Annual Report • Dec 31, 2014
Annual Report
Open in ViewerOpens in native device viewer
ANNUAL REPORT 2014
| Chairman's Statement 4 |
|---|
| Executive Director's Statement 6 |
| Understanding AFI Development 12 |
| 12 Group structure |
| 13 AFI Development strategy |
| 14 Projects portfolio |
| 28 Board of Directors |
| 30 Management team |
| Operational review 33 |
| 33 Market overview |
| 37 Project-specifc activities and review |
| Principal business risks and uncertainties affecting the Company 44 |
| Corporate Governance 50 |
| Directors' remuneration report 60 |
| Financial Statements 66 |
| 66 Management discussion and analysis |
| Board of Directors' report, Directors' responsibility 80 statement and Independent auditors' report |
| 88 Consolidated fnancial statements |
| 142 Parent company separate fnancial statements . |
AFI Development Plc ("AFI Development" or "the Company") is one of the leading real estate development and investment groups focused mainly on the Russian market.
AFI Development is a publicly traded subsidiary of Africa Israel Investments Ltd, an international real estate investment and development group based in Israel with over 70 years of experience in real estate development. Incorporated in Cyprus in 2001, AFI Development builds large scale, integrated and high profle commercial and residential properties to international standards.
AFI Development has been listed on the Main Market of the London Stock Exchange since 2007. It aims to deliver shareholder value through a commitment to innovation and continuous project development, coupled with the highest standards of design, construction and quality of customer service.
In 2010, AFI Development obtained a premium listing on the London Stock Exchange, becoming the only public development company operating in Russia to attain this distinctive listing status.
AFI Development focuses on developing and redeveloping high quality commercial and residential real estate assets across Russia, with Moscow being its main market. The Company's existing portfolio comprises commercial projects focused on ofces, shopping centers, hotels, residential projects and mixeduse properties. AFI Development's strategy is to sell the residential properties it develops and to either lease the commercial properties or sell them for a favourable return.
This document may contain "forward-looking statements" with respect to the Company's fnancial condition, results of operations and business and certain of the Company's plans and objectives.
Forward-looking statements are sometimes, but not always, identifed by their use of a date in the future or such words as "will", "anticipates", "aims", "due", "could", "may", "should", "expects", "believes", "intends", "plans", "targets", "goal" or "estimates." By their nature, forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to difer materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the following:
Any written or oral forward-looking statements, made in this document or subsequently, which are attributable to the Company or any persons acting on their behalf, are expressly qualifed in their entirety by the factors referred to above. No assurances can be given that the forward-looking statements in this document will be realised. Subject to compliance with applicable law and regulations, the Company does not intend to update these forward-looking statements and does not undertake any obligation to do so.
The year 2014 was quite challenging for the Russian economy and, inevitably, our results were afected by negative developments in our market environment. International sanctions against Russian state-controlled and private companies, including major banks, were imposed during the year. At the same time, the price of Urals crude oil, the main Russian export commodity, has declined more than twofold over the year. The combination of these factors caused signifcant depreciation of the Russian rouble versus the US dollar, an increase in infation and a negative GDP growth rate forecast for 20151 . Additionally, the Russian Central Bank decided in December 2014 to increase its key lending rate from 10.5% to 17% (reduced to 15% in January 2015 and to 14% in March 2015), causing a sharp rise in rouble borrowing costs to levels unviable for most corporate and private borrowers.
The main efect of the difcult market environment on our fnancial results was signifcant downward revision of portfolio values in the fourth quarter of 2014. The value of our portfolio of properties was reduced from US\$2.4 billion at the end of 2013 to US\$2.0 billion at the end of 2014. The signifcant devaluation of
The Economist Intelligence Unit forecasts Russian real GDP growth for 2015 at -3.5%; consumer price inflation for 2014 is estimated at 11.9% (EIU Russia Country Report February 2014).
STATEMENT
FINANCIAL STATEMENTS
the rouble in relation to the dollar during the fourth quarter caused a decrease in net operating income projections. At the same time, the recent downgrades of the Russian Federation sovereign credit rating by Standard & Poor's and Moody's triggered an increase in the risk-free rate and a corresponding increase in the discount rate employed in DCF valuation models.
The difcult current macroeconomic environment has also caused AFI Development to change some of its development plans. For example, we have decided to postpone the development of Kossinskaya as an apparel and fashion wholesale trade centre due to uncertain levels of potential demand. For other projects currently in the active development stage, such as Tverskaya Plaza Ic, we are looking to obtain debt fnancing at favourable terms and for the market environment to improve before moving forward. At the same time, development continues to plan at our residential project Odinburg, where we are close to completing our frst building, with apartment presales ongoing.
Chairman`s Statement
ANNUAL REPORT 2014 5
Our key yielding project, AFIMALL City continued to improve its operational performance during the year. Sustained strong growth in occupancy levels and the ability to attract new, high quality tenants refect the high popularity achieved by the Mall. With increasing ease of access due to continued improvements in transport links and the overall development of the "Moscow City" district, AFIMALL City's attractiveness is expected to show further growth in the years to come.
We believe that our strategy of focusing on high quality projects in Moscow area will generate both strong cash-fow and signifcant capital returns for our shareholders in future years. Although we remain confdent in the long-term opportunities in our market, we expect operating conditions to remain challenging throughout 2015.
Resuming our results for 2014, we have to note the serious deterioration in the macro-economic environment in Russia during the year. The negative developments in the economy have also started to afect the real estate market in Russia and its capital Moscow, which is the key market for AFI Development. Towards the end of 2014, the vacancy rate in class A ofce buildings increased to 28.4%, while across A and B class ofce space it reached 16.7%1 . Whilst growth in vacancy rates in the retail segment was less pronounced (6% by the end of 2014), analysts note a 20% decrease in average shopping centre rents in dollar terms2. Following severe rouble depreciation, ofce and retail tenants started to experience dif-
culties in paying dollar-denominated rents, causing many market analysts to forecast a "de-dollarisation" trend across the Moscow commercial real estate market.
Our results were largely afected by the negative adjustments to our portfolio valuation caused by revision of valuation models due to macroeconomic trends and the deteriorating sovereign risk profle of the Russian Federation. In Q4 2014, we recorded a reduction in the value of our portfolio of properties from circa US\$2.5 billion (at the end of September 2014) to circa US\$2.0 billion at the end of 2014.
We are pleased to report that, despite difcult market conditions, our rental income for 2014 is down by only 2%. This is driven by the strong performance of AFIMALL City. However, mainly as a result of a valuation loss of US\$220.7 million in Q4 2014, we incurred a net loss of US\$287.3 million for the year.
Looking to 2015, we remain cautious regarding the outlook for our key market segments. Based on negative expectations with respect to economic growth in Russia and continued lack of geopolitical stability, we expect demand for real estate assets across the capital to decline throughout the year. We continue to monitor market trends and to adapt our strategy to ensure our eforts are focused on the most attractive developments, whilst ensuring our yielding assets maintain their solid operational performance.
CORPORATE GOVERNANCE
As at 31 December 2014, based on the Cushman & Wakefeld LLC ("C&W") independent appraisers' report, the value of AFI Development's portfolio of investment properties stood at US\$1.4 billion, while the value of the portfolio of investment property under development stood at US\$0.4 billion.
Consequently, the total value of the Company's assets, mainly based on independent valuation as of 31 December 2014, was US\$2.0 billion, compared to US\$2.4 billion as at 31 December 2013.
The main reasons behind the decrease in the portfolio valuation were as follows:
Devaluation of the national currency during the year and a difcult macroeconomic situation driven by imposed economic sanctions.
As a result of the slowdown in the national economy and increase in country risks, capitalisation and discount rates and projection of future cash fows within the portfolio valuation were revised by C&W individually for each project.
For additional information, please refer to the "Portfolio Valuation" section in the Management Discussion and Analysis (the "MD&A").
We completed 2014 with a strong liquidity position of approximately US\$93.3 million of cash, cash equivalents and marketable securities on our balance sheet and a debt3 to equity level of 53%. This strong position refects the Company's ability to successfully balance liquidity requirements from a number of sources.
Our fnancing strategy aims to maximise the amount of debt fnancing for projects under construction while maintaining healthy loan-to-value levels. After delivery and commissioning, we aim to refnance the properties at more favourable terms, including longer amortisation periods, lower interest rates and higher principal balloon payments. Property rights and shares of property holding companies are mainly used as collateral for the debt. We strongly prefer, whenever possible, to use non-recourse project level fnancing.
For additional information, please refer to the "Liquidity" section of the MD&A.
In January 2015, the Company subsidiary, Krown Investments LLC ("Krown"), signed an addendum to the loan facility agreement with VTB Bank JSC ("the Bank), extending the term of the loan to 26 January 2018. Krown, which owns the Aquamarine III (Ozerkovskaya III) ofce complex, had an existing loan from the Bank maturing on 26 January 2015, of which US\$ 205 million were outstanding. In addition to extending the term of the loan, the new addendum amended the payment schedule and interest rate conditions of the loan agreement and introduced new covenants. The payment schedule anticipates repayments of the principal starting from Q4 2015, while the new covenants include a Debt Service Coverage Ratio of 1.2 applicable from Q4 2015 and a Loan to Value ratio of 65%. In line with the addendum, on 26 January 2015 Krown paid US\$10 million to the Bank as partial repayment of the outstanding loan amount, thus reducing the total to US\$195 million. About 90% of the principal is to be paid at maturity.
Debt includes all loans and borrowings. For further details please see note 28 to the Financial Statements.
FINANCIAL STATEMENTS
During 2014, AFIMALL City reported a strong increase in occupancy levels, reaching 85% in December 2014 vs 76% in December 2013. During its three years of full operation, AFIMALL has become one of the most popular shopping centres located in central Moscow, with a quality tenant mix and comfortable leisure, dining and entertainment zones.
Many international retailers chose AFIMALL for their frst Russian shops. Forever 21, H&M Home, Crate&Barrel, Laura Ashley and Mirko Botticelli all opened their AFIMALL outlets during 2014. Additionally, the "Fizika" ftness chain opened its two-level club at AFIMALL in 2014, attracting additional visitors to the Mall.
Regarding the claim, fled in August 2014 by the Prosecution Ofce of the Moscow Central District on fre safety issues, AFI Development confrms that the works requested by the State Fire Safety Control Authorities have been completed by the specifed deadlines, following which the Prosecution Ofce withdrew its claim in Febrary 2015.
Following the disposal of Building 1 to diamond miner ALROSA, AFI Development retains title to the remaining three buildings of the complex, which have a combined GBA of 61,772 sq.m and GLA of 46,247 sq.m. The Company is currently in negotiations with potential buyers and tenants.
AFI Development's hospitality portfolio, which consists of one Moscow city hotel (Aquamarine) and two resorts in the Caucasus mineral waters region (Plaza Spa Kislovodsk and Plaza Spa Zheleznovodsk), has produced solid results in 2014, taking into account the difcult macroeconomic environment.
Following the registration of a 10-year land lease agreement, the Company has successfully fnalised the development concept of this Class A ofce complex, received the necessary construction permit and completed all pre-construction works. AFI Developments plans to start construction of this project as soon as it has secured debt fnancing on favourable terms and the market situation improves.
In November 2014, AFI Development's Board of Directors decided to place on hold and reconsider further implementation of the development concept of Kossinskaya as an apparel and fashion wholesale trade centre named "Expolon", in light of the current economic situation in Russia.
Construction works of Phase 1 ("Korona") of this development are currently underway. The frst building within this phase is close to completion, with fnal facade works taking place. Construction of the second building began in December 2014. Sales of apartments are progressing in line with the market situation.
During 2014, AFI Development fnalised the planning stage of the project. The Company intends to start pre-construction works during H2 2015, subject to improvement in the market situation.
AFI Development is currently developing the design of the project and aims to obtain a construction permit during 2015.
In December 2014, AFI Development restored the Botanic Garden project on its balance sheet, following liquidation of former primary investor, Novoe Koltso Moskvy OJSC ("NKM"), as risks related to the bankruptcy of NKM were removed. The Company has completed the planning of the residential complex and received the Moscow construction authorities' approval for the project. In addition, the necessary construction permit was obtained in December 2014.
| Group structure | 12 |
|---|---|
| AFI Development strategy |
13 |
| Projects portfolio |
14 |
| Board of Directors | 28 |
| Management team |
30 |
In this section we provide an overview on AFI Development Group's structure, our operations and our development projects.
AFI Development PLC acts as a holding company for the Group's investments in subsidiaries, usually structured as special purpose vehicles organised to develop and operate particular projects, and joint ventures. The majority of our real estate projects are managed by our operating subsidiary, AFI RUS LLC, which acts as a management company for most of the subsidiaries. Another important operating company in AFI Development Group is Stroyinkom-K LLC, a Russian company licensed to perform various technical and supervisory functions in the development and construction process, which is heavily regulated in Russia. It serves as project manager for most of our Russian projects which are under development. AFI Development Hotels Ltd. is a subsidiary, which operates the Company's hospitality projects. AFI Ukraine Ltd. is a dedicated subsidiary holding stakes in the Company's projects in the Ukraine. A list of signifcant subsidiaries and jointly controlled entities of AFI Development PLC can be found in Note 34 to the consolidated fnancial statements. A simplifed structure of the AFI Development Group is presented in the Exhibit 1 below (this is not a legal structure, it is intended to illustrate how the Company's holding structure and operations are organised):
Exhibit 1: Simplified structure of the AFI Development Group
CHAIRMAN'S STATEMENT EXECUTIVE DIRECTOR'S STATEMENT ANNUAL REPORT 2014 Understanding AFI Development 13
AFI Development is focused on developing and redeveloping high quality, integrated, large-scale, commercial and residential real estate assets including ofces, shopping centres, hotels, mixed-use properties and residential projects. As part of our strategy, we aim to sell the residential units we develop and to lease the commercial properties, whilst not excluding opportunistic sales of select developments. We are committed to growing our high quality income-generating real estate portfolio.
In addition to being large scale and highly complex, our projects are regenerative for their local environments and involve signifcant improvements to existing infrastructure. As such, we aim to enhance the overall value of the neighbourhoods which we enter, creating more comfortable living and working conditions.
Moscow is a rapidly expanding city in an economy that is undergoing a period of sustained growth. AFI Development has been part of this expansion for the last ten years and aims to develop projects that meet the needs of a growing, global city. We create new urban environments in the districts we develop, changing the everyday experience of Muscovites for the better.
During our years of successful operations in Moscow, we have worked closely with the City authorities. As such, Moscow authorities have long recognised the high value-add nature of our projects and we have every confdence in our continued successful cooperation with the authorities going forward.
Our experienced management team, with strong knowledge and a proven track record of operating in the Russian market, aims to maintain a diversifed portfolio whilst using a fexible, phased development approach. This enhances our ability to leverage our development platform and complete our projects on a cost-efcient basis while making our projects cash-generative at the earliest possible opportunity.
The high quality of our developments enables us to attract the most desirable international and local tenants on favourable terms. To ensure high retention rates, we aim to sign leases of increasing length with our tenants and place greater emphasis on on-going tenant relations.
Our expectation for the medium to long-term is that the Moscow real estate market will continue to ofer a high volume of business activity, high development potential due to its size, its position as the largest fnancial centre in Russia and as one of the largest capital cities in Europe. We believe that the current macroecnomic headwinds are temporary and do not change our view on the long-term fundamental strength of the Moscow market. We plan to maintain our development focus on this market into the medium to long-term, with expectations of further market improvement. At the same time, we will continue to review our land bank outside of Moscow and reactivate select projects based on availability of fnancing and strength of demand.
AFIMALL City is a retail and entertainment development, located in the high-rise business district of Moscow, "Moscow-City". With a total GBA of 283,182 sq.m (including parking) and GLA of 107,208 sq.m, the project has a shopping gallery of nearly 400 shops and an 11-screen movie theatre with a number of additional outstanding leisure facilities. AFIMALL City is one of Europe's largest and most ambitious retail developments in recent years.
The Mall introduces a new standard of quality to the Russian retail sector and ofers visitors a combined shopping, dining and entertainment experience. AFIMALL City can be easily accessed from three metro stations ("Vystavochnaya","Mezhdunarodnaya", "Delovoy Tsentr") and from the Third Transportation Ring.
| Type | Retail |
|---|---|
| Company share | 100% |
| GBA (sq.m) | 283,182 |
| GLA (sq.m) | 107,208 |
| Parking (units) | 2,075 |
| Valuation by Cushman & Wakefield as at 31.12.2014 (US\$ million) |
1,000 |
| Status | Yielding |
Ozerkovskaya (Aquamarine) III is an ofce complex forming part of the "Aquamarine" mixed-use development, located on the Ozerkovskaya embankment in the very heart of the historical Zamoskvorechie district of Moscow. The project consists of four Class A buildings with common underground parking and creates attractive working conditions through state-of-the-art architecture, innovative design and efcient use of space. Due to these characteristics "Aquamarine III" sets new standards for quality and an aspirational environment among Moscow's commercial developments. The project is located within the Garden Ring, and is served by two metro stations. In 2013, AFI Development disposed of Building 1 in the complex to ALROSA diamond mining company.
| Type | Office |
|---|---|
| Company share | 100% |
| GBA (sq.m) | 61,772* |
| GLA (sq.m) | 46,247 |
| Parking (units) | 466 |
| Valuation by Cushman & Wakefield as at 31.12.2014 (US\$ million)* |
300 |
| Status | In negotiations with tenants for sale/lease |
*After the disposal of Building 1 to ALROSA mining company in Q4 2013
The project comprises completed reconstruction of four Class B+ ofce buildings, forming a gated business park. The project is conveniently located in central Moscow, between the Garden Ring and the Third Transportation Ring, and is within walking distance from Kievskaya transportation hub.
The Paveletskaya I ofce complex comprises a reconstructed Class B building. The anchor tenant of the building is ZAO Greenatom, a subsidiary of the Russian Federation Atomic Energy Corporation, Rosatom.
The project comprises a Class B ofce building reconstructed around the frame of a former administrative building. It is located in a dynamically developing business area on the border of Moscow's Central and Southern Administrative Districts.
| Type | Office, business park |
|---|---|
| Company share | 74% |
| GBA (sq.m) | 11,612 |
| GLA (sq.m) | 10,250 |
| Parking (units) | 140 |
| Valuation by Cushman & Wakefield as at 31.12.2014 (US\$ million)* |
21.3 |
| Status | Yielding |
*AFI Development share only
| Type | Office, business park |
|---|---|
| Company share | 100% |
| GBA (sq.m) | 16,246 |
| GLA (sq.m) | 14,085 |
| Parking (units) | 126 |
| Valuation by Cushman & Wakefield as at 31.12.2014 (US\$ million) |
19.5 |
| Status | Yielding |
| Office |
|---|
| 100% |
| 10,698 |
| 8,991 |
| 81 |
| 12.1 |
| Yielding |
HOTELS
FINANCIAL STATEMENTS
| *AFI Development share only | ||
|---|---|---|
| Type | Hotel/Spa |
|---|---|
| Company share | 50% |
| GBA (sq.m) | 25,000 |
| Number of rooms | 275 |
| Status | Operating |
*AFI Development share only
Spa Kislovodsk caters to guests seeking treatment for disturbances of the cardiovascular and nervous systems, as well as respiratory diseases.
| Hotel/Spa resort |
|---|
| 100% |
| 11,701 |
| 134 |
| Operating |
imately 1,100 sq.m, which includes 45 treatment rooms, saunas, a jacuzzi, an indoor swimming pool and extensive medical and diagnostic facilities.
The four star hotel, which ofers a full range of business and leisure facilities, is located in the historical centre of Moscow, near the Kremlin, and forms part of AFI Development's major Ozekovskaya mixed-use development.
| Type | City-hotel |
|---|---|
| Company share | 100% |
| GBA (sq.m) | 8,931 |
| Number of rooms | 159 |
| Status | Operating |
Odinburg is located in the town of Odintsovo in the Moscow region (11 km west of Moscow). The entire residential district takes up an area of 33.14 hectares. The development is planned to include multi-functional infrastructure comprising two schools, two kindergartens, a medical centre and other facilities.
Each phase includes commercial premises on ground foors that are planned to be disposed to end users.
| Type | Residential |
|---|---|
| Company share* | 100% |
| GBA (sq.m) | 761,127 |
| GSA (sq.m) / GSA commercial (sq.m) | 450,432 / 19,680 |
| Parking (units) | 3,399 |
| Book value** | 133 |
| Status | Construction stage |
* AFI Development owns 100% of the project, however under the Investment Contract there are obligations to register title to certain amount of completed residential and commercial areas to the municipality of Odintsovo.
**Odinburg is a part of Company trading properties and therefore presented in the Financial Statements at cost.
| Type | Office |
|---|---|
| Company share | 100% |
| GBA,(sq.m) | 61,810 |
| GLA (sq.m) | 37,035 |
| Parking (units) | 467 |
| Valuation by Cushman & Wakefield as at 31.12.2014 (US\$ million) |
87.7 |
| Status | Development stage |
TVERSKAYA PLAZA IC The project is a class A ofce complex located at 50/2, 2nd Brestskaya street, Moscow. One of the key attractions of this project is the excellent access both by public and private transportation, and its location in a well-developed and established business district. It is located in proximity to Four Winds Plaza and other class A ofce properties in the well-developed ofce area between the Garden Ring and Belorussky railway station.
-
Botanic Garden is a residential project, located in the North-Eastern Administrative District of Moscow, ap
proximately 8 km from the Third Transportation Ring, near the major transportation route of the district Pros pect Mira, within walking distance from Botanichesky Sad and Sviblovo metro stations. The future residen tial complex has a land plot of 3.2 Ha and a gross building (GBA) of 255,025 sq.m (including "city share").
| Type | Office |
|---|---|
| Company share | 95% |
| GBA (sq.m) | 108,000 |
| GLA (sq.m) | 61,350 |
| Parking (units) | 1,210 |
| Valuation by Cushman & Wakefield as at 31.12.2014 (US\$ million)* |
107.1 |
| Status | Concept Stage |
*AFI Development share only
Plaza IV development project is located two hun dred meters from Tverskaya Zastava square at 11 Grouzinsky Val, Moscow. The project comprises a major ofce development with supporting retail zone on the ground foor.
| Type | Residential |
|---|---|
| Company share | 90% |
| GBA (sq.m) | 255,025 |
| GSA (sq.m) / GSA commercial (sq.m.) | 107,501 / 5,149 |
| Parking (units) | 1,334 |
| Valuation by Cushman & Wakefield as at 31.12.2014 (company share, US\$ million)* |
20.1 |
| Status | Planning stage |
*Value of Company share
| Type | Mixed-use retail/office |
|---|---|
| Company share | 100% |
| GBA,(sq.m) | 111,770 |
| GLA (sq.m) | 70,000 |
| Parking (units) | 1,200 |
| Valuation by Cushman & Wakefield as at 31.12.2014 (US\$ million) |
53.7 |
| Status | Pipeline |
Kossinskaya is a mixed-use building with nine aboveground foors and single underground level. The property was constructed in 2005.
CHAIRMAN'S STATEMENT EXECUTIVE DIRECTOR'S
Paveletskaya Phase II is planned as a modern res idential complex in proximity to the Moscow city centre on Paveletskaya Embankment. The project is located in Danilovsky Subdistrict (the South Adminis trative district of Moscow), between the Garden ring and the Third Transportation Ring and can be easily accessed by private or public transport.
| 4f 相当相当相 ц л |
ŧ | |
|---|---|---|
| BEERA ť u w |
||
| EXTERNATIVE BEETER |
ATOCERA | |
| Type | Residential |
|---|---|
| Company share | 100% |
| GBA (sq.m) | 170,350 |
| GSA (sq.m) / GLA commercial (sq.m) | 56,952 / 34,208 |
| Parking (units) | 1,771 |
| Valuation by Cushman & Wakefield | 108.3 |
| as at 31.12.2014 (US\$ million) | |
| Status | Planning stage |
Bolshaya Pochtovaya is a mixed-use project with dominant residential use on a land area of 5.65 hectares. The future development is located in the Central Administrative district of Moscow. The land plot borders the Yauza river, which will signifcantly enhance the views from the apartments. The project is located in an attractive neighborhood, which ben efts from developed social infrastructure: transport, shops and cultural/leisure amenities.
| Type | Residential |
|---|---|
| Company share | 100% |
| GBA (sq.m) | 151,373 |
| GSA (sq.m) / GSA commercial (sq.m.) | 48,180 / 26,115 |
| Parking (units) | 1,760 |
| Valuation by Cushman & Wakefield | 67.4 |
| as at 31.12.2014 (US\$ million) | |
| Status | Planning stage |
| Type | Office |
|---|---|
| Company share | 50% |
| GBA (sq.m) | 28,241 |
| GLA (sq.m) | 22,035 |
| Parking (units) | 138 |
| Status | Completed |
*AFI Development share only
FOUR WINDS PLAZA Four Winds Plaza is one of the most prestigious recently built class A ofce buildings in central Moscow. Designed by NBBJ and co-developed by AFI Development and Snegiri Development, Four Winds Plaza hosts the Russian headquarters of Morgan Stanley, Barclays Capital and Moody's among its high quality tenant mix. Four Winds Plaza is easily accessible from Mayakovskaya and Belorusskaya metro stations, as well as from 1st Tverskskaya Yamskaya streets and the Garden Ring. The Company disposed of its share in the project in January 2013.
FINANCIAL STATEMENTS
| Type | Residential |
|---|---|
| GBA (sq.m) | 41,364 |
| GSA (sq.m) | 18,097 |
| GLA (sq.m) | 5,069 |
| Number of apartments | 111 |
| Parking (units) | 323 |
| Status | Completed |
Four Winds Residential is a luxury residential build ing, with commercial area on the ground foor, which is part of the Four Winds mixed-use development. The construction was completed at the end of 2008. The project includes a ftness and retail zone, which is leased to third party tenants.
| Type | Residential |
|---|---|
| GBA (sq.m) | 41,980 |
| GSA (sq.m) | 15,821 |
| Number of apartments | 114 |
| Status | Completed |
Ozerkovskaya (Aquamarine) II is a high-end residen tial complex includes 114 luxury apartments of be tween 70 and 300 sq.m. The complex has its own amenities including a courtyard with a playground, a recreational area, fower garden and lawns, and a 240 sq.m pond, which is converted into an ice skat ing rink in winter.
AFI Development PLC is managed by the Board of Directors, which consists of seven directors with vast experience in the felds of fnance, banking, real estate and investment management. Of the company's seven directors, four are independent.
Mr Leviev has served as the Chairman of the Board of Directors since 1 January 2008. On 22 November 2012 he became Executive Chairman. He holds a 48.13% stake in Africa Israel Investments Ltd and also serves as its Chairman. He is also the owner and the President of the LLD Diamonds Ltd Group and is the President of the Federation of Jewish Communities of the CIS.
Mr Groysman joined the AFI Development Group in May 2011 as the CEO of LLC AFI RUS, the main Russian operating subsidiary. Mr Groysman was appointed Executive Director of AFI Development PLC on 1 January 2012. Mr Groysman has over 25 years of experience in real estate development, investments, asset and property management. Prior to joining AFI Development, Mr Groysman was the general manager of Sawatzky Property Management, the company he established in 1992 and which later become one of the leaders of the Moscow property management market. Mr Groysman graduated from the Israel Institute of Technology.
Mr Novogrocki joined the Board of Directors of AFI Development in August 2012. Mr Novogrocki is the CEO of Africa Israel Investments Ltd., major shareholder of AFI Development PLC. Prior to assuming the CEO role, Mr Novogrocki served as CEO of Africa Israel Investments subsidiaries, namely Africa Israel Industries Ltd. (from 2008 to 2012) and Packer Steel Industries Ltd. (from 2007 to 2012), as well as Deputy CEO and CFO of Africa Israel Industries Ltd. In total, Mr. Novogrocki has been working in the Africa Israel Group for 15 years. Mr Novogrocki holds MBA and BA in Economics and Business Administration degrees of Bar-Ilan University, Israel.
FINANCIAL STATEMENTS
Mr Klerides is senior independent non-executive director of AFI Development and Chairman of the Audit Committee. Mr Klerides was the Minister of Finance of Cyprus from 1999 to 2003 and currently provides fnance and business consultancy services through his family-owned company, CMK Eurofnance Consultants Limited. Mr Klerides is a Fellow of the Chartered Association of Certifed Accountants.
Mr Amit serves as an independent non-executive director of AFI Development PLC and is Chairman of the Remuneration Committee. He is also Chairman of the Board of Directors of Excellence Investment Ltd and holds board memberships at a number of companies, including Delek Group Ltd, Isracard Ltd and Hapoalim Capital Markets – Investment Bank Ltd. For more than 40 years Mr Amit worked at Bank Hapoalim, one of the major Israeli banking institutions. Mr Amit holds a banking management diploma from the Israeli Banking Association Institute and a Bachelor degree in political science and sociology from Bar-Ilan University, Israel.
Mr Demetriou serves as an independent non-executive director of AFI Development PLC. He is trained as a lawyer in both Cyprus and England (Barrister at Law). Mr Demetriou is a former Member of Cyprus Parliament and of the European Parliament as well as an Honorary Member of the Parliamentary Assembly of the Council of Europe. He currently provides legal services through his law ofce, Panayiotis Demetriou & Associates LLC.
Mr Porter serves as an independent non-executive director of AFI Development PLC. Among other directorships, he is also the Chairman of Sinocare Group, which owns and operates hospitals in the People's Republic of China. Sinocare serves the broad community and aims to raise the standard of health care for the Chinese middle class. Mr Porter has had a history of involvement with the life sciences, helping to found Natus Medical and serving for 5 years as a director of Ivax Corpnow (now part of Teva). Mr Porter holds degrees from the Universities of Oxford, Paris and Stanford. He serves on the Board of Advisors to the Said Business School, Oxford and has served two terms on the Board of Advisors to Stanford Business School.
The Russian operations of the Company are concentrated in the main Russian operating subsidiary AFI RUS LLC. Led by its CEO, Mr Mark Groysman, the senior management team of AFI RUS LLC consists of highly experienced professionals:
CEO of AFI RUS LLC from May 2011, Mr Groysman is a seasoned real estate professional with over 25 years of experience in real estate development, investments, asset and property management. Prior to joining AFI Development, Mr Groysman was the general manager of Sawatzky Property Management, the company he established in 1992 and which later become one of the leaders of the Moscow property management market.
Deputy CEO Asset Management, Marketing and Business Development, AFI RUS LLC
Mrs Leviev-Eliazarov's core experience is concentrated in management of large shopping centres. Before relocating to Moscow she was managing shopping centres for Africa-Israel Investments Ltd. in Israel and had established long-term business relationships with a variety of international retail chains. Mrs Tzvia Leviev-Eliazarov is currently responsible for managing AFIMALL City.
Deputy CEO Finance and Economics, AFI RUS LLC
Mrs Pirogova joined the management team in October 2011. She has long and successful track record in the Russian real estate with a focus on M&A deals and tax issues. For the last seven years Natalia was involved in the Russian business of Fleming Family and Partners Limited as the Financial Director and the Managing Partner and worked for Marbleton Advisers Limited as the Managing Director.
Mr Khlopunov joined AFI Development in June 2011. Prior to joining AFI Development, Mr Khlopunov headed a successful law practice specialising in real estate transactions. Mr Khlopunov is leading the legal team of LLC AFI RUS and is in charge with investment and divestment activities of the group. Mr Khlopunov is a graduate of Moscow State University.
Dmitry Kurnikov joined AFI Development in April 2014. He has more than 15 years of work experience in real estate development. Prior to joining AFI Development Dmitry Kurnikov held senior roles in big development companies BARKLI, Forum Properties, Central Properties, Insigma, where he led the development of ofce centres and elite residential complexes.
Mr Potashnikov has been with AFI Development since 2005. Prior to joining the Company he was Deputy Chief Engineer in the Mayor's ofce of Arara Ba Negev, Israel. Mr Potashnikov and his team are responsible for the Company relationships with Russian local authorities and pre-development approval processes.
| Market overview | 33 | ||
|---|---|---|---|
| Projects review | 37 |
Operational review
During the second half of 2014, Russia was faced with difcult market conditions including decreasing oil prices and growing risk perceptions of the country, leading to a 43% depreciation of the rouble against the US dollar during Q4 alone. Economic growth is widely expected to sufer further during 2015. Towards the end of 2014, a weak rouble put pressure on infation, which reached 11.4% year-onyear in December 2014. As a result of this anticipated increase in infation, consumers aggressively purchased goods which allowed retail sales to remain frm in Q4 2014 at 5.3%. However, looking ahead to 2015, this trend is not anticipated to continue and a 4% contraction in retail sales over 2014 levels is expected. During 2014, the share of foreign investors in Russian real estate decreased to 24%, compared to 45% in 2013, with local investors largely dominating the market. This trend is expected to continue during 2015 with local players having more comfort in the market than others; however, foreign investors could be attracted back to the market given the lower cost of debt fnancing if risk appetites allow.
Source: Russian Investment Market, Q4 2014, JLL; Cushman & Wakefeld Report, Marketbeat: Russia; Economist Intelligence Unit Report
The overall volume of project completions in 2014 increased by 58% to 1.4m sq.m, representing the highest levels in fve years, with over 50% meeting Class A requirements, amounting to the highest ever volume on record. Driven by the considerable volume of new supply as well as a decreasing demand, the average vacancy rate for class A and B combined further increased to 16.7% from 13.7% a year earlier, with vacancy rates in Class A buildings growing at a particularly fast rate to 28.4%, from 18.2% in 2013. Prime rents ranged from US\$750–900 per sq.m per annum, while Class A rents ranged between US\$450 and US\$650 and Class B+ rents ranged between US\$275–450 per sq. m per annum. The rouble devaluation during Q4 2014 made companies look for alternatives to US dollar denominated rental rates and de-dollarisation of the Moscow ofce market is expected to be the main trend in 2015 as rents remain under pressure and are expected to be 10-15% lower. Looking to 2015, it is expected that about 1 million sq.m of new ofce space will be supplied, with the Moscow City area accounting for approximately 25% of that fgure. That said, many developers have not yet revised construction plans based on current challenges within the market and it is expected that the pipeline could be reduced further.
Source: Moscow Offce Market View Q4 2014, JLL; Marketbeat Russia, Offce Snapshot Q4 2014, Cushman & Wakefeld
FINANCIAL STATEMENTS
14 shopping centres, including Europe's biggest mall, AviaPark, opened in Moscow during the year. It is expected that during 2015, completions will reach 1.9 million sq.m as shopping centre supply in Moscow increases by 500,000 sq.m, largely due to a signifcant number of completions that were expected in 2014 being pushed to 2015. By the end of 2014, average vacancy rates in Moscow's shopping centres had risen to highs of 6% due to the current economic climate. It is expected that rates will continue to rise to approximately 8% during 2015 as a result of lower retailer demand stemming from the weakening purchasing power of consumers. Shopping centre rents in Moscow decreased by 20% during 2014 with average rents in the range of US\$400-1,450 (per sq.m per annum) and prime rates ranging between US\$2,400 and US\$4,500 (per sq.m per annum). Rental rates are expected to continue to face pressure in 2015 as a result of increasing competition between shopping centres and demands for discounts from retailers. That said, desirable shopping centres will remain in demand with rents not anticipated to shrink signifcantly. Looking ahead to 2015, retail sales in Russia are expected to contract by 4% as a result of increased cost of imported goods due to self-imposed sanctions and a devalued rouble negatively afecting consumer purchasing power.
Moscow - During 2014, approximately 3.3 million sq.m of residential space was delivered in Moscow, including circa 1.6 million sq.m commissioned in "new Moscow" and about the same area commissioned in "old Moscow". The focus of development activity is gradually shifting to "new Moscow" territories.
The analysis of the structure of the multi-storey residential market reveals business class as the most popular segment among developers, accounting for 49.9% of the supply volume during 2014. Comfort class comes second with 33.3% in the total volume. Premium class occupies 14.3% coming third. Economy class proved to be the least popular with only 3.3% of the whole volume of construction. In 2014, the average weighted price on the primary residential market of "old" Moscow grew by 13.4% in Russian rouble terms as compared to 2013, to RUR 217,910 per sq.m (excluding premium class and apartments). Prices in US dollar terms, however, dropped by 34% to US\$ 3,870 per sq.m. This is explained by the signifcant Russian rouble depreciation versus the US dollar during the year, which could not be counterbalanced by growth in the price of housing.
Moscow region - During 2014, there were 982 new buildings commissioned in the Moscow region (representing circa 8.255 million sq.m, an increase of 11.5% over 2013). The average price per sq.m in the Moscow region amounted to RUR 81, 550 (circa US\$1,462). By the year end, comfort class apartments reached RUR 83, 750 per sq.m (circa US\$ 1,475), whilst business class apartments were priced at RUR 189,450 per sq.m (circa US\$ 3,337). The average price per sq.m in the Odintsovo region was RUR 96,800 (circa US\$ 1,705).
The Company announced the following updates to its portfolio during 2014:
AFIMALL City is a major retail scheme located in the high-rise business district of Moscow, "Moscow-City". With a total GBA of nearly 283,1821 sq.m (including parking), and GLA of nearly 107,000 sq.m, the project has a shopping gallery of nearly 400 shops and an 11-screen movie theatre with a number of additional outstanding leisure facilities. AFIMALL City is one of Europe's largest and most ambitious retail developments in recent years. The Mall introduces a new standard of quality to the Russian retail sector and ofers visitors a combined shopping, dining and entertainment experience unmatched in any other retail development in Moscow.
During 2014, AFIMALL City reported a strong increase in occupancy level, reaching 85% in December 2014 vs 76% in December 2013. During its three years of full operation, AFIMALL has become one of the most popular shopping centres located in central Moscow with a quality tenant mix and comfortable leisure, dining and entertainment zones.
In the course of the year, AFIMALL became the leading Moscow shopping centre, selected by new-to-Russia brands for their frst Russian shops. Forever 21, H&M Home, Crate&Barrel, Laura Ashley, Mirko Botticelli all opened their AFIMALL outlets during 2014. Additionally, the "Fizika" ftness chain opened its two-level club at AFIMALL in 2014, attracting additional visitors to the Mall.
The new metro station "Delovoy Tsentr" was opened in January 2014, which, similar to "Vistavochnaya" station, provides direct access to AFIMALL. Over the next year, this station is planned to become the main connecting point for a new line which will link the densely populated residential districts Ramenky, Horoshevskiy, Savyolovsky and Maryina Roscha.
FINANCIAL STATEMENTS
By 2017, transport infrastructure in the business district is expected to signifcantly improve, which will result in better accessibility and higher attractiveness of "Moscow City" amongst corporate tenants and ofce employees. The development environment of "Moscow City" continues to be a strong driver for the future trafc growth of AFIMALL City. AFIMALL is surrounded by completed ofce towers and projects under construction.
According to CBRE, during 2013-2014 three new buildings have been completed, including Mercury City, Stalnaya Vershina (ex-Eurasia Tower) and OKO, adding almost 200,000 sq.m of space.
Notwithstanding that construction of surrounding buildings is still ongoing, AFIMALL is easy to reach from diferent directions: from ofce towers "Federation", "Naberezhnaya Tower" and "Capital City", as well as from Novotel, "Evolution" tower and the neighbouring ExpoCentre. In 2014, the management of AFIMALL launched a new navigation system, which helps visitors quickly and simply fnd their way to nearby parking or shops. According to independent appraisers Cushman & Wakefeld, the market value of AFIMALL City as of 31 December 2014 was US\$1,000 million.
Ozerkovskaya (Aquamarine) III is an ofce complex forming part of the "Aquamarine" mixed-use development, located on the Ozerkovskaya embankment in the very heart of the historical Zamoskvorechie district of Moscow. The project consists of three Class A buildings of 46,247 sq.m of combined lettable space2 and common underground parking for 446 cars. The project creates very attractive working conditions through state-of-the-art architecture, innovative design and efcient use of space. Due to these characteristics, "Aquamarine III" sets new standards for quality and an aspirational environment among Moscow's commercial developments. AFI Development is in negotiations with potential buyers and tenants regarding selling or leasing the project either in full or in parts.
According to independent appraisers Cushman & Wakefeld, the market value of the remaining buildings of the Complex as of 31 December 2014 was US\$300 million.
The Company's portfolio includes three hospitality projects, one located in Moscow and the remaining two located in the Caucasus Mineral Waters region.
The Aquamarine Hotel is a modern, 4 star hotel located in the heart of Moscow. It is part of the company's mixed-use Aquamarine development, which also houses an A-class ofce centre Aquamarine III and completed elite residential complex Aquamarine II.
The Hotel provides high level services and ofers 159 spacious rooms, a ftness-centre, spa-centre, bar, restaurant, and conference rooms. It is located in the Zamoskvorechie district which is a 20 minute walk from both the Kremlin and the Tretyakov Gallery and a 5 minute walk from the Novokuznetskaya and Tretyakovskaya metro stations. The Hotel has added to the infrastructure of the historical district and is convenient for both business travellers and tourists. The hotel's performance in 2014 was negatively afected by the slowdown in international business activity in Moscow, more intense competition and rouble depreciation versus the dollar.
The balance sheet value of the project as of 31 December 2014 was US\$17.3 million.
Plaza Spa Zheleznovodsk is a sanatorium project which was launched in the summer of 2012 and is located in the Zheleznovodsk, in the Caucasus mineral waters region. The hotel comprises 134 guest rooms on 9,526 sq.m of gross buildable area. The spa provides diagnostic assessment and treatment of urological diseases. During 2014 the hotel demonstrated growing occupancy, which reached an average of 69% for the year. The hotel benefted from the current trend of growing domestic tourism in Russia.
The balance sheet value of the project as of 31 December 2014 was US\$12.2 million.
The Plaza Spa is located in the city centre of Kislovodsk, in the Caucasus mineral waters region. The facility was put into operation in 2008 after a full reconstruction and now has a total of 275 rooms spread over 25,000 sq.m. Today, the Plaza Spa Kislovodsk is a popular spa hotel which has established new standards of quality and hospitality for the entire region. It ofers an extensive range of medical services focused on the treatment of cardiac diseases. Diagnostic and treatment equipment is continually updated and the staf regularly attend training sessions for new methods of treatment to aid rehabilitation of patients.
The balance sheet value of the Company share in the project (50%) as of 31 December 2014 was US\$14.4 million.
Tverskaya Plaza Ic is a class A ofce complex located in the cultural and business quarter of the Tverskoy sub-district. The complex is located within a 4-minute walk of Belorusskaya metro station, which serves as the main transport hub linking the city centre with one of Moscow's main airports – Sheremetievo International Airport. The project has a GBA of 61,810 sq.m (including underground parking of approximately 467 parking spaces) and an estimated GLA of 37,035 sq.m Following the registration of a 10-year land lease agreement, the Company successfully fnalised the development concept, received the necessary construction permit and completed all pre-construction works. AFI Development plans to start construction of this project as soon as it has secured debt fnancing on favourable terms and the market situation improves.
Based on an independent valuation of the Company's portfolio by Cushman & Wakefeld as of 31 December 2014, the fair value of Tverskaya Plaza Ic is US\$87.7 million.
Plaza IV is a class A ofce complex with supporting ground level retail zones, located at 11, Gruzinky Val. The project has a GBA of 108,000 sq.m (including underground parking) and an estimated GLA of 61,350 sq.m. During 2014, the Company progressed with securing the land lease agreement with Moscow authorities.
Based on an independent valuation of the Company portfolio by Cushman & Wakefeld as of 31 December 2014, the fair value of Plaza IV was US\$107.1 million.
Kossinskaya is a mixed-use building totalling 111,700 sq.m with nine above ground foors and a single underground level. The property was constructed in 2005. In November 2014, AFI Development's Board of Directors decided to place on hold and reconsider further implementation of the development concept of Kossinskaya as apparel and fashion wholesale trade centre "Expolon", in light of the current economic situation in Russia.
Based on an independent valuation of the Company portfolio by Cushman & Wakefeld as of 31 December 2014, the fair value of Kossinskaya is US\$ 53.7 million.
In October 2013, AFI Development began construction at "Odinburg", one of the Company's largest residential projects with a total area of over 33 hectares located 11 km west of Moscow in the town Odintsovo. The development is planned to include multi-functional infrastructure comprising of two schools, two kindergartens, a medical centre and other facilities.
The project involves construction of a multi-storey residential micro district consisting of two phases:
The construction works of Phase I ("Korona") are underway. Construction of the frst building within this development is near completion, with fnal facade works taking place. The construction of the second building began in December 2014. Initial sales of apartments are progressing in line with the market
situation. As of the date of publication of this report, 594 contracts for sales of apartments have been signed. The balance sheet value of the project as of 31 December 2014 was US\$133.0 million.
Paveletskaya Phase II is planned as a modern residential complex located on the Paveletskaya Embankment close to Moscow city centre. The project is located in the Danilovsky Subdistrict (the south administrative district of Moscow) and can be easily accessed by private or public transport.
Following the decision of the town-planning land committee ("GZK") and the land plot master-plan ("GPZU") GBA of the project is to comprise 151,373 sq.m, which includes 48,180 sq.m of residential area, circa 26,115 sq.m of commercial area and 1,760 units of underground parking. During the 2014, AFI Development fnalised the planning stage of the project. The Company intends to start pre-construction works during H2 2015, subject to improvement in the market situation. Based on an independent valuation of the Company portfolio by Cushman & Wakefeld as of 31 December 2014, the fair value of Paveletskaya Phase II is US\$67.4 million.
Bolshaya Pochtovaya is a mixed-use project with predominantly residential use. It is located in an attractive neighbourhood in the central administrative district of Moscow. The area benefts from a developed infrastructure: transport, shops and cultural/leisure amenities as well as from a nearby river, which signifcantly enhances the views from the project. It boasts a GBA of 170,350 sq.m on a land area of 5.65 hectares. The development plan for the property anticipates construction of 170,350 sq.m GBA, which includes 56,952 sq.m of residential area, 34,208 sq.m of commercial area and 1,771 under-
ground spaces. Currently, the Company is developing the design of the project and plans to receive the construction permit in 2015.
Based on an independent valuation of the Company portfolio by Cushman & Wakefeld as of 31 December 2014, the fair value of Bolshaya Pochtovaya is US\$108.3 million.
Botanic Garden is a residential project, located in the North-Eastern Administrative District of Moscow, approximately 8 km from the Third Transportation Ring, near the major transportation route of the district Prospect Mira, within walking distance from Botanicheskuiy Sad and Sviblovo metro stations. The future residential complex has a land plot of 3.2 Ha and a gross building (GBA) of 255,025 sq.m (including "city share"): 107,501 sq.m of residential area, 5,149 sqm of commercial premises and 1,334 underground and above ground parking lots.
In December 2014, AFI Development restored the Botanic Garden project on its books, following liquidation of former primary investor, Novoe Koltso Moskvy OJSC ("NKM"), as risks related to the bankruptcy of NKM were removed. The Company has completed the planning of the residential complex, while the project received the approval of the Moscow construction authorities. A construction permit was received in December 2014.
Based on an independent valuation of the Company portfolio by Cushman & Wakefeld as of 31 December 2014, the fair value of Botanic Garden is US\$20.1 million.
In addition to multiple yielding properties and projects under development, AFI Development also has a land bank which consists of projects that are not currently under development. By retaining full fexibility regarding future development of these projects, the Company remains well placed to beneft from further recovery in the regional real estate markets. Given its strong track record in bringing projects to completion, this represents a signifcant competitive advantage for AFI Development. AFI Development's strategy with respect to its land bank is to activate projects only upon securing necessary fnancing and having full confdence in the demand levels of prospective tenants or buyers.
This section presents information about the Company's exposure to each of the risks listed below, the Group's objectives, policies and processes for measuring and managing risks.
The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework and is responsible for developing and monitoring the Company's risk management policies.
The Company's risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to refect changes in market conditions and the Company's activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Company's Audit Committee oversees how management monitors compliance with the Company's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Company's Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee and the whole Board of Directors. The Board of Directors requests the management to take corrective actions as necessary and make follow up reports to the Audit Committee and to the Board on addressing defciencies found.
Credit risk is the risk of fnancial loss to AFI Development if a customer or counterparty to a fnancial instrument fails to meet its contractual obligations and arises principally from the Company's receivables from customers and investment securities.
Financial assets that are potentially subject to credit risk consist principally of trade and other receivables. The carrying amount of trade and other receivables represents the maximum amount exposed to credit risk. Credit risk arises from cash and cash equivalents as well as credit exposures with respect to rental customers, including outstanding receivables. The Company has policies in place to ensure that, where possible, rental contracts are made with customers with an appropriate credit history. Cash transactions are limited to high-credit-quality fnancial institutions. The utilisation of credit limits is regularly monitored.
AFI Development has no other signifcant concentrations of credit risk, although collection of receivables could be infuenced by economic factors.
The Company limits its exposure to credit risk by investing only in liquid securities and only with counterparties that have a high credit rating. Management actively monitors credit ratings and given that the Group only has invested in securities with high credit Statements.
Guarantees
ratings, management does not expect any existing counterparty to fail to meet its obligations, except as disclosed in note 33 to the our consolidated Financial
The Company's policy is to provide fnancial guarantees only to wholly-owned subsidiaries in exceptional cases. In negotiations with lending banks the Company is aiming to avoid recourse to AFI Development on loans taken by subsidiaries. As at 31 December 2014, there were two outstanding guarantees: one for the amount of US\$1 million in favour of VTB Bank JSC under a loan facility agreement of Bellgate Construction Limited (AFIMALL City) and the second one for the amount of US\$205 million in favour of VTB Bank JSC under a loan facility agreement of Krown
Liquidity risk is the risk that the Company will not be able to meet its fnancial obligations as they fall due. AFI Development's approach to managing liquidity is to ensure, as far as possible, that it will always have sufcient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation. Prudent liquidity risk management implies maintaining sufcient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Company aims to main-
Investments LLC (Ozerkovskaya III).
Liquidity risk
tain fexibility in its funding requirements by keeping cash and committed credit lines available. AFI Development's liquidity position is monitored on
a daily basis by the management, which takes necessary actions if required. The Company structures its assets and liabilities in such a way that liquidity risk is minimised.
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will afect the Company's income or the value of its holdings of fnancial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the available returns for shareholders. We are exposed to market risks from changes in both foreign currency exchange rates and interest rates. We do not use fnancial instruments, such as foreign exchange forward contracts, foreign currency options and forward rate agreements, to manage these market risks. To date, we have not utilised any derivative or other fnancial instruments for trading purposes.
We are subject to market risk deriving from changes in interest rates, which may afect the cost of our current foating rate indebtedness and future fnancing. As of 31 December 2014, 27% of our fnancial liabilities were fxed rate. For more detail see note 33 to our consolidated fnancial statements.
The Company is exposed to currency risk on future commercial transactions, recognised monetary assets and liabilities and net investments in foreign operations that are denominated in a currency other than the respective functional currencies of AFI Development's entities, primarily the US Dollar and Russian Rouble.
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.
FINANCIAL STATEMENTS
The Company's objective is to manage operational risk so as to balance the need to avoid fnancial losses and damage to the Group's reputation with overall cost efectiveness.
The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Company standards for the management of operational risk. Compliance with Company standards is supported by a programme of periodic reviews undertaken by way of internal audits. The results of the internal audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and the Board of Directors.
Critical accounting policies are those policies that require the application of our management's most challenging, subjective or complex judgments, often as a result of the need to make estimates about the efect of matters that are inherently uncertain and may change in subsequent periods. Critical accounting policies involve judgments and uncertainties that are sufciently sensitive to result in materially diferent results under diferent assumptions and conditions. We believe that our most critical accounting policies are those described below.
A detailed description of certain of the main accounting policies we use in preparing our consolidated fnancial statements is set forth in note 5 to our consolidated fnancial statements.
We make estimates and assumptions regarding the fair value of our investment properties that have a signifcant risk of causing a material adjustment to the amounts of assets and liabilities on our balance sheet. In particular, our investment properties under development (which currently comprise the majority of our projects) are remeasured at fair value upon completion of construction and the gain or loss on remeasurement is recognised in our income statement, as appropriate. In forming an opinion on fair value, we consider information from a variety of sources including, among others, the current prices in an active market, third party valuations and internal management estimates.
The principal assumptions underlying our estimates of fair value are those related to the receipt of contractual rentals, expected future market rentals, void/ vacancy periods, maintenance requirements and discount rates that we deem appropriate. We regularly compare these valuations to our actual market yield data and actual transactions and those reported by the market. We determine expected future market rents on the basis of current market rents for similar properties in the same location and condition. For further details, please refer to Note 3 to our consolidated fnancial statements.
We recognise impairment losses with respect to fnancial assets, including loans receivable and trade and other receivables, in our income statement if objective evidence indicates that one or more events have had a negative efect on the estimated future cash fows of that asset. We test signifcant fnancial assets for impairment on an individual basis and assess our remaining fnancial assets collectively in groups that share similar credit characteristics. Impairment losses with respect to fnancial assets are calculated as the diference between the asset's carrying amount and the present value of the estimated future cash fows of the asset discounted at the original efective interest rate of that asset.
Estimating the discounted present value of the estimated future cash fows of a fnancial asset is inherently uncertain and requires us both to make an estimate of the expected future cash fows from the asset and also to choose a suitable discount rate in
FINANCIAL STATEMENTS
order to calculate the present value of those cash fows. Changes in one or more of these estimates can lead us to either recognizing or avoiding impairment charges
We recognise impairment loss with respect to non-fnancial assets, including investment property under development and trading properties under construction, if the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, we discount estimated future cash fows of the asset to their present value using a pre-tax discount rate that refects current market assessments of the time value of money and the risks specifc to the asset. The carrying amounts of impaired non-fnancial assets are reduced to their estimated recoverable amount either directly or through the use of an allowance account and we include the amount of such loss in our income statement for the period.
We assess at each reporting date whether there is any indication that a non-fnancial asset may be impaired. If any such indication exists, we then estimate the recoverable amount of the asset. Estimating the value in use requires us to make an estimate of the expected future cash fows from the asset and also to choose a suitable discount rate in order to calculate the present value of those cash fows. The development of the value in use amount requires us to estimate the life of the asset, its expected cash fows over that life and the appropriate discount rate, which is primarily based on our weighted average cost of capital, itself subject to additional estimates and assumptions. Changes in one or all of these assumptions can lead to us either recognizing or avoiding impairment charges.
We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves a jurisdiction-by-jurisdiction estimation of actual current tax exposure and the assessment of the temporary diferences resulting from difering treatment of items, such as capitalization of expenses, among others, for tax and fnancial reporting purposes. These diferences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must assess, in the course of our tax planning process, our ability and the ability of our subsidiaries to obtain the beneft of deferred tax assets based on expected future taxable proft and available tax planning strategies. If, in our management's judgment, the deferred tax assets recorded will not be recovered, a valuation allowance is recorded to reduce the deferred tax asset.
Signifcant management judgment is required in determining our provision for income taxes, deferred tax assets, deferred tax liabilities and valuation allowances to refect the potential inability to fully recover deferred tax assets. In our consolidated fnancial statements the analysis is based on the estimates of taxable income in the jurisdictions in which we operate and the period over which the deferred tax assets and liabilities will be recoverable.
If actual results difer from these estimates, or we adjust these estimates in future periods, we may need to establish an additional valuation allowance which could adversely afect our fnancial position and results of operations.
The fair value of employee share options is measured using a binomial lattice model. The fair value of share appreciation rights is measured using the Black-Scholes formula. Measurement inputs include share price on the measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historic experience and general option holder behaviour), expected dividends and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.
There were no related party transactions (as defned in UK Listing Rules) in the fnancial year ended 31 December 2014 or in the period since 31 December 2014.
The Board of Directors states as follows: AFI Development Plc has a controlling shareholder, Africa Israel Investments Limited, who was holding 64.88% interest in AFI Development as of 31 December 2014.
The Company has entered into a Relationship Agreement under the UK Listing Rule 9.2.2A R (a) with its controlling shareholder, Africa Israel Investments Limited, on 16 September 2014 ("the Relationship Agreement). This agreement replaced the previous relationship agreement made by the Company with its controlling shareholder in 2007.
The Board of Directors is satisfed that the Company has complied with the independence provisions in the Relationship Agreement during 2014.
So far as the Company is aware, the independence provisions included in the Relationship Agreement have been complied with during 2014 by the controlling shareholder and or any of its associates.
All independent directors supported the above statement.
At the Annual General Meeting of Shareholders held on 6 November 2014 the Company adopted changes to its Articles of Association to allow election and re-election of independent directors in accordance with the provisions of UK Listing Rules 9.2.2.E R and 9.2.2F R.
Although the Company is incorporated in Cyprus, its shares are not listed on the Cyprus Stock Exchange, and therefore it is not required to comply with the corporate governance regime of Cyprus. Pursuant to the Listing Rules however, the Company is required to comply with the 2012 UK Corporate Governance Code1 (the "Code") or to explain its reasons for non-compliance. The Company's policy is to achieve best practice in its standards of business integrity in relation to all activities. This includes a commitment to follow the highest standards of corporate governance throughout the AFI Development group.
The directors are pleased to confrm that the Company has complied with the provisions of the Code for the period under review, with the exception that the Executive Chairman of the Board, Mr Leviev, is not independent (as required by section A.3.1 of the Code) by virtue of the fact that he is, indirectly, a major shareholder of the Company. Mr. Leviev holds a controlling stake in Africa Israel Investments Ltd., the major shareholder of the Company. The directors consider Mr. Leviev to be a key member of the Company's leadership and are of the opinion that his oversight, management role and business reputation are important to the Company's success. The directors are therefore of the view that Mr. Leviev should continue as Executive Chairman as it would be benefcial for the Company.
Throughout 2014, the Company had a strong non-executive representation on the Board. Of the seven directors currently on the Board, there are fve non-executive directors, four of whom are independ-
ued to serve as Senior Independent Director, a position he was appointed to in 2010. The Board is satisfed that no one individual or group of directors has unfettered powers of discretion, that an appropriate balance exists between the executive and non-executive members of the Board and that between them, the directors bring the range of skills, knowledge and expertise necessary to lead the Company.
Working processes at the Board of Directors
Balance of Directors
The roles of the Executive Chairman and Executive Director are split and clearly defned. The Executive Chairman, Mr Lev Leviev, provides strategic leadership and leads key negotiations with the Moscow Authorities, other government authorities in regions of AFI Development operations, with key lenders and with its counterparties in transactions of strategic importance. Additionally, the Executive Chairman is generally responsible for the governance of the Board, for facilitating the efective contribution of all directors and for ensuring that Board members are aware of the views of major shareholders. The Executive Director, Mr Mark Groysman, is responsible for all aspects of the operation and management of the Company and its business. His role includes developing an appropriate business strategy for Board
approval, and ensuring that the agreed strategy is implemented in a timely and efective manner. When appointing new directors to the Board, objective criteria are applied. Appointments are made on merit with due regard to the beneft of diversity on the Board, both in terms of a broad range of skills, expertise and experience, and with respect to gender.
The Company is committed to the principle of diversity and equal opportunities. As of 31 December 2014, female representation across the workforce of AFI Development was approximately 67%, while at the middle management level the fgure was approximately 47%. In addition, 28% of the senior management team of AFI RUS LLC, the Company's main operating subsidiary, are female.
The Board of Directors normally meets at least fve times a year to review trading performance, budgets and funding; to set and monitor strategy; to examine acquisition opportunities; and to report to shareholders. There is a formal schedule of matters specifcally reserved to the Board for decisions2. The Board is responsible for the strategy, approval of annual budgets, approval of interim and fnal fnancial results, maintaining the system of internal control, compliance and risk management, approval of major transactions and other matters. To enable the Board to perform its duties, each director has full access to all relevant information. It is the Executive Chairman's responsibility to ensure that the Board is provided with accurate, timely and clear information in relation to the Company and its business.
Name Board Meetings Audit Committee Remuneration Committee Nomination Committee Lev Leviev 3 - - - Mark Groysman 6 - - - Avraham Novogrocki 5 - - 0 Christakis Klerides 6 6 5 0 Moshe Amit 6 5 5 0 John Porter 6 5 4 0 Panayiotis Demetriou 6 - 4 0 Dates held 17.03.2014 19.05.2014 18.08.2014 11.09.2014 17.11.2014 22.12.2014 17.03.2014 19.05.2014 18.08.2014 11.09.2014 17.11.2014 22.12.2014 17.03.2014 19.05.2014 18.08.2014 17.11.2014 22.12.2014 No. of meetings held during 2014 6 6 5 0
Attendance at Board Meetings in 2014 was as follows:
Note: Where '-' is shown, the director listed is not a member of the committee.
All directors, the Board and each of the Board Committees are authorised to obtain independent legal or other professional advice as necessary, to secure the attendance of external advisers at their meetings and to seek information from any employees of the Company in order to perform their duties.
At the Board Meeting on 22 December 2014 the nonexecutive directors met without the Chairman present to appraise the Chairman's performance in 2014.
Non-executive directors are invited to join the Board for a three-year period, subject to re-election by shareholders as provided for in the Company's articles of association.
The Board has adopted a policy and procedures for managing and, where appropriate, approving conficts or potential conficts of interest.
Insurance cover is in place to protect board members and ofcers against liability arising from legal action taken against them in the course of their duties.
The appointment and removal of the Company Secretary is a matter for the Board. All directors have access to the advice and services of the Company Secretary.
FINANCIAL STATEMENTS
In 2014 AFI Development conducted performance evaluations for the Board and its committees in-house using the "Board Governance Analysis" service package of the UK Institute of Directors.
The appraisal of Chairman's performance was conducted in December 2014 by the non-executive directors, under the leadership of Mr Christakis Klerides, the Senior Independent Director.
In accordance with the Code, the Company has established an Audit Committee, a Nomination Committee and a Remuneration Committee, each of which has defned terms of reference which are summarised below and available on the Company's website: www.af-development.com. Members of these committees are appointed principally from among the independent directors. Each committee and each director has the authority to seek independent professional advice where necessary and to discharge their respective duties at the Company's expense.
The Nomination Committee comprises of four directors: Moshe Amit (Chairman), Christakis Klerides, John Porter and Avraham Novogrocki. All members of the Committee, except Mr Novogrocki, are independent non-executive directors. The Nomination Committee meets as required for its role. It is responsible for preparing selection criteria and appointment procedures for members of the Board and reviewing on a regular basis the structure, size and composition of the Board. In undertaking this role, the Committee refers to the balance of skills, knowledge, independence and experience required on the Board based on the Company's stage of development and in light of such considerations, makes its appointment recommendations to the Board. When assessing candidates, the Nomination Committee uses objective criteria; all appointments are based on merit. The Nomination Committee also considers future appointments and makes recommendations regarding the composition of the Audit and Remuneration Committees. During 2014 the Nomination Committee did not meet.
The Remuneration Committee consists of four directors: Panayiotis Demetriou (Chairman), Moshe Amit, Christakis Klerides and John Porter. All committee members are independent non-executive directors.
The remuneration of non-executive directors is determined by the Chairman and other executive directors outside the framework of the Remuneration Committee, although this can be reviewed by the Remuneration Committee. No director or manager may be involved in any discussions or decisions relating to his or her own remuneration.
The Remuneration Committee discussed the existing executive remuneration practices in place and came to the opinion that the remuneration package of executive directors should be determined on an individual basis, in the context of both the market in which the Company operates and good corporate governance practice. In determining executive directors' individual remuneration packages, the Remuneration Committee applies the provisions of Schedule A to the Code. The Company currently has two executive directors, Mr Mark Groysman and Mr Lev Leviev.
The Remuneration Committee met on fve occasions in 2014. It discussed and made recommendations to the Board on annual bonuses to executive directors and senior executives and reviewed their remuneration packages.
The Remuneration Committee did not appoint any external consultants during 2014.
The Audit Committee comprises three independent directors and meets at least fve times each year at appropriate times in the reporting and audit cycle of the Company and more frequently if required. The members of the Audit Committee are: Christakis Klerides (Chairman), Moshe Amit and John Porter. All members of the Committee are independent nonexecutive directors.
The purpose of the Audit Committee is to assist the Board in fulflling its responsibilities of oversight and supervision of, among other things:
The Audit Committee supervises and monitors, and advises the Board on risk management and control systems and the implementation of codes of conduct. In addition, the Audit Committee supervises the submission by the Company of fnancial information and
a number of other audit related issues (both external and internal) and makes recommendations to the Board accordingly.
The Audit Committee held fve meetings during 2014. The Board is satisfed that at all stages during 2014 at least two members of the Audit Committee had recent and relevant fnancial experience.
The matters reviewed and considered by the Audit Committee in 2014 included:
During 2014, the Company did not pay any dividends. In the future, the Company may consider making dividend payments in respect of its ordinary shares, when and if commercially prudent, after taking into account profts, cash fow and capital investment requirements. No dividends will be paid otherwise than out of profts.
The Company takes its commitment to health and safety very seriously. It reviews its policies, procedures and standards on a regular basis to ensure that its properties and developments ofer a safe environment for its employees, customers and suppliers, as well as for other visitors.
The Company works with its suppliers and contractors to ensure that they meet the Company's high health and safety standards.
FINANCIAL STATEMENTS
Communication with shareholders
The directors place considerable importance on maintaining open and clear communication with the Company's investors. The Company's investor relations department is dedicated to facilitating communication with shareholders.
The Company maintains an ongoing dialogue with its shareholders, discussing a wide range of relevant issues including strategy, performance, the market, management and governance within the constraints of the information already known to the market. The principal methods of communication with shareholders are the Company's news announcements, the interim report, the annual review and fnancial statements, the annual general meeting, the investors' conference calls and the corporate website. In addition, the Company undertakes regular meetings with investors and participates in sector conferences. Upon request, individual meetings with existing or potential investors can be arranged via the investor relations department of the Company.
The main shareholder of the Company is Africa Israel Investments Limited ("AFI Investments"), which holds a 64.88% interest in AFI Development. AFI Development maintains on-going reciprocal communications with AFI Investments on several levels, including at a Board level, as the CEO of AFI Investments, Mr Avraham Novogrocki, is a Board member, and AFI Investments' Chairman, Mr Lev Leviev, is the Executive Chairman of AFI Development. Additionally, several senior managers of AFI Investments regularly attend board meetings of AFI Development. Senior representatives of AFI Investments are therefore able to share views with non-executive directors, including the senior independent director, during AFI Development's Board meetings, to ensure that its views, issues and concerns are clearly communicated to AFI Development's directors.
The remaining shareholder base of AFI Development consists of a diverse group of small shareholders, each of whom holds a stake of less than 3%. Communication with these shareholders is maintained through public and regulatory channels.
During the course of a year, shareholders are kept informed of the progress of the Company through results statements and other announcements that are released through the Regulated Information Service of the London Stock Exchange and other news services. Company announcements are made available simultaneously on the Company's website, afording all shareholders full access to material information. Shareholders can also raise questions directly with the Company at any time through a facility on the Company's website.
Following publication of quarterly results the Company organises conference calls, during which interested investors, analysts, business journalists and the general audience can converse with senior representatives of the Company. The times and contact numbers of these conference calls are announced in advance via the Regulated Information Service of the London Stock Exchange and published on the Company website.
The Company's annual general meeting allows individual shareholders the opportunity to question the Executive Chairman and members of the Board. Notice of the annual general meeting is sent to shareholders at least 21 days before the meeting. At the meeting, after each resolution has been passed, details are given of the number of proxies lodged together with details of the number of votes cast for and against each resolution.
On 17 March 2014 the Board of Directors appointed Mr Ami Faivel as the internal auditor of the Company.
The internal auditor is responsible for the recommendation of an annual auditing plan to the Audit Committee. Subsequently, the internal auditor carries out auditing assignments in accordance with such a plan and oversees and reports on the Company's compliance with the plan's recommendations. The internal auditor is available for any meetings of the Audit Committee and/or of the Board of Directors.
The Board has overall responsibility for maintaining the Company's system of internal control to safeguard shareholders' investments and the Company's assets, as well as for monitoring the efectiveness of this system. The Audit Committee supervises, monitors and advises the Board of Directors on risk management and control systems together with the implementation of codes of conduct and the auditing plan recommended by the internal auditor.
The Company implements its procedures according to the best practice on internal control provided in the Turnbull Guidance "Internal Control: Revised Guidance for Directors on the Combined Code" ("the Turnbull Guidance"). The Company's system of internal control supports identifcation, evaluation and managing the risks afecting the Company and the business environment in which it operates.
Additionally, as part of the Africa Israel Investments Group, AFI Development has to comply with the requirements of the Israel Securities Authority's regulations and guidelines for the execution of an efective evaluation of internal control over fnancial reporting and disclosure by the Board and management.
These regulations were introduced to improve the quality and accuracy of fnancial reporting and disclosure for "reporting companies" in Israel, within the meaning thereof in the Securities Law 1968 (hereinafter – "the Israeli Securities Law"), by improving the internal control infrastructure over the fnancial reporting and disclosure processes in companies and by strengthening management commitment to ensuring their quality and accuracy. For this purpose, the regulations include an obligation on the part of "reporting companies" in Israel to attach to their fnancial statements a management declaration regarding the accuracy of the fnancial information included therein. The regulations also introduce a reporting obligation to prepare a separate report of the Board and management regarding the efectiveness of the internal control over fnancial reporting and disclosure. Additionally, "reporting companies" have an obligation to attach an opinion report of an external auditor regarding the efectiveness of the internal control.
As a practical result, management of a "reporting company" is required to establish a system of internal control over the fnancial reporting and the disclosure processes, which is intended to provide a reasonable level of confdence regarding the accuracy and reliability of fnancial reports and disclosures.
The management of the "reporting company" is required to monitor the company's system of internal control on an ongoing basis in order to ensure that the efectiveness of the internal control is constantly adapted to changes in the company and its activities.
The Company's systems of risk management and internal control are designed, inter alia, to provide a reasonable amount of confdence as to the reliability of the Company's fnancial reporting, to ensure that the fnancial reports are prepared in accordance with the requirements of the law and to ensure that the information that the Company is required to disclose in its reports and announcements is gathered, processed, summarised and reported on time and in the format set forth in the Disclosure and Transparency Rules and the Listing Rules of the UK Listing Authority.
The system of internal control at AFI Development is structured along the four main groups of controls:
Entity Level Controls - these are controls that may have an overall impact on the organisation. These organisation level controls constitute the infrastructure for the course and nature of the activities executed by the Company. These controls are embedded into the organisational structure of the Company. Controls at the Entity Level include, among others: Decision making process in the Company; Procedures regarding
CHAIRMAN'S STATEMENT
FINANCIAL STATEMENTS
identifying, approving and reporting of transactions with related parties and people of interest; Procedures regarding identifying and approving transactions that are in confict of interest; The appropriateness of the function of the Board and it's Committees; Efciency of the function of the Audit Committee; Segregation of duties between the management and the Board; Risk identifcation and risk management; Assessment and control over the corporate results; Active supervision of the Board over Company Management.
Process of Preparing and Closing Out the Financial Statements - This process relates to examination of the last segment of the fnancial reporting and disclosure process which includes, among other things, the following activities: Gathering of the data to the trial balances and performance of substantive examinations of the appropriateness of the data received; Determination and implementation of the accounting policies by the company; Recording of necessary adjustments for purposes of preparation of the annual and quarterly fnancial statements, including adjustments for purposes of consolidation of the fnancial statements; Compilation and preparation of the statements including the relevant disclosures; Discussion and approval of the fnancial statements by the relevant corporate organs.
General Controls over the Information Systems (ITGC) - Control procedures relating mainly to: Procedures regarding system access right controls; Procedures regarding performing changes to the system; Backup and restoration procedures; Appropriate separation of the "production" environment and the "testing" environment; Information security procedures.
Processes that are "Very Signifcant to the Financial Reporting and the Disclosure" - These are processes that might have a material impact on the company's fnancial reports and the disclosure (hereinafter also – "Very Signifcant Processes"). A process for this purpose is a series of activities executed by parties in the company or the information systems thereof from the moment of initiation of the transaction (or event) and up to refecting and/or disclosing it in the company's fnancial reports. In order to comply with the provisions of the Turnbull Guidance, the Company included in its system of internal control specifc controls over business operations and risk management, which are monitored together with the controls over fnancial reporting and disclosure, as required by the Israeli Securities Law.
AFI Development Group employs a full time dedicated internal controller, who is responsible for day-to-day management of the internal control system, preparation and maintenance of necessary documentation, liaising with internal auditors and for internal control reporting to senior management. Authority is delegated from the Board through the senior management to the operating divisions and clear reporting lines and assigned responsibilities exist amongst diferent management levels within each division. Segregation of duties is applied throughout the Company.
The Company has a clearly set out organisational structure with well-defned reporting lines between the Board and the heads of each operating division.
The Board of Directors has ultimate decision-making power over signifcant matters relating to the fnancial management of the Company such as material changes in banking arrangements (including a change of bankers facilities and signatory category limits), approval of project budgets, General Annual Budget and the Annual Working Programme, changes to the Company's capital structure, and acquisitions and disposals of subsidiaries or projects.
The Company has comprehensive project-based budgeting and reporting processes as well as a fnance reporting process, and produces monthly operational results and forecasts. Detailed annual budgets for the coming year are presented to the Board in December.
Senior management of the Company has implemented the appropriate controls for the Company's fnancial reporting processes.
In the course of the investment appraisal process the following guidelines are followed by the Company's management:
When valuing the current portfolio of assets an independent appraiser is used on semi-annual basis to confrm the improvement or impairment in market value of each of the Company's properties. The calculations are then examined by the management team.
When making decisions on re-activating the development of pipeline or land bank projects, internal investment models are prepared to evaluate economic efectiveness and reasonableness of potential investments. An investment model template approved by the Company's fnancial department is used to evaluate the economics of future developments.
Before disposals of material projects a calculation of market value is performed by an independent appraiser to justify the reasonableness of the contracted price or to analyse any discrepancies revealed.
When approving any signifcant change in the development budget of any of the Company's existing projects, internal investment modeling is performed to test the potential infuence on the projects' returns.
The Company has a well-defned strategy, which is determined by the senior management and approved by the Board. The policies and procedures relating to the core business processes are formally documented and communicated to the relevant employees.
The Company retains legal counsel in all relevant jurisdictions in order to ensure on-going compliance with all applicable laws and regulations.
Assurances on compliance with the internal control systems are obtained through a number of monitoring processes, including a formal annual confrmation of compliance provided by Mr Groysman, the Executive Director.
Based on results of a test of the efectiveness of the Company's risk management and internal control systems conducted as at 31 December 2014, the Board concluded that for the period ending on 31 December 2014 the risk management and internal control systems were efective. The Board continues to monitor the efectiveness of these systems on an ongoing basis as follows:
The Board seeks to present a balanced and understandable assessment of the Company's position and prospects, and details are given in the Directors' Report.
The directors are responsible for the preparation of the Annual Report and fnancial statements of the Company.
After making enquiries, the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.
AFI Development Plc became a premium listed company on the London Stock Exchange in 2010 and during 2011 the Remuneration Committee and the Board of Directors revised the principles for executive and non-executive directors' remuneration to meet the requirements of the Code. The same principles were applied during 2014.
The Company believes that its remuneration policies should be efective in attracting, retaining and motivating directors to produce superior results for the Company and in continuously creating sustainable value for its shareholders. The Company makes a clear distinction between the remuneration structure for executive and non-executive directors.
Non-executive directors have a non-performance-related remuneration structure, refecting the time commitment and responsibilities of their role. Non-executive directors are encouraged to participate in Board meetings in person (the attendance fee for "teleconference participation" in Board meetings is 50% of the attendance fee for "in person participation"). In addition, the base fee of the Senior Independent Director is higher than that of the other non-executive directors to refect the additional duties and responsibilities conferred to such a director under the Code.
Executive directors' remuneration, on the other hand, is performance related and includes bonuses and a long term incentive component (usually participation in the Company's share option plan). The Remuneration Committee designs remuneration packages for executive directors on an individual basis, taking into account the provisions of Schedule A of the Code.
The AFI Development Share Option Plan (the "Share Option Plan") was adopted by the Board on 12 April 2007. The Remuneration Committee has responsibility for granting options and supervising and administering the Share Option Plan. The Plan is discretionary and options will only be granted when the Remuneration Committee so determines. All employees and directors (except independent directors) of the Company, and those of the Company's holding company or any of its subsidiaries, are eligible to participate in the Share Option Plan at the discretion of the Remuneration Committee. Options are currently intended to be granted to senior managers, directors (except non-executive directors) and key personnel of the Company or any of its subsidiaries only.
The price payable on the exercise of an option for each A Ordinary share, B Ordinary Share or Global Depository Receipt, is determined by the Remuneration Committee and should not be lower than the closing market price on the day preceding the day of grant, unless the Remuneration Committee determines at its discretion that a lower price is required, for example, in order to facilitate the recruitment or retention of a key executive. In any 10 year period, not more than 10% of the Company's issued ordinary share capital may be issued or be issuable under the Share Option Plan and any other employee share plan that the Company operates. Options that have been released or lapsed without being exercised are ignored for the purposes of this maximum limit.
Subject to the participant discharging any relevant tax liability, options will normally be exercisable at the following times: (a) as to one-third of the A Ordinary Shares, B Ordinary Shares or GDRs in respect of which it was granted from the second anniversary of the grant, (b) as to a further one-third of the A Ordinary Shares, B Ordinary Shares or GDRs from the third anniversary of grant, and (c) as to the remainder of the A Ordinary Shares, B Ordinary Shares or
GDRs from the fourth anniversary of grant. A diferent vesting schedule may be determined by the Remuneration Committee at grant. The vesting of options already granted is not subject to any performance conditions. The Remuneration Committee may, however, determine that options granted in the future should be subject to performance conditions.
If a participant dies, her/his options will be exercisable within a period of 12 months following her/his death. If a participant ceases to be an employee or director by reason of injury, disability, redundancy, the sale of the business for which he works to a third party, or retirement, her/his options may generally be exercised within 6 months of cessation. If a participant ceases to be an employee or director for any other reason, her/his options will normally lapse unless and to the extent the Remuneration committee decides otherwise. The Remuneration Committee may satisfy (generally with the consent of the participant) an option on exercise by paying to the participant in cash or other assets the gain (i.e. the diference between the market value of the relevant B Ordinary shares or GDRs on the date of exercise and the exercise price), as an alternative to issuing or transferring B Ordinary Shares or transferring or procuring the transfer of GDRs to the participant.
The Remuneration Committee may amend the rules of the Share Option Plan at any time. The Share Option Plan will terminate upon the tenth anniversary of approval, if not terminated earlier by the Remuneration Committee. Termination of the Share Option Plan will not afect the subsisting rights of the participants.
In 2014, the Company did not grant any share options under the Share Options Plan.
DIRECTORS' REMUNERATION
CORPORATE GOVERNANCE
The aggregate emoluments of each of the directors (including benefts in kind) for the fnancial accounting period ending 31 December 2014 were as follows:
| Name | Salary / Fee | Benefits in kind |
Annual bonuses |
Pension | Total |
|---|---|---|---|---|---|
| Lev Leviev | US\$1,200,000 | US\$0 | US\$600,000 | US\$0 | US\$1,800,000 |
| Mark Groysman | US\$500,000 | US\$0 | US\$250,000 | US\$0 | US\$750,000 |
| Avraham Novogrocki | US\$0 | US\$0 | US\$0 | US\$0 | US\$0 |
| Christakis Klerides | US\$73,500 | US\$0 | US\$0 | US\$0 | US\$73,500 |
| Moshe Amit | US\$66,750 | US\$0 | US\$0 | US\$0 | US\$66,750 |
| John Porter | US\$60,500 | US\$0 | US\$0 | US\$0 | US\$60,500 |
| Panayiotis Demetriou | US\$68,500 | US\$0 | US\$0 | US\$0 | US\$68,500 |
As of 31 December 2014, there was no long term incentive plan available for the directors.
As of 31 December 2014, there were valid options over 1,017,240 GDRs granted with an exercise price of US\$7 vesting one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third on the fourth anniversary of the date of grant provided the participants remain in employment until the vesting date. The vesting is not subject to any performance conditions. The options for all 1,017,240 GDRs vested and their contractual life is 10 years from the date of the grant.
As of 31 December 2014, there were valid options over 46,622,385 B Ordinary shares. Options for 15,191,563 B Ordinary shares were granted on 21 May 2012 with an exercise price of US\$0.7208 and an option for 31,430,822 B Ordinary shares was granted on 22 November 2012 with an exercise price of US\$0.5667. All options are vesting one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third on the fourth anniversary of the date of grant provided that the participants remain in employment until the vesting date. The vesting is not subject to any performance conditions. As of 31 December 2014, 5,063,854 options with an exercise price of US\$0.7208 and 10,476,941 options with an exercise price of US\$0.5667 have vested. If an Optionholder ceases to hold any ofce in, or be employed by, any Member of the AFI Development Group by reason of dismissal by the Optionholder's employer (except as a result of the Optionholder having been guilty of gross breach of duty or other serious breach of their employment contract, and as determined by the Remuneration Committee in its absolute discretion), the Optionholder shall remain entitled to exercise the option (to the extent already exercisable as at the date of termination) within the period of 90 calendar days following the date of termination. If and to the extent that the Option has not been exercised nor otherwise lapsed in accordance with the Rules of the Share Option Plan, it shall lapse on the ffth anniversary of the date of the grant. As of 31.12.2014, Company directors held the following share options:
| Name of director |
Title | Amount of shares and type |
Date granted |
Exercise price |
Performance conditions |
Vesting dates and amount of shares vesting Total |
|---|---|---|---|---|---|---|
| Lev Leviev | Executive Chairman |
31,430,822 B Ordinary shares |
22 November 2012 |
US\$0.5667 | None 22 Nov 2014: 10,476,941 shares 22 Nov 2015: 10,476,941 shares 22 Nov 2016: 10,476,940 shares |
|
| Mark Groysman |
Executive Director |
5,238,470 B Ordinary shares |
21 May 2012 | US\$0.7208 | None 21 May 2014: 1,746,157 shares 21 May 2015: 1,746,157 shares 21 May 2016: 1,746,156 shares |
No pensions and contributions are currently payable to the directors by the Company.
As at 31 December 2014, the Company's portfolio consisted of 8 investment properties, 7 investment properties under development, 1 trading property under development, 1 inventory of real estate and 4 hotel projects. The portfolio comprises commercial projects focused on ofces, shopping centres, hotels, mixed-use properties and residential projects in prime locations in Moscow. The total value of the Company's assets, based predominantly on independent valuation as of 31 December 2014, was US\$2.0 billion1 . About 68% of the assets book value is attributed to yielding properties.
Revenues for 2014 decreased by 29% year-on-year to US\$144.1 million mainly due to the fact that the 2013 revenue was largely infuenced by completion of the disposal transaction of 643 parking places to VTB Bank JSC in Q1 2013. AFI Development recorded a 35% yearon-year decrease in gross proft to US\$49.9 million due to the same reason. Cash, cash equivalents and marketable securities decreased by 54% to US\$93.3 million as at 31 December 2014 due to fnancing of construction works, performed in 2014, by own capital.
In 2014 AFI Development incurred net loss of US\$287.3 million, compared to net proft of US\$103.9 in 2013, mainly due to valuation loss of US\$220.7 million in Q4 2014.
Our results have been afected, and are expected to be afected in the future, by a variety of factors, including, but not limited to, the following:
Our properties and projects are mainly located in Russia. As a result, Russian macroeconomic trends and country-specifc risks signifcantly infuence our performance.
The following table sets out certain macroeconomic information for Russia as of and for the dates indicated:
| Year ended 31 | Year ended 31 | |
|---|---|---|
| December 2014 | December 2013 | |
| Real Gross Domestic Product growth | 0.5% | 1.3% |
| Consumer prices | 11.4% | 6.5% |
Source: The Economist Intelligence Unit, Rosstat
According to the IFRS rules, Investment property and Investment property under development are presented on a fair value basis, Trading property and Property, plant and equipment are presented on a cost basis.
Company specific factors
During 2014, the Company made the following disposal:
In March 2014, AFI Development disposed of its 100% share in Keyiri Trade & Invest Limited with its Russian subsidiary Favorit LLC, holding rights to the St Petersburg project for US\$1,400 thousand. The disposal followed the decision not to develop the project. The resulting proft on sale amounting to US\$61 thousand was recognised in the income statement of Q1 2014.
During 2014, the Company made the following acquisition:
In July 2014, our subsidiary, MTOK JSC, acquired an ofce building with total area of 720 sq.m on Sadovaya Samotechnaya street in central Moscow, for a total consideration of RUR 86.75 million (circa US\$1.9 million). The building was acquired from Novoe Koltso Moskvy JSC (former "primary investor" in the Botanic Garden Project, "NKM") as part of its bankruptcy proceedings. The purpose of the acquisition was to accelerate the liquidation of NKM.
Our consolidated fnancial statements were prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union ("EU"), which were in efect at the time of preparing our consolidated fnancial statements, and the requirements of the Companies Law of Cyprus, Cap. 113. IFRS difers in various material respects from US GAAP and UK GAAP.
The key elements of our revenue recognition policies are as follows:
Operating expenses consist mainly of employee wages, social benefts and property operating expenses, including property tax, which are directly attributable to revenues. We recognise as expenses in our statement of comprehensive income the costs of those employees who have provided construction consulting and construction management services with respect to our investment and trading property. We also recognise property operating costs (including outsourced building maintenance), utilities, security and other tenant services related to our properties that generate rental income, as expenses on our statement of comprehensive income.
STATEMENT
Our administrative expenses comprise primarily general and administrative expenses such as audit and consulting, marketing costs, charity, travelling and entertainment, ofce equipment as well as depreciation expenses related to our ofce use motor vehicles, bad debt provisions and other provisions.
We recognise proft or loss from the sale of interests in our subsidiaries when the risks and rewards of ownership are transferred to the buyer in the transaction.
An external, independent valuation company, having appropriate recognised professional qualifcations and recent experience in the location and categories of properties being valued, values the Company's investment property portfolio every six months. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation in a transaction between a willing buyer and a willing seller after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion. The diference between revalued fair value of investment property and its book value is recognised as gain or loss in the statement of comprehensive income.
Operating proft before net fnance costs is calculated by adding revenue, other income, proft on disposal of investment in subsidiaries and valuation gains on investment property, and subtracting operating expenses, administrative expenses and other expenses.
Our fnance income comprises net foreign exchange gain, if any, and interest income. We recognise foreign exchange gains and losses, principally in connection with US Dollar or other foreign currency denominated payables and receivables of our Russian subsidiaries, whose functional currency is the Russian Rouble. Our interest income is derived primarily from interest on our bank deposits and interest on loans to our joint ventures.
Our fnance expense comprises net foreign exchange loss, if any, and interest expense on outstanding loans less interest capitalised. We recognise foreign exchange gains and losses principally in connection with US Dollar denominated payables and receivables of our Russian subsidiaries, whose functional currency is the Russian Rouble. We capitalise our interest expense with respect to our development projects that are under construction, for which amounts are not refected as expenses in our statement of comprehensive income. When funds are borrowed specifcally for a particular project, we capitalise all actual borrowing costs related to the project less income earned on the temporary investment of such borrowings and when funding for a project is obtained from our general funds, we capitalise only funding costs related to the particular project based on the weighted average of the borrowing costs applicable to our general funds.
Foreign currency gain or loss on fnancial assets and fnancial liabilities is reported on a net basis as either fnance income or fnance expense depending on whether foreign currency movements are in a net gain or net loss position.
Income taxes are calculated based on tax legislation applicable to the country of residence of each of our subsidiaries and, as a company based and organised in Cyprus, we are subject to income tax in Cyprus. We and our Cypriot subsidiaries are currently subject to a statutory corporate income tax rate of 12.5% in Cyprus. Our Russian subsidiaries were subject to corporate income tax at a rate of 20%.
FINANCIAL STATEMENTS
We capitalise all costs directly related to the purchase and construction of properties being developed as both investment properties and trading properties, including costs to acquire land rights and premises, design costs, permit costs, costs of general contractors, costs relating to the lease of the underlying land and the majority of our employee costs related to such projects.
In addition, we capitalise fnancing costs related to development projects only during the period of construction of the projects. We do not, however, commence the capitalising of fnancing costs related to expenditures on a project until construction on each project begins. Since the Company's adoption of IAS 40 from 1 January 2009, upon completion of construction works, property classifed as investment property under development (which are those properties that are being constructed or developed for future use to earn rental income or for capital appreciation) is appraised to market value and reclassifed as an investment property and any gain or loss on appraisal is recognised in our statement of comprehensive income. Trading properties, which include those projects where we intend to sell the entire project as a whole or in part (this principally includes our residential development projects), are represented on our balance sheet at the lower of cost and net realizable value, which is the estimated selling price in the ordinary course of business, less the estimated costs of completion and sale.
Our consolidated fnancial statements are presented in US Dollars, which is our functional currency. The functional currency of our Russian subsidiaries and joint ventures and one Cyprus company is the Russian Rouble. The balance sheets of our Russian subsidiaries are translated into US Dollars in accordance with IAS 21, whereby assets and liabilities are translated into US Dollars at the rate of exchange prevailing at the balance sheet date and income and expense items are translated into US Dollars at the average exchange rate for the period. If the volatility of the exchange rates is high for a given year or period the Company uses the average rate for shorter periods i.e. quarters or months for income and expense items. All resulting foreign currency exchange rate diferences are recognised directly in our shareholders' equity under the line item "translation reserve." When a foreign operation is sold, the cumulative amount of the exchange diferences deferred in the separate component of equity relating to that foreign operation is recognised in our statement of comprehensive income when the gain or loss on disposal of the foreign operation is recognised. The monetary assets and liabilities of our Russian subsidiaries that are denominated in currencies other than Russian Roubles are initially recorded by our subsidiaries at the exchange rate between the Russian Rouble and such foreign currency prevailing at such date. Such monetary assets and liabilities are then retranslated into Russian Roubles at the exchange rate prevailing at each subsequent balance sheet date. We recognise the resulting exchange rate diferences between the dates at which such assets or liabilities were originally recorded and at subsequent balance sheet dates as foreign exchange losses and gains in our statement of comprehensive income. In particular, during the period under review, we have recognised foreign exchange rate gains and losses in connection with US Dollar denominated payables and receivables of our Russian subsidiaries.
We pay VAT to the Russian authorities with respect to construction costs and expenses incurred in connection with our projects, which, according to Russian tax law, can be recovered upon completion of construction. Under a revised Russian VAT legislation, VAT can also be claimed during the period of construction provided that all required documentation is presented to the VAT authorities. We have accordingly included recoverable VAT as an asset on our balance sheet, the size of which we expect will slightly decrease as the development of our projects advances and necessary documents will be obtained.
As we continue to advance the development of our projects, we also expect to record higher deferred tax liabilities and assets. Under Russian tax law, we are not allowed to capitalise certain of the costs in relation to the design, construction and fnancing of projects that we capitalise for the purposes of our consolidated fnancial statements under IFRS. As a result, our tax bases in the related assets may be lower than our accounting bases for IFRS purposes, which would result in deferred tax liabilities. However, the recognition of such costs as expenses may result in accumulated tax losses for Russian tax purposes that we may be able to carry forward against estimated future profts, resulting in deferred tax assets. We expect these deferred tax liabilities and assets to grow as our major projects reach more advanced stages. However, such tax losses may only be carried forward to ofset gains for a ten-year period under Russian tax law and they may only be utilised in the Russian subsidiary/branch in which such tax losses were generated.
Our future results of operations may be afected by our measurement of the fair value of our investment properties and changes in the fair value of such properties. Upon completion of construction, the projects that we have classifed as investment property under development are reassessed at fair value and reclassifed as investment property, and any gain or loss as a result of reassessment is recognised in our statement of comprehensive income.
Any change in fair value of the investment property under development is thereafter recognised as a gain or loss in the statement of comprehensive income. Accordingly, fair value measurements of investment properties under development may signifcantly affect results of operations even if the Company does not dispose of such assets.
Summary of statement of comprehensive income for 2014 and 2013
| US\$ million | For the year ended 31 December 2014 |
For the year ended 31 December 2013 |
Change 2014 / 2013 US\$ million |
|---|---|---|---|
| Revenue | |||
| Construction consulting / management services | 0.2 | 0.2 | - |
| Rental income | 141.4 | 144.6 | (3.1) |
| Sale of residential | 2.4 | 57.5 | (55.1) |
| 144.1 | 202.3 | (58.2) | |
| Expenses | |||
| Other income | 3.5 | 6.4 | (2.9) |
| Operating expenses | (62.5) | (76.5) | 14.0 |
| Administrative expenses | (22.3) | (16.9) | (5.4) |
| including Bad debt provisions and write-ofs | (4.6) | 0.9 | (5.5) |
| Cost of sales of residential | (1.6) | (32.6) | 31.0 |
| Other expenses | (6.8) | (5.5) | (1.3) |
| (89.7) | (125.1) | 35.4 | |
| Share of the after tax (loss) / proft of joint ventures | (4.5) | (0.8) | (3.7) |
| Gross profit | 49.9 | 76.3 | (26.4) |
| Proft on disposal of investments in subsidiaries | 0.1 | 32.3 | (32.2) |
| Proft on disposal of investment property | - | 27.8 | (27.8) |
| Valuation gain/(loss) on properties | (85.9) | 106.2 | (192.1) |
| Impairment loss on inventory of real estate | (8.9) | (2.2) | (6.7) |
| Results from operating activities | (44.7) | 240.5 | (285.2) |
| Finance income | 7.0 | 21.0 | (13.9) |
| Finance expense | (60.8) | (66.9) | 6.1 |
| FX Gain / (Loss) | (224.8) | (28.9) | (195.9) |
| Translation reserve reclassifcation due to disposal of sub sidiary |
- | (30.3) | 30.3 |
| Net finance income / (costs) | (278.6) | (105.2) | (173.4) |
| Proft before income tax | (323.3) | 135.3 | (458.7) |
| Income tax expense | 36.0 | (31.4) | 67.4 |
| Profit from continuing operations | (287.3) | 103.9 | (391.2) |
FINANCIAL STATEMENTS
To date, we have derived revenues from three sources: rental income, sale of residential properties and construction consulting and construction management fees. We derive rental income from our investment properties and hotels that we acquired or developed in the past.
| US\$ million | For the year | For the year | Change 2014 / 2013 | ||
|---|---|---|---|---|---|
| ended 31 December 2014 |
ended 31 December 2013 |
US\$ million | %% | ||
| Investment property | |||||
| AFIMALL City | 107.0 | 104.1 | 2.9 | 2.8% | |
| H2O ofce building | 2.1 | 2.6 | (0.5) | (19.9)% | |
| Berezhkovskya ofce building | 4.3 | 5.4 | (1.1) | (20.7)% | |
| Paveletskaya I | 4.0 | 5.0 | (1.0) | (20.3)% | |
| Premises at Bolshaya Pochtovaya | 5.1 | 5.7 | (0.6) | (10.3)% | |
| Premises at Plaza IV (Gruzinsky Val) | 0.1 | 0.2 | (0.1) | (48.7)% | |
| Premises at Tverskaya Zastava Square | 3.4 | 3.9 | (0.6) | (14.5)% | |
| Ozerkovskaya (Aquamarine) III | 0.1 | - | 0.1 | n/a | |
| Other land bank assets | 0.1 | 0.0 | 0.1 | 498.7% | |
| Hotels | |||||
| Aquamarine hotel | 7.2 | 9.8 | (2.6) | (26.2)% | |
| Plaza Spa Hotel (Zheleznovodsk) | 8.0 | 7.9 | 0.1 | 1.3% | |
| Total | 141.4 | 144.7 | (3.3) | (2.3)% |
| US\$ million | For the year ended 31 |
For the year ended 31 |
Change 2014 / 2013 | ||
|---|---|---|---|---|---|
| December 2014 | December 2013 | US\$ million | %% | ||
| Revenue | |||||
| AFIMall Parking | - | 54.5 | (54.5) | (100)% | |
| Ozerkovskaya II | 2.4 | 1.7 | 0.8 | 45.2% | |
| 4 Winds Residential | - | 1.4 | (1.4) | (100)% | |
| Total | 2.4 | 57.5 | (55.1) | (95.8)% |
FINANCIAL STATEMENTS
On 3 June 2013 the Company completed the frst stage of the sale of 643 parking spaces of AFIMALL City to VTB Bank and therefore recognised revenue of US\$54.5 million in the income statement. During 2014 the Company sold 2 residential apartments and 14 parking lots in the Ozerkovskaya II project.
Operating expenses. Our operating expenses decreased by US\$14.0 million, from US\$76.5 million in 2013 to US\$62.5 million in 2014. The year-on-year decrease of 18.3% is attributable to decreased property tax charge, decrease in brokerage expense and rouble devaluation versus the dollar.
Administrative expenses. Our administrative expenses increased by US\$5.4 million or 31.9% yearon-year, from US\$16.9 million in 2013 to US\$22.3 million in 2014. The increase is attributable to increase in bad debt provision from US\$0.9 of reverse in 2013 to US\$4.6 of additional charge in 2014.
Proft on sale of investment properties. In December 2013, the Company successfully completed the sale of Building 1 in the Aquamarine III ofce complex (also known as Ozerkovskaya III) to Russian diamonds miner and producer "ALROSA" JSC. The total proft on disposal was US\$27.8 million, including the consideration paid in cash and amounted to US\$91.5 million.
Proft on sale/disposal of properties / investment. In March 2014 AFI Development disposed of its 100% share in Keyiri Trade & Invest Limited with its Russian subsidiary Favorit LLC, holding rights to the St Petersburg project for US\$1,400 thousand. The disposal followed the decision not to develop the project. The resulting proft on sale amounting to US\$61 thousand was recognised in the income statement of Q1 2014. For additional information, please refer to "Disposals and acquisitions" section above.
Net valuation gain / (losses) on properties. Net result of investment property valuation decreased from a gain of US\$106.2 million in 2013 to a loss of US\$85.9 million in 2014. For additional information, please refer to "Portfolio Valuation" section below.
Finance income. Our fnance income decreased by US\$13.9 million or 66.5% year-on-year, from US\$21.0 million in 2013 to US\$7.0 million in 2014. The decrease was a result of loans write-of in 2013.
Finance expense. Our fnance expense decreased by US\$6.1 million or 9.1% year-on-year, from US\$66.9 million in 2013 to US\$60.8 million in 2014. The decrease followed full repayment of the Sberbank loan at our Plaza Spa Zheleznovodsk project in 2013 and partial repayment of the principal of the VTB bank loan as per the agreed loan facility at the AFIMALL City project. In addition in Q1 2014 the Company fully repaid the fourth instalment (RUR 1,333 million) to the City of Moscow for the acquisition of the parking area under the AFIMALL City which cancelled discounting charges on long-term portion of the liability.
FX Gain / (Loss). We recorded a foreign exchange loss of US\$224.8 million in 2014, against a loss of US\$28.9 million in 2013. This was a result of Russian Rouble depreciation versus the US Dollar during 2014.
Income tax expense. Our current tax expense decreased to US\$0.6 million compared to US\$8.9 million in 2013 mainly due to tax obligations incurred as a result of sale of the ofce building in Ozerkovskaya III in 2013.
Proft / Loss for the year. Due to the factors described above, we recorded a US\$287.3 million net loss for 2014 compared to net gain of US\$103.9 million for 2013.
Summary of cash fows for 2014 and 2013
| US\$ thousand | For the year ended 31 December 2014 |
For the year ended 31 December 2013 |
|---|---|---|
| Net cash from operating activities | 64,494 | 19,095 |
| Net cash from / (used in) investing activities | (116,540) | (203,106) |
| Net cash from / (used in) financing activities | (42,183) | 198,974 |
| Efect of exchange rate fuctuations | (12,345) | 3,518 |
| Net increase / (decrease) in cash and cash equivalents | (106,574) | 18,481 |
| Cash and cash equivalents at 1 January | 193,330 | 174,849 |
| Cash and cash equivalents at 31 December* | 86,756 | 193,330 |
*Note: the cash and cash equivalents do not include US\$6.5 million (2013: US\$10.0 million) fair value of marketable securities.
Net cash from operating activities increased to US\$64.5 million in 2014, from US\$19.1 million in 2013. The increase is attributable to advances received from customers for the sale of residential properties at the Odinburg project.
Net cash outfow from investing activities amounted to US\$116.5 million and is mainly attributable to payments for construction and acquisition of investment property and investment property under development.
Net cash from fnancing activities decreased to a negative US\$42.2 million in 2014 from a positive US\$199.0 million in 2013 due to the fact that in 2013 there was increased debt fnancing and the new loan facility of US\$220 million obtained by Krown Investments LLC.
FINANCIAL STATEMENTS
We require capital to fnance capital expenditures, consisting of cash outlays for capital investments in active real estate development projects; repayment of debt; changes in working capital; and general corporate activities.
Real estate development is a capital-intensive business, and we expect to have signifcant ongoing liquidity and capital requirements in order to fnance our active development projects.
For the foreseeable future, we expect that we will continue to rely on our fnancing activities to support our investing and operating activities. We also expect that our capital expenditures in connection with the development of real estate properties will comprise the majority of our cash outfows for the foreseeable future.
We completed 2014 with a strong liquidity position of approximately US\$93.3 million cash, cash equivalents and marketable securities on our balance sheet and a debt to equity level of 53%. This strong position refects the Company's ability to successfully balance liquidity requirements from a number of sources.
Our fnancing strategy aims to maximise the amount of debt fnancing for projects under construction while maintaining healthy loan-to-value levels. After delivery and commissioning we aim to refnance the properties at more favourable terms, including longer amortisation periods, lower interest rates and higher principal balloon payments. Property rights and shares of property holding companies are mainly used as collateral for the debt2. We strongly prefer, whenever possible, to use non-recourse project level fnancing.
As of December 31, 2014 our debt portfolio was as follows:
| Project / Subsidiary |
Lending bank | Max debt limit |
Principal balance as of Dec-31, 2014 |
Available (US\$ mn) |
Nominal Interest rate |
Currency | Maturity | |
|---|---|---|---|---|---|---|---|---|
| (US\$ mn) | (US\$ mn) | (dd.mm.yy) | ||||||
| AFIMALL City / | 184.7 | 9.5% | RUR | |||||
| Bellgate Con structions Ltd |
VTB Bank JSC | 502.1 (RUR 21 billion)* |
296.4 | 0 | 3-month LIBOR + 5.02% |
US\$ | 01.04.2018 | |
| Ozerkovskaya III/ Krown Invest ments LLC |
VTB Bank JSC | 220.0 | 205.0 | 0 | 3-month LIBOR + 5.7% |
US\$ | 26.01.2015* |
*In January 2015 the loan was refinanced by VTB Bank JSC, please refer to Note 41 to the Consolidated Financial Statement
The total balance of debt fnancing reached US\$686.4 million as at 31 of December 2014, including US\$686.1 million of principal debt and US\$0.3 million of accrued Interest with average interest rate 6.88% per annum as at 31.12.2014 (6.97% respectively as at 31.12.2013) (for more details see note 28 to our consolidated fnancial statements).
Debt includes all loans and borrowings. For further details please see note 28 to the Financial Statements. 2
As at 31 December 2014, our loans and borrowings were payable as follows:
| US\$ thousand | As at 31 December 2014 | As at 31 December 2013 |
|---|---|---|
| Less than one year | 231,684 | 27,027 |
| Between one and fve years | 455,097 | 778,909 |
| Total | 686,781 | 805,936 |
As at 31 December 2014, based on the Cushman & Wakefeld LLC ("C&W") independent appraisers' report, the value of AFI Development's portfolio of investment properties stood at US\$1.38 billion, while the value of the portfolio of investment property under development stood at US\$0.4 billion.
Consequently, the total value of the Company's assets, based predominantly on independent valuation as of 31 December 2014, was US\$2.0 billion, compared to US\$2.4 million as at 31 December 2013.
| Property | Valuation 31/12/2014, |
Valuation 31/12/2013, |
Change in valuation, |
Balance sheet value 31/12/2014, |
Balance sheet value 31/12/2013, |
|
|---|---|---|---|---|---|---|
| US Dollars | US Dollars | % | US Dollars | US Dollars | ||
| Investment property | ||||||
| 1 | H2O | 12,100,000 | 17,300,000 | -30% | 12,100,000 | 17,300,000 |
| 2 | Ozerkovskaya Phase III | 300,000,000 | 323,700,000 | -7% | 300,000,000 | 323,700,000 |
| 3 | Berezhkovskaya1 | 15,762,000 | 28,490,000 | -45% | 21,300,000 | 38,500,000 |
| 4 | AFIMALL City | 1,000,000,000 | 1,160,000,000 | -14% | 1,000,000,000 | 1,160,000,000 |
| 5 | Paveletskaya I3 | 19,338,150 | 29,354,320 | -34% | 19,500,000 | 29,600,000 |
| 6 | Plaza II | 15,200,000 | 31,900,000 | -52% | 15,200,000 | 31,900,000 |
| 7 | Plaza Ib | 5,400,000 | 8,800,000 | -39% | 5,400,000 | 8,800,000 |
| 8 | Sadovaya-Samotechnaya | 1,916,234 | 0 | n/a | 1,916,234 | 0 |
| Total | 1,369,716,384 | 1,599,544,320 | -17% | 1,375,416,234 | 1,609,800,000 | |
| Investment property under development | ||||||
| 9 | Plaza Ic | 87,700,000 | 110,600,000 | -21% | 87,700,000 | 110,600,000 |
| 10 Plaza IIa | 3,600,000 | 12,400,000 | -71% | 3,600,000 | 12,400,000 | |
| 11 | Plaza IV2 | 101,753,623 | 159,980,000 | -36% | 107,109,076 | 168,400,000 |
| 12 Paveletskaya Phase II3 | 66,840,580 | 91,930,590 | -27% | 67,400,000 | 92,700,000 | |
| 13 Kossinskaya | 53,700,000 | 106,700,000 | -50% | 53,700,000 | 106,700,000 | |
| 14 Bolshaya Pochtovaya | 108,300,000 | 139,400,000 | -22% | 108,300,000 | 139,400,000 | |
| Total | 421,894,203 | 621,010,590 | -32% | 427,809,076 | 630,200,000 | |
| Trading property & Trading property under development | ||||||
| 15 Odinburg | n/a | n/a | - | 133,035,537 | 127,212,941 | |
| 16 Four Winds Residential | n/a | n/a | - | 624,284 | 1,104,444 | |
| 17 Ozerkovskaya II | n/a | n/a | - | 2,355,115 | 5,304,038 | |
| Total | n/a | n/a | 136,014,935 | 133,621,424 | ||
| Inventory of real estate | ||||||
| 18 Botanic Garden4 | 18,100,000 | n/a | - | 20,111,111 | n/a | |
| Total | 18,100,000 | n/a | - | 20,111,111 | n/a | |
| Land Bank Properties | ||||||
| 19 Ruza | n/a | n/a | - | 3,665,000 | 3,665,000 | |
| 20 St. Petersburg | n/a | 1,400,000 | -100% | n/a | 1,400,000 | |
| 21 Boryspol (Ukraine) | 0 | 0 | - | 0 | 0 | |
| Total | 0 | 1,400,000 | -100% | 3,665,000 | 5,065,000 | |
| Hotels | ||||||
| 22 Aquamarine Hotel | n/a | n/a | - | 17,343,063 | 30,855,838 | |
| 23 Plaza Spa Hotel Kislovodsk5 | n/a | n/a | - | 14,414,050 | 24,829,575 | |
| 24 Plaza Spa Hotel Zheleznovodsk | n/a | n/a | - | 12,249,094 | 22,417,076 | |
| 25 Park Plaza hotel development in Kislovodsk |
n/a | n/a | - | 4,241,520 | 7,276,236 | |
| 26 Versailles project in Kislovodsk | n/a | n/a | - | 0 | 7,122,840 | |
| Total | n/a | n/a | - | 48,247,727 | 92,501,565 | |
| Grand Total | 1,809,710,587 | 2,221,954,910 | -19% | 2,011,264,083 | 2,471,187,989 |
1 Valuation figures represent Company's share (74%)
2 Valuation figures represent Company's share (95%)
3 Valuation figures represent Company's share (99%)
4 Valuation figures represent Company's share (90%)
5 The project portfolio includes 50% owned joint ventures, which are accounted by equity method
FINANCIAL STATEMENTS
BOARD OF DIRECTORSREPORT DIRECTORS RESPONSIBILITY STATEMENT INDEPENDENT AUDITORS` REPORT
| Board of DirectorsLev Leviev – Chairman | ||||
|---|---|---|---|---|
| Mark Groysman | ||||
| Moshe Amit | ||||
| Avraham Noach Novogrocki | ||||
| Christakis Klerides | ||||
| John Robert Camber Porter | ||||
| Panayiotis Demetriou | ||||
| SecretaryFuamari Secretarial Limited | ||||
| Independent AuditorsKPMG Limited | ||||
| BankersJoint Stock Company VTB Bank | ||||
| Joint Stock Commercial Savings Bank of the Russian Federation (SBERBANK) |
||||
| Raifeisen Bank International AG | ||||
| Registered OfceSpyrou Araouzou 165, | ||||
| Lordos Waterfront Building, | ||||
| 3035 Limassol, | ||||
| Cyprus |
The Board of Directors of AFI Development Plc (the "Company") presents to the members its annual report together with the audited consolidated fnancial statements of the Company for the year ended 31 December 2014.
The principal activities of the Group, which remained unchanged from last year, are real estate investment and development. The principal activity of the Company is the holding of investments in subsidiaries.
AFI Development is one of the leading real estate development companies operating in Russia. Established in 2001, AFI Development is a publicly traded subsidiary of Africa Israel Investments Ltd.
AFI Development is listed on the Main Market of the London Stock Exchange and aims to deliver shareholder value through a commitment to innovation and continuous project development, coupled with the highest standards of design, construction and quality and customer service.
AFI Development focuses on developing and redeveloping high quality commercial and residential real estate assets across Russia, with Moscow being its main market. The Company's existing portfolio comprises commercial projects focused on ofces, shopping centres, hotels and mixed-use properties, and residential projects. AFI Development's strategy is to sell the residential properties it develops and to either lease the commercial properties or sell them for a favourable return.
As at 31 December 2014, the Company's portfolio consisted of 8 investment properties, 7 investment properties under development, 1 trading property under development, 1 property as inventory of real estate and 4 hotel projects. The portfolio comprises commercial projects focused on ofces, shopping centres, hotels, mixed-use properties and residential projects in prime locations in Moscow.
The Group's results are set out in the consolidated income statement on page 8. The loss of the Group for the year before taxation amounted to US\$323,343 thousand (2013: proft US\$135,331 thousand). The loss after taxation attributable to the Group's shareholders amounted to US\$281,020 thousand (2013: proft US\$103,074 thousand).
The Board of Directors does not recommend the payment of a dividend and the loss for the year is transferred to retained earnings.
The most signifcant risks faced by the Group and the steps taken to manage these risks are described in note 33 of the consolidated fnancial statements.
The Group is one of the leading real estate development companies operating in Russia. It focuses on developing and redeveloping high quality commercial and residential real estate assets in Moscow and the Moscow Region. The strategy during the reporting period and for the future periods is to sell the residential properties that the Group develops and to either lease the commercial properties that the Group develops or sell them if the Group is able to achieve a favourable return.
There were no changes to the share capital of the Company during the year. As at the year end the share capital of the company comprised:
All "A" shares are on deposit with BNY (Nominees) Limited and each "A" share is represented by one GDR listed on the London Stock Exchange ("LSE").
All "B" shares were admitted to a premium listing of the Ofcial list of the UK Listing Authority and to trading on the main market of LSE.
The Group operates six branches and/or representative ofces of Cypriot, BVI and Luxembourg entities in the Russian Federation. These are Bellgate Construction Ltd branch, which operates AFIMALL City project, Amerone Ltd branch, Bugis Finance branch and Triumvirate I S.a r.I branch operating investment properties and Bastet Estates Ltd branch and Falgaro Investments Ltd branch acting as sale agents for residential properties.
The members of the Board of Directors as at 31 December 2014 and at the date of this report are shown on page 80. The directors' date of appointment and resignation, if applicable, is indicated on page 80. The term of those that have not resigned will expire on the date of the next annual general meeting of the shareholders but all of them are eligible for re-election. There were no signifcant changes in the assignment of responsibilities of the Board of Directors during the year.
Events which took place after the reporting date and which have a bearing on the understanding of the fnancial statements are described in note 41 of the consolidated fnancial statements.
The independent auditors, KPMG Limited, have expressed their willingness to continue ofering their services. A resolution reappointing the auditors and giving authority to the Board of Directors to fx their remuneration will be proposed at the Annual General Meeting.
By order of the Board Fuamari Secretarial Limited Secretary Nicosia, 16 March 2015
FINANCIAL STATEMENTS
The Directors of the Company as at the date of this announcement are as set out below:
Lev Leviev – Chairman Mark Groysman
Moshe Amit Christakis Klerides John Robert Camber Porter Panayiotis Demetriou
ANNUAL REPORT 2014 85
Financial Statements
We have audited the accompanying consolidated fnancial statements of AFI Development Plc and its subsidiaries (The "Group"), and the separate fnancial statements of AFI Development Plc ("the Company"), which comprise the consolidated statement of fnancial position and the statement of fnancial position of the Company as at 31 December 2014, and the consolidated statements of income statement, comprehensive income, changes in equity and cash fows and the statements of income statement, comprehensive income, changes in equity and cash fows of the Company for the year then ended, and a summary of signifcant accounting policies and other explanatory information.
The Board of Directors is responsible for the preparation of consolidated and separate fnancial statements of the Company that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated and separate fnancial statements that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these consolidated and fnancial statements of the Company based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated and separate fnancial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fnancial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the consolidated and separate fnancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of consolidated and separate fnancial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the efectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated fnancial statements.
FINANCIAL STATEMENTS
We believe that the audit evidence we have obtained is sufcient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated fnancial statements and the separate fnancial statements give a true and fair view of the fnancial position of the Group and the Company as at 31 December 2014, and of their fnancial performance and their cash fows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113.
Pursuant to the additional requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009 and 2013, we report the following:
• In our opinion, the information given in the report of the Board of Directors is consistent with the consolidated and the separate fnancial statements.
This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Section 34 of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009 and 2013 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to.
Under the United Kingdom Listing Authority (the Listing Rules) we are required to review the part of the Corporate Governance Statement relating to the Company's compliance with the nine provisions of the UK Corporate Governance code. We have nothing to report arising from our review.
Marios G. Gregoriades CPA Certifed Public Accountant and Registered Auditor For and on behalf of KPMG Limited Certifed Public Accountants and Registered Auditors 14 Esperidon Street 1087 Nicosia, Cyprus 16 March 2015
| Consolidated income statement | 88 |
|---|---|
| Consolidated statement of changes in equity | 90 |
| Consolidated statement of fnancial position |
91 |
| Consolidated statement of cash fows | 92 |
| Notes to the consolidated fnancial statements | 94 |
For the year ended 31 December 2014
| Note | 2014 US\$ '000 |
2013 US\$ '000 |
|
|---|---|---|---|
| Revenue | 7 | 144,088 | 202,261 |
| Other income | 8 | 3,507 | 6,409 |
| Operating expenses | 9 | (62,510) | (76,517) |
| Carrying value of trading properties sold | 22 | (1,632) | (32,623) |
| Administrative expenses | 10 | (22,303) | (16,911) |
| Other expenses | 11 | (6,773) | (5,480) |
| Total expenses | (93,218) | (131,531) | |
| Share of the after tax loss of joint ventures | 17 | (4,451) | (798) |
| Gross Profit | 49,926 | 76,341 | |
| Proft on disposal of investment in subsidiaries / joint ventures | 35 | 114 | 32,278 |
| Proft on disposal of investment property | 15 | – | 27,835 |
| Valuation (loss) / proft on properties | 15,16 | (85,884) | 106,234 |
| Impairment loss on inventory of real estate | 20 | (8,892) | (2,186) |
| Net valuation loss on properties | (94,776) | 104,048 | |
| Results from operating activities | (44,736) | 240,502 | |
| Finance income | 7,026 | 20,961 | |
| Finance costs | (285,633) | (126,132) | |
| Net finance costs | 12 | (278,607) | (105,171) |
| (Loss) / Profit before tax | (323,343) | 135,331 | |
| Tax beneft / (expense) | 13 | 36,048 | (31,386) |
| (Loss) / Profit for the year | (287,295) | 103,945 | |
| (Loss) / Profit attributable to: | |||
| Owners of the Company | (281,020) | 103,074 | |
| Non-controlling interests | (6,275) | 871 | |
| (287,295) | 103,945 | ||
| Earnings per share | |||
| Basic and diluted earnings per share (cent) | 14 | (26.82) | 9.84 |
The notes on pages 94 to 140 are an integral part of these consolidated financial statements.
For the year ended 31 December 2014
| 2014 US\$ '000 |
2013 US\$ '000 |
|
|---|---|---|
| (Loss) / Profit for the year | (287,295) | 103,945 |
| Other comprehensive income Items that are or may be reclassified subsequently to profit or loss | ||
| Realised translation diference on disposal of subsidiaries / joint ventures transferred to income statement |
(130) | 30,042 |
| Foreign currency translation diferences for foreign operations | (164,659) | (35,960) |
| Other comprehensive income for the year | (164,789) | (5,918) |
| Total comprehensive income for the year | (452,084) | 98,027 |
| Total comprehensive income attributable to: | ||
| Owners of the parent | (445,446) | 97,230 |
| Non-controlling interests | (6,638) | 797 |
| (452,084) | 98,027 |
For the year ended 31 December 2014
| Attributable to the owners of the Company | Non controlling interests |
Total equity |
|||||
|---|---|---|---|---|---|---|---|
| Share | Share | Translation | Retained | ||||
| capital | premium | reserve | earnings | Total | |||
| US\$ '000 | US\$ '000 | US\$ '000 | US\$ '000 | US\$ '000 | US\$ '000 | US\$ '000 | |
| Balance at 1 January 2013 | 1,048 | 1,763,409 | (144,610) | 9,661 | 1,629,508 | (2,976) | 1,626,532 |
| Total comprehensive income | |||||||
| Proft for the year | - | - | - | 103,074 | 103,074 | 871 | 103,945 |
| Other comprehensive income | - | - | (5,844) | - | (5,844) | (74) | (5,918) |
| Total comprehensive income | - | - | (5,844) | 103,074 | 97,230 | 797 | 98,027 |
| Transactions with owners of the Company Contributions and distributions |
|||||||
| Share option expense | - | - | - | 4,920 | 4,920 | - | 4,920 |
| Balance at 31 December 2013 | 1,048 | 1,763,409 | (150,454) | 117,655 | 1,731,658 | (2,179) | 1,729,479 |
| Balance at 1 January 2014 | 1,048 | 1,763,409 | (150,454) | 117,655 | 1,731,658 | (2,179) | 1,729,479 |
| Total comprehensive income | |||||||
| Loss for the year | - | - | - | (281,020) | (281,020) | (6,275) | (287,295) |
| Other comprehensive income | - | - | (164,426) | - | (164,426) | (363) | (164,789) |
| Total comprehensive income | - | - | (164,426) | (281,020) | (445,446) | (6,638) | (452,084) |
| Transactions with owners of the Company Contributions and distributions |
|||||||
| Share option expense | - | - | - | 4,383 | 4,383 | - | 4,383 |
| Balance at 31 December 2014 | 1,048 | 1,763,409 | (314,880) | (158,982) 1,290,595 | (8,817) | 1,281,778 |
The notes on pages 94 to 140 are an integral part of these consolidated financial statements.
As at 31 December 2014
| Note | 2014 | 2013 | |
|---|---|---|---|
| US\$ '000 | US\$ '000 | ||
| Assets | |||
| Investment property | 15 | 1,375,416 | 1,609,800 |
| Investment property under development | 16 | 431,474 | 635,266 |
| Share of investment in joint ventures | 17 | - | 5,555 |
| Property, plant and equipment | 18 | 35,101 | 69,735 |
| Long-term loans receivable | 19 | 18,071 | 21,652 |
| Inventory of real estate | 20 | 20,111 | - |
| VAT recoverable | 21 | 42 | 430 |
| Non-current assets | 1,880,215 | 2,342,438 | |
| Trading properties | 22 | 2,979 | 6,409 |
| Trading properties under construction | 23 | 133,036 | 127,213 |
| Other investments | 24 | 6,499 | 9,982 |
| Inventory | 615 | 574 | |
| Short-term loans receivable | 19 | 1 | 774 |
| Trade and other receivables | 25 | 38,961 | 106,425 |
| Current tax assets | 13 | 1,307 | - |
| Cash and cash equivalents | 26 | 86,756 | 193,330 |
| Current assets | 270,154 | 444,707 | |
| Total assets | 2,150,369 | 2,787,145 | |
| Equity | |||
| Share capital | 27 | 1,048 | 1,048 |
| Share premium | 27 | 1,763,409 | 1,763,409 |
| Translation reserve | 27 | (314,880) | (150,454) |
| Accumulated losses / retained earnings | 27 | (158,982) | 117,655 |
| Equity attributable to owners of the Company | 1,290,595 | 1,731,658 | |
| Non-controlling interests | 36 | (8,817) | (2,179) |
| Total equity | 1,281,778 | 1,729,479 | |
| Liabilities | |||
| Long-term loans and borrowings | 28 | 455,097 | 778,909 |
| Deferred tax liabilities | 29 | 102,621 | 125,260 |
| Deferred income | 32 | 12,966 | 22,048 |
| Non-current liabilities | 570,684 | 926,217 | |
| Short-term loans and borrowings | 28 | 231,684 | 27,027 |
| Trade and other payables | 30 | 28,216 | 100,355 |
| Advances from customers | 31 | 38,007 | 107 |
| Current tax liabilities | 13 | - | 4,067 |
| Current liabilities | 297,907 | 131,449 | |
| Total liabilities | 868,591 | 1,057,666 | |
| Total equity and liabilities | 2,150,369 | 2,787,145 |
Lev Leviev – Chairman
Mark Groysman – Director
FINANCIAL STATEMENTS
For the year ended 31 December 2014
| Note | 2014 US\$ '000 |
2013 US\$ '000 |
|
|---|---|---|---|
| Cash flows from operating activities | |||
| (Loss) / proft for the year | (287,295) | 103,945 | |
| Adjustments for: Depreciation |
18 | 1,595 | 1,874 |
| Net fnance costs | 12 | 278,143 | 103,823 |
| Share option expense | 4,920 | 4,920 | |
| Decrease / (increase) in fair value of properties | 15,16,20 | 94,776 | (104,048) |
| Share of loss in joint ventures | 17 | 4,451 | 798 |
| Proft on disposal of investment in subsidiaries/joint ventures | 35 | (114) | (32,278) |
| Proft on disposal of investment property | 15 | (27,835) | (27,835) |
| Proft on disposal of investment property | 15 | - | (27,835) |
| Goodwill written of | - | 153 | |
| Tax (beneft) / expense | 13 | (36,048) | 31,386 |
| 59,849 | 82,722 | ||
| Change in trade and other receivables | 24,300 | (21,011) | |
| Change in inventories | (323) | 4 | |
| Change in trading properties and trading properties under construction | (51,073) | 12,632 | |
| Change in advances and amounts payable to builders of trading properties under construction |
(6,213) | - | |
| Changes in advances from customers | 54,744 | - | |
| Change in trade and other payables | (16,003) | (57,336) | |
| Change in VAT recoverable | (201) | - | |
| Change in deferred income | 164 | 3,429 | |
| Cash generated from operating activities | 65,244 | 20,440 | |
| Taxes paid | (750) | (1,345) | |
| Net cash from operating activities | 64,494 | 19,095 | |
| Cash flows from investing activities | |||
| Net cash infow from the disposal of subsidiaries | 35 | 1,400 | 3,382 |
| Net cash outfow for the acquisition of assets and liabilities | 17 | - | (202,462) |
| Proceeds from sale of other investments | 2,150 | - | |
| Proceeds from sale of investment property | 15 | - | 91,329 |
| Proceeds from sale of property, plant and equipment | 141 | 334 | |
| Interest received | 5,941 | 3,391 | |
| Change in advances and amounts payable to builders | (24,502) | (8,788) | |
| Payments for construction of investment property under development | 15,16 | (54,813) | (32,946) |
| Payments for the acquisition / renovation of investment property | 30 | (43,800) | (43,544) |
| Change in VAT recoverable | 3,472 | (1,781) | |
| Acquisition of property, plant and equipment | 18 | (593) | (1,807) |
| Acquisition of other investments | 24 | (1,916) | (10,000) |
| Taxes paid on disposal of investment property | (4,005) | - | |
| Payments for loan receivable | (591) | (214) | |
| Proceeds from repayment of loans receivable | 576 | - | |
| Net cash used in investing activities | (116,540) | (203,106) |
The notes on pages 94 to 140 are an integral part of these consolidated financial statements.
For the year ended 31 December 2014
| Note | 2014 | 2013 | |
|---|---|---|---|
| US\$'000 | US\$'000 | ||
| Cash flows from financing activities | |||
| Proceeds from loans and borrowings | 28 | 36,986 | 306,854 |
| Repayment of loans and borrowings | (26,000) | (34,130) | |
| Repayment of a loan from a related party | - | (14,354) | |
| Interest paid | (53,169) | (59,396) | |
| Net cash (used in) / from financing activities | (42,183) | 198,974 | |
| Efect of exchange rate fuctuations | (12,345) | 3,518 | |
| Net (decrease) / increase in cash and cash equivalents | (106,574) | 18,481 | |
| Cash and cash equivalents at 1 January | 193,330 | 174,849 | |
| Cash and cash equivalents at 31 December | 26 | 86,756 | 193,330 |
FINANCIAL STATEMENTS
AFI Development PLC (the "Company") was incorporated in Cyprus on 13 February 2001 as a limited liability company under the name Donkamill Holdings Limited. In April 2007 the Company was transformed into public company and changed its name to AFI Development PLC. The address of the Company's registered ofce is 165 Spyrou Araouzou Street, Lordos Waterfront Building, 5th foor, Flat/ofce 505, 3035 Limassol, Cyprus. The Company is a 64.88% (31/12/2013: 64.88%) subsidiary of Africa Israel Investments Ltd ("Africa-Israel"), which is listed in the Tel Aviv Stock Exchange ("TASE"). The remaining shareholding of "A" shares is held by a custodian bank in exchange for the GDRs issued and listed in the London Stock Exchange ("LSE"). On 5 July 2010 the Company issued by way of a bonus issue, 523,847,027 "B" shares, which were admitted to a premium listing on the Ofcial List of the UK Listing Authority and to trading on the main market of LSE. On the same date, the ordinary shares of the Company were designated as "A" shares.
The consolidated fnancial statements of the Company as at and for the year ended 31 December 2014 comprise the Company and its subsidiaries (together referred to as the "Group" and individually as "Group entities") and the Group's interest in jointly controlled entities. The principal activity of the Group is real estate investment and development.
The principal activity of the Company is the holding of investments in subsidiaries and joint ventures as presented in note 34 "Group Entities".
The consolidated fnancial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and the requirements of the Companies Law of Cyprus, Cap. 113.
The consolidated fnancial statements were authorised for issue by the Board of Directors on 16 March 2015.
The consolidated fnancial statements have been prepared on the historical cost basis as modifed, up to 31 December 2003, by the provisions of IAS 29 "Reporting in Hyperinfationary Economies" which provides for the restatement of non-monetary assets and liabilities to account for the infation. The historical cost basis is also modifed in regard to investment property, investment property under development and other investments which are presented at fair value.
These consolidated fnancial statements are presented in United States Dollars which is the Company's functional currency. All fnancial information presented in United States Dollars has been rounded to the nearest thousand, except when otherwise indicated.
FINANCIAL STATEMENTS
In preparing these consolidated fnancial statements, management has made judgements, estimates and assumptions that afect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may difer from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
Information about judgements made in applying accounting policies that have the most signifcant efect on the amounts recognised in the consolidated fnancial statements is included in the following notes:
Information about assumptions and estimation uncertainties that have a signifcant risk of resulting in a material adjustment in the year ending 31 December 2014 is included in the following notes:
A number of the Group's accounting policies and disclosures require the measurement of fair values, for both fnancial and non-fnancial assets and liabilities.
The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all signifcant fair value measurements, including Level 3 fair values and reports directly to the CFO.
The valuation team regularly reviews signifcant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classifed.
Signifcant valuation issues are reported to the Group's Audit Committee.
When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into diferent levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
If the inputs used to measure the fair value of an asset or a liability fall into diferent 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 signifcant 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:
Several new standards and amendments apply for the frst time in 2014. However, they do not impact the annual consolidated fnancial statements of the Group except for the changes below.
The Group has adopted the following amendments to a standard and new interpretation with a date of initial application of 1 January 2014:
The nature and efects of the changes are explained below.
The Group has applied the amendments to IAS 32 Ofsetting Financial Assets and Financial Liabilities for the frst time in the current year. The amendments to IAS 32 clarify the requirements relating to the ofset of fnancial assets and fnancial liabilities. Specifcally, the amendments clarify the meaning of 'currently has a legally enforceable right of set-of' and 'simultaneous realisation and settlement'.
Except for the changes explained in Note 4, the Group has consistently applied the following accounting policies to all periods presented in these consolidated fnancial statements.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to afect those returns through its power over the entity. The fnancial statements of subsidiaries are included The amendments have been applied retrospectively.
The Group has assessed whether certain of its fnancial assets and fnancial liabilities qualify for ofset based on the criteria set out in the amendments and concluded that the application of the amendments has had no impact on the amounts recognised in the Group's consolidated fnancial statements.
in the consolidated fnancial statements from the date on which control commences until the date on which control ceases.
NCI are measured at their proportionate share of the acquiree's identifable net assets at the date of acquisition. Subsequently the Group attributes proft or loss and each components of Other Comprehensive Income (OCI) to the NCI even if this results in a defcit balance. Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
FINANCIAL STATEMENTS
When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary and any related NCI and other components of equity. Any resulting gain or loss is recognised in proft or loss. Any interest in the former subsidiary is measured at fair value when control is lost.
The Group's interests in equity-accounted investees, comprise interests in joint ventures.
A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in joint ventures are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated fnancial statements include the Group's share of the proft or loss and OCI of equity-accounted investees, until the date on which joint control ceases.
Intra-group balances and transactions and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
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 are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate when the fair value was determined. Foreign currency diferences are generally recognised in proft or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not translated.
The assets and liabilities of foreign operations are translated into US Dollars at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into US Dollars at the exchange rates at the dates of the transactions or average rate for the year for practical reasons. If the volatility of the exchange rates is high for a given year or period the Group uses the average rate for shorter periods i.e. quarters or months for income and expense items.
Foreign currency diferences are recognised in OCI and accumulated in the translation reserve, except to the extent that the translation diference is allocated to NCI.
When a foreign operation is disposed of in its entirety or partially such that control or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassifed to proft or loss as part of the gain or loss on disposal. If the Group disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to NCI. When the Group disposes of only part of joint venture while retaining joint control, the relevant proportion of the cumulative amount is reclassifed to proft or loss.
If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, then foreign currency diferences arising from such item form part of the net investment in a foreign operation. Accordingly, such diferences are recognised in OCI, and accumulated in the translation reserve.
The table below shows the exchange rates of Russian Roubles which is the functional currency of the Russian subsidiaries of the Group:
| Exchange rate Russian Roubles |
||
|---|---|---|
| As of: | for US\$1 | % Change |
| 31 December 2014 | 56.2584 | 71.9 |
| 31 December 2013 | 32.7292 | 7.8 |
| Average rate during: | ||
| Three-month period ended 31 December 2014 |
47.4243 | 34.0 |
| Nine-month period ended 30 September 2014 |
35.3878 | 11.1 |
| Year ended 31 December 2013 |
31.8480 | 2.4 |
The Group classifes non-derivative fnancial assets into the following categories: fnancial assets at fair value through proft or loss and loans and receivables.
The Group classifes non-derivative fnancial liabilities into the other fnancial liabilities category.
Non-derivative fnancial assets and fnancial liabilities-Recognition and derecognition
The Group initially recognises loans and receivables on the date when they are originated. All other fnancial assets and fnancial liabilities are initially recognised on the trade date.
The Group derecognises a fnancial asset when the contractual rights to the cash fows from the asset expire, or it transfers the rights to receive the contractual cash fows in a transaction in which substantially all the risks and rewards of ownership of the fnancial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognised fnancial assets that is created or retained by the Group is recognised as a separate asset or liability.
The Group derecognises a fnancial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are ofset and the net amount presented in the statement of fnancial position when, and only when, the Group has a legal right to ofset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
Non-derivative fnancial assets-measurement
Financial assets at fair value through proft or loss. A fnancial asset is classifed as at fair value through proft or loss if it is classifed as held for trading or is designated as such on initial recognition. Directly attributable transaction costs are recognised in proft or loss as incurred.
Financial assets at fair value through proft or loss are measured at fair value and changes therein, including any interest or dividend income are recognised in proft or loss.
For the purpose of the statement of cash fows, cash and cash equivalents comprise cash at bank, cash in hand and deposits on demand.
These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the efective interest rate method.
Non-derivative fnancial liabilities are initially recognised at fair value less any direct attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the efective interest method.
Incremental costs directly attributable to the issue of ordinary shares, net of any tax efects, are recognised as a deduction from equity.
CHAIRMAN`S STATEMENT EXECUTIVE DIRECTOR'S
STATEMENT
UNDERSTANDING AFI DEVELOPMENT
OPERATIONAL REVIEW
PRINCIPAL BUSINESS RISKS
Investment property is initially measured at cost and subsequently at fair value with any change therein recognised in proft or loss.
Any gain or loss on disposal of investment property (calculated as the diference between the net proceeds from disposal and the carrying amount of the item) is recognised in proft or loss.
When the use of a property changes from owner-occupied to investment property, the property is remeasured to fair value and reclassifed accordingly. Any gain arising on this remeasurement is recognised in proft or loss to the extent that it reverses a previous impairment loss on the specifc property, with any remaining gain recognised in OCI and presented in the revaluation reserve. Any loss is recognised in proft or loss.
When the use of a property changes such that it is reclassifed as property, plant and equipment, its fair value at the date of reclassifcation becomes its cost for subsequent accounting.
When the Group begins to redevelop an existing property for continued use as investment property, the property remains an investment property, which is measured based on fair value model, and is not reclassifed as property plant and equipment during the redevelopment.
Property that is being constructed or developed for future use as investment property is classifed as investment property under development and accounted for at fair value until construction or development is complete, at which time it is reclassifed as investment property.
Certain development assets within the Group's portfolio that are in very early stages of development process were categorised as "land bank" without ascribing current market value to them. Any value ascribed to such land bank projects other that their cost, would result in a gain or loss to be recognised in proft or loss. This approach was adopted due to abnormal market volatility and will be reviewed in the future once market conditions are more stable.
All costs directly related with the purchase and construction of a property, land lease payments, and all subsequent capital expenditure for the development qualifying as acquisition costs are capitalised.
Financing costs are capitalised if they are directly attributable to the acquisition or production of a qualifying asset. Capitalisation of fnancing costs commences when the activities to prepare the asset are in process and expenditures and fnancing costs are being incurred. Capitalisation of fnancing costs may continue until the assets are substantially ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The capitalisation rate is arrived at by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of the development cost fnanced out of general funds, to the average rate. The capitalised fnancing cost is limited to the amount of borrowing cost actually incurred.
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalise borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
FINANCIAL STATEMENTS
All hotels are treated as property, plant and equipment due to the Group's signifcant infuence on their management.
If signifcant parts of an item of property, plant and equipment have diferent useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognised in proft or loss.
Subsequent expenditure is capitalised only if it is probable that the future economic benefts associated with the expenditure will fow to the Group.
Depreciation is calculated to write of the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognised in proft or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.
Items of property, plant and equipment are depreciated from the date that they are available for use, or in respect of self-constructed assets, from the date that the asset is completed and ready for use.
The annual depreciation rates for the current and comparative periods are as follows:
| Buildings | 1-2% |
|---|---|
| Ofce equipment | 10-33⅓% |
| Motor vehicles | 33⅓% |
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of acquisition over the Group's interest in the net fair value of the identifable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised immediately in proft or loss.
Goodwill is measured at cost less accumulated impairment losses. In respect of equity-accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss is allocated to the carrying amount of the equity-accounted investee as a whole.
Trading Properties are measured at the lower of cost and net realisable value. Cost includes expenditure incurred in acquiring the properties and bringing them to their existing condition. In the case of constructed trading properties, cost includes an appropriate share of direct and fnancing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses.
Trading properties under construction are defned as projects in which the Group participates as a contractor or as a promoter, and which include construction work with the intention to sell the entire building as a whole or parts thereof. Each project represents one building or a group of buildings.
A group of buildings is considered one project when the buildings at the same building site are being constructed according to one building plan and under one building license, and are ofered for sale at the same time. Trading properties include cost of land or of rights to the land that constitutes the relative portion of the area, on which the construction work on
FINANCIAL STATEMENTS
includes: • default or delinquency by a debtor; • restructuring of an amount due to the Group on
terms that the Group would not consider otherwise;
Objective evidence that fnancial assets are impaired
The Group considers evidence of impairment for these assets at both an individual asset and a collective level. All individually signifcant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identifed. Assets that are not individually signifcant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risks characteristics.
In assessing collective impairment, the Group uses historical information on the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends.
An impairment loss is calculated as the diference between an asset's carrying amount and the present value of the estimated future cash fows discounted at the asset's original efective interest rate. Losses are recognised in proft or loss and refected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written of. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an even occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through proft or loss.
projects is performed, plus the cost of the work executed on the projects as well as other costs allocated thereto, less the cumulative amounts recognised in proft or loss as cost of trading properties sold up to the end of the reported period.
Direct costs and expenses are charged to projects on a specifc basis, whereas borrowing costs are allocated among the projects based on the relative proportion of the costs. Non–specifc borrowing costs are capitalised to such qualifying asset, or portion thereof which was not fnanced with specifc credit, by weighted–average rate of the borrowing cost up to the amount of borrowing cost actually incurred. Where the estimated expenses for a building project indicate that a loss is expected, an appropriate provision is set up. Buildings that are under construction are classifed as trading properties under construction on the statement of fnancial position.
Land for future development of trading properties is classifed as "Inventory of real estate" as non-current asset when it is not expected to develop and sell the properties within the Group's normal operating cycle. It is presented at the lower of cost or net realisable value.
Income received in advance is classifed under non-current and current liabilities as deferred income and comprise rental income received for future periods and amounts received in advance for the sale of trading properties, for which recognition of revenue has not yet commenced.
Financial assets not classifed as at fair value through proft or loss, including an interest in equity-accounted investee are assessed at each reporting date to determine whether there is objective evidence of impairment.
An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognised in proft or loss, and is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.
At each reporting date, the Group reviews the carrying amounts of its non-fnancial assets (other than investment property, investment property under development, VAT recoverable, inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash infows from continuing use that are largely independent of the cash infows of other assets.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash fows, discounted to their present value using a pre-tax discount rate that refects current market assessments of the time value of money and the risks specifc to the asset.
An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount and recognised in proft or loss.
An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been recognised.
Non-current assets, or disposal groups comprising assets and liabilities, are classifed as held-for sale or held if it is highly probable that they will be recovered primarily through sale rather than through continuing use.
Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated frst to goodwill, and then to the remaining assets and liabilities on a pro rate basis, except that no loss is allocated to inventories, fnancial assets, deferred tax assets, employee beneft assets or investment property which continue to be measured in accordance with the Group's other accounting policies. Impairment losses on initial classifcation as held-for sale or held-for distribution and subsequent gains and losses on remeasurement are recognised in proft or loss.
Once classifed as held for sale, intangible assets, and property, plant and equipment are no longer amortised or depreciated and any equity-accounted investee is no longer equity accounted.
Short-term employee benefts are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
The grant-date fair value of equity-settled share-based payment options granted to employees is generally recognised as an expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the options. The amount recognised as an expense is adjusted to refect the actual number of share options that vest.
Provisions
Revenue
The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense, with a corresponding increase in liabilities, over the period during which the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date based on the fair value of share appreciation rights. Any changes in the liability are recognised in proft or loss.
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 outfow of economic benefts will be required to settle the obligation. Provisions are determined by discounting the expected future cash fows at a pre-tax rate that refects current market assessments of the time value of money and the risks specifc to the liability. The unwinding of the
Revenue from sale of trading properties is recognised in proft or loss when the signifcant risks and rewards of ownership have been transferred to the buyer.
Revenue from construction management is recognised in proft or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to
discount is recognised as fnance cost.
Sale of trading properties
Construction Management fee
FINANCIAL STATEMENTS
Rental income from investment property is recognised as revenue on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.
Income from hotel operations comprises of accommodation, treatments and other services ofered at the hotels operated by the group and sales of food and beverages and are recognised upon ofering of the service and the acceptance by the client.
Gross proft is the result of the Group's operations and comprises revenue and other revenue net of all cost for trading properties sold and operating, administrative and other expenses, recognised in proft or loss during the year.
Finance income includes interest income on funds invested and net gain on fnancial assets at fair value through proft or loss. Interest income is recognised as it accrues in proft or loss, using the efective interest method.
Finance costs include interest expense on borrowings, unwinding of the discount on provisions and deferred consideration, net loss on fnancial assets at fair value through proft or loss and impairment losses recognised on fnancial assets.
Borrowing costs are recognised in proft or loss using the efective interest method, net of interest capitalised.
Foreign currency gain or loss on fnancial assets and fnancial liabilities is reported on a net basis as either fnance income or fnance cost depending on whether foreign currency movements are in a net gain or net loss position.
Income tax expense comprises current and deferred tax. It is recognised in proft or loss except to the extent that it relates to items recognised directly in equity or in OCI.
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.
Deferred tax is recognised in respect of temporary diferences between the carrying amounts of assets and liabilities for fnancial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for temporary diferences on the initial recognition of assets or liabilities that afects neither accounting nor taxable proft or loss.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary diferences to the extent that it is probable that future taxable profts will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that is no longer probable that the related tax beneft will be realised; such reductions are reversed when the probability of future taxable profts improves. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary diferences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
The measurement of deferred tax refects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. For this purpose the carrying amount of investment property measured at fair value is presumed to be recovered through sale and the Group has not rebutted this presumption.
Deferred tax assets and liabilities are ofset if there is a legally enforceable right to ofset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on diferent 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.
The provision for taxation either current or deferred is based on the tax rate applicable to the country of residence of each subsidiary.
A discontinued operation is a component of the Group's business, the operations and cash fows of which can be clearly distinguished from the rest of the Group and which:
Classifcation as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classifed as held for sale.
When an operation is classifed as a discontinued operation, the comparative statement of proft or loss and OCI is re-presented as if the operation had been discontinued from the start of the comparative year.
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the proft or loss attributable to the owners of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the proft or loss attributable to the owners of the Company and the weighted average number of ordinary shares outstanding for the efects of all dilutive potential ordinary shares, which comprise share options granted to employees.
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All segments results are reviewed regularly by the Group's management to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete fnancial information is available.
As from 1 January 2014, the Group adopted all changes to International Financial Reporting Standards (IFRSs) as adopted by the EU which are relevant to its operations.
The following Standards, Amendments to Standards and Interpretations have been issued but are not yet efective for annual periods beginning on 1 January 2014. Those which may be relevant to the Company are set out below. The Company does not plan to adopt these Standards early.
IFRS 10, IFRS 12 and IAS 28 (Amendments): Investment Entities: Applying the Consolidation Exception (efective for annual periods beginning on or after 1 January 2016).
IFRS 11 'Accounting for acquisitions of interests in Joint Operations''' (Amendments) (efective for annual periods beginning on or after 1 January 2016).
The Board of Directors expects that the adoption of the above fnancial reporting standards in future periods will not have a signifcant efect on the fnancial statements of the Company except of:
• The adoption of IFRS 15 which could afect the consolidated fnancial statements.
The extent of the impact has not been determined.
STATEMENT
The Group has fve reportable segments, as described below, which are the Group's strategic business units. The strategic business units ofer diferent types of real estate products and services and are managed separately because they require diferent marketing strategies as they address diferent types of clients. For each strategic business unit the Group's management reviews internal management reports on at least monthly basis. The following summary describes the operation in each of the Group's reportable segments.
Asset Management: Includes the operation of investment property for lease.
Hotel Operation: Includes the operation of Hotels
Information regarding the results of each reportable segment is included below. Performance is measured based on segment proft before income tax, as included in the internal management reports that are reviewed by the Group's management team. Segment proft is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm's length basis.
| Development projects | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Commercial projects |
Residential projects |
Asset management |
Hotel Operation | Other - land bank | Total | |||||||
| 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |
| US\$'000 | US\$'000 US\$'000 US\$'000 | US\$'000 | US\$'000 US\$'000 US\$'000 | US\$'000 | US\$'000 | US\$'000 | US\$'000 | |||||
| External revenues | 117 | 54,494 | 2,512 | 3,049 | 117,348 | 111,942 | 15,288 | 17,749 | 8,823 | 15,027 | 144,088 | 202,261 |
| Inter-segment revenue |
1 | 1 | 4 | 1 | - | - | 15 | 18 | 410 | 469 | 430 | 489 |
| Proft on disposal investment property |
- | - | - | - | - | 27,835 | - | - | - | - | - | 27,835 |
| Interest revenue | 1,278 | 3 | 70 | 6 | 313 | 397 | 762 | 722 | 4,603 | 4,729 | 7,026 | 5,857 |
| Interest expense | (44) | (45) | (60) | (201) | (56,428) | (65,088) | (153) | (1,402) | (4,153) | (166) | (60,838) | (66,902) |
| Depreciation | - | (17) | (49) | (7) | (269) | (438) | (1,149) | (1,286) | (128) | (144) | (1,595) | (1,892) |
| Reportable segment (loss) / proft before tax |
(4,676) | 25,662 | 2,236 | (2,113) | (220,037) | 6,418 | 8,627 | 3,350 | (2,730) | (14,338) | (216,580) | 18,979 |
| Other material non-cash items: |
||||||||||||
| Net valuation gains / (loss) on properties |
(129,467) | 82,012 | (8,892) | (2,186) | 123,278 | 45,415 | - | - | (79,695) | (21,193) | (94,776) | 104,048 |
| Reportable segment assets |
208,923 | 318,962 175,444 178,199 1,362,157 1,582,780 | 27,471 | 53,938 | 250,735 | 390,957 2,024,730 2,524,836 | ||||||
| Reportable segment liabilities |
4,60 | - | 38,348 | - | 808,615 1,011,865 | - | - | 1,323 | 4,163 | 852,893 1,016,028 |
Note: Development projects: investment projects under construction, including construction of residential properties. Asset management: yielding property management (all commercial properties).
CHAIRMAN`S STATEMENT EXECUTIVE DIRECTOR'S
FINANCIAL STATEMENTS
| (94,776) | |
|---|---|
Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items.
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Revenues | ||
| Total revenue for reportable segments | 144,518 | 202,750 |
| Elimination of inter-segment revenue | (430) | (489) |
| Consolidated revenue | 144,088 | 202,261 |
| Profit or loss | ||
| Total proft or loss for reportable segments | (216,580) | 18,979 |
| Other proft or loss | (7,650 | (19,176) |
| Share of the after tax (loss) / proft of joint ventures | (4,451) | (798) |
| Proft on disposal of investment in joint venture / subsidiaries | 114 | 32,278 |
| Valuation (loss) / gain on properties | (85,884) | 106,234 |
| Impairment loss on inventory of real estate | (8,892) | (2,186) |
| Consolidated (loss) / proft before tax | (323,343) | 135,331 |
| Assets | ||
| Total assets for reportable segments | 2,024,730 | 2,524,836 |
| Other unallocated amounts | 125,639 | 262,309 |
| Consolidated total assets | 2,150,369 | 2,787,145 |
| Liabilities | ||
| Total liabilities for reportable segments | 852,893 | 1,016,028 |
| Other unallocated amounts | 15,698 | 41,638 |
| Consolidated total liabilities | 868,591 | 1,057,666 |
| Reportable segment totals, US\$'000 |
Adjustments US\$'000 |
Consolidated totals, US\$'000 |
|
|---|---|---|---|
| Other material items 2014 | |||
| Interest revenue | 7,026 | - | 7,026 |
| Interest expense | (60,838) | 5,198 | (55,640) |
| Net valuation loss on properties | (94,776) | - | (94,776) |
| Reportable segment totals, US\$'000 |
Adjustments US\$'000 |
Consolidated totals, US\$'000 |
|
|---|---|---|---|
| Other material items 2013 | |||
| Interest revenue | 5,857 | 15,104 | 20,961 |
| Interest expense | (66,902) | 6,525 | (60,377) |
| Net valuation gain on properties | 104,048 | - | 104,048 |
Geographically the Group operates only in Russia and has no signifcant revenue or assets in other countries or geographical areas. Therefore no geographical segment reporting is presented.
There was no concentration of revenue from any single customer in any of the segments.
| 144,088 | 202,261 | |
|---|---|---|
| Construction consulting / management fees | 238 | 18 |
| Hotel operation income | 15,287 | 17,738 |
| Sales of trading properties (note 22) | 2,411 | 57,540 |
| Investment property rental income | 126,152 | 126,965 |
| 2014 US\$'000 |
2013 US\$'000 |
Other income consist of:
| 3,507 | 6,409 | |
|---|---|---|
| Sundries | 746 | 4,154 |
| Proft on sale of property, plant and equipment | 42 | 57 |
| Reimbursement of depositary fees | 1,500 | - |
| Penalties charged to tenants | 1,219 | 2,198 |
| 2014 US\$'000 |
2013 US\$'000 |
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Maintenance, utility and security expenses | 24,140 | 25,422 |
| Agency and brokerage fees | 825 | 4,552 |
| Advertising expenses | 4,462 | 4,186 |
| Salaries and wages | 17,553 | 19,398 |
| Consultancy fees | 994 | 1,516 |
| Depreciation | 1,412 | 1,721 |
| Insurance | 717 | 799 |
| Rent | 2,408 | 3,086 |
| Property and other taxes | 9,899 | 15,750 |
| Other operating expenses | 100 | 87 |
| 62,510 | 76,517 |
| 2014 | 2013 | |
|---|---|---|
| US\$'000 | US\$'000 | |
| Consultancy fees | 1,835 | 2,149 |
| Legal fees | 1,273 | 998 |
| Auditors' remuneration | 784 | 805 |
| Valuation expenses | 161 | 174 |
| Directors' remuneration | 2,024 | 1,497 |
| Salaries and wages | 16 | 6 |
| Depreciation | 183 | 155 |
| Insurance | 247 | 280 |
| Provision for Doubtful Debts | 4,568 | (926) |
| Share option expense | 4,383 | 4,920 |
| Donations | 4,834 | 4,527 |
| Other administrative expense | 1,995 | 2,326 |
| 22,303 | 16,911 |
FINANCIAL STATEMENTS
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Prior years' VAT non recoverable (note 21) | 600 | 1,564 |
| Compensation paid for fre damages | - | 811 |
| Legal claim | 1,453 | - |
| Sundries | 4,720 | 3,105 |
| 6,773 | 5,480 |
| 2014 | 2013 | |
|---|---|---|
| US\$'000 | US\$'000 | |
| Interest income | 7,026 | 5,858 |
| Loans written of | - | 15,103 |
| Finance income | 7,026 | 20,961 |
| Interest expense on loans and borrowings | (4) | (156) |
| Interest expense on bank loans | (55,636) | (60,221) |
| Net change in fair value of fnancial assets | (3,263) | (18) |
| Translation reserve reclassifed upon disposal of joint venture (note 35) | - | (30,288) |
| Other fnance costs | (1,936) | (6,508) |
| Net foreign exchange loss | (224,794) | (28,941) |
| Finance costs | (285,633) | (126,132) |
| Net fnance costs | (278,607) | (105,171) |
The net foreign exchange loss recognised during 2014 is a result of the strengthening of the US Dollar to the Russian Rouble by 72%, during 2014. The recognised loss is mainly attributable to the US Dollar denominated loans held by Russian subsidiaries or branches where the functional currency is the Russian Rouble.
Subject to the provisions of IAS23 "Borrowing costs" in 2014 the Group did not capitalise any amount (2013: Nil) of fnancing costs to the projects that are in construction phase.
Loans payable written of during 2013 represent short term loans and borrowings of a Group's subsidiary, which were written of, during the frst quarter of 2013 based on the understanding that neither legal nor implied obligations are no longer valid regarding these liabilities.
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Current tax expense | ||
| Current year | 508 | 8,666 |
| Adjustment for prior years | 107 | 245 |
| 615 | 8,911 | |
| Deferred tax (benefit) / expense | ||
| Origination and reversal of temporary diferences | (36,663) | 22,475 |
| Total tax (beneft) / expense | (36,048) | 31,386 |
The provision for taxation either current or deferred is based on the tax rates applicable to the country of residence of each Group entity. Cypriot entities are subject to 12.5% corporate rate whereas Russian subsidiaries are subject to 20% corporate rate.
| % | 2014 US\$'000 |
% | 2013 US\$'000 |
|
|---|---|---|---|---|
| (Loss) / proft for the year after tax | (287,295) | 103,945 | ||
| Total tax (beneft) / expense | (36,048) | 31,386 | ||
| (Loss) / proft before tax | (323,343) | 135,331 | ||
| Tax using the Company's domestic tax rate | (12.5) | (40,418) | 12.5 | 16,916 |
| Efect of tax rates in foreign jurisdictions | (8.6) | (27,691) | 7.5 | 10,246 |
| Tax exempt income | (4.1) | (13,235) | (6.3) | (8,570) |
| Non deductible expenses | 5.9 | 18,968 | 8.2 | 11,047 |
| Change in estimates related to prior years | - | 107 | 0.2 | 241 |
| Current year losses for which no deferred tax asset recognised |
8.1 | 26,221 | 1.1 | 1,506 |
| (11.2) | (36,048) | 23.2 | 31,386 |
The current tax assets of US\$1,307 thousand as at 31 December 2014, represents the net amount of income tax overpayment in respect of current and prior periods. The current tax liabilities of US\$4,067 thousand as at 31 December 2013, represents the net amount of income tax payable in respect of year ended 31 December 2013 and prior periods net of payments made up to the year end.
REPORT
| Earnings per share (cent) | (26.82) | 9.84 |
|---|---|---|
| Weighted average number of shares | 1,047,694 | 1,047,694 |
| Weighted average number of ordinary shares | Shares in thousands | Shares in thousands |
| (Loss) / proft attributable to ordinary shareholders | (281,020) | 103,074 |
| Basic earnings per share | 2014 US\$'000 |
2013 US\$'000 |
Diluted earnings per share are not presented as the assumed conversion of the employee share options outstanding would have an anti-dilutive efect i.e. increase in earnings per share.
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Balance at 1 January | 1,609,800 | 1,292,300 |
| Reclassifcation from investment property under development | - | 1,852 |
| Reclassifcation to trading properties (note 22) | (432) | - |
| Acquisitions | - | 388,254 |
| Disposal of investment property | - | (61,397) |
| Renovations / additional cost | 6,814 | 13,186 |
| Fair value adjustment | 110,782 | 42,455 |
| Efect of movement in foreign exchange rates | (351,548) | (66,850) |
| Balance at 31 December | 1,375,416 | 1,609,800 |
The investment property was revalued by independent appraisers on 31 December 2014. The cumulative adjustments, for all projects, are shown in line "Fair value adjustment" in the table above.
The decrease due to the efect of the foreign exchange rates is a result of the strengthening of the US Dollar to the Russian Rouble by 72%, during 2014. The fair value adjustment gain is mostly related to this rouble weakening.
Acquisitions during 2013 represent the efect of the acquisition of the 100% of the previously 50% owned joint venture Krown Investments LLC, which was thereafter treated as a subsidiary.
The disposal of investment property during 2013 represents Building 1 of the Ozerkovskaya (Aquamarine) phase III ofce complex in Moscow, which was disposed on 20 December 2013. Under the transaction, Krown Investments LLC, the subsidiary holding the rights to Ozerkovskaya (Aquamarine) phase III, sold premises of the frst building in the Complex and part of underground premises with gross area of 10,985.8 sq.m a terrace of 418.9 sq.m and approximately a 15.8% share in the title to common areas of the Complex, which total 3,728.6 sq.m (total transacted area corresponds to approximately 11,994 sq.m), to a Russian state controlled corporation. The consideration received amounted to Russian rouble equivalent of US\$91.5 million and applicable Russian VAT resulting in a proft of US\$27.8 million before taxes.
The fair value of investment property was determined by external, registered independent property valuers, having appropriate recognised professional qualifcations and recent experience in the location and category of the property being valued. The independent valuers provide the fair value of the Group's investment property portfolio every six months. The same applies for investment property under development in note 16 below.
The fair value measurement for investment property of US\$1,375,416 thousand (2013: US\$1,609,800 thousand) has been categorised as a level 3 fair value based on the inputs to the valuation technique used.
The table presented in reconciliation of carrying amount in 15(a) above shows the reconciliation from the opening balances to the closing balances for level 3 fair values, since all fair values of investment properties of the Group, are categorised as level 3.
The following table shows the valuation technique used in measuring the fair value of investment property, as well as the signifcant unobservable inputs used.
| Valuation technique | Significant unobservable inputs | Inter-relationship between key unobservable inputs and fair value measurement |
|---|---|---|
| Discounted cash fows: The valu • ation model considers the present value of net cash fows to be gener ated from each property, taking into • account rental rates and expected rental growth rate, occupancy rate • and void periods together refect ed in vacancy rates, construction • cost, opening and completion dates, lease incentive costs such rent free • periods, taxes* and other costs not paid by tenants. The expected net cash fows are discounted using the risk-adjusted discount rates plus the fnal year stream is discounted with an all-risk Yield. Among other fac tors, discount rate estimation con siders type of property ofered (retail, commercial, ofce) quality of building and its location, tenant credit quality and lease terms. |
Average Rental rates per sq.m: Office class A \$650, class B \$250-\$350, Retail \$185-\$8,790 Expected market rental growth office 0-3% average, retail 0-2.5% average Vacancy rate (class A 0-2% class B 4-13%) Risk-adjusted discount rates (14.5%-19%) All-Risk Yield 10%-15.5% |
The estimated fair value would increase / (decrease) if: Average rental rates were higher / (lower) • Expected market rental growth were • higher / (lower) Void periods were shorter / (longer) • The vacancy rates were lower / (higher) • The risk-adjusted discount rate were • lower (higher) All-risk yields were lower / (higher) • |
Investment properties at fair value are categorised in the following:
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Retail properties | 1,000,000 | 1,160,000 |
| Ofce space properties | 375,416 | 449,800 |
| 1,375,416 | 1,609,800 |
Fair value sensitivity analysis
Presented below is the efect on the fair value of the main investment property project, of an increase / (decrease) in the below inputs at the reporting date. This analysis assumes that all other variables remain constant.
| Capitalization Rates | Increase of 1% | Rate used in fair value calculation as at 31/12/2014 10% |
Decrease of 1% |
|---|---|---|---|
| Fair value (US\$ '000) | 949,424 | 1,000,000 | 1,060,691 |
| Average rental rates per sq.m | Decrease of 5% | Rate used in fair value calculation as at 31/12/2014 US\$1,147 sq.m |
Increase of 5% |
| Fair value (US\$ '000) | 966,543 | 1,000,000 | 1,033,457 |
| Decrease of 10% | Increase of 10% | ||
| 933,085 | 1,000,000 | 1,066,915 | |
| Occupancy rates | Decrease of 2% | Rate used in fair value calculation as at 31/12/2014 97% |
Increase of 2% |
| Fair value (US\$ '000) | 982,016 | 1,000,000 | 1,022,800 |
| Balance at 31 December | 431,474 | 635,266 |
|---|---|---|
| Efect of movements in foreign exchange rates | (89,546) | (12,294) |
| Fair value adjustment | (196,666) | 63,779 |
| Transfer to investment property | - | (1,852) |
| Acquisition | - | 846 |
| Disposal | (1,400) | - |
| Construction costs | 83,820 | 17,050 |
| Balance at 1 January | 635,266 | 567,737 |
| 2014 US\$'000 |
2013 US\$'000 |
During the period the Company disposed of its 100% share in Keyiri Trade & Invest Limited with its Russian subsidiary Favorit LLC, holding rights to the St Petersburg project, of a book value of US\$1,400 thousand. For further details refer to note 35.
The investment property under development was revalued by independent appraisers on 31 December 2014. The cumulative adjustments, for all projects, are shown in line "Fair value adjustment" in the table above. The decrease due to the efect of the foreign exchange rates is a result of the strengthening of the US Dollar to the Russian Rouble by 72%, during 2014.
The Fair value adjustment loss is a result of the overall economic deterioration of the Russian economy which caused an increase of interest rates by the Central Bank of Russia, decrease in the Russian Rouble value which afected the valuation parameters and assumptions used in the valuation of the investment property under development.
In November 2013 the Company's subsidiary MKPK JSC and the Moscow city authorities signed an addendum to the land lease agreement for "Paveletskaya Phase II" project, amending the permitted use of land from industrial to the construction of commercial and residential premises. The addendum is in line with the previous decisions of the Moscow city authorities on development rights of the Company in this project. However the addendum provides the level of certainty required to change the fair value of the project to market value. The market value of the project determined by Cushman & Wakefeld, the Company's independent appraisers, was US\$92.6 million, as of 30 September 2013, as opposed to book value of US\$11.6 million. The resulting US\$81 million gross valuation gain (US\$64.8 million net of taxation) was recognised in proft or loss on 30 September 2013.
According to the article dated 29 October 2013 and published on the ofcial web-site of the Moscow Government, the Construction Department of Moscow Government has made decision to start an active phase of redevelopment at Tverskaya Zastava Square in 2014 (and the frst stage of redevelopment will focus on construction of an additional overhead road across the railway lines), whereas the date of completion of these works remains unclear, which will incur signifcant delay and, thus, pose high uncertainty with the timeline of the subject Plaza IIa project. Based on these facts, the Company recognised a decrease in the fair value of the property of US\$13.3 million. The valuation was also determined by the Company's independent appraisers and the fair value loss was recorded in proft or loss on 30 September 2013.
FINANCIAL STATEMENTS
The fair value measurement for investment property under development of US\$431,474 thousand (2013: US\$633,213 thousand) has been categorised as a level 3 fair value based on the inputs to the valuation technique used.
The table presented below is the reconciliation from the opening balances to the closing balances for level 3 fair values, since all fair values of investment properties under development of the Group, are categorised as level 3.
The valuation technique used in measuring the fair value of investment property under development, the signifcant unobservable inputs used, as well as the Inter-relationship between key unobservable inputs and fair value measurement are discussed in note 15 above. In addition, the following inputs for investment property under development.
| Geographical location | Fair value US\$ '000 |
Discount rate % |
Rate of return for representative year % |
|---|---|---|---|
| Russia | 431,474 | 20-29 | 9.5-13 |
| 2014 | 2013 | |
|---|---|---|
| US\$'000 | US\$'000 | |
| Balance at 1 January | 5,555 | 82,414 |
| Share of loss (net of share of tax) | (4,091) | (798) |
| Acquisition of 100% of assets and liabilities of joint venture | - | (75,599) |
| Efect of movements in exchange rates | (1,464) | (462) |
| Balance at 31 December | - | 5,555 |
50% interest in Nouana Limited with its subsidiary Tirel LLC, owner of a hotel in Kislovodsk. 50% interest in Craespon Management Ltd with its subsidiary Sanatorium Plaza LLC that operates the aforementioned hotel.
During the period the Group's joint ventures incurred signifcant losses, as a result the Group's share of loss has exceeded its interest in these joint ventures. Therefore the Group discontinued recognising its share of further losses. The Group will resume recognising its share of future profts from the joint ventures only after its share of the future profts equals the share of losses not recognised.
During 2013 the Group owned a 50% interest in Westec Four Winds Ltd and its subsidiary Dulverton Ltd, owner of investment property in Moscow, which was disposed early January 2013, see note 35.
During 2013 the Group also owned a 50% interest in Krown Investments LLC, owner of investment and trading properties in Moscow. On 12 February 2013 the Group acquired the remaining 50% shareholding, deemed as acquisition of assets and liabilities.
The following table summarises the fnancial information of the joint ventures as included in their own fnancial statement, adjusted for fair value adjustments at acquisition. The table also reconciles the summarised fnancial information to the Group's interest in joint ventures:
| Percentage ownership interest | 2014 US\$'000 50% |
2013 US\$'000 50% |
|---|---|---|
| Non-Current assets | 18,365 | 31,699 |
| Current assets | 11,622 | 9,488 |
| Non-Current liabilities | (39,010) | (36,191) |
| Current liabilities | (1,843) | (11,324) |
| Net liabilities (100%) | (10,866) | (6,328) |
| Group's share of net liabilities (50%) | (5,433) | (3,164) |
| Fair value adjustments at acquisition | 5,072 | 8,719 |
| Interest in joint ventures | (361) | 5,555 |
| Restriction of share of loss | 361 | - |
| Carrying amount of interest in joint ventures | - | 5,555 |
| Revenue | 39,126 | 28,161 |
| Expenses | (48,030) | (29,758) |
| Loss and total comprehensive income (100%) | (8,904) | (1,597) |
| Group's share of proft and total comprehensive income (50%) | (4,452) | (798) |
| Dividends received by the Group | - | - |
FINANCIAL STATEMENTS
| Buildings under | Land & | Office Equipment |
Motor | ||
|---|---|---|---|---|---|
| construction US\$ '000 |
Buildings US\$ '000 |
US\$ '000 | Vehicles US\$ '000 |
Total US\$ '000 |
|
| Cost | |||||
| Balance at 1 January 2014 | 14,400 | 56,709 | 3,847 | 1,710 | 76,666 |
| Additions | - | 83 | 240 | 270 | 593 |
| Disposals | - | (439) | (177) | (76) | (692) |
| Efect of movement in foreign exchange rates |
(10,158) | (24,209) | (1,342) | (780) | (36,489) |
| Balance at 31 December 2014 | 4,242 | 32,144 | 2,568 | 1,124 | 40,078 |
| Accumulated depreciation | |||||
| Balance at 1 January 2014 | - | 2,617 | 2,908 | 1,406 | 6,931 |
| Charge for the year | - | 1,114 | 354 | 127 | 1,595 |
| Disposals | - | (355) | (170) | (69) | (594) |
| Efect of movement in foreign exchange rates |
- | (1,345) | (1,000) | (610) | (2,955) |
| Balance at 31 December 2014 | - | 2,031 | 2,092 | 854 | 4,977 |
| Carrying amount | |||||
| At 31 December 2014 | 4,242 | 30,113 | 476 | 270 | 35,101 |
| Cost | |||||
| Balance at 1 January 2013 | 16,527 | 60,605 | 3,942 | 1,944 | 83,018 |
| Additions | 159 | 1,267 | 258 | 123 | 1,807 |
| Disposals | (8) | (669) | (9) | (197) | (883) |
| Efect of movement in foreign exchange rates |
(2,278) | (4,494) | (344) | (160) | (7,276) |
| Balance at 31 December 2013 | 14,400 | 56,709 | 3,847 | 1,710 | 76,666 |
| Accumulated depreciation | |||||
| Balance at 1 January 2013 | - | 2,221 | 2,625 | 1,617 | 6,463 |
| Charge for the year | - | 1,210 | 534 | 130 | 1,874 |
| Disposals | - | (666) | (1) | (205) | (872) |
| Efect of movement in foreign exchange rates |
- | (148) | (250) | (136) | (534) |
| Balance at 31 December 2013 | - | 2,617 | 2,908 | 1,406 | 6,931 |
| Carrying amount | |||||
| At 31 December 2013 | 14,400 | 54,092 | 939 | 304 | 69,735 |
| 2014 | 2013 | |
|---|---|---|
| US\$'000 | US\$'000 | |
| Long-term loans | ||
| Loans to joint ventures (note 40) | 17,962 | 21,438 |
| Loans to non-related companies | 109 | 214 |
| 18,071 | 21,652 | |
| Short-term loans | ||
| Loans to non-related companies | 1 | 774 |
Terms and conditions of outstanding loans were as follows:
| 18,072 | 22,426 | ||||
|---|---|---|---|---|---|
| RUR | 0.1% | On demand | 1 | - | |
| US\$ | 2.5% | 2014 | - | 740 | |
| RUR | 8.8% | 2016 | 20 | 34 | |
| Unsecured loans to non-related companies |
RUR | - | 2016 | 89 | 214 |
| RUR | 14.4% | 2016 | 5,828 | 9,651 | |
| Unsecured loans to joint ventures | US\$ | 11.5% | 2016 | 12,134 | 11,787 |
| Currency | Nominal interest rate |
Year of maturity |
2014 US\$'000 |
2013 US\$'000 |
As previously announced, in August 2012 AFI Development wrote-of its rights to the project "Botanic Garden" following initiation of bankruptcy proceedings against the "main investor" under the investment contract, Novoe Koltso Moskvy OJSC ("NKM"), while continuing its eforts to secure development rights to the project.
On 5 February and 21 February 2013, the Company reported that, as a result of negotiations with the Moscow city authorities, the Company's development rights to the project have been recognised through an addendum to the investment contract for the project. According to this addendum, NKM shall not have any claims to the investments made by AFI Development in the Botanic Garden project and the Group's subsidiary, Nordservice LLC, became the only investor under the investment contract.
Represents VAT paid on construction costs and expenses which according to the Russian VAT law can be recovered upon completion of the construction. Part of this VAT is expected to be recovered after more than 12 months from the balance sheet date. Due to the uncertainties in the Russian tax and VAT law, the management has assessed the recoverability of this VAT and has provided for any amounts that their recoverability was deemed In May 2014, the Company made further progress towards restoring the Botanic Garden project on its balance sheet. As a creditor of NKM and a participant in its bankruptcy proceedings, Nordservice LLC purchased additional rights of claim against NKM for US\$5.6 million and up to 30 September 2014 total costs amounted to US\$17.5 million which were also impaired to proft or loss.
On 18 December 2014, all risks related to the bankruptcy of NKM have been removed and the Company has restored the project in its balance sheet. The inventory of real estate was revalued by independent appraisers on 31 December 2014 at US\$20 million and up to year end additional costs of approximately US\$10 million were incurred by Nordservice LLC. The net efect was the recognition of an impairment loss of \$9 million in proft or loss for the year.
doubtful or questionable (see note 11). Under Russian VAT legislation, VAT can also be claimed during the period of construction provided that all required documentation is presented to the VAT authorities. The Group was successful in recovering VAT during the year, and it is estimated that part of the VAT recoverable as at the year-end will be recovered within the next 12 months, which is classifed as trade and other receivables, note 25.
| 2014 US\$'000 | 2013 US\$'000 | |
|---|---|---|
| Balance at 1 January | 6,409 | 3,597 |
| Acquisition | - | 6,944 |
| Reclassifcation from investment property (note 15) | 432 | - |
| Reclassifcation from trading properties under construction | - | 29,772 |
| Disposals | (1,632) | (32,623) |
| Efect of movements in exchange rates | (2,230) | (1,281) |
| Balance at 31 December | 2,979 | 6,409 |
Trading properties comprise unsold apartments and parking spaces. During the period the Group has sold a number of the remaining apartments and parking places and their cost was transferred to proft or loss.
The reclassifcation from trading properties under construction during 2013 represents the completion of the construction of the 643 parking places units which were disposed upon transferring of the rights to the buyer VTB Bank according to the agreement described below:
In November 2012 Bellgate Constructions Limited ("Bellgate"), the Company's subsidiary owning and operating AFIMALL City, entered into an agreement to dispose approximately 643 parking spaces to VTB Bank JSC. The transaction was structured in two stages. The frst stage entailed a sale-purchase transaction between Bellgate and VTB Bank JSC of 21,354 sq.m. of parking space. During the second stage 9,247 sq.m. owned (at completion) by VTB Bank JSC will be exchanged for 7,847 sq. m. owned by Bellgate. The frst stage of the transaction was completed on 3 June 2013 with the transfer of the rights to the buyer, who became liable for the risks associated with ownership and can utilize the space and is free to sell to another party and therefore revenue of US\$54,492 thousand and a corresponding cost of the disposed properties of US\$29,772 thousand were recognised in the income statement during second quarter of 2013.
FINANCIAL STATEMENTS
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Balance at 1 January | 127,213 | 141,787 |
| Transfer to trading properties | - | (29,772) |
| Construction costs | 35,874 | 17,805 |
| Efect of movements in exchange rates | (30,051) | (2,607) |
| Balance at 31 December | 133,036 | 127,213 |
Trading properties under construction comprise "Odinburg" project which involves primarily the construction of residential properties.
The 643 parking places underneath AFIMALL City were completed during the year 2013, reclassifed to trading properties and disposed according to the agreement with VTB Bank JSC described in note 22 above.
The amount represents investment in marketable interest bearing debt securities classifed at fair value through proft or loss.
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Advances to builders | 20,200 | 40,241 |
| Amounts receivable from related parties (note 40) | 387 | 12,999 |
| Trade receivables net | 6,014 | 9,659 |
| Other receivables | 3,540 | 26,515 |
| VAT recoverable (note 21) | 7,141 | 15,711 |
| Tax receivable | 1,679 | 1,300 |
| 38,961 | 106,425 |
Trade receivables are presented net of an accumulated provision for doubtful debts of US\$12,753 thousand (2013: US\$12,658 thousand).
Cash and cash equivalents consist of:
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Cash at banks | 86,504 | 193,027 |
| Cash in hand | 252 | 303 |
| 86,756 | 193,330 |
| Share capital | 2014 US\$'000 |
2013 US\$'000 |
|---|---|---|
| Authorised | ||
| 2,000,000,000 shares of US\$0.001 each | 2,000 | 2,000 |
| Issued and fully paid | ||
| 523,847,027 A ordinary shares of US\$0.001 each | 524 | 524 |
| 523,847,027 B ordinary shares of US\$0.001 each | 524 | 524 |
| 1,048 | 1,048 |
There were no changes to the authorised or the issued share capital of the Company during the year ended 31 December 2014.
It represents the share premium on the issue of shares on 31 December 2006 for the conversion of the shareholders' loans to capital US\$421,325 thousand. It also includes the share premium on the issued shares which were represented by GDRs listed in the LSE in 2007. It was the result of the diference between the ofering price, US\$14, and the nominal value of the shares, US\$0.001, after deduction of all listing expenses. An amount of US\$1,399,900 thousand less US\$57,292 thousand transaction costs was recognised during the year 2007. On 5 July 2010 an amount of US\$524 thousand was capitalised as a result of a bonus issue.
The Company has established an employee share option plan operated by the Board of Directors, which is responsible for granting options and administrating the employee share option plan. Eligible are employees and directors, excluding independent directors, of the Company. The employees share option plan is discretionary and options will be granted only when the Board so determines at an exercise price derived from the closing middle market price preceding the date of grant. No payment will be required for the grant of the options. In any 10 year period not more than 10 per cent of the issued ordinary share capital may be issued or be issuable under the employee share option plan.
REPORT
As of 31 December 2014 the following options were outstanding.
on the fourth anniversary of the date of grant provided that the participants remain in employment until the vesting date. The vesting is not subject to any performance conditions. Their contractual life is fve years from the date of grant. 10,476,971 options have vested during the period.
If a participant ceases to be employed his options will normally lapse subject to certain exceptions. In the event of a takeover, reorganisation or winding up vested options may be exercised or exchanged for new equivalent options where appropriate. Shares / GDRs issued under the plan will rank equally with all other shares at the time of issue. The Board of Directors may satisfy, (with the consent of the participant), an option by paying the participant in cash or other assets the gain as an alternative of issuing and transferring the shares / GDRs.
The translation reserve comprises all foreign currency diferences arising from the translation of the fnancial statements of foreign operations to the Group presentation currency and the foreign exchange differences on loans designated as loans to an investee company which are accounted for as part of the investor's investment (IAS21.15) as their repayment is not planned or likely to occur in the foreseeable future. These foreign exchange diferences are recognised directly to Translation Reserve.
The amount at each reporting date is available for distribution. No dividends were proposed, declared or paid during the year ended 31 December 2014.
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Non-current liabilities | ||
| Secured bank loans | 455,097 | 778,909 |
| Current liabilities | ||
| Secured bank loans | 231,297 | 26,367 |
| Unsecured loans from other non-related companies | 387 | 660 |
| 231,684 | 27,027 |
The outstanding loans on 31 December 2014 comprise two loans as follows:
A secured loan from VTB Bank JSC ("the Bank") signed on 22 June 2012 by one of the Group's subsidiary, Bellgate Construction Ltd ("Bellgate"). On 29 June 2012 a drawdown of the frst tranche of a new loan facility agreement was efected. On 3 August 2012 a drawdown of the second tranche, of US\$69,386 thousand (RUR 2,252 million). During the year the Group received the third and the fourth tranche, of total approx. US\$86,854 million (RUR 2,633 million). This new loan facility agreement ofers a credit line totalling RUR 21 billion, which can be drawn down in 5 tranches, each with a designated purpose: the majority of the funds are designated to refnance existing loans previously issued by the Bank. The remaining funds are designated for the refnancing of construction costs related to the AFIMALL City parking and for the fnancing of the outstanding payments constituting part of the consideration for the acquisition of the parking.
The Company has discretion over the currency of each tranche, which can be drawn down either in US dollars or in Russian roubles. The loan facility has diferentiated interest rates which are currency dependent: 9.5% for loans drawn down in Russian roubles and 3 months LIBOR plus 6.7% for loans drawn down in US dollars. The interest on the loans is payable on a quarterly basis, throughout the term of the credit line. Bellgate has undertaken to make equal quarterly payments of US\$6.5 million from 2014 to 2016, on account of the principal of the loans, while it has been agreed that the remainder of the loan will mature in April 2018.
The terms of the loan facility agreement are substantially similar to those of the loan facility agreement entered into in February 2012 with the Bank in relation to the fnancing of the acquisition of the AFIMALL City parking. However, certain conditions of the new loan facility will difer from the aforementioned loan, including the following:
a. The guarantee of AFI Development Plc over the obligations of Bellgate under the loan facility agreement will be in the amount of US\$1 million, the nominal value of Bellgate's shares;
b. Additional mortgage over the premises of "Aquamarine" Hotel will be registered in favour of the Bank. This shall be removed in the case that Bellgate redeems US\$20 million of principal;
c. Additional guarantee will be provided to the Bank by Semprex LLC, a Russian company which is an indirect subsidiary of AFI Development Plc, and owner of the "Aquamarine" Hotel. This shall be removed in the case that Bellgate redeems US\$20 million of principal;
d. The turnover covenant has been changed from monthly bank accounts turnovers of not less than RUR 200 million to quarterly revenues (including VAT) exceeding agreed thresholds, determined as amounts gradually increasing from RUR 651 million for Q3 2012 to the amount of RUR1,139 million for Q1 2018. The penalty for not meeting the covenant is changed from 1% additional interest for the next month to 0.5% additional interest for the next quarter.
FINANCIAL STATEMENTS
The loan facility agreement contains other generally acceptable terms, such as the borrower undertaking to maintain the aggregate value of the pledged assets, securing the loan facility, providing the lender with periodic reporting and similar common conditions.
On 17 August 2013 Bellgate Constructions Limited signed an addendum to the current Loan Facility Agreement with the Bank. According to the new terms under the above mentioned addendum the applicable interest rate to the US Dollar denominated loan facility has been decreased from 3-month LIBOR plus 6.7% p.a. to 3-month LIBOR plus 5.02% p.a. The change was efective upon the registration date of the mortgage agreements, on 3 September 2013.
On 25 January 2013 Krown Investments LLC ("Krown"), a 100% subsidiary, acquired a new secured loan from VTB Bank JSC ("the Bank") for refnancing the repayment of borrowings due to related parties. This loan agreement ofers a credit line of US\$220
Terms and conditions of outstanding loans were as follows:
million, which was drawn down during the frst quarter of 2013. The agreed interest is three-month LIBOR plus 5.7% p.a., payable every quarter. The loan repayment date is in 731 days from the date of signing the loan agreement. Securities provided to the Bank are on the 100% of the shares of Krown and on properties/buildings of Aquamarine Phase III. A decrease in the market value of the pledged buildings by more than 15% will enable the bank to demand repayment of the loan before the agreed maturity date. In case of disposal of the pledged building, at least 70% of sale proceeds should be directed to the Bank for the repayment of the loan. An amount of US\$15 million was repaid during 2013 out of the proceeds from sale of Building 1 of the Ozerkovskaya (Aquamarine) phase III as disclosed in note 15. The outstanding loan amount as at 31 December 2014 amounted to US\$205 million, including interest, which was reclassifed as current liability as the repayment date falls within the next twelve months, 26 January 2015. After the balance sheet date the Company has refnanced the loan, see note 41 for more information.
| 686,781 | 805,936 | ||||
|---|---|---|---|---|---|
| Other | RUR | 3-12% | on demand | 387 | 660 |
| Secured loan from VTB Bank to Krown | US\$ | 3m US\$ LIBOR+5.7% |
2015 | 205,297 | 205,361 |
| Secured loan from VTB Bank to Bellgate | US\$ | 3m US\$ LIBOR+5.02% |
2018 | 296,386 | 309,386 |
| Secured loan from VTB Bank to Bellgate | RUR | 9.5% | 2018 | 184,711 | 290,529 |
| Currency | Nominal interest rate |
Year of maturity |
2014 US\$'000 |
2013 US\$'000 |
The loans and borrowings are payable as follows:
| 2014 | 2013 | |
|---|---|---|
| US\$'000 | US\$'000 | |
| Less than one year | 231,684 | 27,027 |
| Between one and fve years | 455,097 | 778,909 |
| More than fve years | - | - |
| 686,781 | 805,936 |
As of 31 December 2014 the Group is in compliance with all loan covenants.
Deferred tax (assets) and liabilities are attributable to the following:
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Investment property | 157,429 | 138,666 |
| Investment property under development | 25,065 | 50,427 |
| Property, plant and equipment | (1,028) | (4,151) |
| Trading properties | 1,507 | (348) |
| Trading properties under construction | (420) | (3,341) |
| Trade and other receivables | (5,204) | (4,177) |
| Trade and other payables | (372) | (2,230) |
| Short-term loans and borrowings | (5) | 2,869 |
| Other items | (21) | 846 |
| Tax losses carried forward | (74,330) | (53,301) |
| Deferred tax liability | 102,621 | 125,260 |
| 2014 | 2013 | |
|---|---|---|
| US\$'000 | US\$'000 | |
| Trade payables | 8,654 | 11,175 |
| Payables to related parties (note 40) | 2,264 | 4,088 |
| Amount payable to builders | 7,626 | 9,556 |
| VAT and other taxes payable | 7,373 | 28,260 |
| Amount payable for the acquisition of properties | - | 39,967 |
| Other payables | 2,299 | 7,202 |
| 28,216 | 100,355 |
The above are payable within one year and bear no interest.
Include an amount of US\$1,465 thousand (31/12/13: US\$3,282 thousand) payable to Danya Cebus Rus LLC, related party of the Group, for contracts signed in relation to the construction of Group's projects.
Represented the third instalment of an amount payable to the City of Moscow, for the acquisition of the parking area under the AFIMALL City. The amount was payable in three yearly installments starting from February 2012 and with the last falling due in February 2014. In February 2014 the company paid the third and last installment of RUR 1,333 million.
CHAIRMAN`S STATEMENT EXECUTIVE DIRECTOR'S
Represent advances received from customers for the sale of residential properties at "Odinburg" project.
Represents rental income received in advance, which corresponds to periods after the reporting date.
The following table shows the carrying amounts and fair values of fnancial assets and fnancial liabilities, including their levels and the fair value hierarchy. It does not include fair value information for fnancial assets and fnancial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
| Carrying amount | Fair value | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Non current assets |
Current assets | |||||||||
| Loans | Trade and other |
Other investments, Including |
Cash and cash |
Loans | ||||||
| 31 December 2014 | receivable US\$'000 |
receivables US\$'000 |
derivatives US\$'000 |
equivalents US\$'000 |
receivable | Total | Level 1 | Level 2 US\$'000 US\$'000 US\$'000 US\$'000 US\$'000 US\$'000 |
Level 3 | Total |
| Financial assets measured at fair value | ||||||||||
| Investment in listed debt securities |
- | - | 6,499 | - | - | 6,499 | 6,499 | - | - | 6,499 |
| Financial assets not measured at fair value | ||||||||||
| Loans receivable | 18,071 | - | - | - | 1 | 18,072 | ||||
| Trade and other receivables |
- | 30,141 | - | - | - | 30,141 | ||||
| Cash and cash equivalents |
- | - | - | 86,756 | - 86,756 | |||||
| 18,071 | 30,141 | - | 86,756 | 1 134,969 | ||||||
| 31 December 2013 | ||||||||||
| Financial assets measured at fair value | ||||||||||
| Investment in listed debt securities |
- | - | 9,982 | - | - | 9,982 | 9,982 | - | - | 9,982 |
| Financial assets not measured at fair value | ||||||||||
| Loans receivable | 21,652 | - | - | - | 774 22,426 | |||||
| Trade and other receivables |
- | 89,414 | - | - | - | 89,414 | ||||
| Cash and cash equivalents |
- | - | - | 193,330 | - 193,330 | |||||
| 21,652 | 89,414 | - | 193,330 | 774 | 305,170 |
Carrying amount Fair value Non-current liabilities Current liabilities Interest bearing loans and borrowings Trade and other payables Interest bearing loans and borrowings Total Level 1 Level 2 Level 3 Total 31 December 2014 US\$'000 US\$'000 US\$'000 US\$'000 US\$'000 US\$'000 US\$'000 US\$'000 Financial liabilities not measured at fair value Interest bearing loans and borrowings (455,097) - (231,684) (686,781) (735,004) (735,004) Trade and other payables - (20,843) - (20,843) (455,097) (20,843) (231,684) (707,624) 31 December 2013 Financial liabilities not measured at fair value Interest bearing loans and borrowings (778,909) - (27,027) (805,936) (834,466) (834,466) Trade and other payables - (71,988) - (71,988) (778,909) (71,988) (27,027) (877,924)
The Group has exposure to the following risks arising from fnancial instruments:
The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework and is responsible for developing and monitoring the Group's risk management policies.
The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to refect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Audit Committee overseas how management monitors compliance with the Group's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
Credit risk is the risk of fnancial loss to the Group if a customer or counterparty to a fnancial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers and cash deposited with banks.
The carrying amount of fnancial assets represents the maximum credit exposure.
Financial assets which are potentially subject to credit risk consist principally of trade and other receivables as well as credit exposures with respect to rental customers and buyers of residential properDIRECTORS' REMUNERATION
FINANCIAL STATEMENTS
REPORT
ties including outstanding receivables. The carrying amount of trade and other receivable represents the maximum amount exposed to credit risk. There is no concentration of credit risk to any single customer in any of the Group's segments. Geographically there is no concentration of credit risk. The Group has policies in place to ensure that, where possible rental contracts are made with customers with an appropriate credit history.
At 31 December 2014, the ageing of trade and other receivable that were not impaired was as follows:
| Neither past due nor impaired | US\$'000 3,005 |
US\$'000 3,071 |
|---|---|---|
| Past due 1-30 days | 1,190 | 3,689 |
| Past due 31-90 days | 2,529 | 6,914 |
| Past due 91-120 days | 23,416 | 75,738 |
| 30,140 | 89,412 |
Management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment behaviour and extensive analysis of customer credit risk, including underlying customers' credit ratings, if they are available.
The movement in the allowance for impairment in respect of trade and other receivables during the year was as follows:
| Individual impairments US\$'000 |
Collective impairments US\$'000 |
|
|---|---|---|
| Balance at 1 January 2013 | 440 | 13,144 |
| Impairment loss recognised | (341) | 894 |
| Amounts written of | - | (1,479) |
| Balance at 31 December 2013 | 99 | 12,559 |
| Impairment loss recognised | (26) | 4,595 |
| Exchange diference efect | (19) | (4,455) |
| Balance at 31 December 2014 | 54 | 12,699 |
Credit risk arises from cash and cash equivalents. Cash transactions are limited to high-credit-quality fnancial institutions. The utilisation of credit limits is regularly monitored.
The Group has no other signifcant concentrations of credit risk. Although collection of receivables could be infuenced by economic factors, management believes that there is no signifcant risk of loss to the Group.
The Group limits its exposure to credit risk by investing only in liquid securities and only with counterparties that have a high credit rating. Management actively monitors credit ratings and given that the Group only has invested in securities with high credit ratings, management does not expect any counterparty to fail to meet its obligations.
FINANCIAL STATEMENTS
The Company's policy is to provide fnancial guarantees only to wholly-owned subsidiaries in exceptional cases. In negotiations with lending banks the Company is aiming to avoid recourse to AFI Development on loans taken by subsidiaries. As at 31 December 2014, there were two outstanding guarantees: one of AFI Development Plc for the amount of US\$1 million in favour of VTB Bank JSC under a loan facility agreement of Bellgate Construction Limited and another one of AFI Development Plc for the amount of US\$205 million in favour of VTB Bank JSC under a loan facility agreement of Krown Investments LLC (project Aquamarine III).
Liquidity risk is the risk that the Group will encounter difculty in meeting the obligations associated with its fnancial liabilities that are settled by delivering cash or another fnancial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufcient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
Prudent liquidity risk management implies maintaining sufcient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims to maintain fexibility in its funding requirements by keeping cash and committed credit lines available.
The Group's liquidity position is monitored by the management which take necessary actions if required. The Group structures its assets and liabilities in such a way that liquidity risk is minimised.
The Group maintains the following lines of credit as at 31 December 2014:
The following are the remaining contractual maturities of fnancial liabilities at the reporting date, including estimated interest payments and excluding the impact of netting agreements:
| 31 December 2014 | Carrying Amount US\$'000 |
Contractual Cash flow US\$'000 |
6 months or less US\$'000 |
6-12 months US\$'000 |
1-2 years US\$'000 |
2-5 years US\$'000 |
|---|---|---|---|---|---|---|
| Secured bank loans | 686,394 | (785,535) | (235,311) | (28,991) | (56,541) | (464,692) |
| Unsecured loans | 387 | (401) | - | (401) | - | - |
| Trade and other payables | 20,843 | (20,843) | (20,843) | - | - | - |
| 31 December 2013 | Carrying Amount US\$'000 |
Contractual Cash flow US\$'000 |
6 months or less US\$'000 |
6-12 months US\$'000 |
1-2 years US\$'000 |
2-5 years US\$'000 |
| Secured bank loans | 805,276 | (981,298) | (40,277) | (39,813) | (272,115) | (629,093) |
| Unsecured loans | 660 | (677) | - | (677) | - | - |
| Trade and other payables | 71,988 | (71,988) | (71,988) | - | - | - |
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will afect the Group's income or the value of its holdings of fnancial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
The Group is exposed to currency risk on future commercial transactions, recognised monetary assets and liabilities and net investments in foreign operations that are denominated in a currency other than the respective functional currencies of Group entities, primarily the United States Dollars and Russian Roubles. The currencies in which these transactions primarily are denominated are Russian Roubles, United States Dollars, Euro and Ukrainian Hryvnia.
The following shows the magnitude of changes in respect of a number of major factors infuencing the Group's proft before taxes. The assessment has been made on the year-end fgures.
A 10% strengthening of the United States Dollar against the following currencies at 31 December 2014 would have increased / (decreased) equity and proft for the year by the amounts shown below.
This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2013.
| Equity US\$ '000 |
Profit for the year US\$ '000 |
|
|---|---|---|
| 31 December 2014 | ||
| Russian Roubles | (6,588) | (45,125) |
| Ukrainian Hryvnia | (3,492) | - |
| Euro | - | (118) |
| 31 December 2013 | ||
| Russian Roubles | 8,460 | (51,049) |
| Ukrainian Hryvnia | (2,297) | 3 |
| Euro | - | 142 |
A 10% weakening of the United States Dollar against the above currencies at 31 December 2014 would have the equal but opposite efect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
At the reporting date the interest rate profle of the Group's interest-bearing fnancial instruments is as follows:
| Carrying amount | ||
|---|---|---|
| 2014 US\$'000 |
2013 US\$'000 |
|
| Fixed rate instruments | ||
| Financial assets | 24,482 | 315,118 |
| Financial liabilities | (177,843) | (291,189) |
| (153,361) | (23,929) | |
| Variable rate instruments | ||
| Financial assets | - | 34 |
| Financial liabilities | (508,934) | (514,747) |
| (508,934) | (514,713) |
An increase of 100 basis points in interest rates at the reporting date would have increased / (decreased) equity and proft for the year by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2013.
| Equity | Profit for | |
|---|---|---|
| US\$ '000 | the year US\$ '000 |
|
| 31 December 2014 | ||
| Variable rate instruments | - | (5,014) |
| 31 December 2013 | ||
| Variable rate instruments | - | (5,147) |
A decrease of 100 basis points in interest rates at the reporting date would have the equal but opposite efect on the above instruments to the amounts shown above, on the basis that all other variables remain constant.
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.
The Group's objective is to manage operational risk so as to balance the avoidance of fnancial losses and damage to the Group's reputation with overall cost efectiveness and to avoid control procedures that restrict initiative and creativity.
FINANCIAL STATEMENTS
The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Group standards for the management of operational risk in the following areas:
Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Group.
The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confdence and to sustain future development of the business.
There were no changes in the Group's approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
The Company is committed to delivering the highest standards in boardroom practice and fnancial transparency through:
A full programme of investor relations activity ensures appropriate contact with institutional and private shareholders, with regular meetings, presentations and disclosure of important information. Great care is taken to provide suitably detailed information on the Group's activities and results to enable various stakeholders to understand the performance and prospects of the Group.
The Group's operations are primarily located in the Russian Federation. Consequently, the Group is exposed to the economic and fnancial 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 fscal impediments contribute to the challenges faced by entities operating in the Russian Federation.
The recent confict in Ukraine and related events has increased the perceived risks of doing business in the Russian Federation. The imposition of economic sanctions on Russian individuals and legal entities by the European Union, the United States of America, Japan, Canada, Australia and others, as well as retaliatory sanctions imposed by the Russian government, has resulted in increased economic uncertainty including more volatile equity markets, a depreciation of the Russian Rubble, a reduction in both local and foreign direct investment infows and a signifcant tightening in the availability of credit. In particular, some Russian entities may be experiencing difculties in accessing international equity and debt markets and may become increasingly dependent on Russian state banks to fnance their operations. The longer term efects of recently implemented sanctions, as well as the threat of additional future sanctions, are difcult to determine.
STATEMENT
The consolidated fnancial statements refect management's assessment of the impact of the Russian business environment on the operations and the fnancial position of the Group. The future business environment may difer from management's assessment.
Russian Federal Law No. 307-FZ dated 2 November 2013 introduced changes in property tax calculation for ofce and retail premises and properties owned by foreign legal entities that do not operate in Russia via representative ofces. The law entered into force on 1 January 2014. Prior to 2014, the property tax was calculated at 2.2% of the property book value posted on the owner's balance sheet. From 2014 the cadastral values for given premises (excluding underlying land) will be set as the basis for property tax payments. The tax rate will be determined by local (regional) authorities under Federal laws. The Moscow Government announced fnal tax schedule for properties in Moscow as follows: 0.9% (2014), 1.2% (2015), 1.5% (2016), 1.8% (2017), 2.0% (2018).
| Ultimate controlling party: Lev Leviev Israel | |
|---|---|
| Ultimate holding company: Africa Israel Investments Limited Israel | |
| Holding company: Africa Israel Investments Limited Israel |
| Significant Subsidiaries | Ownership interest % |
Country of incorporation | |||
|---|---|---|---|---|---|
| 2014 | 2013 | ||||
| 1. | OOO AFI RUS | 100 | 100 | Russian Federation | |
| 2. | OOO Avtostoyanka Tverskaya Zastava | 100 | 100 | Russian Federation | |
| 3. | OOO Krown Investments | 100 | 100 | Russian Federation | |
| 4. | OAO Moskovskiy Kartonazhno-poligraphicheskiy Kombinat (MKPK) | 99.17 | 99.17 | Russian Federation | |
| 5. | Bellgate Constructions Limited | 100 | 100 | Cyprus | |
| 6. | OOO Regionalnoe AgroProizvodstvennoe Objedinenie (RAPO) | 100 | 100 | Russian Federation | |
| 7. | OOO Aristeya | 100 | 100 | Russian Federation | |
| 8. | Scotson Limited | 100 | 100 | Cyprus | |
| 7. | ZAO Nedra Publishing | 90.17 | 90.17 | Russian Federation | |
| 8. | OOO Titon | 100 | 100 | Russian Federation | |
| 9. | ZAO MTOK | 99.71 | 99.71 | Russian Federation | |
| 10. | OOO Eitan K | 100 | 100 | Russian Federation | |
| 11. | OOO Semprex | 100 | 100 | Russian Federation | |
| 12. | OOO Zheldoruslugi | 95 | 95 | Russian Federation | |
| 13. | OOO Bizar | 74 | 74 | Russian Federation | |
| 13. | AFI D Finance SA | 100 | 100 | British Virgin Islands |
The proft on disposal of subsidiaries consists of:
| 114 | 32,278 | |
|---|---|---|
| Proft on disposal of Westec Four Winds Ltd | - | 32,088 |
| Proft on disposal of non-signifcant subsidiaries | 114 | 190 |
| 2014 US\$'000 |
2013 US\$'000 |
During the year the Company disposed of its 100% share in Keyiri Trade & Invest Limited with its Russian subsidiary Favorit LLC, holding rights to the St Petersburg project, of a book value of US\$1,400 thousand. The selling price of the disposal was \$1,400 thousand. The resulting proft on disposal amounting to US\$114 thousand was recognised in the income statement.
The above disposals had the following efect on the Group's assets and liabilities:
| 31/12/14, US\$'000 | |
|---|---|
| Investment property under development | (1,400) |
| Trade and other receivables | (14) |
| Current tax asset | (2) |
| Deferred tax assets | (1) |
| Trade and other payables | 1 |
| Net identifable assets | (1,416) |
| Consideration received in cash / Net cash infow from the disposal of Non-signifcant subsidiaries | 1,400 |
The selling price of the disposal of Westec Four Winds Ltd was US\$103,380 thousand. The resulting proft on sale amounting to US\$32,088 thousand and a translation reserve of US\$30,288 thousand was reclassifed as a realised exchange loss in fnancing expenses of the income statement of frst quarter 2013.
There were no individually signifcant subsidiaries which have material NCI.
Non-cancellable operating lease rentals are payable as follows:
| Less than a year Between one and fve years More than fve years |
6,688 26,327 40,213 73,228 |
15,980 21,676 60,167 97,823 |
|---|---|---|
| 2014 US\$'000 |
2013 US\$'000 |
The ownership of land in the Russian Federation is rare and especially within Moscow region, in which all of the property with only a few exceptions, is owned by the City of Moscow. The majority of land is occupied by private entities pursuant to lease agreements between occupants, of the building located on the land, and the City of Moscow. The Group has several long-term operating leases for land. These leases are entered into with the intention and right to develop the land and carry out construction. Typically they run for an initial period of one to fve years which is the period of development and upon completion of development the developer has the right to renew for a long term period of usually up to 49 years. Under both leases the lessee is required to make periodic lease payments, generally on a quarterly basis to the City of Moscow.
There is also the option of long term land lease prior to commencement of construction which the developer can acquire with a lump sum payment that is determined from time to time by the City of Moscow and is based on the size of the land, its location and the proximity to amenities. The Group has two such land rights and they run for period of 49 years.
The Group leases out investment property under operating leases. The future minimum lease payments under non-cancellable leases are as follows:
| Amount recognised as income during the year | 122,226 | 126,814 |
|---|---|---|
| 343,331 | 376,720 | |
| More than fve years | 51,603 | 46,928 |
| Between one and fve years | 169,227 | 204,548 |
| Less than a year | 122,501 | 125,244 |
| 2014 US\$'000 |
2013 US\$'000 |
FINANCIAL STATEMENTS
Up to 31 December 2014 the Group has entered into a number of contracts for the construction of investment or trading properties:
| Project name | Commitment | |
|---|---|---|
| 2014 US\$'000 |
2013 US\$'000 |
|
| Odinburg | 16,081 | 53,058 |
| Kosinskaya | 1,560 | 20,253 |
| TVZ Plaza IC | 2,600 | 12,776 |
| Serebryakova | 7,243 | 7,332 |
| Pavaletskaya II | 4,311 | 3,733 |
| TVZ Plaza IV | 140 | 3,592 |
| TVZ Plaza II | 1,080 | 1,297 |
| Bolshaya Pochtovaya | 474 | 334 |
| 33,489 | 102,375 |
There were not any contingent liabilities as at 31 December 2014.
Outstanding balances with related parties
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Assets | ||
| Amounts receivable from joint ventures | 20 | 16 |
| Amounts receivable from ultimate holding company | 203 | 203 |
| Amounts receivable from other related companies | 164 | 12,780 |
| Long term loan receivable from joint ventures | 17,962 | 21,438 |
| Liabilities | ||
| Amounts payable to joint ventures | 131 | 170 |
| Amounts payable to ultimate holding company | 433 | 435 |
| Amounts payable to other related companies | 1,700 | 3,483 |
| Deferred income from related company | 156 | 266 |
Transactions with the key management personnel
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Key management personnel compensation comprised: | ||
| Short-term employee benefts | 5,311 | 4,401 |
| Share option scheme expense | 4,383 | 4,920 |
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. The person is a member of the key management personnel of the entity or its parent (includes the immediate, intermediate or ultimate parent). Key management is not limited to directors; other members of the management team also may be key management.
Other related party transactions
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Revenue | ||
| Joint venture – consulting services | 238 | - |
| Joint venture – rental income | - | 2 |
| Joint venture – other income | - | 11 |
| Joint venture – interest income | 1,920 | 2,523 |
| Related company – rental income | 1,519 | 1,358 |
| Expenses | ||
| Ultimate holding company – administrative expenses | 766 | 433 |
| Joint venture – operating expenses | 177 | 193 |
| Joint venture – administrative expenses | - | 9 |
| Other related companies – administrative expenses | - | 6 |
Other related party transactions. Construction services capitalised.
| Related company – construction services | 13,728 | 9,076 |
|---|---|---|
| 2014 US\$'000 |
2013 US\$'000 |
CHAIRMAN`S STATEMENT EXECUTIVE DIRECTOR'S
STATEMENT
UNDERSTANDING AFI DEVELOPMENT
OPERATIONAL REVIEW
PRINCIPAL BUSINESS RISKS
CORPORATE GOVERNANCE
REPORT
Subsequent to 31 December 2014 there were no events that took place which have a bearing on the understanding of these fnancial statements except of the following:
In January 2015, the Company's subsidiary, Krown Investments LLC ("Krown") signed an addendum to the loan facility agreement with VTB Bank OJSC ("the Bank), extending the term of the loan to 26 January 2018. Krown, which owns the Aquamarine III (Ozerkovskaya III) ofce complex, had an existing loan from the Bank maturing on 26 January 2015, of which US\$ 205 million was outstanding. In addition to extending the term of the loan, the new addendum amended the payment schedule and interest rate conditions of the loan agreement and introduced new covenants. The payment schedule anticipates repayments of the principal starting from the 4th quarter of 2015, while the new covenants include a Debt Service Coverage Ratio of 1.2 also applicable as from the 4th quarter of 2015 and a Loan to Value ratio of 65% applicable from January 2015. In line with the addendum, on 26th January 2015 Krown paid US\$10 million to the Bank as partial repayment of the outstanding loan amount, thus reducing the total to US\$195 million. About 90% of the principal is to be paid at maturity.
| Parent company separate income statement | |
|---|---|
| and statement of comprehensive income | 142 |
| Parent company separate statement of changes in equity | 143 |
| Parent company separate statement of fnancial position |
144 |
| Parent company separate statement of cash fows | 145 |
| Notes to the parent company separate fnancial statements | 146 |
For the year ended 31 December 2014
| Note | 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|---|
| Revenue | 4 | - | 1,048 |
| Other income | 1,502 | 1,359 | |
| Other expenses | (16) | - | |
| Administrative expenses | 5 | (15,775) | (18,652) |
| Reversal of impairment / (impairment) of investment in subsidiaries | 7 | 18,100 | (430) |
| (Loss) / proft on disposal of investment in subsidiaries | 7 | (652) | 97,271 |
| 1,657 | 78,189 | ||
| Results from operating activities | 3,159 | 80,596 | |
| Finance income | 1,246 | 10,165 | |
| Finance costs | (5,401) | (5,158) | |
| Net finance (costs) / income | 6 | (4,155) | 5,007 |
| (Loss) / Profit for the year | (996) | 85,603 | |
| Other comprehensive income | - | - | |
| Total comprehensive income for the year | (996) | 85,603 |
The notes on pages 146 to 158 are an integral part of these parent company separate financial statements.
For the year ended 31 December 2014
| Share capital US\$ '000 |
Share premium US\$ '000 |
Retained earnings US\$ '000 |
Total US\$ '000 |
|
|---|---|---|---|---|
| Balance at 1 January 2013 | 1,048 | 1,763,409 | (671) | 1,763,786 |
| Total comprehensive income for the year | - | - | 85,603 | 85,603 |
| Transactions with owners of the Company | ||||
| Contributions and distributions | ||||
| Share option expense | - | - | 4,920 | 4,920 |
| Balance at 31 December 2013 | 1,048 | 1,763,409 | 89,852 | 1,854,309 |
| Balance at 1 January 2014 | 1,048 | 1,763,409 | 89,852 | 1,854,309 |
| Total comprehensive income for the year | - | - | (996) | (996) |
| Transactions with owners of the Company | ||||
| Contributions and distributions | ||||
| Share option expense | - | - | 4,383 | 4,383 |
| Balance at 31 December 2014 | 1,048 | 1,763,409 | 93,239 | 1,857,696 |
FINANCIAL STATEMENTS
As at 31 December 2014
| Note | 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|---|
| Assets | |||
| Investment in subsidiaries | 7 | 1,686,863 | 1,666,326 |
| Loans receivable | 8 | 217,839 | 217,926 |
| Total non current assets | 1,904,702 | 1,884,252 | |
| Trade and other receivables | 9 | 8,767 | 11,649 |
| Refundable tax | 2,215 | 2,215 | |
| Cash and cash equivalents | 10 | 39,127 | 43,239 |
| Total current assets | 50,109 | 57,103 | |
| Total assets | 1,954,811 | 1,941,355 | |
| Equity | |||
| Share capital | 1,048 | 1,048 | |
| Share premium | 1,763,409 | 1,763,409 | |
| Retained earnings | 93,239 | 89,852 | |
| Total equity | 11 | 1,857,696 | 1,854,309 |
| Liabilities | |||
| Loans and borrowings | 12 | 94,084 | 85,473 |
| Total non-current liabilities | 94,084 | 85,473 | |
| Trade and other payables | 13 | 3,031 | 1,573 |
| Total current liabilities | 3,031 | 1,573 | |
| Total liabilities | 97,115 | 87,046 | |
| Total equity and liabilities | 1,954,811 | 1,941,355 |
The fnancial statements were approved by the Board of Directors on 16 March 2015.
Lev Leviev – Chairman
Mark Groysman – Director
The notes on pages 146 to 158 are an integral part of these parent company separate financial statements.
For the year ended 31 December 2014
| Note | 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|---|
| Cash flows from operating activities | |||
| (Loss) / proft for the year | (996) | 85,603 | |
| Adjustments for: | |||
| Unrealised exchange loss | 6 | 93 | 444 |
| Write of of receivables | 16 | - | |
| Loss / (gain) on disposal of investments in subsidiaries | 7 | 652 | (97,271) |
| (Reversal) / charge of impairment of investment in subsidiary | 7 | (18,100) | 430 |
| Dividend income | 4 | - | (1,048) |
| Interest income | 6 | (1,246) | (10,165) |
| Interest expense | 6 | 5,311 | 4,689 |
| Share option expense | 5 | 4,383 | 4,920 |
| (9,887) | (12,398) | ||
| Change in trade and other receivables | 141 | (268) | |
| Change in trade and other payables | 1,458 | (1,220) | |
| Net cash used in operating activities | (8,288) | (13,886) | |
| Cash flows from investing activities | |||
| Proceeds received from the sale of subsidiaries | 7 | 748 | 3,380 |
| Additional contribution of capital to existing subsidiaries | 7 | (1,826) | - |
| Payment for acquisition of investments in subsidiaries | 7 | (12) | (101,261) |
| Dividends received | 4 | - | 1,048 |
| Interest received | 6 | 1,972 | 1,345 |
| Net cash (used in) / from investing activities | 882 | (95,488) | |
| Cash flows from financing activities | |||
| Payments for loans receivable | 8 | - | (6,705) |
| Proceeds from repayment of loans receivable | 8 | - | 91,272 |
| Repayment of loans and borrowings | 12 | (8,500) | (4,000) |
| Repayment of a loan from joint venture partner | - | (116,264) | |
| Proceeds from loans and borrowings | 12 | 13,300 | 88,789 |
| Interest paid | 12 | (1,500) | (4,000) |
| Net cash from / (used in) financing activities | 3,300 | 49,092 | |
| Efect of exchange rate fuctuations on cash held | 6 | 18 | |
| Net decrease in cash and cash equivalents | (4,112) | (60,264) | |
| Cash and cash equivalents at 1 January | 43,239 | 103,503 | |
| Cash and cash equivalents at 31 December | 10 | 39,127 | 43,239 |
| The cash and cash equivalents consists of: | |||
| Cash at banks | 39,127 | 43,239 |
The notes on pages 146 to 158 are an integral part of these parent company separate financial statements.
DIRECTORS' REMUNERATION
REPORT
AFI Development PLC (the "Company") was incorporated in Cyprus on 13 February 2001 as a limited liability company under the name Donkamill Holdings Limited. In April 2007 the Company was transformed into public company and changed its name to AFI Development PLC. The address of the Company's registered ofce is 165 Spyrou Araouzou Street, Lordos Waterfront Building, 5th foor, Flat/offce 505, 3035 Limassol, Cyprus. The Company is a 64.88% (31/12/2013: 64.88%) subsidiary of Africa Israel Investments Ltd ("Africa-Israel"), which is listed in the Tel Aviv Stock Exchange ("TASE"). The remain-
The fnancial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law, Cap.113.
Users of these parent's separate fnancial statements should read them together with the Group's consolidated fnancial statements as at and for the year ended 31 December 2014 in order to obtain a proper understanding of the fnancial position, the fnancial performance and the cash fows of the Company and the Group.
ing shareholding of "A" shares is held by a custodian bank in exchange for the GDRs issued and listed in the London Stock Exchange ("LSE"). On 5 July 2010 the Company issued by way of a bonus issue, 523,847,027 "B" shares, which were admitted to a premium listing on the Ofcial List of the UK Listing Authority and to trading on the main market of LSE. On the same date, the ordinary shares of the Company were designated as "A" shares.
The principal activity of the Company is the holding of investments in subsidiaries and jointly controlled entities.
The fnancial statements have been prepared under the historical cost convention, except in the case of investments, which are stated at cost less provision for impairment in value and receivables which are stated after the provision for impairment.
As from 1 January 2014, the Company adopted all changes to International Financial Reporting Standards (IFRSs) which are relevant to its operations. This adoption did not have a material efect on the separate fnancial statements of the Company.
The following Standards, Amendments to Standards and Interpretations have been issued but are not yet efective for annual periods beginning on 1 January 2014. Those which may be relevant to the Company are set out below. The Company does not plan to adopt these Standards early.
• Annual Improvements to IFRSs 2012–2014 Cycle (efective the latest as from the commencement date of its frst annual period beginning on or after 1
January 2016).
Financial Statements
The Board of Directors expects that the adoption of the above fnancial reporting standards in future periods will not have a signifcant efect on the fnancial statements of the Company.
The preparation of fnancial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that afect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may deviate from such estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods afected.
In particular, information about critical judgements in applying accounting policies that have the most signifcant efect on the amounts recognised in the fnancial statements are described below:
• Income taxes
Signifcant judgement is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the fnal tax outcome of these matters is diferent from the amounts that were initially recorded, such diferences will impact the income tax provisions in the period in which such determination is made.
STATEMENT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
• Impairment of investments in subsidiaries / jointly controlled entities
The Company periodically evaluates the recoverability of investments in subsidiaries/jointly controlled entities whenever indicators of impairment are present. Indicators of impairment include such items as declines in revenues, earnings or cash fows or material adverse changes in the economic or political stability of a particular country, which may indicate that the carrying amount of an asset is not recoverable. If facts and circumstances indicate that investment in subsidiaries/jointly controlled entities may be impaired,
The accounting policies set out below have been applied consistently to all periods presented in these fnancial statements and in stating the fnancial position of the Company.
Investments in subsidiary companies are stated at cost less provision for impairment in value, which is recognised as an expense in the period in which the impairment is identifed.
Finance income comprises interest income on funds invested and on loans ofered to related parties. Interest income is recognised as it accrues in proft or loss, using the efective interest method.
Finance costs comprise interest expense on borrowings and impairment losses recognised on fnancial assets (other than trade receivables). Borrowing costs are recognised in proft or loss using the efective interest method.
Foreign currency gains and losses are reported on a net basis as either fnance income or fnance cost depending on whether foreign currency movements are in a net gain or net loss position.
the estimated future undiscounted cash fows associated with these subsidiaries/jointly controlled entities would be compared to their carrying amounts to determine if a write-down to fair value is necessary.
These fnancial statements are presented in United States Dollars, which is the Company's functional currency. All fnancial information presented in United States Dollars has been rounded to the nearest thousand, except when otherwise indicated.
Items included in the Company's fnancial statements are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The fnancial statements are presented in United States Dollars, rounded to the nearest thousand, which is the Company's functional and presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in proft or loss.
Dividend income is recognised in proft or loss when the right to receive payment is established i.e. dividends are declared and approved by the investee companies.
Tax liabilities and assets for the current and prior periods are measured at the amount expected to be paid to or recovered from the taxation authorities, using the tax rates and laws that have been enacted, or substantively enacted, by the reporting date. Current tax includes any adjustments to tax payable in respect of previous periods.
Dividend distribution to the Company's shareholders is recognised in the Company's fnancial statements in the year in which they are approved by the Company's shareholders.
Financial assets and fnancial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument.
Loans originated by the Company by providing money directly to the borrower are categorised as loans and are carried at amortised cost. This is defned as the fair value of cash consideration given to originate those loans as is determined by reference to market prices at origination date. All loans are recognised when cash is advanced to the borrower.
An allowance for loan impairment is established if there is objective evidence that the Company will not be able to collect all amounts due according to the original contractual terms of loans. The amount of the provision is the diference between the carrying amount and the recoverable amount, being the present value of expected cash fows including amounts recoverable from guarantees and collateral, discounted at the original efective interest rate of loans.
For the purpose of the statement of cash fows, cash and cash equivalents comprise cash at bank and short term highly liquid investments with maturities of three months or less from the acquisition date that are subject to an insignifcant risk of changes in their fair value and are used by the Company in the management of its short term commitments.
Borrowings are recorded initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any differences between the proceeds (net of transaction costs) and the redemption value is recognised in proft or loss over the period of the borrowings using the efective interest method.
A fnancial asset (or, where applicable a part of a fnancial asset or part of a group of similar fnancial assets) is derecognised when:
A fnancial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
When an existing fnancial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modifed, such an exchange or modifcation is treated as a derecognition of the original liability and the recognition of a new liability, and the diference in the respective carrying amounts is recognised in proft or loss.
Assets that have an indefnite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifable cash fows (cash generating units).
Financial assets and fnancial liabilities are ofset and the net amount reported in the statement of fnancial position if, and only if, there is a currently enforceable legal right to ofset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the statement of fnancial position.
Non-current assets are classifed as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classifcation. Non-current assets classifed as held for sale are presented separately in the statement of fnancial position and are to be measured at the lower of the asset's previous carrying amount and fair value less costs to sell.
Ordinary shares are classifed as equity. The difference between the fair value of the consideration received by the Company and the nominal value of the share capital being issued is taken to the share premium account.
Non current liabilities represent amounts that are due more than twelve months from the reporting date.
Where necessary, comparative fgures have been adjusted to conform to changes in presentation in the current year.
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Dividend income | - | 1,048 |
During 2013 the Company received dividends from its subsidiary which were recognised as income upon declaration and approval.
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Consultancy and brokerage fees | 2,056 | 5,678 |
| Donations | 4,828 | 4,518 |
| Legal fees | 1,078 | 763 |
| Share option expense | 4,383 | 4,920 |
| Directors' remuneration | 2,024 | 1,497 |
| Auditors' remuneration | 439 | 345 |
| Valuation expenses | 148 | 118 |
| Insurance | 182 | 192 |
| Other administrative expense | 637 | 621 |
| 15,775 | 18,652 |
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Interest income | 1,246 | 10,165 |
| Finance income | 1,246 | 10,165 |
| Interest expense on loans and borrowings | (5,312) | (4,689) |
| Other fnance costs | (20) | (25) |
| Net foreign exchange loss | (69) | (444) |
| Finance costs | (5,401) | (5,158) |
| Net fnance (costs) / income | (4,155) | 5,007 |
| Balance at 31 December | 1,686,863 | 1,666,326 |
|---|---|---|
| Reversal of impairment / (impairment) | 18,100 | (430) |
| (Disposal) / acquisition of investment in subsidiaries | (1.389) | 101,261 |
| Transfer from investment in jointly controlled entities | - | 9,659 |
| Additional investment in existing subsidiaries | 3,826 | 49,299 |
| Balance at 1 January | 1,666,326 | 1,506,537 |
| 2014 US\$'000 |
2013 US\$'000 |
On 18 December 2014 the Company has restored in its books its investment in Bioka Trading Ltd and its Russian subsidiary Nordservice LLC since the subsidiary has managed to obtain the necessary permits for the development of its project "Botanic Garden". The value of the investment was restored to US\$20,100 thousand following the revaluation of the project on 31 December 2014 by independent appraisers. A reversal of impairment loss amounting to US\$18,100 thousand was recognised in profit or loss for the year and an amount of US\$2,000 thousand representing additional costs paid by the Company in previous year were transferred to the cost of the investment.
During the year the Company disposed of its 100% share in Keyiri Trade & Invest Limited with its Russian subsidiary Favorit LLC, holding rights to the St Petersburg project, of a book value of US\$1,400 thousand. The consideration of the disposal was \$748 thousand with a resulting loss on disposal amounting to US\$652 thousand recognised in proft or loss. The agreement also provided for the full repayment of a receivable from Keyiri Trade & Invest Limited.
The Company also incorporated during the year six new subsidiaries at a total cost of US\$9 thousand, (2013: six new subsidiaries at a total cost of US\$16 thousand).
On 12 February 2013 the Company acquired the remaining 50% shareholding in Krown Investments LLC, which was thereafter treated as a subsidiary. The agreement provided for the full settlement of all liabilities to the joint venture partner amounting to US\$116,264 thousand and the remaining US\$101,245 thousand was recorded as cost of acquisition.
During 2013 AFI D Finance S.A. and Rognerstar Finance Ltd, Company's wholly owned subsidiaries have increased their share capital by US\$44,130 thousand and US\$5,169 thousand respectively and ofered the additional shares to the Company in exchange of loans receivable from group subsidiaries assigned.
The details of the subsidiaries are as follows:
| Investment | Country of incorporation | Principal activities | 2014 | 2013 |
|---|---|---|---|---|
| US\$'000 | US\$'000 | |||
| Investment in Cypriot companies | Cyprus | Holding of investments / Financing |
624,296 | 605,585 |
| Investment in Russian companies | Russian Federation | Real estate development | 211,879 | 210,053 |
| Investment in BVI companies | BVI | Financing | 850,688 | 850,688 |
| 1,686,863 | 1,666,326 |
| Between one and fve years | 217,839 | 217,926 |
|---|---|---|
| The loans are repayable as follows: | ||
| Non-current portion | 217,839 | 217,926 |
| Less current portion | - | - |
| Loans to subsidiaries (Note 14) | 217,839 | 217,926 |
| 2014 US\$'000 |
2013 US\$'000 |
The above loans to subsidiaries are unsecured and are repayable on on demand. As of 1 January 2014 they are interest free (2013: interest rates from 2.5% to 6% p.a.).
The fair values of non-current receivables approximate to their carrying amounts as presented above.
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Receivables from related parties (Note 14) | 8,291 | 8,319 |
| Other receivables | 476 | 3,330 |
| 8,767 | 11,649 |
The fair values of trade and other receivables due within one year approximate to their carrying amounts as presented above.
The exposure of the Company to credit risk and impairment losses in relation to trade and other receivables is reported in note 15 of the fnancial statements.
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Cash and cash equivalents consists of: | ||
| Cash at banks | 39,127 | 43,239 |
| Share capital | 2014 US\$'000 |
2013 US\$'000 |
|---|---|---|
| Authorised | ||
| 2,000,000,000 shares of US\$0.001 each | 2,000 | 2,000 |
| Issued and fully paid | ||
| 523,847,027 A ordinary shares of US\$0.001 each | 524 | 524 |
| 523,847,027 B ordinary shares of US\$0.001 each | 524 | 524 |
| 1,048 | 1,048 |
There were no changes to the authorised or the issued share capital of the Company during the year ended 31 December 2014.
FINANCIAL STATEMENTS
It represents the share premium on the issue of shares on 31 December 2006 for the conversion of the shareholders' loans to capital US\$421,325 thousand. It also includes the share premium on the issued shares which were represented by GDRs listed in the LSE in 2007. It was the result of the diference between the ofering price, US\$14, and the nominal value of the shares, US\$0.001, after deduction of all listing expenses. An amount of US\$1,399,900 thousand less US\$57,292 thousand transaction costs was recognised during the year 2007. On 5 July 2010 an amount of US\$524 thousand was capitalised as a result of a bonus issue.
The Company has established an employee share option plan operated by the Board of Directors, which is responsible for granting options and administrating the employee share option plan. Eligible are employees and directors, excluding independent directors, of the Company. The employees share option plan is discretionary and options will be granted only when the Board so determines at an exercise price derived from the closing middle market price preceding the date of grant. No payment will be required for the grant of the options. In any 10 year period not more than 10 per cent of the issued ordinary share capital may be issued or be issuable under the employee share option plan.
As of 31 December 2014 the following options were outstanding.
• During 2007 and 2008 options over GDRs with an exercise price of US\$7 which have already vested, one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third, on the fourth anniversary of the date of grant provided that the participants remained in employment until the vesting date. The vesting was not subject to any performance conditions. On 31 December 2014 1,017,240 options, 0.1% of the issued share capital, were outstanding which have already vested and have a contractual life of ten years from the date of grant.
If a participant ceases to be employed, his options will normally lapse subject to certain exceptions. In the event of a takeover, reorganisation or winding up vested options may be exercised or exchanged for new equivalent options where appropriate. Shares/ GDRs issued under the plan will rank equally with all other shares at the time of issue. The Board of Directors may satisfy (with the consent of the participant) an option by paying the participant in cash or other assets the gain as an alternative of issuing and transferring the shares / GDRs.
The amount at each reporting date is available for distribution. No dividends were proposed, declared or paid during the year ended 31 December 2014 (2013: Nil).
| Between one and fve years | 85,473 | 85,473 |
|---|---|---|
| Maturity of non current borrowings: | ||
| Loans from related parties (Note 14) | 85,473 | 85,473 |
| Long term liabilities | ||
| 2014 US\$'000 |
2013 US\$'000 |
|
During 2013 the Company obtained an US\$88,789 thousand long-term unsecured loan from its subsidiary AFI D Finance S.A. The loan is denominated in US\$, bears interest of 6% p.a. and is repayable by 31 December 2016. An additional amount of US\$13,300 thousand was received during the year.
The exposure of the Company to interest rate risk in relation to fnancial instruments is reported in note 15 of the fnancial statements.
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Other payables | 245 | 306 |
| Payables to related parties (Note 14) | 2,786 | 1,267 |
| 3,031 | 1,573 |
The transactions with related parties are as follows:
| 2014 US\$'000 |
2013 US\$'000 |
|
|---|---|---|
| Key management personnel compensation comprised: | ||
| Short-term employee benefts | 1,800 | 1,200 |
| Share option scheme expense | 4,383 | 4,920 |
| Management fees charged from subsidiaries | (1,582) | (1,249) |
|---|---|---|
| Consulting fees charged from holding company | (766) | (433) |
| Interest expense charged from subsidiary | (5,312) | (4,689) |
| Interest income charged to subsidiaries | - | 9,056 |
| 2014 US\$'000 |
2013 US\$'000 |
FINANCIAL STATEMENTS
The balances with related parties are as follows:
| Receivables from subsidiaries | 8,291 | 8,319 |
|---|---|---|
| US\$'000 | US\$'000 | |
| 2014 | 2013 |
| Loans to subsidiaries 217,839 |
217,926 | |
|---|---|---|
| US\$'000 | US\$'000 | |
| 2013 | 2012 |
The above loans to subsidiaries are unsecured and are repayable on demand. As of 1 January 2014 they are interest free (2013: interest rates from 2.5% to 6% p.a.).
| 2,786 | 1,267 | |
|---|---|---|
| Payables to holding company | 430 | 430 |
| Payables to subsidiaries | 2,356 | 837 |
| 2014 US\$'000 |
2013 US\$'000 |
| Loan from subsidiary | 94,084 | 85,473 |
|---|---|---|
| US\$'000 | US\$'000 | |
| 2014 | 2013 |
During the year the Company obtained a long-term unsecured loan from its subsidiary AFI D Finance S.A. The loan is denominated in US\$, bears interest of 6% p.a. and is repayable by 31 December 2016.
The Company is exposed to the following risks from its use of fnancial instruments:
The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework.
CHAIRMAN`S STATEMENT EXECUTIVE DIRECTOR'S
STATEMENT
UNDERSTANDING AFI DEVELOPMENT
OPERATIONAL REVIEW
PRINCIPAL BUSINESS RISKS
CORPORATE GOVERNANCE
DIRECTORS' REMUNERATION
REPORT
a loan facility agreement of Bellgate Construction Limited and another one of AFI Development Plc for the amount of US\$205 million in favour of VTB Bank JSC under a loan facility agreement of Krown Investments LLC (project Aquamarine III).
Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances proftability, but can also increase the risk of losses. The Company has procedures with the object of minimising such losses such as maintaining sufcient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities.
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will afect the Company's income or the value of its holdings of fnancial instruments.
Interest rate risk is the risk that the value of fnancial instruments will fuctuate due to changes in market interest rates. Borrowings issued at variable rates expose the Company to cash fow interest rate risk. Borrowings issued at fxed rates expose the Company to fair value interest rate risk. The Company's management monitors the interest rate fuctuations on a continuous basis and acts accordingly.
Currency risk is the risk that the value of fnancial instruments will fuctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Company's measurement currency. The Company is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Euro and the Russian Rouble.
The Company's risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to refect changes in market conditions and the Company's activities.
Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash infows from fnancial assets on hand at the reporting date. The Company has no signifcant concentration of credit risk. Cash balances are held with high credit quality fnancial institutions and the Company has policies to limit the amount of credit exposure to any fnancial institution.
The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specifc loss component that relates to individually signifcant exposures and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identifed.
Credit risk arises from cash and cash equivalents. Cash transactions are limited to high-credit-quality fnancial institutions. The utilisation of credit limits is regularly monitored.
The Company's policy is to provide fnancial guarantees only to wholly-owned subsidiaries in exceptional cases. In negotiations with lending banks the Company is aiming to avoid recourse to AFI Development on loans taken by subsidiaries. As at 31 December 2014, there were two outstanding guarantees: one of AFI Development Plc for the amount of US\$1 million in favour of VTB Bank JSC under The Company's management monitors the exchange rate fuctuations on a continuous basis and acts accordingly.
The Company manages its capital to ensure that it will be able to continue as a going concern while increasing the return to shareholders through the strive to improve the debt equity ratio. The Company's overall strategy remains unchanged from last year.
The fair values of the Company's fnancial assets and liabilities approximate their carrying amounts at the reporting date.
The Company had no contingent liabilities as at 31 December 2014.
Subsequent to 31 December 2014 there were no events that took place which have a bearing on the understanding of these fnancial statements.
SPYROU AROUZOU 165 LORDOS WATERFRONT BUILDING OFFICE 505 3035 LIMASSOL CYPRUS TEL. +357 25 310975
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.