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AFI Development PLC (AFRB)

  Print          Annual reports

Tuesday 30 May, 2017

AFI Development PLC

RESULTS FOR THE THREE MONTHS TO 31 MARCH 2017

RNS Number : 4790G
AFI Development PLC
30 May 2017
 

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION

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

 

30 May 2017

 

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

 

RESULTS FOR THE THREE MONTHS TO 31 MARCH 2017

 

Better performance supported by rouble appreciation

 

AFI Development, a leading real estate company focused on developing property in Russia, has today announced its financial results for the three months ended 31 March 2017.

Q1 2017 financial highlights

·    Revenue for Q1 2017 increased by 74% year-on-year to US$47.5 million, including proceeds from the sale of trading properties:

-    Rental and hotel operating income increased by 27% year-on-year to US$25.5 million

-    AFIMALL City contribution stood at US$19.5 million (Q1 2016: US$16.0 million), a 22% growth year-on-year

-    Sale of residential properties contributed US$21.9 million to total revenue

·    Gross profit increased by 7% year-on-year to US$16.1 million (Q1 2016: US$15.1 million)   

·    Net profit for Q1 2017 amounted to US$1.0 million, compared to a loss of US$31.9 million in Q1 2016

·    Total gross value of portfolio of properties increased to US$1.49 billion (vs. US$1.44 billion at end-2016) mainly due to purchase of 50% share in the Plaza Spa Kislovodsk project

·    Cash, cash equivalents and marketable securities as of 31 March 2017 grew to US$29.6 million (vs. US$16.7 million at end-2016)

Q1 2017 operational highlights

·    The construction and pre-sales of two additional residential projects in Moscow were launched in Q1 2017: Bolshaya Pochtovaya and Botanic Garden

·    At Odinburg, marketing activities were focused on Building 2, where the delivery of apartments started in March 2017. The number of sale contracts signed amounted to 716 (99% of total) in Building 1 and 534 (76% of total) in Building 2 as of 26 May 2017

·    At the AFI Residence Paveletskaya residential development, construction works and pre-sale of apartments continue to plan; 210 residential units have been pre-sold to date

·    AFIMALL City has demonstrated strong NOI, reflecting macroeconomic stabilisation and a stronger rouble:

-   NOI grew to US$14.3 million in Q1 2017, from US$13.6 million in Q1 2016

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

"The first quarter of 2017 saw a marked improvement on the previous year, supported by strong performance at AFIMALL City and a positive effect of rouble appreciation during the period. In line with our strategy, we continued to deliver our development pipeline with construction and sales of our key projects progressing to plan. We are particularly pleased to have launched active construction of two important projects, Bolshaya Pochtovaya and Botanic Garden, which will further strengthen our position in the market and support our performance going forward."

Q1 2017 Results Conference Call:

AFI Development will hold a conference call for analysts and investors to discuss its Q1 2017 financial results on Wednesday, 31 May 2017.

Details for the conference call are as follows:

 

Date:                               Wednesday, 31 May 2017     

 

Time:                              3pm BST (5pm Moscow)


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

UK toll free:              0808 109 0700

US toll-free:               1 866 966 5335

Russia toll-free:        8 10 8002 4902044

 

Password:                       AFI

 

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

 

Prior to the conference call, the Q1 2017 Investor Presentation of AFI Development will be published on the Company website at http://www.afi-development.com/en/investor-relations/reports-presentations on 31 May 2017 by 11am BST (1pm Moscow time).

 

- ends -

 

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          

Isabelle Andrews

 

This announcement contains inside information.

 

About AFI Development

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

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

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

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

Legal disclaimer

Some of the information in these materials may contain projections or other forward-looking statements regarding future events, the future financial performance of the Company, its intentions, beliefs or current expectations and those of its officers, directors and employees concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and business. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could," "may" or "might" or the negative of such terms or other similar expressions. These statements are only predictions and that actual events or results may differ materially. Unless otherwise required by applicable law, regulation or accounting standard, the Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Company, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia and market change in the industries the Company operates in, as well as many other risks specifically related to the Company and its operations.

Executive Chairman's statement

Increased oil prices and appreciation of the rouble helped to support continuing macroeconomic stabilisation in Russia in the first three months of the year. This positively impacted Company performance and AFIMALL City, in particular.

Our gross profit for the quarter increased by 7%, positively impacted by a growth in revenue to US$47.5 million, as well as our continued focus on efficiency and cost control. The active management of our yielding properties, namely AFIMALL City, office properties in Moscow and our hotels, played a key role in achieving this result. Net profit was US$1.0 million for the first three months of the year.  

Our focus in the residential segment remains on construction and marketing of existing projects, as well as on the progression of the Bolshaya Pochtovaya and Botanic Garden projects, launched in the first quarter of this year. These business-class residential projects are expected to support our performance going forward, through residential real estate sales.

Projects update

 

AFIMALL City

 

AFIMALL City's performance continues to improve, reflected in increased revenue (US$19.5 million for the quarter) and NOI (US$14.3 million for the quarter). Occupancy at the end of Q1 2017 was at 83%, virtually unchanged compared to the end of 2016.

 

Recent new openings at AFIMALL City include the Gulliver children goods outlet, Osteria Mario restaurant and Otto Berg fashion shop. As part of ongoing marketing efforts, in February 2017, AFIMALL hosted a casting session for the national beauty contest "Miss Russia 2017".    

 

Odinburg


In the first quarter of 2017, the Company successfully commissioned Building 2 and started the delivery of apartments to customers. Construction work continues at the kindergarten of Phase 1, while Building 3 and Building 6 are being prepared for construction launch.  

 

As of the date of publication of this report, 716 apartments (99% of total) in Building 1 and 534 (76% of total) in Building 2 have been sold.

 

AFI Residence Paveletskaya (Paveletskaya II)

 

Construction work and marketing of the development continue to plan. As of the date of publication of this report, 210 contracts for pre-sales of both "flats" and "apartments" have been signed.

Aquamarine III (Ozerkovskaya III)

AFI Development continues to market office space in the complex to potential buyers and tenants.

 

Bolshaya Pochtovaya

 

The main construction phase and pre-sale of apartments were launched in Q1 2017.

 

Botanic Garden


The main construction phase and pre-sale of apartments were launched in Q1 2017.

 

Plaza Spa Kislovodsk

 

In Q1 2017 the Company consolidated 100% of Plaza Spa Kislovodsk by acquiring a 50% stake from its partner in the project. 

Key Events Subsequent to 31 March 2017

After the end of Q1 2017, the following key events occurred:

In May 2017, AFI Development Plc completed a series of transactions to become 100% owner of the Berezhkovskaya project, an operating office complex in Moscow, following an agreement with its partners in the project. According to the transactions, the partner received a title to office premises totalling 3,468.5 sq.m in the project, while AFI Development received the partner's 26% share in the project company, Bizar LLC. The new total area of the premises at the Berezhkovskaya project is 7,909.8 sq.m.

 

 

 

Lev Leviev

Executive Chairman of the Board

 

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

For the period from 1 January 2017 to 31 March 2017

 

 

C O N T E N T S

                                                                                                                               

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

 

Condensed consolidated income statement                                                                                             

 

Condensed consolidated statement of comprehensive income                                                            

 

Condensed consolidated statement of changes in equity                                                                     

 

Condensed consolidated statement of financial position                                                                      

 

Condensed consolidated statement of cash flows                                                                                  

 

Notes to the condensed consolidated interim financial statemen

 

 

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

 

Introduction

We have reviewed the accompanying condensed consolidated statement of financial position of AFI Development PLC as at 31 March 2017, the condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the three-month period then ended, and notes to the interim financial statements ('the condensed consolidated interim financial statements'). The Company's Board of Directors is responsible for the preparation and presentation of this condensed consolidated interim financial statements in accordance with IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this condensed consolidated interim financial statements based on our review.

 

Scope of Review

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

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements as at 31 March 2017 are not prepared, in all material respects, in accordance with IAS 34 "Interim Financial Reporting".

 

Emphasis of Matter

Without qualifying our conclusion, we draw attention to note 2(i) to the condensed consolidated interim financial statements which describes that despite that the Group has recognised a net profit after tax of US$1 million for the three month period ended 31 March 2017 and its cash and cash equivalents and marketable securities improved to US$30 million, its current liabilities increased to US$293 million due to the reclassification of the Ozerkovskaya loan as its maturity is due in January 2018.  In combination with the maturity of the AFIMALL loan in April 2018, the Group will be required to make a lump sum payment of the principal of the loans with a current balance of $640 million. These conditions along with other matters as set forth in note 2(i), indicate the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.

 

Maria H. Zavrou, FCCA

Certified Public Accountant and Register Auditor

 

For and on behalf of

KPMG Limited

Certified Public Accountants and Registered Auditors

14 Esperidon Street

1087 Nicosia, Cyprus

 

29 May 2017

CONDENSED CONSOLIDATED INCOME STATEMENT

 

For the period from 1 January 2017 to 31 March 2017

 

 

 

 

1/1/17-

1/1/16-

 

 

31/3/17

31/3/16

 

 

US$ '000

US$ '000

 

Note

 

 

 

 

 

 

Revenue

6

  47,498

  27,365

 

 

 

 

Other income

 

       155

     2,184

 

 

 

 

Operating expenses

8

(12,262)

(7,693)

Carrying value of trading properties sold

14

(20,331)

(6,182)

Administrative expenses

7

(546)

(1,664)

Other expenses

 

     (385)

       (13)

Total expenses

 

(33,524)

(15,552)

 

 

 

 

Share of the after tax profit of joint ventures

 

    1,957

    1,058

 

 

 

 

Gross Profit

 

  16,086

  15,055

 

 

 

 

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

 

22

 

    7,532

 

           -

 

 

 

 

Decrease in fair value of properties

11, 12

(43,613)

(60,275)

 

 

 

 

Results from operating activities

 

(19,995)

(45,220)

 

 

 

 

Finance income

 

24,470

21,195

Finance costs

 

(11,863)

(10,669)

Net finance income

9

  12,607

    10,526

 

 

 

 

Loss before tax

 

(7,388)

(34,694)

Tax benefit

10

    8,419

    2,833

 

 

 

 

Profit/(loss) for the period

 

    1,031

(31,861)

 

 

 

 

Profit/(loss) attributable to:

 

 

 

Owners of the Company

 

1,091

(31,787)

Non-controlling interests

 

       (60)

       (74)

 

 

    1,031

(31,861)

 

 

 

 

Earnings per share

 

 

 

Basic and diluted earnings per share (cent)

 

      0.10

     (3.03)

 

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

 

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

For the period from 1 January 2017 to 31 March 2017

 

 

 

 

 

 

1/1/17-

1/1/16-

 

31/3/17

31/3/16

 

US$ '000

US$ '000

 

 

 

Profit/(loss) for the period

    1,031

(31,861)

 

 

 

Other comprehensive income

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

 

 

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

(4,271)

-

Foreign currency translation differences for foreign operations

  19,375

  14,396

Other comprehensive income for the period

  15,104

  14,396

 

 

 

Total comprehensive income for the period

  16,135

(17,465)

 

 

 

Total comprehensive income attributable to:

 

 

Owners of the Company

16,201

(17,490)

Non-controlling interests

       (66)

        25

 

 16,135

(17,465)

 

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

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

For the period from 1 January 2017 to 31 March 2017

 

 

 

 

 

Attributable to the owners of the Company

Non-controlling   interests

 

Total equity

 

 

Share

 Share

Capital

Translation

Retained

 

 

 

 

 

Capital

Premium

reserve

Reserve

Earnings

Total

 

 

 

 

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2017

 1,048

1,763,409

  (9,201)

(311,331)

(667,801)

   776,124

 (3,827)

  772,297

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

 

 

 

 

 

Profit/(loss) for the period

   -

             -

    -

      -

1,091

1,091

(60)

1,031

 

Other comprehensive income

         -

               -

            -

   15,110

             -

    15,110

          (6

    15,104

 

Total comprehensive income for the period

 

         -

 

               -

 

            -

 

   15,110

 

     1,091

 

    16,201

 

         (66)

 

    16,135

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners of

the Company Changes in

ownership interests

 

 

 

 

 

 

 

 

Acquisition of non-controlling interests (note 23)

 

        -

 

              -

 

  (4,533)

 

              -

 

             -

 

     (4,533)

 

   3,033

 

     (1,500)

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 March 2017

 1,048

1,763,409

(13,734)

(296,221)

(666,710)

   787,792

     (860)

  786,932

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2016

 1,048

1,763,409

  (9,201)

(338,951)

(620,786)

  795,519

  (3,919)

  791,600

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

 

 

 

 

 

Loss for the period

   -

             -

    -

        -

(31,787)

(31,787)

(74)

(31,861)

 

Other comprehensive income

         -

               -

            -

   14,297

             -

    14,297

         99 

      14,396

 

Total comprehensive income for the period

 

         -

 

               -

 

            -

 

   14,297

 

 (31,787)

 

   (17,490)

 

          25

 

(17,465)

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners

of the Company Contributions

and distributions

 

 

 

 

 

 

 

 

 

Share option expense

        -

              -

           -

              -

        282

          282

           -

         282

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 March 2016

 1,048

1,763,409

(9,201)

(324,654)

(652,291)

   778,311

  (3,894)

  774,417

 

                                           

 

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

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

AS AT 31 MARCH 2017

 

 

 

31/3/17

31/12/16

 

Note

US$ '000

US$ '000

Assets

 

 

 

Investment property

11

915,350

915,350

Investment property under development

12

158,800

232,900

Property, plant and equipment

13

79,072

31,215

Long-term loans receivable

 

20

15,763

VAT recoverable

 

            45

              9

Non-current assets

 

1,153,287

1,195,237

 

 

 

 

Trading properties

14

50,010

6,854

Trading properties under construction

15

292,110

243,327

Other investments

 

6,204

6,088

Inventories

 

1,085

665

Short-term loans receivable

 

444

7

Trade and other receivables

16

51,181

42,427

Current tax assets

 

2,544

2,542

Cash and cash equivalents

17

     23,447

     10,619

Current assets

 

   427,025

   312,529

 

 

 

 

Total assets

 

1,580,312

1,507,766

 

 

 

 

Equity

 

 

 

Share capital

 

1,048

1,048

Share premium

 

1,763,409

1,763,409

Translation reserve

 

(296,221)

(311,331)

Capital reserve

 

(13,734)

(9,201)

Retained earnings

 

   (666,710)

  (667,801)

Equity attributable to owners of the Company

18

787,792

776,124

Non-controlling interests

 

          (860)

      (3,827)

Total equity

 

    786,932

   772,297

 

 

 

 

Liabilities

 

 

 

Long-term loans and borrowings

19

469,017

627,074

Deferred tax liabilities

 

11,642

14,934

Deferred income

 

     11,552

     10,455

Non-current liabilities

 

   492,211

   652,463

 

 

 

 

Short-term loans and borrowings

19

193,427

748

Trade and other payables

20

54,040

30,957

Advances from customers

 

      53,702

     51,301

Current liabilities

 

    301,169

     83,006

 

 

 

 

Total liabilities

 

    793,380

   735,469

 

 

 

 

Total equity and liabilities

 

1,580,312

1,507,766

 

 

 

 

         

The condensed consolidated interim financial statements were approved by the Board of Directors on 29 May 2017.

 

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

 

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

For the period from 1 January 2017 to 31 March 2017

 

 

 

1/1/17-

1/1/16-

 

 

31/3/17

31/3/16

 

Note

US$ '000

US$ '000

Cash flows from operating activities

 

 

 

(Profit)/loss for the period

 

1,031

(31,861)

Adjustments for:

 

 

 

Depreciation

13

197

184

Net finance income

9

(12,728)

(10,619)

Share option expense

 

-

282

Decrease in fair value of properties

 

43,613

60,275

Share of profit in joint ventures

 

(1,957)

(1,058)

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

 

 

(7,532)

 

-

Profit on sale of property, plant and equipment

 

-

(24)

Tax benefit

10

     (8,419)

     (2,833)

 

 

14,205

14,346

Change in trade and other receivables

 

(2,264)

(537)

Change in inventories

 

33

(1)

Change in trading properties and trading properties under construction

 

 

(3,318)

 

(1,419)

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

 

 

2,725

 

2,542

Change in advances from customers

 

(1,430)

(1,001)

Change in trade and other payables

 

9,962

(1,507)

Change in VAT recoverable

 

(663)

(252)

Change in deferred income

 

          291

           (82)

Cash generated from operating activities

 

19,541

12,089

Taxes paid

 

        (500)

        (133)

Net cash from operating activities

 

     19,041 

     11,956 

 

 

 

 

Cash flows from investing activities

 

 

 

Acquisition of subsidiary net of cash acquired

22

(786)

-

Proceeds from sale of other investments

 

2,621

12,242

Proceeds from sale of property, plant and equipment

 

-

87

Interest received

 

159

1,859

Change in advances and amounts payable to builders

16,20

1,836

8

Payments for construction of investment property under development

12

(796)

(339)

Payments for the acquisition/renovation of investment property

11

(97)

(36)

Change in VAT recoverable

 

614

63

Acquisition of property, plant and equipment

13

      (11)

      (150)

Dividends received from joint ventures

 

-

201

Acquisition of other investments

 

(2,612)

(4,643)

Proceeds from repayment of loans receivable

 

4,178

-

Payments for loans receivable

 

   (1,429)

          (3)

Net cash from investing activities

 

    3,677 

    9,289

 

 

 

 

Cash flows from financing activities

 

 

 

Acquisition of non-controlling interests

23

(1,500)

-

Proceeds from loans and borrowings

 

5,632

-

Repayment of loans and borrowings

 

-

(11,540)

Interest paid

 

  (11,978)

  (10,986)

Net cash used in financing activities

 

    (7,846)

  (22,526)

 

 

 

 

Effect of exchange rate fluctuations

 

    (2,044

    (1,132)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

12,828

(2,413)

Cash and cash equivalents at 1 January

 

   10,619

   26,545

Cash and cash equivalents at 31 March

17

   23,447

   24,132

 

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

 

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

For the period from 1 January 2017 to 31 March 2017

 

 

1.      INCORPORATION AND PRINCIPAL ACTIVITY

 

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

 

These condensed consolidated interim financial statements ("interim financial statements") as at and for the three months ended 31 March 2017 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in jointly controlled entities. 

 

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

 

 

2.      basis of ACCOUNTING

 

i.              Going concern basis of accounting

 

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

 

The Group has recognised a net profit after tax of US$1 million for the three month period ended 31 March 2017, its cash and cash equivalents and marketable securities improved to US$30 million and its current liabilities increased to US$293 million due to the reclassification of the Ozerkovskaya loan as its maturity is due in January 2018.  In combination with the maturity of the AFIMALL loan in April 2018, will require the Group to make a lump sum payment of the principal of the loans with a current balance of $640 million. These conditions, along with other matters set forth below, indicate the existence of material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.

 

As described in more detail in the Company's announcements and its year end consolidated financial statements for the year ended 31 December 2016, a series of events, negotiations and signed addendums with VTB bank for the Ozerkovskaya III and AFIMALL City loan facilities took place during 2016. Management explores all options in relation to repaying the Loan Facilities when they fall due in 2018, which may 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.

 

i.              Going concern basis of accounting (continued)

 

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

          

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

 

ii.            Statement of compliance

 

iii.           Functional and presentation currency

 

Foreign operations

 

 

3.      USE OF JUDGEMENTS AND ESTIMATES

 

Measurement of fair values

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

 

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

 

Significant valuation issues are reported to the Group Audit Committee.

 

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

 

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

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

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

 

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

 

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

 

 

4.      significant accounting policies

 

 

Standards issued but not yet effective

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

 

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

 

 

5.       OPERATING SEGMENTS

 

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

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

·    Hotel Operation: Includes the operation of Hotels.

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

·    Other: Includes the management services provided for the projects

 

 

Development  projects

Asset management

Hotel Operation

Land bank

Other

Total

 

Residential projects

 

 

 

 

 

 

 

 

 

 

 

31/3/17

31/3/16

31/3/17

31/3/16

31/3/17

31/3/16

31/3/17

31/3/16

31/3/17

31/3/16

     31/3/17

      31/3/16

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

 

 

 

 

 

 

 

 

 

 

 

 

 

External revenues

22,132

8,005

19,930

16,451

4,546

2,362

785

503

105

44

47,498

27,365

 

 

 

 

 

 

 

 

 

 

 

 

 

Inter-segment revenue

-

-

-

254

-

-

-

19

-

-

-

273

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment (loss)/profit before tax

 

(1,060)

 

(1,550)

 

2,379

 

(21,044)

 

839

 

433

 

(12,204)

 

(13,780)

 

(1,944)

 

(1,463)

 

(11,990)

 

(37,404)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31/3/17

31/12/16

31/3/17

31/12/16

      31/3/17

31/12/16

31/3/17

31/12/16

31/3/17

31/12/16

31/3/17

    31/12/16

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

   US$'000

    US$'000

US$'000

US$'000

       US$'000

    US$'000

 

Segment assets

 

381,621

 

355,567

 

913,642

 

912,240

 

81,051

 

27,158

 

184,481

 

185,693

 

812

 

624

 

1,561,607

 

1,481,282

 

Segment liabilities

 

89,463

 

66,971

 

676,948

 

667,779

 

32,530

 

-

 

-

 

-

 

1,030

 

387

 

799,971

 

735,137

     Reconciliation of reportable segment profit or loss:

1/1/17-

31/3/17

1/1/16-

31/3/16

 

US$ '000

US$ '000

 

 

 

Total profit before tax for reportable segments

(11,990)

(37,404)

Unallocated amounts:

 

 

Other profit or loss

(4,887)

1,652

Gain on 100% acquisition of previously held interest in a

joint venture

 

7,532

 

      -

Share of profit of joint ventures, net of tax

   1,957

   1,058

Loss before tax

  (7,388)

(34,694)

 

 

6.       REVENUE

 

1/1/17-

31/3/17

1/1/16-

31/3/16

 

US$ '000

US$ '000

 

 

 

Investment property rental income

20,975

17,662

Sales of trading properties (note 14)

21,865

7,297

Hotel operation income

4,546

2,362

Construction consulting/management fees

     112

       44

 

47,498

27,365

 

 

7.       ADMINISTRATIVE EXPENSES

 

 

1/1/17-

31/3/17

1/1/16-

31/3/16

 

US$ '000

US$ '000

 

 

 

Consultancy fees

91

136

Legal fees

576

89

Auditors' remuneration

77

68

Valuation expenses

36

-

Directors' remuneration

325

340

Depreciation

35

30

Insurance

37

46

Provision for Doubtful Debts

(986)

-

Share option expense

-

282

Donations

3

300

Other administrative expenses

     352

     373

 

     546

  1,664

 

 

8.      OPERATING EXPENSES

 

 

1/1/17-

31/3/17

1/1/16-

31/3/16

 

US$ '000

US$ '000

 

 

 

Maintenance, utility and security expenses

4,318

2,910

Agency and brokerage fees

234

134

Advertising expenses

916

924

Salaries and wages

2,392

Consultancy fees

161

100

Depreciation

163

154

Insurance

148

234

Rent

452

322

Property and other taxes

2,418

513

Other operating expenses

            14

          10

 

     7,693

 

 

9.      FINANCE COST AND FINANCE INCOME

 

 

1/1/17-

31/3/17

1/1/16-

31/3/16

 

US$ '000

US$ '000

 

 

 

Interest income

315

744

Net foreign exchange gain

24,104

20,451

Net change in fair value of financial assets

           51

              -

Finance income

    24,470

    21,195

 

 

 

Interest expense on loans and borrowings

(11,742)

(10,462)

Net change in fair value of financial assets

-

(114)

Other finance costs

        (121)

          (93)

Finance costs

   (11,863)

   (10,669)

 

 

 

Net finance income

    12,607

    10,526

 

 

10.    tAX BENEFIT

 

 

1/1/17-

31/3/17

1/1/16-

31/3/16

 

US$ '000

US$ '000

Current tax expense

 

 

Current year

          481

           57

 

 

 

Deferred tax benefit

 

 

Origination and reversal of temporary differences

      (8,900)

      (2,890)

 

Total income tax benefit

 

      (8,419)

 

      (2,833)

 

 

11.     INVESTMENT PROPERTY

 

Reconciliation of carrying amount

 

31/3/17

31/12/16

 

US$ '000

US$ '000

 

 

 

Balance 1 January

915,350

933,700

Renovations/additional cost

97

370

Disposals

 

(500)

Fair value adjustment

(33,597)

(92,801)

Effect of movement in foreign exchange rates

    33,500

     74,581

Balance 31 March / 31 December

  915,350

   915,350

 

          The increase due to the effect of the foreign exchange fluctuation is a result of the Rouble strengthening compared to the US Dollar by 7.1% during the first quarter of 2017. The fair value adjustment in investments property was a result of this rouble strengthening. The Company assessed that the fair value of the properties has not materially changed since 31 December 2016 as there were no significant changes in the macro-economic conditions in Russia. The same applies for investment property under development. See note 12 below.

 

 

12.     INVESTMENT PROPERTY UNDER DEVELOPMENT

 

 

31/3/17

31/12/16

 

US$ '000

US$ '000

 

 

 

Balance 1 January

232,900

238,925

Construction costs

796

4,554

Transfer to trading properties under construction (note 15)

(74,100)

-

Fair value adjustment

(10,016)

(30,244)

Effect of movements in foreign exchange rates

    9,220

  19,665

Balance 31 March / 31 December

158,800

232,900

 

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

 

The increase due to the effect of the foreign exchange fluctuation is a result of the rouble strengthening compared to the US Dollar by 7.1% during the first quarter of 2017, as described in note 11 above.

 

 

 13.  PROPERTY, PLANT AND EQUIPMENT

 

 

31/3/17

31/12/16

 

 

 

 

US$ '000

US$ '000

 

 

 

Balance 1 January

31,215

26,280

Effect of acquisition of subsidiary (note 22)

45,580

-

Additions

11

262

Depreciation for the period/year

(197)

(696)

Disposals

-

(85)

Effect of movements in foreign exchange rates

    2,463

    5,454

Balance 31 March / 31 December

  79,072

  31,215

 

 

14.     TRADING PROPERTIES

 

 

31/3/17

31/12/16

 

US$ '000

US$ '000

 

 

 

Balance 1 January

6,854

2,062

Transfer from trading properties under construction (note 15)

61,994

53,480

Disposals

(20,331)

(49,475)

Effect of movements in exchange rates

    1,493

      787

Balance 31 March / 31 December

  50,010

   6,854

 

Trading properties comprise of unsold apartments and parking places.

 

Trading properties comprise unsold apartments and parking spaces. The transfer from trading properties under construction represents the completion of the construction of a number of flats, offices and parking places of "Odinburg" project. During the period the sale of 251 flats, 3 offices and 5 parking places were recognised, upon transferring of the rights to the buyers according to the signed acts of transfer, in the income statement.

 

15.     TRADING PROPERTIES UNDER CONSTRUCTION

 

 

31/3/17

31/12/16

 

US$ '000

US$ '000

 

 

 

Balance 1 January

243,327

204,392

Transfer from investment property under development

74,100

-

Transfer from inventory of real estate

-

21,543

Transfer to trading properties (note 14)

(61,994)

(53,480)

Construction costs

23,649

54,428

Effect of movements in exchange rates

  13,028

  16,444

Balance 31 March / 31 December

292,110

243,327

 

Trading properties under construction comprise "Odinburg", "Paveletskaya Phase II", "AFI Residence Botanic Garden" and "Bolshaya Pochtovaya" projects which involve primarily the construction of residential properties. For further details on the transfer of the "Bolshaya Pochtovaya" project refer to note 14.

 

 

16.     TRADE AND OTHER RECEIVABLES

 

31/3/17

31/12/16

 

US$ '000

US$ '000

 

 

 

Advances to builders

31,243

27,019

Amounts receivable from related parties (note 26)

245

267

Trade receivables, net

7,373

3,427

Other receivables

3,907

3,955

VAT recoverable

4,425

4,067

Tax receivable

     3,988

     3,692

 

   51,181

   42,427

 

Trade receivables, net

Trade receivables are presented net of an accumulated provision for doubtful debts of US$5,872 thousand (2016: US$8,285 thousand).

 

 

17.     CASH AND CASH EQUIVALENTS

 

31/3/17

31/12/16

 

US$ '000

US$ '000

 

 

 

Cash at banks

23,232

10,356

Cash in hand

       215

       263

Cash and cash equivalents in the statement of cash flows

  23,447

  10,619

 

 

18.    SHARE CAPITAL AND RESERVES

 

31/3/17

31/12/16

(i)     Share capital

US$ '000

  US$ '000

 

 

 

Authorised

 

 

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

2,000

2,000

 

 

 

Issued and fully paid

 

 

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

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

524

      524

524

       524

 

   1,048

    1,048

 

(ii)    Employee share option plan

There were no changes as to the employee share option plan during the three-month period ended 31 March 2017, all options have already vested during the year 2016.

 

(iii)   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.

 

(iv)    Retained earnings

Retained earnings are available for distribution at each reporting date. No dividends were proposed, declared or paid during the three-month period ended 31 March 2017.

 

(v)     Capital reserve

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

 

 

19.    LOANS AND BORROWINGS

 

 

31/3/17

31/12/16

 

US$ '000

US$ '000

Non-current liabilities

 

 

Secured bank loans

 469,017

627,074

 

 

 

Current liabilities

 

 

Secured bank loans

193,115

459

Unsecured loans from other non-related companies

       312

       289

 

 193,427

       748

 

The following changes to the loans took place during the quarter ended 31 March 2017:

 

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

 

(ii)     Ozerkovskaya III loan facility a secured loan received by subsidiary Krown Investments LLC from VTB on 25 January 2013 was reclassified to current liabilities as based on loan agreement, its maturity fall due within the next twelve months, on 26 January 2018.

 

 

20.     TRADE AND OTHER PAYABLES

 

 

31/3/17

31/12/16

 

US$ '000

US$ '000

 

 

 

 

Trade payables

9,312

 8,490

 

Payables to related parties (note 26)

311

427

 

Amount payable to builders

9,975

5,962

 

Provision

19,951

7,833

 

VAT and other taxes payable

6,224

5,681

 

Other payables

    8,267

    2,564

 

 

  54,040

  30,957

 

             

 

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

21.                                                                 FINANCIAL INSTRUMENTS

 

Carrying amounts and fair values

 

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

 

 

 

Carrying amount

Fair value

 

Non-current assets

Current assets

 

 

 

 

 

Loans

Receivable

Trade and

other

receivables

Other

investments,

Including derivatives

Cash

and cash

 equivalents

Loans

receivable

Total

Level 1

Level 2

Level 3

Total

31 March 2017

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial assets measured at fair value

 

 

 

 

 

 

 

 

 

 

Investment in listed debt securities

-

-

6,183

-

-

 6,183

6,183

-

-

6,183

Financial assets not measured at fair value

 

 

 

 

 

 

 

 

 

 

Loans receivable

20

-

-

-

444

    464

 

 

 

 

Trade and other receivables

-

11,525

-

-

-

11,525

 

 

 

 

Cash and cash equivalents

-

-

-

23,447

-

23,447

 

 

 

 

 

20

11,525

6,183

23,447

444

  41,619

 

 

 

 

31 December 2016

 

 

 

 

 

 

 

 

 

 

Financial assets measured at fair value

 

 

 

 

 

 

 

 

 

 

Investment in listed debt securities

-

-

6,068

-

-

  6,068

6,068

-

-

6,068

Financial assets not measured at fair value

 

 

 

 

 

 

 

 

 

 

Loans receivable

15,770

-

-

-

-

 15,770

 

 

 

 

Trade and other receivables

-

7,649

-

-

-

 7,649

 

 

 

 

Cash and cash equivalents

-

-

-

10,619

-

10,619

 

 

 

 

 

15,770

7,649

6,068

10,619

-

  40,106

 

 

 

 

 

 

 

 

 

Carrying amount

Fair value

 

Non-current liabilities

Current liabilities

 

 

Interest bearing

loans and borrowings

 Trade and

other

payables

Interest bearing loans and borrowings

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

31 March 2017

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial liabilities not measured at fair value

 

 

 

 

 

 

 

 

Interest bearing loans and borrowings

(469,017)

-

(193,427)

  (662,444)

 

 

 

(655,695)  

Trade and other payables

-

(47,816)

-

  (47,816)

 

 

 

 

 

(469,017)

(47,816)

(193,427)

  (710,260)

 

 

 

 

31 December 2016

 

 

 

 

 

 

 

 

Financial liabilities not measured at fair value

 

 

 

 

 

 

 

 

Interest bearing loans and borrowings

(627,074)

-

(748)

 (627,822)

 

 

 

(614,771)

Trade and other payables

-

(25,276)

-

   (25,276)

 

 

 

 

 

(627,074)

(25,276)

(748)

(653,098)

 

 

 

 

22.     ACQUISITION OF SUBSIDIARIES

 

a.             Consideration transferred

 

 

US$ '000

 

 

Cash

5,632

Cash and cash equivalents acquired (note b)

 (4,846)

Net consideration

     786

b.             Identifiable assets acquired and liabilities assumed

 

 

US$ '000

 

 

Property, plant and equipment

45,580

VAT recoverable

33

Inventory

392

Trade and other receivables

307

Cash and cash equivalents

4,846

Loans and borrowings

(16,868)

Deferred tax liabilities

(8,807)

Trade and other payables

  (1,675)

Total identifiable net assets acquired

 23,808

 

c.             Goodwill

 

 

US$ '000

 

 

Consideration transferred (note a)

5,632

Fair value of existing interest in joint ventures

20,903

Fair value of identifiable net assets (note b)

(23,808)

Goodwill

   2,727

Impairment

  (2,727)

 

          -

 

 

23.     ACQUISITION OF NON-CONTROLLING INTERESTS (NCI)

 

In March 2017, the Group acquired an additional 5% interest in Beslaville Management Limited and its Russian subsidiary Zheldoruslugi LLC, increasing its ownership from 95% to 100%. The carrying amount of Beslaville Management Limited's and its subsidiary's net assets in the Group's financial statements on the date of acquisition was negative (US$60,660) thousand.

 

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

 

 

US$ '000

 

 

Carrying amount of NCI acquired (($60,660) thousand * 5%)

(3,033)

Consideration paid to NCI in cash

 (1,500)

A decrease in equity attributable to owners of the Company

 (4,533)

 

 

The decrease in equity attributable to owners of the Company comprised of:

 

·    a decrease in equity of US$4,533 thousand which is presented as a negative capital reserve.

 

 

24.     CONTINGENCIES

 

There weren't any contingent liabilities as at 31 March 2017.

 

 

25.     FINANCIAL RISK MANAGEMENT

 

Russian business and economic environment

26.     RELATED PARTIES

 

 

31/3/17

31/12/16

(i)     Outstanding balances with related parties

US$ '000

US$ '000

Assets

 

 

Amounts receivable from joint ventures

-

11

Amounts receivable from other related companies

245

    256

Long term loans receivable from joint ventures

          -

15,745

 

 

 

Liabilities

 

 

Amounts payable to joint ventures

-

102

Amounts payable to other related companies

311

  325

Deferred income from related company

     155

     145

 

(ii)    Transactions with key management personnel

 

 

 

 

 

 

1/1/17-

31/3/17

1/1/16-

31/3/16

 

US$ '000

US$ '000

Key management personnel compensation Short-term

employee benefits

663

656

Share option scheme expense

        -

     282

 

 

(iii)   Other related party transactions

1/1/17-

31/3/17

1/1/16-

31/3/16

 

US$ '000

US$ '000

Revenue

 

 

Related companies - rental income

137

143

Related companies - other income

1

-

Joint venture - consulting services

31

39

Joint venture - interest income

     211

      311

 

Expenses

 

 

Ultimate Holding Company - operating expenses

-

        38

Joint venture - operating expenses

       10

        12

 

 

27.    SUBSEQUENT EVENTS

 

 

 

 


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