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AFI Development PLC (AFRB)

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Thursday 30 August, 2018

AFI Development PLC

RESULTS FOR THE SIX MONTHS TO 30 JUNE 2018

RNS Number : 1847Z
AFI Development PLC
30 August 2018
 

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION

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

 

30 August 2018

 

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

 

RESULTS FOR THE SIX MONTHS TO 30 JUNE 2018

 

Robust performance supported by strong contribution from residential segment

 

AFI Development, a leading real estate company focused on developing property in Russia, today announces its financial results for the six months ended 30 June 2018.

H1 2018 financial highlights

·    Revenue for H1 2018 increased by 34% year-on-year to US$142.0 million, including proceeds from the sale of trading properties:

-    Rental and hotel operating income increased by 12% year-on-year to US$62.7 million

-    AFIMALL City contribution grew by 9% year-on-year to US$43.6 million (H1 2017: US$39.8 million)

-    Sale of residential properties made a strong contribution of US$78.7 million to total revenue (US$49.8 million in H1 2017), a 58% increase year-on-year, mostly due to revenue recognition from delivery of apartments in AFI Residence Paveletskaya in Q2 2018 and the implementation of IFRS 15[1]

·    Gross profit increased by 88% year-on-year to US$55.8 million (H1 2017: US$29.7 million)

·    Net profit for H1 2018 amounted to US$76.7 million (including US$42.6 million valuation gain and US$16.6 million forex gain), compared to US$7.9 million in H1 2017

·    Total gross value of portfolio of properties stood at US$1.34 billion (versus US$1.42 billion as of end-2017) 

·    Cash, cash equivalents and marketable securities as of 30 June 2018 amounted to US$108.0 million (versus US$106.0 million at end- 2017)

 

 H1 2018 operational highlights

·    Delivery of apartments sold to customers in Phase 1 of AFI Residence Paveletskaya close to completion; marketing progressing well with 457 pre-sale contracts (73% of total) signed as of 20 August 2018 

·    At Odinburg, construction works and pre-sales continue at Building 3 (phase I) and Building 6 (phase II)

-    As of 20 August 2018, the number of signed sale contracts stood at 677 (96% of total) in Building 2, 281 (31% of total) in Building 3 and 161 (72% of total) in Building 6

·    At Bolshaya Pochtovaya, construction and pre-sale progressing to plan

-    As of 20 August 2018, 156 apartments (84% of Phase I) pre-sold

·    The construction and pre-sale of properties at Botanic Garden remain on track

-    As of 20 August 2018, 213 apartments (27% of Phase I) pre-sold

·    AFIMALL City continues to record solid NOI growth, up 15% year-on-year to US$32.8 million in H1 2018, from US$28.5 million in H1 2017   

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

"Although we have reported good results for H1 2018, we are concerned with ongoing weakening of the rouble against the dollar, which started in the second quarter 2018 and accelerated in the third. If weakening of the rouble continues, it may negatively affect the value of our property portfolio and the revenue from residential sales, which in turn may cause a negative effect on our results for the current financial year."

 

H1 2018 Results Conference Call:

AFI Development will hold a conference call for analysts and investors to discuss its H1 2018 financial results on Friday, 31 August 2018.

Details for the conference call are as follows:

 

Date:

Friday, 31 August 2018

 

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 H1 2018 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 August 2018 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

Sandra Novakov         

Lucy Eyles

 

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

While the general macroeconomic environment in Russia continued to stabilise during Q2 2018, the recent threat of new US sanctions against Russia had a negative effect on the rouble and overshadowed the otherwise improving economic outlook.

AFI Development reported strong growth in revenue and profits, supported by a significant increase in residential sales. The rental and hotel operating income increased 12% year-on-year to US$62.7 million for the six months, reflecting the strong performance of AFIMALL City. Sales revenue from our residential segment saw a 58% year-on-year increase to US$78.7 million, reflecting our move to IFRS 15 reporting and the delivery of apartments to customers in Phase I of AFI Residence Paveletskaya.

Our gross profit for the first half of the year increased by 88% year-on-year to US$55.8 million, reflecting strong residential revenue and higher profitability of our residential projects in Moscow (relative to Odinburg, which accounted for all of our recognised residential sales revenue in 2017). We recorded a net profit of US$76.7 million for the six-month period, up significantly from US$7.9 million in H1 2017.

We remain cautiously optimistic regarding the market environment for both our commercial and residential projects. We believe that with our high-quality, competitive projects, we are well placed to generate solid revenue and profits in the coming years.

Projects update

AFIMALL City

 

Continued improvement in the performance of AFIMALL City is reflected in the 9% year-on-year increase in revenue to US$43.6 million for the quarter, and 15% year-on-year increase in NOI to US$32.8 million. Occupancy at the end of the second quarter was 90%.

 

Odinburg


At the Odinburg residential development, Building 3 (Phase 1) and Building 6 (Phase II) are under construction and currently being marketed to customers. The last remaining apartments at the delivered Building 2 of Phase I are in the process of being sold. 

 

As of 20 August 2018, 677 apartments (96% of total) were sold in Building 2, 281 (31% of total) in Building 3 and 161 (72% of total) in Building 6.  

 

AFI Residence Paveletskaya

 

In Q2 2018 we virtually completed the delivery of apartments to customers who bought apartments in Phase I. Meanwhile, construction works and marketing of apartments and special units in Phase II continue to plan. As of 20 August 2018, 457 contracts for pre-sales of both apartments and "special units" have been signed (73% of Phase I and Phase II combined).

 

 

Bolshaya Pochtovaya

 

During H1 2018 the construction and marketing of the project progressed according to plan and as of 20 August 2018, 156 apartments (84% of Phase I) had been pre-sold to customers.

 

Botanic Garden

The construction and pre-sales are also progressing at Botanic Garden. As of 20 August 2018, 213 apartments (27% of Phase I) have been pre-sold to customers.

Aquamarine III Business Centre (Ozerkovskaya III)

In Q1 2018 the Company successfully completed the disposal of Buildings 2 and 4 to one of the leading Russian banks for circa US$135 million.

 

Following the disposal and the restructuring of the loans of Aquamarine III and AFIMALL City with VTB Bank PJSC, the Aquamarine III loan was fully repaid in January 2018.

AFI Development currently owns one remaining building in the complex (GBA 18,805 sq.m including underground parking), which is leased to Deutsche Bank, Brown-Forman and other tenants. The occupancy of the building as of the end of H1 2018 was 89%.

Aquamarine Hotel

In July 2018 the Company concluded a franchising agreement with Intercontinental Hotel Group to allow the Aquamarine Hotel to be rebranded as Crowne Plaza. The Company believes that, in light of increasing competition in central Moscow, branding is crucial to successful long-term competitiveness of the Hotel and its financial performance. The Hotel will be renamed "Crowne Plaza Tretyakovskaya".

Subsequent events

 

On 29th August 2018 the Board of Directors of the Company approved granting of a loan in the maximum amount of EUR5 million to Grosolim Ltd, a Company controlled by Mr Leviev. The loan will be provided at Euribor + 5.2% annual interest rate, the interest will be paid quarterly while the principal amount will be paid at 5-year maturity. The loan will be secured by a personal guarantee of Mr Lev Leviev.

 

On 29th August 2018 the Board has accepted resignation of Mr Lev Leviev from the position of Executive Chairman of the Company effective from 31st August 2018. The Board appointed Mr David Tahan as non-executive Chairman of the Company effective from 1st September 2018. The Board has also appointed Mr Mark Groysman as an executive director: Mr Groysman will serve as a Board member for an interim period till a new Board member is appointed.

 

 

Market overview - general Moscow real estate

 

Macroeconomic environment

The Organisation for Economic Co-operation and Development ("OECD") has maintained its 2018 GDP forecast for Russia at +1.5%.

 

In Q2 2018, the rouble/dollar spot exchange rate fluctuated within a higher range relative to Q1 2018, between 57.4 and 64.0. The rate at 30.06.2018 was RUR62.76 (versus RUR57.26 on 31.03.2018) for 1 US dollar.

 

During the second quarter, the Central Bank of Russia ("CBR") maintained its key lending rate at 7.25% (unchanged since March 2018). Drastic reductions in the key lending rate are not expected in light of an unstable external environment and the threat of new US sanctions against Russia.

 

Annualised consumer price inflation was 2.4% in July 2018, well below the CBR target of 4%. 

 

(Source: OECD, the Bank of Russia, RBC)

 

Moscow office market

A 40% increase in take up in H1 2018 to 633 thousand sq.m relative to H1 2017 was driven mainly by the manufacturing and retail sectors.  

 

Only one small office development was delivered in Q2 2018, the 2,300 sq.m Nikolin Park in New Moscow. In total, according to Jones Lang LaSalle ("JLL"), 39,000 sq.m of new office space was delivered in H1 2018 (compared to 21,000 sqm in H1 2017).

 

Vacancy rates in class A and B offices are in slow decline. According to JLL, in Class A properties the average vacancy rate recorded in Q2 2018 was 12.9% (versus 14.0 % in Q2 2017) with Class B properties at 14.3% (versus 14.7% in Q1 2017). The overall vacancy rate within the office real estate market was 12.0% (versus 15% in Q2 2017).

 

Rental rates remained relatively stable throughout H1 2018. Asking rents for Class A prime central premises stood at US$600-750 per sq.m per year. Asking rents for Class A office buildings were US$420-700 and for Class B $210-440. Rouble denominated rents continue to prevail, with Class B properties being let almost exclusively in roubles.

 

(Source: JLL, C&W)

 

Moscow retail market

Whilst development activity in the retail segment remains at historically low levels, three new shopping centres were opened in Moscow in H1 2018 (total GBA of 98,500 sq.m), with Kashirskaya Plaza being the largest (71,000 sq.m).

 

Six new brands entered the market in H1 2018, most from the premium fashion segment. Notable debuts include the monobrand boutiques of Karl Lagerfeld and Coach.

 

The vacancy rate across Moscow shopping centres as of the end of H1 2018 was at 5.2% (JLL).

 

The most common lease structure continues to include a combination of a low minimum rent coupled with turnover rent, with fixed exchange rates commonly offered to tenants.

 

(Source: JLL, C&W, CBRE)

 

Moscow and Moscow Region residential market

Moscow

At the end of Q2 2018, supply to the "Old Moscow" primary residential market (excluding "apartments") was about 2.48 million sq.m (c. 37,600 residential units), a 14% decrease versus Q1 2018. Supply to the "New Moscow" market was about 407.0 thousand sq.m, a 3% increase versus Q1 2018.

By the end of Q2 2018, the weighted average asking price in the newly built business class residential market in Moscow amounted to RUR245,800 per sq.m p.a. (circa US$3,964). This represents a 2% increase versus Q1 2018 in rouble terms.  In the comfort class, the weighted average asking price was RUR160.3 per sq.m (circa US$2,585).

The Moscow region

The primary market supply (newly built residential units) in the Moscow region amounted to 2.6 million sq.m in Q2 2018.  

 

The weighted average price per sq.m in the Moscow region as of end-June 2018 was RUR75,800 (circa US$1,223).

 

(Source: Miel Real Estate, Azbuka Zhilya)

 

 

Lev Leviev

Executive Chairman of the Board

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

For the period from 1 January 2018 to 30 June 2018

 

 

C O N T E N T S

 

 

 

 

                                                                                                                               

 

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

 

Condensed consolidated income statement                                                                 

 

Condensed consolidated statement of comprehensive income                                      

 

Condensed consolidated statement of changes in equity                                              

 

Condensed consolidated statement of financial position                                               

 

Condensed consolidated statement of cash flows                                                       

 

Notes to the condensed consolidated interim financial statements                                

 

 

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

 

Introduction

We have reviewed the accompanying condensed consolidated statement of financial position of AFI Development PLC as at 30 June 2018, the condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the six-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 these condensed consolidated interim financial statements in accordance with IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on these condensed consolidated interim financial statements based on our review.

 

Scope of Review

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

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements as at 30 June 2018 are not prepared, in all material respects, in accordance with IAS 34 "Interim Financial Reporting".

 

 

 

Marios G. Gregoriades, CPA

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 August 2018

 

 

 

CONDENSED CONSOLIDATED INCOME STATEMENT

 

For the period from 1 January 2018 to 30 June 2018

 

 

 

 

             For the

six months ended

                For the

 six months ended

 

 

              30/6/18

              30/6/17

 

 

           US$ '000

              US$ '000

 

Note

 

 

 

 

 

 

Revenue

6

142,021

106,069

 

 

 

 

Other income

 

       781

       542

 

 

 

 

Operating expenses

8

(30,421)

(26,422)

Cost of sales of trading properties

14,15

(50,415)

(47,303)

Administrative expenses

7

(2,576)

(3,122)

Other expenses

 

   (3,627)

    (2,063)

Total expenses

 

 (87,039)

  (78,910)

 

 

 

 

Share of the after-tax profit of joint ventures

 

             -

      1,957

 

 

 

 

Gross Profit

 

  55,763

29,658

 

 

 

 

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

 

 

 

           -

 

      7,532

Increase/(decrease) in fair value of properties

11,12

  42,567

       (927)

 

 

 

 

Results from operating activities

 

  98,330

   36,263

 

 

 

 

Finance income

 

17,365  

5,713

Finance costs

 

(19,212)

(24,774)

Net finance (costs)/income

9

  (1,847)

(19,061)

 

 

 

 

Profit before tax

 

96,483

17,202

Tax expense

10

(19,815)

  (9,270)

 

 

 

 

Profit for the period

 

  76,668

   7,932

 

 

 

 

Profit attributable to:

 

 

 

Owners of the Company

 

76,452

7,637

Non-controlling interest

 

       216

      295

 

 

  76,668

   7,932

 

 

 

 

Earnings per share

 

 

 

Basic and diluted earnings per share (cent)

 

      7.30

      0.73

 

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 2018 to 30 June 2018

 

 

                For the

six months ended

                For the

six months ended

 

                30/6/18

              30/6/17

 

             US$ '000

             US$ '000

 

 

 

Profit for the period

  76,668

   7,932

 

 

 

Other comprehensive income

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

 

 

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

     -

 

 

(4,271)

Foreign currency translation differences for foreign operations

 

(41,108)

 

   6,537

Other comprehensive income for the period

(41,108)

   2,266

 

 

 

Total comprehensive income for the period

  35,560

 10,198

 

 

 

Total comprehensive income attributable to:

 

 

Owners of the parent

35,332

9,938

Non-controlling interests

       228

      260

 

 

 

 

  35,560

 10,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2018 to 30 June 2018

 

 

 

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 2018 as reported previously

 1,048

1,763,409

(19,333)

(301,287)

(672,719)

  771,118

     (171)

 770,947

Adjustment on initial application of IFRS 15 net of tax

 

          -

 

             -

 

             -

 

         581

 

     13,885

 

     14,466

 

         73

 

   14,539

Adjusted balance at 1 January 2018

 

 1,048

 

1,763,409

 

 (19,333)

 

  (300,706)

 

 (658,834)

 

   785,584

 

      (98)

 

 785,486

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

76,452

76,452

216

76,668

Other comprehensive income

         -

               -

            -

   (41,120)

              -

   (41,120)

          12

 (41,108)

Total comprehensive income for the period

 

         -

 

               -

 

            -

   (41,120)

 

    76,452

     35,332

 

        228

 

   35,560

 

 

 

 

 

 

 

 

 

Balance at 30 June 2018

  1,048

1,763,409

 (19,333)

  (341,826)

  (582,382)

   820,916

         130

 821,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2017

 1,048

1,763,409

  (9,201)

(311,331)

(667,801)

   776,124

 (3,827)

 772,297

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

7,637

7,637

295

7,932

Other comprehensive income

         -

               -

            -

     2,301

              -

      2,301

        (35)

     2,266

Total comprehensive income for the period

 

         -

 

               -

 

             -

 

     2,301

 

      7,637

 

      9,938

 

       260

 

   10,198

 

 

 

 

 

 

 

 

 

Transactions with owners of the

Company Changes in ownership

interests

 

 

 

 

 

 

 

Acquisition of non-controlling interests

 

        -

 

               -

 

(10,145)

 

              -

 

              -

 

    (10,145)

 

   3,435

 

   (6,710)

 

 

 

 

 

 

 

 

 

Balance at 30 June 2017

 1,048

1,763,409

(19,346)

(309,030)

(660,164)

   775,917

     (132)

 775,785

                     

 

 

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

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

AS AT 30 JUNE 2018

 

 

 

         30/6/18

       31/12/17

 

Note

       US$ '000

       US$ '000

Assets

 

 

 

Investment property

11

818,060

818,060

Investment property under development

12

163,240

163,240

Property, plant and equipment

13

72,845

77,633

Long-term loans receivable

 

3,492

1,669

Intangible assets

 

540

204

VAT recoverable

 

36

          48

Other investments

18

      5,075

              -

Non-current assets

 

1,063,288

1,060,854

 

 

 

 

Trading properties

14

29,300

10,792

Trading properties under construction

15

264,484

349,735

Other investments

18

19,924

10,515

Inventories

 

1,104

1,318

Short-term loans receivable

 

608

1,090

Trade and other receivables

16

64,772

70,402

Current tax assets

 

1,520

4,114

Cash and cash equivalents

17

    88,026

    95,468

Current assets

 

  469,738

  543,434

 

 

 

 

Total assets

 

1,533,026

1,604,288

 

 

 

 

Equity

 

 

 

Share capital

 

1,048   

1,048

Share premium

 

1,763,409   

1,763,409

Translation reserve

 

(341,826)

(301,287)

Capital reserve

 

(19,333)

(19,333)

Retained earnings

 

 (582,382)

  (672,719)

Equity attributable to owners of the Company

19

820,916

771,118

Non-controlling interests

 

          130

         (171)

Total equity

 

   821,046

   770,947

 

 

 

 

Liabilities

 

 

 

Long-term loans and borrowings

20

520,585

492,484

Deferred tax liabilities

 

62,851

42,652

Deferred income

 

    13,052

     12,641

Non-current liabilities

 

  596,488

   547,777

 

 

 

 

Short-term loans and borrowings

20

16,932

86,775

Trade and other payables

21

41,942

65,106

Advances from customers

23

54,041

     123,766

Current tax liabilities

 

      2,577

       9,917

Current liabilities

 

  115,492

   285,564

 

 

 

 

Total liabilities

 

  711,980

   833,341

 

 

 

 

Total equity and liabilities

 

1,533,026  

1,604,288

         

 

The condensed consolidated interim financial statements were approved by the Board of Directors on 29 August 2018.

 

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 2018 to 30 June 2018

 

 

 

          1/1/18-

           1/1/17-

 

 

         30/6/18

          30/6/17

 

Note

      US$ '000

         US$ '000

Cash flows from operating activities

 

 

 

Profit/(loss) for the period

 

76,668

7,932

Adjustments for:

 

 

 

Depreciation

13

463

409

Net finance costs

9

947

18,672

(Increase)/Decrease in fair value of properties

11,12

(42,567)

927

Share of profit in joint ventures

 

-

(1,957)

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

 

 

-

 

(7,532)

Tax expense

10

  19,815

   9,270

 

 

55,326

27,721

Change in trade and other receivables

 

13,314

1,192

Change in inventories

 

112

98

Change in trading properties and trading properties under construction

 

 

(9,832)

 

3,854

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

 

 

(9,764)

 

(5,157)

Change in advances from customers

23

12,605

(6,062)

Change in trade and other payables

 

(24,200)

3,208

Change in VAT recoverable

 

5,871

(1,661)

Change in deferred income

 

   1,533

      555

Cash generated from operating activities

 

44,965

23,748

Taxes paid

 

(10,304)

     (909)

Net cash from operating activities

 

  34,661

 22,839

 

 

 

 

Cash flows from investing activities

 

 

 

Acquisition of subsidiary net of cash acquired

 

-

(786)

Proceeds from sale of other investments

 

5,752

5,944

Proceeds from sale of property, plant and equipment

 

55

55

Interest received

 

561

314

Change in advances and amounts payable to builders

16,21

(235)

2,483

Payments for construction of investment property under development

 

12

 

(1,320)

 

(1,711)

Payments for the acquisition/renovation of investment property

 

11

 

(383)

 

(291)

Change in VAT recoverable

 

(355)

389

Acquisition of property, plant and equipment

13

(639)

(88)

Acquisition of other investments

 

(21,241)

(6,051)

Acquisition of intangible assets

 

(930)

-

Proceeds from repayments of loans receivable

 

447

4,178

Payments for loans receivable

 

  (2,023)

      (1,784)

Net cash from investing activities

 

(20,311)

    2,652

 

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

 

 

 

 

 

          1/1/18-

          1/1/17-

 

 

         30/6/18

          30/6/17

 

Note

      US$ '000

         US$ '000

Cash flows from financing activities

 

 

 

Acquisition of non-controlling interests

 

-

(1,369)

Proceeds from loans and borrowings

20

542,873

13,737

Repayment of loans and borrowings

20

(548,196)

(4,944)

Interest paid

 

  (16,980)

 (24,462)

Net cash used in financing activities

 

  (22,303)

 (17,038)

 

 

 

 

Effect of exchange rate fluctuations

 

       511

       158  

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(7,442)

8,611

Cash and cash equivalents at 1 January

 

   95,468

  10,619 

Cash and cash equivalents at 30 June

17

   88,026

  19,230 

 

  

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 2018 to 30 June 2018

 

 

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 six months ended 30 June 2018 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 2017 with higher oil prices, strengthening of the Rouble and inflation on a downward trend, the performance of the real estate sector remains weak. In the first half of 2018 Russia's economic recovery continued amidst relatively high oil prices, enhanced macroeconomic stability, gradual monetary loosening, and ongoing momentum in global economic growth.

 

The Group has recognised a net profit after tax of US$76.7 million for the six-month period ended 30 June 2018, and due to the disposal of two building of Ozerkovskaya III at the end of 2017, its cash and cash equivalents and marketable securities improved to US$108.0 million. Its current liabilities decreased to US$115.5 million due to final repayment of Ozerkovskaya III loan in January 2018 (note 20) and recognition of revenue from sales of trading property in accordance with the new IFRS 15 (note 4).

 

The management estimates that the Group will continue to generate sufficient operating cash flows from yielding properties such as AFI Mall, the hotels and BC Ozerkovskaya III so as to meet loan interest and principal payments of the new loans. The disposal of two buildings of Ozerkovskaya III in December 2017 generated sale proceeds for partial debt repayment of Ozerkovskaya III loan and refinancing of the outstanding amount by AFIMALL City loan for a 5-year term (note 20). The management succeeded in reducing debt and refinancing loans at lower interest rates and allowing repayment of the principal and securing further operational existence for the foreseeable future. Based on cash flow projection for a year period the management reached a conclusion that the Group is in a position to secure further financing for its projects under construction by sales proceeds to generate enough cash to cover its working capital requirements in order to continue its operations in the foreseeable future.  

 

Considering all the above conditions and assumptions, management concluded that the Group had adequate resources to continue in operational existence for the foreseeable future and adopted the going concern basis in preparing the interim consolidated financial statements.

 

ii.         Statement of compliance

 

These interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2017 ('last annual financial statements'). They do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last financial statements.

 

This is the first set of the Group's financial statements where IFRS 15 and IFRS 9 have been adopted. Changes to significant accounting policies are described in Note 4.

 

iii.        Functional and presentation currency

 

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

 

Foreign operations

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

 

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

 

Exchange rate                                                                                   % change       % change

                                                                     Russian Roubles           six months          year

As of:                                                                 for US$1

30 June 2018                                                          62.7565                     9.0                    

31 December 2017                                                 57.6002                                            (5.0)

30 June 2017                                                          59.0855                    (2.6)                

 

Average rate during:

Six-month period ended 30 June 2018                      59.3536                                          2.4

Six-month period ended 30 June 2017                      57.9862                                        (17.5)

 

3.    use of judgements and estimates

 

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

 

The significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2017, except for new significant judgements and key sources of estimation uncertainty related to the application of IFRS 15, which are disclosed in Note 4.

 

a.   Measurement of fair values

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

 

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

 

Significant valuation issues are reported to the group audit committee.

 

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

 

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

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

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

 

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

 

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

 

4.    CHANGES IN significant accounting policies

 

Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2017.

 

The changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 31 December 2018.

 

The Group has initially adopted IFRS 15 Revenue from Contracts with Customers as from 1 January 2018. A number of other new standards, including IFRS 9 Financial Instruments, are effective from 1 January 2018 but they do not have a material effect on the Group's financial statements.

 

The effect of initially applying this standard, IFRS 15, is mainly attributed to the following:

 

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 related interpretations.

 

The Group has adopted IFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying these standards recognised at the date of initial application (i.e. 1 January 2018). Accordingly, the information presented for 2017, has not been restated, i.e. it is presented, as previously reported, under IAS 18 and related interpretations.

 

The following table summarises the impact, net of tax, of transition to IFRS 15 on retained earnings and Non-controlling interests at 1 January 2018.

 

 

 

 

Impact of adopting IFRS 15 at 1 January 2018

 

 

    US$ '000

Retained earnings

 

 

Profit from sales of trading properties before tax

 

17,357

Related tax

 

(3,472)

Impact on 1 January 2018

 

13,885

 

 

 

Non-controlling interests

 

 

Profit from sales of trading properties before tax

 

91

Related tax

 

    (18)

Impact on 1 January 2018

 

       73

 

 

 

Translation reserve

 

 

Net profit from sales of trading properties

 

     581

Impact on 1 January 2018

 

     581

 

The following table summarises the impacts of adopting IFRS 15 on the Group's interim statement of financial position as at 30 June 2018 and its interim statement of profit or loss and other comprehensive income for the six months then ended for each of the line items affected. There was no material impact on the Group's interim statement of cash flows for the six-month period ended 30 June 2018.

 

Impact on the condensed consolidated interim statement of profit or loss

 

For the six months ended 30 June 2018

 

 

As reported

 

 

Adjustments

Amounts without adoption

of IFRS 15

 

US$ '000

US$ '000

        US$ '000

 

 

 

 

 

 

 

 

Revenue

142,021

(12,187)

129,834

 

 

 

 

Cost of sales of trading properties

(50,415)

3,251

(47,164)

Total expenses

 (87,039)

3,251

(83,788)

 

 

 

 

Gross Profit

  55,763

(8,936)

46,827

 

 

 

 

Results from operating activities

  98,330

(8,936)

89,394

 

 

 

 

Net finance (costs)/income

  (1,847)

          -

  (1,847)

 

 

 

 

Profit before tax

96,483

(8,936)

87,547

Tax expense

(19,815)

   1,787

(18,028)

 

 

 

 

Profit for the period

  76,668

(7,149)

  69,519

 

 

 

 

 

 

 

 

 

Impact on the condensed consolidated interim statement of financial position

 

30 June 2018

 

 

As reported

 

 

Adjustments

Amounts without adoption

of IFRS 15

 

US$ '000

US$ '000

US$ '000

Assets

 

 

 

Non-current assets

1,063,288

             -

1,063,288

 

 

 

 

Trading properties under construction

264,484

56,943

321,427

Current assets

469,738

56,943

526,681

 

 

 

 

Total assets

1,533,026

56,943

1,589,969

 

 

 

 

Equity

 

 

 

Translation reserve

(341,826)

3,951

(337,875)

Retained earnings

(582,382)

(21,035)

(603,417)

 

 

 

 

Equity attributable to owners of the Company

 

820,916

 

(17,084)

 

803,832

Non-controlling interests

130

(24)

106

Total equity

821,046

(17,108)

803,938

 

 

 

 

Liabilities

 

 

 

Deferred tax liabilities

62,851

(4,909)

57,942

Non-current liabilities

 596,488

(4,909)

591,579

 

 

 

 

Advances from customers

54,041

78,960

133,001

Current liabilities

 115,492

78,960

194,452

 

 

 

 

Total liabilities

711,980

74,051

786,031

 

 

 

 

Total equity and liabilities

1,533,026

56,943

1,589,969

 

 

 

The details of the new accounting policy and the nature of the changes to previous accounting policy in relation to the Group's revenue from sales of trading properties under DDU contracts is set below. The adoption of IFRS 15 did not have a significant impact on the accounting policies in relation to the remaining sources of revenue.

 

Nature, timing of satisfaction of performance obligations, significant payment terms

Nature of change in accounting policy

Sales of trading properties under DDU contracts

The revenue from the contracts with customers for sale of trading properties under DDU contracts is recognised over period of time as the construction progresses. The Group has determined that this results in revenue and associated costs to fulfil the contracts being recognised over time, i.e. before the ownership of flats is actually transferred to the customer. The transaction price for such contract is determined by adjusting the promised amount of consideration which is received in advance, for the effect of significant finance component. The contract liability is presented in the statement of financial position as Advances from customers.

Under IAS 18, revenue from these contracts and associated costs were recognised when risks and rewards of ownership were transferred to the customer (i.e. when act of transfer was signed).

 

Under IFRS 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control - at a point in time or over time - requires judgement.

 

Standards issued but not yet effective

A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2019 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 2017 about the standards issued but not yet effective that may have a significant impact on the Group's consolidated financial statements.

 

5.     OPERATING SEGMENTS

 

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

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

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

·    Hotel Operation: Includes the operation of Hotels.

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

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

 

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

 

 

 

 

Development projects

Asset management

Hotel Operation

Land bank

Other

Total

 

Residential projects

 

 

 

 

 

 

 

 

                   

 

 

30/6/18

30/6/17

30/6/18

30/6/17

30/6/18

 30/6/17

30/6/18

30/6/17

30/6/18

30/6/17

30/6/18

30/6/17

 

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

78,759

49,912

45,601

41,629

16,076

13,446

1,026

1,035

3

47

141,465

106,069

 

 

 

 

 

 

 

 

 

 

 

 

 

Inter-segment revenue

1

9,305

2,714

3,164

3

2

15

13

4,386

4,964

7,119

17,448

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment profit/(loss) before tax

 

27,162

 

(1,090)

 

60,298

 

9,822

 

3,649

 

4,869

 

8,350

 

8,258

 

(2,780)

 

(4,528)

 

96,679

 

17,331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30/6/18

31/12/17

30/6/18

31/12/17

30/6/18

31/12/17

  30/6/18

31/12/17

30/6/18

31/12/17

30/6/18

31/12/17

 

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

362,720

418,891

852,193

866,433

78,799

81,487

195,892

196,326

1,493

1,270

1,491,097

1,564,407

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment liabilities

86,624

145,918

560,173

622,352

59,816

61,360

3,313

1,646

1,395

1,409

711,321

832,685

 

 

 

Reconciliation of reportable segment profit or loss

 

    1/1/18-

   30/6/18

      1/1/17-

      30/6/17

 

 US$ '000

    US$ '000

 

 

 

Total profit before tax for reportable segments

96,679

17,331

Unallocated amounts:

 

 

Other profit or loss

(196)

(9,618)

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

Profit before tax

  96,483

   17,202

 

 

Reconciliation of reportable segment revenue

 

   1/1/18-

  30/6/18

       1/1/17-

      30/6/17

 

 US$ '000

    US$ '000

 

 

 

Total revenue for reportable segments

141,465

106,069

Unallocated revenue:

 

 

Non-core activity revenue

        556

             -

Revenue

 142,021

 106,069

 

 

 

6.     REVENUE

 

For the six

 months ended

For the six

 months ended

 

        30/6/18

           30/6/17

 

       US$ '000

         US$ '000

 

 

 

Investment property rental income

46,661

42,691

Revenue from sale of trading properties - transferred at a point in time (note 4)

 

3,974

 

49,783

Revenue from sale of trading properties - transferred over time

(note 4)

 

74,751

 

-

Hotel operation income

16,076

13,446

Non-core activity revenue

556

-

Construction consulting/management fees

           3

       149

 

 142,021

106,069

 

 

 

7.     ADMINISTRATIVE EXPENSES

 

For the six

 months ended

For the six

 months ended

 

         30/6/18

           30/6/17

 

       US$ '000

         US$ '000

 

 

 

Consultancy fees

217

189

Legal fees

814

882

Auditors' remuneration

212

340

Valuation expenses

33

37

Directors' remuneration

658

666

Depreciation

54

57

Insurance

76

75

Provision for Doubtful Debts

(292)

40

Donations

5

15

Other administrative expense

      799

      821

 

   2,576

   3,122

 

8.    OPERATING EXPENSES

 

 

For the six

 months ended

For the six

 months ended

 

             30/6/18

        30/6/17

 

          US$ '000

       US$ '000

 

 

 

Maintenance, utility and security expenses

10,444

9,316

Agency and brokerage fees

1,234

644

Advertising expenses

3,709

2,261

Salaries and wages

7,542

7,373

Consultancy fees

1,269

282

Depreciation

408

352

Insurance

216

278

Rent

665

960

Property and other taxes

4,897

4,926

Other operating expenses

       37

         30

 

 30,421

 26,422

 

The increase in comparison with the respective period of prior year is mainly due to increase in maintenance, agency, advertising and consultancy expenses, which correlates with the increase in revenue.

 

 

9.    FINANCE COST AND FINANCE INCOME

 

For the six

 months ended

For the six

 months ended

 

       30/6/18

        30/6/17

 

 US$ '000

     US$ '000

 

 

 

Interest income

756

500

Net foreign exchange gain

16,609

5,209

Net change in fair value of financial assets

             -

            4

Finance income

    17,365

    5,713

 

 

 

Interest expense on loans and borrowings

(16,773)

(24,385)

Net foreign exchange loss

-

-

Net change in fair value of financial assets

(1,537)

-

Other finance costs

    (902)

     (389)

Finance costs

 (19,212)

 (24,774)

 

 

 

Net finance cost

   (1,847)

 (19,061)

 

 

10.   tAX EXPENSE

 

For the six

 months ended

For the six

 months ended

 

 

  30/6/18

        30/6/17

 

 

       US$ '000

       US$ '000

 

Current tax expense

 

 

 

Current year

 4,099

2,244

 

 

 

 

 

Deferred tax expense

 

 

 

Origination and reversal of temporary differences

15,716

7,026

 

 

Total income tax expense

 

19,815

 

9,270

       

 

11.   INVESTMENT PROPERTY

 

Reconciliation of carrying amount

 

     30/6/18

        31/12/17

 

   US$ '000

        US$ '000

 

 

 

Balance 1 January

818,060

915,350

Renovations/additional cost

383

998

Disposals

(1,319)

(140,026)

Fair value adjustment

34,810

18,218

Effect of movement in foreign exchange rates

  (33,874)

     23,520

Balance 30 June / 31 December

  818,060

   818,060

 

 

The decrease due to the effect of the foreign exchange fluctuation is a result of the Rouble weakening compared to the US Dollar by 9% during the first half of 2018. The fair value adjustment is mainly related to this Rouble weakening. Based on the management's assessment the fair value of the properties within the portfolio reported has not significantly changed since 31 December 2017 when a valuation by external appraisers took place. The same applies for investment property under development. See note 12 below.

 

12.   INVESTMENT PROPERTY UNDER DEVELOPMENT

 

        30/6/18

     31/12/17

 

      US$ '000

     US$ '000

 

 

 

Balance 1 January

163,240

232,900

Construction costs

1,320

4,865

Transfer to trading properties under construction (note 15)

-

(74,100)

Fair value adjustment

7,757

(6,648)

Effect of movements in foreign exchange rates

  (9,077)

    6,223

Balance 30 June / 31 December

163,240

163,240

 

The decrease due to the effect of the foreign exchange fluctuation is a result of the Rouble weakening compared to the US Dollar by 9% during the first half of 2018. The fair value adjustment is mainly related to this Rouble weakening. Based on the management's assessment the fair value of the properties within the portfolio reported has not significantly changed since 31 December 2017, when a valuation by external appraisers took place.

 

13.   PROPERTY, PLANT AND EQUIPMENT

 

  30/6/18

31/12/17

 

US$ '000

US$ '000

 

 

 

Balance 1 January

77,633

31,215

Effect of acquisition of subsidiary

-

45,580

Additions

639

484

Depreciation for the period / year

(463)

(846)

Disposals

(55)

(137)

Effect of movements in foreign exchange rates

  (4,909)

    1,337

Balance 30 June / 31 December

  72,845

  77,633

 

14.   TRADING PROPERTIES

 

30/6/18

31/12/17

 

US$ '000

US$ '000

 

 

 

Balance 1 January

10,792

6,854

Transfer from trading properties under construction (note 15)

22,842

63,202

Cost of sales of trading properties

(3,382)

(59,747)

Effect of movements in exchange rates

    (952)

      483

Balance 30 June / 31 December

 29,300

 10,792

 

 

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 AFI Residence Paveletskaya project during the six months period of 2018, and of "Odinburg" project during the year 2017.

 

The amount recognised to cost of sales of trading properties represents the sale of completed flats or parking places recognised at a point in time.  For the year ended 31 December 2017 this amount represents the amount transferred to the income statements upon transferring of the rights to the buyers according to the signed acts of transfer in accordance with the previous accounting policy as per IAS18.

 

15.   TRADING PROPERTIES UNDER CONSTRUCTION

 

 

      30/6/18

    31/12/17

 

    US$ '000

   US$ '000

 

 

 

Balance 1 January as previously reported

349,735

243,327

Effect of adoption of IFRS 15 as at 1 January 2018*

 (59,801)

            -

Restated balance at 1 January

 289,934

243,327

Transfer from investment property under development (note 12)

-

74,100

Transfer to trading properties (note 14)

(22,842)

(63,202)

Construction costs

55,942

96,481

Finance cost capitalised

4,276

-

Cost of sales of trading properties

(47,033)

-

Impairment

-

(9,548)

Effect of movements in exchange rates

 (15,793)

     8,577

Balance 30 June / 31 December

 264,484

 349,735

 

 

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.

 

The amount recognised to cost of sales of trading properties, represents the cost incurred to date for the construction of the apartments and flats which were sold but not yet completed based on the new standard IFRS 15 adopted as from 1 January 2018.

 

*The Group has initially adopted IFRS 15 Revenue from Contracts with Customers as from 1 January 2018. For more details please refer to Note 4.

 

16.   TRADE AND OTHER RECEIVABLES

 

     30/6/18

      31/12/17

 

   US$ '000

      US$ '000

 

 

 

Advances to builders

43,555

29,313

Amounts receivable from related parties (note 25)

132

109

Trade receivables, net

5,051

3,458

Other receivables

7,599

21,713

VAT recoverable

3,867

9,889

Tax receivables

  4,568

5,920

 

  64,772

  70,402

 

Trade receivables net

Trade receivables are presented net of an accumulated provision for doubtful debts and unrecognised revenue of US$8,896 thousand (31/12/2017: US$10,522 thousand).

 

17.   CASH AND CASH EQUIVALENTS

 

     30/6/18

      31/12/17

Cash and cash equivalents consist of:

   US$ '000

      US$ '000

 

 

 

Cash at banks

87,791

95,102

Cash in hand

      235

       366

 

 88,026

  95,468

 

18.   OTHER INVESTMENTS

 

During the current period the Group continued the implementation the Board's decision to invest in various debt and equity instruments. During the period the company invested in total US$21,241 thousand in a private company's shares, in investments in funds and debt securities.

 

19.   SHARE CAPITAL AND RESERVES

 

         30/6/18

      31/12/17

1.  Share capital

      US$ '000

      US$ '000

 

 

 

Authorised

 

 

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

  2,000

  2,000

 

 

 

Issued and fully paid

 

 

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

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

524

     524

524

     524

 

  1,048

  1,048

 

 

 

2.  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.

 

3.  Retained earnings

 

Retained earnings are available for distribution at each reporting date. No dividends were proposed, declared or paid during the six-month period ended 30 June 2018.

 

4.    Capital reserve

 

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

 

20.   LOANS AND BORROWINGS

 

        30/6/18

    31/12/17

 

      US$ '000

   US$ '000

Non-current liabilities

 

 

Secured bank loans

520,585

492,484

 

 

 

Current liabilities

 

 

Secured bank loans

16,649

86,468

Unsecured loans from other non-related companies

        283

        307

 

   16,932

   86,775

 

The following changes to the loans took place during the six-month period ended 30 June 2018:

 

A new loan facility was acquired by one of the Group's subsidiaries, Bellgate Construction Ltd ("Bellgate"), based on a loan agreement signed on the 28 December 2017. This new loan facility was used to refinance the previous loan from VTB Bank JSC ("VTB") signed on 22 June 2012 with a maturity date in April 2018 and was also used to repay the remainder amount of US$83 million, of Ozerkovskaya III loan which expired in January 2018.  Bellgate received the new loan in five tranches, during January and February 2018, in Euros and in Russian Rubles. The blended interest rate on the new loan is circa 5.6% (assuming current EUR/RUR exchange rate and current Russian Central Bank key lending rate). The interest and the principal of the new loan are to be paid quarterly, while the term of the loan is 5 years.

 

        In January 2018, the Company's subsidiary MKPK PJSC (the owner of the AFI Residence Paveletskaya Project) received a loan from VTB Bank PJSC in the amount of RUR711 million to refinance the previously incurred costs for the construction of the project. The loan bears floating interest rate of the Russian Central Bank key lending rate + 1.5%. The principal on the loan is payable monthly, while the interest is payable quarterly. The loan was fully repaid in June 2018.

 

21.   TRADE AND OTHER PAYABLES

 

      30/6/18

    31/12/17

 

    US$ '000

    US$ '000

 

 

 

Trade payables

10,201

 13,756

Payables to related parties (note 25)

238

183

Amount payable to builders

14,953

8,510

Provision

6,320

6,830

VAT and other taxes payable

5,535

28,982

Other payables

   4,695

    6,845

 

 41,942

  65,106

 

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

 

 

 

22.     FINANCIAL INSTRUMENTS

 

A.  Accounting classifications 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

 

Loans

Receivable

Trade and

other

receivables

 

Other

investments

Cash

and cash

 equivalents

Other financial liabilities

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

                   

 

30 June 2018

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

-

-

10,493

-

-

10,493

10,493

-

-

10,493

Investment in equity

-

-

14,506

-

-

14,506

-

-

14,506

14,506

 

 

 

24,999

 

 

24,999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets not measured at fair value

 

 

 

 

 

 

 

 

 

 

Loans receivable

4,100

-

-

-

-

4,100

 

 

 

 

Trade and other receivables

-

12,780

-

-

-

12,780

 

 

 

 

Cash and cash equivalents

-

-

-

88,026

-

88,026

 

 

 

 

 

4,100

12,780

 

88,026

-

104,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities not measured at fair value

 

 

 

 

 

 

 

 

 

 

Interest bearing loans and borrowings

-

-

-

-

(537,517)

(537,517)

-

-

(525,341)

(525,341)

Trade and other payables

-

-

-

-

(14,896)

(14,896)

 

 

 

 

 

 

 

 

 

(552,413)

(552,413)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amount

Fair value

 

Loans

Receivable

 Trade and

other

receivables

 

Other

investments

Cash

and cash

  equivalents

Other financial liabilities

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

                   

 

31 December 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

-

-

5,255

-

-

5,255

5,255

-

-

5,255

 

Investment in fund

-

-

5,240

-

-

5,240

-

-

5,240

5,240

 

 

-

-

10,495

-

-

10,495

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets not measured at fair value

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

2,759

-

-

-

-

      2,759

 

 

 

 

 

Trade and other receivables

-

  25,280

-

-

-

    25,280

 

 

 

 

 

Cash and cash equivalents

-

-

-

95,468

-

    95,468

 

 

 

 

 

 

2,759

  25,280

-

95,468

-

123,507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities not measured at fair value

 

 

 

 

 

 

 

 

 

 

 

Interest bearing loans and borrowings

-

-

-

-

(579,259)

(579,259)

-

-

(579,415)

(579,415)

Trade and other payables

-

-

-

-

  (25,230)

  (25,230)

 

 

 

 

 

 

-

-

-

-

(604,489)

(604,489)

 

 

 

 

 

                           

 

 

A.  Measurement of fair values

 

Valuation technics and significant unobservable inputs

 

The following table shows the valuation techniques used in measuring Level 3 fair values at 30 June 2018 and 31 December 2017 for financial instruments measured in fair value in the statement of financial positions, as well as the significant unobservable inputs used.

 

 

 

 

Type

 

 

 

Valuation technique

 

Significant unobservable inputs

Inter-relationship between key unobservable inputs and fair value measurement

Investment in fund

The securities and other assets of each Segregated Portfolio are valued by the Fund based on market quotations. If market quotations are not readily available, or if the Investment manager determines that special circumstances exist which effect the value of a security, the valuation of those securities and other assets will be determined in good faith by the Investment manager, whose determination will be final, conclusive and binding on all parties.

Not applicable

Not applicable

 

23.   ADVANCES FROM CUSTOMERS

 

 

30/6/18

31/12/17

 

US$ '000

US$ '000

 

 

 

Balance 1 January as previously reported

123,766

51,301

Effect of adoption of IFRS 15 as at 1 January 2018*

 (77,877)

           -

Restated balance at 1 January

45,889

51,301

Customer advances during period/year

81,095

110,490

Effect of recognition of revenue

(68,490)

(41,647)

Effect of movements in exchange rates

  (4,453)

    3,622

Balance 30 June / 31 December

   54,041

123,766

 

*The Group has initially adopted IFRS 15 Revenue from Contracts with Customers as from 1 January 2018. For more details please refer to Note 4.

 

 

24.   FINANCIAL RISK MANAGEMENT

 

The Group's financial risk management objectives and policies are consistent with that disclosed in the consolidated financial statements as at and for the year ended 31 December 2017.

 

Russian business and economic environment

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

 

The Russian economy continues to recover despite financial market volatility.  The GDP is forecasted to grow by 1.5% in 2018 year-on-year.

 

Standard & Poor's credit rating for Russia stands at BBB- with a stable outlook, while Moody's (Ba1) and Fitch's (BBB-) credit ratings for Russia were set with positive outlook.

 

The Central Bank of Russia announced a pause in rate cuts and kept the key rate at the level of 7.25% since March 2018. The consumer prices inflation in July 2018 was at 2.5% (annualised) (with CBR target at 4%). Retail turnover entered a recovery stage with a 3% annualised growth in June.

 

In H1 2018 total investment volume amounted to US$1.4 billion with domination of residential sites and office transactions accounting for 34% and 32% correspondingly. Foreign investors accounted for 27% of the investment volume in H1 2018.

 

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

 

25.   RELATED PARTIES

 

 

30/6/18

31/12/17

(i)   Outstanding balances with related parties

US$ '000

US$ '000

Assets

 

 

Amounts receivable from other related companies (note 16)

     132

    109

 

 

 

 

 

 

 

 

 

 

   30/6/18

  31/12/17

(i)   Outstanding balances with related parties (continued)

US$ '000

 US$ '000

Liabilities

 

 

Amounts payable to other related companies (note 21)

238

  183

Deferred income from related company

      25

     101

 

(ii)   Transactions with the key management personnel

    1/1/18-

   30/6/18

    1/1/17-

    30/6/17

 

US$ '000

 US$ '000

Key management personnel compensation

Short-term employee benefits

1,387

1,342

 

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

 

 

(iii)   Other related party transactions

    1/1/18-

   30/6/18

    1/1/17-

   30/6/17

 

US$ '000

US$ '000

Revenue

 

 

Related companies - rental income

166

234

Related companies - other income

-

1

Joint venture - consulting services

-

31

Joint venture - interest income

         -

     211

 

Expenses

 

 

Joint venture - operating expenses

         -

       10

 

26.   SUBSEQUENT EVENTS

 

There were no material events that took place after the six-month period and until the date of the approval of these interim financial statements by the Board of Directors on 29 August 2018, except of the following:

 

On 29 August 2018 the Board of Directors of the Company approved granting of a loan in the maximum amount of EUR5 million to Grosolim Ltd, a Company controlled by Mr Leviev. The 5-year loan will be provided at Euribor plus 5.2% annual interest rate, the interest will be paid quarterly while the principal amount will be paid at maturity. The loan will be secured by a personal guarantee of Mr Lev Leviev.

 

On 29 August 2018 the Board has accepted resignation of Mr Lev Leviev from the position of Executive Chairman of the Company effective as of 31 August 2018. The Board appointed Mr David Tahan as non-executive Chairman of the Company effective as of 1 September 2018. The Board has also appointed Mr Mark Groysman as an executive director.

 

[1] AFI Development has adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018. The "sale of residential properties" figure includes the revenue from sales of residential properties transferred over time calculated under IFRS 15.


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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