
Monetary Fund, during 2013, the Eurogroup endorsed the disbursement
of the scheduled tranches of financial assistance to Cyprus.
The current economic environment of Cyprus will not have a
significant impact on the operations of the Group and the Group
does not hold significant funds in Cypriot financial institutions.
The Group's management is unable to predict all developments which
could have an impact on the Cyprus economy and consequently, what
effect, if any, they could have on the future financial
performance, cash flows and financial position of the Group.
The Group's management believes that it is taking all necessary
measures to maintain the viability of the Group and the development
of its business in the current business and economic
environment.
2 Basis of preparation
(a) Statement of compliance
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union (EU).
(b) Basis of measurement
The consolidated financial statements have been prepared under
the historical cost basis except for investment property, which is
carried at fair value.
(c) Functional and presentation currency
The functional currency of Arricano Real Estate PLC is the US
dollar (USD). The majority of Group entities are located in Ukraine
and have the Ukrainian Hryvnias (UAH) as their functional
currency.
For the benefits of principal users, the management chose to
present the consolidated financial statements in USD, rounded to
the nearest thousand.
In translating the consolidated financial statements into USD
the Group follows a translation policy in accordance with
International Financial Reporting Standard IAS 21, The Effects of
Changes in Foreign Exchange Rates and the following procedures are
performed:
- Historical rates: for the equity accounts except for net
profit or loss for the year.
- Year-end rate: for all assets and liabilities.
- Rates at the dates of the transactions: for the statement of
profit or loss and other comprehensive income.
The relevant exchange rates, provided by the National Bank of
Ukraine, used in translating the consolidated financial statements
of the Group into USD were:
Year-end 2013 exchange rate: USD 1 = UAH 7.9930 (2012:
7.9930)
Average 2013 exchange rate: USD 1 = UAH 7.9930 (2012:
7.9911)
As there were no significant fluctuations of the USD/Hryvnia
exchange rate during the year ended 31 December 2013, for practical
reasons, the average exchange rate for the year has been applied
for translation of the statement of profit or loss and other
comprehensive income.
(d) Changes in accounting policy
With effect from 1 January 2013, the Group has adopted
Amendments to IAS 1 Presentation of items of other comprehensive
income, IFRS 7 Financial Instruments: Disclosures - Offsetting
Financial Assets and Financial Liabilities, IFRS 13 Fair Value
Measurement and IFRS 10 Consolidated Financial Statements.
Amendments to IAS 1 Presentation of items of other comprehensive
income requires an entity to present separately items of other
comprehensive income that could be reclassified in the future to
profit or loss from those items that will never be reclassified to
profit or loss. In addition, according to the Amendment, the title
of statement of comprehensive income was changed to statement of
profit or loss and other comprehensive income. Application of
Amendments to IAS 1 did not have significant impact on these
consolidated financial statements.
Amendments to IFRS 7 Financial Instruments: Disclosures -
Offsetting Financial Assets and Financial Liabilities contain new
disclosure requirements for financial assets and liabilities that
are offset in the statement of financial position or subject to
master netting arrangements or similar agreements. Application of
amendments to IFRS 7 did not have significant impact on these
consolidated financial statements.
IFRS 13 Fair Value Measurement replaces the fair value
measurement guidance contained in individual IFRSs with a single
source of fair value measurement guidance. It provides a revised
definition of fair value, establishes a framework for measuring
fair value and sets out disclosure requirements for fair value
measurements. IFRS 13 does not introduce new requirements to
measure assets or liabilities at fair value, nor does it eliminate
the practicability exceptions to fair value measurement that
currently exist in certain standards. Application of IFRS 13
resulted in extended disclosures in respect of fair value of
investment property made in these consolidated financial statements
(refer to note 5 (b)).
IFRS 10 Consolidated Financial Statementsintroduces a single
control model that applies to all entities including special
purpose entities. IFRS 10 supersedes a part of previously effective
IAS 27 Consolidated and Separate Financial Statements and SIC-12
Consolidation - Special Purpose Entities. The new standard changes
the definition of control such that an investor controls an
investee when:
- it has power over the investee;
- it is exposed, or has rights, to variable returns from its
involvement with the investee, and
- it has the ability to affect those returns through its power
over the investee (i.e. there is a link between power and
returns).
Application of this standard had no impact on consolidation of
the Group's investees.
(e) Going concern
The Group incurred negative cash flows from operating activities
amounting to USD1,539 thousand in 2013 and as at 31 December 2013,
the Group's current liabilities exceed current assets by USD143
thousand. During the year ended 31 December 2013 the Group was
actively involved in construction of trade centers in Kyiv and
Simferopol, which required significant financing and resulted in
deteriorated liquidity position. Also, management exercises
significant judgment in presentation of loans receivable amounting
to USD 46,552 thousand within current assets (see note 7). This
amount includes the loan receivable from a related party of USD
38,579 thousand with a contractual maturity of 31 December 2014 and
the loan receivable from a third party of USD 7,973 thousand with a
contractual maturity of 31 December 2013.
At the same time, the Group has generated a net profit of USD
3,197 thousand for the year ended 31 December 2013 and as at that
date has positive equity of USD 231,521 thousand.
Management is undertaking the following measures in order to
ensure the Group's continued operation on a going concern
basis:
-- During the year ended 31 December 2013, the Group finalised
construction of the second phase of South Gallery trade centre
located in Simferopol, and on 27 February 2014 the second phase of
this trade centre started its operations. In accordance with the
budget for 2014, revenue to be generated by this trade centre is
planned at the level of USD 2,800 thousand. Management believes
that operations of the second phase of South Gallery will
contribute to positive operating cash-flows of the Group in
2014.
-- As at 31 December 2013, the undrawn credit facilities from
PJSC "State Savings Bank of Ukraine" (Oshchadbank) amount to USD
20,000 thousand, which will be used to finance ongoing construction
of the trade centre in Kyiv. The Group plans to finalise the
construction of this trade centre in the third quarter of 2014 and
to generate rental income from operations of this trade centre of
USD 3,566 thousand in 2014.
Management believes that the measures that it undertakes, as
described above, will allow the Group to operate on a going concern
basis in the foreseeable future. Therefore, management believes
that the going concern basis for preparing these consolidated
financial statements is appropriate and there is no significant
uncertainty regarding the Group's ability to continue as a going
concern.
These consolidated financial statements are prepared on a going
concern basis, which contemplates the realisation of assets and the
settlement of liabilities in the normal course of business.
3 Significant accounting policies
The accounting policies are applied consistently to all periods
presented in these consolidated financial statements, and have been
applied consistently by Group entities, except for the changes
described in note 2 (d).
4 Acquisition of subsidiaries
On 12 September 2013 the Group acquired Twible Holdings Limited
and its subsidiary LLC Comfort Market Luks, Gelida Holding Limited
and its subsidiary LLC Mezokred Holding, Sapete Holdings Limited
and its subsidiary LLC Vektor Capital, Wayfield Limited and its
subsidiary LLC Budkhol from entities under the common control of
the Company's main ultimate beneficial owner. The acquisition of
these subsidiaries was accounted for as an acquisition of assets
and liabilities as they did not meet the definition of a business
according to IFRS 3 Business Combinations and the Group has
transferred 28,350,214 ordinary shares issued for the purposes of
IPO in exchange for these assets and liabilities. In addition, the
Group has agreed to pay deferred consideration related to
acquisition of the shares of Wayfield Limited and its subsidiary
LLC Budkhol via cash payment of USD 20,000 thousands in two
tranches. The first tranche amounting to USD 10,000 thousand is to
be paid before 30 April 2014, while the payment of the second
tranche may be deferred to not later than 30 April 2015, at the
sole discretion of the Board of Directors of the Company. The Group
management expects that it will exercise its right to defer the
settlement of the second tranche until 30 April 2015; therefore
deferred consideration amounting to USD 10,000 thousand is
presented within non-current liabilities. The Group is liable to
pay quarterly interest on any deferred consideration outstanding at
the rate of 9.75% per annum.
The fair value of the shares transferred in the above
transaction was determined by the reference to the market price of
the Company's ordinary shares of USD 2.33 per share. This price was
determined based on the price of shares settled by a third party in
cash on the date the Company was admitted for trading. An excess of
the fair value of the acquired assets and liabilities over the fair
value of shares transferred and deferred consideration payable was
recognised as contribution from the shareholder within share
premium. The cost of the acquisition was allocated to the assets
and liabilities acquired based on their relative fair values as
follows:
(in thousands of USD)
Investment property 86,859
Long-term VAT recoverable 2,579
Property and equipment 8
Trade and other receivables 15
Loans receivable 1,209
Prepayments made 3,752
Cash and cash equivalents 4,233
Assets classified as held for sale 5,833
Finance lease liability (2,155)
Other long-term liabilities (253)
Short-term borrowings (2)
Trade and other payables (206)
Tax payables (25)
Advances received (9,835)
Liabilities classified as held for sale (496)
Net identifiable assets and liabilities 91,516
Deferred consideration (see note 16) 20,000
Fair value of the shares transferred (see note
11) 66,056
Fair value of consideration transferred 86,056
Contribution from shareholders 5,460
The share purchase agreements stipulate that certain loans
payable by the acquired subsidiaries to a third party and entities
under common control are to be re-assigned to Arricano for a
nominal amount of EUR 1 each. Accordingly, as at the date of
acquisition the relative fair value of these loans is considered to
be nil despite that formal legal procedures for loan re-assignment
were substantially completed in the fourth quarter of 2013.
As at 12 September 2013, included in investment property are
priority land lease rights for three land plots located in Odesa
amounting to USD 10,900 thousand in total. These priority land
lease rights were recognised since LLC Vektor Capital, being the
owner of non-residential premises located on these land plots, had
priority right to conclude land lease agreements with Odesa City
Council. On 17 December 2013 this land lease agreement was approved
to be concluded with formal sign-off finalised on 20 March 2014
(refer to note 14).
5 Investment property
(a) Movements in investment property
Movements in investment properties for the year ended 31
December are as follows:
Prepayment for
Land held on Land held on investment Property under
freehold leasehold Buildings property construction Total
(in thousands of
USD)
At 1 January 2012 10,100 7,684 64,467 19,506 1,221 102,978
Additions 22 1,686 9,985 6,564 13,408 31,665
Transfers* - - 35,245 (26,067) (9,178) -
Disposals (118) - (147) - - (265)
Fair value gains
(losses) on
revaluation (800) 1,002 26,691 - - 26,893
Effect of movement
in exchange rates (4) (3) (43) (3) (2) (55)
At 31 December
2012/ 1 January
2013 9,200 10,369 136,198 - 5,449 161,216
Additions - 5,144 199 11,672 20,958 37,973
Additions through
assets
acquisition - 62,256 - 1,244 23,359 86,859
Transfers** - - 23,453 (5,412) (18,041) -
Fair value gains
(losses) on
revaluation (200) (300) 2,251 - - 1,751
At 31 December
2013 9,000 77,469 162,101 7,504 31,725 287,799
* In August 2012, the trade centre "RAYON" with total gross
leasable area (GLA) over 24,000 square meters started its
operations in Kyiv and associated ownership rights were obtained by
the Group.
** As at 31 December 2013 the Group had not obtained the title
documents for the second phase of South Gallery trade centre with a
total GLA of nearly 20,000 square meters and a carrying value of
USD 22,866 thousand (refer to note 1(b) and 20 (c)). On 27 February
2014 the second phase of this trade centre started its operations.
Management expects that associated title documents will be obtained
subject to completion of formal legal procedures.
During the year ended 31 December 2013, capitalised borrowing
costs related to the construction of the new trade centres amounted
to USD 795 thousands (2012: nil), with a capitalisation rate of 11%
(2012: nil).
As at 31 December 2013, in connection with loans and borrowings,
the Group pledged as security investment property with a carrying
value of USD 193,111 thousand (31 December 2012: USD 84,500
thousand) (see note 18(a)).
(b) Determination of fair value
The fair value measurement, developed for determination of fair
value of the Group's investment property, is categorised within
Level 3 category due to significance of unobservable inputs to the
entire measurement. To assist with the estimation of the fair value
of the Group's investment property as at 31 December 2013, which is
represented by the trade centres, management engaged registered
independent appraiser Expandia LLC, part of the CBRE Affiliate
Network, having a recognised professional qualification and recent
experience in the location and categories of the projects being
valued.
The fair values are based on estimated rental value of property.
A market yield is applied to the estimated rental value to arrive
at the gross property valuation. When actual rents differ
materially from the estimated rental value, adjustments are made to
reflect actual rents. The valuation is prepared in accordance with
the practice standards contained in the Appraisal and Valuation
Standards published by the Royal Institution of Chartered Surveyors
("RICS") or in accordance with International Valuation Standards
published by the International Valuation Standards Council.
Valuations reflect, when appropriate, the type of tenants
actually in occupation or responsible for meeting lease commitments
or likely to be in occupation after letting vacant accommodation,
the allocation of maintenance and insurance responsibilities
between the Company and the lessee, and the remaining economic life
of the property. When rent reviews or lease renewals are pending
with anticipated reversionary increases, it is assumed that all
notices, and when appropriate counter-notices, have been served
validly and within the appropriate time.
Land parcels are valued based on market prices for similar
properties.
As at 31 December 2013, the estimation of fair value is made
using a net present value calculation based on certain assumptions,
the most important of which are as follows:
-- monthly rental rates which were based on contractual and
market rental rates ranging from USD 3.00 to USD 48.70 per sq.m.,
occupancy rates ranging from 95.00% to 99.00% and discount rates
ranging from 13.50% to 17.20% p.a, which represent key unobservable
inputs for determination of fair value;
-- all relevant licenses and permits, to the extent not yet
received, will be obtained, in accordance with the timetables as
set out in the investment project plans.
As at 31 December 2012, the estimation of fair value is made
using a net present value calculation based on certain assumptions,
the most important of which are as follows:
-- monthly rental rates which were based on contractual and
market rental rates ranging from USD 3.00 to USD 45.60 per sq.m.,
occupancy rates ranging from 80.00% to 99.90%, and discount rates
ranging from 14.00% to 16.00% p.a., which represent key
unobservable inputs for determination of fair value;
-- all relevant licenses and permits, to the extent not yet
received, will be obtained, in accordance with the timetables as
set out in the investment project plans.
The reconciliation from the opening balances to the closing
balances for Level 3 fair value measurements is presented in note
5(a).
Sensitivity at the date of valuation
The valuation model used to assess the fair value of investment
property as at 31 December 2013 is particularly sensitive to
unobservable inputs in the following areas:
-- If rental rates are 1% less than those used in valuation
models, the fair value of investment properties would be USD 1,756
thousand (2012: USD 1,457 thousand) lower. If rental rates are 1%
higher, then the fair value of investment properties would be USD
1,756 thousand (2012: USD 1,457 thousand) higher. If the discount
rate applied is 1% higher than that used in the valuation models,
the fair value of investment properties would be USD 11,747
thousand (2012: USD 9,590 thousand) lower. If the discount rate is
1% less, then the fair value of investment properties would be USD
13,563 thousand (2012: USD 11,046 thousand) higher.
-- If the occupancy rates are 1% higher than those used in the
valuation models, or are assumed to be 100% for the trade centers
in Zaporizhzhya and Kyiv, the fair value of investment properties
would be USD 1,813 thousand higher (2012: if the occupancy rates
are 1% higher than those used in the valuation models, or are
assumed to be 100% for the trade centers in Zaporizhzhya and
Simferopol, the fair value of investment properties would be USD
1,778 thousand higher). If the occupancy rates are 1% less, then
the fair value of investment properties would be USD 3,040 thousand
(2012: USD 2,233 thousand) lower.
6 Available-for-sale financial assets
As at 31 December 2013 and 2012, available-for-sale financial
assets are represented by the investment in Assofit Holdings
Limited, in which the Group holds 49.97% of nominal voting rights
without retaining significant influence.
Assofit Holdings Limited (Assofit) is not a publicly listed
entity and, consequently, does not have published price quotations
of its shares. Also, management believes that the range and
variability of fair value estimates for the investment in Assofit
is significant. Thus, management believes that the fair value of
the equity investment in Assofit cannot be measured reliably,
therefore this equity investment is measured as cost less
impairment.
As at 31 December 2013 and 2012, management assessed impairment
indicators for the investment in Assofit. As a result of this
analysis, management concluded that as at 31 December 2013 and 2012
there are no indicators of impairment of investment in Assofit
based on the following:
-- Historically, Assofit generated strong positive cash flows
and the major underlying asset of Assofit is Skymall shopping
centre that as at 31 December 2011 was measured at fair value, as
determined by an independent qualified appraiser using the income
approach. There were no decreases in rental rates for similar
properties since that date which could materially decrease the fair
value of the shopping centre. Also, many of the tenants have
long-term contracts where only upward revision of rental rates is
possible;
-- Assofit is operating under direction of a receiver appointed
by the court to protect the assets of Assofit. Therefore, potential
transfer of significant assets from the entity is controlled by the
Court appointed receiver;
-- As at 31 December 2013 and 2012, significant portion of
liabilities of Assofit are represented by loans payable by the
Ukrainian subsidiary of Assofit, Prizma Beta LLC, to Filgate Credit
Enterprises Limited. These loans together with accrued interest
were to be assigned from Filgate Credit Enterprises Limited to
Assofit for a nominal price of EUR 1 each. On 28 January 2014 the
Highest Economic Court of Ukraine upheld the rulings of the lower
instances courts and ruled to re-assign the abovementioned loans
payable amounting to USD 120,000 thousand to Assofit. The above
ruling of the Highest Court of Ukraine may be further appealed.
This transfer shall significantly increase net assets of Assofit
when and if transfer of such loans to the company, which is jointly
owned by the Company and Stockman Interhold S.A., is completed.
7 Loans receivable
Loans receivable as at 31 December are as follows:
2013 2012
(in thousands of USD)
Non-current assets
Long-term loans receivable due from third parties 1,340 -
Accrued interest receivable due from third parties 179 -
Long-term loans receivable due from related parties - 1,340
Accrued interest receivable due from related parties - 133
1,519 1,473
Current assets
Short-term loans receivable due from related parties 31,917 37,603
Accrued interest receivable due from related parties 8,579 6,163
Short-term loans receivable due from third parties 7,050 -
Accrued interest receivable due from third parties 923 -
48,469 43,766
As at 31 December 2013 and 2012, the long-term loans receivable,
including long-term accrued interest are due from the same party,
which was classified as a related party as at 31 December 2012 and
as a third party as at 31 December 2013 due to its disposal out of
control of the ultimate controlling party. As at 31 December 2013,
this long-term loan receivable amounting to USD 1,519 thousand,
including accrued interest of USD 179 thousand, has maturity date
on 31 December 2018, is unsecured and bears a 3.2% interest rate
that is fully capitalised and repaid together with the principal.
As at 31 December 2012, this loan amounted to USD 1,473 thousand,
including accrued interest of USD 133 thousand. Included in
short-term loans receivable as at 31 December 2013 are loans
amounting to USD 7,973 thousand, including accrued interest of USD
923 thousand, which are due from the abovementioned party, which
bear a 3.2% interest rate and are overdue. As at 31 December 2012,
these loans were classified as due from related party and amounted
to USD 7,747 thousand, including accrued interest of USD 697
thousand. The management of the Group believes that it will be able
to recover these loans receivable due to the existence of
sufficient assets of short-term nature at the borrower and,
accordingly, this loan receivable is not considered to be impaired.
Should actual collections prove to be less than management
estimates, the Group will be required to record additional
impairment expense in the next reporting period.
In July 2011 the Company granted a loan to Weather Empire
Limited with the purpose of buying 1,077 shares in the Company's
share capital from Retail Real Estate S.A. As at 31 December 2013,
the resulting loan receivable of USD 38,579 thousand, including
accrued interest of USD 8,579 thousand, is classified as short-term
with a maturity date on 31 December 2014, is unsecured and bears a
3% fixed interest rate that is fully capitalised and repaid
together with the principal. As at 31 December 2012, the
abovementioned loan amounted to USD 35,466 thousand, including
accrued interest of USD 5,466 thousand, bore an 11.85% fixed
interest rate and was presented as short-term since management
believed that the loan will be settled on 31 December 2013
according to its initial contractual maturity that has been
renegotiated in July 2013 together with interest rate. The Group
management exercises significant judgment in presentation of this
loan due within current assets.
In July 2013 the shares of Weather Empire Limited were
transferred to the Company's major shareholders pro-rata to their
ownership rights due to non-exercising of the conversion rights by
ELQ Investors II Ltd and later on or about 12 August 2013 were
transferred in full to Retail Real Estate S.A. (see note 11).
Subsequent to this transfer, settlement of the loan by Weather
Empire Limited depends on the intention and ability of the
Company's majority shareholder to repay this loan. Management
believes that the Company's majority shareholder will ensure
repayment of the loan, therefore the loan is considered to be
recoverable. Should actual collections prove to be less than
management estimates, the Group will be required to record
additional impairment expense in the next reporting period.
Included in short-term loans receivable as at 31 December 2013
is also a loan due from PrJSC Dniprovska Prystan, a subsidiary of
Assofit Holdings Limited, amounting to USD 664 thousand (31
December 2012: USD 498 thousand) which is overdue. The Group has
significant influence over the operating activities of PrJSC
Dniprovska Prystan by being significant creditor of this company,
thus it is considered a related party to the Group. In 2012 the
court ruled a decision to initiate bankruptcy proceedings against
the mentioned related party and as at 31 December 2013 the decision
which would declare PrJSC Dniprovska Prystan insolvent has not yet
been made. The management of the Group believes that it will be
able to recover the loan due to the existence of sufficient assets
of short-term nature in PrJSC Dniprovska Prystan and, accordingly,
the loan is not considered to be impaired as at 31 December 2013
and 2012.
As at 31 December 2013, remaining short-term loans receivable
granted to related parties of USD 1,253 thousand are due within one
year, unsecured and interest-free (31 December 2012: USD 55
thousand).
8 Assets held for sale
As at 31 December 2013, assets classified as held for sale are
mainly represented by land plot with a carrying amount of USD 5,410
thousand. This land plot is intended to be transferred by one of
the Group's subsidiaries, Comfort Market Luks LLC, to a third party
by the end of 2014 in accordance with investment agreement
concluded between the parties. Based on this investment agreement,
Comfort Market Luks LLC acts as an intermediary in construction of
a hypermarket with total estimated area of 11,769 square meters and
parking lot with a total estimated area of 20,650 square
meters.
As at 31 December 2013, Comfort Market Luks LLC has received
advance payment from this third party amounting to USD 14,636
thousand under the investment agreement (refer to note 15).
Simultaneously, Comfort Market Luks LLC has concluded a contract of
mandate, according to which this third party will act as a
developer in construction of this hypermarket and parking lot. As
at 31 December 2013, prepayment made to this third party and other
assets under the contract of mandate amounted to USD 8,110 thousand
and prepayment made to other thirds parties and other assets under
the abovementioned investment agreement amounted to USD 784
thousand (refer to note 9).
9 Prepayments made and other assets
As at 31 December 2013, prepayments made are represented by
prepayments made and other assets under the investment agreement
and the associated contract of mandate for the amount of USD 8,894
thousand in total (refer to note 8) and other prepaid miscellaneous
expenses in the amount of USD 1,222 thousand (31 December 2012: USD
651 thousand).
10 Cash and cash equivalents
Cash and cash equivalents as at 31 December are as follows:
2013 2012
(in thousands of USD)
Bank balances 2,892 6,112
Call deposits 8,798 1,453
Cash in transit 150 -
11,840 7,565
As at 31 December 2012, in connection with its loans and
borrowings, the Group pledged bank balances of USD 17 thousand (see
note 18(a)).
Excluded from cash and cash equivalents as at 31 December 2013
are restricted deposits in the amounts of USD 663 thousand and USD
820 thousand with maturity in 2014 and 2020, respectively. These
deposits serve as pledge under three different loan facilities (see
note 18(a)).
As at 31 December 2013, cash and cash equivalents placed with
two bank institutions amounted to USD 11,476 thousand, or 97% of
the total balance of call deposits, cash and cash equivalents (31
December 2012: USD 7,497 thousand, or 99%). In accordance with
Moody's rating, these banks are rated as A2 as at 31 December 2013
and 2012.
11 Share capital
Share capital as at 31 December is as follows:
2013 2013 2013 2012 2012 2012
Number Number
of shares US dollars EUR of shares US dollars EUR
Issued and fully paid
At 1 January 85,026,309 53,856 42,513 6,462 8,667 6,462
Forfeiture of shares (20,406,309) (12,789) (10,203) - - -
Issue of shares 38,650,637 25,683 19,325 1,046,153 45,189 36,051
Division of shares - - - 83,973,694 - -
At 31 December 103,270,637 66,750 51,635 85,026,309 53,856 42,513
Authorised
At 1 January 85,026,320 53,856 42,513 6,462 8,667 6,462
Forfeiture of shares (20,406,309) (12,789) (10,203) - - -
Increase of share capital 41,379,989 27,497 20,690 1,046,164 45,189 36,051
Division of shares - - - 83,973,694 - -
At 31 December 106,000,000 68,564 53,000 85,026,320 53,856 42,513
Par value, EUR - - 0.0005 - - 0.0005
All shares rank equally with regard to the Company's residual
assets. The holders of ordinary shares are entitled to receive
dividends as declared from time to time, and are entitled to one
vote per share at meetings of the Company.
During the years ended 31 December 2013 and 2012 the Group did
not declare any dividends.
In August 2012, the shareholders of the Company decided to
increase the authorised share capital by 25,848 ordinary shares at
par value of EUR 1.00 each resulting to an authorized share capital
of Euro 32.310 divided into 32.310 shares of EUR 1.00 each.
Initial public offering of the Company's shares
In 2012, the Company was contemplating an initial public
offering of its shares (the "IPO") on the London AIM. The Company's
authorized share capital was increased to meet the minimum
requirements established for the share capital of public companies
under the laws of Cyprus. On 12 September 2012 the authorised share
capital of the Company was divided into 3,231,000 ordinary shares
of nominal value Euro 0.01 each and on the same day the authorised
share capital was further increased to Euro 42,513.16 divided into
4,251,316 ordinary shares of nominal value Euro 0.01 each by the
creation of 1,020,316 ordinary shares of Euro 0.01 each. On 19
September 2012 the authorised share capital was further divided
into 85,026,320 ordinary shares with nominal value of Euro 0.0005
each, of which 64,620,000 ordinary shares with nominal value of EUR
0.0005 each were allotted to existing shareholders.
Further, with a view to fulfill obligations of the Company under
share purchase agreements with new investors, concluded with a view
to facilitate the IPO process, on 26 September 2012 the Board of
Directors of the Company took decision on allotment of 20,406,309
shares to new investors for total consideration of USD 70,000
thousand. As at 31 December 2012, these shares were unpaid.
Subsequent to allotment of these shares, the Company did not
fulfill certain conditions stipulated in share purchase agreements.
In particular, it had not completed the listing on the London AIM
as well as it had not completed the purchase of certain properties
for development. Under those circumstances, share purchase
agreements require the Company and the investors to take all
necessary steps to unwind the purchase of the shares by the
investors. The Board of Directors of the Company made a call on
unpaid shares by sending the necessary notices to investors.
Further to the investors' non-compliance with the notices and
non-payment of the consideration for the issue of the shares, on 16
April 2013 the Board of Directors of the Company initiated the
procedure for the forfeiture of the shares in question. It was
expected that upon completion of the forfeiture of the shares
issued to the new investors, the Company's Board of Directors will
make its decision with regards to the disposal of the shares
forfeited as it deemed appropriate and in the interests of the
Company. Thus, as at 31 December 2012 the effect related to
forfeiture of the shares was recognised in other reserves within
equity. Subsequently, in accordance with the decision of the Board
of Directors of the Company, dated 25 May 2013, unpaid shares were
legally forfeited, which resulted in a decrease in share capital by
USD 13 thousand, share premium by USD 69,987 thousand and increase
in other reserves by USD 70,000 thousand.
Further, as part of initial public offering of the Company's
shares on the London AIM, on 20 July 2013 the Shareholders approved
the increase of the Company's authorised share capital to EUR
53,000 (or USD 68,564) divided into 106,000,000 ordinary shares of
nominal value EUR 0.0005 each.
On 12 September 2013 the Company was admitted for trading on
London AIM. As a result of IPO, the Company placed 38,650,637
ordinary shares and had an effect on equity of USD 93,759 thousand.
28,350,214 ordinary shares were transferred to entities under
common control as consideration for acquired subsidiaries at fair
value of USD 66,056 thousand (see note 4) and 10,300,423 ordinary
shares that were settled in cash at a price of USD 2.33 per share.
Cash proceeds from placement of 10,300,423 ordinary shares, net of
direct costs related to IPO process of USD 1,757 thousand, amounted
to USD 22,243 thousand. As at 31 December 2013, 2,729,363 ordinary
shares are not allotted and remain unpaid
Call option agreement with ELQ Investors II Ltd.
On 14 July 2011 the Company entered into a transaction pursuant
to which ELQ Investors II Ltd., a wholly-owned subsidiary of the
Goldman Sachs Group Inc, provided the Company with convertible
loans in the maximum amount of up to USD 40 million at an interest
rate of 11.5% per annum. Out of the maximum amount, USD 30 million
was provided to the Company. The funds were used by the Company to
provide a loan (with an initial interest at 11.85% p.a.) to Weather
Empire Limited (a special purpose vehicle incorporated in the
British Virgin Islands) in order to purchase 1,077 shares (or
16.67% of subscribed share capital) in the Company from Retail Real
Estate S.A.
As part of the transaction, ELQ Investors II Ltd. received one
Initial Arricano Share. The shares purchased by Weather Empire
Limited were held under escrow by a Cypriot escrow agent, Themis
Professional Services Limited. In accordance with a call option
agreement, from 14 July 2011 ELQ Investors II Ltd. obtained the
right to receive the entire issued capital of Weather Empire
Limited, which in turn held the 1,077 ordinary shares of the
Company, for USD 1. However, the conversion right expired in July
2013 and accordingly the loan due to ELQ Investors II Ltd became
repayable. As at 31 December 2012, the loan payable to ELQ
Investors II Ltd. was secured by the shares of O'Key Group held by
a related party.
In July 2013, the Company entered into settlement and release
deed, in accordance with which related parties of the Group and UBS
AG agreed to settle the Company's indebtedness due to ELQ Investors
II Ltd. Simultaneously, the Company concluded two loan agreements
with these related parties amounting to USD 36,974 thousand in
total. Loan amounting to USD 8,475 thousand was repaid on 20
September 2013. Loan amounting to USD 28,500 thousand is payable on
demand by 17 December 2014 at the latest. Also, the Company issued
the irrevocable guarantee to UBS AG securing the repayment of the
loan obtained by the related party for the amount of USD 28,800
thousand and the interest accrued thereon.
12 Earnings per share
The calculation of basic earnings per share as at 31 December
2013 was based on the profit for the year ended 31 December 2013
attributable to ordinary shareholders of USD 3,197 thousand (2012:
USD 19,823 thousand), and a weighted average number of ordinary
shares outstanding as at 31 December 2013 of 84,262,942 (31
December 2012: 36,354,603). As described in note 11, in accordance
with the decision of the Board of Directors in September 2012,
authorised share capital of the Company's share capital was split
into 85,026,320 ordinary shares with nominal value of Euro 0.0005
each and. Accordingly, this change in the number of shares was
adjusted retrospectively (for the purpose of calculation of
earnings per share) for all periods presented in these consolidated
financial statements.The Group has no potential dilutive ordinary
shares.
13 Loans and borrowings
This note provides information about the contractual terms of
loans.
2013 2012
(in thousands of USD)
Non-current
Secured bank loans 62,391 33,008
62,391 33,008
Current
Secured bank loans (current portion of long-term
bank loans) 10,277 8,138
Unsecured loans from related parties 30,309 565
Unsecured loans from third parties 37 34,621
40,623 43,324
103,014 76,332
Terms and debt repayment schedule
As at 31 December 2013, the terms and debt repayment schedule of
loans and borrowings are as follows:
Currency Nominal interest rate Contractual year of maturity Carrying value
(in thousands of USD)
Secured bank loans
OJSC "Bank "St.Petersburg" USD 10.50% 2020 24,849
EBRD USD 3M LIBOR + 4.5% 2018 23,441
Raiffeisen Bank Aval USD 10.75% 2020 14,287
Oshchadbank USD 11.50% 2020 10,091
72,668
Unsecured loans from related parties
International Baltic Investments USD 9.55% 2014 29,808
Loans from other related parties UAH/ USD 0.00% 2014 501
30,309
Unsecured loans from third parties
Other USD 3.20% 2013 37
37
103,014
Nominal Contractual
interest year of Carrying
Currency rate maturity value
(in thousands of USD)
Secured bank loans
Ukrsibbank USD 11.90% 2014 7,632
3M LIBOR
EBRD USD + 4.5% 2018 33,514
41,146
Unsecured loans from third parties
ELQ Investors II Limited USD 11.50% 2013 34,621
34,621
Unsecured loans from related
parties
UAH/ 0.00% -
Loans from other related parties USD 3.20% 2012-2014 565
565
76,332
As at 31 December 2012, the terms and debt repayment schedule of
loans and borrowings are as follows:
As at 31 December LIBOR for USD is as follows:
2013 2012
LIBOR USD 3M 0.24% 0.31%
For a description of assets pledged by the Group in connection
with loans and borrowings refer to note 18(a).
OJSC "Bank "St. Petersburg"
In April 2013, the Group concluded two loan agreements with OJSC
"Bank "St. Petersburg" to settle the debts due to constructors in
respect of the trade centre "RayON" located in Kyiv and to finance
the construction of the trade centre "South Gallery" located in
Simferopol for the amounts of USD 14,000 thousand and USD 11,000
thousand, respectively.
PJSC Raiffeisen Bank Aval
In June 2013, the Group concluded loan agreement with PJSC
Raiffeisen Bank Aval for irrevocable credit line with a limit of
USD 15,000 thousand to refinance existing borrowings. Credit line
bears 10.75% interest rate p.a. and matures in July 2020. The loan
was provided to LLC Prizma Alfa, entity owning trade centre "City
Mall".
Oshchadbank
In October 2013, the Group concluded loan agreement with PJSC
"State Savings Bank of Ukraine" (Oshchadbank) for irrevocable
credit line with a limit of USD 30,000 thousand to finance
construction of the trade centre "Prospekt" that is developed by
the Group's subsidiary LLC Comfort Market Luks. Credit line bears
11.5% interest rate p.a. and matures in September 2020. As at 31
December 2013, the undrawn credit facilities from Oshchadbank
amount to USD 20,000 thousand.
Ukrsibbank
In July 2013, LLC Prizma Alfa, the company that operates "City
Mall' trade centre, repaid the outstanding balance of loans due to
Ukrsibbank of USD 6,144 thousand using the funds received from PJSC
Raiffeisen Bank Aval according to loan agreement concluded in June
2013.
EBRD
In July 2013, PrJSC UkrPanGroup, the company that operates "Sun
Gallery" trade centre, repaid principal amount of loan payable to
EBRD in the amount of USD 5,000 thousand.
Breach of loan covenants
In accordance with the terms of loan agreement with ELQ
Investors II Limited, the Group is required to comply with certain
covenants. As at 31 December 2012, the Group has not complied with
the following debt covenants:
-- the ratio of consolidated operating cash flows to net finance
charges should not be less than 2.25;
-- the ratio of total debt to EBITDA should not exceed 6.
The non-compliance with debt covenants was not remedied during
the year ended 31 December 2013. In July 2013, the outstanding loan
payable to ELQ Investors II Limited was fully repaid using the
funds received from related parties under the newly concluded loan
agreements (refer to note11).
14 Finance lease liability
Finance lease liabilities as at 31 December are payable as
follows:
Present Present
Future value Future value
minimum of minimum minimum of minimum
lease lease lease lease
payments Interest payments payments Interest payments
2013 2013 2013 2012 2012 2012
(in thousands of USD)
Less than six months 629 600 29 239 238 1
Between six and twelve
months 815 755 60 239 238 1
Between one and two
years 1,146 1,143 3 478 477 1
Between two and five
years 4,245 4,223 22 1,430 1,428 2
More than five years 68,916 57,693 11,223 20,033 16,784 3,249
75,751 64,414 11,337 22,419 19,165 3,254
The imputed finance costs on the liability are based on the
Group's incremental borrowing rate ranging from 13.0% to 17.2%
(2012: from 15.3% to 16.0%).
On 17 December 2013, Odesa City Council approved principal terms
of land lease agreements to be concluded with one of the Group's
subsidiaries, LLC Vektor Capital (refer to note 4) and approved
land allocation project and detailed zoning plan, in accordance
with which the Group plans to develop the trade centre on land
plots concerned. As a result, the Group assumed that the inception
and commencement dates of lease occurred and recognised acquisition
of the investment property through the finance lease for the amount
of USD 5,144 thousand. On 20 March 2014 this land lease agreement
was formally signed.
Future minimum lease payments as at 31 December 2013 and 2012
are based on management's assessment that is based on actual lease
payments effective as at 31 December 2013 and 2012, respectively.
The future lease paymentsare subject to review and approval by the
municipal authorities and may differ from management's
assessment.
The contractual maturity of land lease agreements is ranging
from 2016 to 2038. The Group intends to prolong these lease
agreements for the period of usage of the investment property being
constructed on the leased land. Consequently, the minimum lease
payments are calculated for a period of 50 years.
15 Advances received
Advances from customers as at 31 December are as follows:
2013 2012
(in thousands of USD)
Non-current
Advances from third parties 2,900 3,534
2,900 3,534
Current
Advances received under investment agreement
(see note 8) 14,636 -
Advances from third parties 5,906 4,208
Advances from related parties 86 86
20,628 4,294
23,528 7,828
In September 2009 the Group received a prepayment from an anchor
tenant for the period of ten years. As at 31 December 2013, the
non-current portion of the prepayment amounts to USD 2,900 thousand
and the current portion amounts to USD 615 thousand (as at 31
December 2012: USD 3,534 thousand and USD 615 thousand,
respectively). Remaining advances from third parties are mainly
represented by prepayments from tenants for two months of rental
payments.
16 Other liabilities
As at 31 December 2013, other liabilities are represented by
deferred consideration of USD 20,151 thousand, including accrued
interest of USD 151 thousand, that is payable in respect of
acquisition of Wayfield Limited and its subsidiary LLC Budkhol (see
note 4) and other long-term liabilities amounting to USD 222
thousand. Deferred consideration is presented in accordance with
its contractual maturity.
17 Revenue
Revenue for the years ended 31 December is as follows:
2013 2012
(in thousands of USD)
Rental income from investment properties 24,937 15,981
Other sales revenue 362 440
25,299 16,421
For the year ended 31 December 2013, 21% of the Group's rental
income was earned from two tenants (11% and 10%, respectively)
(2012: 27%, 16% and 11%, respectively).
2013 2012
(in thousands of USD)
Advertising 807 663
Repair, maintenance and building services 442 234
Security services 427 292
Communal public services 398 178
Land rent and land taxes 174 100
2,248 1,467
Direct operating expenses arising from investment property that
generated rental income during the year ended 31 December are as
follows:
No direct operating expenses arising from investment property
that did not generate rental income during 2013 and 2012
occurred.
18 Commitments and contingencies
(a) Pledged assets
As at 31 December, in connection with loans and borrowings, the
Group pledged the following assets:
2013 2012
(in thousands of USD)
Investment property (note 5) 193,111 84,500
Restricted deposits (note 10) 1,483 -
Bank balances (note 10) - 17
194,594 84,517
As at 31 December 2013, the Group has also pledged the
following:
-- Future rights on income of Prizma Alfa LLC under all lease agreements;
-- Investments in the following subsidiaries: PrJSC Grandinvest, PrJSC UkrPanGroup and PrJSC Livoberezhzhiainvest;
-- Property rights under the Investment Agreement between the
PrJSC Grandinvest, PrJSC Livoberezhzhiainvest and LLC "Voyazh
Krym".
As at 31 December 2012, the Group has also pledged the
following:
-- Future rights on income of Prizma Alfa LLC under lease
agreements with Auchan Hypermarket Ukraine LLC;
-- Investments in the following subsidiaries: PrJSC Grandinvest and PrJSC UkrPanGroup.
In addition to the above, as at 31 December 2012 the loan
payable to ELQ Investors II is secured by the shares of O'Key Group
held by Bytenem Co Limited, an entity under common control with
Arricano.
(b) Construction commitments
The Group entered into contracts with a related party to
construct two trade centres in Kyiv for USD 25,751 thousand as at
31 December 2013 (2012: USD 16,966 thousand under the contract to
construct the second phase of South Gallery project in
Simferopol).
(c) Operating leases commitments
The Group as lessor
The Group entered into lease agreements on its investment
property portfolio that consists of four trade centres. These
non-cancellable lease agreements have remaining terms from one to
ten years. All agreements include a clause to enable upward
revision of the rent rate on an annual basis according to
prevailing market conditions.
The future minimum lease payments under non-cancellable leases
are as follows:
2013 2012
(in thousands of USD)
Less than one year 1,491 1,676
Between one and five years 1,470 2,056
2,961 3,732
(d) Litigation
In the ordinary course of business, the Group is subject to
legal actions and complaints.
As at 31 December 2013, the Group is involved in arbitration
dispute with Stockman Interhold S.A. (Stockman), being the majority
shareholder of Assofit, regarding invalidation of Call Option
Agreement. In accordance with this Call Option Agreement, Arricano
was granted the option to acquire the shareholding of Stockman
being equal to 50.03 per cent in the share capital of Assofit
during the period starting from 15 November 2010 up to 15 March
2011. In November 2010, the Company sought to exercise the option
granted by the Call Option Agreement, however the buy-out was
suspended by legal and arbitration proceedings that were initiated
by Stockman in relation to the validity of the termination of the
agreement relating to the call option under the Call Option
Agreement. The case was considered by The London Court of
International Arbitration (LCIA).
On 13 December 2011, the sole arbitrator rendered an award
declaring that Stockman had validly terminated the Call Option
Agreement. The Company appealed the award before the High Court of
England and Wales and its appeal was partially successful. As a
result the court remitted the question of whether the Company has
validly exercised the call option granted under the Call Option
Agreement to be considered anew by the sole arbitrator. At the date
that these consolidated financial statements are authorised for
issuance the arbitration remains pending.
On 12 March 2012, Arricano filed the application to the District
Court of Larnaca to wind up its associate, Assofit Holdings
Limited, on grounds of oppression of minority. Within the frame of
this application, on 30 March 2012 Arricano has successfully
applied for the appointment of a receiver at the level of Assofit
Holdings Limited in order to protect its assets until consideration
of the winding up application is completed. On 9 January 2014,
based on an interim order of the District Court of Larnaca the
powers of the receiver to appoint or change the Board of Directors
of Assofit or management of the Ukrainian subsidiaries were
temporarily nullified without affecting the powers of the receiver
to protect Assofit's assets. The receiver contested this interim
order with the District Court of Larnaca. On 21 January 2014,
Arricano filed the certiorari application with the Supreme Court of
Cyprus to suspend this interim order based on the procedural
grounds. Both applications (of the receiver and of Arricano) remain
ongoing as at the date these consolidated financial statements are
authorized for issuance.
On 14 October 2013 Stockman, Assofit and the Ukrainian
subsidiary of Assofit initiated legal proceedings before the
District Court of Nicosia for the alleged violation of fiduciary
duties by Arricano, Hillar Teder and DUPD and recovery of the funds
lent based on the loan agreement between Assofit and Filgate. At
the date that these consolidated financial statements are
authorised for issuance these litigation proceedings remain
pending.
Current litigations with Assofit do not allow the Group to
exercise significant influence over the investee. Adverse
developments in these litigations may negatively influence the
recoverable amount of the investment in Assofit. Management
believes that pending litigations do not affect legal title to
49.97% of nominal voting and ownership rights in the investee.
On 7 March 2014, Arricano filed its Defence and Counterclaim
against Stockman, Assofit and PB, on the basis of a series of
violations of the fiduciary duties by Stockman and its
nominees.
Management is unaware of any other significant actual, pending
or threatened claims against the Group.
Current litigations with Assofit do not allow the Group to
exercise significant influence over the investee. Adverse
developments in these litigations may negatively influence the
recoverable amount of the investment in Assofit. Management
believes that pending litigations do not affect legal title to
49.97% of nominal voting and ownership rights in the investee.
Management is unaware of any other significant actual, pending
or threatened claims against the Group save as set out in Note
20(b).
(e) Guarantees
The Group considers that financial guarantee contracts entered
into by the Group to guarantee the indebtedness of related parties
are insurance arrangements, and accounts for them as such. In this
respect, the Group treats the guarantee contract as a contingent
liability until such time as it becomes probable that the Group
will be required to make a payment under the guarantee.
As at 31 December 2013, the Company issued the irrevocable
guarantee to UBS AG securing the repayment of the loan by a related
party for the amount of USD 28,800 thousand and the interest
accrued thereon and all losses incurred therewith. No provision for
the related party's obligation under this guarantee is recognised
in these consolidated financial statements since management
believes that as at 31 December 2013 it is not probable that there
will be an outflow of economic resources in relation to this
guarantee.
On 17 March 2014, the amount of the irrecoverable guarantee
provided to UBS AG was reduced to USD 15,300 thousand plus the
interest accrued thereon and losses incurred therewith.
(f) Taxation contingencies
The Group performs most of its operations in Ukraine and
therefore within the jurisdiction of the Ukrainian tax authorities.
The Ukrainian tax system can be characterized by numerous taxes and
frequently changing legislation which may be applied retroactively,
open to wide interpretation and in some cases are conflicting.
Instances of inconsistent opinions between local, regional, and
national tax authorities and between the Ministry of Finance and
other state authorities are not unusual. Tax declarations are
subject to review and investigation by a number of authorities that
are enacted by law to impose severe fines, penalties and interest
charges. A tax year remains open for review by the tax authorities
during the three subsequent calendar years, however under certain
circumstances a tax year may remain open longer.
These facts create tax risks substantially more significant than
typically found in countries with more developed systems.
Management believes that it has adequately provided for tax
liabilities based on its interpretation of tax legislation and
official pronouncements. However, the interpretations of the
relevant authorities could differ and the effect on these
consolidated financial statements, if the authorities were
successful in enforcing their interpretations, could be
significant. No provisions for potential tax assessments have been
made in these consolidated financial statements.
19 Related party transactions
(a) Control relationships
The Group's significant shareholders are Retail Real Estate
S.A., Vunderbuilt S.A., Dragon - Ukrainian Properties and
Development plc, Weather Empire Limited, Sigma Real Estate Limited,
Rauno Teder and Jüri Põld. The Group's ultimate controlling party
is Estonian individual Hillar Teder.
(b) Transactions with management and close family members
Key management remuneration
Key management compensation included in the statement of profit
or loss and other comprehensive income for the year ended 31
December 2013 is represented by salary and bonuses of USD 675
thousand (2012: USD 351 thousand).
(c)
(d) Transactions and balances with entities under common control
Outstanding balances with entities under common control as at 31
December are as follows:
2013 2012
(in thousands of USD)
Prepayments for investment property 7,267 -
Long-term loans receivable - 1,473
Short-term loans receivable 40,496 43,766
Trade receivables 10,761 10,617
Other receivables 9,654 8,899
Provision for impairment of trade and other
receivables from related parties (17,282) (16,689)
50,896 48,066
Other long-term liabilities 10,000 -
Short-term loans and borrowings 30,309 565
Trade and other payables 294 543
Payables for construction works 10,545 15,744
Advances received 86 86
Other liabilities 10,151 -
61,385 16,938
None of the balances are secured. The terms and conditions of
significant transactions and balances with entities under common
control are described in notes 7, 13, 15 and 16.
Expenses incurred and income earned from transactions with
entities under common control for the years ended 31 December are
as follows:
2013 2012
(in thousands of USD)
Interest expense (1,960) (278)
Interest income 3,112 4,216
Other operating expenses (86) -
During the year ended 31 December 2013, construction works
performed by the entities under common control amounted to USD
20,872 thousand (2012: USD 5,517 thousand).
Prices for related party transactions are determined on an
ongoing basis. The terms of related party transactions may differ
from the market terms.
(e) Guarantees issued by the related parties
The Group's related parties issued guarantees to EBRD securing
loans payable by Ukrainian subsidiaries of Arricano Real Estate PLC
(PrJSC Grandinvest, PrJSC UkrPanGroup and PrJSC
Livoberezhzhiainvest) to EBRD and OJSC "Bank "St.Petersburg". The
guarantees cover the total amount of outstanding liabilities in
relation to EBRD loans as at 31 December 2013 of USD 23,441
thousand (2012: USD 33,514 thousand) and in relationship to OJSC
"Bank "St.Petersburg" as at 31 December 2013 of USD 24,849 thousand
(2012: nil).
20 Events subsequent to the reporting date
(a) Change in terms of loans and borrowings
On 31 January 2014, the Group signed amended loan agreement with
EBRD, stipulating an increase in interest rate to 3m LIBOR+6.5%
with an effect from 17 March 2014 and an increase in the amount of
loan principal payable in 2014 by USD 1,711 thousand.
During 2014 and before the date that these consolidated
financial statements are authorised for issuance, the Group repaid
loans in the amounts of USD 3,322 thousand due to EBRD and USD
3,435 thousand due to a related party. In addition, portion of the
abovementioned loan from the related party in the amount of USD
9,765 thousand has been refinanced. On 17 March 2014, the Group
signed amended loan agreement with a related party, stipulating an
increase in the interest rate to 10.55%.
(b) Litigation of PrJSC Dniprovska Prystan against PrJSC Livoberezhzhyainvest
On 5 March 2014, PrJSC Dniprovska Prystan acting through the
asset manager(a bankruptcy receiver) as appointed by the court
within its bankruptcy proceedings filed a claim against PrJSC
Livoberezhzhiainvest to nullify the ownership right to the trade
centre RayON and to return the trade centre to PrJSC Dniprovska
Prystan. The Group management believes that claims of PrJSC
Dnirpovska Prystan are not substantiated and the Group will be
successful in defending legitimacy of the abovementioned ownership
right in the court. As at 31 December 2013, the carrying value of
the trade centre RayON amounts to USD 67,000 thousand.
(c) Changes in the Ukrainian business environment
Subsequent to the reporting date, the regional parliament in the
Autonomous Republic of Crimea declared its independence from
Ukraine and signed an agreement with the Russian Federation
outlining the Republic of Crimea's intention to join the Russian
Federation. The Ukrainian state authorities and authorities of
other leading countries do not recognize these declarations and
agreements as they believe they are in violation of the Ukrainian
constitution and international law.
However, as a result of these events and the Crimean parliament
no longer recognising the authority of the Ukrainian national
government, the Ukrainian authorities are not currently able to
enforce Ukrainian laws on the territory of the Autonomous Republic
of Crimea.
As at 31 December 2013, the carrying value of the Group's
investment property located in Simferopol, the administrative
centre of the Autonomous Republic of Crimea, amounted to USD 40,000
thousand. Included in this investment property is the second phase
of the South Gallery trade centre with a carrying value as at 31
December 2013 of USD 22,866 thousand, the title document for which
is not yet obtained by the Group as at the date that these
consolidated financial statements are authorised for issuance. The
ultimate effect of these developments in the Autonomous Republic of
Crimea on the Group's ability to continue operations in this
region, to realise its related assets and to maintain and secure
its ownership rights cannot yet be determined.
(d) Changes in the Group structure
On 4 March 2014 the Group approved to establish LLC
Budholinvest, a new subsidiary with incorporation in Ukraine. This
subsidiary will be acting as the financing or investment company
for one of the investment projects in Kyiv.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SSFFUAFLSEFL
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