The difference between the total expected income tax expense for
the six months ended 30 June computed by applying the Ukrainian
statutory income tax rate to profit (loss) before tax and the
reported tax expense is as follows:
2014 % 2013 %
(unaudited) (unaudited)
(in thousands of USD)
Profit (loss) before tax 15,209 100% (3,357) 100%
Income tax expense (benefit)
at statutory rate 2,738 18% (638) 19%
Effect of lower tax rates on
taxable income in foreign jurisdictions (929) (6%) (552) 16%
Non-deductible expenses 657 4% 1,372 (41%)
Tax exempt income - - (69) 2%
Change in unrecognised deferred
tax assets 111 1% (291) 9%
Effect of change in the estimated
timing of reversal of temporary
differences 773 5% 52 (2)%
Foreign currency translation
difference 2,836 19% - -
Effective income tax expense 6,186 41% 157 (5)%
In accordance with existing Ukrainian legislation tax losses can
be carried forward and utilised indefinitely. As at 30 June 2014,
management has not recognised deferred tax assets amounting to USD
8,917 thousand (31 December 2013: nil) in respect of tax losses
carried forward attributable to tax deductible expenses recognised
in other comprehensive income and deferred tax assets amounting to
USD 111 thousand (31 December 2013: USD 340 thousand) in respect of
tax losses carried forward attributable to tax deductible expenses
recognised in profit or loss because of significant uncertainties
regarding their realisation.
During the six months ended 30 June 2014, deferred tax benefit
for the amount of USD 7,388 thousand was recognised in other
comprehensive income (six months ended 30 June 2013: nil).
21 Financial risk management
(a) Overview
The Group has exposure to the following risks from its use of
financial instruments:
-- credit risk
-- liquidity risk
-- market risk
This note presents information about the Group's exposure to
each of the above risks, the Group's objectives, policies and
processes for measuring and managing risk. Further quantitative
disclosures are included throughout these consolidated interim
condensed financial statements.
(b) Risk management framework
The management has overall responsibility for the establishment
and oversight of the risk management framework.
The Group's risk management policies are established to identify
and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits.
Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group's
activities.
(c) Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from loans and
receivables and available-for-sale financial assets.
(i) Trade and other receivables
The exposure to credit risk is influenced mainly by the
individual characteristics of each customer. However, management
also considers the demographics of the customer base, including the
default risk of the industry and country, in which customers
operate, as these factors may have an influence on credit risk,
particularly in the currently challenging economic circumstances.
There is no significant concentration of receivables from a single
customer. During the six months periods ended 30 June 2014 and
2013, 100% of revenue is attributable to sales transactions with
customers in Ukraine and the Autonomous Republic of Crimea.
Management has no formal credit policy in place for customers
other than regular tenants and the exposure to credit risk is
approved and monitored on an ongoing basis individually for all
other significant customers.
The Group does not require collateral in respect of trade and
other receivables.
The Group establishes an allowance for impairment that
represents its estimate of incurred losses in respect of trade and
other receivables and loans receivable. The main components of this
allowance are a specific loss component that relates to
individually significant exposures, and a collective loss component
established for groups of similar assets in respect of losses that
have been incurred but not yet identified. The collective loss
allowance is determined based on historical data of payment
statistics for similar financial assets.
(ii) Guarantees
The Group believes 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 an 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. On 17 March
2014, the amount of the irrecoverable guarantee provided to UBS AG
was reduced to USD 15,300 thousand plus interest accrued thereon
and other specified costs related to loan facility provided by UBS
AG. No provision for the related party's obligation under this
guarantee is recognised in these consolidated interim condensed
financial statements since management believes that as at 30 June
2014 and 31 December 2013 it is not probable that there will be an
outflow of economic resources in relation to this guarantee.
(iii) Exposure to credit risk
The carrying amount of financial assets represents the maximum
credit exposure.
In addition to the credit risk, the Group is exposed to the risk
of non-recoverability of VAT receivable and prepaid expenses
amounting in total to USD 11,509 thousand as at 30 June 2014
(unaudited) (31 December 2013: USD 16,716 thousand).
(iv) Impairment losses
The ageing of trade and other receivables is as follows:
30 June 30 June 31 December 31 December
2014 2014 2013 2013
Gross Impairment Gross Impairment
(unaudited) (unaudited)
(in thousands of USD)
Not past due 755 - 1,561 -
Past due 0 - 30 days 59 - 2,739 -
Past due 31 - 60 days 21 - 17 -
Past due 61 - 90 days 37 - 7 -
Past due 91 - 360 days 1,853 - 288 (288)
More than one year 14,795 (14,414) 17,282 (17,282)
17,520 (14,414) 21,894 (17,570)
The movement in allowance for impairment in respect of trade and
other receivables during the six months ended 30 June is as
follows:
2014 2013
(in thousands of USD)
Balance at 1 January (17,570) (16,740)
Impairment loss recognised (unaudited)
(note 19) (452) (230)
Bad debts write-off/recovery (unaudited) - 53
Foreign currency translation differences
(unaudited) 3,608 -
Balance at 30 June (unaudited) (14,414) (16,917)
(d) Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Group's approach to managing liquidity is to
ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or
risking damage to the Group's reputation.
The following are the contractual maturities of financial
liabilities, including interest payments as at 30 June 2014
(unaudited):
Contractual cash flows
----------------------------------------------------------------
More
Carrying 2 months 2 - 12 1 - 2 2 - 5 than
amount Total or less months years years 5 years
(in thousands
of USD)
Secured bank
loans 66,339 90,126 8,406 14,926 18,250 36,763 11,781
Unsecured loans
from third parties 38 38 38 - - - -
Unsecured loans
from related
parties 29,331 30,470 15,464 15,006 - - -
Finance lease
liability 9,400 67,485 230 1,039 942 3,918 61,356
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