DJ Arricano Real Estate Plc: Final Results
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Arricano Real Estate Plc (ARO)
Arricano Real Estate Plc: Final Results
17-Apr-2019 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
17 April 2019
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7
OF EU REGULATION 596/2014
Arricano Real Estate plc
("Arricano" or the "Company" or, together with its subsidiaries, the
"Group")
Final Results for the 12 months ended 31 December 2018
Arricano is one of the leading real estate developers and operators of
shopping centres in Ukraine. Today, Arricano owns and operates five
completed shopping centres comprising 147 ,300 sqm of gross leasable area, a
49.97% shareholding in Assofit and land for a further three sites under
development.
Highlights
· Recurring revenues increased by 14% to USD31.5 million (2017: USD27.5
million)
· Net operating income (excluding revaluation gains) increased by 19% to
USD20.9 million (2017: USD17.6 million)
· 16.8% uplift in the valuation of the Company's portfolio to USD258.5
million as at 31 December 2018 (2017: USD 221.3 million)
· Very nearly fully let with occupancy rates for 2018 increasing to 99.70%
against 98.65% in 2017
· As at 31 December 2018, total bank borrowings down by 16% to USD36.3
million (2017: USD43.1 million)
· As at 31 December 2018, total borrowings down by 2.23 % to USD96.5 million
(2017: USD98.7 million)
· Net asset value increased by 80% to USD94.0 million as at 31 December 2018
(2017: USD52.2 million)
· New Board appointments: Urmas Somelar as a Non-executive Chairman; and
Frank Lewis as an Independent Non-executive Director.
Post year-end
· secured new USD5.15 million loan facility with Raiffeisen Bank Aval JSC,
to finance in part the construction of the Lukianivka shopping and
entertainment centre in Kyiv.
Urmas Somelar, Non-executive Chairman of Arricano, commented:
"Arricano has delivered a very strong performance, increasing revenues and
net operating income by 14% and 19%, respectively. The Group is in a stable
position from which it is planning to expand and we expect 2019 will be
another year of continued progress with a focus on working collaboratively
with consumers visiting our shopping centres and our retail tenants."
For further information please contact:
CEO:
Arricano Real Estate plc Tel: +38 (044) 594 94 70 (1)
Mykhailo Merkulov
Nominated Adviser and Broker:
WH Ireland Limited Tel: +44 (0)20 7220 1666
Chris Fielding
Financial PR: Tel: +44 (0)20 3151 7008
Novella Communications Limited
Tim Robertson/Toby Andrews
Chairman's Statement
2018 saw Arricano increase rental income by 15% to USD25.6 million and grow
net operating income by 19% to USD20.9 million. This would be a good
performance by a mature business in a stable market environment; given the
context of achieving it against the challenges facing businesses in the
Ukraine, it is an excellent performance and builds upon a similarly strong
performance in the prior year.
Whilst the social and economic conditions continue to be challenging, the
Group has performed strongly relative to domestic peers. In particular,
Arricano has differentiated itself by continuing to develop the portfolio,
expanding in 2014 through the opening of the Prospekt Mall and more recently
securing a new loan in February 2019 with Raiffeisen Bank Aval JSC to fund
in part the development of the Lukianivka site in Kyiv.
Across the Group's shopping and entertainment centres the Group has
continued to lead in innovative marketing solutions and digital
communications. As always, Arricano has sought to work collaboratively
between consumer, retailer and landlord on the basis that sharing data
openly will generate increased growth and customer satisfaction. Trust and
effective collaboration are at the heart of the multiple initiatives that
are ongoing across the portfolio. Marketing B2C strategy is focused on
enhancing quality and quantity of communication. Total media capacity of
malls in SMM channels is about 200 thousand followers with an average
monthly reach more than 4 million people, which make the digital resources
of the Group an efficient media platform and communication tool.
These efforts are reflected in the significant increase in visitor numbers
achieved over the year, up by 6% to 47.8 million visitors. The Group is
consistently achieving impressive increases in visitor numbers year on year
and this is primarily driven by the focus on making each shopping and
entertainment centre a place which consumers want to visit not simply to
shop at but also to relax and socialise.
An important part of Arricano's appeal is due to the retail mix in each
centre. The management team is focused on constantly refreshing the retail
mix so that each site continues to offer new brands and experiences
alongside keeping traditional favourites. The popularity of the shopping and
entertainment centres means demand has remained strong. This is reflected in
occupancy across the portfolio improving to 99.7%, up from 98.7% at 31
December 2018, demonstrating Arricano's ability to both attract new and keep
existing tenants. In 2018, the Company signed 137 new lease agreements
relating to 20,157 sqm of retail space.
As at 31 December 2018, Arricano had over 147,300 sqm of completed assets
spread across five completed shopping centres. In addition, the Group also
owns lease rights for 14 ha. of development land divided into three specific
sites which are at varying stages of development. These are in Lukianivka
and Petrivka (both Kyiv), as well as Rozumovska (Odesa).
Regarding the 49.97% shareholding in Assofit Holdings Limited ("Assofit"), a
holding company, which held the Sky Mall shopping centre, the Company
continues to pursue Stockman Interhold S.A. ("Stockman") concerning its call
option over the balance of the shares of Assofit. The Company announced in
January 2018 that the High Court of Justice in London (the "High Court") had
dismissed an application made by Stockman for permission to appeal the High
Court's earlier judgement in which it had previously dismissed Stockman's
various challenges to the Fourth, Fifth and Seventh Awards (the "LCIA
Awards") rendered in the London Court of International Arbitration
proceedings between Arricano and Stockman.
During 2018, Arricano was nominated for, and won a series of, industry
awards reflecting the Group's leadership across multiple areas. Of
particular note, was the achievements of Sun Gallery and City Mall in being
winners at the VII National Retail Award of Ukraine Retail Awards "Consumer
Choice - 2018", sponsored by PwC Ukraine.
On behalf of the Board I would like to thank every employee and stakeholder
connected to Arricano for their contribution and commitment to the business
during 2018 and I look forward to working together towards achieving another
successful year in 2019.
We expect 2019 to be a good year for the Group. Arricano is now consistently
profitable and we are again looking to expand the portfolio with the
development of the market leading and highly innovative Lukianivka project.
This, together with our ongoing success in increasing the consumer appeal of
our shopping centres, demonstrated by the increase in visitor numbers and
our success in working collaboratively with retailers both physically and
digitally, makes the Board confident of delivering another strong trading
performance in 2019.
Urmas Somelar
Non-Executive Chairman
16 April 2019
Chief Executive Officer's Report
Introduction
Arricano has now been consistently building momentum since addressing the
challenges faced by all Ukrainian businesses in 2014. Despite the upheaval
caused socially and economically, consumers have continued to come to our
shopping and entertainment centres. In 2014, visitor numbers fell to 22.3
million then grew by over 20% p.a. to 47.8 million visitors in the year
under review, demonstrating our recovery and the ongoing increasing
popularity of our malls.
This has come in part from our focus on making our shopping and
entertainment centres places where people want to come to, not just to shop
at but also to meet friends and relax. In this aim we have been successful.
Our next aim is to combine our physical success with digital success, we
describe it as "phygital competence" (physical + digital).
From a trading perspective 2018 was a good year. The business has delivered
across nearly all metrics. We have increased profits, reduced debt, vacancy
is down to just 0.03% and we achieved a net asset value increase of 80% to
USD94.0 million.
Results
Recurring revenues for the period were up 14% at USD31.5 million
(2017:USD27.5 million). As a result, the Net Operating Income ("NOI") from
operating properties excluding revaluation gain was up 19% at USD20.9
million, compared to USD17.6 million in 2017.
The portfolio of assets was externally and independently valued as at 31
December 2018 by Expandia LLC, part of the CBRE Affiliate Network. The
portfolio was valued at USD258.5 million (31 December 2017: USD221.3
million), the increase in the value of the portfolio was primarily driven by
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DJ Arricano Real Estate Plc: Final Results -2-
the increase in rental income and through conservative operational cost
management.
Profit before tax increased by almost 40% to USD46.6 million (2017: USD33.6
million). This increase was achieved through a combination of improved
recurring revenues and a reduction in finance costs.
Bank debt at the year-end was USD36.3 million down 16% from USD43.1 million
at the prior year end, with the majority of borrowings at the project level
at an average interest rate of 12%. Loans mature between 2019 and 2023 and
the Group's bank loans to investment property value ratio is 14%. In
addition, there was USD 2.4 million of restricted cash, cash equivalents,
and restricted deposits, as at 31 December 2018 (2017: USD 1.2 million).
The Market
In 2018 sales of electronic and home appliances increased by more than 9.5%
with the bestselling items being smartphones and mobiles phones, up by 37%.
The market trend in Ukraine, as it is in Europe, is towards digitalisation
in all aspects of consumer's lives. Our challenge has been to respond
creatively and combine the physical social spaces of our malls with digital
communication and move to help our retailers provide omnichannel offers.
Our media platform now has in excess of 200,000 active subscribers and has
recorded millions of views. Content is coming from a variety of sources. In
2018, a particularly popular video experiment borrowed from the Harry Potter
films and projected ghosts flying through our Prospekt mall. The response
resulted in thousands of views without any advertising and made clear the
potential to do more to link this style of interaction with sales
promotions. As always our approach is to work collaboratively with retailers
and consumers, sharing data together and building trust and respect with the
aim of everyone achieving their goals through working together. As a result,
the number of tenants working with e-commerce has nearly doubled from 39 to
72.
As previously announced, we invested in an online portal for tenants
providing a broad range of tools for tenants' use from access to
administrative resources, to a range of potential revenue generating
opportunities for tenants to participate in.
Merchandising mix is at the heart of every successful mall. Knowing our
customers and understanding their aspirations is key. 42.1% of our revenue
from tenants across our 5 malls are from fashion stores with the balance of
revenue being: 6.4% health and beauty; 8.3% restaurants and food; 9.0%
entertainment/services; 10.1% accessories, jewellery and homeware; 10.4%
electronics; and 13.7% hypermarkets. In the third quarter of 2018, there was
a focus on strengthening our presence in fashion, including men's fashion,
with each shopping mall introducing 2-3 new popular clothing stores, both
Ukrainian and international brands.
These efforts are clearly producing results given the 6% increase in visitor
numbers during the year. Alongside achieving a good mix of tenants, an
important reason behind the popularity of the Group's shopping centres is
having the right balance of social spaces within each centre. With this in
place, visitors can come and find their favourite retailers under one roof
and also enjoy the well-designed social spaces in which to meet, eat and
relax.
In terms of the new developments, the Group is progressing projects in Odesa
and Lukyanivka, Kyiv. The main focus is on development of the Lukyanivka
project; construction is underway with initial financing completed in
February 2019 and the project remains on track to complete in 2021.
Outlook
These results reflect the success of our hard work over the last 5 years.
Our malls are market leading and, to maintain this position, we are focused
on the future. It is clear shopping is going through an evolution here as it
is elsewhere, as the convenience of online purchases is altering traditional
habits. Rather than this be a challenge we see it as an opportunity and we
are responding accordingly. Our work with consumers and retailers on digital
communications is proving successful not only in creating new experiences
but also in strengthening the relationships we enjoy with both these groups.
This, together with all the other elements of our business means we are
confident of being able to continue to increase revenues in 2019 in line
with management expectations.
Mykhailo Merkulov
Chief Executive Officer
16 April 2019
Operating Portfolio
In the following section we have provided an overview of each asset in the
operating portfolio.
Sun Gallery (Kryvyi Rig)
Sun Gallery, which opened in 2008, is one of the largest shopping malls in
Kryvyi Rig. It is located at 30-richchia Peremohy Square, in the
Saksahanskyi district in the north-eastern part of Kryvyi Rig. It has easy
access by car and has good public transport links. The primary shopping
centre catchment area includes almost the whole territory of the
Saksahanskyi district and part of the Pokrovskyy district. The secondary
area covers the Dovhyntsivskyi district.
The shopping centre is on two levels, spanning a total GLA of approximately
37,600 sqm. There are approximately 141 tenants, including a children's
entertainment zone and a food court with restaurants and cafes. During 2018,
19 new agreements were signed, bringing new brands to the Sun Gallery,
including brands that were previously unavailable in the region.
Key statistics
* GLA - c. 37,600 sqm
* Vacancy rate as at 31 December 2018 - 0.2 per cent.
* Average monthly rental rate 2018 - USD 14.6 /sqm
* Average monthly visitors 2018 - 0.4 million
* Bank debt at 31 December 2018 - USD 5.5 million
* Valuation at 31 December 2018 - USD 30.3 million
City Mall (Zaporizhzhia)
City Mall, which opened in 2007, is one of the largest shopping centres in
Zaporizhzhia with a total GLA of approximately 21,500 sqm on a single level.
The shopping centre is located on the Dnipro river approximately 3km from
Zaporizhzhia city centre, between two densely populated areas of
Zaporizhzhia in the Alexandrovskyy administrative district (1b Zaporizska
street), with convenient accessibility by public and private transport.
City Mall comprises a gallery and hypermarket with approximately 93
international and local tenants, including a food court, a children's
entertainment zone and car parking, which is shared with DIY superstore
Epicenter. City Mall's anchor tenants are the hypermarket Auchan, which is
the largest in the city, McDonald's and the electronics store Comfy. During
2018, 15 new contracts were signed bringing new brands to the City Mall,
including brands that were previously unavailable in the region. Building on
the fourth successive year of nil vacancy rates, the tenant portfolio
continues to be strengthened, with fashion and electronic stores.
Key statistics
* GLA - c. 21,500 sqm
* Vacancy rate as at 31 December 2018 - 0.0 per cent.
* Average monthly rental rate 2018 - USD 29.1 /sqm
* Average monthly visitors 2018 - 0.5 million
* Bank debt at 31 December 2018 - USD 6.3 million
* Valuation at 31 December 2018 - USD 30.5 million
South Gallery (Simferopol)
The site is located in the north of Simferopol, about five minutes' driving
distance from one of the city's major crossroads, Moskovska Square. The site
is linked to the city centre and residential areas east of the city by one
of the main thoroughfares of Simferopol. The primary shopping centre
catchment area includes northern parts of the Kyivskyi and Zaliznychnyi
districts. The secondary area covers almost the whole city, except for its
very southern parts.
South Gallery shopping centre (Phases I and II) is situated on a land plot
with a total area of 10.2 ha. Phase I, which opened in 2009, of the shopping
centre tenants include Auchan (international hypermarket chain), with a
small gallery. Since the completion of Phase II in February 2014 the mall
has become a regional destination shopping centre with a total GLA of 33,400
sqm.
During 2018, 49 new lease contracts were signed, including fashion,
electronics and other stores.
Key statistics
* GLA - 33,400 sqm
* Vacancy rate as at 31 December 2018 - 0.01 per cent.
* Average monthly rental rate 2018 - USD 21.9 /sqm
* Average monthly visitors 2018 - 0.8 million
* Bank debt at 31 December 2018 - USD Nil
* Valuation at 31 December 2018 - USD 49.6 million
RayON (Kyiv)
The RayON shopping centre, which opened to the public in August 2012, is
located in the north east of Kyiv along the left bank of the Dnipro river,
with satisfactory transportation links.
The shopping centre has a GLA of approximately 23,900 sqm on two levels,
with approximately 860 parking spaces. The concept for RayON is a district
shopping centre, which focuses on food, clothing and convenience products.
The shopping centre is anchored by a Silpo foods supermarket, one of the
biggest supermarket chains in Ukraine and a member of the Fozzy group.
Electronics supermarket Comfy also operates within the shopping centre.
RayON, which has several restaurants and a children's entertainment zone to
complement the retail facilities, is located in the middle of the Desnjanski
district, one of the most densely populated areas in Kyiv.
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During 2018, 27 new lease contracts were signed, including fashion and
electronics stores.
Key statistics
* GLA - c. 23,900 sqm
* Vacancy rate as at 31 December 2018 - 0.35 per cent.
* Average monthly rental rate 2018 - USD 20.1 /sqm
* Average monthly visitors 2018 - 0.57 million
* Bank debt at 31 December 2018 - USD 15.6 million
* Valuation at 31 December 2018 - USD 44.1 million
Prospect (Kyiv)
SEC Prospect is located directly on the inner ring road of Kyiv on the left
bank of the Dnipro river in the Desnianskyi administrative district, with
good automobile accessibility and public transport links. The area is
recognised as a popular shopping destination, located close to a large
open-air market and a bazaar-style shopping centre (SC Darynok).
The SEC consists of a two-storey retail and leisure complex with a GLA of
approximately 30,666 sq. m. and parking with 1,350 parking spaces. The
centre opened at the end of 2014.
2018 saw the successful continuation of free training sessions for shop
personnel, building on demand from the previous years. During 2018, 26 new
lease contracts were signed. Brands such as ProSport and Eldorado were
introduced as tenants, with international brands such as Puma, Lush, Orsay,
Parfois, and Love Republic also joining the centre.
Key statistics
* GLA - c. 30,900 sqmm
* Vacancy rate as at 31 December 2018 - 0.7 per cent.
* Average monthly rental rate 2018 - USD 16.9 /sqm
* Average monthly visitors 2018 - 1.7 million
* Bank debt at 31 December 2018 - USD 8.9 million
* Valuation at 31 December 2018 - USD 56 million
Development Properties
Lukianivka (Kyiv)
The Lukianivka development property is located on the right bank of Kyiv in
the Shevchenkivskyi administrative district. The land plot has a total area
of 4.19 hectares. The Group is constructing its flagship complex in the
central business district of Kyiv, with a more upmarket vision in terms of
concept and tenant mix. The Lukianivka development property allows for the
construction of a multi-functional complex, consisting of shopping and
leisure, office and residential centres including, inter alia, a
hypermarket, shops and shopping galleries, a leisure and entertainment area,
a food court restaurants and a service area. The property will also have two
underground parking levels and several office and residential buildings,
construction of which will continue after completion of the shopping centre.
It is expected that the GLA of the shopping and entertainment centre will be
over 50,000 sqm.
The Group obtained the relevant construction permit in June 2013.
Construction is underway with initial financing completed in February 2019
and the project remains on track to complete in 2021.
Land plot: 4.19 hectares
Title: Leasehold title plus title to
several buildings (historical
landmarks) on the site
Development: Retail, leisure and
entertainment centre
Gross construction area (GBA): c.71,339 sqm for the shopping
centre (plus c.38,480 sqm GBA
for parking)
Gross leasable area (GLA): c.50,000+ sqm
Parking spaces: To include roof parking and
underground parking
Type: City shopping centre (pocket
hypermarket anchored) with
office and residential spaces
Actual construction start date: Q4 2013
Forecast opening date: 2021
Rozumovska (Odesa)
The Black Sea port of Odesa is Ukraine's fourth largest city, with over one
million inhabitants, and is a popular leisure destination. The Rozumovska
development property is located partly on the façade of Rozumovska Street
close to its intersection with Balkovska Street, in the Malynovskyi
administrative district of Odesa, in close proximity to public
transportation links. Rozumovska Street connects directly to the highway to
Kyiv.
The Group has signed a lease agreement for the land plot with a total area
of 4.5 hectares. The Rozumovska development property is expected to be a
three-storey shopping and entertainment centre with a sufficient number of
parking spaces to accommodate customer demand. The target GLA is
approximately 38,000 sqm, including a hypermarket, shops and shopping
galleries, a leisure and entertainment area, a food court restaurants and a
service area. The preliminary design concept of the project has been
completed and the developer is currently applying for the relevant consents
and permits, given current market conditions.
Land plot: 4.5 hectares
Location: Odesa
Title: Leasehold
Development: Retail, leisure and
entertainment centre
Gross construction area (GBA): To be defined
Gross leasable area (GLA): 38,000 sqm (expected)
Parking spaces: 1,400
Type: Regional mall (hypermarket
anchored)
Expected construction start date: to be defined
Forecast opening date: to be defined
Petrivka (Kyiv)
The Petrivka development property is located on the right bank of the Dnipro
river in Kyiv, in the Obolonskyi administrative district. The site on
leasehold has an area of 5.4 ha. The Group is currently considering the best
use of the site, which could include both creative, leisure, edutainment, IT
cluster office, residential and retail use.
Finance Report
The Group's revenue mainly consists of rental income from the portfolio of
the completed properties. During the year ended 31 December 2018 the
Company's rental income amounted to USD25.6 million (2017: USD22.1million).
The total fair valuation of the Company's portfolio increased by 17% to
USD258.5 million as at 31 December 2018 (2017: USD221.3 million). The main
reasons for the increase of fair value of the Group's portfolio were
successful rotations of lessees, increase in rental rates and close control
of costs. Operating expenses during the period were USD 7.4 million,
compared to USD7.1 million in the previous year.
As a result of the above, profit from operating activities was USD63.2
million (2017: USD 65.4 million) reflecting a smaller increase in
revaluation gains compared to the prior year.
Finance expenses in 2018 reduced significantly to USD17.5 million (2017
USD32.5 million), while finance income increased to USD0.9 million (2017
USD0.7 million).
The Company's net profit for the year ended 31 December 2018 was USD38.1
million (2017: USD25.8 million).
Net Asset Value as at 31 December 2018 was USD94.0 million (2017: USD52.2
million), resulting in an Adjusted Net Asset Value per Share, up 78%, of USD
0.91 (2017: USD 0.51).
Total assets, as at 31 December 2018, amounted to USD268.2 million (2017:
USD230.9 million), an increase of 16 % from the previous year. This mainly
related the increase in investment property value.
Cash balances as at 31 December 2018, including cash equivalents and current
deposits, amounted to USD4.22 million (2017: USD2.61 million).
As at 31 December 2018, the Group had USD 96.5 million (2017: USD 98.7
million) of outstanding borrowings
Consolidated statement of financial position as at 31 December 2018
Note 31 December 31 December
2018 2017 *
(in thousands of USD)
Assets
Non-current assets
Investment property 4 258,537 221,265
Long-term VAT receivable 568 1,016
Property and equipment 121 146
Intangible assets 101 42
Total non-current assets 259,327 222,469
Current assets
Trade and other receivables 6 1,640 2,364
Loans receivable 5 300 296
Prepayments made and other assets 781 427
VAT receivable 225 1,011
Assets classified as held for sale 7 1,562 1,541
Income tax receivable 178 228
Cash and cash equivalents 8 4,224 2,609
Total current assets 8,910 8,476
Total assets 268,237 230,945
Note 31 December 31 December
2018 2017 *
(in thousands of USD)
Equity and Liabilities
Equity 9
Share capital 67 67
Share premium 183,727 183,727
Non-reciprocal shareholders 59,713 59,713
contribution
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Retained earnings 38,937 834
Other reserves (61,983) (61,983)
Foreign currency translation (126,429) (130,176)
differences
Total equity 94,032 52,182
Non-current liabilities
Long-term borrowings 11 44,501 58,765
Advances received 14 - 125
Finance lease liability 12 7,271 7,037
Long-term trade and other payables 13 17,572 9,885
Other long-term liabilities 15 20,046 20,091
Deferred tax liability 20 6,917 5,091
Total non-current liabilities 96,307 100,994
Current liabilities
Short-term borrowings 11 52,006 39,891
Trade and other payables 13 10,588 25,258
Taxes payable 1,476 1,429
Advances received 14 5,605 4,922
Current portion of finance lease 12 6 2
liability
Other liabilities 15 8,217 6,267
Total current liabilities 77,898 77,769
Total liabilities 174,205 178,763
Total equity and liabilities 268,237 230,945
Consolidated statement of profit or loss and other comprehensive income for
the year ended 31 December 2018
Note 2018 2017 *
(in thousands of USD, except for
earnings per share)
Revenue 16 31,520 27,549
Other income 510 368
Gain on revaluation of investment 4(a) 42,249 47,873
property
Goods, raw materials and services 17 (1,061) (977)
used
Operating expenses 18 (7,416) (7,146)
Salary costs (2,178) (1,790)
Salary related charges (359) (294)
Depreciation and amortisation (89) (130)
Profit from operating activities 63,176 65,453
Finance income 19 951 668
Finance costs 19 (17,546) (32,545)
Profit before income tax 46,581 33,576
Income tax expense 20 (8,478) (7,769)
Net profit for the year 38,103 25,807
Items that will be reclassified to
profit or loss:
Foreign exchange gains/ (losses) on 8,798 (4,407)
monetary items that form part of
net investment in the foreign
operation, net of tax effect
Foreign currency translation (5,051) 6,602
differences
Total items that will be 3,747 2,195
reclassified to profit or loss
Other comprehensive income 3,747 2,195
Total comprehensive income for the 41,850 28,002
year
Weighted average number of shares 10 103,270,637 103,270,637
(in shares)
Basic and diluted earnings per 10 0.36896 0.24990
share, USD
Consolidated statement of cash flows for the year ended 31 December 2018
Note 2018 2017 *
(in thousands of USD)
Cash flows from operating activities
Profit before income tax 46,581 33,576
Adjustments for:
Finance income 19 (951) (668)
Finance costs, excluding foreign exchange 19 13,728 32,090
loss
Gain on revaluation of investment 4(a) (42,249) (47,873)
property
Depreciation and amortisation 89 130
Unrealised foreign exchange loss 3,818 455
Other income - (368)
Fee for restructuring of accounts payable 18 1,128 -
Write-off of VAT receivable 732 -
Allowance for bad debts 18 - 425
Operating cash flows before changes in 22,876 17,767
working capital
Change in trade and other receivables 768 (1,304)
Change in prepayments made and other (354) 46
assets
Change in VAT receivable 550 196
Change in income tax receivable and taxes 28 370
payable
Change in trade and other payables (1,208) 1,027
Change in advances received 499 348
Change in other liabilities (44) (179)
Income tax paid (930) (1,486)
Interest paid (4,890) (5,226)
Cash flows from operating activities 17,295 11,559
Cash flows from investing activities
Acquisition of investment property and (8,708) (6,622)
settlements of payables due to
constructors
Acquisition of property and equipment (122) (70)
Interest received 215 240
Cash flows used in investing activities (8,615) (6,452)
Note 2018 2017 *
(in thousands of USD)
Cash flows from financing activities
Proceeds from borrowings 11 16,200 -
Repayment of borrowings 11 (22,396) (6,777)
Finance lease payments 11 (895) (659)
Cash flows used in financing activities (7,091) (7,436)
Net increase/(decrease) in cash and cash 1,589 (2,329)
equivalents
Cash and cash equivalents at 1 January 2,609 4,953
Effect of movements in exchange rates on 26 (15)
cash and cash equivalents
Cash and cash equivalents at 31 December 8 4,224 2,609
Non-cash movements
During the year ended 31 December 2018, an acquisition of a land plot held
on leasehold of
USD 142 thousand occurred through a finance lease (2017: USD 396 thousand).
Consolidated statement of changes in equity as at and for the year ended 31
December 2018
Attributable to equity holders of the parent
Share Share Non-reciprocal Retained Other Foreign Total
capit premi shareholders earnings reser currenc
al um contribution (Accumul ves y
ated transla
deficit) tion
differe
nces
(in
thousand
s of
USD)
Balances 67 183,7 59,713 (24,973) (61,9 (132,37 24,18
at 1 27 83) 1) 0
January
2017
Total
comprehe
nsive
income/(
loss)
for the
year
Net - - - 25,807 - - 25,80
profit 7
for the
year
Foreign - - - - - (4,407) (4,40
exchange 7)
losses
on
monetary
items
that
form
part of
net
investme
nt in
the
foreign
operatio
n, net
of tax
effect
Foreign - - - - - 6,602 6,602
currency
translat
ion
differen
ces
Total - - - - - 2,195 2,195
other
comprehe
nsive
income
for the
year
Total - - - 25,807 - 2,195 28,00
comprehe 2
nsive
income
for the
year
Balances 67 183,7 59,713 834 (61,9 (130,17 52,18
at 31 27 83) 6) 2
December
2017
Attributable to equity holders of the parent
Share Share Non-reciprocal Retained Other Foreign Total
capit premi shareholders earnings reser currenc
al um contribution ves y
transla
tion
differe
nces
(in
thousand
s of
USD)
Balances 67 183,7 59,713 834 (61,9 (130,17 52,18
at 1 27 83) 6) 2
January
2018 *
Total
comprehe
nsive
income/(
loss)
for the
year
Net - - - 38,103 - - 38,10
profit 3
for the
year
Foreign - - - - - 8,798 8,798
exchange
gains on
monetary
items
that
form
part of
net
investme
nt in
the
foreign
operatio
n, net
of tax
effect
Foreign - - - - - (5,051) (5,05
currency 1)
translat
ion
differen
ces
Total - - - - - 3,747 3,747
other
comprehe
nsive
income
for the
year
Total - - - 38,103 - 3,747 41,85
comprehe 0
nsive
income
for the
year
Balances 67 183,7 59,713 38,937 (61,9 (126,42 94,03
at 31 27 83) 9) 2
December
2018
Notes to the consolidated financial statements
1 Background
************
(a) Organisation and operations
Arricano Real Estate PLC (Arricano, the Company or the Parent Company) is a
public company that was incorporated in Cyprus and is listed on the AIM
Market of the London Stock Exchange. The Parent Company's registered address
is office 1002, 10th floor, Nicolaou Pentadromos Centre, Thessalonikis
Street, 3025 Limassol, Cyprus. Arricano and its subsidiaries are referred to
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as the Group, and their principal place of business is in Ukraine.
The main activities of the Group are investing in the development of new
properties in Ukraine and leasing them out. As at 31 December 2018, the
Group operated five shopping centres in Kyiv, Simferopol, Zaporizhzhya and
Kryvyi Rig with a total leasable area of over 147,300 square meters and was
and remains in the process of development of two new investment projects in
Kyiv and Odesa, with one more project to be developed.
The average number of employees employed by the Group during the year is 103
(2017: 106).
(b) Ukrainian business environment
The Group's operations are primarily located in Ukraine. The political and
economic situation in Ukraine has been subject to significant turbulence in
recent years and demonstrates characteristics of an emerging market.
Consequently, operations in the country involve risks that do not typically
exist in other markets.
An armed conflict in certain parts of Lugansk and Donetsk regions, which
started in spring 2014, has not been resolved and part of the Donetsk and
Lugansk regions remains under control of the self-proclaimed republics, and
Ukrainian authorities are not currently able to fully enforce Ukrainian laws
in this territory. Various events in March 2014 led to the accession of the
Republic of Crimea to the Russian Federation, which was not recognised by
Ukraine and many other countries. This event resulted in a significant
deterioration of the relationship between Ukraine and the Russian
Federation.
In November 2018, following an incident between the Russian and Ukrainian
military around a waterway connecting the Azov Sea and the Black Sea, the
Ukrainian authorities introduced martial law for a 30-days period in 10
regions located along the Russian and Moldovian border, the Azov Sea and the
Black Sea coast. The martial law was terminated at the end of December 2018,
after 30 days.
Ukraine's economic situation deteriorated significantly in 2014-2016 as a
result of the fall in trade with the Russian Federation and military
tensions in Eastern Ukraine. Although instability continued throughout
2017-2018, the Ukrainian economy continued to show signs of recovery with
the inflation rate slowing down, reduced depreciation of hryvnia against
major foreign currencies, growing international reserves of the National
Bank of Ukraine (the "NBU") and a general revival in business activity.
During 2016-2018, the NBU took certain steps to provide relief to the
currency control restrictions introduced in 2014-2015. In particular, the
required share of foreign currency proceeds subject to mandatory sale on the
interbank market was gradually decreased, while the settlement period for
export-import transactions in foreign currency was increased. Also, the NBU
allowed Ukrainian companies to pay dividends abroad subject to a certain
monthly limitation. In February 2019, a new law on currency and currency
transactions came into force. The new law abolished a number of
restrictions, defined new principles of currency operations, currency
regulation and supervision, and resulted in significant liberalisation of
foreign currency transactions and capital movements.
The banking system remains fragile due to low level of capital and weak
asset quality and Ukrainian companies and banks continue to suffer from a
lack of funding from domestic and international financial markets.
The International Monetary Fund (the "IMF") continued to support the
Ukrainian government under the four-year Extended Fund Facility (the "EFF")
Program approved in March 2015. In October 2018 the government of Ukraine
reached an agreement with the IMF on a new fourteen-months Stand-By program,
which will replace the existing EFF program. Other international financial
institutions have also provided significant technical support in recent
years to help Ukraine restructure its external debt and launch various
reforms (including anti-corruption, corporate law, and gradual
liberalization of the energy sector).
In December 2018, Moody's upgraded Ukraine's credit rating to Caa1, with a
stable outlook, reflecting the reaching of an agreement on further
cooperation with the IMF, positive expectations regarding certain reforms
and improved foreign affairs. Further stabilisation of economic and
political environment depends on the continued implementation of structural
reforms and other factors.
Whilst management believes it is taking appropriate measures to support the
sustainability of the Group's business in the current circumstances, a
continuation of the current unstable business environment could negatively
affect the Group's results and financial position in a manner not currently
determinable. These consolidated financial statements reflect management's
current assessment of the impact of the Ukrainian business environment on
the operations and the financial position of the Group. The future business
environment may differ from management's assessment.
(c) Cyprus business environment
The Cyprus economy has been adversely affected during the last few years by
the economic crisis. The negative effects have to some extent been resolved,
following the negotiations and the relevant agreements reached with the
European Commission, the European Central Bank and the International
Monetary Fund (IMF) for financial assistance which was dependent on the
formulation and the successful implementation of an Economic Adjustment
Program. The agreements also resulted in the restructuring of the two
largest (systemic) banks in Cyprus through a "bail in".
The Cyprus Government has successfully completed earlier than anticipated
the Economic Adjustments Program and exited the IMF program on 7 March 2016,
after having recovered in the international markets and having only used EUR
7,25 billion of the total EUR 10 billion earmarked in the financial bailout.
Under the new Euro area rules, Cyprus will continue to be under surveillance
by its lenders with bi-annual post-program visits until it repays 75% of the
economic assistance received.
Although there are signs of improvement, especially in the macroeconomic
environment of the country's economy including growth in GDP and reducing
unemployment rates, significant challenges remain that could affect the
estimates of the Group's cash flows and its assessment of impairment of
financial and non-financial assets.
The Group's management believes that it is taking all the necessary measures
to maintain the viability of the Group and the development of its business
in the current business and economic environment and that no adverse impact
on the Group's operations is expected.
(d) Russian business environment
The Group's operations are also carried out 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.
Starting in 2014, the United States of America, the European Union and some
other countries imposed and gradually expanded economic sanctions against a
number of Russian individuals and legal entities. The imposition of the
sanctions has led to increased economic uncertainty, including more volatile
equity markets, a depreciation of the Russian rouble, a reduction in both
local and foreign direct investment inflows and a significant tightening in
the availability of credit. As a result, some Russian entities may
experience difficulties accessing the international equity and debt markets
and may become increasingly dependent on state support for their operations.
The longer-term effects of the imposed and possible additional sanctions are
difficult to determine.
The consolidated financial statements reflect management's assessment of the
impact of the Russian business environment on the operations and the
financial position of the Group. The future business environment may differ
from management's assessment.
2 Basis of preparation
**********************
(a) Statement of compliance
These consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRSs") as adopted by the
European Union (EU).
This is the first set of the Group's financial statements where IFRS 15
Revenue from Contracts with Customers and IFRS 9 Financial Instruments have
been applied. Changes to significant accounting policies are described in
Notes 3(?) and 3(l).
(b) Basis of measurement
The consolidated financial statements have been prepared under the
historical cost basis except for investment property, which is carried at
fair value.
(c) Functional and presentation currency
The functional currency of Arricano Real Estate PLC is the US dollar (USD).
The majority of Group entities are located in either Ukraine or in the
Russian Federation and have the Ukrainian Hryvnia (UAH) or Russian Rouble
(RUB) as their functional currencies since substantially all transactions
and balances of these entities are denominated in the mentioned currencies.
The Group entities located in Cyprus, Estonia, Isle of Man and BVI have the
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US dollar as their functional currency, since substantially all transactions
and balances of these entities are denominated in US dollar.
For the benefits of principal users, the management chose to present the
consolidated financial statements in USD, rounded to the nearest thousand.
In translating the consolidated financial statements into USD the Group
follows a translation policy in accordance with International Financial
Reporting Standard IAS 21 The Effects of Changes in Foreign Exchange Rates
and the following rates are used:
· Historical rates: for the equity accounts except for net profit or loss
and other comprehensive income (loss) for the year.
· Year-end rate: for all assets and liabilities.
· Rates at the dates of transactions: for the statement of profit or loss
and other comprehensive income and for capital transactions.
UAH and RUB are not freely convertible currencies outside Ukraine and the
Russian Federation, and, accordingly, any conversion of UAH and RUB amounts
into USD should not be construed as a representation that UAH and RUB
amounts have been, could be, or will be in the future, convertible into USD
at the exchange rate shown, or any other exchange rate.
The principal USD exchange rates used in the preparation of these
consolidated financial statements are as follows.
Year-end USD exchange rates as at 31 December are as follows:
Currency 2018 2017
UAH 27.69 28.07
RUB 69.47 57.60
Average USD exchange rates for the years ended 31 December are as follows:
Currency 2018 2017
UAH 27.22 26.60
RUB 62.88 58.30
As at the date these consolidated financial statements are authorised for
issue, 16 April 2019, the exchange rate is UAH 26.71 to USD 1.00 and RUB
64.25 to USD 1.00.
(d) Use of judgments, estimates and assumptions
The preparation of consolidated financial statements in conformity with
IFRSs as adopted by the EU requires management to make judgments, estimates
and assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses and the
disclosure of contingent assets and liabilities. Actual results may differ
from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
In particular, information about significant areas of estimation uncertainty
and critical judgments in applying accounting policies that have the most
significant effect on the amounts recognised in the consolidated financial
statements and have significant risk of resulting in a material adjustment
within the next financial year are included in the following notes:
· Note 2(c) - determination of functional currency,
· Note 4 - valuation of investment property,
· Note 5 - valuation of loans receivable and investment in Filgate Credit
Enterprises Limited,
· Note 21(c) - valuation of trade and other receivables,
· Note 7(a) - classification of assets held for sale,
· Note 22(d)(i) - legal case in respect of Assofit Holdings Limited and
valuation of related financial asset at fair value through other
comprehensive income (FVOCI).
(e) Going concern
As at 31 December 2018, the Group's current liabilities exceeded its current
assets by
USD 68,988 thousand. This condition indicates the existence of a material
uncertainty that may cast significant doubt about the Group's ability to
continue as a going concern.
At the same time, the Group has positive equity of USD 94,032 thousand as at
31 December 2018, generated net profit of USD 38,103 thousand and positive
cash flows from operating activities amounting to
USD 17,295 thousand for the year then ended.
Management is undertaking the following measures in order to ensure the
Group's continuing operation on a going concern basis:
· The Group has financial support from the ultimate controlling party.
Based on representations received in writing from entities under common
control, management believes that the Group will not be required to settle
the outstanding accrued interest and other accounts payable to related
parties in the amount of USD 21,360 thousand plus any accruing interest
during the year ending 31 December 2019.
· The Group received a waiver from Barleypark Limited waiving repayment of
the loan during twelve months ending 31 December 2019 amounting to USD
22,004 thousand, which is payable on demand and presented as short-term
liability as at 31 December 2018.
· During the year ended 31 December 2018, management was able to conclude
a number of new tenancy agreements and increase occupancy rate of its
shopping centres. Besides, the Group managed to gradually increase its
rental rates during the year for existing tenants.
· In accordance with the budget approved for 2019, the Group plans to
increase its operating income during the next year.
Management believes that the measures that it undertakes, as described
above, will allow the Group to maintain the positive working capital and
operate on a going concern basis in the foreseeable future.
These consolidated financial statements are prepared on a going concern
basis, which contemplates the realisation of assets and the settlement of
liabilities in the normal course of business.
(f) Measurement of fair values
A number of the Group's accounting policies and disclosures require the
measurement of fair values, for both financial and non-financial assets and
liabilities.
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.
Further information about the assumptions made in measuring fair values is
included in the following Notes:
· Note 4 - investment property; and
· Note 21(f)(iii) - fair values.
(g) Change in presentation
Management made some minor amendments to comparative information in a way
that it conforms with the current year presentation.
3 Significant accounting policies and transition to new standards
*****************************************************************
Except as disclosed in Notes 3(c) and 3(l), the accounting policies set out
below have been applied consistently to all periods presented in these
financial statements.
(a) Basis of consolidation
(i) Business combinations
Business combinations are accounted for using the acquisition method as at
the acquisition date, which is the date on which control is transferred to
the Group.
The Group measures goodwill at the acquisition date as:
· The fair value of the consideration transferred; plus
· The recognised amount of any non-controlling interests in the acquiree;
plus
· If the business combination is achieved in stages, the fair value of the
pre-existing equity interest in the acquiree; less
· The net recognised amount (generally fair value) of the identifiable
assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised
immediately in profit or loss.
The consideration transferred does not include amounts related to the
settlement of pre-existing relationships. Such amounts are generally
recognised in profit or loss.
Transaction costs, other than those associated with the issue of debt or
equity securities that the Group incurs in connection with a business
combination, are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the
acquisition date. If an obligation to pay contingent consideration that
meets the definition of a financial instrument is classified as equity, then
it is not remeasured and settlement is accounted for within equity.
Otherwise, other contingent consideration is remeasured at fair value at
each reporting date and subsequent changes in the fair value of the
contingent consideration are recognised in profit or loss.
When the acquisition of subsidiaries does not represent a business, it is
accounted for as an acquisition of a group of assets and liabilities. The
cost of the acquisition is allocated to the assets and liabilities acquired
based on their relative fair values, and no goodwill or deferred tax is
recognised.
(ii) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an
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entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity. The financial statements of subsidiaries
are included in the consolidated financial statements from the date that
control commences until the date that control ceases. The accounting
policies of subsidiaries have been changed when necessary to align them with
the policies adopted by the Group. Losses applicable to the non-controlling
interests in a subsidiary are allocated to the non-controlling interests
even if doing so causes the non-controlling interests to have a deficit
balance.
Consolidated entities as at 31 December are as follows:
Name Country Cost % of ownership
of
incorpo
ration
2018 2017 2018 2017
(in thousands
of USD,
except for %
of ownership)
Praxifin Cyprus 3 3 100.00% 100.00%
Holdings
Limited
U.A. Terra Cyprus 3 3 100.00% 100.00%
Property
Management
Limited
Museo Cyprus 3 3 100.00% 100.00%
Holdings
Limited
Sunloop Co Cyprus 3 3 100.00% 100.00%
Limited
Lacecap Isle of 3 3 100.00% 100.00%
Limited Man
Beta Property Cyprus 3 3 100.00% 100.00%
Management
Limited
Voyazh-Krym Ukraine 363 363 100.00% 100.00%
LLC
PrJSC Ukraine 69 69 100.00% 100.00%
Livoberezhzhi
ainvest
PrJSC Ukraine 69 69 100.00% 100.00%
Grandinvest
Arricano Ukraine 5 5 100.00% 100.00%
Property
Management
LLC
PrJSC Ukraine 59 59 100.00% 100.00%
Ukrpangroup
Prisma Alfa Ukraine 4 4 100.00% 100.00%
LLC
Arricano Ukraine 9 9 100.00% 100.00%
Development
LLC
Prisma Ukraine 4 4 100.00% 100.00%
Development
LLC
Arricano Real Ukraine - - 100.00% 100.00%
Estate LLC
Twible Cyprus - - 100.00% 100.00%
Holdings
Limited
Gelida Cyprus - - 100.00% 100.00%
Holding
Limited
Sapete Cyprus - - 100.00% 100.00%
Holdings
Limited
Wayfield Cyprus - - 100.00% 100.00%
Limited
Comfort Ukraine 40,666 40,666 100.00% 100.00%
Market Luks
LLC
Mezokred Ukraine 8,109 8,109 100.00% 100.00%
Holding LLC
Vektor Ukraine 11,441 11,441 100.00% 100.00%
Capital LLC
Budkhol LLC Ukraine 31,300 31,300 100.00% 100.00%
Budkholinvest Ukraine - - 100.00% 100.00%
LLC
Green City Russian - - 100.00% 100.00%
LLC Federat
ion
RRE Estonia - - 100.00% 100.00%
Development
Services OU
Coppersnow British - - 100.00% 100.00%
Limited Virgin
Islands
On 31 July 2017, the Parent Company established Coppersnow Limited, a
company incorporated in British Virgin Islands for the purpose of
facilitating management activities.
(iii) Interests in equity-accounted investees
The Group's interests in equity-accounted investees comprise interests in
associates.
Associates are those entities in which the Group has significant influence,
but not control or joint control, over the financial and operating policies.
Significant influence is presumed to exist when the Group holds between 20%
and 50% of the voting power of another entity.
Interest in associates is accounted for using the equity method and is
recognised initially at cost. The cost of the investment includes
transaction costs.
The consolidated financial statements include the Group's share of the
profit or loss and other comprehensive income of equity accounted investees
from the date that significant influence commences until the date that
significant influence ceases.
When the Group's share of losses exceeds its interest in an equity-accounted
investee, the carrying amount of that interest including any long-term
investments, is reduced to zero, and the recognition of further losses is
discontinued, except to the extent that the Group has an obligation or has
made payments on behalf of the investee.
The listing of associates as at 31 December is as follows:
Name Country of % of ownership
incorporation
2018 2017
Filgate Credit Cyprus 49.00% 49.00%
Enterprises
Limited
On 14 December 2016, the Parent Company acquired a non-controlling interest
(49% of corporate rights) of Filgate Credit Enterprises Limited from Weather
Empire, the company under common control incorporated in Cyprus, in exchange
for loan receivable from Weather Empire Limited as an additional instrument
in legal proceedings regarding gaining control over the Sky Mall. As part of
the above acquisition, the rights to receive certain loans payable by
Filgate Credit Enterprises Limited to entities under common control in
amount of USD 215,891 thousand were reassigned to the Group for a nominal
amount of USD 1. The fair value of these loans receivable is considered to
be nil at the date of reassignment.
In addition, a call share option agreement was concluded granting an option
to the Parent Company to purchase the remaining 51% of the corporate rights
of Filgate Credit Enterprises Limited within 5 years from the effective
date. Exercise of the call option depends on certain criteria and occurrence
of certain condition, and, as at the date of these consolidated financial
statements are authorised for issuance, the call option had not been
exercised by the Group. Thus, the rights under the call option agreement
were not taken into consideration upon recognition of investment in Filgate
Credit Enterprises Limited and determination of the investment's
classification.
(iv) Transactions with entities under common control
Acquisitions from entities under common control
Business combinations arising from transfers of interests in entities that
are under the control of the shareholder that controls the Group are
accounted for using book value accounting. Any result from the acquisition
is recognised directly in equity.
Disposals to entities under common control
Disposals of interests in subsidiaries to entities that are under the
control of the shareholder that controls the Group are accounted for using
book value accounting. Any result from the disposal is recognised directly
in equity.
(v) Loss of control
Upon the loss of control, the Group derecognises the carrying amounts of the
assets and liabilities of the subsidiary, any non-controlling interests and
the other components of equity related to the subsidiary. Any surplus or
deficit arising on the loss of control is recognised in profit or loss. If
the Group retains any interest in the previous subsidiary, then such
interest is measured at fair value at the date that control is lost.
Subsequently it is accounted for as an equity-accounted investee or as
measured at FVOCI (2017: an available-for-sale) financial asset depending on
the level of influence retained.
(vi) Transactions eliminated on consolidation
Intra-group balances, and any unrealised income and expenses arising from
intra-group transactions, are eliminated in preparing these consolidated
financial statements. Unrealised gains arising from transactions with equity
accounted investees are eliminated against the investment to the extent of
the Group's interest in the investee. Unrealised losses are eliminated in
the same way as unrealised gains, but only to the extent that there is no
evidence of impairment.
(b) Foreign currency transactions and operations
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective
functional currencies of Group entities at exchange rates at the dates of
the transactions. Monetary assets and liabilities denominated in foreign
currencies at the reporting date are retranslated to the functional currency
at the exchange rates as at that date. The foreign currency gain or loss on
monetary items is the difference between amortised cost in the functional
currency at the beginning of the period, adjusted for effective interest and
payments during the period, and the amortised cost in foreign currency
translated at the exchange rate at the end of the reporting period.
Non-monetary assets and liabilities that are measured at fair value in a
foreign currency are translated to the functional currency at the exchange
rate at the date that the fair value was determined. Non-monetary items in a
foreign currency that are measured based on historical cost are translated
using the exchange rate at the date of the transaction.
Foreign currency transactions of Group entities located in Ukraine
In preparation of these consolidated financial statements for the
retranslation of the operations and balances of Group entities located in
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Ukraine denominated in foreign currencies, management applied the National
Bank of Ukraine's (NBU) official rates. Management believes that application
of these rates substantially serves comparability purposes.
(ii) Foreign operations
The assets and liabilities of foreign operations, including goodwill and
fair value adjustments arising on acquisition, are translated to USD at
exchange rates at the reporting date. The income and expenses of foreign
operations are translated to USD at exchange rates at the dates of the
transactions.
Foreign currency differences are recognised in other comprehensive income,
and presented in the foreign currency translation reserve in equity.
However, if the operation is a non-wholly-owned subsidiary, then the
relevant proportionate share of the translation difference is allocated to
the non-controlling interests. When a foreign operation is disposed of, such
that control, significant influence or joint control is lost, the cumulative
amount in the translation reserve related to that foreign operation is
reclassified to profit or loss as part of the gain or loss on disposal. When
the Group disposes of only part of its interest in a subsidiary that
includes a foreign operation while retaining control, the relevant
proportion of the cumulative amount is reattributed to non-controlling
interests. When the Group disposes of only part of its investment in an
associate or joint venture that includes a foreign operation while retaining
significant influence or joint control, the relevant proportion of the
cumulative amount is reclassified to profit or loss.
When the settlement of a monetary item receivable from or payable to a
foreign operation is neither planned nor likely in the foreseeable future,
foreign exchange gains and losses arising from such a monetary item are
considered to form part of a net investment in a foreign operation and are
recognised in other comprehensive income, and presented in the foreign
currency translation difference reserve in equity.
(c) Financial instruments
The Group has initially applied IFRS 9 from 1 January 2018.
IFRS 9 sets out requirements for recognising and measuring financial assets,
financial liabilities and some contracts to buy or sell non-financial items.
This standard replaces IAS 39 Financial Instruments: Recognition and
Measurement.
Additionally, the Group has adopted consequential amendments to IFRS 7
Financial Instruments: Disclosures that are applied to disclosures about
2018 but have not been generally applied to comparative information.
Adoption of this standard did not have significant impact on the Group's
consolidated financial statements.
The following table below explains the original measurement categories under
IAS 39 and the new measurement categories under IFRS 9 for each class of the
Group's financial assets and financial liabilities as at 1 January 2018.
(in Original New Original New
thousands classifi classific carrying carrying
of USD) cation ation amount under amount
under IAS 39 under
IAS 39 IFRS 9
under
IFRS 9
Financial
assets
Trade and Loans Amortised 2,364 2,364
other and cost
receivab
les
receivables
Loans Loans Amortised 296 296
receivable and cost
receivab
les
Cash and Loans Amortised 2,609 2,609
cash and cost
equivalents receivab
les
Total 5,269 5,2
financial 69
assets
(in Original New Original New
thousands classifi classific carrying carrying
of USD) cation ation amount under amount
under IAS 39 under
IAS 39 IFRS 9
under
IFRS 9
Financial
assets
Loans and Other Other 98,656 98,656
borrowings financia financial
l liabiliti
liabilit es
ies
Finance Other Other 7,039 7,039
lease financia financial
liability l liabiliti
liabilit es
ies
Other Other Other 26,358 26,358
liabilities financia financial
l liabiliti
liabilit es
ies
Trade and Other Other 35,143 35,143
other financia financial
payables l liabiliti
liabilit es
ies
Total 167,196 167
financial ,19
liabilities 6
Adoption of IFRS 9 had no effect on the carrying amount of financial assets
and financial liabilities.
Transition
The Group has used an exemption not to restate comparative information for
prior periods with respect to classification and measurement (including
impairment) requirements. Therefore, comparative periods have not been
restated. No differences in the carrying amounts of financial assets and
financial liabilities resulting from the adoption of IFRS 9 (including
impairment) were recognised. Respectively, there is no impact on the Group's
basic and diluted earnings per share for the years ended 31 December 2018
and 2017. Accordingly, the information presented for 2017 generally reflects
the requirements of IFRS 9 and IAS 39. Additional information about how the
Group measures the allowance for impairment is described in
Note 3(j).
The determination of the business model within which a financial asset is
held has been made on the basis of the facts and circumstances that existed
at the date of initial application.
Policy applicable after 1 January 2018
(i) Recognition and initial measurement
Trade receivables are initially recognised when they are originated.
All other financial assets and financial liabilities are initially
recognised when the Group becomes a party to the contractual provisions of
the instrument. A financial asset (unless it is a trade receivable without a
significant financing component) or financial liability is initially
measured at fair value plus, for an item not at FVTPL, transaction costs
that are directly attributable to its acquisition or issue. A trade
receivable without a significant financing component is initially measured
at the transaction price.
(ii) Derecognition
The Group derecognises a financial asset when the contractual rights to the
cash flows from the financial asset expire, or it transfers the rights to
receive the contractual cash flows in a transaction in which substantially
all of the risks and rewards of ownership of the financial asset are
transferred or in which the Group neither transfers nor retains
substantially all of the risks and rewards of ownership and it does not
retain control of the financial asset.
The Group derecognises a financial liability when its contractual
obligations are discharged or cancelled, or expire. The Group also
derecognises a financial liability when its terms are modified and the cash
flows of the modified liability are substantially different, in which case a
new financial liability based on the modified terms is recognised at fair
value.
On derecognition of a financial liability, the difference between the
carrying amount extinguished and the consideration paid (including any
non-cash assets transferred or liabilities assumed) is recognised in profit
or loss.
(iii) Classification and subsequent measurement of financial assets
On initial recognition, a financial asset is classified as measured at:
amortised cost; FVOCI - debt investment; FVOCI - equity investment; or
FVTPL.
Financial assets are not reclassified subsequent to their initial
recognition unless the Group changes its business model for managing
financial assets, in which case all affected financial assets are
reclassified on the first day of the first reporting period following the
change in the business model.
A financial asset is measured at amortised cost if it meets both of the
following conditions and is not designated as at FVTPL:
· it is held within a business model whose objective is to hold assets to
collect contractual cash flows; and
· its contractual terms give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount
outstanding.
A debt investment is measured at FVOCI if it meets both of the following
conditions and is not designated as at FVTPL:
· it is held within a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets; and
· its contractual terms give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount
outstanding.
On initial recognition of an equity investment that is not held for trading,
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the Group may irrevocably elect to present subsequent changes in the
investment's fair value in OCI. This election is made on an
investment-by-investment basis.
The Group's financial assets comprise trade and other receivables, loans
receivable and cash and cash equivalents and are classified into the
financial assets at amortised cost category.
These assets are subsequently measured at amortised cost using the effective
interest method. The amortised cost is reduced by impairment losses.
Interest income, foreign exchange gains and losses and impairment are
recognised in profit or loss. Any gain or loss on derecognition is
recognised in profit or loss.
Cash and cash equivalents comprise cash balances on the current accounts and
call deposits.
(iv) Financial assets - Business model assessment
The Group makes an assessment of the objective of the business model in
which a financial asset is held at a portfolio level because this best
reflects the way the business is managed and information is provided to
management. The information considered includes:
· the stated policies and objectives for the portfolio and the operation
of those policies in practice. These include whether management's strategy
focuses on earning contractual interest income, maintaining a particular
interest rate profile, matching the duration of the financial assets to
the duration of any related liabilities or expected cash outflows or
realising cash flows through the sale of the assets;
· how the performance of the portfolio is evaluated and reported to the
Group's management;
· the risks that affect the performance of the business model (and the
financial assets held within that business model) and how those risks are
managed;
· how managers of the business are compensated - e.g. whether compensation
is based on the fair value of the assets managed or the contractual cash
flows collected; and
· the frequency, volume and timing of sales of financial assets in prior
periods, the reasons for such sales and expectations about future sales
activity.
Transfers of financial assets to third parties in transactions that do not
qualify for derecognition are not considered sales for this purpose,
consistent with the Group's continuing recognition of the assets.
Financial assets that are held for trading or are managed and whose
performance is evaluated on a fair value basis are measured at FVTPL.
(v) Financial assets - Assessment whether contractual cash flows are solely
payments of principal and interest
For the purposes of this assessment, 'principal' is defined as the fair
value of the financial asset on initial recognition. 'Interest' is defined
as consideration for the time value of money and for the credit risk
associated with the principal amount outstanding during a particular period
of time and for other basic lending risks and costs (e.g. liquidity risk and
administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of
principal and interest, the Group considers the contractual terms of the
instrument. This includes assessing whether the financial asset contains a
contractual term that could change the timing or amount of contractual cash
flows such that it would not meet this condition. In making this assessment,
the Group considers:
· contingent events that would change the amount or timing of cash flows;
· terms that may adjust the contractual coupon rate, including
variable-rate features;
· prepayment and extension features; and
· terms that limit the Group's claim to cash flows from specified assets
(e.g. non-recourse features).
A prepayment feature is consistent with the solely payments of principal and
interest criterion if the prepayment amount substantially represents unpaid
amounts of principal and interest on the principal amount outstanding, which
may include reasonable additional compensation for early termination of the
contract. Additionally, for a financial asset acquired at a discount or
premium to its contractual par amount, a feature that permits or requires
prepayment at an amount that substantially represents the contractual par
amount plus accrued (but unpaid) contractual interest (which may also
include reasonable additional compensation for early termination) is treated
as consistent with this criterion if the fair value of the prepayment
feature is insignificant at initial recognition.
(vi) Classification and subsequent measurement of financial liabilities
Financial liabilities are classified as measured at amortised cost or FVTPL.
A financial liability is classified as at FVTPL if it meets the definition
of held-for-trading or it is designated as such on initial recognition.
Financial liabilities at FVTPL are measured at fair value and net gains and
losses, including any interest expense, are recognised in profit or loss
(except for the part of the fair value change that is due to changes in the
Group's own credit risk, that is recognised in other comprehensive income).
Other financial liabilities are subsequently measured at amortised cost
using the effective interest method. Interest expense and foreign exchange
gains and losses are recognised in profit or loss. Any gain or loss on
derecognition is also recognised in profit or loss.
The Group measures all of its financial liabilities at amortised cost.
(vii) Offsetting
Financial assets and liabilities are offset and the net amount presented in
the statements of financial position when, and only when, the Group
currently has a legally enforceable right to set off and intends either to
settle on a net basis or to realise the asset and settle the liability
simultaneously. The Group currently has a legally enforceable right to set
off if that right is not contingent on a future event and enforceable both
in the normal course of business and in the event of default, insolvency or
bankruptcy of the Group and all counterparties.
Policy applicable before 1 January 2018
The Group classified its non-derivative financial assets as loans and
receivables and available-for-sale financial assets.
The Group classified non-derivative financial liabilities into the other
financial liabilities category.
(i) Non-derivative financial assets and financial liabilities - recognition
and derecognition
The Group initially recognised loans and receivables on the date that they
are originated. All other financial assets and financial liabilities were
recognised initially on the trade date at which the Group became a party to
the contractual provisions of the instrument. The Group derecognised a
financial asset when the contractual rights to the cash flows from the asset
expired, or it transferred the rights to receive the contractual cash flows
on the financial asset in a transaction in which substantially all the risks
and rewards of ownership of the financial asset were transferred. Any
interest in transferred financial assets that was created or retained by the
Group was recognised as a separate asset or liability.
(ii) Derecognition
The Group derecognised a financial liability when its contractual
obligations were discharged or cancelled or expired. Financial assets and
liabilities were offset and the net amount was presented in the consolidated
statement of financial position when, and only when, the Group had a legally
enforceable right to set off the recognised amounts and intended either to
settle on a net basis or to realise the asset and settle the liability
simultaneously. The Group had a legally enforceable right to set off if that
right is not contingent on a future event and enforceable both in the normal
course of business and in the event of default, insolvency or bankruptcy of
the Group and all counterparties.
(iii) Non-derivative financial assets - measurement
Loans and receivables
Loans and receivables were a category of financial assets with fixed or
determinable payments that were not quoted in an active market. Such assets
were recognised initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, loans and receivables
were measured at amortised cost using the effective interest method, less
any impairment losses. Loans and receivables comprised the following classes
of financial assets: trade and other receivables, loans receivable and cash
and cash equivalents.
Cash and cash equivalents
Cash and cash equivalents comprised cash balances, call deposits and highly
liquid investments with maturities of three months or less from the
acquisition date that were subject to insignificant risk of changes in their
fair value.
(iv) Non-derivative financial liabilities - measurement
The Group classified non-derivative financial liabilities into the other
financial liabilities category. Such financial liabilities were recognised
initially at fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities were measured
at amortised cost using the effective interest method.
Other financial liabilities comprised loans and borrowings, finance lease
liability, trade and other payables and other liabilities.
(d) Capital and reserves
Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to issue of ordinary shares are recognised as a deduction from
equity, net of any tax effects.
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Share premium
Share premium reserves include amounts that were created due to the issue of
share capital at a value price greater than the nominal.
Non-reciprocal shareholders contribution
Non-reciprocal shareholders contribution reserve includes contributions made
by the shareholders directly in the reserves. The shareholders do not have
any rights to these contributions which are distributable at the discretion
of the Board of Directors, subject to the shareholders' approval.
Retained earnings
Retained earnings include accumulated profits and losses incurred by the
Group.
Other reserves
Other reserves comprise the effect of acquisition and disposal of
subsidiaries under common control, change in non-controlling interest in
these subsidiaries and the effect of forfeiture of shares.
Foreign currency translation differences
Foreign currency translation differences comprise foreign currency
differences arising from the translation of the financial statements of
foreign operations and foreign exchange gains and losses from monetary items
that form part of the net investment in the foreign operation.
(e) Investment properties
Investment properties are those that are held either to earn rental income
or for capital appreciation or for both, but not for sale in the ordinary
course of business, use in production or supply of goods or services or for
administrative purposes.
Investment properties principally comprise freehold land, leasehold land and
investment properties held for rental income earning or future
redevelopment.
Leasehold of land under operating lease is classified and accounted for as
an investment property when the definition of investment property is met.
Under investment property accounting, the right to use the land is measured
at fair value and the obligation to pay rentals is accounted for as a
finance lease.
(i) Initial measurement and recognition
Investment properties are measured initially at cost, including related
acquisition costs. Cost includes expenditure that is directly attributable
to the acquisition of the investment property. The cost of self-constructed
investment property includes the cost of materials and direct labour, any
other costs directly attributable to bringing the investment property to a
working condition for their intended use and capitalised borrowing costs.
If the Group uses part of the property for its own use, and part to earn
rentals or for capital appreciation, and the portions can be sold or leased
out separately, they are accounted for separately. Therefore the part that
is rented out is investment property. If the portions cannot be sold or
leased out separately, the property is investment property only if the
company-occupied portion is insignificant.
(ii) Subsequent measurement
Subsequent to initial recognition investment properties are stated at fair
value. Any gain or loss arising from a change in fair value is included in
profit or loss in the period in which it arises.
When the Group begins to redevelop an existing investment property for
continued future use as investment property, the property remains an
investment property, which is measured at fair value, and is not
reclassified to property and equipment during the redevelopment.
When the use of a property changes such that it is reclassified as property,
plant and equipment, its fair value at the date of reclassification becomes
its cost for subsequent accounting.
Investment properties are derecognised on disposal or when they are
permanently withdrawn from use and no future economic benefits are expected
from their disposal. The gain or loss on disposal is calculated as the
difference between the net disposal proceeds and the carrying amount of the
asset and is recognised as gain or loss in profit or loss.
It is the Group's policy that an external, independent valuation company,
having an appropriate recognised professional qualification and recent
experience in the location and category of property being appraised, values
the portfolio as at each reporting date. The fair value is the amount for
which a property could be exchanged on the date of valuation between a
willing buyer and a willing seller in an arm's length transaction. The
valuation is prepared in accordance with International Valuation Standards
published by the International Valuation Standards Council.
(iii) Property under development (construction)
Property that is being constructed or developed for future use as an
investment property and for which it is not possible to reliably determine
fair value is accounted for as an investment property that is stated at cost
until construction or development is complete, or until it becomes possible
to reliably determine its fair value. When construction is performed on land
previously classified as an investment property and measured at fair value,
such land continues to be accounted at fair value throughout the
construction phase.
(f) Property and equipment
(i) Recognition and measurement
Items of property and equipment are measured at cost less accumulated
depreciation and impairment losses.
Cost includes expenditures that are directly attributable to the acquisition
of the asset. The cost of self-constructed assets includes the cost of
materials and direct labor, any other costs directly attributable to
bringing the asset to a working condition for its intended use, and the
costs of dismantling and removing the items and restoring the site on which
they are located. Purchased software that is integral to the functionality
of the related equipment is capitalised as part of that equipment.
When parts of an item of property and equipment have different useful lives,
they are accounted for as separate items (major components) of property and
equipment.
The gain or loss on disposal of an item of property and equipment is
determined by comparing the proceeds from disposal with the carrying amount
of property and equipment, and is recognised net within other income/other
operating expenses in profit or loss.
(ii) Reclassification to investment property
When the use of a property changes from owner-occupied to investment
property, the property is re-measured to fair value and reclassified to
investment property. Any gain arising on re-measurement is recognised in
profit or loss to the extent that it reverses a previous impairment loss on
the specific property, with any remaining gain recognised in other
comprehensive income and presented in the revaluation reserve in equity. Any
loss is recognised immediately in profit or loss.
(iii) Subsequent costs
The cost of replacing part of an item of property and equipment is
recognised in the carrying amount of the item if it is probable that the
future economic benefits embodied within the part will flow to the Group and
its cost can be measured reliably. The costs of the day-to-day servicing of
property and equipment are recognised in profit or loss as incurred.
(iv) Depreciation
Items of property and equipment are depreciated from the date that they are
installed and are ready for use, or in respect of internally constructed
assets, from the date that the asset is completed and ready for use.
Depreciation is based on the cost of an asset less its residual value.
Depreciation is recognised in profit or loss on a straight-line basis over
the estimated useful lives of each part of an item of property and
equipment. Leased assets are depreciated over the shorter of the lease term
and their useful lives unless it is reasonably certain that the Group will
obtain ownership by the end of the lease term. Land is not depreciated.
The estimated useful lives for the current and comparative periods are as
follows:
· vehicles and equipment 5 years
· fixture and fittings 2.5 - 5 years
Depreciation methods, useful lives and residual values are reviewed at each
financial year end and adjusted if appropriate.
(g) Intangible assets
(i) Recognition and measurement
Intangible assets that are acquired by the Group, which have finite useful
lives, are measured at cost less accumulated amortisation and accumulated
impairment losses.
(ii) Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future
economic benefits embodied in the specific asset to which it relates. All
other expenditure, including expenditure on internally generated goodwill
and brands, is recognised in profit or loss as incurred.
(iii) Amortisation
Amortisation is calculated over the cost of the asset, or other amount
substituted for cost, less its residual value.
Amortisation is recognised in profit or loss on a straight-line basis over
the estimated useful lives of intangible assets, other than goodwill, from
the date that they are available for use since this most closely reflects
the expected pattern of consumption of future economic benefits embodied in
the asset. The estimated useful lives for the current and comparative
periods are as follows:
· software 3-5 years
Amortisation methods, useful lives and residual values are reviewed at each
financial year end and adjusted if appropriate.
(h) Inventories
Inventories are measured at the lower of cost and net realisable value. The
cost of inventories is based on the first-in first-out principle, and
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includes expenditure incurred in acquiring the inventories and bringing them
to their existing location and condition.
Net realisable value is the estimated selling price in the ordinary course
of business, less the estimated costs of completion and selling expenses.
(i) Assets classified as held for sale
Non-current assets, or disposal groups comprising assets and liabilities,
that are expected to be recovered primarily through sale rather than through
continuing use, are classified as held for sale.
Such assets, or disposal group, are measured at the lower of their carrying
amount and fair value less cost to sell. Any impairment loss on a disposal
group is allocated first to goodwill, and then to the remaining assets and
liabilities on pro rata basis, except that no loss is allocated to
inventories, financial assets, deferred tax assets or investment property,
which continue to be measured in accordance with the Group's other
accounting policies. Impairment losses on initial classification as held for
sale and subsequent gains or losses on remeasurement are recognised in
profit or loss. Gains are not recognised in excess of any cumulative
impairment loss.
Intangible assets and property and equipment once classified as held for
sale are not amortised or depreciated.
(j) Impairment
(i) Impairment - financial assets
Policy applicable from 1 January 2018
The Group uses 'expected credit loss' (ECL) model. This impairment model
applies to financial assets measured at amortised cost, contract assets, but
not to investments in equity instruments.
The financial assets at amortised cost consist of trade and other
receivables, cash and cash equivalents and loans receivable.
Loss allowances are measured on either of the following bases:
· 12-month ECLs: these are ECLs that result from possible default events
within the 12 months after the reporting date; and
· lifetime ECLs: these are ECLs that result from all possible default
events over the expected life of a financial instrument.
The Group measures loss allowances at an amount equal to lifetime ECLs,
except for bank balances for which credit risk (i.e. the risk of default
occurring over the expected life of the financial instrument) has not
increased significantly since initial recognition, for which loss allowances
are measured as
12-month ECLs.
When determining whether the credit risk of a financial asset has increased
significantly since initial recognition and when estimating ECLs, the Group
considers reasonable and supportable information that is relevant and
available without undue cost or effort. This includes both quantitative and
qualitative information and analysis, based on the Group's historical
experience and informed credit assessment.
The Group assumes that the credit risk on a financial asset has increased
significantly if it is more than 30 days past due.
The Group considers a financial asset to be in default when:
· the borrower is unlikely to pay its credit obligations to the Group in
full, without recourse by the Group to actions such as realising security
(if any is held); or
· the financial asset is more than 90 days past due.
The maximum period considered when estimating ECLs is the maximum
contractual period over which the Group is exposed to credit risk.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are
measured as the present value of all cash shortfalls (i.e. the difference
between the cash flows due to the entity in accordance with the contract and
the cash flows that the Group expects to receive).
ECLs are discounted at the effective interest rate of the financial asset.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried
at amortised cost are credit-impaired. A financial asset is
'credit-impaired' when one or more events that have a detrimental impact on
the estimated future cash flows of the financial asset have occurred.
Presentation of allowance for ECL
Loss allowances for financial assets measured at amortised cost are deducted
from the gross carrying amount of the assets.
Impairment losses related to trade and other receivables are presented under
'operating expenses' and impairment losses on other financial assets are
presented under 'finance costs', similar to the presentation under IAS 39,
and not presented separately in the consolidated interim condensed statement
of profit or loss and other comprehensive income due to materiality
considerations.
As at 1 January 2018, there was no change in the allowance for impairment
for the Group's financial assets due to implementation of IFRS 9.
(ii) Non-financial assets
The carrying amounts of non-financial assets, other than investment
property, deferred tax assets and inventory are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such
indication exists then the asset's recoverable amount is estimated. For
goodwill and intangible assets that have indefinite lives or that are not
yet available for use, the recoverable amount is estimated each year at the
same time.
For the purpose of impairment testing, assets that cannot be tested
individually are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of
the cash inflows of other assets or cash-generating unit (CGU). Subject to
an operating segment ceiling test, for the purposes of goodwill impairment
testing, CGUs to which goodwill has been allocated are aggregated so that
the level at which impairment testing is performed reflects the lowest level
at which goodwill is monitored for internal reporting purposes. Goodwill
acquired in a business combination is allocated to groups of CGUs that are
expected to benefit from the synergies of the combination.
The Group's corporate assets do not generate separate cash inflows and are
utilised by more than one CGU. Corporate assets are allocated to CGUs on a
reasonable and consistent basis and tested for impairment as part of the
testing of the CGU to which the corporate asset is allocated.
The recoverable amount of an asset or CGU is the greater of its value in use
and its fair value less costs to sell. In assessing value in use, the
estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or its
CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in profit or loss. Impairment losses
recognised in respect of CGUs are allocated first to reduce the carrying
amount of any goodwill allocated to the CGU (group of CGUs) and then to
reduce the carrying amount of the other assets in the CGU (group of CGUs) on
a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of
other assets, impairment losses recognised in prior periods are assessed at
each reporting date for any indications that the loss has decreased or no
longer exists. An impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable amount. An impairment loss
is reversed only to the extent that the asset's carrying amount does not
exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised.
Policy applicable before 1 January 2018
Non-derivative financial assets
A financial asset not carried at fair value through profit or loss was
assessed at each reporting date to determine whether there is any objective
evidence that it is impaired. A financial asset was impaired if objective
evidence indicates that a loss event has occurred after the initial
recognition of the asset, and that the loss event had a negative effect on
the estimated future cash flows of that asset that can be estimated
reliably.
Objective evidence that financial assets were impaired included default or
delinquency by a debtor, restructuring of an amount due to the Group on
terms that the Group would not consider otherwise, indications that a debtor
or issuer will enter bankruptcy, adverse changes in the payment status of
borrowers or issuers in the Group, economic conditions that correlate with
defaults, the disappearance of an active market for a security or observable
data indicating that there is measurable decrease in expected cash flows
from a group of financial assets. In addition, for an investment in an
equity security, a significant or prolonged decline in its fair value below
its cost was objective evidence of impairment.
Financial assets measured at amortised cost
The Group considered evidence of impairment for financial assets measured at
amortised cost at both a specific asset and collective level. All
individually significant assets were individually assessed for impairment.
Those found not to be impaired were then collectively assessed for any
impairment that had been incurred but not yet identified. Assets that were
not individually significant were collectively assessed for impairment by
grouping together assets with similar risk characteristics.
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In assessing collective impairment the Group used historical trends of the
probability of default, timing of recoveries and the amount of loss
incurred, adjusted for management's judgement as to whether current economic
and credit conditions were such that the actual losses were likely to be
greater or less than suggested by historical trends.
An impairment loss was calculated as the difference between an asset's
carrying amount, and the present value of the estimated future cash flows
discounted at the asset's original effective interest rate. Losses were
recognised in profit or loss and reflected in an allowance account. When the
Group considered that there were no realistic prospects of recovery of the
asset, the relevant amounts were written off. Interest on the impaired asset
continued to be recognised through the unwinding of the discount. When a
subsequent event caused the amount of impairment loss to decrease and the
decrease could be related objectively to an event occurring after the
impairment was recognised, the decrease in impairment loss was reversed
through profit or loss.
Available-for-sale financial assets
Impairment losses on available-for-sale financial assets were recognised by
reclassifying the losses accumulated in the fair value reserve in equity, to
profit or loss. The cumulative loss that was reclassified from equity to
profit or loss was the difference between the acquisition cost, net of any
principal repayment and amortisation, and the current fair value, less any
impairment loss previously recognised in profit or loss. Changes in
impairment provisions attributable to application of the effective interest
method were reflected as a component of interest income. If, in a subsequent
period, the fair value of an impaired available-for-sale debt security
increased and the increase could be related objectively to an event
occurring after the impairment loss was recognised in profit or loss, then
the impairment loss was reversed, with the amount of the reversal recognised
in profit or loss. However, any subsequent recovery in the fair value of an
impaired available-for-sale equity security was recognised in other
comprehensive income.
(k) Provisions
A provision is recognised if, as a result of a past event, the Group has a
present legal or constructive obligation that can be estimated reliably, and
it is probable that an outflow of economic benefits will be required to
settle the obligation. Provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the liability. The
unwinding of the discount is recognised as finance cost.
(l) Revenue
The Group has initially applied IFRS 15 from 1 January 2018. Due to the
transition method chosen by the Group in applying this standard, comparative
information throughout these consolidated financial statements has not been
restated to reflect the requirements of the new standard.
IFRS 15 establishes a comprehensive framework for determining whether, how
much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11
Construction Contracts and related interpretations.
Revenue of the Group is mainly represented by rental income recognised in
accordance with
IAS 17 Leases.
For revenue from services in respect of exploitation of common parts and
other services the Group has adopted IFRS 15 Revenue from Contracts with
Customers using the cumulative effect method (without practical expedients).
As there were no differences in the amounts of revenue resulting from the
adoption of IFRS 15 as at 1 January 2018, the information presented for 2017
generally reflects the requirements of IFRS 15.
The details of the new significant accounting policies and the nature of the
changes to previous accounting policies in relation to the Group's services
are set out below.
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.
Type of service Nature, timing of Policy applicable
satisfaction of from and before
performance 1 January 2018
obligations,
significant payment
terms
Common parts Common parts Revenue is
exploitation services exploitation recognised in profit
services represent or loss over time in
reimbursement by the period when the
tenants of expenses services are
on maintenance of provided, recovery
common parts in of consideration is
shopping centres probable and when
(e.g. utilities, the amount of
cleaning, insurance, revenue can be
repairs, parking). measured reliably.
Revenue is
recognised over time
as those services
are provided. As the
Group has a right to
consideration from a
customer in an
amount that
corresponds directly
with the value to
the customer of the
Group's services
provided to date,
the Group uses
practical expedient
available in IFRS 15
and recognises
revenue in the
amount to which the
Group has a right to
invoice. Invoices
for revenue from
common parts
exploitation
services are issued
on a monthly basis
and are usually
payable within 5-15
days.
Under IFRS 15, the
total consideration
in the service
contracts that are
partially within the
scope of this
Standard and
partially within the
scope of IAS 17
Leases is allocated
to all services
based on their
stand-alone selling
prices. The
stand-alone selling
price is determined
based on
contractually stated
price that is
defined separately
for each obligation
and reflects market
prices for the
similar services.
Marketing services Revenue is Revenue is
recognised over time recognised in profit
as those services or loss over time in
are provided.As the the period when the
Group has a right to services are
consideration from a provided, recovery
customer in an of consideration is
amount that probable and when
corresponds directly the amount of
with the value to revenue can be
the customer of the measured reliably.
Group's services
provided to date,
the Group uses
practical expedient
available in IFRS 15
and recognises
revenue in the
amount to which the
Group has a right to
invoice. Invoices
for marketing
services are issued
on a monthly basis
and are usually
payable within 5-15
days.
Under IFRS 15, the
total consideration
in the service
contracts is
allocated to all
services based on
their stand-alone
selling prices. The
stand-alone selling
price is determined
based on the list
prices at which the
Group sells the
services in separate
transactions.
(i) Rental income from investment property
Rental income from investment property is recognised in profit or loss on a
straight-line basis over the term of the lease.
(m) Leases
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(i) Determining whether an arrangement contains a lease
At inception of an arrangement, the Group determines whether such an
arrangement is or contains a lease. This will be the case if the fulfilment
of the arrangement is dependent on the use of a specific asset and the
arrangement conveys a right to use the asset.
At inception or upon reassessment of the arrangement, the Group separates
payments and other consideration required by such an arrangement into those
for the lease and those for other elements on the basis of their relative
fair values. If the Group concludes for a finance lease that it is
impracticable to separate the payments reliably, then an asset and a
liability are recognised at an amount equal to the fair value of the
underlying asset. Subsequently the liability is reduced as payments are made
and an imputed finance charge on the liability is recognised using the
Group's incremental borrowing rate.
(ii) Leased assets
Assets held by the Group under leases that transfer to the Group
substantially all the risks and rewards of ownership are classified as
finance leases. Upon initial recognition the leased asset is measured at an
amount equal to the lower of its fair value and the present value of the
minimum lease payments. Subsequent to initial recognition, the asset is
accounted for in accordance with the accounting policy applicable to that
asset.
Other leases are operating leases and the leased assets are not recognised
in the consolidated statement of financial position.
(iii) Lease payments
Payments made under operating leases are recognised in profit or loss on a
straight-line basis over the term of the lease. Lease incentives received
are recognised as an integral part of the total lease expense, over the term
of the lease.
Minimum lease payments made under finance leases are apportioned between the
finance cost and the reduction of the outstanding liability. The finance
cost is allocated to each period during the lease term so as to produce a
constant periodic rate of interest on the remaining balance of the
liability.
Contingent lease payments are accounted for by revising the minimum lease
payments over the remaining term of the lease when the contingency no longer
exists and the lease adjustment is known.
(n) Finance income and costs
Finance income comprises interest income on funds invested, foreign currency
gains, income from derecognition of finance lease liabilities and gains on
initial recognition of financial liabilities at fair value.
Finance costs comprise interest expense on borrowings and on deferred
consideration, foreign exchange losses, costs from recognition of finance
lease liabilities.
Interest income or expense is recognised using the effective interest
method.
Borrowing costs that are not directly attributable to the acquisition,
construction or production of a qualifying asset are recognised in profit or
loss using the effective interest method.
The 'effective interest rate' is the rate that exactly discounts estimated
future cash payments or receipts through the expected life of the financial
instrument to:
· the gross carrying amount of the financial asset; or
· the amortised cost of the financial liability.
In calculating interest income and expense, the effective interest rate is
applied to the gross carrying amount of the asset (when the asset is not
credit-impaired) or to the amortised cost of the liability. However, for
financial assets that have become credit-impaired subsequent to initial
recognition, interest income is calculated by applying the effective
interest rate to the amortised cost of the financial asset. If the asset is
no longer credit-impaired, then the calculation of interest income reverts
to the gross basis.
Foreign currency gains and losses arising on loans receivable and borrowings
are reported on a net basis as either finance income or finance cost.
(o) Income tax expense
Income tax expense comprises current and deferred tax. Current tax and
deferred tax are recognised in profit or loss except to the extent that it
relates to a business combination, or items recognised directly in equity or
in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income
or loss for the year, using tax rates enacted or substantively enacted at
the reporting date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is recognised in respect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. Deferred tax is not recognised
for:
· temporary differences on the initial recognition of assets or
liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit or loss;
· temporary differences related to investments in subsidiaries and jointly
controlled entities to the extent that it is probable that they will not
reverse in the foreseeable future; and
· taxable temporary differences arising on the initial recognition of
goodwill.
The measurement of deferred tax reflects the tax consequences that would
follow the manner in which the Group expects, at the end of the reporting
period, to recover or settle the carrying amount of its assets and
liabilities. For this purpose, the carrying amount of investment property
measured at fair value is presumed to be recovered through sale, and the
Group has not rebutted this presumption.
Deferred tax is measured at the tax rates that are expected to be applied to
the temporary differences when they reverse, based on the laws that have
been enacted or substantively enacted by the reporting date.
In determining the amount of current and deferred tax the Group takes into
account the impact of uncertain tax positions and whether additional taxes,
penalties and late-payment interest may be due. The Group believes that its
accruals for tax liabilities are adequate for all open tax years based on
its assessment of many factors, including interpretations of tax law and
prior experience. This assessment relies on estimates and assumptions and
may involve a series of judgments about future events. New information may
become available that causes the Group to change its judgment regarding the
adequacy of existing tax liabilities; such changes to tax liabilities will
impact the tax expense in the period that such a determination is made.
Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax assets and liabilities, and they
relate to income taxes levied by the same tax authority on the same taxable
entity, or on different tax entities, but they intend to settle current tax
liabilities and assets on a net basis or their tax assets and liabilities
will be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and
deductible temporary differences, to the extent that it is probable that
future taxable profits will be available against which they can be utilised.
Future taxable profits are determined based on the reversal of relevant
taxable temporary differences. If the amount of taxable temporary
differences is insufficient to recognise a deferred tax asset in full, then
future taxable profits, adjusted for reversals of existing temporary
differences, are considered, based on the business plans for individual
subsidiaries in the Group. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realised; such reductions are reversed
when the probability of future taxable profits improves.
(p) Earnings per share
The Group presents basic and diluted earnings per share ("EPS") data for its
ordinary shares. Basic EPS is calculated by dividing the profit attributable
to ordinary shareholders of the Company by the weighted average number of
ordinary shares outstanding during the period, adjusted for own shares held.
As at 31 December 2018 and 2017, there were no potential dilutive ordinary
shares.
(q) Segment reporting
An operating segment is a component of the Group that engages in business
activities from which it may earn revenues and incur expenses, including
revenues and expenses that relate to transactions with any of the Group's
other components. Management believes that during the current year and prior
year, the Group operated in and was managed as one operating segment, being
property investment, with investment properties located in Ukraine and the
Republic of Crimea.
The Board of Directors, which is considered to be the chief operating
decision maker of the Group for IFRS 8 Operating Segments purposes, receives
semi-annually management accounts that are prepared in accordance with IFRSs
as adopted by the EU and which present aggregated performance of all the
Group's investment properties.
(r) New standards and interpretations not yet adopted
A number of new Standards, amendments to Standards and Interpretations are
effective for annual periods beginning after 1 January 2019 and have not
been applied in preparing these consolidated financial statements. Of these
pronouncements, potentially the following will have an impact on the Group's
operations. The Group does not plan to adopt this standard early.
(i) IFRS 16
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IFRS 16 introduces a single, on-balance sheet lease accounting model for
lessees. A lessee recognises a right-of-use asset representing its right to
use the underlying asset and a lease liability representing its obligation
to make lease payments. There are optional exemptions for short-term leases
and leases of low value items. Lessor accounting remains similar to the
current standard - i.e. lessors continue to classify leases as finance or
operating leases.
IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4
Determining whether an Arrangement contains a Lease, SIC-15 Operating
Leases-Incentives and SIC-27 Evaluating the Substance of Transactions
Involving the Legal Form of a Lease.
The standard is effective for annual periods beginning on or after 1 January
2019. Early adoption is permitted for entities that apply IFRS 15 Revenue
from Contracts with Customers at or before the date of initial application
of IFRS 16.
Transition
The Group plans to apply IFRS 16 initially on 1 January 2019, using the
modified retrospective approach. Therefore, the cumulative effect of
adopting IFRS 16 will be recognised as an adjustment to the opening balance
of retained earnings at 1 January 2019, with no restatement of comparative
information.
The Group plans to apply the practical expedient to grandfather the
definition of a lease on transition. This means that it will apply IFRS 16
to all contracts entered into before 1 January 2019 and identified as leases
in accordance with IAS 17 and IFRIC 4.
The expected impact of implementation of IFRS 16 is considered to be not
significant.
(ii) Other standards and interpretations
The following amended standards and interpretations are not expected to have
a significant impact on the Group's consolidated financial statements.
· IFRIC 23 Uncertainty over Tax Treatments.
· Prepayment Features with Negative Compensation (Amendments to IFRS 9).
4 Investment property
*********************
(a) Movements in investment property
Movements in investment property for the years ended 31 December are as
follows:
Land Land Buildings Prepayment Property
held held for under
on on investment construc
freeho leaseh property tion
ld old
Total
(in
thousands
of USD)
At 1 5,800 43,054 116,700 20 10,089 175,663
January
2017
Additions - 396 - - 978 1,374
Disposals - - - (3) (634) (637)
Fair value 276 4,348 43,249 - - 47,873
gains on
revaluation
Currency 224 (1,251 (1,659) (1) (321) (3,008)
translation )
adjustment
At 31 6,300 46,547 158,290 16 10,112 221,265
December
2017/
1 January
2018
Additions - 142 - - 1,236 1,378
Fair value 911 (482) 41,820 - - 42,249
gains/(loss
es)
on
revaluation
Currency (911) 778 (6,320) 8 90 (6,355)
translation
adjustment
At 31 6,300 46,985 193,790 24 11,438 258,537
December
2018
During the year ended 31 December 2018, the acquisition of a land plot held
on leasehold of USD 142 thousand occurred through a finance lease (2017: USD
396 thousand) (refer to Note 12).
As at 31 December 2018, in connection with loans and borrowings, the Group
pledged as security investment property with a carrying value of USD 150,490
thousand (2017: USD 117,790 thousand)
(refer to Note 22 (a)).
During the year ended 31 December 2017, disposal of property under
construction is represented by reversal of capitalised charges in respect of
an agreement on customer share participation in the creation and development
of engineering, transport and social infrastructure of Odesa due to win of
the related court case.
During the year ended 31 December 2018, 75% of total construction services
were purchased from one counterparty (2017: 79%).
(b) Determination of fair value
The fair value measurement, developed for determination of fair value of the
Group's investment property, is categorised within Level 3 category due to
significance of unobservable inputs to the entire measurement, except for
certain land held on the leasehold which is not associated with completed
property and is therefore categorised within Level 2 category. As at 31
December 2018, the fair value of investment property categorised within the
Level 2 category is USD 29,300 thousand
(2017: USD 29,100 thousand). To assist with the estimation of the fair value
of the Group's investment property as at 31 December 2018, which is
represented by the shopping centres, management engaged registered
independent appraiser Expandia LLC, part of the CBRE Affiliate network,
having a recognised professional qualification and recent experience in the
location and categories of the projects being valued.
The fair values are based on the estimated rental value of property. A
market yield is applied to the estimated rental value to arrive at the gross
property valuation. When actual rents differ materially from the estimated
rental value, adjustments are made to reflect actual rents. The valuation is
prepared in accordance with the practice standards contained in the
Appraisal and Valuation Standards published by the Royal Institution of
Chartered Surveyors ("RICS") or in accordance with International Valuation
Standards published by the International Valuation Standards Council.
Valuations reflect, when appropriate, the type of tenants actually in
occupation or responsible for meeting lease commitments or likely to be in
occupation after letting vacant accommodation, the allocation of maintenance
and insurance responsibilities between the Group and the lessee, and the
remaining economic life of the property. When rent reviews or lease renewals
are pending with anticipated reversionary increases, it is assumed that all
notices and, when appropriate, counter-notices, have been served validly and
within the appropriate time.
Land parcels are valued based on market prices for similar properties.
As at 31 December 2018, the estimation of fair value was made using a net
present value calculation based on certain assumptions, the most important
of which were as follows:
· monthly rental rates, ranging from USD 3 to USD 189 per sq.m., which
were based on contractual and market rental rates, adjusted for discounts
or fixation of rental rates in Ukrainian hryvnia at a pre-agreed exchange
rate, occupancy rates ranging from 99.3% to 100.0%, capitalisation rates
ranging from 12.3% to 16.0% p.a., and discount rate of 22% which
represented key unobservable inputs for determination of fair value;
· all relevant licenses and permits, to the extent not yet received, will
be obtained, in accordance with the timetables as set out in the
investment project plans.
As at 31 December 2017, the estimation of fair value is made using a net
present value calculation based on certain assumptions, the most important
of which are as follows:
· monthly rental rates, ranging from USD 2.00 to USD 150.00 per sq.m.,
which are based on contractual and market rental rates, adjusted for
discounts or fixation of rental rates in Ukrainian hryvnia at a
pre-agreed exchange rate, occupancy rates ranging from 95.4% to 100.0%,
capitalisation rates ranging from 12.5% to 16.0% p.a., and discount rate
of 22% which represent key unobservable inputs for determination of fair
value.
· all relevant licenses and permits, to the extent not yet received, will
be obtained, in accordance with the timetables as set out in the
investment project plans.
The reconciliation from the opening balances to the closing balances for
Level 3 fair value measurements is presented in Note 4(a).
As at 31 December 2018, the fair value of investment property denominated in
functional currency amounted to UAH 5,266,308 thousand and RUB 3,445,742
thousand (2017: UAH 4,414,974 thousand and RUB 2,695,689 thousand). The
increase in fair value of investment property results from increased rental
payments invoiced in Ukrainian hryvnia and Russian Rouble due to the
increase in the exchange rates applied to the USD equivalent of rental rates
fixed in the rental contracts.
Sensitivity at the date of valuation
The valuation model used to assess the fair value of investment property as
at 31 December 2018 is particularly sensitive to unobservable inputs in the
following areas:
· If rental rates are 1% less than those used in valuation models, the
fair value of investment properties would be USD 2,104 thousand (2017: USD
1,738 thousand) lower. If rental rates are 1% higher, then the fair value
of investment properties would be USD 2,104 thousand (2017: USD 1,738
thousand) higher.
· If the discount rate applied is 1% higher than that used in the
valuation models, the fair value of investment properties would be USD
14,810 thousand (2017: USD 11,973 thousand) lower. If the discount rate is
1% less, then the fair value of investment properties would be USD 17,266
thousand (2017: USD 13,907 thousand) higher.
· If the occupancy rate is 1% higher than that used in the valuation
model, the fair value of investment properties would be USD 1,922 thousand
higher (2017: if the occupancy rate is 1% higher than that used in the
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valuation model for shopping center "Prospect" and is assumed to be 100%
for other shopping centers, the fair value of investment properties would
be USD 668 thousand higher). If the occupancy rates are 1% less, then the
fair value of investment properties would be USD 1,922 thousand
(2017: USD 1,539 thousand) lower.
5 Loans receivable
******************
Loans receivable as at 31 December are as follows:
2018 2017
(in thousands of USD)
Short-term loans receivable due from related 8,491 8,491
parties
Accrued interest receivable due from related 2,450 2,178
parties
Short-term loans receivable due from third 300 296
parties
Impairment of loans receivable due from (10,941) (10,669)
related parties
300 296
Included in loans receivable as at 31 December 2018 is a loan due from
Filgate Credit Enterprises Limited amounting to USD 10,840 thousand (2017:
USD 10,568 thousand), out of which the amount of USD 8,390 thousand is
overdue. This loan receivable was impaired as at 31 December 2018 and 2017.
6 Trade and other receivables
*****************************
Trade and other receivables as at 31 December are as follows:
(in thousands of USD) 2018 2017
Trade receivables from related parties 14 13
Other receivables from related parties 8,160 8,160
Allowance for impairment (8,158) (8,158)
16 15
Trade receivables from third parties 1,332 1,238
Other receivables from third parties 362 1,182
Allowance for impairment (70) (71)
1,624 2,349
1,640 2,364
As at 31 December 2018, included in other receivables from related parties
are receivables from Dniprovska Prystan PrJSC amounting to USD 7,796
thousand (2017: USD 7,796 thousand), which are overdue. In 2012, the court
ruled to initiate bankruptcy proceedings against the mentioned related party
and, as at 31 December 2018, the decision which would declare Dniprovska
Prystan PrJSC insolvent has not yet been made. Full amount of receivable was
impaired as at 31 December 2018 and 2017.
7 Assets classified as held for sale
************************************
(a) Movements in assets classified as held for sale
Movements in assets classified as held for sale for the years ended 31
December are as follows:
Land Buildings Prepayment Property Other
held for under assets
on investment constructi
leaseh property on
old
Total
(in
thousands
of USD)
At 1 - - - - 1,590 1,590
January
2017
Currency - - - - (49) (49)
translatio
n
adjustment
At 31 - - - - 1,541 1,541
December
2017/
1 January
2018
Currency - - - - 21 21
translatio
n
adjustment
At 31 - - - - 1,562 1,562
December
2018
Included in other assets classified as held for sale as at 31 December 2018,
is a land plot with a carrying amount of USD 1,562 thousand (2017: USD 1,541
thousand), land lease rights for which were intended to be amended by one of
the Group's subsidiaries, Comfort Market Luks LLC, in respect of allocation
of part of such land plot to a third party in accordance with an investment
agreement concluded between the parties. Based on this investment agreement,
Comfort Market Luks LLC acted as an intermediary in construction of a
hypermarket with the total estimated area of 11,769 square meters and a
parking lot with a total estimated area of 20,650 square meters.
As at 31 December 2018, the construction of the hypermarket and a parking
lot is finalised and, except for the lease rights for the abovementioned
land plot to be allocated to a third party, the owner of the hypermarket,
the investment agreement is considered to be fulfilled. Management expects
that the lease rights for the land plot under the hypermarket will be
transferred to the third party in 2019 subject to completion of formal legal
procedures. As at 31 December 2018, advance payment received under this
agreement (Note 14) amounts to USD 1,661 thousand (2017: USD 1,639 thousand)
and will be settled upon transfer of the lease rights for the land plot.
8 Cash and cash equivalents
***************************
Cash and cash equivalents as at 31 December are as follows:
(in thousands of USD) 2018 2017
Bank balances 1,842 374
Call deposits 2,382 2,235
4,224 2,609
As at 31 December 2018, in connection with loans and borrowings, the Group
pledged as security bank balances and call deposits with a carrying value of
USD 41 thousand and USD 2,410 thousand, respectively (2017: USD 29 thousand
and USD 1,153 thousand, respectively) (Note 22(a)).
As at 31 December 2018, cash and cash equivalents placed with two bank
institutions amounted to USD 3,335 thousand, or 79 % of the total balance of
cash and cash equivalents (2017: USD 2,482 thousand, or 95%). In accordance
with Moody's rating, one of these banks is rated Caa1 and another is non -
rated (AS SEB Pank) as at 31 December 2018, respectively (2017: Caa3 and
non-rated (AS SEB Pank), respectively).
9 Share capital
***************
Share capital as at 31 December is as follows:
2018 2018 2018 2017 2017 2017
Number of US EUR Number of US EUR
shares dollars shares dollars
Issued and
fully paid
At 1 January 103,270,63 66,750 51,635 103,270,6 66,750 51,635
and 31 7 37
December
Authorised
At 1 January 106,000,00 68,564 53,000 106,000,0 68,564 53,000
and 31 0 00
December
Par value, - - 0.0005 - - 0.0005
EUR
All shares rank equally with regard to the Parent Company's residual assets.
The holders of ordinary shares are entitled to receive dividends as declared
from time to time, and are entitled to one vote per share at meetings of the
Parent Company.
During the years ended 31 December 2018 and 2017, the Parent Company did not
declare any dividends.
10 Earnings per share
*********************
The calculation of basic earnings per share for the years ended 31 December
2018 and 2017 was based on the profit for the years ended 31 December 2018
and 2017 attributable to ordinary shareholders of
USD 38,103 thousand and USD 25,807 thousand, respectively, and weighted
average number of ordinary shares outstanding as at 31 December 2018 and
2017 of 103,270,637.
The Group has no potential dilutive ordinary shares.
11 Loans and borrowings
***********************
This Note provides information about the contractual terms of loans. For
more information about the Group's exposure to interest rate and foreign
currency risk, refer to Note 21.
2018 2017
(in thousands of USD)
Non-current
Secured bank loans 28,171 33,502
Unsecured loans from related parties 16,143 25,263
Unsecured loans from third parties 187 -
44,501 58,765
Current
Secured bank loans (current portion of 8,089 9,616
long-term bank loans)
Unsecured loans from related parties (including 21,913 9,855
current portion of long-term loans
from related parties)
Unsecured loans from third parties 22,004 20,420
52,006 39,891
96,507 98,656
Terms and debt repayment schedule
As at 31 December 2018, the terms and debt repayment schedule of loans and
borrowings are as follows:
(in Currency Nominal Contractual Carrying value
thousands interest rate year of
of USD) maturity
Secured
bank loans
Tascombank USD 11.25-13.00% 2019-2023 15,578
, VS Bank
and
Universal
Bank
EBRD USD 7.50%+ 1m 2019-2020 8,913
LIBOR
EBRD USD 8.00%+ 3m 2019-2020 5,462
LIBOR
Raiffeisen UAH 18.00% 2019-2020 6,307
Bank Aval
36,260
Unsecured
loans from
related
parties
Retail USD 10.50% 2019 12,539
Real
Estate OU
Retail USD 12.00% 2019-2020 25,225
Real
Estate OU
Retail USD 10.00% 2019 215
Real
Estate OU
Loans from UAH/USD 0.00%-3.20% 2019 77
other
related
parties
38,056
Unsecured
loans from
third
parties
Barleypark USD 10.55% 2019 22,004
Loans from USD 3.20% 2022 187
other
third
parties
22,191
96,507
As at 31 December 2017, the terms and debt repayment schedule of loans and
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borrowings are as follows:
(in Currency Nominal Contractual year Carrying value
thousands interest of maturity
of USD) rate
Secured
bank loans
PJSC "Bank USD 10.50% 2018-2020 16,062
"St.Peters
burg"
EBRD USD 1M LIBOR 2018-2020 12,679
+ 7.50%
Raiffeisen UAH 18.00% 2018-2020 7,358
Bank Aval
EBRD USD 3M LIBOR 2018-2020 7,019
+ 8.00%
43,118
Unsecured
loans from
related
parties
Retail USD 12.00% 2018-2020 23,288
Real
Estate OU
Retail USD 10.50% 2018-2019 11,382
Real
Estate OU
Retail USD 10.00% 2018-2019 200
Real
Estate OU
Loans from UAH/USD 0%-3.20% 2018 248
other
related
parties
35,118
Unsecured
loans from
third
parties
Barleypark USD 10.55% 2018 20,420
Limited
20,420
98,656
As at 31 December LIBOR for USD is as follows:
2018 2017
LIBOR USD 3M 2.75% 1.50%
LIBOR USD 1M 2.38% 1.38%
For a description of assets pledged by the Group in connection with loans
and borrowings refer to
Note 22(a).
PJSC "Bank "St.Petersburg"
During the year ended 31 December 2018, the Group signed amendments to the
loan agreements with PJSC "Bank "St.Petersburg" stipulating a decrease in
the amount of loan principal payable for the period from March 2018 till
June 2018 by USD 730 thousand.
During the year ended 31 December 2017, the Group signed amendments to the
loan agreements with PJSC "Bank "St.Petersburg" stipulating a decrease in
the amount of loan principal payable for the period from June 2017 till
February 2018 by USD 1,818 thousand.
During the year ended 31 December 2018 and as at 31 December 2017, the Group
has not fulfilled an obligation to replace the existing pledge of investment
property by other investment properties acceptable to PJSC "Bank
"St.Petersburg", which was considered as the event of default under the loan
agreements concluded with the bank. In addition, the Group has not
replenished the deposit pledged as a collateral for the amount of USD 1,200
thousand within the time period required by the loan agreement. In June 2018
management obtained the letter from PJSC "Bank "St.Petersburg" waving the
above breaches of loan covenants.
In August 2018, the loans payable due to PJSC "Bank "St.Petersburg" were
fully settled and pledge of investment property of PrJSC
Livoberezhzhiainvest in the amount of USD 43,190 thousand as at
31 December 2018, pledge of investment in PrJSC Livoberezhzhiainvest and
pledge in respect of property rights under the Investment Agreement between
PrJSC Grandinvest, PrJSC Livoberezhzhiainvest and Voyazh-Krym LLC under
pledge agreements with PJSC "Bank "St.Petersburg" were terminated.
Syndicated loan from JSC "Tascombank", PJSC "VS Bank" and PJSC "Universal
Bank"
On 30 July 2018, the Group entered into the syndicated loan agreement with
JSC "Tascombank",
PJSC "VS Bank" and PJSC "Universal Bank" to refinance loan from PJSC "Bank
"St.Petersburg" initially amounting to USD 15,187 thousand as at 30 June
2018. The new loan obtained initially amounted to USD 15,200 thousand, bears
an interest rate of 11.25% during the period from July 2018 until December
2019 and of 13.00% during the period from January 2020 until July 2023.
On 14 August 2018, the credit facility under the new loan agreement was
increased by USD 800 thousand to USD 16,000 thousand. Along with the loan
agreement, the Group signed pledge agreements in respect of investment
property of PrJSC "Livoberezhzhiainvest" in the amount of
USD 43,190 thousand as at 31 December 2018 and investment in "PrJSC
Livoberezhzhiainvest".
EBRD
On 28 March 2017, the Group signed an agreement with the EBRD pledging
rights on future income under the agreement with the anchor tenant (refer to
Note 22(a)).
On 31 March 2017, the Group terminated agreements with the EBRD on pledge of
investment property of PrJSC "Grandinvest" and LLC "Voyazh-Krym" and pledge
of investment in PrJSC "Grandinvest" (refer to Note 22(a)).
Barleypark Limited
Based on the terms of the loan agreement the loan is repayable on demand but
not later than the final repayment date. On 30 June 2017, the Group signed
an amendment to the loan agreement with Barleypark stipulating prolongation
of the maturity date till 31 July 2020. Subsequent to the reporting period
end, the Group obtained a letter from the lender waiving the right to demand
repayment of the loan during twelve months ending 31 December 2019. During
the year ended 31 December 2017, following the changes in shareholding of
Barleypark Limited, the counterparty ceased to be a related party of the
Group and the loan was re-classified to unsecured loans from third parties.
Retail Real Estate OU
On 30 June 2017, the Group signed amendment to the loan agreement with
Retail Real Estate OU stipulating prolongation of the maturity date until 30
June 2020.
On 16 February 2017, the loan payable to Gingerfin Holdings was assigned to
Retail Real Estate OU and prolonged until 1 January 2019.
Reconciliation of movements of liabilities to cash flows arising from
financing activities
Movements of liabilities for the year ended 31 December 2018 are as follows:
Loans and Finance lease Total
borrowings liabilities
(in thousands of
USD)
Balance at 1 98,656 7,039 105,695
January 2018
Proceeds from 16,200 - 16,200
borrowings
Repayment of (22,396) - (22,396)
borrowings
The effect of 41 96 137
changes in foreign
exchange rates
Other finance (736) - (736)
income (Note 19)
Additions to - 142 142
finance leases
Interest expense 9,258 - 9,258
Other finance costs 45 895 940
Interest paid (4,561) (895) (5,456)
Balance at 31 96,507 7,277 103,784
December 2018
Movements of liabilities for the year ended 31 December 2017 are as follows:
Loans and Finance lease Total
borrowings liabilities
(in thousands of
USD)
Balance at 1 101,084 6,857 107,941
January 2017
Repayment of (6,777) - (6,777)
borrowings
The effect of (272) (214) (486)
changes in foreign
exchange rates
Additions to - 396 396
finance leases
Interest expense 9,801 - 9,801
(Note 19)
Other finance costs 46 659 705
Interest paid (5,226) (659) (5,885)
Balance at 31 98,656 7,039 105,695
December 2017
12 Finance lease liability
**************************
Finance lease liabilities as at 31 December are payable as follows:
Future Interest Present Future Interest Present
minimum value of minimum value of
lease minimum lease minimum
payments lease payments lease
payments payments
2018 2018 2018 2017 2017 2017
(in
thousands
of USD)
Less than 445 441 4 405 404 1
six
months
Between 443 441 2 405 404 1
six and
twelve
months
Between 885 881 4 811 807 4
one and
two years
Between 2,656 2,638 18 2,837 2,820 17
two and
five
years
More than 40,853 33,604 7,249 38,823 31,807 7,016
five
years
45,282 38,005 7,277 43,281 36,242 7,039
The imputed finance costs on the liability are based on the Group's
incremental borrowing rate ranging from 13.0% to 17.2% as at 31 December
2018 and 2017.
During the year ended 31 December 2018, as a result of a change in land
lease rate indices and land lease payments calculation methodology imposed
by the state authorities, the Group recognised a finance lease liability
amounting to USD 142 thousand with no impact on profit or loss and
recognised a finance lease asset for the amount of USD 142 thousand (refer
to Note 4(a)) (2017 USD 396 thousand and USD 396 thousand, respectively).
Future minimum lease payments as at 31 December 2018 and 2017, are based on
management's assessment that is based on actual lease payments effective as
at 31 December 2018 and 2017, respectively, and expected contractual changes
in the lease payments. The future lease payments are subject to review and
approval by the municipal authorities and may differ from management's
assessment.
The contractual maturity of land lease agreements ranges from 2019 to 2039.
The Group intends to prolong these lease agreements for the period of usage
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of the investment property being constructed on the leased land.
Consequently, the minimum lease payments are calculated for a period of 50
years.
13 Trade and other payables
***************************
Trade and other payables as at 31 December are as follows:
(in thousands of USD) 2018 2017
Non-current liabilities
Payables for construction works 17,564 9,877
Trade and other payables to third parties 8 8
17,572 9,885
Current liabilities
Payables for construction works 6,961 21,124
Trade and other payables to related parties 1,049 1,137
Trade and other payables to third parties 2,578 2,997
10,588 25,258
28,160 35,143
As at 31 December 2018 and 2017, included in payables for construction works
are USD denominated payables with the nominal value of USD 4,349 thousand
with maturity on 30 June 2021 and bearing an interest rate of 10.00% per
annum.
Also, included in payables for construction works as at 31 December 2018 are
EUR denominated payables under a commission agreement concluded with a third
party with the nominal value of USD 1,268 thousand (2017: USD 2,039
thousand) with maturity on 15 September 2019. As at 31 December 2018 and
2017, these payables relate to construction works performed at shopping
centre "Prospect", are presented in accordance with their contractual
maturity and measured at amortised cost under the effective interest rate of
6.01% (2017: 6.54%) per annum.
Further, included in payables for construction works as at 31 December 2018
are accrued financial charges under construction agreements with third
parties amounting to USD 12,998 thousand
(31 December 2017: USD 16,838 thousand). During the year ended 31 December
2017, the constructors claimed the Group to reimburse finance and foreign
currency losses incurred by constructors due to untimely fulfillment of
obligations by the Group companies under construction agreements. The Group
agreed to reimburse the charges claimed. On 12 July 2018 constructors
further claimed the Group to settle the fee for restructuring of accounts
payable of 10.00% in the amount of USD 1,128 thousand for untimely
fulfillment of obligations in respect of charges payable in the amount of
USD 11,282 thousand as at the date. The Group agreed to settle the fee and
constructors agreed to renegotiate the terms of charges payable. As a result
of renegotiation, interest rate of 10.00% per annum was imposed on charges
payable, they were converted to USD and maturity was postponed to 31
December 2025.
As at 31 December 2017 part of charges payable in the amount of
USD 12,153 thousand had maturity on 31 December 2018, part of USD 1,893
thousand - on
30 June 2021 and bore an interest rate of 10.00%, and the remaining part of
charges payable of
USD 2,792 thousand with the nominal value of USD 3,220 thousand had maturity
on 30 June 2019 and was measured at amortised cost under the effective
interest rate of 10.00% per annum.
The Group's exposure to currency and liquidity risk related to trade and
other payables is disclosed in Note 21.
14 Advances received
********************
Advances from customers as at 31 December are as follows:
(in thousands of USD) 2018 2017
Non-current
Advances from third parties - 125
- 125
-
Current
Advances received under investment agreement (refer 1,661 1,639
to Note 7)
Advances from third parties 3,919 3,259
Advances from related parties 25 24
5,605 4,922
5,605 5,047
Advances from third parties are mainly represented by prepayments from
tenants for the period from one to two months.
15 Other liabilities
********************
Other liabilities as at 31 December are as follows:
(in thousands of USD) 2018 2017
Non-current
Deferred consideration 20,000 20,000
Other long-term liabilities 46 91
20,046 20,091
Current
Deferred consideration 8,217 6,267
8,217 6,267
28,263 26,358
As at 31 December 2018, other long-term liabilities comprise mainly the
amount of principal and other current liabilities comprise the amount of
interest on the deferred consideration that is payable in respect of the
acquisition of Wayfield Limited and its subsidiary Budkhol LLC, amounting to
USD 20,000 thousand and USD 8,217 thousand, respectively (2017: USD 20,000
thousand and
USD 6,267 thousand, respectively).
On 30 June 2017, the Group signed an amendment to the share exchange
agreement with Vunderbuilt in order to postpone the payment of deferred
consideration to Bytenem Co Limited from 30 June 2017 to
30 June 2020.
Deferred consideration is presented in accordance with its contractual
maturity as at 31 December 2018 and 2017 and bears 9.75% interest rate per
annum.
16 Revenue
**********
The major amount of the Group's revenue is represented by rental income from
investment properties that falls within the requirements of IAS 17 Leases
and amounts to USD 25,566 thousand for the year ended 31 December 2018
(2017: USD 22,136 thousand).
During the year ended 31 December 2018, 14% of the Group's rental income was
earned from two tenants (8% and 6%, respectively) (2017: 16%, 12% and 4%,
respectively).
The Group rents out premises in the shopping centres to tenants in
accordance with lease agreements predominantly concluded for a period of up
to 150 months, save for the hypermarkets and large network retails chains,
which enter into long term lease agreements. In accordance with lease
agreements, rental rates are usually established in USD and are settled in
functional currency using the exchange rates as applicable. However, taking
into account the current market conditions, the Group provides temporary
discounts to some of its tenants by applying lower exchange rates than those
established by the National Bank of Ukraine, in arriving to the rent payment
for the particular month.
Management believes that these measures will allow the Group to maintain
occupancy rates in the shopping centres at a relatively high level during
the current deteriorated period in Ukrainian business environment.
Management continued to turn gradually the lower exchange rates used into
the exchange rates established by the National Bank of Ukraine (NBU).
The Group's lease agreements with tenants usually include months
cancellation clause for the period up to 150 months. The Group believes that
execution of the option to prolong the lease period upon expiration of
non-cancellable period on the terms different to those agreed during the
non-cancellable period, is not substantiated. Accordingly, upon calculation
of rental income for the period the Group does not take into account rent
payments, which are prescribed by the agreements upon expiration of the
period during which the agreement cannot be cancelled.
All other types of services are derived from contracts with customers and
fall within the scope of IFRS 15. The nature and effect of initially
applying IFRS 15 on the Group's consolidated financial statements are
disclosed in Note 3(l).
Direct operating expenses arising from investment property that generated
rental income during the years ended 31 December are as follows:
2018 2017
(in thousands of USD)
Advertising (Note 18) 633 746
Repair, maintenance and building services (Note 17) 349 481
Land rent, land and other property taxes (Note 18) 588 380
Communal public services (Note 17) 527 337
Security services (Note 18) 507 310
2,604 2,254
No direct operating expenses arising from investment property that did not
generate rental income during 2018 and 2017 occurred.
(a) Disaggregation of revenue
In the following table revenue for the year ended 31 December is
disaggregated by major service lines. All below types of the Group's revenue
are represented by services transferred over time.
2018 2017
(in thousands of USD)
Common parts exploitation services 5,724 5,182
Marketing services 230 231
5,954 5,413
There are no contract assets and contract liabilities that arise on the
below stated service lines.
17 Goods, raw materials and services used
*****************************************
Goods, raw materials and services used for the years ended 31 December are
as follows:
(in thousands of USD) 2018 2017
Repair, maintenance and building services (Note 16) 349 481
Communal public services (Note 16) 527 337
Other costs 185 159
1,061 977
18 Operating expenses
*********************
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Operating expenses for the years ended 31 December are as follows:
(in thousands of USD) 2018 2017
Management, consulting and legal services 2,334 3,549
Fee for restructuring of accounts payable (Note 13) 1,128 -
Advertising (Note 16) 633 746
Land rent, land and property taxes (Note 16) 588 380
Security services (Note 16) 507 310
Office expenses and communication services 458 450
Independent auditors' remuneration 104 97
Administrative expenses 80 60
Other assurance services charged by independent 49 32
auditors
Tax services charged by independent auditors 8 13
Allowance for bad debts - 425
Other 1,527 1,084
7,416 7,146
19 Finance income and finance costs
***********************************
Finance income and finance costs for the years ended 31 December are as
follows:
(in thousands of USD) 2018 2017
Gain on initial recognition of trade and - 428
other payables at fair value
Interest income 215 240
Other finance income (Note 11) 736 -
Finance income 951 668
Financial charges under construction - (16,764)
agreements
Interest expense (10,319) (9,801)
Loss on derecognition of financial - (2,828)
instruments
Interest expense on deferred consideration (1,950) (1,956)
Foreign exchange loss (3,818) (455)
Other finance costs (1,459) (741)
Finance costs (17,546) (32,545)
Net finance cost (16,595) (31,877)
20 Income tax expense
*********************
(a) Income tax expense
Income taxes for the years ended 31 December are as follows:
(in thousands of USD) 2018 2017
Current tax expense 952 1,252
Deferred tax expense 7,526 6,517
Total income tax expense 8,478 7,769
Corporate profit tax rate for the entities operating under the laws of
Ukraine is fixed at 18%.
The applicable tax rate for the entities operating under the laws of the
Russian Federation is 20%.
The applicable tax rates are 12.5% for Cyprus companies, 20% for Estonian
companies, and nil tax for companies incorporated in the Isle of Man and
British Virgin Islands.
(b) Reconciliation of effective tax rate
The difference between the total expected income tax expense for the years
ended 31 December computed by applying the Ukrainian statutory income tax
rate to profit or loss before tax and the reported tax expense is as
follows:
2018 % 2017 %
(in thousands of USD)
Profit before tax 46,581 100% 33,576 100%
Income tax expense at statutory 8,385 18% 6,044 18%
rate in Ukraine
Effect of different tax rates on (2,553) (5%) (2,374) (7%)
taxable profit in other
jurisdictions
Non-deductible expenses 5,129 11% 7,797 23%
Change in unrecognised deferred tax (3,527) (8%) (4,337) (12%)
assets
Write-off of deferred tax assets - - 145 0%
Foreign currency translation 1,044 2% 494 1%
difference
Effective income tax expense 8,478 18% 7,769 23%
(c) Recognised deferred tax assets and liabilities
As at 31 December deferred tax assets and liabilities are attributable to
the following items:
Assets Liabilities Net
2018 2017 2018 2017 2018 2017
(in
thousands
of USD)
Investment 31 31 (30,303 (23,095) (30,272) (23,064
property ) )
Property -' - (5) (6) (5) (6)
and
equipment
Trade and 65 43 (4) (40) 61 3
other
receivables
Assets - - (281) (277) (281) (277)
classified
as held for
sale
Trade and 509 733 - - 509 733
other
payables
Short-term 321 677 (313) (667) 8 10
borrowings
Other 7 6 - - 7 6
long-term
payables
Tax loss 23,056 17,504 - - 23,056 17,504
carry-forwa
rds
Deferred 23,989 18,994 (30,906 (24,085) (6,917) (5,091)
tax assets )
(liabilitie
s)
Offset of (23,989) (18,994) 23,989 18,994 - -
deferred
tax assets
and
liabilities
Net - - (6,917) (5,091) (6,917) (5,091)
deferred
tax
liabilities
(d) Movements in recognised deferred tax assets and liabilities
Movements in recognised deferred tax assets and liabilities during the year
ended 31 December 2018 are as follows:
(in Balance Recognised Recognised Foreign Balance
thousands as at in profit in OCI currency as at 31
of USD) or loss translat December
ion 2018
adjustme
1 January nt
2018
asset
(liabilit
y)
asset
(liabilit
y)
Investment (23,064) (8,086) - 878 (30,272)
property
Property (6) 1 - - (5)
and
equipment
Trade and 3 58 - - 61
other
receivables
Assets (277) - - (4) (281)
classified
as held for
sale
Trade and 733 (155) - (69) 509
other
payables
Short-term 10 (2) - - 8
borrowings
Other 6 1 - - 7
long-term
payables
Tax loss 17,504 657 4,850 45 23,056
carry-forwa
rds
Deferred (5,091) (7,526) 4,850 850 (6,917)
tax assets
(liabilitie
s)
Movements in recognised deferred tax assets and liabilities during the year
ended 31 December 2017 are as follows:
Balance Recognised Recognised Foreign Balance
as at in profit in OCI currency as at 31
or loss translat December
ion 2017
adjustme
1 January nt
2017
asset
(liabilit
y)
asset
(liabilit
y)
(in
thousands
of USD)
Investment (16,316) (7,283) - 535 (23,064)
property
Property 1 (7) - - (6)
and
equipment
Trade and 418 (424) - 9 3
other
receivables
Assets (286) - - 9 (277)
classified
as held for
sale
Trade and 811 (56) - (22) 733
other
payables
Short-term 6 4 - - 10
borrowings
Other (341) 355 - (8) 6
long-term
payables
Tax loss 12,177 894 5,119 (686) 17,504
carry-forwa
rds
Deferred (3,530) (6,517) 5,119 (163) (5,091)
tax assets
(liabilitie
s)
(e) Unrecognised deferred tax assets
Deferred tax assets as at 31 December 2018 have not been recognised in
respect of the following items:
Balance as Change in Utilisation of Foreign Balance as
at 1 tax-loss previously currency at
January carry unrecognised translatio
2018 forwards temporary n
differences adjustment
31
December
2018
(in
thousa
nds of
USD)
Tax 21,362 (2,793) (6,304) (415) 11,850
loss
carry-
forwar
ds
21,362 (2,793) (6,304) (415) 11,850
Deferred tax assets as at 31 December 2017 have not been recognised in
respect of the following items:
Balance as Change Utilisation Foreign Balance as
at 1 in of previously currency at 31
January tax-loss unrecognised translatio December
2017 carry temporary n 2017
forwards differences adjustment
(in
thousand
s of
USD)
Trade 550 - (591) 41 -
and
other
receivab
les
Tax loss 28,711 562 (7,712) (199) 21,362
carry-fo
rwards
29,261 562 (8,303) (158) 21,362
During the year ended 31 December 2018 certain Group entities submitted
amended CPT declarations that led to a decrease in tax-loss carry forwards
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by USD 2,793 thousand (2017: certain Group entities submitted amended CPT
declarations that led to an increase in tax-loss carry forwards by USD 562
thousand).
In accordance with existing Ukrainian legislation tax losses can be carried
forward and utilised indefinitely. Deferred tax assets have not been
recognised in respect of those items since it is not probable that future
taxable profits will be available against which the Group can utilise the
benefits therefrom.
During the year ended 31 December 2018, unrecognised temporary differences
of USD 5,570 thousand (2017: USD 3,404 thousand) relate to items recognised
in other comprehensive income.
21 Financial risk management
****************************
(a) Overview
The Group has exposure to the following risks from its use of financial
instruments:
· credit risk
· liquidity risk
· market risk
This note presents information about the Group's exposure to each of the
above risks, the Group's objectives, policies and processes for measuring
and managing risk. Further quantitative disclosures are included throughout
these consolidated financial statements.
(b) Risk management framework
The management has overall responsibility for the establishment and
oversight of the risk management framework.
The Group's risk management policies are established to identify and analyse
the risks faced by the Group, to set appropriate risk limits and controls,
and to monitor risks and adherence to limits. Risk management policies and
systems are reviewed regularly to reflect changes in market conditions and
the Group's activities.
The Group, through its training and management standards and procedures,
aims to develop a disciplined and constructive control environment in which
all employees understand their roles and obligations.
The Group's Audit Committee oversees how management monitors compliance with
the Group's risk management policies and procedures and reviews the adequacy
of the risk management framework in relation to the risks faced by the
Group.
(c) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group's financial assets at
amortised cost.
(i) Trade and other receivables
The Group's exposure to credit risks is influenced mainly by the individual
characteristics of each customer. However, management also considers the
factors that may influence the credit risk of the Group's customers,
including the default risk of the industry and country, in which customers
operate, as these factors may have an influence on credit risk.
Management has established a policy under which each customer is analysed
either individually or on collective basis regarding expected credit losses
as at reporting date.
The balances with customer, which is to be assessed individually, amounted
to USD 297 thousand and
USD 1,075 thousand as at 31 December 2018 and 2017, respectively. For this
customer the Group has determined low credit risk - the borrower has a
strong capacity to meet its contractual cash flow obligations in the near
term and adverse changes in economic and business conditions in the longer
term may not likely reduce the ability of the borrower to fulfil its
contractual cash flow obligations - and did not recognise expected credit
losses due to insignificant amount.
For other individually insignificant debtors the Group uses an allowance
matrix to measure expected credit loss (ECL). Loss rates are calculated
using a "roll rate" method based on the probability of a receivable
progressing through successive stages of delinquency to write-off.
Roll-rates are calculated based on the Group's historical losses.
The macro factors have insignificant impact on the historical loss rates due
to short-term nature of the Group's receivables.
The Group does not require collateral in respect of trade and other
receivables.
As at 31 December 2018, the following table provides information about the
exposure to credit risk and ECLs for trade and other receivables in respect
of individually insignificant customers from collective portfolio:
(in thousands Weighted-average Gross Loss Credit
of US carrying allowance impaired
dollars) amounts (Note 6)
loss rate
Current (not 0% 1,325 - NO
past due)
1-30 days due 0% 10 - NO
31-60 days 1% 2 - YES
due
61-90 days 5% - - YES
due
More than 90 100% 8,234 (8,228) YES
days past due
Total 9,571 (8,228)
As at 31 December 2017, the following table provides information about the
exposure to credit risk and ECLs for trade receivables in respect of
individually insignificant customers from collective portfolio:
(in thousands Weighted-average Gross Loss Credit
of US carrying allowance impaired
dollars) amounts (Note 6)
loss rate
Current (not 0% 1,085 - NO
past due)
1-30 days due 0% 114 - NO
31-60 days 1% 3 - YES
due
61-90 days 5% 30 - YES
due
More than 90 100% 8,286 (8,229) YES
days past due
Total 9,518 (8,229)
Allowance for impairment of financial assets is as follows:
2018 2017
(in thousands of USD)
Allowance for impairment of trade and other 8,228 8,229
receivables
Allowance for impairment of loans receivable 10,941 10,669
Allowance for impairment of financial assets at 20,727 20,727
FVOCI (Note 22(d))
39,896 39,625
Additionally, as at 31 December 2017 allowance for impairment of prepayments
made and other assets amounting to USD 417 thousand was recognised.
The movement in the allowance for impairment in respect of financial assets
during the years ended
31 December was as follows:
2018 2017
(in thousands of USD)
Balance at 1 January 39,625 41,682
Impairment loss recognised 272 268
Bad debt write-off - (2,330)
Foreign currency translation differences (1) 5
Balance at 31 December 39,896 39,625
(ii) Cash and cash equivalents
Impairment on cash and cash equivalents has been measured on a 12-month
expected loss basis and reflects the short maturities of the exposures, due
to which no impairment allowance has been recognised by the Group. The Group
considers that its cash and cash equivalents have low credit risk based on
its assessment of the reliability of the banks where cash and cash
equivalents are held.
(d) Capital management
Management defines capital as total equity attributable to equity holders of
the parent. The Group has no formal policy for capital management but
management seeks to maintain a sufficient capital base for meeting the
Group's operational and strategic needs, and to maintain confidence of
market participants. The Group strives to achieve this with efficient cash
management, and constant monitoring of the Group's investment projects. With
these measures the Group aims for steady profits growth. There were no
changes in the Group's approach to capital management during the year.
(iii) Guarantees
The Group considers that financial guarantee contracts entered into by the
Group to guarantee the indebtedness of related parties to be insurance
arrangements, and accounts for them as such. In this respect, the Group
treats the guarantee contract as a contingent liability until such time as
it becomes probable that the Group will be required to make a payment under
the guarantee.
(iv) Exposure to credit risk
The carrying amount of financial assets represents the maximum credit
exposure.
In addition to the credit risk, the Group is exposed to the risk of
non-recoverability of VAT receivable, prepayments made and other assets
amounting in total to USD 1,574 thousand as at 31 December 2018 (2017: USD
2,454 thousand).
(e) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in
meeting the obligations associated with its financial liabilities that are
settled by delivering cash or another financial asset. The Group's approach
to managing liquidity is to ensure, as far as possible, that it will always
have sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions, without incurring unacceptable losses or
risking damage to the Group's reputation.
The following are the contractual maturities of financial liabilities,
including interest payments as at
31 December 2018:
Contractual cash flows
Carrying Total 2 2 - 12 1 - 2 2 - 5 More
amount months months years years than 5
or less years
(in
thousands
of USD)
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Secured 36,260 46,02 1,791 10,240 19,226 14,769 -
bank 6
loans
Unsecured 38,056 41,68 12,623 11,378 17,682 - -
loans 3
from
related
parties
Unsecured 22,191 22,20 22,004 - - 202 -
loans 6
from
third
parties
Finance 7,277 45,28 150 738 885 2,656 40,853
lease 2
liability
Trade and 28,160 37,93 9,016 1,636 8 5,589 21,689
other 8
payables
Other 28,263 31,13 8,217 1,950 20,972 - -
liabiliti 9
es
160,207 224,2 53,801 25,942 58,773 23,216 62,542
74
The following are the contractual maturities of financial liabilities,
including interest payments as at
31 December 2017:
Contractual cash flows
Carrying Total 2 2 - 12 1 - 2 2 - 5 More
amount months months years years than 5
or less years
(in
thousands
of USD)
Secured 43,118 52,28 1,695 12,306 13,645 24,643 -
bank 9
loans
Unsecured 35,118 41,60 9,710 2,234 2,414 27,245 -
loans 3
from
related
parties
Unsecured 20,420 20,42 20,420 - - - -
loans 0
from
third
parties
Finance 7,039 43,28 135 675 811 2,837 38,823
lease 1
liability
Trade and 35,143 37,84 10,948 14,367 884 11,646 -
other 5
payables
Other 26,358 31,23 6,267 1,950 2,041 20,972 -
liabiliti 0
es
167,196 226,6 49,175 31,532 19,795 87,343 38,823
68
(f) Market risk
Market risk is the risk that changes in market prices, such as foreign
exchange rates, interest rates and equity prices will affect the Group's
income or the value of its holdings of financial instruments. The objective
of market risk management is to manage and control market risk exposures
within acceptable parameters, while optimising the return.
(i) ?urrency risk
Group entities operating under the laws of Ukraine
The Group is exposed to currency risk on sales, purchases and borrowings
that are denominated in a currency other than the Ukrainian hryvnias (UAH),
primarily the U.S. Dollar (USD) and Euro (EUR).
Interest on borrowings is denominated in the currency of the borrowing.
Generally, borrowings are denominated in USD which does not always match the
cash flows generated by the underlying operation of the Group, primarily
executed in UAH.
Exposure to currency risk
The Group's exposure to foreign currency risk as at 31 December was as
follows based on notional amounts:
2018 2017
USD EUR USD EUR
(in thousands of
USD)
Cash and cash 25 - 25 -
equivalents
Secured bank loans (29,953) - (35,760) -
Unsecured loans (215) - (200) -
from related
parties
Trade and other (4,349) (51) (4,349) (91)
payables
Net short position (34,492) (51) (40,284) (91)
Sensitivity analysis
A 10 percent weakening of the Ukrainian hryvnia against the following
currencies as at 31 December would have decreased net profit or loss and
decreased equity by the amounts shown below. This analysis assumes that all
other variables, in particular interest rates, remain constant.
2018 2017
(in thousands of Profit or Equity Profit or Equity
USD) loss loss
USD (2,828) (2,828) (3,303) (3,303)
EUR (4) (4) (7) (7)
A 10 percent strengthening of the Ukrainian hryvnia against these currencies
at 31 December would have had the equal but opposite effect on these
currencies to the amounts shown above, on the basis that all other variables
remain constant.
Intra-group borrowings
The Group entities located in Ukraine are exposed to currency risk on
intra-group borrowings, eliminated in these consolidated financial
statements that are denominated in a currency other than the Ukrainian
hryvnia (UAH), primarily the U.S. Dollar (USD). These borrowings are treated
as part of net investment in a foreign operation with foreign exchange gains
and losses recognised in other comprehensive income and presented in the
translation reserve in equity.
The exposure to foreign currency risk on these borrowings is USD 307,129
thousand and USD 290,144 thousand as at 31 December 2018 and 2017,
respectively. The effect of translation of these loans payable by Ukrainian
subsidiaries resulted in a foreign exchange gain of USD 8,798 thousand,
including tax effect, recognised directly in other comprehensive income for
the year ended 31 December 2018 (2017: foreign exchange loss of USD 4,407
thousand).
A 10 percent weakening of the Ukrainian hryvnia against the USD would have
increased other comprehensive loss for the year ended 31 December 2018 and
decreased equity as at 31 December 2018 by USD 25,185 thousand (2017: USD
23,792 thousand). This analysis assumes that all other variables, in
particular interest rates, remain constant.
A 10 percent strengthening of the Ukrainian hryvnia against these currencies
would have had the equal but opposite effect to the amounts mentioned above,
on the basis that all other variables remain constant.
Group entities operating under the laws of the Russian Federation
The Group entities, located in the Republic of Crimea and the Russian
Federation, are exposed to currency risk on purchases and borrowings that
are denominated in a currency other than the Russian Rouble (RUB), primarily
the Ukrainian hryvnia (UAH) and U.S. Dollar (USD).
Exposure to currency risk
The exposure to foreign currency risk as at 31 December was as follows based
on notional amounts:
2018 2017
(in thousands of USD UAH USD UAH
USD)
Cash and cash 178 - - -
equivalents
Trade and other (12,998) - - -
payables
Net short position (12,820) - - -
Sensitivity analysis
A 10 percent weakening of the Russian Rouble against the following
currencies as at 31 December would have increased net profit or loss and
increased equity by the amounts shown below. This analysis assumes that all
other variables, in particular interest rates, remain constant.
2018 2017
Profit or Equity Profit Equity
loss or
loss
(in
thousands of
USD)
USD (1,026) (1,026) - -
A 10 percent strengthening of the Russian Rouble against these currencies at
31 December would have had the equal but opposite effect on these currencies
to the amounts shown above, on the basis that all other variables remain
constant.
(ii) Interest rate risk
Changes in interest rates impact primarily loans and borrowings by changing
either their fair value (fixed rate debt) or their future cash flows
(variable rate debt). Management does not have a formal policy of
determining how much of the Group's exposure should be to fixed or variable
rates. However, at the time of obtaining new financing management uses its
judgment to decide whether a fixed or variable rate would be more favorable
to the Group over the expected period until maturity.
Refer to Notes 5, 11, 12, 13 and 15 for information about maturity dates and
effective interest rates of fixed rate and variable rate financial
instruments. Re-pricing for fixed rate financial instruments occurs at
maturity of fixed rate financial instruments.
Profile
The interest rate profile of the Group's interest-bearing financial
instruments as at 31 December was as follows:
2018 2017
(in thousands of USD)
Fixed rate instruments
Loans and borrowings 82,132 78,918
Other liabilities 28,217 26,267
Finance lease liability 7,277 7,039
Payables for construction works 17,500 6,242
135,126 118,466
Variable rate instruments
Loans and borrowings 14,375 19,698
14,375 19,698
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed-rate financial instruments as fair
value through profit or loss or fair value through other comprehensive
income. Therefore a change in interest rates at the reporting date would not
have an effect in profit or loss or in equity.
Cash flow sensitivity analysis for variable rate instruments
An increase of 100 basis points in interest rates at the reporting date
would have decreased equity as at 31 December and would have decreased net
profit or loss for the years ended 31 December by the amounts shown below.
This analysis assumes that all other variables, in particular foreign
currency rates, remain constant.
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2018 2017
Profit or Equity Profit or Equity
loss loss
(in thousands of
USD)
Loans and (118) (118) (162) (162)
borrowings
(118) (118) (162) (162)
A decrease of 100 basis points in interest rates at 31 December would have
had the equal but opposite effect to the amounts shown above.
(iii) Fair values
Estimated fair values of the financial assets and liabilities have been
determined using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting
market data to produce the estimated fair values. Accordingly, the estimates
are not necessarily indicative of the amounts that could be realised in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
values.
The estimated fair values of financial assets and liabilities are determined
using discounted cash flow and other appropriate valuation methodologies, at
year-end, and are not indicative of the fair value of those instruments at
the date these consolidated financial statements are prepared or
distributed. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Group's entire holdings
of a particular financial instrument. Fair value estimates are based on
judgments regarding future expected cash flows, current economic conditions,
risk characteristics of various financial instruments and other factors.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the
value of assets and liabilities not considered financial instruments. In
addition, tax ramifications related to the realisation of the unrealised
gains and losses can have an effect on fair value estimates and have not
been considered.
The following table shows the carrying amounts and fair values of financial
assets and financial liabilities, including their levels in the fair value
hierarchy. It does not include fair value information for financial assets
and financial liabilities not measured at fair value if the carrying amount
is a reasonable approximation of fair value:
2018 2017
Carrying Fair Carrying amount Fair
amount value value
Level 2 Level 2
(in
thousands
of USD)
Financial
liabilitie
s not
measured
at fair
value
Non
-current
Secured 28,171 30,720 33,502 34,602
bank loans
Unsecured 16,143 17,171 25,263 26,145
loans from
related
parties
Unsecured 187 204 - -
loans from
third
parties
Payables 17,564 19,655 9,877 10,353
for
constructi
on works
Deferred 20,000 21,039 20,000 21,692
considerat
ion
82,065 88,789 88,642 92,792
Current
Secured 8,089 8,626 9,616 9,923
bank loans
(current
portion of
long-term
bank
loans)
Unsecured 21,913 22,844 9,855 10,127
loans from
related
parties
(including
current
portion of
long-term
loans
from
related
parties)
Unsecured 22,004 22,004 20,420 20,420
loans from
third
parties
Deferred 8,217 8,644 6,267 6,797
considerat
ion
60,223 62,118 46,158 47,267
142,288 150,907 134,800 140,059
Management believes that for all other financial assets and liabilities, not
included in the table above, the carrying value approximates the fair value
as at 31 December 2018 and 2017. Such fair value was estimated by
discounting the expected future cash flows under the market interest rate
for similar financial instruments that prevails as at the reporting date.
The estimated fair value is categorised within Level 2 of the fair value
hierarchy.
22 Commitments and contingencies
********************************
(a) Pledged assets
As at 31 December, in connection with loans and borrowings, the Group
pledged the following assets:
2018 2017
(in thousands of USD)
Investment property (Note 4(a)) 150,490 117,790
Call deposits (Note 8) 2,410 1,153
Bank balances (Note 8) 41 29
152,941 118,972
As at 31 December 2018, the Group has also pledged the following:
· Future rights on income of Prisma Alfa LLC and Comfort Market Luks LLC
under all lease agreements and rights on future income of PrJSC
Ukrpangroup under agreement with anchor tenant;
· Investments in the following subsidiaries: PrJSC Ukrpangroup, Comfort
Market Luks LLC and PrJSC Livoberezhzhiainvest.
As at 31 December 2017, the Group has also pledged the following:
· Future rights on income of Prisma Alfa LLC and Comfort Market Luks LLC
under all lease agreements and rights on future income of PrJSC
Ukrpangroup under agreement with anchor tenant;
· Investments in the following subsidiaries: PrJSC Ukrpangroup, Comfort
Market Luks LLC and PrJSC Livoberezhzhiainvest;
· Property rights under the Investment Agreement between PrJSC
Grandinvest, PrJSC Livoberezhzhiainvest and Voyazh-Krym LLC.
(b) Construction commitments
The Group entered into contracts with third parties to construct two
shopping centres in Kyiv and a shopping centre in Odesa for the amount of
USD 18,285 thousand as at 31 December 2018
(2017: USD 19,209 thousand).
(c) Operating lease commitments
The Group as lessor
The Group entered into lease agreements on its investment property portfolio
that consists of five shopping centres. These non-cancellable lease
agreements usually have remaining terms up to one hundred fifty months. All
agreements include a clause to enable upward revision of the rent rate on an
annual basis according to prevailing market conditions.
The future minimum lease payments under non-cancellable leases as at 31
December are as follows:
2018 2017
(in thousands of USD)
Less than one year 5,604 4,723
Between one and five years 4,223 3,852
More than five years 1,819 2,975
11,646 11,550
(d) Litigations
In the ordinary course of business, the Group is subject to legal actions
and complaints.
(i) Legal case in respect of Assofit Holdings Limited
Since November 2010 the Group has been involved in an arbitration dispute
with Stockman Interhold S.A. (Stockman), which was the majority shareholder
of Assofit Holdings Limited (Assofit), regarding invalidation of the Call
Option Agreement dated 25 February 2010. In accordance with this Call Option
Agreement, Arricano was granted the option to acquire the shareholding of
Stockman being equal to 50.03 per cent in the share capital of Assofit
during the period starting from 15 November 2010 up to 15 March 2011. In
November 2010, the Company sought to exercise the option granted by the Call
Option Agreement, however the buy-out was suspended by legal and arbitration
proceedings that were initiated by Stockman in relation to the validity of
the termination of the agreement relating to the call option under the Call
Option Agreement.
In the seventh award delivered on 5 May 2016, the tribunal of the London
Court of International Arbitration found that Stockman is in breach of the
Call Option Agreement and has taken "steps deliberately to dissipate and
misappropriate Assofit's assets". As a result, the tribunal has ordered
Stockman to transfer, or procure the transfer of, the Option Shares to
Arricano within 30 days of the award. Upon registration of the transfer,
Arricano shall pay to Stockman the Option Price minus damages, which when
netted out brings the balance to nil. In the event that Stockman does not
transfer, or procure the transfer of the Option Shares, Arricano may elect
instead to claim damages in lieu of the share transfer.
In its latest award, being the eighth award, made on 17 August 2016, the
tribunal of the London Court of International Arbitration awarded the costs
of approximately USD 0.9 million to be paid by Stockman to Arricano. No
receivable was recognised in these consolidated financial statements, as
recoverability of the related asset was not certain.
In July 2017, the hearing regarding challenges of the fifth, the sixth and
the seventh award by Stockman took place. By judgement dated 30 November
2017, the High Court of England and Wales dismissed the claims filed by
Stockman challenging the fourth, fifth and seventh awards, and subsequently,
on 5 January 2018, dismissed Stockman's application to appeal such
judgement.
As at the date that these consolidated financial statements are authorised
for issuance, a number of related legal cases are under the consideration of
the District Court of Nicosia.
In September 2014, Assofit Holdings Limited transferred the shares of Prisma
Beta LLC to Financial and Investment Solutions BV, a company registered in
the Netherlands, despite the fact that an Interim Receiver was appointed in
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Assofit at that period of time with the responsibility for collecting and
safeguarding Assofit's assets. Further in September 2014, Joint-Stock Bank
Pivdeniy PJSC, Ukraine, which had an outstanding mortgage loan due from
Prisma Beta LLC of USD 32,000 thousand, exercised its right to recover the
abovementioned loan by means of reposession of ownership rights to the Sky
Mall shopping centre which was pledged to secure this loan in September
2014. As at the date that these consolidated financial statements are
authorised for issuance, shares of Prisma Beta LLC and ownership rights for
the Sky Mall shopping centre remain alienated.
As at 31 December 2018 and 2017, the Group holds 49.97% of nominal voting
rights in Assofit without retaining significant influence. In prior years'
consolidated financial statements of the Group until
31 December 2013, investment in Assofit was recognised in the statement of
financial position as available for-sale financial asset at its carrying
amount of USD 20,727 thousand. Due to loss of the legal control over the
major operating asset being the Sky Mall shopping centre in September 2014,
the investment in Assofit is fully impaired as at 31 December 2018 and 2017.
Management is unaware of any other significant actual, pending or threatened
claims against the Group.
(e) Taxation contingencies
(i) Ukraine
The Group performs most of its operations in Ukraine and therefore within
the jurisdiction of the Ukrainian tax authorities. The Ukrainian tax system
can be characterised by numerous taxes and frequently changing legislation
which may be applied retroactively, open to wide interpretation and in some
cases are conflicting. Instances of inconsistent opinions between local,
regional, and national tax authorities and between the Ministry of Finance
and other state authorities are not unusual. Tax declarations are subject to
review and investigation by a number of authorities that are enacted by law
to impose severe fines, penalties and interest charges. A tax year remains
open for review by the tax authorities during the three subsequent calendar
years, however under certain circumstances a tax year may remain open
longer. These facts create tax risks substantially more significant than
typically found in countries with more developed systems.
Management believes that it has adequately provided for tax liabilities
based on its interpretation of tax legislation and official pronouncements.
However, the interpretations of the relevant authorities could differ and
the effect on these consolidated financial statements, if the authorities
were successful in enforcing their interpretations, could be significant. No
provisions for potential tax assessments have been made in these
consolidated financial statements.
(ii) Republic of Crimea
As a result of the events described in Note 1(b), Ukrainian authorities are
not currently able to enforce Ukrainian laws on the territory of the
Republic of Crimea. Starting from April 2014, this territory is subject to
the transitional provisions of tax rules established by the Russian
government to ensure gradual introduction of federal laws into the
territory. Although these transitional provisions were thought to put
certain relief on the entities registered in the Republic of Crimea,
interpretations of these provisions by the tax authorities may be different
from the tax payers' view. Effective from 1 January 2015, the Russian
government declared that the territory of the Republic of Crimea is subject
to general legislation of the Russian Federation.
(iii) Russian Federation
The taxation system in the Russian Federation continues to evolve and is
characterised by frequent changes in legislation, official pronouncements
and court decisions, which are sometimes contradictory and subject to
varying interpretation by different tax authorities.
Taxes are subject to review and investigation by a number of authorities,
which have the authority to impose severe fines, penalties and interest
charges. A tax year generally remains open for review by the tax authorities
during the three subsequent calendar years; however, under certain
circumstances a tax year may remain open longer. Recent events within the
Russian Federation suggest that the tax authorities are taking a more
assertive and substance-based position in their interpretation and
enforcement of tax legislation.
Transfer pricing legislation enacted in the Russian Federation starting from
1 January 2012 provides for major modifications making local transfer
pricing rules closer to OECD guidelines, but creating additional uncertainty
in practical application of tax legislation in certain circumstances.
These transfer pricing rules provide for an obligation for the taxpayers to
prepare transfer pricing documentation with respect to controlled
transactions and prescribe the basis and mechanisms for accruing additional
taxes and interest in case prices in the controlled transactions differ from
the market level.
The transfer pricing rules apply to cross-border transactions between
related parties, as well as to certain cross-border transactions between
independent parties, as determined under the Russian Tax Code (no threshold
is set for the purposes of prices control in such transactions). In
addition, the rules apply to in-country transactions between related parties
if the accumulated annual volume of the transactions between the same
parties exceeds a particular threshold (RUB 1 billion in 2014 and thereon).
The compliance of prices with the arm's length level could be as well
subject to scrutiny on the basis of unjustified tax benefit concept.
In addition, a number of new laws introducing changes to the Russian tax
legislation have been recently adopted. In particular, starting from 1
January 2015 changes aimed at regulating tax consequences of transactions
with foreign companies and their activities were introduced, such as concept
of beneficial ownership of income, etc. These changes may potentially impact
the Group's tax position and create additional tax risks going forward. This
legislation is still evolving and the impact of legislative changes should
be considered based on the actual circumstances.
These circumstances may create tax risks in the Russian Federation that are
substantially more significant than in other countries. Management believes
that it has provided adequately for tax liabilities based on its
interpretations of applicable Russian tax legislation, official
pronouncements and court decisions. However, the interpretations of the tax
authorities and courts, especially due to reform of the supreme courts that
are resolving tax disputes, could differ and the effect on these
consolidated financial statements, if the authorities were successful in
enforcing their interpretations, could be significant.
(iv) Republic of Cyprus
Operations of the Group in Cyprus are mainly limited to provision of
intra-group financing, transactions related to Assofit legal case (note 22
(d)(i)) and various management activities. Transactions performed by the
Cyprus entities of the Group fall within the jurisdiction of Cyprus tax
authorities. The Cyprus tax system can be characterized by numerous taxes,
legislation may be applied retrospectively, open to wide interpretation. VAT
and income tax declarations are subject to review and investigation by
authorities that are enacted by law to impose severe fines, penalties and
interest charges. A tax year remains open for review by the Tax department
during the six subsequent calendar years, however under certain
circumstances a tax year may remain open longer.
Additionally, a new transfer pricing legislation was enacted in Cyprus from
30 June 2017, which requires entities to conduct intra-group financing
transactions on the arm's length principle (a principle under which
transactions are performed at market rates, as would have been performed
between unrelated entities). The legislation requires taxpayers to prepare
and submit to the tax authorities Transfer pricing study documents
justifying margins applied to the intra-group financing. The compliance of
margins applied to the arms' length principle could be a subject to scrutiny
on the basis of unjustified tax benefit concept. Given the fact that the
above rule has been in force for a limited period of time, currently, there
is no established practices of its application by the tax authorities, and
there can be no assurance that the tax authorities' interpretations of the
approaches used by the Group may differ, which could result in accrual of
fines and penalty interest on the Group.
During the prior years, the Group incurred certain foreign legal expenses,
where the VAT accounted for on these expenses was fully claimed. Management
believes that the Group properly claimed the VAT accounted for on these
expenses, on the basis of the plans to further collect reimbursement of the
said expenses, being purely of legal nature, from respective parties in
full.
Management believes that it has adequately provided for tax liabilities
based on its interpretation of tax legislation, official pronouncements and
court decisions.
23 Related party transactions
*****************************
(a) Control relationships
The Group's largest shareholders are Retail Real Estate OU, Dragon -
Ukrainian Properties and Development plc, Deltamax Group OU, Rauno Teder and
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Jüri Põld. The Group's ultimate controlling party is Estonian individual
Hillar Teder. Hillar Teder indirectly controls 55.04% of the voting shares
of the Parent Company. Apart from this, the adult son of Hillar Teder, Mr.
Rauno Teder, controls 15.82% of the voting shares of the Parent Company.
(b) Transactions with management and close family members
Key management remuneration
Key management compensation included in the statement of profit or loss and
other comprehensive income for the year ended 31 December 2018 is
represented by salary and bonuses of
USD 980 thousand (2017: USD 813 thousand).
Director's interests
The direct and indirect interest of the members of the Board in share
capital of the Company as at
31 December 2018 and 31 December 2017 and as at the date of signing of these
consolidated financial statements is as follows:
Name Type of interest Effective shareholding rate
Jüri Põld Direct shareholding 7.07%
(c) Transactions and balances with entities under common control
Outstanding balances with entities under common control as at 31 December
are as follows:
2018 2017
(in thousands of USD)
Short-term loans receivable 10,941 10,669
Trade receivables 14 13
Other receivables 8,160 8,160
Provision for impairment of trade and other (19,099) (18,827)
receivables and loans receivable from related
parties
16 15
Long-term loans and borrowings 16,143 25,263
Short-term loans and borrowings 21,913 9,855
Trade and other payables 1,049 1,137
Advances received 25 24
Other liabilities 28,217 26,267
67,347 62,546
None of the balances are secured. The terms and conditions of significant
transactions and balances with entities under common control are described
in Notes 5, 6, 11, 13, 14 and 15.
Expenses incurred and income earned from transactions with entities under
common control for the years ended 31 December are as follows:
2018 2017
(in thousands of USD)
Interest expense (4,860) (5,654)
Other finance costs - (18)
Operating expenses (90) (136)
Prices for related party transactions are determined on an ongoing basis.
(d) Guarantees issued by related parties
The Group's related party issued guarantee securing loan payable by
Ukrpangroup PrJSC to the EBRD. The guarantees cover the total amount of
outstanding liabilities in relation to EBRD loan as at 31 December 2018 of
USD 5,462 thousand (2017: USD 7,019 thousand).
24 Subsequent events
********************
Subsequent to the reporting date, on 20 February 2019, the Group Company,
Prisma Alpha LLC, entered into a new UAH 140 million loan facility with JSC
"Raiffeisen Bank Aval" to finance the construction of the Lukianivka
shopping and entertainment centre. The facility expires on 31 December 2023
and bears interest of 19.75% per annum, in addition to an initial set up fee
of 0.5%. The facility was secured by a mortgage over the Group's City Mall
shopping and entertainment centre and was secured by a pledge of future
rights on income of LLC Prisma Alpha under the lease agreements and will be
secured by a guarantee to be granted by the Group
ISIN: CY0102941610
Category Code: FR
TIDM: ARO
LEI Code: 213800F8AMPULEKXFX22
Sequence No.: 8235
EQS News ID: 800953
End of Announcement EQS News Service
(END) Dow Jones Newswires
April 17, 2019 02:04 ET (06:04 GMT)
