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AFI Development PLC (AFRB)

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Friday 07 April, 2017

AFI Development PLC

PRELIMINARY STATEMENT OF RESULTS FOR 2016

RNS Number : 8677B
AFI Development PLC
07 April 2017
 

 

 

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION

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

 

7 April 2017

 

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2016

Strong revenue growth driven by residential sales

 

AFI Development, a leading real estate company focused on developing property in Russia, has today announced its preliminary audited financial results for the year ended 31 December 2016.

 

Financial highlights:

·      Revenue for the year, including proceeds from the sale of trading properties, reached US$138.3 million (48.2% increase year-on-year):

-      Sale of trading properties (residential real estate) contributed US$54.5 million

-      Rental and hotel operating income declined 10.0% year-on-year to US$83.6 million, mainly due to the rouble depreciation

-      AFIMALL City contribution stood at US$66.2 million (2015: US$71.3 million), down 7.1% year-on-year

·      Gross profit increased by 17.4% year-on-year to US$49.4 million (2015: US$42.1 million),  reflecting mainly the strong contribution from residential sales and further focus on efficiency

·      Largely due to valuation losses in H1 2016, net loss for 2016 amounted to US$47.9 million, against a loss of US$466.7 million in 2015

·      Total gross value of portfolio of properties increased marginally to US$1.44 billion, against US$1.43 billion as of the end of 2015

·      Cash, cash equivalents and marketable securities as of 31 December 2016 stood at US$16.7 million

Operational highlights

·      At Odinburg, all of the pre-sold apartments in Building 1 have now been delivered to customers. The number of sale contracts signed amounted to 715 (99% of total) in Building 1 and 480 (67% of total)  in Building 2 as of 5 April 2017

·      At the AFI Residence Paveletskaya residential development, the main construction phase and pre-sales of residential units continue to plan; 172 units ("flats" and "apartments"1) have been pre-sold to date

·      AFIMALL City has increased its occupancy to 84% and welcomed several new retailers to the Mall during the fourth  quarter:

-    NOI declined to US$50.1 million in 2016, from US$53.3 million in 2015, mainly due to slightly decreased average rent in dollar terms across the centre

·      In March 2017, the main construction phase started at AFI Residence Pochtovaya and Botanic Garden residential projects in Moscow.

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

"Revenue growth of 48.2% for the year, supported by residential sales, stemmed from our continued focus on development and marketing of our core residential projects. Although our macroeconomic environment remains challenging, we are encouraged by the more positive trends in Russia's economic indicators in 2016. We expect continued gradual recovery to positively impact Russian real estate markets. Beyond the short-term, we believe that the Moscow real estate market continues to offer significant growth potential due to its size, its position as the largest financial centre in Russia and as one of the largest capital cities in Europe".

FY 2016 Results Conference Call

 

AFI Development will hold a conference call for analysts and investors to discuss its full year 2016 results, following their publication.

 

The details for the conference call are as follows:

 

Date:

Monday, 10 April 2017

 

 

Time:

15:00 UK (17:00 Moscow)

 

 

 

 

Dial-in Tel:

International:

UK toll free:

US toll-free:

Russia toll-free:

+44 (0) 20 3003 2666

 0808 109 0700

 1 866 966 5335

 8 10 8002 4902044

 

Password:                     AFI

 

 

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

 

The FY 2016 investor presentation will be published on the Company's website: http://www.afi-development.com/en/investor-relations/reports-presentations at 11.00 UK (13.00 Moscow) on 10 April 2016.

 

 

For further information, please contact:

 

AFI Development                                                                                             +7 495 796 9988

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

 

Citigate Dewe Rogerson, London                                                                  +44 20 7638 9571

David Westover 

Sandra Novakov
 

This announcement contains inside information.

 

About AFI Development

 

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

 

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

 

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

 

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

 

Forward-looking Statements

This document and the documents following may contain certain "forward-looking statements" with respect to the Company's financial condition, results of operations and business, and certain of the Company's plans and objectives with respect to these items.

Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "anticipates", "aims", "due", "could", "may", "should", "expects", "believes", "intends", "plans", "targets", "goal" or "estimates." By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future.

There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in the economies and markets in which the Company operates; changes in the regulatory and competition frameworks in which the Company operates; changes in the markets from which the Company raises finance; the impact of legal or other proceedings against or which affect the Company; and changes in interest and exchange rates.

Any written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to the Company or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. The Company does not intend to update any forward-looking statements.

 

 

Executive Chairman's Statement

 

In 2016, the Russian macroeconomic environment started to show signs of recovery. Higher oil prices and a stronger rouble led to a lower than expected GDP decline of 0.8% (IMF) and moderate inflation of 5.4%. At the same time, the negative impact of international sanctions continued to impede growth and recovery of the economy.

In this environment, the residential real estate segment remained resilient, supported by the more accommodating macroeconomic climate. Recovery in the retail segment was largely attributable to improved consumer sentiment, more favourable rouble exchange rates, and continued interest from international retailers. However, in the office segment, high vacancy rates and low delivery levels remained. 

An important development for the Company in 2016 was the resolution of negotiations with VTB Bank. In March 2016, the Bank notified the Company of a potential acceleration of the loans provided for the AFIMALL City and Ozerkovskaya III projects, totalling US$614 million. In September 2016, an agreement was reached through amendment to terms of the loans and provision of additional guarantees and collaterals for the Bank. As a result, the Company has retained all assets and was able to resume its focus on construction and marketing of residential projects and on managing yielding commercial properties.

Our continued focus on the development of residential projects is reflected in the progress achieved at our Odinburg development, through the completed construction of Building 2 (delivery of apartments started in March 2017) and the ongoing construction and pre-sale of apartments at the AFI Residence Paveletskaya. The sales of residential units have contributed US$54.5 million to our revenue in 2016. In Q1 2017, construction commenced at our other two residential projects in Moscow: AFI Residence Pochtovaya and the Botanic Garden.

Our yielding properties performed well throughout 2016, given the current environment; occupancy at AFIMALL City reached 84% and the footfall continued to grow. The hotels also performed well, with occupancy above 75%.

Revenue in 2016 grew by 48.2% year-on-year to US$138.3 million, supported by strong residential sales. Our gross profit increased by 17.4%, reaching US$49.4 million for the year. Nevertheless, due to valuation losses in H1 2016, we finished the year with a net loss of US$47.9 million.

Looking to 2017, we expect market conditions to gradually improve and the general macroeconomic environment to remain somewhat challenging. Whilst demand for commercial real estate remains subdued, we will continue to adapt our strategy to ensure sustainable growth of our business in the future.

 

Valuation

As at 31 December 2016, based on the Jones Lang LaSalle LLC ("JLL") independent appraisers' report, the value of AFI Development's portfolio of investment properties stood at US$0.92 billion, while the value of the portfolio of investment property under development stood at US$0.23 billion.

Consequently, the total value of the Company's assets, mainly based on independent valuation as of 31 December 2016, was US$1.4 billion, compared to US$1.4 million as at 31 December 2015.

For additional information, please refer to the "Portfolio Valuation" section in the Management Discussion and Analysis (the "MD&A"). 

 

Liquidity

We ended 2016 with approximately US$16.7 million of cash, cash equivalents and marketable securities on our balance sheet and a debt to equity level of 81%. This position reflects the Company's ability to successfully balance liquidity requirements from a number of sources.

Our financing strategy aims to maintain healthy loan-to-value levels. After delivery and commissioning, we aim to refinance the properties at more favourable terms, including longer amortisation periods, lower interest rates and higher principal balloon payments. Property rights and shares of property holding companies are mainly used as collateral for the debt. We strongly prefer, whenever possible, to use non-recourse project level financing.

For additional information, please refer to the "Liquidity" section of the MD&A.

Key developments since financial year end

 

Following the year-end the following key events occurred:

•        In February 2017, AFI Development Plc announced that its subsidiary, Sanatory Plaza LLC ("Plaza"), received a loan from VTB Bank PJSC ("VTB") to finance the acquisition of a 50% stake in the Plaza Spa Kislovodsk project ("the Project") from its partner in the Project, which was completed on 28 February 2017. The loan, in the amount of US$22.5 million, was provided in US dollars for 5 years (the term can be extended for an additional 5 years subject to agreement between the parties). It bears an annual interest rate of 3 months Libor + 4.5%, has quarterly principal payments (ranging from US$260 thousand in Q3 2017 to US$822 thousand in Q3 2021), and a balloon payment of US$11.254 million at maturity. The interest is to be paid quarterly. The loan was primarily used to repay the outstanding debt of Plaza to the Project partner's companies (US$16.9 million), prior to acquisition of the equity stake. The remainder of the loan was used to finance the acquisition itself: 50% equity stakes in both Nuana Limited and Craespon Management Limited (which together control 100% of Plaza) were purchased by AFI Development's subsidiaries for US$5.6 million in cash.

•        In March 2017, AFI Development announced completion of the acquisition of the remaining 5% stake in the Tverskaya Plaza IV project from its partner, for US$1.5 million in cash. AFI Development acquired 5% of the shares in Beslaville Management Limited, a subsidiary holding rights to the project, increasing its share from 95% to 100%.

•        In March 2017 the Company subsidiary AFI RUS Management LLC signed a facility agreement for a credit line of RUR470 million from Sberbank PJSC, with a 2 years term, to finance construction of the Odinburg project.

 

Portfolio Update

 

AFIMALL City

A significant number of leases signed during 2011, when AFIMALL opened its doors to the public, expired in 2016. As a result, Mall management invested significant resources during the year in maintaining stable occupancy levels (84% at the end of 2016) through the renewal of leases or re-leasing to new tenants.

Marketing and promotional efforts at the Mall focused on attracting a family audience at weekends, as well as on targeted sales promotions in the fashion segment.  

The footfall at the Mall continues to grow; average monthly footfall in December 2016 was 3% higher than in December 2015.

A number of new retailers recently opened outlets at the Mall, including a furniture and home improvement hypermarket, Hoff Home (1,200 sq.m); a book shop "Knizhny Labirint" (300 sq.m); an Armani Exchange boutique (170 sq.m) and an innovative confectionary shop "Alenka" (200 sq.m).

AQUAMARINE III (OZERKOVSKAYA III)

Following the disposal of Building 1 to diamond miner ALROSA, AFI Development retains title to the remaining three buildings of the complex, which have a combined GBA of 61,579 sq.m and GLA of 46,247 sq.m. The Company is currently in negotiations with potential buyers and tenants with regards to these buildings. 

HOTELS

AFI Development's hospitality portfolio, which consists of one Moscow city-hotel (Aquamarine) and two resorts in the Caucasus mineral waters region (Plaza Spa Kislovodsk and Plaza Spa Zheleznovodsk), continued to produce strong results in 2016. The Caucasus resorts, in particular, continued to benefit from increasing levels of Russian domestic tourism. Since February 2017, AFI Development owns 100% of the Plaza Spa Kislovodsk project, following its acquisition of the remaining 50% stake.

 

ODINBURG

The construction works of Phase 1 ("Korona") and supporting infrastructure are underway. Construction of both Building 1 and Building 2 are complete. All apartments sold in Building 1 have been delivered to customers, and delivery of apartments in Building 2 commenced in March 2017. At present, a Kindergarten is being built as part of Phase 1, while the development team prepares the next buildings for construction launch - these will be Building 6 (to be launched in Q2 2017) and Building 3 (to be launched in Q3 2017).

As of the date of publication of this report, 715 out of 723 contracts for sales of apartments in Building 1 have been signed, while for Building 2, 480 of 706 contracts are signed.

 

AFI RESIDENCE PAVELETSKAYA (PAVELETSKAYA PHASE II)

In December 2015, AFI Development successfully launched the main construction phase of the project. Flat and "apartment"2 pre-sales started simultaneously with the construction launch. The project continues to be marketed as "AFI Residence Paveletskaya". As of the date of publication of this report, 172 contracts combined for pre-sales of both "flats" and "apartments" have been signed.

 

BOLSHAYA POCHTOVAYA

During 2016, the Company completed all preparatory steps required to launch the main construction stage. After receiving a construction permit in December 2016, the construction of the first phase was launched in Q1 2017. Marketing of apartments is scheduled to start in Q2 2017.

 

BOTANIC GARDEN

Following revision of the project in 2016, AFI Development obtained an updated construction permit and launched the main construction phase in March 2017. Marketing of apartments has started as well.

 

Market Overview - General Moscow Real Estate

Macroeconomic Environment

With an estimated GDP decline of 0.8% (IMF), the Russian economy contracted less than expected in 2016, as gains in oil prices impacted positively on the economy. Inflation continued to decline, reaching 5.4% by year-end, helped by the appreciation of the rouble during the fourth quarter.

The country's macroeconomic environment remained negatively impacted by international sanctions. Real disposable incomes continued to shrink by around 5-6%, causing further contractions in sales volumes and impeding economic growth. Despite gradual improvement towards the end of the year, the Central Bank of Russia maintained its conservative monetary policy, with the key lending rate at 10%.

As market volatility subsides, Russian real estate investment volumes continue to rise. In 2016, investment levels reached US$4.2bn, a 74% increase versus 2015. Of this investment, 80% occurred in AFI Development's core market of Moscow.

(Sources: Russia Real Estate Investment Market, Q4 2016, JLL; Oxford Economics Russia Country Economic Forecast, February 2017)

Moscow Office Market

Demand in the Moscow office market saw an improvement in 2016, reflected in the 22% year-on-year increase in take-up to 1.06 million sq. m. At the same time, the volume of new office completions reached a record low of 317,300 sq.m. The Class A segment was a key contributor to this decline, with new delivery at 70,500 sq.m; four times lower than in 2015. This high demand and low supply resulted in an improvement in the vacancy rate to 15.9%, 1.8ppts below 2015 levels (for combined Classes A and B).

Renewals and renegotiation volumes decreased in 2016, as did their contribution to total transactions, which was at 27%, down from 39% in 2015.

US dollar denominated leases accounted only for 10% of leased space in 2016 as rouble denominated leases continued to dominate the market. Strengthening of the rouble helped office rental rates to stabilise during the year.

Finally, the opening of the Moscow Central Circle line (MCC) railroad during the second half of 2016 represents another key improvement in infrastructure. The new commuter train, integrated into the main Moscow transport infrastructure, provides further access to existing offices in the Moscow-City area.

(Source: Moscow Office Market, Q4 2016, CBRE Martketview; The MCC and the Moscow Real Estate Market, December 2016, JLL, IMF)

Moscow Retail Market

Despite delivery of 473,000 sq. m of new shopping space (2015: 441,000 sq. m), rental rates for Moscow shopping centres remained broadly stable throughout 2016 (prime rent: RUR195,000; average rent: RUR74,000) with vacancy rates at year-end at 10.2%.

Continued interest in the Moscow retail market is reflected in the market entry of 34 new international retailers in 2016, the majority of which came from Italy, France and the UK.

In addition to the office market, the opening of the Moscow Central Circle line has implications for the City's retail dynamics. The opening of a MCC station near AFIMALL City has further improved access to the Mall. Areas surrounding MCC stations offer growth potential for real estate developers and are expected to drive future construction and development of retail centres.

(Source: Moscow Retail Market, Q4 2016, CBRE Martketview; Moscow Shopping Centre Market, Q4 2016, JLL; The MCC and the Moscow Real Estate Market, December 2016, JLL)

Moscow Residential Market

At the end of Q4 2016, the supply on the "Old Moscow" primary residential market (excluding "apartments") was about 2.4 million sq.m (about 37,692 residential units), an increase of 2% compared to the end of Q3 2016. The supply in "New Moscow" was about 588.2 thousand sq.m.

By the end of Q4 2016, the weighted average asking price in Moscow's newly built business class residential market amounted to RUR250,600 (US$4,030) per sq.m. Compared with the end of Q3 2016, the average price increase in roubles was 1%.  In the comfort class, the weighted average asking price was RUR156,000 (US$2,510) per sq.m.

The level of mortgage financed acquisitions of residential units increased by 32.6% in 2016 versus 2015, due to continued state support through the mortgage lending support programme (introduced in 2015) and a wide spectrum of special offers by developers.

(Sources: Miel Real Estate - Overview of newly built housing of Moscow, January 2017, Blackwood - Overview of the Moscow Residential Market, Q4 2016)

 

Board of Directors


The Directors of AFI Development as at the date of this announcement are as set out below:

 

Mr. Lev Leviev, Executive Chairman of the Board

Mr. Panayiotis Demetriou, Senior Non-Executive Independent Director

Mr. David Tahan, Non-Executive Independent Director

 

 

 

Lev Leviev

Executive Chairman of the Board

 

 

7 April 2017

 

 

 

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Overview

As at 31 December 2016, the Company's portfolio consisted of 8 investment properties, 6 investment properties under development, 2 trading properties under development, 1 inventory of real estate and 4 hotel projects. The portfolio comprises commercial projects focused on offices, shopping centres, hotels and mixed-use properties, as well as residential projects, in prime locations in Moscow. The total value of the Company's assets, based predominantly on independent valuation as of 31 December 2016, was US$1.4 billion3. About 64% of the assets book value is attributed to yielding properties.

Revenues for 2016 increased by 48.2% year-on-year to US$138.3 million, mainly as a result of residential disposals. The average exchange rate of RUB to USD increased by 10.0% during 2016. AFI Development recorded a 17% year-on-year decrease in gross profit to US$49.4 million as a result of this. Cash, cash equivalents and marketable securities decreased by 60.7% to US$16.7 million as at 31 December 2016, due to debt servicing and financing of construction work partly from own capital, and as a result of a sale of bonds in the amount of US$18.1 million and US$4.2 million worth of bonds maturing during the period.

In 2016, AFI Development incurred a net loss of US$47.9 million, compared to net loss of US$466.7 in 2015.

Key Factors Affecting our Financial Results

Our results have been affected, and are expected to be affected in the future, by a variety of factors, including, but not limited to, the following:

Macroeconomic Factors

Our properties and projects are mainly located in the Russian Federation. As a result, Russian macroeconomic trends and country-specific risks significantly influence our performance.

The following table sets out certain macroeconomic information for the Russian Federation as of and for the dates indicated:

 

 

Year ended 31

December 2016, %

Year ended 31

December 2015, %

Real Gross Domestic Product growth

-0.8

-3.8

Consumer prices growth (inflation)

7.2

15.5

 

Source: The International Monetary Fund

 

The following factors affected our performance in 2016:

·    In Q1 and Q2 2016, the Company transferred the pre-sold apartments in Building 1 of the Odinburg project to customers, allowing it to recognise revenue from sales of residential units in the amount of $54.0 million.

·    Due to an agreement reached with VTB Bank PJSC in September 2016, the Company did not make principal payments in Q2, Q3 and Q4 under the loan agreements at the Ozerkovskaya III and AFIMALL City projects, which resulted in cash outflow reduction of US$ 25.2 million for 2016.

 

Key Portfolio Updates

 

YIELDING ASSETS

AFIMALL City

AFIMALL City is a major retail centre located in the high-rise business district of Moscow, "Moscow-City". With a total GBA of nearly 283,182 sq.m (including parking), and GLA of nearly 107,000 sq.m, the project has a shopping gallery of nearly 400 shops and an 11-screen movie theatre with a number of additional outstanding leisure facilities. AFIMALL City is one of Europe's largest and most ambitious retail developments in recent years. The Mall introduces a new standard of quality to the Russian retail sector and offers visitors a combined shopping, dining and entertainment experience unmatched in any other retail development in Moscow.

Many leases that began in 2011 (the opening year of AFIMALL) expired and had to be renewed in 2016. Mall management achieved stable occupancy levels (84% at the end of 2016) through the renewal of leases or re-leasing to new tenants.

Marketing and promotional efforts at the Mall focused on attracting a family audience at weekends, as well as on targeted sales promotions in the fashion segment.  

The footfall at the Mall continues to grow; average monthly footfall in December 2016 was 3% higher than in December 2015.

A number of new retailers recently opened outlets at the Mall: a furniture and home improvement hypermarket, Hoff Home (1,200 sq.m); a book shop "Knizhny Labirint" (300 sq.m); an Armani Exchange boutique (170 sq.m) and an innovative confectionary shop "Alenka" (200 sq.m) are among the most notable.

The transportation infrastructure in the Moscow City continued to improve in 2016: the new central ring railroad began operations in September, with a station "City" in close vicinity to the AFIMALL.

According to independent appraisers JLL, the market value of AFIMALL City as of 31 December 2016 was US$666.5 million.

AQUAMARINE III (OZERKOVSKAYA III)

Ozerkovskaya (Aquamarine) III is an office complex forming part of the "Aquamarine" mixed-use development, located on the Ozerkovskaya embankment in the very heart of the historical Zamoskvorechie district of Moscow. The project consists of three Class A buildings of 46,247 sq.m of combined lettable space4 and common underground parking for 446 cars. The project creates very attractive working conditions through state-of-the-art architecture, innovative design and efficient use of space. Due to these characteristics, "Aquamarine III" sets new standards for quality and an aspirational environment among Moscow's commercial developments.

AFI Development is in negotiations with potential buyers and tenants regarding selling or leasing the project either in full or in parts.

According to independent appraisers JLL, the market value of the remaining buildings of the Complex as of 31 December 2016 was US$198.5 million.

HOTELS

The Company's portfolio includes three hospitality projects, one located in Moscow and the remaining two in the Caucasus Mineral Waters region.

AQUAMARINE HOTEL

The Aquamarine Hotel is a modern, 4 star hotel located in the heart of Moscow. It is part of the company's mixed-use Aquamarine development, which also houses an A-class office centre Aquamarine III and completed elite residential complex Aquamarine II.

The Hotel provides high level services and offers 159 spacious rooms, a fitness-centre, spa-centre, bar, restaurant, and conference rooms. It is located in the Zamoskvorechie district which is a 20 minute walk from both the Kremlin and the Tretyakov Gallery and a 5 minute walk from the Novokuznetskaya and Tretyakovskaya metro stations. The Hotel has added to the infrastructure of the historical district and is convenient for both business travellers and tourists.

Despite slowdown in international business activity in Moscow and growing competition, the hotel demonstrated strong performance in 2016, with average occupancy at 76%.

The balance sheet value of the project as of 31 December 2016 was US$15.3 million.   

PLAZA SPA HOTEL ZHELEZNOVODSK

Plaza Spa Zheleznovodsk is a sanatorium project which was launched in the summer of 2012 and is located in Zheleznovodsk, in the Caucasus mineral waters region. The hotel comprises 134 guest rooms on 9,526 sq.m of gross buildable area. The spa provides diagnostic assessment and treatment of urological diseases.

During 2016 the hotel performed well, with strong occupancy levels which reached an average of 76% for the year. The hotel continued to benefit from the growing domestic demand for quality resorts.  

The balance sheet value of the project as of 31 December 2016 was US$11.1 million.   

PLAZA SPA KISLOVODSK

The Plaza Spa is located in the city centre of Kislovodsk, in the Caucasus mineral waters region. The facility began operations in 2008 after a full reconstruction and now has a total of 275 rooms spread over 25,000 sq.m.

Today, the Plaza Spa Kislovodsk is a popular spa hotel which has established new standards of quality and hospitality for the entire region. It offers an extensive range of medical services focused on the treatment of cardiac diseases. Diagnostic and treatment equipment is continually updated and staff regularly attend training sessions for new methods of treatment to aid patient rehabilitation.

Similarly to Plaza Spa Zheleznovodsk, the hotel demonstrated strong performance, with average annual occupancy at 78% for the year.

Since February 2017, AFI Development owns 100% of the project, after acquiring a 50% stake from its partner.

The balance sheet value of the Company share in the project (50%) as of 31 December 2016 was US$13.8 million.   

 

DEVELOPMENT PROJECTS

ODINBURG

In October 2013, AFI Development began construction at "Odinburg", one of the Company's largest residential projects with a total area of over 33 hectares located 11 km west of Moscow in the town Odintsovo. 

The development is planned to include multi-functional infrastructure comprising of two schools, two kindergartens, a medical centre and other facilities.

The project involves construction of a multi-storey residential micro district consisting of two phases:

Phase I - Construction of a 22-section residential building named Korona (Crown) and of the infrastructure for the kindergartens and schools. This will have a total sellable area of 154,774 sq.m (2,712 apartments);

Phase II - Construction of 8 residential buildings and of infrastructure for the kindergartens, schools and outdoor multi-level parking. This will have a total sellable area of 307,226 sq.m (6,474 apartments). Each phase includes commercial premises on the ground floor that are planned to be sold to end users.

Phase 1 ("Korona") construction and supporting infrastructure construction works are underway. Construction of both Building 1 and Building 2 are complete. All apartments sold in Building 1 have been delivered to customers, and delivery of apartments in Building 2 commenced in March 2017. At present, a Kindergarten is being built as part of Phase 1, while the development team prepares the next buildings for construction launch - these will be Building 6 (to be launched in Q2 2017) and Building 3 (to be launched in Q3 2017).

As of the date of publication of this report, 715 out of 723 contracts for sales of apartments in Building 1 have been signed, while for Building 2, 480 of 706 contracts are signed.

The balance sheet value of the project as of 31 December 2016 was US$150.2 million.

 

PAVELETSKAYA II (AFI RESIDENCE PAVELETSKAYA)

Paveletskaya Phase II is a modern residential complex in proximity to  Moscow city centre on Paveletskaya Embankment. The project is located in Danilovsky Subdistrict (the South Administrative district of Moscow), between the Garden ring and the Third Transportation Ring and is easily accessible by private or public transport. The property is currently under construction.

The project consists of three phases:

Phase I - includes several residential buildings with total General Buildable Area (GBA) of 50,370 sq.m and total General Sellable Area (GSA) of 30,824 sq.m. This phase is planned to include 175 flats, 220 apartments and 5,847 sq.m of flexible commercial space. 

Phase II - is planned to have GBA of 52,080 sq.m and total GSA of 27,593 sq.m. This phase is planned to include flats and 1,403 sq.m of flexible commercial space.

Phase III - is planned to have GBA of 31,060 sq.m and total GSA of 20,452 sq.m. This phase is planned to include flats and 9,842 sq.m of flexible commercial space.

At AFI Residence Paveletskaya there are two types of residential units: fully residentially zoned units referred to as "flats" and commercially zoned units that, according to common market practice in Russia, are sold and referred to as "apartments" and can be used for permanent residence. Pre-sales of both "flats" and "apartments" started simultaneously with the construction launch. As of the date of publication of this report, 172 contracts for pre-sales of both "flats" and "apartments" have been signed.

The balance sheet value of the project as of 31 December 2016 was US$76.7 million.  

BOLSHAYA POCHTOVAYA (AFI RESIDENCE POCHTOVAYA)

Bolshaya Pochtovaya is a mixed-use project (predominantly residential). It is located in an attractive neighbourhood in the central administrative district of Moscow. The area benefits from a developed infrastructure: transport, shops and cultural/leisure amenities as well as a nearby river which significantly enhances the views from the project. It boasts a GBA of 136,581 sq.m on a land area of 5.65 hectares. The construction will be realised in four phases:

Phase I - includes several residential buildings with total General Buildable Area (GBA) of 40,788 sq.m and total General Sellable Area (GSA) of 25,969 sq.m. This phase is planned to include apartments, 8,578 sq.m of flexible commercial space and a kindergarten. 

Phase II - is planned to have GBA of 37,373 sq.m and total GSA of 21,483 sq.m. This phase is planned to include apartments and 3,382 sq.m of flexible commercial space.

Phase III - is planned to have GBA of 35,629 sq.m and total GSA of 22,719 sq.m. This phase is planned to include apartments and 2,953 sq.m of flexible commercial space.

Phase IV - is planned to have GBA of 22,792 sq.m and total GSA of 14,744 sq.m. This phase is planned to include apartments and 1,002 sq.m of retail space.

During 2016 the Company completed all preparatory steps required to launch the main construction stage. After receiving a permit in December 2016, the construction of the first phase was launched in Q1 2017. The marketing of apartments is scheduled to start in Q2 2017.

Based on an independent valuation of the Company portfolio by JLL as of 31 December 2016, the fair value of Bolshaya Pochtovaya is US$74.1 million. 

BOTANIC GARDEN

Botanic Garden is a residential project, located in the North-Eastern Administrative District of Moscow, approximately 8 km from the Third Transportation Ring, near the major transportation route of the district Prospect Mira, within walking distance of Botanicheskuiy Sad and Sviblovo metro stations. The future residential complex has a land plot of 3.2 Ha and a gross building (GBA) of 200,6355 sq.m: 107,350 sq.m of residential area, 8,611 sq.m of commercial premises and 794 underground and above ground parking lots.

Following revision of the project in 2016, AFI Development obtained an updated construction permit and launched the main construction phase in March 2017.

The balance sheet value of the project as of 31 December 2016 was US$21.5 million. 

TVERSKAYA PLAZA IC

Tverskaya Plaza Ic is a Class A office development complex located in the cultural and business quarter of the Tverskoy sub-district. The complex is located within a 4-minute walk of Belorusskaya metro station, which serves as the main transport hub linking the city centre with one of Moscow's main airports - Sheremetievo International Airport. The project has a GBA of 61,810 sq.m (including underground parking of approximately 521 parking spaces) and an estimated GLA of 37,035 sq.m 

Following the registration of a 10-year land lease agreement, the Company successfully finalised the development concept, received the necessary construction permit and completed all pre-construction works. AFI Developments plans to start construction of this project as soon as it has secured debt financing on favourable terms and the market situation improves.

Based on an independent valuation of the Company's portfolio by Jones Lang LaSalle as of 31 December 2016, the fair value of Tverskaya Plaza Ic is US$66.0 million.

TVERSKAYA PLAZA IV

Plaza IV is a Class A office development with supporting ground level retail zones, located at 11, Gruzinsky Val. The project has a GBA of 108,000 sq.m (including underground parking) and an estimated GLA of 61,350 sq.m

The Company has completed necessary steps for securing the land lease agreement with Moscow authorities. 

Based on an independent valuation of the Company portfolio by Jones Lang LaSalle, as of 31 December 2016, the fair value of the Company share in Plaza IV (95%) was US$61.3 million.

KOSSINSKAYA 

Kossinskaya is mixed-use building totalling 108,528 sq.m with nine aboveground floors and a single underground level. The property was constructed in 2005.

Based on an independent valuation of the Company portfolio by JLL as of 31 December 2016, the fair value of Kossinskaya is US$28.3 million.  

 

LAND BANK

In addition to multiple yielding properties and projects under development, AFI Development also has a land bank which consists of projects that are not currently under development.

 

By retaining full flexibility regarding future development of these projects, the Company remains well placed to benefit from further recovery in the regional real estate markets. Given its strong track record in bringing projects to completion, this represents a significant competitive advantage for AFI Development.

 

AFI Development's strategy with respect to its land bank is to activate projects only upon securing necessary financing and having full confidence in the demand levels of prospective tenants or buyers.

 

 

Key Events Subsequent to 31 December 2016

 

Following the year-end the following key events occurred:

 

·      In February 2017, AFI Development Plc announced that its subsidiary, Sanatory Plaza LLC ("Plaza"), received a loan from VTB Bank PJSC ("VTB") to finance the acquisition of a 50% stake in the Plaza Spa Kislovodsk project ("the Project") from its partner in the Project, which was completed on 28 February 2017. The loan, in the amount of US$22.5 million, was provided in US dollars for 5 years (the term can be extended for an additional 5 years subject to agreement between the parties). It bears an annual interest rate of 3 months Libor + 4.5%, has quarterly principal payments (ranging from US$260 thousand in Q3 2017 to US$822 thousand in Q3 2021), and a balloon payment of US$11.254 million at maturity. The interest is to be paid quarterly. The loan was primarily used to repay the outstanding debt of Plaza to the Project partner's companies (US$16.9 million), prior to acquisition of the equity stake. The remainder of the loan was used to finance the acquisition itself: 50% equity stakes in both Nuana Limited and Craespon Management Limited (which together control 100% of Plaza) were purchased by AFI Development's subsidiaries for US$5.6 million in cash.

·      In March 2017, AFI Development announced completion of the acquisition of the remaining 5% stake in the Tverskaya Plaza IV project from its partner, for US$1.5 million in cash. AFI Development acquired 5% of the shares in Beslaville Management Limited, a subsidiary holding rights to the project, increasing its share from 95% to 100%.

·      In March 2017 the Company subsidiary AFI RUS Management LLC signed a facility agreement for a credit line of RUR470 million from Sberbank PJSC, with a 2 years term, to finance construction of the Odinburg project.

 

Disposals and Acquisitions 

During 2016, the Company disposed of a building on Sadovaya Samotechnaya Street in Moscow, which was purchased in 2014 in relation to the Botanic Garden Project: The Company subsidiary ZAO "Moskovsky tkatsko-otdelochny kombinat" sold the building on 7 April 2016 for RUR86 million including VAT (approximately US$1.3 million).

 

During 2016, the Company did not make any acquisitions.

 

Presentation of Financial Information

Our consolidated financial statements were prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union ("EU"), and the requirements of the Companies Law of Cyprus, Cap. 113. IFRS differs in various material respects from US GAAP and UK GAAP.

Financial policies and practices

Revenue Recognition

The key elements of our revenue recognition policies are as follows:

·    Rental income. We recognise rental income from leased investment properties under operating leases in our statement of comprehensive income on a straight line basis over the term of the lease. Rental income also includes income from hotel operations.

·    Income from hotel operations. Income from hotel operations comprises of accommodation, treatments and other services offered at the hotels operated by the Group, as well as sales of food and beverages, and are recognised on acceptance of the service by the client.

·    Sales of trading properties. We recognise revenue from the sales of trading properties in our statement of comprehensive income when the risks and rewards of ownership of the property are transferred to the buyer. When we receive down payments in connection with the sale of trading property that is under construction, we record this figure in current liabilities on our balance sheet at the time of sale.

·    Construction Management fee. Revenue from construction management is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

Operating expenses

Operating expenses consist mainly of employee wages, social benefits and property operating expenses, including property tax, which are directly attributable to revenues.  We recognise as expenses in our statement of comprehensive income the costs of employees who have provided construction consulting and construction management services with respect to our investment and trading properties. We also recognise property operating costs (including outsourced building maintenance), utilities, security and other tenant services related to our properties that generate rental income, as expenses on our statement of comprehensive income.

Administrative expenses

Our administrative expenses comprise primarily of general and administrative expenses such as, audit and consulting, marketing costs, charity, travelling and entertainment, office equipment, as well as depreciation expenses related to our office use motor vehicles, bad debt provisions and other provisions.

Profit on disposal of investment in subsidiaries

We recognise profit or loss from the sale of interests in our subsidiaries when the risks and rewards of ownership are transferred to the buyer in the transaction.

Share of the after tax (loss)/profit of joint ventures

A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Interests in joint ventures are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group's share of the profit or loss and OCI of equity-accounted investees, until the date on which joint control ceases.

Gross Profit

Gross profit is the result of the Group's operations and comprises revenue and other income net of all cost for trading properties sold and operating, administrative and other expenses, recognised in profit or loss during the year.

Revaluation of investment property

An external, independent valuation company (with appropriate recognised professional qualifications and recent experience in the location and categories of properties being valued) values the Company's investment property portfolio every six months. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation in a transaction between a willing buyer and a willing seller after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion. The difference between revalued fair value of investment property and its book value is recognised as gain or loss in the statement of comprehensive income.

Operating profit before net finance costs

Operating profit before net finance costs is calculated by adding revenue, other income, profit on disposal of investment in subsidiaries and valuation gains on investment property, and subtracting operating expenses, administrative expenses and other expenses.

Finance income

Our finance income comprises net foreign exchange gain, if any, and interest income. We recognise foreign exchange gains and losses, principally in connection with US Dollar or other foreign currency denominated payables and receivables of our Russian subsidiaries, whose functional currency is the Russian Rouble. Our interest income is derived primarily from interest on our bank deposits and interest on loans to our joint ventures.

Finance expenses

Our finance expense comprises net foreign exchange loss, if any, and interest expense on outstanding loans less interest capitalised. We recognise foreign exchange gains and losses principally in connection with US Dollar denominated payables and receivables of our Russian subsidiaries, whose functional currency is the Russian Rouble. We capitalise our interest expense with respect to our development projects that are under construction, for which amounts are not reflected as expenses in our statement of comprehensive income. When funds are borrowed specifically for a particular project, we capitalize all actual borrowing costs related to the project less income earned on the temporary investment of such borrowings and when funding for a project is obtained from our general funds, we capitalise only funding costs related to the particular project based on the weighted average of the borrowing costs applicable to our general funds. Capitalisation of borrowing costs commences when the activities to prepare the asset are in process and expenditures and borrowing costs are incurred. Capitalisation of borrowing costs may continue until the assets are ready for their intended use.

Foreign currency gain or loss on financial assets and financial liabilities is reported on a net basis as either finance income or finance expense depending on whether foreign currency movements are in a net gain or net loss position.

Income tax expense

Income taxes are calculated based on tax legislation applicable to the country of residence of each of our subsidiaries and, as a company based and organised in Cyprus, we are subject to income tax in Cyprus. We and our Cypriot subsidiaries are currently subject to a statutory corporate income tax rate of 12.5% in Cyprus. Our Russian subsidiaries were subject to corporate income tax at a rate of 20%.

Capitalisation of Costs for Properties under Development 

We capitalise all costs directly related to the purchase and construction of properties developed as both investment properties and trading properties, including costs to acquire land rights and premises, design costs, permit costs, costs of general contractors, costs relating to the lease of the underlying land and the majority of employee costs related to such projects.

In addition, we capitalise financing costs related to development projects only during the period of construction. We do not, however, commence the capitalising of financing costs related to expenditures on a project until construction has begun. Since the Company's adoption of IAS 40 from 1 January 2009, upon completion of construction works, property classified as investment property under development (which are those properties that are being constructed or developed for future use to earn rental income or for capital appreciation) is appraised to market value and reclassified as an investment property and any gain or loss on appraisal is recognised in our statement of comprehensive income. Trading properties, which include those projects where we intend to sell the entire project as a whole or in part (this principally includes our residential development projects), are represented on our balance sheet at the lower of cost and net realizable value, which is the estimated selling price in the ordinary course of business, less the estimated costs of completion and sale.

Exchange Rates

Our consolidated financial statements are presented in US Dollars, which is our functional currency. The functional currency of our Russian subsidiaries and joint ventures and one Cyprus company is the Russian Rouble. The balance sheets of our Russian subsidiaries are translated into US Dollars in accordance with IAS 21, whereby assets and liabilities are translated into US Dollars at the rate of exchange prevailing at the balance sheet date and income and expense items are translated into US Dollars at the average exchange rate for the period. If the volatility of the exchange rates is high for a given year or period, the Company uses the average rate for shorter periods i.e. quarters or months for income and expense items. All resulting foreign currency exchange rate differences are recognised directly in our shareholders' equity under the line item "translation reserve."

When a foreign operation is disposed of in its entirety or partially such that control or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. The monetary assets and liabilities of our Russian subsidiaries that are denominated in currencies other than Russian Roubles are initially recorded by our subsidiaries at the exchange rate between the Russian Rouble and such foreign currency prevailing at such date. Such monetary assets and liabilities are then retranslated into Russian Roubles at the exchange rate prevailing at each subsequent balance sheet date. We recognise the resulting exchange rate differences between the dates at which such assets or liabilities were originally recorded and at subsequent balance sheet dates as foreign exchange losses and gains in our statement of comprehensive income. In particular, during the period under review, we have recognised foreign exchange rate gains and losses in connection with US Dollar denominated payables and receivables of our Russian subsidiaries.

Recovery of VAT

We pay VAT to the Russian authorities with respect to construction costs and expenses incurred in connection with our projects, which, according to Russian tax law, can be recovered upon completion of construction. Under a revised Russian VAT legislation, VAT can also be claimed during the period of construction provided that all required documentation is presented to the VAT authorities. We have accordingly included recoverable VAT as an asset on our balance sheet, the size of which we expect will slightly decrease as the development of our projects advances and necessary documents will be obtained.

Deferred Taxation

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Under Russian tax law, capitalisation of certain costs in relation to the design, construction and financing of projects that are capitalised for the purposes of consolidated financial statements under IFRS is not allowed. As a result, our tax bases in the related assets may be lower than our accounting bases for IFRS purposes, which would result in deferred tax liabilities. However, the recognition of such costs as expenses may result in accumulated tax losses for Russian tax purposes that we may be able to carry forward against estimated future profits, resulting in deferred tax assets. However, such tax losses may only be carried forward to offset gains for a ten-year period and they may only be utilised in the Russian subsidiary/branch in which such tax losses were generated.

Measurement of fair values

Our future results of operations may be affected by our measurement of the fair value of our investment properties and changes in the fair value of such properties. Upon completion of construction, the projects that we have classified as investment property under development are reassessed at fair value and reclassified as investment property, and any gain or loss as a result of reassessment is recognised in our statement of comprehensive income.

Any change in fair value of the investment property under development is thereafter recognised as a gain or loss in the statement of comprehensive income. Accordingly, fair value measurements of investment properties under development may significantly affect results of operations even if the Company does not dispose of such assets.

We have an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values and reports directly to the CFO. The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

 

Results of Operations

Description of Statement of comprehensive income Line Items

Summary of statement of comprehensive income for 2016 and 2015

 

 

US$ million

For the year ended 31 December 2016

For the year ended 31 December 2015

Change 2016 /  2015

Revenue

 

 

 

 

Construction consulting/management services

                                      0.2

                                      0.1

                                    0.1  

48.2%

Rental income

                                    83.6

                                    92.9

                                     (9.3)

(10.0)%

Sale of residential

                                    54.5

                                      0.7

                                  53.8  

7980.0%

 

                                  138.3

                                    93.7

                                  44.6  

47.6%

Expenses

 

 

 

 

Other income

                                      3.5

                                      3.1

                                    0.5  

16.9%

Operating expenses

                                   (38.8)

                                   (40.5)

                                    1.7  

(4.1)%

Administrative expenses

                                     (6.6)

                                   (10.6)

                                    4.1  

(38.1)%

   including Bad debt provisions and write-offs

                                      1.3

                                      0.1

                                      1.2

1218.0%

Cost of sales of residential

                                   (49.5)

                                     (0.6)

                                   (48.9)

8025.3%

Other expenses

                                     (1.3)

                                     (1.6)

                                    0.3  

(19.3)%

 

                                   (92.7)

                                   (50.4)

                                   (42.3)

84.0%

Share of the after tax (loss)/profit of joint ventures

                                      3.7

                                     (1.3)

                                    5.1  

(383.1)%

 

 

 

 

 

 

Gross profit

                                    49.4

                                    42.1

                                    7.3  

17.4%

 

 

 

 

 

Profit on disposal of investments in subsidiaries

                                      1.8

                                      -

                                    1.8  

1815.2%

 

 

 

 

 

Valuation loss on properties

                                 (123.0)

                                 (434.4)

                                311.3  

(71.7)%

Impairment loss on inventory of real estate

                                       -  

                                   (12.7)

                                  12.7  

(100.0)%

 

 

 

 

 

Results from operating activities

                                   (71.9)

                                 (404.9)

                                333.0  

(82.2)%

 

 

 

 

 

Finance income

                                      2.1

                                      4.2

                                     (2.1)

(49.2)%

Finance expense

                                   (44.6)

                                   (46.2)

                                    1.6  

(3.4)%

FX Gain/( Loss)

                                    63.7

                                 (110.3)

                                174.0  

(157.7)%

Net finance income/(costs)

                                    21.2

                                 (152.3)

                                173.5  

(113.9)%

 

 

 

 

 

Profit before income tax

                                   (50.7)

                                 (557.2)

                                506.5  

(90.3)%

 

 

 

 

 

Income tax expense

                                      2.8

                                    90.5

                                   (87.8)

(97.0)%

 

 

 

 

 

Loss from continuing operations

                                   (47.9)

                                 (466.7)

                                418.7  

(89.7)%

 

Revenue - General Overview

 

To date, we have derived revenues from three sources: rental income, sale of residential properties and construction consulting and management fees.

 

Rental income

 

We derive rental income from our investment properties and hotels that we acquired or developed in the past.

 

US$ million

For the year ended 31 December 2016

For the year ended 31 December 2015

Change 2016/2015

US$ million

%% 

Investment property

AFIMALL City

                  66.2

                  71.3

        (5.1)

(7.1)%

H2O office building

                    0.9

                    1.2

        (0.3)

(23.8)%

Berezhkovskya office building

                    1.8

                    2.3

        (0.6)

(24.3)%

Paveletskaya I

                    0.0

                    1.4

        (1.3)

(96.8)%

Premises at  Bolshaya Pochtovaya

                    1.0

                    2.7

        (1.7)

(61.9)%

Premises at Plaza IV (Gruzinsky Val)

                    0.0

                    0.0

        (0.0)

(9.5)%

Premises at Tverskaya Zastava Square

                    1.7

                    1.9

        (0.2)

(8.9)%

Ozerkovskaya (Aquamarine) III

                    0.5

                    0.6

        (0.2)

(25.1)%

Other land bank assets

                    0.1

                    0.2

        (0.1)

(36.0)%

Hotels

Aquamarine hotel

                    5.0

                    5.1

        (0.1)

(2.7)%

Plaza Spa Hotel (Zheleznovodsk)

                    6.3

                    6.2

          0.1

1.6%

 

 

 

 

 

Total

                  83.6

                  92.9

        (9.3)

(10.0)%

 

Sale of residential

 

US$ million

For the year ended 31 December 2016

For the year ended 31 December 2015

Change 2016/2015

US$ million

%%

Revenue

 

 

 

 

Ozerkovskaya II

                    0.5

                    0.6

            (0.1)

(23.3)%

4 Winds residential

                      -  

                    0.1

            (0.1)

100.0%

Odinburg

                  54.0

                      -  

           54.0

100.0%

Total

                  54.5

                    0.7

           53.8

7980.0%

 

 

Sale of residential. Our income from sale of residential increased by US$53.8 million, from US$0.7 million in 2015 to US$54.5 million in 2016, due to sale of residential units in the Odinburg project.

Operating expenses. Our operating expenses decreased by 4.1% year-on-year to US$38.8 million in 2016 (2015: US$40.5 million), as a result of cost savings.

Administrative expenses. Our administrative expenses decreased by 38.1 % year-on-year to US$6.6 million in 2016 (2015: US$10.6 million). The decrease is attributable to increase in reverse of bad debt provision from US0.1 in 2015 to US$1.3 in 2016, as well as other cost saving initiatives across the Company.

Net valuation gain/(losses) on properties.  Net result of investment property valuation changed from a loss of US$434.4 million in 2015 to a loss of US$123.0 million in 2016. For additional information, please refer to "Portfolio Valuation" section below.

Impairment loss on inventory of real estate. Net result of real estate impairment increased from a loss of US$12.7 million in 2015 to US$0.0 million in 2016 due to reversal of the Botanic Garden project from Investment of real estate to Trading property under construction, and corresponding change in recognition policy. For additional information, please refer to "Portfolio Valuation" section below.

Finance income. Our finance income decreased by 49.2 % year-on-year to US$2.1 million in 2016 (2015: US$4.2 million). The decrease was a result of the change in the Company financial investments portfolio.

Finance expense. Our finance expense decreased by 3.4 % year-on-year to US$44.6 million in 2016 (2015: US$46.2 million), as a result of Russian Rouble devaluation versus the US Dollar (the average exchange rate of RUB to USD increased by 10.0% during 2016.

FX Gain/(Loss). We recorded a foreign exchange gain of US$63.7 million in 2016, against a loss of US$110.3 million in 2015. This was a result of Russian Rouble appreciation versus the US Dollar during 2016.

Income tax expense. Our current tax expense decreased to a reverse of US$0.6 million compared to accrual of US$0.8million in 2015. This was due to correction of tax expenses in a Group company for a prior year.

Profit/Loss for the year. Due to the factors described above, we recorded a US$47.9 million net loss for 2016 compared to net loss of US$466.7 million for 2015.

 

Liquidity and Capital Resources

 

Cash flows

Summary of cash flows for 2016 and 2015

 

US$ thousand

For the year ended 31 December 2016

For the year ended 31 December 2015

Net cash from operating activities

 35,185 

 34,374 

Net cash from/(used in) investing activities

 9,126

 (14,815) 

Net cash from/(used in) financing activities

(58,035) 

(80,003) 

Effect of exchange rate fluctuations

 2,202 

 23

Net increase/(decrease) in cash and cash equivalents 

(15,926) 

(60,211) 

Cash and cash equivalents at 1 January

26,545 

86,756 

Cash and cash equivalents at 31 December*

10,619 

26,545 

 

* Note: the cash and cash equivalents do not include US$6.1 million (2015: US$15.9 million) fair value of marketable securities.

 

Net cash from operating activities

Net cash from operating activities increased to US$35.2 million in 2016, from US$34.4 million in 2015. The increase is attributable to the fact that sales of residential units in Odinburg, nominated in Russian rouble, created higher USD positive cash flow due to rouble appreciation.

 

Net cash from investing activitiesNet cash inflow from investing activities amounted to US$ 9.1 million and is attributable to cash receipt from the sale and maturity of investments in marketable securities.

 

Net cash used in financing activities

Net cash used in financing activities increased to a negative US$58.0 million in 2016 from a negative US$80.0 million in 2015 due to Company repayment of part of principal amount and interests during 2016.

 

Capital Resources

 

Capital Requirements
 

We require capital to finance capital expenditures, consisting of cash outlays for capital investments in active real estate development projects; repayment of debt; changes in working capital; and general corporate activities. 

Real estate development is a capital-intensive business, and we expect to have significant ongoing liquidity and capital requirements in order to finance our active development projects.

For the foreseeable future, we expect that we will continue to rely on our financing activities to support our investing and operating activities. We also expect that our capital expenditures in connection with the development of real estate properties will comprise the majority of our cash outflows for the foreseeable future.

AFI Development ended 2016 with of approximately US$16.7 million in cash, cash equivalents and marketable securities on our balance sheet and a debt6 to equity level of 81%.

The Company's financing strategy aims to maximise the amount of debt financing for projects under construction while maintaining healthy loan-to-value levels. After delivery and commissioning, the aim is to refinance properties at more favourable terms, including longer amortisation periods, lower interest rates and higher principal balloon payments. Property rights and shares of property holding companies are mainly used as collateral for the debt. We strongly prefer, whenever possible, to use non-recourse project level financing.

 

As of December 31, 2016 our debt portfolio was as follows:

 

Project

Lending bank

Max debt limit

Total balance as of Dec-31, 2016

Available (US$  mn)

Nominal Interest rate

Currency

Maturity

(US$  mn)

(US$ mn)

(dd.mm.yy)

AFIMALL City

VTB Bank JSC

RUR 21 billion

159.1

0

 

9.5%

RUR

01.04.2018

276.9

3-month LIBOR + 5.02%

US$

 

Krown Investments LLC

 

VTB Bank JSC

220.0

191.5

0

 

3-month LIBOR + 7%

 

US$

26.01.2018

 

The total balance of secured debt financing reached US$627.5 million as at 31 of December 2016, including US$627.1 million of Principal Debt and US$0.4 million of accrued interest with average interest rate 7.74% per annum as at 31.12.2016 (7.28% per annum as at 31.12.2015) (for more details see note 28 to our consolidated financial statements).

 

As at 31 December 2016, our loans and borrowings were payable as follows:

 

US$ thousand

As at  31 December 2016

As at  31 December 2015

Less than one year

0.7

224,315

Between one and five years

627,074

389,799

Total

627,822

614,114

 

 

Portfolio Valuation

 

From the current reporting period onwards, Jones Lang LaSalle LLC ("JLL") have been appointed as the Company independent appraisers. As at 31 December 2016, based on the JLL independent appraisers' report, the value of AFI Development's portfolio of investment properties stood at US$915.1 million, while the value of the portfolio of investment property under development stood at US$232.9 million.

Consequently, the total value of the Company's assets, based predominantly on independent valuation as of 31 December 2016, remained unchanged year-on-year at US$1.4 billion. 

 

 

Property

Valuation 31/12/2016,
US Dollars

Valuation 31/12/2015,
US Dollars

Change in valuation, %

Balance sheet value 31/12/2016, US Dollars

Balance sheet value 31/12/2015, US Dollars

Investment property

1

H2O

9,223,126[7]

8,925,606

3%

9,300,000

9,000,000

2

Ozerkovskaya Phase III

198,500,000

199,300,000

0%

198,500,000

199,300,000

3

Berezhkovskaya

12,136,000[8]

11,470,000

6%

16,400,000

15,500,000

4

AFIMALL City

666,500,000

685,200,000

-3%

666,500,000

685,200,000

5

Paveletskaya I

11,900,808[9]

11,504,114

3%

12,000,000

11,600,000

6

Plaza II

9,200,000

9,200,000

0%

9,200,000

9,200,000

7

Plaza Ib

3,450,000

3,400,000

1%

3,450,000

3,400,000

8

Sadovaya -Samotechnaya

-

500,000

-100%

-

500,000

 

Total

910,909,934

929,499,720

-2%

915,350,000

933,700,000

Investment property under development

9

Plaza Ic

66,000,000

65,500,000

1%

66,000,000

65,500,000

10

Plaza IIa

-

1,900,000

-100%

-

1,900,000

11

Plaza IV

61,275,000[10]

65,170,000

-6%

64,500,000

68,600,000

12

Kossinskaya

28,300,000

27,800,000

2%

28,300,000

27,800,000

13

Bolshaya Pochtovaya

73,885,110[11]

71,460,000

4%

74,100,000

71,460,000

 

Total

229,460,110

231,830,000

-1%

232,900,000

235,260,000

Trading property & Trading property under development 

14

Odinburg

n/a

n/a

-

150,181,009

148,452,242

15

Ozerkovskaya II

n/a

n/a

-

1,791,074

2,062,354

16

Paveletskaya Phase II

n/a

55,477,600[12]

-

76,666,586

55,940,000

17

Botanic Garden

n/a

n/a

-

21,542,643

-

 

Total

-

55,477,600

-100%

250,181,313

206,454,596

Inventory of real estate 

18

Botanic Garden

-

18,570,000

-100%

-

18,570,000

 

Total

-

18,570,000

-100%

-

18,570,000

Land Bank Properties 

19

Ruza

n/a

n/a

-

-

3,665,000

 

Total

-

-

0%

-

3,665,000

Hotels 

20

Aquamarine Hotel

n/a

n/a

-

15,289,552

13,075,377

21

Plaza Spa Hotel in Kislovodsk[13]

n/a

n/a

-

13,823,785

11,560,988

22

Plaza Spa Hotel Zheleznovodsk

n/a

n/a

-

11,095,402

9,093,415

23

Park Plaza hotel in Kislovodsk

n/a

n/a

-

3,947,127

3,319,081

24

Versailles project in Kislovodsk

n/a

n/a

-

-

-

 

Total

-

-

-

44,155,866

37,048,861

 

Grand Total

1,140,370,044 

1,235,377,320

-8%

1,442,587,178 

1,434,698,457

 

 

Principal Business Risks and Uncertainties Affecting the Company

 

This section presents information about the Company's exposure to each of the risks listed below, the Group's objectives, policies and processes for measuring and managing risks.

 

Risk management framework

The Board of Directors is ultimately responsible for the establishment and oversight of the Company's risk management framework and is for developing and monitoring the Company's risk management policies.

The Company's risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company's activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Company's Audit Committee oversees management monitoring of compliance with the Company's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Company's Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee and the whole Board of Directors. The Board of Directors requests management to take corrective actions as necessary and submit follow up reports to the Audit Committee and the Board, addressing deficiencies found.

Credit risk

Credit risk is the risk of financial loss to AFI Development if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company's receivables from customers and investment securities.

Trade and other receivables

Financial assets that are potentially subject to credit risk consist principally of trade and other receivables. The carrying amount of trade and other receivables represents the maximum amount exposed to credit risk. Credit risk arises from cash and cash equivalents as well as credit exposures with respect to rental customers, including outstanding receivables. The Company has policies in place to ensure that, where possible, rental contracts are made with customers with an appropriate credit history. Cash transactions are limited to high-credit-quality financial institutions. The utilisation of credit limits is regularly monitored.

AFI Development has no other significant concentrations of credit risk, although collection of receivables could be influenced by economic factors.

Investments

The Company limits its exposure to credit risk by only investing in liquid securities and with counterparties that have a high credit rating. Management actively monitors credit ratings and given that the Group has only invested in securities with high credit ratings, management does not expect any existing counterparty to fail to meet its obligations, except as disclosed in note 33 to the Company's Audited Financial Statements for year 2014.

Guarantees

The Company's policy is to provide financial guarantees only to wholly-owned subsidiaries in exceptional cases. In negotiations with lending banks, the Company aims to avoid recourse to AFI Development on loans taken by subsidiaries.

As at 31 December 2016, there were two outstanding guarantees: one for the amount of US$1 million in favour of VTB Bank PJSC under a loan facility agreement of Bellgate Construction Limited (AFIMALL City) and the second for the amount of US$ 192 million, also in favour of VTB Bank PJSC, under a loan facility agreement of Krown Investments LLC (Ozerkovskaya III).

In February 2017, AFI Development provided an additional guarantee in favour of VTB Bank PJSC for the loan amounting to US$22.5 million, taken by its subsidiary Sanatory Plaza LLC to finance the acquisition of the 50% stake in the Plaza Spa Kislovodsk project (including repayment of debt to the exiting partner's company). This guarantee will remain in place until all security agreements under this loan are entered into and registered, expected by the end of April 2017.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. AFI Development's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Company aims to maintain flexibility in its funding requirements by keeping cash and committed credit lines available.

Management monitors AFI Development's liquidity position on a daily basis and takes necessary actions, if required. The Company structures its assets and liabilities in such a way that liquidity risk is minimised.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the available returns for shareholders. We are exposed to market risks from changes in both foreign currency exchange rates and interest rates. We do not use financial instruments, such as foreign exchange forward contracts, foreign currency options and forward rate agreements, to manage these market risks. To date, we have not utilised any derivative or other financial instruments for trading purposes.

Interest rate risk

We are subject to market risk deriving from changes in interest rates, which may affect the cost of our current floating rate indebtedness and future financing. As of 31 December 2014, 27% of our financial liabilities were fixed rate. For more detail see note 33 to our consolidated financial statements.

Currency risk

The Company is exposed to currency risk on future commercial transactions, recognised monetary assets and liabilities and net investments in foreign operations that are denominated in a currency other than the respective functional currencies of AFI Development's entities, primarily the US Dollar and Russian Rouble.

Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.

The Company's objective is to manage operational risk so as to balance the need to avoid financial losses and damage to the Group's reputation with overall cost effectiveness.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Company standards for the management of operational risk. Compliance with Company standards is supported by a programme of periodic reviews undertaken by way of internal audits. The results of the internal audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and the Board of Directors.

Critical Accounting Policies

Critical accounting policies are those policies that require the application of our management's most challenging, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Critical accounting policies involve judgments and uncertainties that are sufficiently sensitive to result in materially different results under different assumptions and conditions. We believe that our most critical accounting policies are those described below.

A detailed description of certain of the main accounting policies we use in preparing our consolidated financial statements is set forth in notes 3 and 5 to our consolidated financial statements.

Estimates regarding fair value

We make estimates and assumptions regarding the fair value of our investment properties that have a significant risk of causing a material adjustment to the amounts of assets and liabilities on our balance sheet. In particular, our investment properties under development (which currently comprise the majority of our projects) are remeasured at fair value upon completion of construction and the gain or loss on remeasurement is recognised in our income statement, as appropriate. In forming an opinion on fair value, we consider information from a variety of sources including, among others, the current prices in an active market, third party valuations and internal management estimates.

The principal assumptions underlying our estimates of fair value are those related to the receipt of contractual rentals, expected future market rentals, void/vacancy periods, maintenance requirements and discount rates that we deem appropriate. We regularly compare these valuations to our actual market yield data, actual transactions and those reported by the market. We determine expected future market rents on the basis of current market rents for similar properties in the same location and condition. For further details, please refer to Note 3 to our consolidated financial statements.

Impairment of financial assets

We recognise impairment losses with respect to financial assets, including loans receivable and trade and other receivables, in our income statement if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. We test significant financial assets for impairment on an individual basis and assess our remaining financial assets collectively in groups that share similar credit characteristics. Impairment losses with respect to financial assets are calculated as the difference between the asset's carrying amount and the present value of the estimated future cash flows of the asset discounted at the original effective interest rate of that asset.

Estimating the discounted present value of the estimated future cash flows of a financial asset is inherently uncertain and requires us both to make an estimate of the expected future cash flows from the asset and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Changes in one or more of these estimates can lead us to either recognizing or avoiding impairment charges

Impairment of non-financial assets

We recognise impairment loss with respect to non-financial assets, including investment property under development and trading properties under construction, if the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, we discount estimated future cash flows of the asset to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The carrying amounts of impaired non-financial assets are reduced to their estimated recoverable amount either directly or through the use of an allowance account and we include the amount of such loss in our income statement for the period.

We assess at each reporting date whether there is any indication that a non-financial asset may be impaired. If any such indication exists, we then estimate the recoverable amount of the asset. Estimating the value in use requires us to make an estimate of the expected future cash flows from the asset and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The development of the value in use amount requires us to estimate the life of the asset, its expected cash flows over that life and the appropriate discount rate, which is primarily based on our weighted average cost of capital, itself subject to additional estimates and assumptions. Changes in one or all of these assumptions can lead to us either recognizing or avoiding impairment charges.

Deferred income taxes

We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves a jurisdiction-by-jurisdiction estimation of actual current tax exposure and the assessment of the temporary differences resulting from differing treatment of items, such as capitalization of expenses, among others, for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must assess, in the course of our tax planning process, our ability and the ability of our subsidiaries to obtain the benefit of deferred tax assets based on expected future taxable profit and available tax planning strategies. If, in our management's judgment, the deferred tax assets recorded will not be recovered, a valuation allowance is recorded to reduce the deferred tax asset.

Significant management judgment is required in determining our provision for income taxes, deferred tax assets, deferred tax liabilities and valuation allowances to reflect the potential inability to fully recover deferred tax assets. In our consolidated financial statements, the analysis is based on the estimates of taxable income in the jurisdictions in which we operate and the period over which the deferred tax assets and liabilities will be recoverable.

If actual results differ from these estimates, or we adjust these estimates in future periods, we may need to establish an additional valuation allowance which could adversely affect our financial position and results of operations.

Share-based payment transactions

The fair value of employee share options is measured using a binomial lattice model. The fair value of share appreciation rights is measured using the Black-Scholes formula. Measurement inputs include share price on the measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historic experience and general option holder behaviour), expected dividends and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

Related Party transactions

There were no related party transactions (as defined in the UK Listing Rules) in the financial year ended 31 December 2016 or in the period since 31 December 2016.

 

AFI DEVELOPMENT PLC

Annex A to the MD&A

 

 

31.12.2016 - Very significant property disclosure

 

1.         AFIMALL City

 

(Data based on 100%. Share of the Company in the property - 100%)

Current quarter

Comparative data

 

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Value of the property  (000'USD)

666,500

656,800

656,800

666,000

685,200

NOI in the period  (000'US$)

12,275

13,247

10,971

13,600[14]

12,259

Revaluation gains (losses) in the period (000'US$)

(3,679)

(5,438)

(24,700)

(40,960)

(276,764)

Occupancy rate at the end of the period (%)

84%

82%

78%

82%

78%

Rate of return (%)

7.5%

7.7%

7.5%

8.2%

7.8%

Average rent per sq.m. (US$/annum)

858

880

941

828

1,103

Average rent per sq.m. in agreements signed in the period  (US$/annum)

803

685

487

248[15]

989

 

 

 

 

AFI DEVELOPMENT PLC

 

FINANCIAL STATEMENTS

 

For the year ended 31 December 2016

 

 

C O N T E N T S

 

 

                                                                                                                               

 

Board of Directors and Professional Advisers                                                            

 

Management's Report                                                                                              

 

Directors' Responsibility Statement                                                                           

 

Independent Auditors' Report                                                                                   

 

Consolidated Financial Statements                                                                             

 

Separate Financial Statements of the Parent Company                                               

 

 

 

 

BOARD OF DIRECTORS AND PROFESSIONAL ADVISERS

 

 

 

Board of Directors                 Lev Leviev - Chairman

 

                                               Panayiotis Demetriou

 

                                               David Tahan (appointed on 20/1/17)

  

                                               Avraham Noach Novogrocki (resigned on 12/9/16)

                                              

                                               Christakis Klerides (resigned on 13/7/16)

 

                                               Moshe Amit (resigned on 31/12/16)

 

 

Secretary                                Fuamari Secretarial Limited

 

 

Independent Auditors             KPMG Limited

 

 

Bankers                                  Joint Stock Company VTB Bank

 

Joint Stock Commercial Savings Bank of the Russian Federation (sberbank)

 

Otkritie FC Bank

 

 

Registered Office                    Spyrou Araouzou 165,

                                               Lordos Waterfront Building,

                                               3035 Limassol,

                                               Cyprus

 

MANAGEMENT REPORT

 

 

The Board of Directors of AFI Development Plc (the "Company") presents to the members its annual report together with the audited consolidated financial statements of the Company for the year ended 31 December 2016.

 

PRINCIPAL ACTIVITY AND NATURE OF OPERATIONS OF THE COMPANY

 

The principal activities of the Group, which remained unchanged from last year, are real estate investment and development. The principal activity of the Company is the holding of investments in subsidiaries.

 

EXAMINATION OF THE DEVELOPMENT, POSITION AND PERFORMANCE OF THE ACTIVITIES OF THE GROUP

 

AFI Development is one of the leading real estate development companies operating in Russia. Established in 2001, AFI Development is a publicly traded subsidiary of Flotonic Limited. As described in more detail in note 34 "Group composition" up to 7 September 2016, the Company was a 64.88% subsidiary of Africa Israel Investments Ltd ("Africa-Israel"), which is listed in the Tel Aviv Stock Exchange ("TASE").

 

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

 

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

 

As at 31 December 2016, the Company's portfolio consisted of 7 investment properties, 4 investment properties under development, 3 trading properties under construction, and 3 hotel projects.

 

FINANCIAL RESULTS

 

The Group's results are set out in the consolidated income statement on page 13. The loss of the Group for the year before taxation amounted to US$50,697 thousand (2015: US$557,188 thousand). The loss after taxation attributable to the Group's owners amounted to US$47,872 thousand (2015: US$464,087 thousand).

 

DIVIDENDS

 

The Board of Directors does not recommend the payment of a dividend and the loss for the year is transferred to retained earnings or accumulated losses.

 

MAIN RISKS, UNCERTAINTIES AND USE OF FINANCIAL INSTRUMENTS

 

The Group is exposed to market price risk, interest rate risk, credit risk, liquidity risk. The most significant risks faced by the Group and the steps taken to manage these risks and the Group's financial risk management objectives and policies are described in note 33 of the consolidated financial statements.

 

FUTURE DEVELOPMENTS

 

The Group is one of the leading real estate development companies operating in Russia. It focuses on developing and redeveloping high quality commercial and residential real estate assets in Moscow and the Moscow Region.  The strategy during the reporting period and for the future periods is to sell the residential properties that the Group develops and to either lease the commercial properties that the Group develops or sell them if the Group is able to achieve a favourable return.

 

GOING CONCERN

 

As described in note 2i the consolidated financial statements have been prepared on a going concern basis, which assumes that the Group will be in a position to refinance or negotiate the loans at maturity, secure further financing for its project under construction and development and achieve the sales volumes and prices as budgeted to generate enough cash to cover its working capital requirements in order for the Group to be in a position to continue its operations in the foreseeable future.

 

SHARE CAPITAL

 

There were no changes to the share capital of the Company during the current year.  As at the year end the share capital of the Company comprised of:

·    523,847,027 "A" shares of US$0.001 and,

·    523,847,027 "B" shares of US$0.001

 

All "A" shares are on deposit with BNY (Nominees) Limited and each "A" share is represented by one GDR listed on the London Stock Exchange ("LSE"). All "B" shares were admitted to a premium listing of the Official list of the UK Listing Authority and to trading on the main market of LSE.

 

IMPLEMENTATION AND COMPLIANCE TO THE CODE OF CORPORATE GOVERNANCE

 

Although the Company is incorporated in Cyprus, its shares are not listed on the Cyprus Stock Exchange, and therefore it is not required to comply with the corporate governance regime of Cyprus. Pursuant to the UK Listing Rules however, the Company is required to comply with the UK Corporate Governance Code   or to explain its reasons for non-compliance. The Company's policy is to achieve best practice in its standards of business integrity in relation to all activities. This includes a commitment to follow the highest standards of corporate governance throughout the AFI Development group. The UK Corporate Governance Code published in September 2014 (the "Code") applied to the Company during the period under review; the updates to the UK Corporate Governance Code published in April 2016 apply to the Company for the financial year commencing 1 January 2017. 

 

The Directors are pleased to confirm that the Company has complied with the provisions of the Code for the period under review, with the exception that the Executive Chairman of the Board, Mr Leviev, was not independent on appointment (as required by section A.3.1 of the Code) by virtue of the fact that he is an Executive Chairman and is, indirectly, a major shareholder of the Company. Mr Leviev holds a controlling stake in Flotonic Limited, the major shareholder of the Company. The Directors consider Mr Leviev to be a key member of the Company's leadership and are of the opinion that his oversight, management role and business reputation are important to the Company's success. The Directors are therefore of the view that Mr Leviev should continue as Executive Chairman as it would be beneficial for the Company. 

 

MANAGEMENT REPORT

 

 

PARTICIPATION OF DIRECTORS IN THE COMPANY'S SHARE CAPITAL

 

None of the Directors holds shares of the Company directly. Mr Lev Leviev, the president of the Board, holds 64.88% indirectly though Flotonic limited as described in detail in note 34 "Group Composition".

 

BRANCHES

 

The Group operates five branches and/or representative offices of Cypriot, BVI and Luxembourg entities in the Russian Federation. These are Bellgate Construction Ltd branch, which operates AFIMALL City project, Amerone Ltd branch, Bugis Finance branch and Triumvirate I S.a r.I branch operating investment properties and Bastet Estates Ltd branch acting as sale agents for residential properties.

 

BOARD OF DIRECTORS

 

The members of the Board of Directors as at 31 December 2016 and at the date of this report are shown on page 1.  The Directors' date of appointment or resignation, if applicable, is indicated on page 1.  The term of those that have not resigned will expire on the date of the next annual general meeting of the shareholders but all of them are eligible for re-election. The Directors, Mr Avraham Noach Novogrocki, Mr Christakis Klerides and Mr Moshe Amit resigned during the current year as indicated on page 1.  Mr David Tahan was appointed on 20 January 2017. There were no significant changes in the assignment of responsibilities and remuneration of the Board of Directors during the current year.

 

OPERATING ENVIRONMENT OF THE COMPANY

 

Any significant events that relate to the operating environment of the Company are described in note 33 to the consolidated financial statements.

 

EVENTS AFTER THE REPORTING PERIOD

 

Events which took place after the reporting date and which have a bearing on the understanding of the financial statements are described in note 40 of the consolidated financial statements.

 

RELATED PARTY TRANSACTIONS

 

Disclosed in note 39 of the consolidated financial statements.

 

INDEPENDENT AUDITORS

 

The independent auditors, KPMG Limited, have expressed their willingness to continue offering their services. A resolution reappointing the auditors and giving authority to the Board of Directors to fix their remuneration will be proposed at the Annual General Meeting.

 

 

                                                                                          By order of the Board

 

 

                                                                                      Fuamari Secretarial Limited

                                                                                                   Secretary

Nicosia, 6 April 2017

 

 

STATEMENT BY THE MEMBERS OF THE BOARD OF DIRECTORS AND THE COMPANY OFFICIALS RESPONSIBLE FOR THE DRAFTING OF THE CONSOLIDATED FINANCIAL STATEMENTS IN ACCORDANCE WITH THE PROVISIONS OF CYPRUS LAW 190(I)/2007 ON TRANSPARENCY REQUIREMENTS

 

We, the members of the Board of Directors and the Company officials responsible for the drafting of the consolidated financial statements of AFI Development Plc (the 'Company') for the year ended 31 December 2016, the names of which are listed below, confirm that, to the best of our knowledge:

a)   The consolidated financial statements on pages 12 to 76:

(i)    have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union and the requirements of the Cyprus Companies Law,

(ii)   give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidated financial statements taken as a whole,

b)   the adoption of a going concern basis for the preparation of the financial statements continues to be appropriate based on the foregoing and having reviewed the forecast financial position of the Group; and

c)   the Management Report provides a fair review of the developments and performance of the business and the position of the Company and the undertakings included in the consolidated financial statements taken as a whole, together with a description of the principal risks and uncertainties that they face.

The Directors of the Company as at the date of this announcement are as set out below:

The Board of Directors:

Executive directors

Lev Leviev - Chairman            …..........................................................

 

Non-executive independent Directors

 

Panayiotis Demetriou               .............................................................

 

 

David Tahan                            .............................................................

 

Company officers:

Chief executive officer

Mark Groysman                       .............................................................

 

Chief financial officer

 

Natalia Pirogova                      .............................................................

 

6 April 2017     

 

 

 

 

Independent Auditors' Report

 

To the Members of AFI Development Plc

 

Report on the audit if the consolidated financial statements and the separate financial statements of AFI Development Plc

 

Opinion

 

We have audited the accompanying consolidated financial statements of AFI Development Plc ("the Company") and its subsidiaries (the "Group"), and the separate financial statements of AFI Development Plc (the "Parent Company"), which are presented on pages 12 to 100 and comprise the consolidated statement of financial position and the separate statement of financial position of the Parent Company as at 31 December 2016, and the consolidated statements of income statement, comprehensive income, changes in equity and cash flows and the separate statements of income statement, comprehensive income, changes in equity and cash flows of the Parent Company for the year then ended, and a summary of significant accounting policies.

 

In our opinion, the accompanying consolidated financial statements and the separate financial statements give a true and fair view of the financial position of the Group and the Parent Company as at 31 December 2016, and of their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS-EU) and the requirements of the Cyprus Companies Law, Cap. 113, as amended from time to time (the "Companies Law, Cap. 113").

 

Basis for Opinion

 

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the "Auditors' Responsibilities for the audit of the financial statements" section of our report. We are independent of the Company in accordance with the Code of Ethics for Professional Accountants of the International Ethics Standards Board for Accountants (IESBA Code), and the ethical requirements in Cyprus that are relevant to our audit of the consolidated financial statements and the separate financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

 

Material Uncertainty Related to Going Concern

 

We draw attention to note 2(i) in the consolidated financial statements which indicates that the Group incurred a net loss of US$47,942 thousand during the year ended 31 December 2016, driven by a decrease in the value of Group's property assets by US$123,045 thousand and the continuous decline of the Group's cash and cash equivalents and marketable securities down to US$16,687 thousand. Furthermore, the maturity of the Group's loans and borrowings, early 2018 will require the Group to make a lump sum payment of the principal of the loans with a current balance of US$627,533 thousand.  As stated in note 2(i), these events or conditions, along with other matters as set forth in note 2(i), indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

 

Key Audit Matters

 

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements and the separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements and the separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the "Material uncertainty related to going concern" section, we have determined the matters described below to be the key audit matters to be communicated in our report.

Valuation of properties

See Notes 15 and 16 to the consolidated financial statements

The key audit matter

How the matter was addressed in our audit

The Group's properties include investment property portfolio of US$915,350 thousand and investment property under development portfolio of US$232,900 thousand representing 80.3% of the Group's total assets as at 31 December 2016. The valuation of the Group's properties is inherently subjective due to, among other factors, the individual nature of each property, its location and the expected future rental revenue for that particular property. For developments, factors include projected costs to complete and timing until practical completion.

The existence of significant estimation uncertainty, could result in a material misstatement, warrants specific audit focus in this area.

Our audit procedures included assessing whether the valuation approach used was in accordance with Royal Institution of Chartered Surveyors (RICS) and suitable for use in determining the carrying value for the purpose of the consolidated financial statements under IFRSs. We evaluated the competence, objectivity and independence of the Group's external property valuers and also considered fee arrangements between the valuers and other engagements which might exist. We carried out procedures, on a sample basis, to satisfy ourselves of the accuracy of the property information supplied to valuers by the Group. For properties under development we assessed the consistency of the information for construction contracts and budgets which were supplied to the valuers to the Group's records. We assessed using also our own experts the appropriateness of the valuation methodologies and assumptions used based on our experience and knowledge of the market and by comparing them to market data.  We held discussions on key findings with the external property valuers and challenging various key inputs such as discount, vacancy and exit capitalisation rates used on each property within the property portfolio.

Revenue recognition

See note 7 to the consolidated financial statements

The key audit matter

How the matter was addressed in our audit

The Group recognised during the current year revenue from sale of trading properties (residential flats, offices, parking spaces) of US$54,484 thousand. Recognition of such type of sales occurs when the significant risks and rewards of ownership of flats have been transferred to the buyer. Due to the judgement involved there is a risk of recognising revenue in the wrong accounting period.

Due to the abovementioned risk factor we consider the timing of revenue recognition to constitute a key audit matter.

 

Our audit procedures included, considering the appropriateness of the Group's revenue recognition accounting policies and compliance with the policies in terms of applicable accounting standards. We performed audit procedures connected with the year-end timing of revenue recognition. Our substantive test of revenue included substantiating transactions with underlying documentation (signed contracts and "acts of transfer") to obtain evidence for the transfer of ownership to buyers and assessing the revenue recognised with the signed contracts. 

Provisioning for taxation

Refer to note 3 assumptions and estimation uncertainty - tax; and note 5 significant accounting policies - tax; and note 13 Tax Benefit, note 29 Deferred Tax Assets and Liabilities, note 33 Financial Instruments - Fair values and Risk Management - Taxation contingencies in the Russian Federation.

The key audit matter

How the matter was addressed in our audit

Provisioning for taxation requires complex judgements to be taken in respect of the various tax jurisdictions in which the Group operates. The provisions are judgemental as a result of their nature and technical complexity.

 

Our audit work included assessing the adequacy of the design and implementation of controls over accounting for taxation. We evaluated the appropriateness of management's assumptions and estimates in their assessment and valuation of the tax risks within the Group including review of correspondence on the status of tax compliance and tax audits in the various jurisdictions in which the Group operates, and benchmarking against our assessment of the range of potential outcomes in respect of the uncertain tax treatments adopted. We involved KPMG tax specialists within the audit team to provide detailed knowledge and expertise in assessing tax treatments in certain jurisdictions.

 

Other Information

The Board of Directors is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the consolidated financial statements and our auditor's report thereon.

 

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon, except as required by the Companies Law, Cap.113.

 

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.  If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. Our report in this regard is presented in the "Report on other legal requirement" section.

 

Responsibilities of the Board of Directors for the consolidated financial statements and the separate financial statements

 

The Board of Directors is responsible for the preparation of consolidated financial statements and separate financial statements that give a true and fair view in accordance with IFRS-EU and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements and separate financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements and the separate financial statements, the Board of Directors is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless there is intention to either liquidate the Company or to cease operations, or there is no realistic alternative but to do so.

 

The Board of Directors is responsible for overseeing the Group's financial reporting process.

 

Auditors' Responsibilities for the audit of the consolidated financial statements and the separate financial statements

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements and the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and separate financial statements.

 

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

 

·     Identify and assess the risks of material misstatement of the consolidated financial statements and the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

·     Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's and the Group's internal control.

 

·     Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors.

 

·     Conclude on the appropriateness of the Board of Director's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's and the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements and the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Group and the Company to cease to continue as a going concern.

 

·     Evaluate the overall presentation, structure and content of the consolidated financial statements and the separate financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

·     Obtain sufficient appropriate evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

 

We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the consolidated financial statements and the separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal Requirements

 

Pursuant to the additional requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009, L.42(I)/2009, as amended from time to time ("Law 42(I)/2009"), we report the following:

·   We have obtained all the information and explanations we considered necessary for the purposes of our audit.

·   In our opinion, proper books of account have been kept by the Company, so far as appears from our examination of these books.

·   The Company's consolidated financial statements and separate financial statements are in agreement with the books of account.

·   In our opinion and to the best of our information and according to the explanations given to us, the consolidated financial statements and separate financial statements give the information required by the Companies Law, Cap. 113, in the manner so required.

·   In our opinion, the Management report on pages 2 to 4, the preparation of which is the responsibility of the Board of Directors, has been prepared in accordance with the requirements of the Companies Law, Cap.113, and the information given is consistent with the financial statements.

·   In the light of the knowledge and understanding of the business and the Company's environment obtained in the course of our audit, we have not identifies material misstatements in the management report.

 

Pursuant to the London Stock Exchange Listing Rules we are required to review:

·   The Directors' statement in relation to going concern and longer-term viability; and

·   The part of the Corporate Governance Statement relating to the Company's compliance with the eleven provisions of the 2014 UK Corporate Governance Code specified for our review.

 

We have nothing to report in respect of the above.

 

Other Matter

 

This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Section 34 of Law 42(I)/2009 and for no other purpose.  We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to.

 

The engagement partner on the audit resulting in this independent auditors' report is Maria H. Zavrou.

 

 

 

Maria H. Zavrou, FCCA

Certified Public Accountant and Registered Auditor

 

For and on behalf of

 

KPMG Limited

Certified Public Accountants and Registered Auditors

14 Esperidon Street

1087 Nicosia, Cyprus

 

6 April 2017

 

 

AFI DEVELOPMENT PLC

 

CONSOLIDATED FINANCIAL STATEMENTS

 

For the year ended 31 December 2016

 

 

C O N T E N T S

 

 

Consolidated Income Statement                                                                                

 

Consolidated Statement of Comprehensive Income                                                    

 

Consolidated Statement of Changes in Equity                                                             

 

Consolidated Statement of Financial Position                                                              

 

Consolidated Statement of Cash Flows                                                                      

 

Notes to the Consolidated Financial Statements                                                          

 

 

 

 

CONSOLIDATED INCOME STATEMENT

 

For the year ended 31 December 2016

 

 

 

 

2016

2015

 

Note

US$ '000

US$ '000

 

 

 

 

Revenue

7

 138,296

   93,726

 

 

 

 

Other income

8

     3,545

     3,125

 

 

 

 

Operating expenses

9

(38,836)

(40,505)

Carrying value of trading properties sold

22

(49,475)

(609)

Administrative expenses

10

(6,589)

(10,640)

Other expenses

11

    (1,330)

    (1,649)

Total expenses

 

  (96,230)

  (53,403)

 

 

 

 

Share of the after tax profit/(loss) of joint ventures

17

     3,742

    (1,321)

 

 

 

 

Gross Profit

 

   49,353

   42,127

 

 

 

 

Profit on disposal of investment property

 

     1,801

            -

 

 

 

 

Decrease in fair value of properties

15,16

(123,045)

(434,364)

Impairment loss on properties

20,23

             -

  (12,651)

Net valuation loss on properties

 

 (123,045)

 (447,015)

 

 

 

 

Results from operating activities

 

  (71,891)

(404,888)

 

 

 

 

Finance income

 

65,802

4,496

Finance costs

 

  (44,608)

(156,796)

Net finance income/(costs)

12

   21,194

(152,300)

 

 

 

 

Loss before tax

 

(50,697)

(557,188)

Tax benefit

13

     2,755

   90,509

 

 

 

 

Loss for the year

 

  (47,942)

(466,679)

 

 

 

 

Loss attributable to:

 

 

 

Owners of the Company

 

(47,872)

(464,087)

Non-controlling interests

 

         (70)

    (2,592)

 

 

  (47,942)

(466,679)

 

 

 

 

Earnings per share

 

 

 

Basic and diluted earnings per share (cent)

14

      (4.57)

    (44.30)

 

 

 

 

 

The notes are an integral part of these consolidated financial statements.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

For the year ended 31 December 2016

 

 

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Loss for the year

   (47,942)

 (466,679)

 

 

 

Other comprehensive income/(expense)

 

 

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

 

 

Realised translation difference on disposal of subsidiaries

transferred to income statement

 

-

 

(275)

Foreign currency translation differences for foreign operations

    27,782

  (23,907)

Other comprehensive income/(expense) for the year

    27,782

  (24,182)

 

 

 

Total comprehensive expense for the year

   (20,160)

(490,861)

 

 

 

 

 

 

Total comprehensive (expense)/income attributable to:

 

 

Owners of the Company

(20,252)

(488,158)

Non-controlling interests

           92

    (2,703)

 

   (20,160)

(490,861)

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

For the year ended 31 December 2016

 

 

 

 

Attributable to the owners of the Company

Non-controlling   interests

 

Total

equity

 

 

Share

 Share

Capital

Translation

Retained

 

 

 

 

 

capital

premium

reserve

reserve

Earnings/Accumula-ted losses

 

 

Total

 

 

 

 

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2015

 1,048

1,763,409

          -

(314,880)

(158,982)

1,290,595

 (8,817)

1,281,778

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive expense for the period

 

 

 

 

 

 

 

 

 

Loss for the period

-

-

-

-

(464,087)

(464,087)

(2,592)

(466,679)

 

Other comprehensive expense

         -

               -

          -

  (24,071)

             -

   (24,071)

    (111) 

  (24,182)

 

Total comprehensive expense for the period

 

         -

 

               -

     

          -

 

  (24,071)

 

(464,087)

 

(488,158)

 

  (2,703)

 

(490,861)

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners of the Company

Contributions and distributions

 

 

 

 

 

 

 

 

Share option expense

        -

              -

          -

              -

     2,283

      2,283

          -

     2,283

 

 

 

 

 

 

 

 

 

 

 

Changes in ownership interest

 

 

 

 

 

 

 

 

 

Acquisition of non-controlling interests (note 27)

 

        -

 

              -

 

(9,201)

 

              -

 

             -

 

     (9,201)

 

   7,601

 

   (1,600)

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2015

 1,048

1,763,409

(9,201)

(338,951)

(620,786)

   795,519

 (3,919)

  791,600

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2016

 1,048

1,763,409

(9,201)

(338,951)

(620,786)

   795,519

 (3,919)

  791,600

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income/(expense) for the period

 

 

 

 

 

 

 

 

 

Loss for the period

-

-

-

-

(47,872)

(47,872)

(70)

(47,942)

 

Other comprehensive income

         -

               -

          -

    27,620

             -

    27,620

      162  

    27,782

 

Total comprehensive income/(expense) for the period

 

 

         -

 

 

               -

     

 

          -

 

 

    27,620

 

 

  (47,872)

 

 

   (20,252)

 

 

         92

 

 

   (20,160)

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners of the Company

Contributions and distributions

 

 

 

 

 

 

 

 

 

Share option expense

        -

              -

         -

              -

         857

         857

           -

         857

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2016

 1,048

1,763,409

(9,201)

(311,331)

(667,801)

   776,124

 (3,827)

  772,297

 

                                               

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016

 

 

 

2016

2015

 

Note

US$ '000

US$ '000

Assets

 

 

 

Investment property

15

915,350

933,700

Investment property under development

16

232,900

238,925

Property, plant and equipment

18

31,215

26,280

Long-term loans receivable

19

15,763

14,316

Inventory of real estate

20

-

18,570

VAT recoverable

21

              9

            33

Non-current assets

 

1,195,237

1,231,824

 

 

 

 

Trading properties

22

6,854

2,062

Trading properties under construction

23

243,327

204,392

Other investments

24

6,088

15,921

Inventories

 

665

477

Short-term loans receivable

19

7

101

Trade and other receivables

25

42,427

29,017

Current tax assets

13

2,542

1,622

Cash and cash equivalents

26

     10,619

     26,545

Current assets

 

   312,529

   280,137

 

 

 

 

Total assets

 

1,507,766

1,511,961

 

 

 

 

Equity

 

 

 

Share capital

27

1,048

1,048

Share premium

27

1,763,409

1,763,409

Translation reserve

27

(311,331)

(338,951)

Capital reserve

27

(9,201)

(9,201)

Accumulated losses

27

  (667,801)

  (620,786)

Equity attributable to owners of the Company

 

776,124

795,519

Non-controlling interests

35

      (3,827)

      (3,919)

Total equity

 

   772,297

   791,600

 

 

 

 

Liabilities

 

 

 

Long-term loans and borrowings

28

627,074

389,799

Deferred tax liabilities

29

14,934

25,567

Deferred income

32

     10,455

       8,543

Non-current liabilities

 

   652,463

   423,909

 

 

 

 

Short-term loans and borrowings

28

748

224,315

Trade and other payables

30

30,957

18,163

Advances from customers

31

     51,301

     53,974

Current liabilities

 

     83,006

   296,452

 

 

 

 

Total liabilities

 

   735,469

   720,361

 

 

 

 

Total equity and liabilities

 

1,507,766

1,511,961

 

The consolidated financial statements were approved by the Board of Directors on 6 April 2017.

 

........................                                                                              ...............................

Lev Leviev                                                                                     David Tahan

Chairman                                                                                        Director

The notes on pages 19 to 77 are an integral part of these consolidated financial statements.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

For the year ended 31 December 2016

 

 

 

2016

2015

 

Note

US$'000

US$'000

Cash flows from operating activities

 

 

 

Loss for the year

 

(47,942)

(466,679)

Adjustments for:

 

 

 

Depreciation

18

696

963

Net finance (income)/costs

12

(21,574)

151,904

Share option expense

 

857

2,283

Decrease in fair value of properties

15,16

123,045

434,364

Impairment losses on properties

20,23

-

12,651

Share of (profit)/loss in joint ventures

17

(3,742)

1,321

Profit on disposal of investment property

 

(1,801)

-

Profit on sale of property, plant and equipment

 

(17)

(16)

Tax benefit

13

 (2,755)

 (90,509)

 

 

46,767

46,282

Change in trade and other receivables

 

837

(1,420)

Change in inventories

 

(84)

(3)

Change in trading properties and trading properties under construction

22,23

(10,546)

(35,497)

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

 

 

12,657

 

(3,552)

Changes in advances from customers

 

(12,262)

29,455

Change in trade and other payables

 

613

(1,264)

Change in VAT recoverable on trading

 

(2,596)

2,947

Change in deferred income

 

         172

    (1,753)

Cash generated from operating activities

 

35,558

35,195

Taxes paid

 

       (373)

       (821)

 

 

 

 

Net cash from operating activities

 

    35,185  

   34,374

 

 

 

 

Cash flows from investing activities

 

 

 

Proceeds from sale of other investments

 

22,301

15,239

Proceeds from disposal of investment property

 

1,099

-

Proceeds from sale of property, plant and equipment

 

102

17

Interest received

 

4,625

4,122

Change in advances and amounts payable to builders

 

(2,080)

(2,879)

Payments for construction of investment property under development

  16

(4,554)

(10,906)

Payments for the acquisition/renovation of investment property

15

(370)

(2,013)

Change in VAT recoverable on construction

 

(124)

2,617

Acquisition of property, plant and equipment

18

(262)

(56)

Dividends received from joint ventures

17

380

3,250

Acquisition of other investments

24

(12,642)

(24,147)

Payments for loan receivable

 

(508)

(154)

Proceeds from repayment of loans receivable

 

      1,159

          95

 

 

 

 

Net cash from/(used in) investing activities

 

      9,126

  (14,815)

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

 

For the year ended 31 December 2016

 

 

 

 

2016

2015

 

Note

US$'000

US$'000

Cash flows from financing activities

 

 

 

Acquisition of non-controlling interests

 

-

(1,600)

Proceeds from loans and borrowings

28

-

10,000

Repayment of loans and borrowings

 

(13,090)

(43,318)

Interest paid

 

  (44,945)

  (45,085)

 

 

 

 

Net cash used in financing activities

 

  (58,035)

  (80,003)

 

 

 

 

Effect of exchange rate fluctuations

 

    (2,202)     

        233   

 

 

 

 

Net decrease in cash and cash equivalents

 

(15,926)

(60,211)

Cash and cash equivalents at 1 January

 

   26,545

   86,756

 

 

 

 

Cash and cash equivalents at 31 December

26

   10,619

   26,545

 

 

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.   INCORPORATION AND PRINCIPAL ACTIVITY

 

AFI Development PLC (the "Company") was incorporated in Cyprus on 13 February 2001 as a limited liability company under the name Donkamill Holdings Limited. In April 2007 the Company was transformed into public company and changed its name to AFI Development PLC.  The address of the Company's registered office is 165 Spyrou Araouzou Street, Lordos Waterfront Building, 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 consolidated financial statements comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in jointly controlled entities. The principal activity of the Group is real estate investment and development.

 

The principal activity of the Company is the holding of investments in subsidiaries and joint ventures as presented in note 34 "Group Composition".

 

2.   BASIS OF ACCOUNTING

 

i.          Going concern basis of accounting

 

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

 

The Group has recognised a net loss after tax of US$48 million for the year ended 31 December 2016 driven by a decrease in the value of Group's property assets by US$123 million and the continuous decline of cash and cash equivalents and marketable securities down to US$16.7 million. These were a continuation of the year ended 31 December 2015 results, where AFI Development PLC reported net losses of US$467 million, which predominately related to a decrease in the value of the Group's property assets by approximately US$500 million to US$1,400 million. Cash and cash equivalents and marketable securities also declined by US$50.8 million during 2015 to US$42.5 million as at 31 December 2015.

 

Furthermore, as described in the below paragraphs, between the period from 29 March 2016, when the Company received the VTB Bank letter, and up until the signing of an addendum to the loan agreements on the 27 September 2016, the Company went through an extensive series of negotiations with VTB Bank on the loan facilities of Ozerkovskaya III and AFIMAL City.  In addition, the maturity of the loans, early 2018 will require the Group to make a lump sum payment of the principal of the loans with a current balance of $627,533 thousand. These conditions, along with other matters set forth below, indicate the existence of material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.

 

As described in more detail in the Company's announcements and its interim financial statements for the three quarters ended 31 March, 30 June and 30 September 2016, a series of events and negotiations with VTB bank for its the Ozerkovskaya III and AFIMALL City loan facilities took place. 

 

On 29 March 2016, the Company received a letter from the Bank VTB PJSC ("the Bank"). The letter stated that the Bank had reached a conclusion that Bellgate Construction Limited and Krown Investments LLC (the borrowers under the AFIMALL City and the Ozerkovskaya III loan facilities respectively) had experienced, in the opinion of the Bank, material adverse changes in their financial conditions and there had appeared other circumstances that indicated that their obligations under the loan facility agreements could be not met on time. According to the letter, the Bank proposed that the Company "implement steps aimed at removing possible negative consequences of the aforesaid circumstances, no later than 30 calendar days from today", otherwise the Bank will exercise its right under the loan facility agreements to claim early repayment of the loans.

 

Following the above letter and further to a series of negotiations and discussions between the Company and the Bank, the Group ended up with two possible alternatives to follow, the "Disposal Transaction" or the "Personal Guarantee" described in brief below.

 

"The Disposal Transaction" announced on 15 July 2016 involved an agreement which would release the AFI Development Group from all of its obligations in respect of the loans taken by Krown Investments Limited and Bellgate Constructions Limited, which amounted to US$619.1 thousand as at 14 July 2016, in exchange for the Disposal to VTB Bank PJSC ("VTB") of the following properties:

·     AFIMALL City Shopping Centre, a shopping and entertainment centre in the business district of Moscow;

·     Ozerkovskaya III, a completed Class A office complex in Moscow; and

·     Aquamarine Hotel, a modern 4-star hotel, located in the Ozerkovskaya complex.

In this respect the Company issued a class1 circular on the 15 July 2016 and the transaction was approved at the General Meeting held on 1 August 2016.

 

"The Personal Guarantee" as announced on 2 August 2016, took place in parallel to the Disposal Transaction  where the Company had been informed that at a meeting on 1 August 2016 between the Executive Chairman of the Company, Mr Lev Leviev and VTB, Mr Leviev executed a unilateral Guarantee Deed - a personal guarantee and indemnity deed under English law from Mr Leviev to VTB, pursuant to which Mr Leviev had agreed to guarantee the obligations of Krown under the Ozerkovskaya III Loan Facility for a period of 12 months (the "Guarantee Deed"). . In addition the Group executed addenda to the loan facility agreements and respective security agreements with VTB, according to which the due date for the Principal Payments have been deferred to 30th September 2016 (the "Deferrals") and not to enforce for prior breaches of such facilities (the "Standstill").

 

Further to the above, on the 27 September 2016, the Company and VTB signed an addendum to the Ozerkovskaya III and AFIMALL City Loan Facilities. The addenda, as disclosed in detail in note 28, Loans and Borrowings, provided the deferral of the quarterly principal payments due on the Loan Facility Agreements to maturity of each of the Loans and the removal of the existing covenants to the Ozerkovskaya III Loan Facility, in consideration for which VTB has sought additional security in respect of the Loans which now includes cross default provisions between each of the Loans and a suretyship from Bellgate Constructions Limited ("Bellgate"), which holds the AFIMALL City project, in respect of the Ozerkovskaya III Loan Facility.

 

In addition, Mr Leviev has, on the same date, provided VTB with a Guarantee, pursuant to which Mr Leviev has undertaken to guarantee, for a period of 10 months, the obligations of Krown under the Ozerkovskaya III Loan Facility. The Guarantee, which is enforceable for 12 months, provides additional security to VTB in respect of the Ozerkovskaya III Loan Facility.  Prior to this and as described in note 34 "Group Composition" Mr Leviev acquired 679,748,454 shares in the Company, previously held by Africa Israel Investments Ltd, which represents 64.88% of the Company's share capital.

 

As a result of the above amendments to the Loan Facility Agreements and the Guarantee being entered into, the Board of Directors of AFI Development decided not to proceed with the Disposal transaction announced on 15 July 2016 and the loans were reclassified from short term to long term liabilities.

 

Management anticipates that any additional financing budgeted based on its estimated operating cash flows will be secured by new bank facilities and loans, some of which are well into negotiations with banks including VTB. Management expects to continue the construction of projects classified as "Trading properties under construction" as described in Note 23, which are "Odinburg", "Paveleskaya phase II" and "Pochtovaya" and commence the construction of "Botanic Garden".

 

Management estimates that the Group will generate sufficient operating cash flows so as to meet the Loan Facilities interest payments. Management explores all options in relation to repaying the Loan Facilities when they fall due in 2018, which may or may not include the disposal of certain assets or projects or refinance of AFIMALL City loan. Management considers its available options and is developing a plan on how to approach the loans at maturity and secure further financing to continue in operational existence for the foreseeable future.

 

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

 

ii.          Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and the requirements of the Companies Law of Cyprus, Cap. 113.

 

The consolidated financial statements were authorised for issue by the Board of Directors on 6 April 2017.

 

 

 

 

iii.         Functional and presentation currency

These consolidated financial statements are presented in United States Dollars which is the Company's functional currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.

 

3.   Use of judgements and estimates

 

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

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

 

Judgements

Information about judgements made in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the following notes:

 

·    Note 17 - classification of the joint arrangements;

·    Note 36 - lease classification;

 

Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending 31 December 2016 is included in the following notes:

 

·      Note 18 - valuation of land and buildings and buildings under construction

·      Note 22 - valuation of trading properties

·      Note 23 - valuation of trading properties under construction

·      Note 13 - provision for tax liabilities

·      Note 25 - recoverability of receivables

·      Note 29 - utilisation of tax losses

·      Note 38 - recognition and measurement of contingencies

 

Measurement of fair values

A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

 

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

 

Measurement of fair values (continued)

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

 

Significant valuation issues are reported to the Group's audit committee.

 

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

 

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

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

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

 

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

 

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

 

Further information about the assumptions made in measuring fair values is included in the following notes:

 

·      Note 15 - investment property

·      Note 16 - investment property under development

·      Note 24 - other investments

·      Note 27 - share-based payment arrangements

·      Note 33 - financial instruments

 

 

4.   STANDARDS ISSUED BUT NOT YET EFFECTIVE

 

Adoption of new and revised International Financial Reporting Standards and Interpretations

As from 1 January 2016, the Group adopted all changes to International Financial Reporting Standards (IFRSs) as adopted by the EU which are relevant to its operations.

 

IFRS 14 "Regulatory Deferral Accounts" was effective for annual periods beginning on or after 1 January 2016 but was not adopted by the EU as it was decided not to launch the endorsement process of this interim standard and to wait for the final standard.

 

The following Standards, Amendments to Standards and Interpretations have been issued but are not yet effective for annual periods beginning on 1 January 2016. Those which may be relevant to the Company are set out below. The Company does not plan to adopt these Standards early.

 

Standards and Interpretations adopted by the EU

 

·    IFRS 9 "Financial Instruments" (effective for annual periods beginning on or after 1 January 2018). IFRS 9 replaces the existing guidance in IAS 39. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39.

 

·    IFRS 15 "Revenue from contracts with customers" (effective for annual periods beginning on or after 1 January 2018). IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programs.

 

Standards and Interpretations not adopted by the EU

·    IAS 7 (Amendments) "Disclosure Initiative" (effective for annual accounting periods beginning on or after 1 January 2017). The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes.

 

·    IAS 12 (Amendments) "Recognition of Deferred Tax Assets for Unrealised Losses" (effective for annual accounting periods beginning on or after 1 January 2017). The amendments clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value.

 

·    Annual Improvements to IFRSs 2014-2016 Cycle (effective for annual periods beginning on or after 1 January 2017 (IFRS 12) and 1 January 2018 (IFRS 1 and IAS 28)). The annual improvements impact three standards. The amendments to IFRS 1 remove the outdated exemptions for first-time adopters of IFRS. The amendments to IFRS 12 clarify that the disclosure requirements for interest in other entities also apply to interests that are classified as held for sale or distribution. The amendments to IAS 28 clarify that the election to measure at fair value through profit or loss an investment in associate or a joint venture that is held by an entity that is a venture capital organisation, or other qualifying entity, is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition.

 

·    IFRS 2 (Amendments) "Classification and Measurement of Share-based Payment Transactions" (effective for annual periods beginning on or after 1 January 2018). The amendments cover three accounting areas: a) measurement of cash-settled share-based payments; b) classification of share-based payments settled net of tax withholdings; and c) accounting for a modification of a share-based payment from cash-settled to equity-settled. The new requirements could affect the classification and/or measurements of these arrangements - and potentially the timing and amount of expense recognised for new and outstanding awards.

 

·    IFRS 4 (Amendments) "Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts" (effective for annual periods beginning on or after 1 January 2018). The amendments intend to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard (expected as IFRS 17). The amendments provide two options for entities that issue insurance contracts within the scope of IFRS 4: a) an option permitting entities to reclassify from profit or loss to other comprehensive income some of the income or expenses arising from designated financial assets (overlay approach) or b) an optional temporary exemption from applying IFRS 9 whose predominant activity is issuing contracts within the scope of IFRS 4 (deferral approach). 

 

·    IFRS 15 (Clarifications) "Revenue from Contracts with Customers" (effective for annual periods beginning on or after 1 January 2018). The amendments in Clarifications to IFRS 15 address three of the five topics identified i.e. identifying performance obligations, principal versus agent considerations, and licensing. The clarifications provide some transition relief for modified contracts and completed contracts. Additionally, the IASB concluded that it was not necessary to amend IFRS 15 with respect to the collectability or measuring non-cash consideration.

 

·    IAS 40 (Amendments) "Transfers of Investment Property" (effective for annual periods beginning on or after 1 January 2018). The amendments clarify when a company should transfer a property asset to, or from, investment property. A transfer is made when, and only when, there is an actual change in use i.e. an asset meets or ceases to meet the definition of investment property and there is evidence of the change in use. A change in management intention alone does not support a transfer. In addition, it is clarified that the revised examples of evidence of a change in use in the amended version of IAS 40 are not exhaustive. 

 

·    IFRIC 22 "Foreign Currency Transactions and Advance Consideration" (effective for annual periods beginning on or after 1 January 2018). The interpretation clarifies that the transaction date is the date on which the company initially recognises the prepayment or deferred income arising from the advance consideration. For transactions involving multiple payments or receipts, each payment or receipt gives rise to a separate transaction date.

 

·    IFRS 16 "Leases" (effective for annual periods beginning on or after 1 January 2019). IFRS 16 introduces a single, on-balance lease sheet accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard - i.e. lessors continue to classify leases as finance or operating leases. IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

 

The Board of Directors expects that the adoption of the above financial reporting standards in future periods will not have a significant effect on the financial statements of the Company except of the adoption of IFRSs 9, 15 and 16 which could affect the consolidated financial statements. The extent of the impact has not been determined.

 

5.   SIGNIFICANT ACCOUNTING POLICIES

 

The Group has consistently applied the following accounting policies to all periods presented in these consolidated financial statements.

 

Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

 

Non-controlling interests (NCI)

NCI are measured at their proportionate share of the acquiree' s identifiable net assets at the date of acquisition. Subsequently the Group attributes profit or loss and each components of other comprehensive income (OCI) to the NCI even if this results in a deficit balance. Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

 

Loss of control

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary and any related NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

     

Interests in equity-accounted investees

The Group's interests in equity-accounted investees, comprise interests in joint ventures.

 

A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

 

Interests in joint ventures are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group's share of the profit or loss and OCI of equity-accounted investees, until the date on which joint control ceases.

 

Transactions eliminated on consolidation

Intra-group balances and transactions and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

 

Foreign currency

Foreign currency transactions

Transactions in foreign currencies are translated into the respective functional currencies of Group entities at the exchange rates at the dates of the transactions.

 

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss.

 

Foreign operations

The assets and liabilities of foreign operations are translated into US Dollars at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into US Dollars at the exchange rates at the dates of the transactions or average rate for the year for practical reasons.  If the volatility of the exchange rates is high for a given year or period the Group uses the average rate for shorter periods i.e. quarters or months for income and expense items.

 

Foreign currency differences are recognised in OCI and accumulated in the translation reserve, except to the extent that the translation difference is allocated to NCI.

 

When a foreign operation is disposed of in its entirety or partially such that control or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to NCI. When the Group disposes of only part of joint venture while retaining joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

 

If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, then foreign currency differences arising from such item form part of the net investment in a foreign operation. Accordingly, such differences are recognised in OCI, and accumulated in the translation reserve.

 

The table below shows the exchange rates of Russian Roubles which is the functional currency of the Russian subsidiaries of the Group:

 

                                                                               Exchange rate

                                                                               Russian Roubles

As of:                                                                          for US$1                  % Change

31 December 2016                                                        60.6569                       (16.8)

31 December 2015                                                        72.8827                         29.5

 

Average rate during:

Year ended 31 December 2016                                       67.0349                      10.0

Year ended 31 December 2015                                       60.9579                      58.7

 

Financial Instruments

 

The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss and loans and receivables.

 

The Group classifies non-derivative financial liabilities into the other financial liabilities category.

 

Non-derivative financial assets and financial liabilities-Recognition and derecognition

The Group initially recognises loans and receivables on the date when they are originated.  All other financial assets and financial liabilities are initially recognised on the trade date when the entity becomes a party to the contractual provisions of the instrument.

 

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset.  Any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset or liability.

 

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

 

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

 

Non-derivative financial assets-measurement

 

Financial assets at fair value through profit or loss

A financial asset is classified as at fair value through profit or loss if it is classified as held for trading or is designated as such on initial recognition. Directly attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, including any interest or dividend income, are recognised in profit or loss.

 

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise cash at bank, cash in hand and deposits on demand.

 

Loans and receivables

These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method.

 

Non derivative financial liabilities-measurement

 

Non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.

 

Share capital

Ordinary shares

Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12.

 

Investment Property

Investment property is initially measured at cost and subsequently at fair value with any change therein recognised in profit or loss.

 

Any gain or loss on disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss. When investment property that was previously classified as property, plant and equipment is sold, any related amount included in the revaluation reserve is transferred to retained earnings.  

 

When the use of a property changes from owner-occupied to investment property, the property is remeasured to fair value and reclassified accordingly. Any gain arising on this remeasurement is recognised in profit or loss to the extent that it reverses a previous impairment loss on the specific property, with any remaining gain recognised in OCI and presented in the revaluation reserve. Any loss is recognised in profit or loss.

 

When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.

 

Investment property under development

Property that is being constructed or developed for future use as investment property is classified as investment property under development and accounted for at fair value until construction or development is complete, at which time it is reclassified as investment property.

 

Certain development assets within the Group's portfolio that are in very early stages of development process were categorised as "land bank" without ascribing current market value to them. Any value ascribed to such land bank projects other than their cost, would result in a gain or loss to be recognised in profit or loss.  This approach was adopted due to abnormal market volatility and will be reviewed in the future once market conditions are more stable.

 

All costs directly related with the purchase and construction of a property, land lease payments, and all subsequent capital expenditure for the development qualifying as acquisition costs are capitalised.

 

Capitalisation of borrowing costs

Borrowing costs are capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset.  Capitalisation of borrowing costs commences when the activities to prepare the asset are in process and expenditures and borrowing costs are being incurred. Capitalisation of borrowing costs may continue until the assets are substantially ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The capitalisation rate is arrived at by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of the development cost financed out of general funds, to the average rate. The capitalised borrowing cost is limited to the amount of borrowing cost actually incurred.

 

Property, plant and equipment

Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

 

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalise borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

 

All hotels are treated as property, plant and equipment due to the Group's significant influence on their management.

 

If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.

 

Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss.

 

Subsequent expenditure

Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group.

 

Depreciation

Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. 

 

Items of property, plant and equipment are depreciated from the date that they are available for use, or in respect of self-constructed assets, from the date that the asset is completed and ready for use.

 

The annual depreciation rates for the current and comparative periods are as follows:

 

                             Buildings                                           1-2%

                             Office equipment                            10-33⅓%

                             Motor vehicles                                  33⅓%

                            

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

 

Intangible assets and goodwill

Goodwill

Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised immediately in profit or loss.

 

Goodwill is measured at cost less accumulated impairment losses. In respect of equity-accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss is allocated to the carrying amount of the equity-accounted investee as a whole.

 

Trading Properties

Trading Properties are measured at the lower of cost and net realisable value. Cost includes expenditure incurred in acquiring the properties and bringing them to their existing condition. In the case of constructed trading properties, cost includes an appropriate share of direct and borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

 

Trading properties under construction

Trading properties under construction are defined as projects in which the Group participates as a contractor or as a promoter, and which include construction work with the intention to sell the entire building as a whole or parts thereof. Each project represents one building or a group of buildings.

 

A group of buildings is considered one project when the buildings at the same building site are being constructed according to one building plan and under one building license, and are offered for sale at the same time. Trading properties include cost of land or of rights to the land that constitutes the relative portion of the area, on which the construction work on projects is performed, plus the cost of the work executed on the projects as well as other costs allocated thereto, less the cumulative amounts recognised in profit or loss as cost of trading properties sold up to the end of the reported period.

 

Direct costs and expenses are charged to projects on a specific basis, whereas borrowing costs are allocated among the projects based on the relative proportion of the costs. Non-specific borrowing costs are capitalised to such qualifying asset, or portion thereof which was not financed with specific credit, by weighted-average rate of the borrowing cost up to the amount of borrowing cost actually incurred. Where the estimated expenses for a building project indicate that a loss is expected, an appropriate provision is set up. Buildings that are under construction are classified as trading properties under construction on the statement of financial position.

 

Inventory of real estate

Land for future development of trading properties is classified as "Inventory of real estate" as non-current asset when it is not expected to develop and sell the properties within the Group's normal operating cycle. It is presented at the lower of cost and net realisable value.

 

Deferred income

Income received in advance is classified under non-current and current liabilities as deferred income and comprise rental income received for future periods and amounts received in advance for the sale of trading properties, for which recognition of revenue has not yet commenced.

 

Impairment

Non-derivative financial assets

Financial assets not classified as at fair value through profit or loss, including an interest in equity-accounted investee are assessed at each reporting date to determine whether there is objective evidence of impairment.

 

Objective evidence that financial assets are impaired includes:

·    default or delinquency by a debtor;

·    restructuring of an amount due to the Group on terms that the Group would not consider otherwise;

·    indications that a debtor or issuer will enter bankruptcy;

·    adverse changes in the payment status of borrowers or issuers;

·    the disappearance of an active market for a security because of financial difficulties; or

·    observable data indicating that there is a measureable decrease in the expected cash flows from a group of financial assets.

 

For an investment in an equity security, objective evidence of impairment includes a significant or prolonged decline in its fair value below its cost.

 

Financial assets measured at amortised cost

The Group considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risks characteristics.

 

In assessing collective impairment, the Group uses historical information on the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends.

 

An impairment loss is calculated as the difference between an asset's carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss.

 

Equity-accounted investees

An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognised in profit or loss, and is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

 

Non-financial assets

At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than investment property, investment property under development, VAT recoverable, inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.

 

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets.

 

The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

 

An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount and recognised in profit or loss.

 

An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

Assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.

 

Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rate basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets, investment property or investment property under development, which continue to be measured in accordance with the Group's other accounting policies. Impairment losses on initial classification as held-for-sale or held-for-distribution and subsequent gains and losses on remeasurement are recognised in profit or loss.

 

Once classified as held-for-sale, intangible assets, and property, plant and equipment are no longer amortised or depreciated and any equity-accounted investee is no longer equity accounted.

 

Employee benefits

Short-term employee benefits

Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

 

Share-based payment transactions

The grant-date fair value of equity-settled share-based payment options granted to employees is generally recognised as an expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the options. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest.

 

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense, with a corresponding increase in liabilities, over the period during which the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date based on the fair value of share appreciation rights. Any changes in the liability are recognised in profit or loss.

 

Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

 

Revenue

Sale of trading properties

Revenue from sale of trading properties is recognised in profit or loss when the significant risks and rewards of ownership have been transferred to the buyer.

 

Construction Management fee

Revenue from construction management is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

 

Investment Property Rental income

Rental income from investment property is recognised as revenue on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

 

Hotel operation income

Income from hotel operations comprises of accommodation, treatments and other services offered at the hotels operated by the group and sales of food and beverages and are recognised upon offering of the service and the acceptance by the client.

 

Gross Profit

Gross profit is the result of the Group's operations and comprises revenue and other income net of all cost for trading properties sold and operating, administrative and other expenses, recognised in profit or loss during the year.

 

Finance income and finance costs

Finance income include interest income on funds invested and net gain on financial assets at fair value through profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method.

 

Finance costs include interest expense on borrowings, unwinding of the discount on provisions and deferred consideration, net loss on financial assets at fair value through profit or loss and impairment losses recognised on financial assets. 

 

Borrowing costs are recognised in profit or loss using the effective interest method, net of interest capitalised.

 

Foreign currency gain or loss on financial assets and financial liabilities is reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

 

Income tax

Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in OCI.

 

Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.

 

Current tax assets and liabilities are offset only if they relate to income taxes levied by the same taxation authority and the taxation authority permits the entity to make or receive a single net payment. In Group's financial statements, a current tax asset of one entity in the group is offset against a current tax liability of another entity in the group if, and only if, the entities concerned have a legally enforceable right to make or receive a single net payment and the entities intend to make or receive such a net payment or to recover the asset and settle the liability simultaneously.

 

Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is not recognised for temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss and temporary differences related to investments in subsidiaries and joint arrangements to the extent that the Group is able to control the timing of reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future.

 

Deferred tax (continued)

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on business plans for individual subsidiaries in the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.

 

Unrecognised deferred tax assets are reassessed at each  reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used. 

 

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. For this purpose the carrying amount of investment property measured at fair value is presumed to be recovered through sale and the Group has not rebutted this presumption.

 

Deferred tax assets and liabilities are offset if, and only if, the entity has a legally enforceable right to set off current tax liabilities and assets; and the deferred tax liabilities and assets relate to income taxes levied by the same tax authority on either the same taxable entity or different taxable entities, but these entities intend to settle current tax liabilities and assets on a net basis, or their tax assets and liabilities will be realised simultaneously for each future period in which these differences reverse.

 

The provision for taxation either current or deferred is based on the tax rate applicable to the country of residence of each subsidiary.

 

Discontinued operations

                    A discontinued operation is a component of the Group's business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:

·    represents a separate major line of business or geographical area of operations;

·    is part of a single co-ordinated plan to dispose of a separate major line of business or geographic area of operations; or

·    is a subsidiary acquired exclusively with a view to re-sale.

 

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale.

 

When an operation is classified as a discontinued operation, the comparative statement of profit or loss and OCI is re-presented as if the operation had been discontinued from the start of the comparative year.

 

Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares.  Basic EPS is calculated by dividing the profit or loss attributable to the owners of the Company by the weighted average number of ordinary shares outstanding during the year.  Diluted EPS is determined by adjusting the profit or loss attributable to the owners of the Company and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.
 

Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All segments results are reviewed regularly by the Group's management to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

 

6.     OPERATING SEGMENTS

 

        The Group has five reportable segments, as described below, which are the Group's strategic business units. The strategic business units offer different types of real estate products and services and are managed separately because they require different marketing strategies as they address different types of clients. For each strategic business unit the Group's management reviews internal management reports on at least monthly basis. The following summary describes the operation in each of the Group's reportable segments.

 

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

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

·    Hotel Operation: Includes the ownership and operation of Hotels

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

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

 

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

 

 

 

 

Reportable segments

 

 

Development projects

Asset management

Hotel Operation

Land bank

Other

 

 

Residential projects

 

 

 

 

 Total

 

                         

 

 

2016

2015

2016

2015

2016

     2015

2016

2015

2016

2015

2016

2015

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

 

 

 

 

 

 

 

 

 

 

 

 

 

External revenues

56,544

4,900

67,878

74,010

11,298

11,346

2,361

3,325

215

145

138,296

93,726

Inter-segment revenue

6,077

5,485

915

469

4

2

5,295

5,813

6,397

6,787

18,688

18,556

Segment revenue

62,621

10,385

68,793

74,479

11,302

11,348

7,696

9,138

6,572

6,932

156,984

112,282

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment (loss) profit

 before tax

 

(688)

 

(48,127)

 

(8,411)

 

(437,077)

 

3,069

 

2,458

 

(41,620)

 

(65,364)

 

(6,196)

 

(6,480)

 

(53,846)

 

(554,590)

Interest income

2

1

8

3

1

-

2,134

3,735

-

-

2,145

3,739

Interest expense

-

-

(44,012)

(45,733)

-

-

(24)

(50)

-

-

(44,036)

(45,783)

Depreciation

(53)

(37)

(79)

(116)

(498)

(732)

(6)

(16)

(60)

(62)

(696)

(963)

Share of profit/(loss) of joint-ventures

 

-

 

-

 

-

 

-

 

3,742

 

(1,321)

 

-

 

-

 

-

 

 

3,742

 

(1,321)

Other material

non-cash items:

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment loss on

properties

-

(12,651)

-

-

-

-

-

-

 

 

-

(12,651)

 

Decrease in fair value of properties

(3,970)

(35,203)

(91,254)

(325,359)

-

-

(27,821)

(73,802)

 

-

 

(123,045)

(434,364)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment assets

355,567

255,591

912,240

916,855

27,158

23,610

185,693

281,230

624

496

1,481,282

1,477,782

 

Capital expenditure

60,278

38,056

370

7,020

-

-

818

4,538

-

-

61,466

49,614

 

Segment liabilities

66,971

64,187

667,779

643,102

-

-

-

12,319

387

628

735,137

720,236

 

                             

 

 

 

 

 

        Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items.

 

 

2016

2015

 

US$'000

US$'000

Revenues

 

 

Total revenue for reportable segments

156,984

112,282

Elimination of inter-segment revenue

  (18,688)

  (18,556)

Consolidated revenue

 138,296

    93,726

 

 

 

Profit before tax

 

 

Total profit before tax for reportable segments

(53,846)

(554,590)

Unallocated amounts:

 

 

Other profit or loss

(593)

(1,277)

Share of the after tax profit/(loss) of joint ventures

    3,742

    (1,321)

Consolidated loss before tax

 (50,697)

 (557,188)

 

 

 

 

 

 

Assets

 

 

Total assets for reportable segments

1,481,282

1,477,782

Other unallocated amounts

     26,484

     34,179

Consolidated total assets

1,507,766

1,511,961

 

 

 

 

 

 

Liabilities

 

 

Total liabilities for reportable segments

735,137

720,236

Other unallocated amounts

          332

          125

Consolidated total liabilities

   735,469

   720,361

 

 

 

 

 

 

Reportable segment totals

 

Adjustments

Consolidated totals

 

US$'000

US$'000

US$'000

 

 

 

 

Other material items 2016

 

 

 

Interest income

2,145

-

2,145

Interest expense

44,036

-

44,036

Capital expenditure

61,466

-

61,466

Depreciation

696

-

696

Decrease in fair value of properties

123,045

             -

123,045

 

 

 

 

 

 

 

 

 

Reportable segment totals

 

Adjustments

Consolidated totals

 

US$'000

US$'000

US$'000

Other material items 2015

 

 

 

 

 

 

 

Interest income

3,739

-

3,739

Interest expense

45,783

-

45,783

Capital expenditure

49,614

-

49,614

Depreciation

963

-

963

Decrease in fair value of properties

434,364

-

434,364

Impairment loss on properties

  12,651

         -

  12,651

       

Geographical segments

Geographically the Group operates only in Russia and has no significant revenue or assets in other countries or geographical areas. Therefore no geographical segment reporting is presented.

 

Major customer

There was no concentration of revenue from any single customer in any of the segments.

 

7.     REVENUE

 

 

2016

2015

 

 

US$ '000

US$ '000

 

 

 

 

Investment property rental income

 

72,299

81,561

Sales of trading properties (note 22)

 

54,484

674

Hotel operation income

 

11,298

11,346

Construction consulting/management fees

 

       215

       145

 

 

138,296

  93,726

 

8.    OTHER INCOME

 

2016

2015

Other income consists of:

US$ '000

US$ '000

 

 

 

Penalties charged to tenants

147

345

Reimbursement of depositary fees

480

750

Reimbursement of property tax

1,770

-

Profit on sale of property, plant and equipment

17

16

Sundries

    1,131

    2,014

 

    3,545

    3,125

 

 

9.     OPERATING EXPENSES

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Maintenance, utility and security expenses

12,147

13,743

Agency and brokerage fees

623

701

Advertising expenses

5,496

3,672

Salaries and wages

10,276

10,724

Consultancy fees

504

499

Depreciation

578

849

Insurance

635

622

Rent

1,429

1,566

Property and other taxes

6,338

7,863

Other operating expenses

      810

      266

 

 38,836

 40,505

 

10.   ADMINISTRATIVE EXPENSES

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Consultancy fees

1,841

894

Legal fees

814

475

Auditors' remuneration

519

695

Valuation expenses

94

124

Directors' remuneration

1,361

1,472

Salaries and wages

25

6

Depreciation

118

114

Insurance

208

193

Provision for Doubtful Debts-(reversal)

(1,304)

(99)

Share option expense

857

2,283

Donations

674

2,811

Other administrative expenses

   1,382 

   1,672 

 

   6,589

 10,640

 

11.   OTHER EXPENSES

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Prior years' VAT non recoverable (note 21)

121

125

Sundries

   1,209

   1,524

 

   1,330

   1,649

 

 

12.   FINANCE INCOME AND FINANCE COSTS

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Interest income

2,145

3,739

Net change in fair value of financial assets

-

408

Translation reserve reclassified upon disposal of subsidiaries 

-

275

Loans payable written off

            -

          74

Foreign exchange gain

  63,657

             -

Finance income

  65,802

     4,496

 

 

 

Interest expense on loans and borrowings

(44,036)

(45,783)

Net change in fair value of financial assets

(174)

-

Other finance costs

(380)

(396)

Loans receivable written off

(18)

-

Foreign exchange loss

             -

(110,617)

Finance costs

  (44,608)

(156,796)

 

 

 

Net finance income/(costs)

   21,194

(152,300)

 

The net foreign exchange gain recognised during 2016 is a result of the weakening of the US Dollar to the Russian Rouble by 17%, during 2016.  The recognised gain is mainly attributable to the US Dollar denominated loans held by Russian subsidiaries or branches where the functional currency is the Russian Rouble.

 

Subject to the provisions of IAS23 "Borrowing costs" in 2016 the Group did not capitalise any amount (2015 Nil) of financing costs to the projects that are in construction phase.

 

13.   TAX BENEFIT

 

2016

2015

 

US$ '000

US$ '000

Current tax (benefit)/expense

 

 

Current year

     282

      844

Adjustment for prior years

     (865)

       (91)

 

     (583)

      753

 

 

 

Deferred tax benefit

 

 

Origination and reversal of temporary differences

  (2,172)

(91,262)

 

 

 

Total tax benefit

  (2,755)

(90,509)

 

 

 

 

The provision for taxation either current or deferred is based on the tax rates applicable to the country of residence of each Group entity. Cypriot entities are subject to 12.5% corporate rate whereas Russian subsidiaries and branches are subject to 20% corporate rate.

 

 

 

2016

 

2015

 

%

US$ '000

%

US$ '000

 

 

 

 

Loss for the year after tax

 

(47,942)

 

(466,679)

Total tax benefit

 

    (2,755)

 

  (90,509)

Loss before tax

 

  (50,697)

 

(557,188)

 

 

 

 

 

Tax using the Company's domestic tax rate

(12.5)

(6,332)

(12.5)

(69,463)

Effect of tax rates in foreign jurisdictions

(5.4)

(2,754)

(7.6)

(42,580)

Tax exempt income

(79.0)

(40,060)

(4.9)

(27,544)

Non-deductible expenses

89.16

45,201

6.5

36,012

Change in estimates related to prior years

  (1.7)

(865)

   -

-

Current year losses for which no deferred tax asset recognised

 

4.05

 

    2,055

 

2.3

 

  13,066

 

(5.4)

   (2,755)

(16.2)

 (90,509)

 

The current tax asset of US$2,542 thousand as at 31 December 2016 (2015: asset US$1,622 thousand), represents the net amount of income tax overpayment in respect of current and prior periods.

 

14.   EARNINGS PER SHARE

 

2016

2015

Basic earnings per share

US$ '000

US$ '000

 

 

 

 Loss attributable to ordinary shareholders

    (47,872)

  (464,087)

 

 

 

 

 Weighted average number of ordinary shares

Shares in thousands

Shares in thousands

 

 

 

 

 

 

 Weighted average number of shares

1,047,694

1,047,694

 

 

 

 

 

 

 Earnings per share (cent)

        (4.57)

      (44.30)

 

Diluted earnings per share are not presented as the assumed conversion of the employee share options outstanding would have an anti-dilutive effect i.e. increase in earnings per share.

 

15.   INVESTMENT PROPERTY

 

Reconciliation of carrying amount

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Balance 1 January

933,700

1,375,416

Renovations/additional cost

370

2,013

Disposals

(500)

-

Fair value adjustment

(92,801)

(332,361)

Effect of movement in foreign exchange rates

     74,581

  (111,368)

Balance 31 December

   915,350

   933,700

 

Investment property comprises mainly retail and commercial property which is operated by the Group and is leased out to tenants.

 

The investment property was revalued by independent appraisers on 31 December 2016. The cumulative adjustments, for all projects, are shown in "Fair value adjustment" in the table above.

 

The increase/(decrease) due to the effect of the foreign exchange rates is a result of the weakening of the US Dollar to the Russian Rouble by 17%, during 2016 (2015: strengthening 30%).

 

The main reason for the fair value loss are market driven changes in the valuation assumptions reflecting the continuing pressure on rental rates per square metre. In the retail segment the increasing switch of retail rents to roubles in most shopping centres has also undermined market rents. At the AFIMALL there was a divergence between the existing and new leases, with significant discounts having to be offered to lease currently vacant space, compared with higher rental rates agreed with the existing tenants. In 2016 a number of existing leases expired and were prolonged at lower base rental rates reflecting discounts, which influenced negatively the Estimated Rental Value "ERV" of the Mall though decreasing the amount of discounts provided in the end the same net income. In the office segment the process of switching rents from US dollars to roubles continued, however market rental rates remained stable while overall vacancy rates slightly decreased.

 

Measurement of fair value

 

Fair value hierarchy

 

The fair value of investment property was determined by external, registered independent property appraisers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued. The independent appraisers calculate the fair value of the Group's investment property portfolio every six months. The same applies for investment property under development in note 16.

 

The fair value measurement for investment property of US$915,350 thousand (2015: US$933,700 thousand) has been categorised as a level 3 fair value based on the inputs to the valuation technique used.

 

Level 3 fair value

The table presented in reconciliation of carrying amount above shows the reconciliation from the opening balances to the closing balances for level 3 fair values, since all fair values of investment properties of the Group, are categorised as level 3.

 

Valuation technique and significant unobservable inputs

        The following table shows the valuation technique used in measuring the fair value of investment property, as well as the significant unobservable inputs used.

       

Valuation technique

Significant unobservable inputs

Inter-relationship between key unobservable inputs and fair value measurement

 

 

 

Discounted cash flows: The valuation model considers the present value of net cash flows to be generated from each property, taking into account rental rates and expected rental growth rate, occupancy rate and void periods together reflected in vacancy rates, construction cost, opening and completion dates, lease incentive costs such rent free periods, taxes and other costs not paid by tenants.  The expected net cash flows are discounted using the risk-adjusted discount rates plus the final year stream is discounted with an all-risk yield.  Among other factors, discount rate estimation considers type of property offered (retail, commercial, office) quality of building and its location, tenant credit quality and lease terms.

·   Average Rental rates per sq.m.: Office  prime class-$640, class A $510, class B $200-$290, Retail $100-$10,000

·   Expected market rental growth office 0-5%  average, retail 0-3% average, no ERV growth for AFIMALL

·   Vacancy rate (class prime A 5% class B 10-12.1% )

·   Risk-adjusted discount rates (14%-18%)

·   All-Risk Yield 9.5%-15.5%

The estimated fair value would increase/(decrease) if:

·    Average rental rates were higher/(lower)

·    Expected market rental growth were higher/(lower)

·    Void periods were shorter/(longer)

·    The vacancy rates were lower/(higher)

·    The risk-adjusted discount rates were lower (higher)

·    All-risk yields were lower/(higher)

 

 

 

Investment properties at fair value are categorised in the following:

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Retail properties

666,500

685,200

Office space properties

   248,850

   248,500

 

   915,350

   933,700

 

 

 

Fair value sensitivity Analysis

 

Presented below is the effect on the fair value of the main investment property project, of an increase/(decrease) in the below inputs at the reporting date. This analysis assumes that all other variables remain constant.

 

AFI Mall City

 

 

 

Capitalization Rates

Increase of 1 %

Rate used in fair value calculation as at 31/12/2016

10%

Decrease of 1%

  Fair value (US$ '000)

630,000

666,500

711,200

 

 

 

 

Average rental rates per sq.m

Decrease of 5%

Rate used in fair value calculation as at 31/12/2016

US$1,103 sq.m.

Increase of 5%

  Fair value (US$ '000)

644,300

666,500

688,800

 

Decrease of 10%

 

Increase of 10%

 

622,100

666,500

711,000

 

 

 

 

Occupancy rates

Decrease of 2%

Rate used in fair value calculation as at 31/12/2016

92.5%

Increase of 2%

  Fair value (US$ '000)

651,600

666,500

681,500

 

 

 

 

 

16.   INVESTMENT PROPERTY UNDER DEVELOPMENT

 

2016

2015

Reconciliation of carrying amount

US$ '000

US$ '000

 

 

 

Balance 1 January

238,925

431,474

Construction costs

4,554

10,906

Transfer to trading properties under construction (note 23)

-

(69,300)

Fair value adjustment

(30,244)

(102,003)

Effect of movements in foreign exchange rates

  19,665

 (32,152)

Balance 31 December

232,900

238,925

 

The investment property under development was revalued by independent appraisers on 31 December 2016. The cumulative adjustments, for all projects, are shown in line "Fair value adjustment" in the table above. The main reasons for the fair value adjustments, are described in note 15 above.

 

The increase/(decrease) due to the effect of the foreign exchange rates is a result of the weakening of the US Dollar to the Russian Rouble by 17%, during 2016 (2015: strengthening 30%).

 

Fair value hierarchy

The fair value measurement for investment property under development of US$232,900 thousand (2015: US$238,925 thousand) has been categorised as a level 3 fair value based on the inputs to the valuation technique used. 

 

Level 3 fair value

The table presented above is the reconciliation from the opening balances to the closing balances for level 3 fair values, since all fair values of investment properties under development of the Group, are categorised as level 3.

 

Valuation technique and significant unobservable inputs

        The valuation technique used in measuring the fair value of investment property under development, the significant unobservable inputs used, as well as the inter-relationship between key unobservable inputs and fair value measurement are discussed in note 15. In addition, the following inputs for investment property under development.

 

 Geographical

 

Fair

 

Discount

 

Rate of return for

 location

value

rate

representative year

 

US$ '000

%

%

 

 

 

 

Russia

232,900

18-24

9.5-13.5

 

 

 

 

17.  SHARE OF INVESTMENT IN JOINT VENTURES

 

The Group's joint ventures comprise the 50% interest in Nouana Limited and Craespon Management Ltd with their subsidiary Sanatorium Plaza LLC, owner of a hotel in Kislovodsk. 

 

The following table summarises the financial information of the joint ventures as included in their own financial statement, adjusted for fair value adjustments at acquisition.  The table also reconciles the summarised financial information to the Group's interest in joint ventures:

 

 

2016

2015

 

US$ '000

US$ '000

Percentage ownership interest

50%

50%

 

 

 

Non-Current assets

18,277

15,326

Current assets (including cash and cash equivalents -

2016:$6,924 thousand, 2015: $7,498 thousand)

 

7,791

 

8,210

Non-Current liabilities (including non-current financial liabilities excluding trade and other payables and provisions-

2016:$32,347 thousand, 2015: $35,014 thousand)

 

 

(34,100)

 

 

(36,450)

Current liabilities (including current financial liabilities)

   (1,783)

  (1,440)

Net liabilities (100%)

   (9,815)

(14,354)

Group's share of net liabilities (50%)

(4,908)

(7,177)

Fair value adjustments at acquisition

    4,705

    3,916

Interest in joint ventures

     (203)

     (3,261)

Restriction of share of loss

       203

    3,261

Carrying amount of interest in joint ventures

            -

            -

 

 

 

Revenue

18,272

18,098

Depreciation

(174)

(173)

Interest expense

(2,676)

(2,844)

Income tax expense

(1,948)

(2,002)

Profit/(loss) and total comprehensive income (100%)

   7,483

  (2,642)

Group's share of profit and total comprehensive income (50%)

   3,742

  (1,321)

 

 

 

Dividends received by the Group

      380

   3,250

 

 

 

18.   PROPERTY, PLANT AND EQUIPMENT

 

Buildings

 under

construction

 

Land &

 Buildings

 

Office Equipment

 

Motor

Vehicles

 

 

Total

 

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

Cost

 

 

 

 

 

Balance at 1 January 2016

3,319

24,552

1,987

840

30,698

Additions

-

48

77

137

262

Disposals

-

(101)

(13)

(179)

(293)

Effect of movement in foreign exchange rates

       628

   5,226

    375

   165

   6,394

Balance at 31 December 2016

    3,947

 29,725

 2,426

   963

 37,061

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

Balance at 1 January 2016

          -

  1,972

1,740

706

4,418

Charge for the year

-

524

124

48

696

Disposals

-

(86)

(13)

(109)

(208)

Effect of movement in foreign exchange rates

            -

      453

    351

   136

     940

Balance at 31 December 2016

            -

   2,863

 2,202

   781

  5,846

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

At 31 December 2016

    3,947

 26,862

    224

    182

 31,215

 

 

 

Buildings

 under

construction

 

 

Land &

 Buildings

 

 

Office Equipment

 

 

Motor

Vehicles

 

 

 

Total

 

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

Cost

 

 

 

 

 

Balance at 1 January 2015

4,242

32,144

2,568

1,124

40,078

Additions

-

33

23

-

56

Transfer from trading properties (note 22)

-

212

-

-

212

Disposals

-

(226)

(1)

(33)

(260)

Effect of movement in foreign exchange rates

      (923)

(7,611)

   (603)

  (251)

  (9,388)

Balance at 31 December 2015

    3,319

 24,552

 1,987

   840

 30,698

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

Balance at 1 January 2015

          -

  2,031

2,092

854

4,977

Charge for the year

-

712

162

89

963

Disposals

-

(226)

-

(33)

(259)

Effect of movement in foreign exchange rates

            -

     (545)

   (514)

  (204)

 (1,263)

Balance at 31 December 2015

            -

   1,972

 1,740

   706

  4,418

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

At 31 December 2015

    3,319

 22,580

    247

    134

 26,280

 

 

 

 

 

 

             

 

19.   LOANS RECEIVABLE

 

2016

2015

 

US$ '000

US$ '000

Long-term loans

 

 

Loans to joint ventures (note 39)

15,745

14,246

Loans to non-related companies

        18

        70

 

 15,763

 14,316

Short-term loans

 

 

Loans to joint ventures (note 39)

-

98

Loans to non-related companies

          7

          3

 

          7

      101

Terms and loan repayment schedule

 

Terms and conditions of outstanding loans were as follows:

 

 

Currency

Nominal

Year of

2016

2015

 

 

interest rate

maturity

US$ '000

US$ '000

 

 

 

 

 

 

Unsecured loans to joint ventures

USD

11.5%

2020

11,300

9,942

 

RUR

14%

2020

4,445

4,304

 

RUR

2.35%

2016

-

98

Unsecured loans to non-related companies

 

RUR

 

-

 

2017

 

7

 

49

 

RUR

8.8%

2016

-

15

 

RUR

2.5%

 2020

10

6

 

RUR

0.1-5.5%

 2019

         8

         3

 

 

 

 

15,770

14,417

 

20.   INVENTORY OF REAL ESTATE

 

Represented the rights to the project "AFI Residence Botanic Garden" which was land for future development in the North-Eastern Administrative District of Moscow and was presented at net realisable value. As at 31 December 2016 the project was reclassified to Trading Properties under Construction based on Board approval to commence construction of the project during the year 2017.

 

21.   VAT RECOVERABLE

 

Represents VAT paid on construction costs and expenses which according to the Russian VAT law can be recovered upon completion of the construction.  Part of this VAT is expected to be recovered after more than 12 months from the balance sheet date.  Due to the uncertainties in the Russian tax and VAT law, the management has assessed the recoverability of this VAT and has provided for any amounts that their recoverability was deemed doubtful or questionable (see note 11).  Under Russian VAT legislation, VAT can also be claimed during the period of construction provided that all required documentation is presented to the VAT authorities. The Group was successful in recovering VAT during the year, and it is estimated that part of the VAT recoverable as at the year-end will be recovered within the next 12 months, which is classified as trade and other receivables, note 25.

 

 

22.   TRADING PROPERTIES

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Balance 1 January

2,062

2,979

Transfer from trading properties under construction (note 23)

53,480

-

Reclassification to property, plant and equipment

-

(212)

Disposals

(49,475)

(609)

Effect of movements in exchange rates

      787

      (96)

Balance 31 December

   6,854

  2,062

 

Trading properties comprise unsold apartments and parking spaces. The transfer from trading properties under construction represents the completion of the construction of a number of flats, offices and parking places of "Odinburg" project. During the year the sale of 700 flats, 3 offices and 47 parking places were recognised, upon transferring of the rights to the buyers according to the signed acts of transfer, in the income statement.

 

23.   TRADING PROPERTIES UNDER CONSTRUCTION

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Balance 1 January

204,392

133,036

Transfer from inventory of real estate (note 20)

21,543

-

Transfer from investment property under development (note 16)

-

69,300

Transfer to trading properties (note 22)

(53,480)

-

Construction costs

54,428

33,670

Impairment loss

-

(13,400)

Effect of movements in exchange rates

  16,444

 (18,214)

Balance 31 December

243,327

204,392

 

Trading properties under construction comprise "Odinburg",  "Paveletskaya Phase II" and "AFI Residence Botanic Garden" projects which involve primarily the construction of residential properties.

 

As at 31 December 2016 the project "AFI Residence Botanic Garden" was reclassified from Inventory of real estate based on Board approval to commence construction of the project during the year 2017, for further details refer to note 20.

 

The properties were tested for impairment at year end based on internal valuation.  No impairment loss was recognised in the profit or loss so as to present the properties at their lower of cost or net realisable value.

 

 

24.   OTHER INVESTMENTS

 

The movement in other investments is comprised of acquisition of US$12.6 million, sale of bonds of US$18.1 million and maturity of bonds for US$4.2 million during the year. These are carried at fair value and any changes during the year are recognised in the profit or loss as finance income or expenses. 

 

25.   TRADE AND OTHER RECEIVABLES

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Advances to builders

27,019

18,383

Amounts receivable from related parties (note 39)

267

337

Trade receivables net

3,427

3,381

Other receivables

3,955

3,037

VAT recoverable (note 21)

4,067

858

Tax receivable

     3,692

     3,021

 

   42,427

   29,017

Trade receivables net

Trade receivables are presented net of an accumulated provision for doubtful debts of US$8,285 thousand (2015: US$11,402 thousand).

 

26.   CASH AND CASH EQUIVALENTS

 

2016

2015

Cash and cash equivalents consist of:

US$ '000

US$ '000

 

 

 

Cash at banks

10,356

26,374

Cash in hand

       263

       171

Cash and cash equivalents as per statement of cash flows

  10,619

  26,545

 

27.   SHARE CAPITAL AND RESERVES

 

2016

2015

1.  Share capital

US$ '000

US$ '000

Authorised

 

 

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

  2,000

  2,000

 

 

 

Issued and fully paid

 

 

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

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

524

     524

524

     524

 

  1,048

  1,048

 

There were no changes to the authorised or the issued share capital of the Company during the year ended 31 December 2016.

 

2.  Share premium

It represents the share premium on the issue of shares on 31 December 2006 for the conversion of the shareholders' loans to capital US$421,325 thousand. It also includes the share premium on the issued shares which were represented by GDRs listed in the LSE in 2007.  It was the result of the difference between the offering price, US$14, and the nominal value of the shares, US$0.001, after deduction of all listing expenses. An amount of US$1,399,900 thousand less US$57,292 thousand transaction costs was recognised during the year 2007. On 5 July 2010 an amount of US$524 thousand was capitalised as a bonus issue.

 

3.  Employee Share option plan

The Company has established an employee share option plan operated by the Board of Directors, which is responsible for granting options and administrating the employee share option plan. Eligible are employees and directors, excluding independent directors, of the Company.  The employees share option plan is discretionary and options will be granted only when the Board so determines at an exercise price derived from the closing middle market price preceding the date of grant. No payment will be required for the grant of the options. In any 10 year period not more than 10 per cent of the issued ordinary share capital may be issued or be issuable under the employee share option plan.

 

As of 31 December 2016 the following options were outstanding:

 

·    During 2007 and 2008 options over GDRs with an exercise price of US$7 which have already vested, one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third, on the fourth anniversary of the date of grant provided that the participants remained in employment until the vesting date.  The vesting was not subject to any performance conditions. On 31 December 2016 1,017,240 options, 0.1% of the issued share capital, were outstanding which have already vested and have a contractual life of ten years from the date of grant.

 

·    On 21 May 2012, the Board of Directors approved the grant of additional options to Company's employees.  Options over 16,763,104 B shares, 1.6% of the issued share capital, were granted with an exercise price equal to US$0.7208, vesting one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third, on the fourth anniversary of the date of grant provided that the participants remain in employment until the vesting date.  The vesting is not subject to any performance conditions. Their contractual life is five years from the date of grant. Up until 31 December 2016 2,095,388 options were cancelled, and the remaining 14,667,716 options have vested.

 

·    On 22 November 2012, the Board of Directors approved the grant of additional options to the Company's executive chairman. Options over 31,430,822 B shares, 3% of the issued share capital, were granted with an exercise price equal to US$0.5667, vesting one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third, on the fourth anniversary of the date of grant provided that the participants remain in employment until the vesting date.  The vesting is not subject to any performance conditions. All options have vested and have a contractual life of five years from the date of grant.

 

If a participant ceases to be employed his options will normally lapse subject to certain exceptions. In the event of a takeover, reorganisation or winding up vested options may be exercised or exchanged for new equivalent options where appropriate.  Shares/GDRs issued under the plan will rank equally with all other shares at the time of issue. The Board of Directors may satisfy, (with the consent of the participant), an option by paying the participant in cash or other assets the gain as an alternative of issuing and transferring the shares/GDRs.

 

4.  Translation reserve

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

        

5.  Retained earnings

The amount at each reporting date is available for distribution. No dividends were proposed, declared or paid during the year ended 31 December 2016.

 

6.  Capital reserve

Represents the effect of the acquisition of the 10% non-controlling interests in Bioka Investments Ltd and its subsidiary Nordservice LLC previously held at 90%.

 

28.   LOANS AND BORROWINGS

    

2016

2015

 

US$ '000

US$ '000

Non-current liabilities

 

 

Secured bank loans

627,074

389,799

 

 

 

 

 

Current liabilities

 

 

 

Secured bank loans

459

224,076

 

Unsecured loans from other non-related companies

       289

       239

 

 

       748

224,315

 

           

 

a.  The outstanding loans on 31 December 2016 comprise of two loans as follows:

 

AFIMALL City Loan Facility

A secured loan from VTB Bank JSC ("the Bank") signed on 22 June 2012 by one of the Group's subsidiary, Bellgate Construction Ltd ("Bellgate"). This loan facility agreement offered a credit line totalling RUR 21 billion, which was drawn down in 5 tranches, each with a designated purpose: the majority of the funds were designated to refinance existing loans previously issued by the Bank. The remaining funds were designated for the refinancing of construction costs related to the AFIMALL City parking and for the financing of the outstanding payments constituting part of the consideration for the acquisition of the parking.

 

The Company had discretion over the currency of each tranche, and the credit line was drawn down 65% in US dollars and 35% in Russian roubles. The loan facility has differentiated interest rates which are currency dependent: 9.5% for loans drawn down in Russian roubles and 3 months LIBOR plus 5.02% (6.7% up to 2/9/2013) for loans drawn down in US dollars.

 

Based on the loan agreement the interest on the loans is payable on a quarterly basis, throughout the term of the credit line. Bellgate has undertaken to make equal quarterly payments of US$6.5 million from 2014 to 2016, on account of the principal of the loans, while it has been agreed that the remainder of the loan will mature in April 2018.

 

The terms of the loan facility agreement are substantially similar to those of the loan facility agreement entered into in February 2012 with the Bank in relation to the financing of the acquisition of the AFIMALL City parking. However, certain conditions of the new loan facility will differ from the aforementioned loan, including the following:

a)   The guarantee of AFI Development Plc over the obligations of Bellgate under the loan facility agreement will be in the amount of US$1 million, the nominal value of Bellgate's shares;

b)   Additional mortgage over the premises of "Aquamarine" Hotel will be registered in favour of the Bank. This shall be removed in the case that Bellgate redeems US$20 million of principal;

c)   Additional guarantee will be provided to the Bank by Semprex LLC, a Russian company which is an indirect subsidiary of AFI Development Plc, and owner of the "Aquamarine" Hotel. This shall be removed in the case that Bellgate redeems US$20 million of principal;

d)    The turnover covenant has been changed from monthly bank accounts turnovers of not less than RUR 200 million to quarterly revenues (including VAT) exceeding agreed thresholds, determined as amounts gradually increasing from RUR 651 million for Q3 2012 to the amount of RUR1,139 million for Q1 2018. The penalty for not meeting the covenant is changed from 1% additional interest for the next month to 0.5% additional interest for the next quarter.

 

The loan facility agreement contains other generally acceptable terms, such as the borrower undertaking to maintain the aggregate value of the pledged assets, securing the loan facility, providing the lender with periodic reporting and similar common conditions.

 

As of 31 December 2016, Bellgate is in compliance with the covenants of this loan.

 

Ozerkovskaya III loan facility

On 25 January 2013, Krown Investments LLC ("Krown"), a 100% subsidiary, acquired a secured loan from VTB Bank JSC ("the Bank") for refinancing the repayment of borrowings due to related parties.  This loan agreement offers a credit line of US$220 million, which was drawn down during the first quarter of 2013. The agreed interest is three-month LIBOR plus 5.7% p.a., payable every quarter. The loan repayment date was originally in 731 days from the date of signing the loan agreement. Securities provided to the Bank are on the 100% of the shares of Krown and on properties/buildings of Ozerkovskaya (Aquamarine) phase III. A decrease in the market value of the pledged buildings by more than 15% will enable the bank to demand repayment of the loan before the agreed maturity date. In case of disposal of the pledged building, at least 70% of sale proceeds should be directed to the Bank for the repayment of the loan. 

 

An amount of US$15 million was repaid during 2013 out of the proceeds from sale of Building 1 of the Ozerkovskaya (Aquamarine) phase III. 

 

In January 2015, prior to maturity, the subsidiary signed an addendum to the loan facility agreement with the Bank, extending the term of the loan to 26 January 2018. In addition to extending the term of the loan, the new addendum amended the payment schedule, interest rate conditions and introduced new covenants. The payment schedule anticipated repayments of the principal starting from the 4th quarter of 2015, while the new covenants included a "Debt Service Coverage Ratio" of 1.2 also applicable as from the 4th quarter of 2015 and a "Loan to Value ratio" of 65% applicable from January 2015. In line with the addendum, on 26th January 2015 Krown paid US$10 million to the Bank, being a partial repayment of the outstanding loan amount, thus reducing the total to US$195 million. Approximately 90% of the principal is to be paid at maturity.

 

Based on the independent valuation as at 31 December 2015, of the Ozerkovskaya III project, Krown, has not met the Loan to Value covenant and the Bank had the right to require a partial repayment of the principal of the loan sufficient to rectify the breach of the covenants, within 90 calendar days from the date of the Bank notification. The DSCR ratio covenant of the Krown loan agreement has not been met either, based on the performance results of Q4 2015. Krown was, therefore, in breach of both covenants in its loan facility agreement. Based on this, the total amount of the outstanding loan (US$192 million) was reclassified to current liabilities as at 31 December 2015.

 

Further to the breach of covenants and the events described in note 2i "Going concern basis of accounting" the following addendums were signed with VTB Bank on 27 September 2016.

 

Krown Investments LLC ("Krown") and VTB have signed an addendum to the Ozerkovskaya III Loan Facility pursuant to which:

(i)    the existing covenants (being the debt service coverage ratio and the loan to value covenants) which Krown is currently in breach of, have been removed;

(ii)   all quarterly principal payments due under the facility including the quarterly principal payment due on 30 June 2016 and which has not been paid, will be deferred to maturity, being 26 January 2018; and

(iii)   the Company will provide additional security to VTB in consideration of the above.

 

All other terms of the facility, including interest payments, remain the same. 

 

 

 

Pursuant to the additional security, a new share pledge by the Company over 100% of the share capital of Bellgate has been entered into with VTB (the "Bellgate Share Pledge"). The Bellgate Share Pledge continues to cover the obligations of Bellgate pursuant to the AFIMALL City Loan Facility (with any liability arising now being satisfied by, inter alia, the transfer of the pledged shares to VTB), and now also covers the obligations of Krown in respect of the Ozerkovskaya III Loan Facility. In addition, within 60 calendar days of this addendum, the Company and VTB executed the following agreements which provide additional security, being a:

 

·   Share pledge agreement over 100% of the share capital of each of Titon LLC (which holds the Company's interest in the Kossinskaya project) and Semprex LLC (which holds the Company's interest in the Aquamarine Hotel);

·   Mortgage agreement over the Kossinskaya project;

·   Suretyship agreements with each of Titon LLC, Rognestar Finance Limited (the parent company of Titon LLC), Bellgate, Semprex LLC and Aquamare Tre Ltd (the parent company of Semprex LLC) for the full amount of the Ozerkovskaya III Loan Facility;

·   Second ranking mortgage agreement over AFIMALL City and the Aquamarine Hotel; and

·   Pledge agreement over the equipment used to operate the Kossinskaya project.

 

Bellgate Construction Limited ("Bellgate"), which holds AFIMALL City Shopping Centre, a shopping and entertainment centre in Moscow City, the business district of Moscow, and VTB have signed on 27 September 2016 an addendum to the AFIMALL City Loan Facility pursuant to which:

(i)  all quarterly principal payments due under the facility, including the quarterly principal payment due on 30 June 2016 and which has not been paid, will be deferred to maturity, being 1 April 2018; and

(ii)  the Company will provide additional security to VTB in consideration of the above.

 

All other terms of the facility, including covenants and interest payments, remain the same.

 

Within 60 calendar days of this addendum, the Company and VTB also executed the following agreements:

 

·   Second ranking pledge agreement over 100% of the share capital of each of Krown and Titon LLC (which holds the Kossinskaya project);

·   Pledge agreement over 100% of the share capital of each of Semprex LLC and AFI FM LLC (the property management company for the AFIMALL City Shopping Centre);

·   Suretyship agreements with each of Krown, AFI FM LLC, Inscribe Limited (parent company of AFI FM LLC), Titon LLC, Rognestar Finance Limited and Aquamare Tre Ltd for the full amount of the AFIMALL City Loan Facility;

·   Second ranking mortgage agreement over each of the Ozerkovskaya III project and the Kossinskaya project; and

·   Second ranking pledge agreement over the equipment used to for operate the Kossinskaya project.

 

The Guarantee and New Loan

In addition to the addendum to the Loan Facility Agreements described above, Mr Leviev has, on the same date, provided VTB with the Guarantee, being a personal guarantee and indemnity deed under English law from Mr Leviev to VTB, pursuant to which Mr Leviev has undertaken to guarantee, for a period of 10 months, the obligations of Krown under the Ozerkovskaya III Loan Facility. The Guarantee, which is enforceable for 12 months, provides additional security to VTB in respect of the Ozerkovskaya III Loan Facility.

 

Should VTB enforce the Guarantee, the payment by Mr Leviev of any amounts under the Guarantee will lead to a discharge of Krown's respective payment obligations under the Ozerkovskaya III Loan Facility and any such payment made by Mr Leviev to VTB under the Guarantee will be deemed the granting of a new loan between the Company and Mr Leviev (the "New Loan"). If, as a result of the enforcement of the Guarantee, the Ozerkovskaya III Loan Facility is repaid in full by Mr Leviev, all claims of VTB under the security documents in respect of Krown's secured obligations under the Ozerkovskaya III Loan Facility will fall away.

 

The New Loan will accordingly only become effective in the event that VTB enforces the Guarantee and Mr Leviev makes a payment to VTB. The New Loan, if drawn, would be unsecured, accrue interest at an annual rate of 7% plus three month LIBOR payable quarterly, be a maximum amount of US$220 million, being equal to the maximum value of the Ozerkovskaya III Loan Facility, and repayable in full on or before 26 January 2018. The interest rate and maturity date of the New Loan are the same as the Ozerkovskaya III Loan Facility.

 

As a result of the above amendments to the Loan Facility Agreements and the Guarantee being entered into the loans were reclassified from short term to long term liabilities.

 

b.   Terms and debt repayment schedule

Terms and conditions of outstanding loans were as follows:

 

                     

Currency

Nominal

Year of

2016

2015

 

 

interest rate

maturity

US$ '000

US$ '000

 

 

 

 

 

 

Secured loan from VTB Bank to Bellgate

RUR

9.5%

2018

159,102

132,413

Secured loan from VTB Bank to Bellgate

USD

3m USD LIBOR+

5.02%

2018

276,886

283,386

Secured loan from VTB Bank to Krown

USD

3m USD LIBOR+

7%

2018

191,545

193,376

Secured loan from Julius to AFID Finance

USD

Bank refinancing rate+0.75%

on demand

-

4,700

 

Other

RUR

3-12%

on demand

       289

       239

 

 

 

 

627,822

614,114

 

 

 

 

2016

2015

The loans and borrowings are payable as follows:

US$ '000

US$ '000

 

 

 

Less than one year

748

224,315

Between one and five years

627,074

389,799

More than five years

            -

            -

 

627,822

614,114

 

29.   DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax (assets) and liabilities are attributable to the following:

2016

2015

 

US$ '000

US$ '000

 

 

 

 

Investment property

73,531

100,109

Investment property under development

3,165

47

Property, plant and equipment

952

571

Inventory of real estate

-

1,115

Trading properties

(391)

(1,203)

Trading properties under construction

16,056

9,359

Trade and other receivables

(5,777)

(6,326)

Trade and other payables

1,737

1,020

Loans and borrowings

-

(13)

Other items

(40)

(21)

Tax losses carried forward

 (74,299)

 (79,091)

Deferred tax liability

  14,934

  25,567

         

 

30.   TRADE AND OTHER PAYABLES

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Trade payables

8,490

7,815

Payables to related parties (note 39)

427

657

Amount payable to builders

13,795

3,297

VAT and other taxes payable

5,681

4,613

Other payables

   2,564

   1,781

 

 30,957

 18,163

The above are payable within one year and bear no interest.

 

Payables to related parties

Include an amount of US$28 thousand (31/12/15: US$27 thousand) payable to Danya Cebus Rus LLC, related party of the Group, for contracts signed in relation to the construction of Group's projects.

 

31.   ADVANCES FROM CUSTOMERS

Represent advances received from customers for the sale of residential properties at "Odinburg" project. During the year the Group has sold 248 flats and 20 parking places and received additional down payments from customers.

 

32.   DEFERRED INCOME

Represents rental income received in advance, which corresponds to periods after the reporting date.

 

33.   FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT

 

Accounting classifications and fair values

 

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

 

Carrying amount

Fair value

 

 

Loans

Receivable

 

Trade and

other

receivables

Other

investments,

Including derivatives

 

Cash

and cash

 equivalents

 

Other financial liabilities

 

 

 

Total

 

 

 

Level 1

 

 

 

Level 2

 

 

 

Level 3

 

 

 

Total

                   

 

31 December 2016

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

-

-

6,068

-

-

6,068

6,068

-

-

6,068

 

 

 

 

 

 

 

 

 

 

 

Financial assets not measured at fair value

 

 

 

 

 

 

 

 

 

 

Loans receivable

15,770

-

-

-

-

  15,770

 

 

 

 

Trade and other receivables

-

  7,649

-

-

-

    7,649

 

 

 

 

Cash and cash equivalents

-

-

-

10,619

-

  10,619

 

 

 

 

 

15,770

  7,649

-

10,619

-

34,038

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities not measured at fair value

 

 

 

 

 

 

 

 

 

 

Interest bearing loans and borrowings

-

-

-

-

(627,822)

(627,822)

-

(614,771)

-

(614,771)

Trade and other payables

-

-

-

-

  (25,276)

(25,276)

 

 

 

 

 

-

-

-

-

(653,098)

(653,098)

 

 

 

 

) 

 

 

Carrying amount

Fair value

 

 

Loans

Receivable

 

Trade and

other

receivables

Other

investments,

Including derivatives

 

Cash

and cash

 equivalents

 

Other financial liabilities

 

 

 

Total

 

 

 

Level 1

 

 

 

Level 2

 

 

 

Level 3

 

 

 

Total

                   

 

31 December 2015

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

-

-

15,901

-

-

15,901

15,901

-

-

15,901

 

 

 

 

 

 

 

 

 

 

 

Financial assets not measured at fair value

 

 

 

 

 

 

 

 

 

 

Loans receivable

14,417

-

-

-

-

  14,417

 

 

 

 

Trade and other receivables

-

  6,755

-

-

-

    6,755

 

 

 

 

Cash and cash equivalents

-

-

-

26,545

-

  26,545

 

 

 

 

 

14,417

  6,755

-

26,545

-

47,717

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities not measured at fair value

 

 

 

 

 

 

 

 

 

 

Interest bearing loans and borrowings

-

-

-

-

(614,114)

(614,114)

-

(583,635)

-

(583,635)

Trade and other payables

-

-

-

-

  (13,550)

  (13,550)

 

 

 

 

 

-

-

-

-

(627,664)

  (627,664)

 

 

 

 

 

Financial risk management

 

The Group has exposure to the following risks arising from financial instruments:

·   credit risk

·   liquidity risk

·   market risk

·   operational risk

 

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework and is responsible for developing and monitoring the Group's risk management policies.

 

The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

 

The Audit Committee overseas how management monitors compliance with the Group's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

 

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from tenants and investments in debt securities.

 

The carrying amount of financial assets represents the maximum credit exposure.

 

Trade and other receivables

Financial assets which are potentially subject to credit risk consist principally of trade and other receivables as well as credit exposures with respect to rental customers and buyers of residential properties including outstanding receivables. The carrying amount of trade and other receivable represents the maximum amount exposed to credit risk. There is no concentration of credit risk to any single customer in any of the Group's segments. Geographically there is no concentration of credit risk. The Group has policies in place to ensure that sales of flats and parking lots as well as renting of vacant spaces are made to customers and tenants with an appropriate credit history and monitors on a continuous basis the ageing profile of its receivables.

 

Impairment

At 31 December 2016, the ageing of trade and other receivable that were not impaired was as follows:

 

2016

2015

 

US$ '000

US$ '000

Neither past due nor impaired

2,027

1,802

Past due 1-30 days

166

33

Past due 31-90 days

729

971

Past due 91-120 days

 4,727

 3,948

 

 7,649

 6,754

 

Management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment behaviour and extensive analysis of customer credit risk, including underlying customers' credit ratings if they are available.

 

The movement in the allowance for impairment in respect of trade and other receivables during the year was as follows:

 

Individual impairments

Collective impairments

 

US$ '000

US$ '000

Balance at 1 January 2015

354

12,699

Reversal of impairment loss recognised

   (99)

-

Exchange difference effect

    (200)

(1,309)

Balance at 31 December 2015

      55

11,390

Impairment loss/(reversal) recognised

366

(1,669)

Exchange difference effect

      34

(1,460)

Balance at 31 December 2016

    455

 8,261

 

Debt securities

The Group limits its exposure to credit risk by investing only in liquid securities and only with counterparties that have a high credit rating. Management actively monitors credit ratings and given that the Group only has invested in securities with high credit ratings, management does not expect any counterparty to fail to meet its obligations.

 

Cash and cash equivalents

The Group held cash at bank of US$10,356 thousand at 31 December 2016 (2015: US$26,374. The cash and cash equivalents are held with bank and financial institution counterparties with a high credit rating. The utilisation of credit limits is regularly monitored.

 

The Group has no other significant concentrations of credit risk. Although collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss to the Group.

 

Guarantees

The Company's policy is to provide financial guarantees only to wholly-owned subsidiaries.

 

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

 

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in its funding requirements by keeping cash and committed credit lines available.

 

The Group's liquidity position is monitored by the management which take necessary actions if required. The Group structures its assets and liabilities in such a way that liquidity risk is minimised.

 

The Group maintains the following lines of credit as at 31 December 2016:

·    A secure bank loan facility from VTB Bank JSC for RUR 21billion, with the majority of the funds designated for refinancing existing loans and the rest for the financing of the acquisition and construction AFIMALL City parking. The line was fully used up to the end of February 2014.

·    A secure bank loan facility from VTB Bank JSC initially for US$205 million, current balance US$192 million, acquired for refinancing the construction costs for Ozerkovskaya III project.

The following are the remaining contractual maturities of financial liabilities at the reporting date, including estimated interest payments and excluding the impact of netting agreements:

 

31 December 2016

Carrying

Contractual

6 months

6-12

 

 

 

 

Amount

Cash flow

or less

months

1-2 years

2-5 years

 

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

 

 

 

 

 

 

 

 

 

Secured bank loans

627,533

(683,605)

(23,378)

(23,640)

(636,587)

-

 

Unsecured loans

289

(289)

(289)

-

-

-

 

Trade and other payables

25,276

(25,276)

(25,276)

-

-

-

 

 

31 December 2015

Carrying

Contractual

6 months

6-12

 

 

 

 

Amount

Cash flow

or less

months

1-2 years

2-5 years

 

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

 

 

 

 

 

 

 

 

 

Secured bank loans

613,875

(703,977)

(42,696)

(37,766)

(47,463)

(576,052)

 

Unsecured loans

239

(239)

(239)

-

-

-

 

Trade and other payables

13,550

(13,550)

(13,550)

-

-

-

 

                           

 

Market risk

Market price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices such as foreign exchange rates, interest rates and equity prices. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

 

Currency risk

The Group is exposed to currency risk to the extent that there is a mismatch between the currencies in which loans receivable, sales, purchases of material and construction services and borrowings are denominated and the respective functional currencies of Group companies. The functional currencies of Group companies are primarily the Russian Roubles and US Dollars. The currencies in which these transactions are primarily denominated are Russian Roubles, US Dollars and Euro.

 

Exposure to currency risk

The summary quantitative date about the Group's exposure to currency risk as reported to the management of the Group is as follows:

 

 

RUR

US$

EUR

 

US$ '000

US$ '000

US$ '000

31 December 2016

 

 

 

Cash and cash equivalents

48

3,230

156

Loans receivable

-

11,504

-

Trade receivables

2,935

608

33

Loans and borrowings

(6,726)

(468,431)

-

Trade payables

(210)

(10,496)

(176)

 

31 December 2015

 

 

 

Cash and cash equivalents

66

14,973

209

Loans receivable

-

13,203

46

Trade receivables

-

3,942

-

Loans and borrowings

(8,974)

(472,383)

-

Trade payables

151

(14,536)

(25)

 

Sensitivity analysis

The following shows the magnitude of changes in respect of a number of major factors influencing the Group's profit before taxes. The assessment has been made on the year-end figures.

 

A 10% strengthening of the Russian Rubble, US dollar or Euro against all other currencies at 31 December would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below.

 

This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales, purchases of material and construction services. The analysis is performed on the same basis for 2015.

 

 

Profit for

the year

 

Equity

 

US$ '000

US$ '000

31 December 2016

 

 

Russian Roubles

626

-

US dollar

(51,509)

-

Euro

(12)

-

 

 

 

 

 

 

 

Profit for

the year

 

Equity

 

US$ '000

US$ '000

 

31 December 2015

 

 

Russian Roubles

824

-

US dollar

(50,534)

-

Euro

7

-

 

A 10% weakening of the Russian Rubble, US dollar or Euro against all other currencies at 31 December 2015 would have the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

 

Interest rate risk

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group's management monitors the interest rate fluctuations on a continuous basis and acts accordingly.

 

Profile

At the reporting date the interest rate profile of the Group's interest-bearing financial instruments is as follows:

 

Carrying amount

 

 

2016

2015

 

US$ '000

US$ '000

Fixed rate instruments

 

 

Financial assets

29,994

47,195

Financial liabilities

(159,391)

(132,652)

 

(129,397)

  (85,457)

Variable rate instruments

 

 

Financial assets

-

-

Financial liabilities

(468,431)

(481,462)

 

(468,431)

(481,462)

       

 

 

 

 

 

Cash flow sensitivity analysis for variable rate instruments

An increase of 100 basis points in interest rates at the reporting date would have increased/ (decreased) equity and profit for the year by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2015.

 

 

Equity

Profit for

the year

 

US$ '000

US$ '000

31 December 2016

 

 

Variable rate instruments

          -

 (4,684)

 

 

 

31 December 2015

 

 

Variable rate instruments

          -

 (4,815)

 

A decrease of 100 basis points in interest rates at the reporting date would have the equal but opposite effect on the above instruments to the amounts shown above, on the basis that all other variables remain constant.

 

Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.

 

The Group's objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group's reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

 

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Group standards for the management of operational risk in the following areas:

 

·    requirements for appropriate segregation of duties, including the independent authorisation of transactions

·    requirements for the reconciliation and monitoring of transactions

·    compliance with regulatory and other legal requirements

·    documentation of controls and procedures

·    requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified

·    requirements for the reporting of operational losses and proposed remedial action

·    development of contingency plans

·    training and professional development

·    ethical and business standards

·    risk mitigation, including insurance where this is effective

 

Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Group.

 

Capital management

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

 

There were no changes in the Group's approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

 

The Company is committed to delivering the highest standards in boardroom practice and financial transparency through:

·   clear and open communication with investors;

·   maintaining accurate quarterly financial records which transparently and honestly reflect the financial position of its business; and

·   endeavouring to maximise shareholder returns.

 

A full programme of investor relations activity ensures appropriate contact with institutional and private shareholders, with regular meetings, presentations and disclosure of important information. Great care is taken to provide suitably detailed information on the Group's activities and results to enable various stakeholders to understand the performance and prospects of the Group.

 

Russian Business Environment

 

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

 

The conflict in Ukraine and related events has increased the perceived risks of doing business in the Russian Federation. The imposition of economic sanctions on Russian individuals and legal entities by the European Union, the United States of America, Japan, Canada, Australia and others, as well as retaliatory sanctions imposed by the Russian government, has resulted in increased economic uncertainty including more volatile equity markets, a depreciation of the Russian Rouble, a reduction in both local and foreign direct investment inflows and a significant tightening in the availability of credit. In particular, some Russian entities may be experiencing difficulties in accessing international equity and debt markets and may become increasingly dependent on Russian state banks to finance their operations. The longer term effects of recently implemented sanctions, as well as the threat of additional future sanctions, are difficult to determine.

 

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

 

Taxation contingencies in the Russian Federation

The taxation system in the Russian Federation continues to evolve and is characterised by frequent changes in legislation, official pronouncements and court decisions, which are sometimes contradictory and subject to varying interpretation by different tax authorities.

 

Taxes are subject to review and investigation by a number of authorities, which have the authority to impose severe fines, penalties and interest charges. A tax year generally remains open for review by the tax authorities during the three subsequent calendar years. Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive and substance-based position in their interpretation and enforcement of tax legislation.

 

Transfer pricing legislation enacted in the Russian Federation starting from 1 January 2012 provides for major modifications making local transfer pricing rules closer to OECD guidelines, but creating additional uncertainty in practical application of tax legislation in certain circumstances.

 

These transfer pricing rules provide for an obligation for the taxpayers to prepare transfer pricing documentation with respect to controlled transactions and prescribe the basis and mechanisms for accruing additional taxes and interest in case prices in the controlled transactions differ from the market level.

 

The transfer pricing rules apply to cross-border transactions between related parties, as well as to certain cross-border transactions between independent parties, as determined under the Russian Tax Code (no threshold is set for the purposes of prices control in such transactions). In addition, the rules apply to in-country transactions between related parties if the accumulated annual volume of the transactions between the same parties exceeds a particular threshold (RUB 1 billion in 2014 and thereon).

 

The compliance of prices with the arm's length level could be as well subject to scrutiny on the basis of unjustified tax benefit concept.

 

In addition, a number of new laws introducing changes to the Russian tax legislation have been recently adopted. In particular, starting from 1 January 2015 changes aimed at regulating tax consequences of transactions with foreign companies and their activities were introduced, such as concept of beneficial ownership of income, taxation of controlled foreign companies, tax residency rules, etc. These changes may potentially impact the Group's tax position and create additional tax risks going forward. This legislation and practice of its application is still evolving and the impact of legislative changes should be considered based on the actual circumstances.

 

All these circumstances may create tax risks in the Russian Federation that are substantially more significant than in other countries. Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Russian tax legislation, official pronouncements and court decisions. However, the interpretations of the tax authorities and courts, especially due to reform of the supreme courts that are resolving tax disputes, could differ and the effect on these consolidated financial statements, if the authorities were successful in enforcing their interpretations, could be significant.

 

 

34.   GROUP COMPOSITION

 

                                               Name:                                                         Country:

Ultimate controlling party:    Lev Leviev                                                   Israel

 

Holding company:                  Flotonic Limited (see note below)                   Cyprus

 

Significant Subsidiaries                       Ownership interest         Country of incorporation

2016        2015

 

1.   OOO AFI RUS                                       100        100               Russian Federation

2.   OOO Avtostoyanka Tverskaya Zastava    100         100               Russian Federation

3.   OOO Krown Investments                        100         100               Russian Federation

4.   OAO Moskovskiy Kartonazhno-poligraphiche
skiy Kombinat (MKPK)                        99.17      99.17               Russian Federation

5.   Bellgate Constructions Limited                 100         100               Cyprus

6.   OOO Regionalnoe AgroProizvodstvennoe
Objedinenie (RAPO)                               100         100               Russian Federation

7.   Scotson Limited                                       100         100               Cyprus

8.  OOO Titon                                              100         100               Russian Federation

9. ZAO MTOK                                          99.71      99.71               Russian Federation

10. Triumvirate I S.a r.I                                 100         100               Russian Federation

11. OOO Nordservice                                   100           90               Russian Federation

12.                                           OOO Plaza SPA         100               100     Russian Federation

13. OOO Semprex                                        100         100               Russian Federation

14. OOO Zheldoruslugi                                   95           95               Russian Federation

15. OOO Bizar                                               74           74               Russian Federation

16. AFI D Finance SA                                  100         100               British Virgin Islands

 

On 7 September 2016, Mr Leviev, the Company's controlling shareholder, and Africa Israel Investments Ltd ("AI") completed an agreement according to which, Mr Leviev acquired AI's entire holding of securities of AFI Development (the "Purchased Securities"). The transaction provided that in consideration for the Purchased Securities Mr Leviev paid AI, through Flotonic Limited a fully owned private company, NIS550 million, an effective price of US$0.2148 per share. As a result, Flotonic Limited now holds 336,948,796 Global Depository Receipts (issued over "A" ordinary shares) and 342,799,658 Depository Interests (issued over "B" ordinary shares), representing in aggregate 64.88% of the Company's issued share capital.

 

Additionally, Mr Leviev has personally granted a call option to AI in respect of 51,933,807 GDRs and 52,835,598 B ordinary shares (approximately 10% of the Company's issued share capital) at a price of US$0.216 per 1 GDR and US$0.295 per 1 "B" ordinary share. The call option has been assigned by AI to trustees on behalf of AI bondholders and the trustees may exercise the Call Option within three years from the date of completion of the Purchase Transaction upon instructions of the AI bondholders.

 

35.   NON-CONTROLLING INTERESTS

 

        There were no individually significant subsidiaries which have material NCI.

 

36.   OPERATING LEASES

 

Leases as lessee

Non-cancellable operating lease rentals are payable as follows:

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Less than a year

6,017

4,764

Between one and five years

17,613

22,017

More than five years

27,042

32,747

 

50,672

59,528

 

 

 

Amount recognised as an expense during the year

  1,429

  1,566

 

The ownership of land in the Russian Federation is rare and especially within Moscow region, in which all of the property with only a few exceptions, is owned by the City of Moscow. The majority of land is occupied by private entities pursuant to lease agreements between occupants, of the building located on the land, and the City of Moscow. The Group has several long-term operating leases for land. These leases are entered into with the intention and right to develop the land and carry out construction. Typically they run for an initial period of one to five years which is the period of development and upon completion of development the developer has the right to renew for a long term period of usually up to 49 years. Under both leases the lessee is required to make periodic lease payments, generally on a quarterly basis to the City of Moscow.

 

There is also the option of long term land lease prior to commencement of construction which the developer can acquire with a lump sum payment that is determined from time to time by the City of Moscow and is based on the size of the land, its location and the proximity to amenities.  The Group has two such land rights and they run for period of 49 years.

 

Leases as lessor

The Group leases out investment property under operating leases, see note 15.  The future minimum lease payments under non-cancellable leases are as follows:

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Less than a year

68,426

85,343

Between one and five years

134,456

127,608

More than five years

  29,301

  25,412

 

232,183

238,363

 

 

 

Amount recognised as income during the year

  72,299

  81,561

 

37.   CAPITAL COMMITMENTS

 

Up to 31 December 2016 the Group has entered into a number of contracts for the construction of investment or trading properties:

 

Project name

Commitment

 

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Odinburg

2,158

33,645

Kosinskaya

839

244

TVZ Plaza IC

1,122

730

Serebryakova

21,856

5,060

Pavaletskaya II

28,196

32,200

TVZ Plaza IV

24

89

TVZ Plaza II

761

384

Bolshaya Pochtovaya

       115

    1,538

Starokaluzhskoye shosse

           5

            -

 

  55,076

  73,890

       

 

38.   CONTINGENCIES

 

There were not any contingent liabilities as at 31 December 2016.

 

39.   RELATED PARTIES

 

Outstanding balances with related parties

2016

2015

 

US$ '000

US$ '000

Assets

 

 

Amounts receivable from joint ventures

11

10

Amounts receivable from ultimate holding company

-

203

Amounts receivable from other related companies

256

124

Long term loans receivable from joint ventures

15,745

14,246

Short term loans receivable from joint ventures

           -

         98

 

 

 

 

2016

2015

 

US$ '000

US$ '000

Liabilities

 

 

Amounts payable to joint ventures

102

6

Amounts payable to ultimate holding company

-

492

Amounts payable to other related companies

325

159

Deferred income from related company

     145

     125

 

Transactions with the key management personnel

2016

2015

 

US$ '000

US$ '000

Key management personnel compensation comprised:

 

 

Short-term employee benefits

   2,631

   2,798

Share option scheme expense

          857

      2,283

 

 

 

 

 

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

 

Other related party transactions

2016

2015

 

US$ '000

US$ '000

Revenue

 

 

Joint venture - consulting services

173

145

Joint venture - interest income

1,339

1,422

Related company - rental income

          699

          802

 

Expenses

 

 

Related company - administrative expenses

157

-

Ultimate holding company - administrative expenses

-

330

Joint venture - operating expenses

       54

       59

     

Other related party transactions

2016

2015

 

US$ '000

US$ '000

Construction services capitalised

 

 

Related company - construction services

         -

     954

 

40.   SUBSEQUENT EVENTS

Subsequent to 31 December 2016 there were no events that took place which have a bearing on the understanding of these financial statements except of the following:

·     In February 2017, AFI Development Plc announced that its subsidiary, Sanatory Plaza LLC ("Plaza"), has received a loan from VTB Bank PJSC ("VTB") to finance the acquisition of the other 50% stake in the Plaza Spa Kislovodsk project ("the Project") from its partner in the project, which was completed on 28 February 2017.  The Group already owned 50% stake in the project and with this acquisition now owns 100%. The loan, in the amount of US$22.5 million, was provided in US dollars for 5 years (the term can be extended for additional 5 years subject to agreement between the parties), it bears an annual interest rate of 3 months Libor + 4.5%, has quarterly principal payments (ranging from US$260 thousand in Q3 2017 to US$822 thousand in Q3 2021), and a balloon payment of US$11.254 million at maturity. The interest is to be paid quarterly. The loan was used primarily to repay the outstanding debt of Plaza to the companies of AFI Development's partner in the project, in the amount of US$16.9 million, prior to the acquisition of the equity stake. The remainder of the loan was used to finance the acquisition itself: the 50% equity stakes in both Nouana Limited and Craespon Management Limited (which together control 100% of Plaza) were purchased by AFI Development's subsidiaries for US$5.6 million in cash.

 

·     In March 2017, AFI Development Plc announced that it had completed the acquisition of the remaining 5% stake in the Tverskaya Plaza IV project from its partner, for US$1.5 million in cash. AFI Development Plc acquired 5% of the shares in Beslaville Management Limited, a subsidiary holding rights to the project, increasing its share from 95% to 100%.  This acquisition resulted in the recognition of US$1,725 thousand gain in the profit or loss.

 

·     In March 2017 the Company's subsidiary, AFI RUS Management LLC, signed a facility agreement for a credit line of RUR470 million from Sberbank PJSC, with a 2 years term, to finance construction of the Odinburg project.

 

AFI DEVELOPMENT PLC

 

For the year ended 31 December 2016

 

 

C O N T E N T S

 

 

 

 

 

 

Directors' Responsibility Statement

 

 

 

Separate Income Statement and Statement of Comprehensive Income  of the Parent Company

 

 

 

Separate Statement of Changes in Equity of the Parent Company

 

 

 

Separate Statement of Financial Position of the Parent Company

 

 

 

Separate Statement of Cash Flows of the Parent Company

 

 

 

Notes to the Separate Financial Statements of the Parent Company

 

 

 

 

STATEMENT BY THE MEMBERS OF THE BOARD OF DIRECTORS AND THE COMPANY OFFICIALS RESPONSIBLE FOR THE DRAFTING OF THE SEPARATE FINANCIAL STATEMENTS IN ACCORDANCE WITH THE PROVISIONS OF CYPRUS LAW 190(I)/2007 ON TRANSPARENCY REQUIREMENTS

 

We, the members of the Board of Directors and the Company officials responsible for the drafting of the separate financial statements of AFI Development Plc (the 'Company') for the year ended 31 December 2016, the names of which are listed below, confirm that, to the best of our knowledge:

d)   The separate financial statements on pages 80 to 100:

(iii)   have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union and the requirements of the Cyprus Companies Law,

(iv)  give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidated financial statements taken as a whole,

e)   the adoption of a going concern basis for the preparation of the separate financial statements continues to be appropriate based on the foregoing and having reviewed the forecast financial position of the Company; and

The Directors of the Company as at the date of this announcement are as set out below:

The Board of Directors

Executive directors

Lev Leviev - Chairman            …..........................................................

 

Non-executive independent directors

 

Panayiotis Demetriou               .............................................................

 

 

David Tahan                            .............................................................

 

Company officers

Chief executive officer

Mark Groysman                       .............................................................

 

Chief financial officer

 

Natalia Pirogova                      .............................................................

 

6 April 2017     

 

SEPARATE INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME OF THE PARENT COMPANY

 

For the year ended 31 December 2016

 

 

 

 

 

 

 

 

2016

2015

 

Note

US$ '000

US$ '000

 

 

 

 

Revenue

4

 478,382   

    3,250   

 

 

 

 

Other income

 

        482

       849

 

 

 

 

Other expenses

 

(82)

-

Administrative expenses

5

(6,912)

(9,654)

Impairment of investment in subsidiaries

7

(560,663)

(502,445)

Loss on disposal of investment in subsidiaries

7

             -

       (236)

 

 

(567,657)

(512,335)

 

 

 

 

Results from operating activities

 

  (88,793)

(508,236)

 

Finance income

 

254

742

Finance costs

 

   (8,777)

   (7,480)

Net finance costs

6

   (8,523)

   (6,738)

 

 

 

 

Loss for the year

 

 (97,316)

(514,974)

 

 

 

 

Other comprehensive income

 

             -

             -

 

 

 

 

Total comprehensive expense for the year

 

 (97,316)

 (514,974)

 

 

The notes are an integral part of these separate financial statements of the parent company.

 

 

 

SEPARATE STATEMENT OF CHANGES IN EQUITY OF THE PARENT COMPANY

 

For the year ended 31 December 2016

 

 

 

Share

 capital

Share premium

Accumulated losses

Total

 

US$ '000

US$ '000

US$ '000

US$ '000

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2015

         1,048

1,763,409

93,239

1,857,696

 

 

 

 

 

Total comprehensive income for the year

-

-

(514,974)

(514,974)

Transactions with owners of the Company

 

 

 

 

Contributions and distributions

 

 

 

 

Share option expense

                 -

                -

       2,283

         2,283

 

Balance at 31 December 2015

         1,048

 1,763,409

 (419,452)

  1,345,005

 

 

 

 

 

Balance at 1 January 2016

1,048

1,763,409

(419,452)

1,345,005

 

 

 

 

 

Total comprehensive expense for the year

-

-

(97,316)

(97,316)

Transactions with owners of the Company

 

 

 

 

Contributions and distributions

 

 

 

 

Share option expense

                 -

                -

           857

            857

 

Balance at 31 December 2016

         1,048

 1,763,409

 (515,911)

  1,248,546

 

 

 

SEPARATE STATEMENT OF FINANCIAL POSITION OF THE PARENT COMPANY

 

As at 31 December 2016

 

 

 

 

 

 

 

2016

2015

 

Note

US$ '000

US$ '000

Assets

 

 

 

Investment in subsidiaries

7

1,242,182

1,313,453

 

 

 

 

Trade and other receivables

8

210,947

210,635

Refundable tax

 

2,215

2,215

Cash and cash equivalents

9

       2,057

       6,905

Total current assets

 

   215,219

   219,755

 

 

 

 

Total assets

 

1,457,401

1,533,208

 

 

 

 

Equity

 

 

 

Share capital

 

1,048

1,048

Share premium

 

1,763,409

1,763,409

Accumulated losses

 

  (515,911)

 (419,452)

Total equity

10

1,248,546

1,345,005

 

 

 

 

Liabilities

 

 

 

Loans and borrowings

11

   109,337

    86,975

Total non‑current liabilities

 

   109,337

    86,975

 

 

 

 

Short-term loans and borrowings

11

-

97,390

Trade and other payables

12

     99,518

      3,838

Total current liabilities

 

     99,518

   101,228

 

 

 

 

Total liabilities

 

   208,855

  188,203

 

 

 

 

Total equity and liabilities

 

1,457,401

1,533,208

 

 

The financial statements were approved by the Board of Directors on 6 April 2017.

 

 

 

 

..........................

..........................

Lev Leviev

Chairman
 

David Tahan

Director

 

SEPARATE STATEMENT OF CASH FLOWS OF THE PARENT COMPANY

 

For the year ended 31 December 2016

 

 

 

 

2016

2015

 

Note

US$ '000

US$ '000

Cash flows from operating activities

 

 

 

Loss for the year

 

(97,316)

(514,974)

Adjustments for:

 

 

 

Unrealised exchange (gain)/loss

6

(46)

36

Loss on disposal of investments in subsidiaries

7

-

236

Impairment of investment in subsidiaries

7

560,663

502,445

Dividend income

4

(478,382)

(3,250)

Interest income

6

(208)

(742)

Interest expense

6

8,756

7,390

Share option expense

5

       857

    2,283

 

 

(5,676)

(6,576)

Change in trade and other receivables

 

(448)

(5,367)

Change in trade and other payables

 

       554

       807

Net cash used in operating activities

 

   (5,570)

 (11,136)

 

 

 

 

Cash flows from investing activities

 

 

 

Additional contribution of capital to existing subsidiaries

7

(3,001)

(18,592)

Proceeds from repayment of loans receivable

 

3,300

-

Dividends received

4

-

3,250

Interest received

6

       235

       986

Net cash from/(used) in investing activities

 

       534

 (14,356)

 

 

 

 

Cash flows from financing activities

 

 

 

Repayment of loans and borrowings

11

(6,050)

(3,979)

Proceeds from loans and borrowings

11

6,225

2,000

Interest paid

11

            -

   (4,761)

Net cash from/(used in) financing activities

 

       175

   (6,740)

 

 

 

 

 

 

 

 

Effect of exchange rate fluctuations on cash held

 

          13

          10

 

 

 

 

Net decrease in cash and cash equivalents

 

(4,848)

(32,222)

Cash and cash equivalents at 1 January

 

     6,905

   39,127

Cash and cash equivalents at 31 December

9

     2,057

     6,905

 

 

 

 

The cash and cash equivalents consists of:

 

 

 

Cash at banks

 

     2,057

     6,905

 

 

NOTES TO THE SEPARATE FINANCIAL STATEMENTS OF THE PARENT COMPANY

 

For the year ended 31 December 2016

 

 

1.    INCORPORATION AND PRINCIPAL ACTIVITIES

 

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

 

The principal activity of the Company is the holding of investments in subsidiaries and jointly controlled entities.

 

2.    BASIS OF ACCOUNTING

 

(i)    Going concern

The financial statements have been prepared on a going concern basis, as detailed in note 2(i) of the consolidated financial statements.

 

(ii)  Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law, Cap.113.

 

Users of these parent's separate financial statements should read them together with the Group's consolidated financial statements as at and for the year ended 31 December 2016 in order to obtain a proper understanding of the financial position, the financial performance and the cash flows of the Company and the Group.

 

(iii) Basis of measurement

The financial statements have been prepared under the historical cost convention, except in the case of investments, which are stated at cost less provision for impairment in value and receivables which are stated after the provision for impairment.

 

(iv) Adoption of new and revised International Financial Reporting Standards and Interpretations

As from 1 January 2016, the Group adopted all changes to International Financial Reporting Standards (IFRSs) as adopted by the EU which are relevant to its operations.

 

IFRS 14 "Regulatory Deferral Accounts" was effective for annual periods beginning on or after 1 January 2016 but was not adopted by the EU as it was decided not to launch the endorsement process of this interim standard and to wait for the final standard.

 

(iv) Adoption of new and revised International Financial Reporting Standards and Interpretations (continued)

 

The following Standards, Amendments to Standards and Interpretations have been issued but are not yet effective for annual periods beginning on 1 January 2016. Those which may be relevant to the Company are set out below. The Company does not plan to adopt these Standards early.

 

Standards and Interpretations adopted by the EU

 

·    IFRS 9 "Financial Instruments" (effective for annual periods beginning on or after 1 January 2018).

·    IFRS 15 "Revenue from contracts with customers" (effective for annual periods beginning on or after 1 January 2018).

 

Standards and Interpretations not adopted by the EU

 

·    IAS 7 (Amendments) "Disclosure Initiative" (effective for annual accounting periods beginning on or after 1 January 2017).

·    IAS 12 (Amendments) "Recognition of Deferred Tax Assets for Unrealised Losses" (effective for annual accounting periods beginning on or after 1 January 2017).

·    Annual Improvements to IFRSs 2014-2016 Cycle (effective for annual periods beginning on or after 1 January 2017 (IFRS 12) and 1 January 2018 (IFRS 1 and IAS 28)).

·    IFRS 2 (Amendments) "Classification and Measurement of Share-based Payment Transactions" (effective for annual periods beginning on or after 1 January 2018).

·    IFRS 4 (Amendments) "Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts" (effective for annual periods beginning on or after 1 January 2018).

·    IFRS 15 (Clarifications) "Revenue from Contracts with Customers" (effective for annual periods beginning on or after 1 January 2018).

·    IAS 40 (Amendments) "Transfers of Investment Property" (effective for annual periods beginning on or after 1 January 2018).

·    IFRIC 22 "Foreign Currency Transactions and Advance Consideration" (effective for annual periods beginning on or after 1 January 2018).

·    IFRS 16 "Leases" (effective for annual periods beginning on or after 1 January 2019).

 

The Board of Directors expects that the adoption of the above financial reporting standards in future periods will not have a significant effect on the financial statements of the Company.

 

(v) Use of estimates and judgements

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may deviate from such estimates.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

 

In particular, information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described below:

 

·        Income taxes

Significant judgement is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax provisions in the period in which such determination is made.

 

·        Impairment of investments in subsidiaries

The Company periodically evaluates the recoverability of investments in subsidiaries whenever indicators of impairment are present. Indicators of impairment include such items as declines in revenues, earnings or cash flows or material adverse changes in the economic or political stability of a particular country, which may indicate that the carrying amount of an asset is not recoverable. If facts and circumstances indicate that investment in subsidiaries may be impaired, the estimated future undiscounted cash flows associated with these subsidiaries would be compared to their carrying amounts to determine if a write-down to fair value is necessary.

(vi) Functional and presentation currency

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

 

3.    SIGNIFICANT ACCOUNTING POLICIES

 

The accounting policies set out below have been applied consistently to all periods presented in these financial statements and in stating the financial position of the Company.

 

Subsidiary companies

Investments in subsidiary companies are stated at cost less provision for impairment in value, which is recognised as an expense in the period in which the impairment is identified.

 

Finance income and finance costs

Finance income comprises interest income on bank deposits. Interest income is recognised as it accrues in profit or loss, using the effective interest method.


Finance costs comprise interest expense on borrowings. Borrowing costs are recognised in profit or loss using the effective interest method.


Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

 

Foreign currency translation

(i)

Functional and presentation currency

 

 

Items included in the Company's financial statements are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The financial statements are presented in United States Dollars, rounded to the nearest thousand, which is the Company's functional and presentation currency.

 

 

(ii)

Transactions and balances

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year‑end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

 

Revenue

Dividend income

Dividend income is recognised in profit or loss when the right to receive payment is established i.e. dividends are declared and approved by the investee companies.

 

Tax

Tax liabilities and assets for the current and prior periods are measured at the amount expected to be paid to or recovered from the taxation authorities, using the tax rates and laws that have been enacted, or substantively enacted, by the reporting date. Current tax includes any adjustments to tax payable in respect of previous periods.

 

Dividends

Dividend distribution to the Company's shareholders is recognised in the Company's financial statements in the year in which they are approved by the Company's shareholders.

 

Financial instruments

Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument.

 

 

(i)    Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise cash at bank.

 

(ii)   Borrowings  

Borrowings are recorded initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any differences between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

 

Derecognition of financial assets and liabilities

 

Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

·        the rights to receive cash flows from the asset have expired;

·      the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass through' arrangement; or

·      the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

 

Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

 

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

 

Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount.  The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.  For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash‑generating units).

 

Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.  This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the statement of financial position.

 

Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets classified as held for sale are presented separately in the statement of financial position and are to be measured at the lower of the asset's previous carrying amount and fair value less costs to sell.

 

Share capital

Ordinary shares are classified as equity. The difference between the fair value of the consideration received by the Company and the nominal value of the share capital being issued is taken to the share premium account.

 

Non‑current liabilities

Non‑current liabilities represent amounts that are due more than twelve months from the reporting date.

 

Comparatives

Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year.

 

4.    REVENUE

 

 

2016

2015

 

US$ '000

US$ '000

 

 

 

Dividend income

 478,382