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AFI Development PLC (AFRB)

  Print          Annual reports

Tuesday 21 November, 2017

AFI Development PLC

3rd Quarter Results

RNS Number : 0346X
AFI Development PLC
21 November 2017
 

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION

IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN

 

 

21 November 2017

 

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

 

RESULTS FOR THE NINE MONTHS TO 30 SEPTEMBER 2017

 

Sustained turnaround in financial performance,
residential development continues to plan

 

AFI Development, a leading real estate company focused on developing property in Russia, today announces its financial results for the nine months ended 30 September 2017.

9M 2017 financial highlights

·    Revenue for 9M 2017 increased by 25% year-on-year to US$142.7 million, including proceeds from the sale of trading properties:

-    Rental and hotel operating income increased by 39% year-on-year to US$85.5 million

-    Revenue generated from AFIMALL City increased by 23% year-on-year to US$59.2 million (9M 2016: US$48.2 million)

-    Sale of residential properties contributed US$57.0 million to total revenue, up 8% year-on-year

·    Gross profit increased by 15% year-on-year to US$44.2 million (9M 2016: US$38.6 million)   

·    Net profit for 9M 2017 amounted to US$0.6 million, compared to a loss of US$55.7 million in 9M 2016

·    Total gross value of portfolio of properties stood at US$1.50 billion at 30 September 2017 (a 1% increase compared to 30 June 2017) 

·    Cash, cash equivalents and marketable securities amounted to US$67.7 million as of 30 September 2017 (vs. US$25.5 million at 30 June 2017)

9M 2017 operational highlights

·    All four of the Company's major residential projects, namely Odinburg, AFI Residence Paveletskaya, Bolshaya Pochtovaya and Botanic Garden, have progressed to the active construction and sales stages.

·    Construction and pre-sales at two recently launched projects, Bolshaya Pochtovaya and Botanic Garden, are progressing to plan. As of 14 November 2017, 48 apartments (26% of Phase I) are pre-sold at Bolshaya Pochtovaya and 78 apartments (10% of Phase I) at Botanic Garden.   

·    At Odinburg, construction and marketing of Building 3 started during Q3 2017. All pre-sold apartments in Building 2 have been delivered to customers. As of 14 November 2017, there were 715 (99% of total) signed sale contracts for Building 1, 641 (91% of total) for Building 2, 45 (20% of total) for Building 6 and 29 (3% of total) for Building 3.

·    At AFI Residence Paveletskaya, construction works and pre-sale of apartments continue to plan; 325 (51% of Phases I and II) residential units were pre-sold as of 14 November 2017.

·   AFIMALL City continues to demonstrate NOI growth, reaching US$44.4 million in 9M 2017 vs US$37.8 million in 9M 2016.

Commenting on today's announcement, Lev Leviev, Executive Chairman of AFI Development, said:

"We are pleased to announce that the positive trends in our business established in the first half of this year were sustained in the third quarter. Improvements in revenue and gross profit were observed in the first nine months of the year, supported largely by AFIMALL City as well as rental and hotel operating income. Meanwhile, our residential sector projects are developing on schedule and as construction progresses, we expect residential sales to provide an increasing contribution to overall revenue generation for the Company."

9M 2017 Results Conference Call:

AFI Development will hold a conference call for analysts and investors to discuss its 9M 2017 financial results on Wednesday, 22 November 2017.

Details for the conference call are as follows:

 

Date:                               Wednesday, 22 November 2017       

 

Time:                               2pm GMT (5pm Moscow)


Dial-in Tel:                      International:            +44 (0)20 3003 2666

 UK toll free:                0808 109 0700

 US toll-free:                1 866 966 5335

 Russia toll-free:          8 10 8002 4902044

 

Password:                        AFI

 

Please dial in 5-10 minutes prior to the start time giving your name, company and stating that you are dialling into the AFI Development conference call quoting the reference AFI.

 

Prior to the conference call, the 9M 2017 Investor Presentation of AFI Development will be published on the Company website at http://www.afi-development.com/en/investor-relations/reports-presentations on 22 November 2017 by 11am GMT (2pm Moscow time).

 

- ends -

 

 

further information, please contact:

 

AFI Development +7 495 796 9988

Ilya Kutnov, Corporate Affairs/Investments Director (Responsible for arranging the release of this announcement)

 

Citigate Dewe Rogerson, London +44 20 7638 9571

David Westover

Sandra Novakov         

Isabelle Andrews

 

This announcement contains inside information.

 

About AFI Development

Established in 2001, AFI Development is one of the leading real estate development companies operating in Russia.

AFI Development is listed on the Main Market of the London Stock Exchange and aims to deliver shareholder value through a commitment to innovation and continuous project development, coupled with the highest standards of design, construction and quality of customer service.

AFI Development focuses on developing and redeveloping high quality commercial and residential real estate assets across Russia, with Moscow being its main market. The Company's existing portfolio comprises commercial projects focused on offices, shopping centres, hotels and mixed-use properties, and residential projects. AFI Development's strategy is to sell the residential properties it develops and to either lease the commercial properties or sell them for a favourable return.

AFI Development is a leading force in urban regeneration, breathing new life into city squares and neighbourhoods and transforming congested and underdeveloped areas into thriving new communities. The Company's long-term, large-scale regeneration and city infrastructure projects establish the necessary groundwork for the successful launch of commercial and residential properties, providing a strong base for the future.

Legal disclaimer

Some of the information in these materials may contain projections or other forward-looking statements regarding future events, the future financial performance of the Company, its intentions, beliefs or current expectations and those of its officers, directors and employees concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and business.

You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could," "may" or "might" or the negative of such terms or other similar expressions. These statements are only predictions and that actual events or results may differ materially. Unless otherwise required by applicable law, regulation or accounting standard, the Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Company, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia and market change in the industries the Company operates in, as well as many other risks specifically related to the Company and its operations. 

According to common market practice in Russia and to applicable Russian laws, preliminary sales of apartments during construction are done in the form of "contracts of participation in construction", which are executed between the developer and purchaser of an apartment. These contracts are registered with state authorities and enter into legal force after this state registration. The Company considers that signed contracts have high probability of registration and entering into legal force and reports "units pre-sold" as the number of contracts signed with the apartment purchasers. Once the construction of an apartment building is completed and the building is commissioned, the apartments are sold under sale-purchase agreements.

 

Executive Chairman's statement

Our financial and operational performance for the first nine months of the year has improved substantially compared to the same period a year ago, supported by a steady and more favourable macroenvironment.

9M 2017 gross profit was up 15% year-on-year to US$44.2 million, supported by a 25% increase in overall revenues as well as our commitment to drive efficiency and cost optimisation throughout our operations. Improvement in overall revenue was supported by a 39% year-on-year increase in rental and hotel operating income, as well as a 23% increase in AFIMALL City revenue.

In terms of macroeconomic indicators, the rouble remained relatively stable during the third quarter, and inflation figures and GDP predictions remain encouraging.

On the residential side, all four projects have now reached the construction and pre-sale stages. Continued development of these sites according to schedule should result in increased revenue contribution from the residential segment and improved overall performance; in particular, newly launched business-class Moscow based projects, Bolshaya Pochtovaya and Botanic Garden, are expected to drive enhanced profitability going forward.

Projects update

AFIMALL City

 

AFIMALL City's performance continues to improve; revenue grew 23% year-on-year (US$59.2 million for 9M 2017) and NOI increased 17% year-on-year (US$44.4 for 9M 2017). Occupancy at the end of 9M 2017 remained at 87%.

 

Recent new openings at AFIMALL City include a Tumi travel accessories shop (first in Russia), Antony Morato Italian fashion outlet and BiotechUSA sports nutrition and fitness goods unit.

 

Odinburg

 

At Odinburg, the third quarter saw completion of pre-sold apartment delivery for Building 2, as well as construction launch at Building 3. Construction at Building 6, which began in Q2, continues to plan. As of 14 November 2017, the number of signed sale contracts amounted to 715 (99% of total) in Building 1, 641 (91% of total) in Building 2, 45 (20% of total) in Building 6 and 29 (3% of total) in Building 3.

 

AFI Residence Paveletskaya (Paveletskaya II)

 

Construction work and marketing at AFI Residence Paveletskaya continue to plan. As of the publication date of this report, 325 residential unit pre-sale contracts were signed.

 

Bolshaya Pochtovaya

 

The main construction phase and pre-sale of apartments was launched in Q1 2017 at Bolshaya Pochtovaya. As of 14 November 2017, 48 apartments (26% of Phase I) were pre-sold to customers.

 

The Bolshaya Pochtovaya project is a business class residential development in the Central Administrative District of Moscow, which is planned to have 136.6 thousand sq.m of gross buildable area (84.9 sq.m of gross sellable area).

 

Botanic Garden


The main construction phase and pre-sale of apartments was launched in Q1 2017 at Botanic Garden. As of 14 November 2017, 78 (10% of Phase I) apartments have been presold to customers.

 

The Botanic Garden project is a business class residential development in the Northern Administrative District of Moscow. It is planned to have 200.6 thousand sq.m of gross buildable area and 116 thousand sq.m of gross sellable area.

 

 

 

 

 

 

Lev Leviev

Executive Chairman of the Board

 

 

 

 

 

 

AFI DEVELOPMENT PLC

 

 

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

For the period from 1 January 2017 to 30 September 2017

 

 

C O N T E N T S

 

 

Independent auditors' report on review of condensed consolidated interim financial information                                                                              

 

Condensed consolidated income statement

                                                                                                                               

Condensed consolidated statement of comprehensive income                                      

 

Condensed consolidated statement of changes in equity                                              

 

Condensed consolidated statement of financial position                                               

 

Condensed consolidated statement of cash flows                                                       

 

Notes to the condensed consolidated interim financial statements                                

 

 

 

Independent auditors' report on review of condensed consolidated interim financial information to the members of AFI DEVELOPMENT PLC

 

 

Introduction

We have reviewed the accompanying condensed consolidated statement of financial position of AFI Development PLC as at 30 September 2017, the condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the nine-month period then ended, and notes to the interim financial statements ('the condensed consolidated interim financial statements'). The Company's Board of Directors is responsible for the preparation and presentation of this condensed consolidated interim financial statements in accordance with IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on these condensed consolidated interim financial statements based on our review.

 

 

Scope of Review

We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity".  A review of interim financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements as at 30 September 2017 are not prepared, in all material respects, in accordance with IAS 34 "Interim Financial Reporting".

 

 

Emphasis of Matter

Without qualifying our conclusion, we draw attention to note 2(i) to the condensed consolidated interim financial statements which describes that the Group has recognized a net profit after tax of US$563 thousand for the nine-month period ended 30 September 2017, its cash and cash equivalents and marketable securities improved to US$67,294 thousand. However, its current liabilities increased to US$769,025 thousand due to the reclassification of the Ozerkovskaya III and AFIMALL City loans as their maturity is due in January and April 2018 respectively.  Unless renegotiated, the Group will be required to make a lump sum payment of the principal of the loans with a current balance of US$643,085 thousand. These conditions along with other matters as set forth in note 2(i), indicate the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.

 

Maria H. Zavrou, FCCA

Certified Public Accountant and Register Auditor

 

For and on behalf of

KPMG Limited

Certified Public Accountants and Registered Auditors

14 Esperidon Street

1087 Nicosia, Cyprus

20 November 2017

 

 

 

CONDENSED CONSOLIDATED INCOME STATEMENT

 

For the period from 1 January 2017 to 30 September 2017

 

 

 

 

For the

three months ended

For the

nine months ended

 

 

1/7/17-

1/7/16-

1/1/17-

1/1/16-

 

 

30/9/17

30/9/16

30/9/17

30/9/16

 

 

US$ '000

US$ '000

US$ '000

US$ '000

 

Note

 

 

 

 

 

 

 

 

 

 

Revenue

6

  36,623

  24,706

  142,692

 114,413

 

 

 

 

 

 

Other income

 

        92

       349

        634

     2,833

 

 

 

 

 

 

Operating expenses

8

(14,113)

(9,339)

(40,535)

(27,064)

Carrying value of trading properties sold

 

(6,859)

(2,732)

(54,162)

(48,298)

Administrative expenses

7

(1,213)

(1,908)

(4,335)

(5,319)

Other expenses

 

        50

      (357)

    (2,013)

       (964)

Total expenses

 

 (22,135)

 (14,336)

(101,045)

  (81,645)

 

 

 

 

 

 

Share of the after tax profit of joint ventures

 

             -

        735

      1,957

      3,034

 

 

 

 

 

 

Gross Profit

 

  14,580

  11,454

    44,238

    38,635

 

 

 

 

 

 

Gain on 100% acquisition of previously held interest in a joint venture

 

22

 

           -

 

            -

 

      7,532

 

              -

Profit on disposal of investment property

 

            -

    30

              -

       1,768

Decrease in fair value of properties

11,12

 (12,564)

 (10,541)

  (13,491)

(111,401)

 

 

 

 

 

 

Results from operating activities

 

    2,016

       943

   38,279

  (70,998)

 

 

 

 

 

 

Finance income

 

6,775

7,814

12,484

45,798

Finance costs

 

(13,210)

 (11,321)

  (37,980)

  (33,067)

Net finance (costs)/income

9

  (6,435)

   (3,507)

  (25,496)

   12,731

 

 

 

 

 

 

(Loss)/profit before tax

 

(4,419)

(2,564)

12,783

(58,267)

Tax (expense)/benefit

10

  (2,950)

       167

  (12,220)

     2,578

 

 

 

 

 

 

(Loss)/profit for the period

 

  (7,369)

   (2,397)

         563

 (55,689)

 

 

 

 

 

 

(Loss)/profit attributable to:

 

 

 

 

 

Owners of the Company

 

(7,352)

(2,432)

285

(55,565)

Non-controlling interests

 

      (17)

         35

        278

      (124)

 

 

  (7,369)

   (2,397)

        563

 (55,689)

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic and diluted earnings per share (cent)

 

   (0.70)

     (0.23)

        0.03

      (5.30)

             

 

The notes form an integral part of the condensed consolidated interim financial statements.

 

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

For the period from 1 January 2017 to 30 September 2017

 

 

For the

three months ended

For the

 nine months ended

 

1/7/17-

1/7/16-

1/1/17-

1/1/16-

 

30/9/17

30/9/16

30/9/17

30/9/16

 

US$ '000

US$ '000

US$ '000

US$ '000

 

 

 

 

 

(Loss)/profit for the period

  (7,369)

 (2,397)

      563

(55,689)

 

 

 

 

 

Other comprehensive income

Items that are or may be reclassified subsequently to profit or loss

 

 

 

 

Realised translation differences on 100% acquisition of previously held interest in a joint venture transferred to income statement

     -

     -

 

 

(4,271)

 

 

-

Foreign currency translation differences for foreign operations

 

   3,914

 

   1,921

 

 10,451

 

   25,878

Other comprehensive income for the period

   3,914

   1,921

   6,180

   25,878

 

 

 

 

 

Total comprehensive income for the period

  (3,455)

     (476)

   6,743

(29,811)

 

 

 

 

 

Total comprehensive income attributable to:

 

 

 

 

Owners of the parent

(3,449)

(521)

6,489

(29,824)

Non-controlling interests

         (6)

         45

      254

         13

 

 

 

 

 

 

  (3,455)

      (476)

   6,743

(29,811)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 The notes form an integral part of the condensed consolidated interim financial statements.

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

For the period from 1 January 2017 to 30 September 2017

 

 

 

 

 

Attributable to the owners of the Company

Non-controlling   interests

 

Total equity

 

 

Share

 Share

Capital

Translation

Retained

 

 

 

 

 

Capital

Premium

Reserve

Reserve

Earnings

Total

 

 

 

 

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2017

 1,048

1,763,409

  (9,201)

(311,331)

(667,801)

   776,124

 (3,827)

  772,297

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

285

285

278

563

 

Other comprehensive income

         -

               -

            -

      6,204

              -

      6,204

       (24)

       6,180

 

Total comprehensive income for the period

 

         -

 

               -

 

            -

 

 

      6,204

 

         285

 

      6,489

 

      254

 

       6,743

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners of the

Company

Changes in ownership interests

 

 

 

 

 

 

 

 

Acquisition of non-controlling interests (note 23)

 

        -

 

               -

 

(10,136)

 

              -

 

              -

 

    (10,136)

 

   3,426

 

     (6,710)

 

 

 

 

 

 

 

 

 

 

 

Balance at 30 September 2017

 1,048

1,763,409

(19,337)

(305,127)

(667,516)

   772,477

     (147)

   772,330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2016

 1,048

1,763,409

  (9,201)

(338,951)

(620,786)

  795,519

  (3,919)

   791,600

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

 

 

 

 

 

Loss for the period

-

-

-

-

(55,565)

(55,565)

(124)

(55,689)

 

Other comprehensive income

         -

               -

           -

   25,741

              -

    25,741

       137  

     25,878

 

Total comprehensive income for the period

 

         -

 

               -

 

           -

 

   25,741

 

  (55,565)

 

   (29,824)

 

          13

 

   (29,811)

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners of the

Company

Contributions and distributions

 

 

 

 

 

 

 

 

 

Share option expense

         -

               -

            -

             -

         738

          738

           -

          738

 

 

 

 

 

 

 

 

 

 

 

Balance at 30 September 2016

 1,048

1,763,409

   (9,201)

(313,210)

(675,613)

   766,433

  (3,906)

   762,527

 

                                           

 

The notes form an integral part of the condensed consolidated interim financial statements.

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

AS AT 30 SEPTEMBER 2017

 

 

 

   30/9/17

31/12/16

 

Note

 US$ '000

US$ '000

Assets

 

 

 

Investment property

11

   926,110

915,350

Investment property under development

12

   159,900

232,900

Property, plant and equipment

13

      77,352

31,215

Long-term loans receivable

 

             29

15,763

VAT recoverable

 

             39

              9

Non-current assets

 

1,163,430

1,195,237

 

 

 

 

Trading properties

14

     14,973

6,854

Trading properties under construction

15

   327,555

243,327

Other investments

 

       4,646

6,088

Inventories

 

       1,016

665

Short-term loans receivable

 

          822

7

Trade and other receivables

16

     53,850

42,427

Current tax assets

 

        3,505

2,542

Cash and cash equivalents

17

      63,069

     10,619

Current assets

 

    469,436

   312,529

 

 

 

 

Total assets

 

1,632,866

1,507,766

 

 

 

 

Equity

 

 

 

Share capital

 

       1,048

1,048

Share premium

 

 1,763,409

1,763,409

Translation reserve

 

(305,127)

(311,331)

Capital reserve

 

(19,337)

(9,201)

Retained earnings

 

  (667,516)

  (667,801)

Equity attributable to owners of the Company

18

772,477

776,124

Non-controlling interests

 

         (147)

      (3,827)

Total equity

 

   772,330

   772,297

 

 

 

 

Liabilities

 

 

 

Long-term loans and borrowings

19

48,270

627,074

Deferred tax liabilities

 

31,138

14,934

Deferred income

 

    12,103

     10,455

Non-current liabilities

 

    91,511

   652,463

 

 

 

 

Short-term loans and borrowings

19

647,037

748

Trade and other payables

20

40,860

30,957

Advances from customers

 

     81,128

     51,301

Current liabilities

 

   769,025

     83,006

 

 

 

 

Total liabilities

 

   860,536

   735,469

 

 

 

 

Total equity and liabilities

 

   1,632,866

1,507,766

         

 

 

The condensed consolidated interim financial statements were approved by the Board of Directors on 20 November 2017.

 

The notes form an integral part of the condensed consolidated interim financial statements.


 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

For the period from 1 January 2017 to 30 September 2017

 

 

 

1/1/17-

1/1/16-

 

 

30/9/17

30/9/16

 

Note

US$ '000

US$ '000

Cash flows from operating activities

 

 

 

Profit/(loss) for the period

 

563

(55,689)

Adjustments for:

 

 

 

Depreciation

13

626

532

Net finance costs/(income)

9

24,953

(13,017)

Share option expense

 

-

738

Decrease in fair value of properties

11,12

13,491

111,401

Share of profit in joint ventures

 

(1,957)

(3,034)

Gain on 100% acquisition of previously held interest in a joint venture

 

 

(7,532)

 

-

Profit on disposal of investment property

 

-

(1,768)

Profit on sale of property, plant and equipment

 

-

(22)

Tax expense/(benefit)

10

  12,220

  (2,578)

 

 

42,364

36,563

Change in trade and other receivables

 

1,435

436

Change in inventories

 

73

(7)

Change in trading properties and trading properties under construction

 

 

(10,890)

 

6,081

Change in advances and amounts payable to builders of trading properties under construction

 

 

(3,621)

 

9,901

Change in advances from customers

 

27,343

(24,427)

Change in trade and other payables

 

(4,211)

(2,114)

Change in VAT recoverable

 

(2,550)

(2,799)

Change in deferred income

 

    1,166

       (61)

Cash generated from operating activities

 

51,109

23,573

Taxes paid

 

   (3,749)

     (285)

Net cash from operating activities

 

  47,360

 23,288

 

 

 

 

Cash flows from investing activities

 

 

 

Acquisition of subsidiary net of cash acquired

22

(786)

-

Proceeds from sale of other investments

 

7,206

18,526

Proceeds from disposal of investment property

 

-

1,099

Proceeds from sale of property, plant and equipment

 

89

100

Interest received

 

378

4,317

Change in advances and amounts payable to builders

16,20

3,239

(2,008)

Payments for construction of investment property under development

 

12

 

(3,823)

 

(2,838)

Payments for the acquisition/renovation of investment property

 

11

 

(967)

 

(117)

Dividends received from joint ventures

 

-

219

Change in VAT recoverable

 

(588)

(315)

Acquisition of property, plant and equipment

13

(223)

(243)

Acquisition of other investments

 

(6,051)

(9,506)

Proceeds from repayments of loans receivable

 

4,178

141

Payments for loans receivable

 

      (1,803)

          (6)

Net cash from investing activities

 

       849

    9,369  

 

The notes form an integral part of the condensed consolidated interim financial statements.

 

 

 

 

 

 

1/1/17-

1/1/16-

 

 

30/9/17

30/9/16

 

Note

US$ '000

US$ '000

Cash flows from financing activities

 

 

 

Acquisition of non-controlling interests

23

(1,369)

-

Proceeds from loans and borrowings

 

43,527

-

Repayment of loans and borrowings

 

(8,685)

(13,090)

Interest paid

 

 (28,910)

 (33,312)

Net cash from/(used in) financing activities

 

    4,563

 (46,402)

 

 

 

 

Effect of exchange rate fluctuations

 

      (322)  

       847

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

52,450

(12,898)

Cash and cash equivalents at 1 January

 

  10,619 

  26,545 

Cash and cash equivalents at 30 September

18

  63,069 

  13,647 

 

 The notes form an integral part of the condensed consolidated interim financial statements.

 

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

For the period from 1 January 2017 to 30 September 2017

 

 

1.    INCORPORATION AND PRINCIPAL ACTIVITY

AFI Development PLC (the "Company") was incorporated in Cyprus on 13 February 2001 as a limited liability company under the name Donkamill Holdings Limited. In April 2007 the Company was transformed into public company and changed its name to AFI Development PLC.  The address of the Company's registered office is 165 Spyrou Araouzou Street, Lordos Waterfront Building, 5th floor, Flat/office 505, 3035 Limassol, Cyprus.  As of 7 September 2016 the Company is a 64.88% subsidiary of Flotonic Limited, a private holding company registered in Cyprus, 100% owned by Mr Lev Leviev.  Prior to that, the Company was a 64.88% subsidiary of Africa Israel Investments Ltd ("Africa-Israel"), which is listed in the Tel Aviv Stock Exchange ("TASE"). The remaining shareholding of "A" shares is held by a custodian bank in exchange for the GDRs issued and listed in the London Stock Exchange ("LSE"). On 5 July 2010 the Company issued by way of a bonus issue 523,847,027 "B" shares, which were admitted to a premium listing on the Official List of the UK Listing Authority and to trading on the main market of LSE. On the same date, the ordinary shares of the Company were designated as "A" shares.

 

These condensed consolidated interim financial statements ("interim financial statements") as at and for the nine months ended 30 September 2017 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in jointly controlled entities. 

 

The principal activity of the Group is real estate investment and development. The principal activity of the Company is the holding of investments in subsidiaries and joint ventures.

 

2.    basis of Accounting

 

i.          Going concern basis of accounting

 

The Group had experienced, during the several past years, difficult trading conditions driven by macro-economic and geopolitical developments affecting the Russian economy as a whole and a deterioration in demand for real estate assets across the country. Whilst the general economy has shown some signs of stabilisation during the year 2016 and for the nine-months of 2017 with higher oil prices, strengthening of Rubble and inflation on a downward trend, the performance of the real estate sector remains weak.

 

The Group has recognised a net profit after tax of US$563 thousand for the nine month period ended 30 September 2017, its cash and cash equivalents and marketable securities improved to US$67,694 thousand. However, its current liabilities increased to US$769,025 thousand due to the reclassification of the Ozerkovskaya III and AFIMALL City loans as their maturity is due in January and April 2018 respectively.  Unless renegotiated, the Group will require to make a lump sum payment of the principal of the loans with a current balance of US$643,085 thousand. These conditions, along with other matters set forth below, indicate the existence of material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.

 

As described in more detail in the Company's announcements and its year end consolidated financial statements for the year ended 31 December 2016, a series of events, negotiations and signed addendums with VTB bank for the Ozerkovskaya III and AFIMALL City loan facilities took place during 2016. Management explores all options in relation to repaying the Loan Facilities when they fall due in 2018, which may include the disposal of certain assets or projects or refinance of the loans. The Group is in advance negotiation with banks for the refinancing of the loans.  Management considers its available options on how to approach the loans at maturity and secure further financing to continue in operational existence for the foreseeable future.

 

Management estimates that the Group will generate sufficient operating cash flows so as to meet the Loan Facilities interest payments and continue the construction of projects classified as "Trading properties under construction" as described in Note 15, which are "Odinburg", "Paveleskaya phase II", "Pochtovaya" and "Botanic Garden".

       

Considering all the above conditions and assumptions, the interim consolidated financial statements have been prepared on a going concern basis, which assumes that the Group will be in a position to refinance or negotiate the loans at maturity, secure further financing for its project under construction and development and achieve the sales volumes and prices as budgeted to generate enough cash to cover its working capital requirements in order for the Group to be in a position to continue its operations in the foreseeable future. It is noted that no reclassifications or adjustments were included with reference to the values of the Group's assets and liabilities, which may be required if the Group is not able to continue operating as a "going concern".

 

ii.         Statement of compliance

These interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2016 ('last annual financial statements'). They do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last financial statements.

 

iii.        Functional and presentation currency

These consolidated financial statements are presented in United States Dollars which is the Company's functional currency.  All financial information presented in United States Dollars has been rounded to the nearest thousands, except when otherwise indicated.

 

Foreign operations

Each entity of the Group determines its own functional currency and items included in the financial statements of each entity are measured using its functional currency. Where the functional currency of an entity of the Group is other than US Dollars, which is the presentation currency of the Group, then the financial statements of the entity are translated in accordance with IAS 21 'The effects of changes in foreign exchange rates".

 

The table below shows the exchange rates of Russian Rubles, which is the functional currency of the Russian subsidiaries of the Group, to the US Dollar which is the presentation currency of the Group:

 

Exchange rate                                                                                   % change       % change

                                                                     Russian Rubles              quarter           year to

As of:                                                                 for US$1                                          date

30 September 2017                                                 58.0169                 (1.8)              (4.4)

31 December 2016                                                 60.6569                                      (16.8)

30 September 2016                                                 63.1581                                      (13.3)

 

Average rate during:

Nine-month period ended 30 September 2017       58.3344                                      (14.7)

Nine-month period ended 30 September 2016       68.3667                                       15.3

 

3.    use of judgements and estimates

 

In preparing these interim financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

 

The significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2016.

 

a.   Measurement of fair values

The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the chief financial officer.

 

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

 

Significant valuation issues are reported to the Group Audit Committee.

 

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

 

·   Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

·   Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

·   Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

 

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

 

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

 

4.    significant accounting policies

 

The accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2016.

 

Standards issued but not yet effective

A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2017 and earlier application is permitted; however, the Group has not early adopted any new or amended standards in preparing these condensed consolidated interim financial statements.

 

The Group has no updates to information provided in the consolidated financial statements as at and for the year ended 31 December 2016 about the standards issued but not yet effective that may have a significant impact on the Group's consolidated financial statements.

 

5.     OPERATING SEGMENTS

The Group has 5 reportable segments, as described below, which are the Group's strategic business units. The following summary describes the operation in each of the Group's reportable segments:

·    Development Projects - Residential projects: Include construction and selling of residential properties.

·    Asset Management: Includes the operation of investment property for lease.

·    Hotel Operation: Includes the operation of Hotels.

·    Land bank: Includes the investment and holding of property for future development.

·    Other: Includes the management services provided for the projects.

 

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Group's management team. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm's length basis.

 

 

 

 

 

Development projects

Hotel Operation

Land bank

Other

Total

 

Residential projects

 

 

 

 

 

 

 

 

                   

 

 

30/9/17

30/9/16

30/9/17

30/9/16

30/9/17

 30/9/16

30/9/17

30/9/16

30/9/17

30/9/16

30/9/17

30/9/16

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

 

 

 

 

 

 

 

 

 

 

 

 

 

External revenues

57,818

53,762

61,163

50,477

21,374

8,272

2,205

1,774

131

127

142,691

114,412

 

 

 

 

 

 

 

 

 

 

 

 

 

Inter-segment revenue

24,235

-

4,373

9,060

3

2

1,538

1,399

5,971

4,711

36,120

15,172

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment (loss)/profit before tax

 

(2,104)

 

(2,612)

 

10,285

 

(23,739)

 

7,700

 

2,179

 

1,437

 

(27,632)

 

(5,736)

 

(4,532)

 

11,582

 

(56,336)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30/9/17

31/12/16

30/9/17

31/12/16

30/9/17

31/12/16

30/9/17

31/12/16

30/9/17

31/12/16

30/9/17

31/12/16

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment assets

398,392

355,567

915,900

912,240

80,412

27,158

223,851

185,693

742

624

1,619,297

1,481,282

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment liabilities

110,210

   66,971

686,130

667,779

61,575

-

1,289

-

744

387

859,948

735,137

 

 

 

 

 

Reconciliation of reportable segment profit or loss

 

1/1/17-

30/9/17

1/1/16-

30/9/16

 

US$ '000

US$ '000

 

 

 

Total profit/(loss) before tax for reportable segments

11,582

(56,336)

Unallocated amounts:

 

 

Other profit or loss

(8,288)

(4,965)

Gain on 100% acquisition of previously held interest in a

joint venture

7,532

 

-

Share of profit of joint ventures, net of tax

     1,957

     3,034

Profit/(loss) before tax

   12,783

 (58,267)

 

6.     REVENUE

 

For the

three months ended

For the

 nine months ended

 

1/7/17-

30/9/17

1/7/16-

30/9/16

1/1/17-

30/9/17

1/1/16-

30/9/16

 

US$ '000

US$ '000

US$ '000

US$ '000

 

 

 

 

 

Investment property rental income

21,442

18,737

64,133

53,304

Sales of trading properties (note 14)

7,251

2,953

57,034

52,677

Hotel operation income

7,928

2,965

21,374

8,271

Construction consulting/management fees

          2

        51

       151

       161

 

 36,623

 24,706

142,692

114,413

 

 

7.     ADMINISTRATIVE EXPENSES

 

For the

three months ended

For the

 nine months ended

 

1/7/17-

30/9/17

1/7/16-

30/9/16

1/1/17-

30/9/17

1/1/16-

30/9/16

 

US$ '000

US$ '000

US$ '000

US$ '000

 

 

 

 

 

Consultancy fees

68

782

257

1,470

Legal fees

240

511

1,122

790

Auditors' remuneration

126

201

466

350

Valuation expenses

23

1

60

57

Directors' remuneration

327

340

993

1,032

Depreciation

25

27

82

89

Insurance

43

58

118

171

Provision for Doubtful Debts

-

(480)

40

(1,063)

Share option expense

-

208

-

738

Donations

52

3

67

644

Other administrative expense

      309

      257

   1,130

   1,041

 

   1,213

   1,908

   4,335

   5,319

                                                                                               

 

 

8.    OPERATING EXPENSES

 

 

For the

three months ended

For the

 nine months ended

 

1/7/17-

30/9/17

1/7/16-

30/9/16

1/1/17-

30/9/17

1/1/16-

30/9/16

 

US$ '000

US$ '000

US$ '000

US$ '000

 

 

 

 

 

Maintenance, utility and security expenses

4,337

2,998

13,653

8,580

Agency and brokerage fees

393

160

1,037

431

Advertising expenses

1,860

1,031

4,121

3,796

Salaries and wages

3,696

2,503

11,069

7,488

Consultancy fees

434

129

716

362

Depreciation

192

134

544

443

Insurance

117

(25)

395

464

Rent

445

381

1,405

1,091

Property and other taxes

2,619

2,001

7,545

4,360

Other operating expenses

         20

        27

         50

         49

 

  14,113

  9,339

 40,535

 27,064

 

 

 

9.    FINANCE COST AND FINANCE INCOME

 

For the

three months ended

For the

 nine months ended

 

1/7/17-

30/9/17

1/7/16-

30/9/16

1/1/17-

30/9/17

1/1/16-

30/9/16

 

US$ '000

US$ '000

US$ '000

US$ '000

 

 

 

 

 

Interest income

188

450

688

1,696

Net foreign exchange gain

6,587

7,364

11,796

44,102

Net change in fair value of financial assets

           -

           -

            -

           -

Finance income

   6,775

   7,814

  12,484

  45,798

 

 

 

 

 

Interest expense on loans and borrowings

(12,698)

(11,230)

(37,082)

(32,554)

Net change in fair value of financial assets

(359)

9

(355)

(227)

Other finance costs

     (153)

     (100)

     (543)

     (286)

Finance costs

(13,210)

(11,321)

(37,980)

(33,067)

 

 

 

 

 

Net finance (costs)/income

   (6,435)

   (3,507)

(25,496)

  12,731

 

 

 

10.   tAX EXPENSE / (BENEFIT)

 

For the

three months ended

For the

 nine months ended

 

 

1/7/17-

30/9/17

1/7/16-

30/9/16

1/1/17-

30/9/17

1/1/16-

30/9/16

 

 

US$ '000

US$ '000

US$ '000

US$ '000

 

Current tax expense

 

 

 

 

 

Current year

       675

         77

    2,919

        205

 

 

 

 

 

 

 

Deferred tax expense/(benefit)

 

 

 

 

 

Origination and reversal of temporary differences

 

    2,275

 

     (244)

 

    9,301

 

   (2,783)

 

 

Total income tax expense/(benefit)

 

    2,950

 

     (167)

 

  12,220

 

   (2,578)

           

 

11.   INVESTMENT PROPERTY

 

Reconciliation of carrying amount

 

30/9/17

31/12/16

 

US$ '000

US$ '000

 

 

 

Balance 1 January

915,350

933,700

Renovations/additional cost

967

370

Disposals

(5,341)

(500)

Fair value adjustment

(5,056)

(92,801)

Effect of movement in foreign exchange rates

  20,190

     74,581

Balance 30 September / 31 December

926,110

   915,350

 

The disposal represents an agreement based on which the Group acquired the additional 26% interest in Bizar LLC increasing its ownership to 100% in exchange for one of the four buildings owned by Bizar LLC refer to note 23 for further details on the acquisition of NCI.

 

The increase due to the effect of the foreign exchange fluctuation is a result of the Ruble strengthening compared to the US Dollar by 4.4% during the nine months period ended 30 September 2017.

 

The investment property was revalued by independent appraisers on 30 June 2017. The cumulative adjustments, for all projects, are shown in line "Fair value adjustment" in the table above. The fair value adjustment is mainly a result of the effect of the Russian economic conditions on the real estate market and partly relates to the Ruble strengthening offsetting the increase thereof.

 

Based on the management's assessment the fair value of the assets within the portfolio reported has not significantly changed since the valuation of 30 June 2017.

 

 

 

 

12.   INVESTMENT PROPERTY UNDER DEVELOPMENT

 

30/9/17

31/12/16

 

US$ '000

US$ '000

 

 

 

Balance 1 January

232,900

238,925

Construction costs

3,823

4,554

Transfer to trading properties under construction (note 15)

(74,100)

-

Fair value adjustment

(8,435)

(30,244)

Effect of movements in foreign exchange rates

    5,712

  19,665

Balance 30 September / 31 December

159,900

232,900

 

On 31 March 2017 the Group transferred "Bolshaya Pochtovaya" project to trading properties under construction. The transfer was performed following the change in use evidenced by the commencement of development of trading properties with a view to sell. The amount of US$74,100 thousand represents the fair value of the project at the date of the transfer. The fair value was based on the valuation provided by the independent appraisers on 31 December 2016 which according to management assessment was not significantly different from the fair value at the date of change in use.

 

The increase due to the effect of the foreign exchange rates is a result of the strengthening of the

Ruble compared to the US Dollar by 4.4%, during the nine months period ended 30 September

2017.

 

The investment property under development was revalued by independent appraisers on 30 June

2017. The cumulative adjustments, for all projects, are shown in line "Fair value adjustment" in the table above. The fair value adjustment is mainly a result of the effect of the Russian economic conditions on the real estate market and partly relates to the Ruble strengthening offsetting the increase thereof.

 

Based on the management's assessment the fair value of the assets within the portfolio reported has not significantly changed since the valuation of 30 June 2017.

 

13.   PROPERTY, PLANT AND EQUIPMENT

 

  30/9/17

31/12/16

 

US$ '000

US$ '000

 

 

 

Balance 1 January

      31,215

      26,280

Effect of acquisition of subsidiary (note 22)

      45,580

-

Additions

223

262

Depreciation for the period / year

(626)

(696)

Disposals

(89)

(85)

Effect of movements in foreign exchange rates

    1,049

    5,454

Balance 30 September / 31 December

  77,352

       31,215

 

 

 

14.   TRADING PROPERTIES

 

     30/9/17

    31/12/16

 

   US$ '000

    US$ '000

 

 

 

Balance 1 January

6,854

2,062

Transfer from trading properties under construction (note 15)

63,202

53,480

Disposals

(55,504)

(49,475)

Effect of movements in exchange rates

        421

      787

Balance 30 September / 31 December

   14,973

   6,854

 

Trading properties comprise unsold apartments and parking spaces. The transfer from trading properties under construction represents the completion of the construction of a number of flats, offices and parking places of "Odinburg" project. During the period the sale of 613 flats, 6 offices and 62 parking places were recognised, upon transferring of the rights to the buyers according to the signed acts of transfer, in the income statement.

 

15.   TRADING PROPERTIES UNDER CONSTRUCTION

 

 

30/9/17

31/12/16

 

US$ '000

US$ '000

 

 

 

Balance 1 January

243,327

204,392

Transfer from investment property under development (note 12)

74,100

-

Transfer from inventory of real estate

-

21,543

Transfer to trading properties (note 14)

(63,202)

(53,480)

Construction costs

66,394

54,428

Effect of movements in exchange rates

    6,936

   16,444

Balance 30 September / 31 December

327,555

243,327

 

Trading properties under construction comprise "Odinburg", "Paveletskaya Phase II", "AFI Residence Botanic Garden" and "Bolshaya Pochtovaya" projects which involve primarily the construction of residential properties. For further details on the transfer of the "Bolshaya Pochtovaya" project refer to note 12.

 

16.   TRADE AND OTHER RECEIVABLES

 

30/9/17

31/12/16

 

US$ '000

US$ '000

 

 

 

Advances to builders

35,574

27,019

Amounts receivable from related parties (note 25)

102

267

Trade receivables, net

2,569

3,427

Other receivables

4,209

3,955

VAT recoverable

7,410

4,067

Tax receivables

    3,986

     3,692

 

  53,850

   42,427

 

Trade receivables net

Trade receivables are presented net of an accumulated provision for doubtful debts of US$0 thousand (31/12/2016: US$8,285 thousand).

 

 

 

 

17.   CASH AND CASH EQUIVALENTS

 

30/9/17

31/12/16

Cash and cash equivalents consist of:

US$ '000

US$ '000

 

 

 

Cash at banks

62,841

10,356

Cash in hand

        228

       263

 

   63,069

  10,619

 

18.   SHARE CAPITAL AND RESERVES

 

30/9/17

31/12/16

1.  Share capital

US$ '000

US$ '000

 

 

 

Authorised

 

 

2,000,000,000 shares of US$0.001 each

    2,000

  2,000

 

 

 

Issued and fully paid

 

 

523,847,027 A shares of US$0.001 each

523,847,027 B shares of US$0.001 each

524

       524

524

     524

 

    1,048

  1,048

 

2.  Employee Share option plan

All options have vested during the year 2016. A significant number of options has expired during the year after the lapse of the ten years period with the remaining options expiring in November.

 

3.  Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations to the Group presentation currency and the foreign exchange differences on loans designated as loans to an investee company which are accounted for as part of the investor's investment (IAS21.15) as their repayment is not planned or likely to occur in the foreseeable future.  These foreign exchange differences are recognised directly to Translation Reserve.

 

4.    Retained earnings

Retained earnings are available for distribution at each reporting date. No dividends were proposed, declared or paid during the nine-month period ended 30 September 2017.

 

5.    Capital reserve

Represents the effect of the acquisition, in 2015, of the 10% non-controlling interests in Bioka Investments Ltd and its subsidiary Nordservice LLC previously held at 90% and the effect of the acquisitions during the period of the 5% non-controlling interests in Beslaville Management Limited and its subsidiary Zheldoruslugi LLC previously held at 95% and of the 26% non-controlling interest in Bizar LLC previously held at 74%, refer to note 23 for further details.

 

 

 

19.   LOANS AND BORROWINGS

 

30/9/17

31/12/16

 

US$ '000

US$ '000

Non-current liabilities

 

 

Secured bank loans

 48,270

627,074

 

 

 

Current liabilities

 

 

Secured bank loans

646,732

459

Unsecured loans from other non-related companies

      305

       289

 

647,037

       748

 

The following changes to the loans took place during the nine month period ended 30 September 2017:

 

(i)    A secured loan from Sberbank was signed on 20 March 2017 by one of the Group's subsidiary AFI RUS Management. This loan facility agreement offered a credit line totaling RUR 1.090 billion, which is drawn down in two tranches so as to finance the construction of Phase 2 of "Odinburg" project. During the period a drawdown of the first tranche of US$8,105 thousand (RUR 470 million) was effected. The loan was provided in RUR and carried an annual interest rate of 11.5% with a right to increase by 1-2%. As of 30 September 2017 the credit line was fully repaid and the loan agreement was terminated in October 2017.

 

(ii)   On 28 February 2017 the Group received a loan from VTB Bank PJSC ("VTB") to finance the acquisition of the additional 50% stake in the "Plaza Spa Kislovodsk" project. The loan, in the amount of US$22.5 million, is provided in US dollars for 5 years (the term can be extended for an additional 5 years subject to agreement between the parties), it bears an annual interest rate of 3 months Libor + 4.5%, has quarterly principal payments (ranging from US$363 thousand in Q2 2017 to US$786 thousand in Q4 2021), and a balloon payment of US$11,254 thousand at maturity. The interest is to be paid quarterly.

 

(iii)   On 21 September 2017 the Group received a loan from VTB to repay a loan owed to a related company. The loan, in the amount of US$11.6 million which is provided in US dollars is repayable in 5 years (the term can be extended for an additional 5 years subject to agreement between the parties). It bears an annual interest rate of 5.5%, has quarterly principal payments (ranging from US$85 thousand in Q4 2017 to US$105 thousand in Q2 2022), and a balloon payment of US$9,850 thousand at maturity. The interest is to be paid quarterly.

 

(iv)  On 21 September 2017 the Group received a loan from VTB to repay a loan owed to a related company. The loan, in the amount of US$18.4 million, which is provided in US dollars is repayable in 5 years (the term can be extended for an additional 5 years subject to agreement between the parties). It bears an annual interest rate of 5.5%, has quarterly principal payments (ranging from US$230 thousand in Q4 2017 to US$379 thousand in Q2 2022), and a balloon payment of US$15,647 thousand at maturity. The interest is to be paid quarterly.

 

(v)     Ozerkovskaya III loan facility a secured loan received by subsidiary Krown Investments LLC from VTB on 25 January 2013 and AFIMALL City loan facility a secured loan received by subsidiary Bellgate Constructions Ltd were reclassified to current liabilities as based on loan agreements, their maturity fall due within the next twelve months, on 26 January 2018 and 1 April 2018 respectively.

 

 

 

20.   TRADE AND OTHER PAYABLES

 

30/9/17

31/12/16

 

US$ '000

US$ '000

 

 

 

Trade payables

10,789

 8,490

Payables to related parties (note 25)

204

427

Amount payable to builders

13,175

5,962

Provision

6,275

7,833

VAT and other taxes payable

6,881

5,681

Other payables

  3,536

    2,564

 

40,860

  30,957

 

Provision represents the estimated cost of construction of common use areas of the Odinburg project such as hospital, school and kindergarten which is an obligation of the Group to build and make available for use by the residents.  

21.      FINANCIAL INSTRUMENTS

 

Carrying amounts and fair values

 

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels and the fair value hierarchy for financial instruments measured at fair value. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

 

 

 

 

Carrying amount

 

 

Fair value

 

 

Non-current assets

Current assets

 

 

 

 

 

 

Loans

Receivable

Trade and

other

receivables

Other

investments,

Including derivatives

Cash

and cash

equivalents

Loans

receivable

Total

Level 1

Level 2

Level 3

Total

30 September 2017

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial assets measured at fair value

 

 

 

 

 

 

 

 

 

 

Investment in listed debt securities

-

-

4,625

-

-

 4,625

4,625

 

 

4,625

Financial assets not measured at fair value

 

 

 

 

 

 

 

 

 

 

Loans receivable

29

-

-

-

822

      851

 

 

 

 

Trade and other receivables

-

6,880

-

-

-

 6,880

 

 

 

 

Cash and cash equivalents

-

-

-

63,069

-

63,069

 

 

 

 

 

29

6,880

4,625

63,069

822

  5,425

 

 

 

 

31 December 2016

 

 

 

 

 

 

 

 

 

 

Financial assets measured at fair value

 

 

 

 

 

 

 

 

 

 

Investment in listed debt securities

-

-

6,068

-

-

  6,068

6,068

-

-

6,068

Financial assets not measured at fair value

 

 

 

 

 

 

 

 

 

 

Loans receivable

15,770

-

-

-

-

 15,770

 

 

 

 

Trade and other receivables

-

7,649

-

-

-

 7,649

 

 

 

 

Cash and cash equivalents

-

-

-

10,619

-

10,619

 

 

 

 

 

15,770

7,649

6,068

10,619

-

40,106

 

 

 

 

 

 

 

 

 

Carrying amount

Fair value

 

Non-current liabilities

Current liabilities

 

 

Interest bearing

loans and borrowings

 Trade and

other

payables

Interest bearing loans and borrowings

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

30 September 2017

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial liabilities not measured at fair value

 

 

 

 

 

 

 

 

Interest bearing loans and borrowings

(48,270)

-

(647,037)

(695,307)

 

 

 

(695,600)

Trade and other payables

-

(33,979)

-

(33,979)

 

 

 

 

 

(48,270)

(33,979)

(647,037)

(729,286)

 

 

 

 

31 December 2016

 

 

 

 

 

 

 

 

Financial liabilities not measured at fair value

 

 

 

 

 

 

 

 

Interest bearing loans and borrowings

(627,074)

-

(748)

 (627,822)

 

 

 

(614,771)

Trade and other payables

-

(25,276)

-

   (25,276)

 

 

 

 

 

(627,074)

(25,276)

(748)

(653,098)

 

 

 

 

 

22.   ACQUISITION OF SUBSIDIARIES

 

On 28 February 2017, the Group acquired the additional 50% of the "Plaza Spa Kislovodsk" project by acquiring the shares and voting rights of Nouana Limited, Craespon Management Limited, Emvial Limited and Sanatoriy Plaza LLC.  As a result, the Group's equity interest in the above mentioned entities increased from 50% to 100%, obtaining their control. Principal activity of Nouana Limited, Craespon Management Limited and Emvial Limited is that of holding of investments while Sanatoriy Plaza LLC is the owner of "Plaza Spa Kislovodsk" project. The Project is an operating spa resort hotel in the Caucasian mineral waters region, in the town of Kislovodsk. It has 275 guest rooms and a gross buildable area of 25,000 sq.m.

 

This acquisition enables the Group to consolidate 100% of the Project, manage it at its sole discretion and consolidate 100% of its revenues. Revenue attributed to the acquired 50% stake, based on the 2016 annual results, was US$9 million. The gross profit attributed to the acquired 50% stake in the Project, based on the 2016 annual results, was US$4.4 million.

 

a.         Consideration transferred

 

The Group paid an amount of US$5,632 thousand for the acquisition itself of the 50% equity stakes in the previously held joint ventures. In order to finance the acquisition the Group has received a loan of US$22,500 thousand, from VTB Bank PJSC. The remainder of the loan was used to repay the outstanding debt of Sanatoriy Plaza LLC to the joint venture partner in the project, in the amount of US$16,868 thousand, prior to the acquisition of the equity stakes.

 

 

US$ '000

 

 

Cash

5,632

Cash and cash equivalents acquired (note b)

 (4,846)

Net consideration

     786

 

b.         Identifiable assets acquired and liabilities assumed

 

The following table summarises the recognised amounts of assets and liabilities assumed at the date of acquisition

 

US$ '000

 

 

Property, plant and equipment

45,580

VAT recoverable

33

Inventory

392

Trade and other receivables

307

Cash and cash equivalents

4,846

Loans and borrowings

(16,868)

Deferred tax liabilities

(8,807)

Trade and other payables

Total identifiable net assets acquired

 23,808

 

 

 

 

 

c.         Goodwill

 

Goodwill arising from the acquisition has been recognised as follows:

 

US$ '000

 

 

Consideration transferred (note a)

5,632

Fair value of existing interest in joint ventures

20,903

Fair value of identifiable net assets (note b)

(23,808)

Goodwill

   2,727

Impairment

 

          -

 

At acquisition the gain on the Group's previously held 50% interest in the joint venture was US$10,259 thousand, which comprised US$7,803 thousand fair value gain on net assets less the $1,815 thousand carrying amount of the equity accounted investee at the date of acquisition plus US$4,271 thousand of translation reserve reclassified to profit or loss.  The gain is presented net of impairment of goodwill of US$2,727 which was the result of the 100% acquisition.  The Board of Directors has decided to impair the resulting goodwill to zero considering the amount paid above the fair value of the net assets acquired, represents a premium paid to acquire control of the entity which was over and above its market value.

 

23.   ACQUISITION OF NON-CONTROLLING INTERESTS (NCI)

 

During the period, the Group acquired an additional 5% interest in Beslaville Management Limited and its Russian subsidiary Zheldoruslugi LLC, increasing its ownership from 95% to 100% and 26% interest in Bizar LLC increasing its ownership from 74% to 100%. The carrying amount of Beslaville Management Limited's together with its subsidiary and Bizar's net assets in the Group's financial statements on the date of acquisition was negative (US$60,660) thousand and (US$1,511) thousand respectively.

 

The following table summarises the effect of changes in the Company's ownership interest in Beslaville Management Limited, Zheldoruslugi LLC and Bizar LLC.

 

 

US$ '000

 

 

Carrying amount of NCI acquired (($60,660) thousand * 5% & ($1,511) thousand $26%)

 

(3,426)

Consideration paid to NCI

  (6,710)

A decrease in equity attributable to owners of the Company

(10,136)

 

 

The decrease in equity attributable to owners of the Company comprised of a negative capital reserve of US$10,136 thousand.

 

 

 

24.   FINANCIAL RISK MANAGEMENT

 

The Group's financial risk management objectives and policies are consistent with that disclosed in the consolidated financial statements as at and for the year ended 31 December 2016.

 

Russian business and economic environment

The Group's operations are primarily located in the Russian Federation. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation. 

 

The Russian economy and the Ruble continued to recover. In Q2 2017, GDP increased by 2.5% YoY. A preliminary estimate released by the Federal Statistics Service (Rosstat) showed that GDP increased 1.5% year-on-year in Q3. The growth is expected to resume in 2017, according to Oxford Economics forecast of 1.5% growth in 2017.

 

Standard & Poor's credit rating for Russia stood at BB+ as well as Fitch's (BBB-) with positive outlook, while Moody's (Ba1) remained with stable outlook.

The Central Bank of Russia continued its path of interest rate cuts, decreasing the key rate in two steps from 9.00% to 8.25% in October 2017. The consumer prices inflation in September 2017 was at 3% (annualised) (with CBR target at 4%).

 

Retail turnover entered the recovery stage with a 3.1% growth in September YoY. Real wages indicate potential gains in consumer activity, however, consumer debt repayments will likely delay the recovery of retail activity.

 

The real estate investors see the market bottoming out and lower Ruble volatility compared to 2016. As a result, there was improved investor sentiment in all commercial real estate sectors and several deals from 2016 were closed in 2017, raising the overall number of completed transactions. In Q1-Q3 Russia's real estate investments reached USD2.7bn, according to JLL calculations. Retail assets remained the most demanded, accounting for 37% of the total volume of transactions. The office sector accounted for 31%.

 

The interim financial statements reflect management's assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from management's assessment.

 

25.   RELATED PARTIES

 

 

30/9/17

31/12/16

(i)   Outstanding balances with related parties

US$ '000

US$ '000

Assets

 

 

Amounts receivable from joint ventures

-

11

Amounts receivable from other related companies (note 16)

102

    256

Long term loans receivable from joint ventures

            -

15,745

 

 

 

 

 

 

 

 

30/9/17

31/12/16

 

US$ '000

US$ '000

Liabilities

 

 

Amounts payable to joint ventures

-

102

Amounts payable to other related companies (note 20)

204

  325

Deferred income from related company

     108

     145

 

(ii)   Transactions with the key management personnel

1/1/17-

30/9/17

1/1/16-

30/9/16

 

US$ '000

US$ '000

Key management personnel compensation

Short-term employee benefits

2,002

2,011

Share option scheme expense

         -

     738

 

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. The person is a member of the key management personnel of the entity or its parent (includes the immediate, intermediate or ultimate parent). Key management is not limited to directors; other members of the management team also may be key management.

 

 

(iii)   Other related party transactions

1/1/17-

30/9/17

1/1/16-

30/9/16

 

US$ '000

US$ '000

Revenue

 

 

Related companies - rental income

324

478

Related companies - other income

1

-

Joint venture - consulting services

31

127

Joint venture - interest income

     211

     990

 

Expenses

 

 

Related companies - administrative expenses

-

157

Joint venture - operating expenses

       10

       40

 

 

 

 

 

 

 

 

                                              


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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