Earnings Release • May 17, 2016
Earnings Release
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RNS Number : 5300Y
AFI Development PLC
17 May 2016
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION
IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN
17 May 2016
AFI DEVELOPMENT PLC
("AFI DEVELOPMENT" OR "THE COMPANY")
RESULTS FOR THE THREE MONTHS TO 31 MARCH 2016
Difficult conditions continue to affect financial results
AFI Development, a leading real estate company focused on developing property in Russia, has today announced its financial results for the three months ended 31 March 2016.
Q1 2016 financial highlights
· Rental income and income from hotel operations declined to US$20.0 million (from US$24.4 in Q1 2015) as a result of the continuously difficult macroeconomic environment
- AFIMALL City contribution at US$16.1 million, compared to US$19.1 million in Q1 2015
· At the same time, gross profit increased to US$15.1 million compared to US$11.2 million in Q1 2015
· Net loss for the quarter amounted to US$31.9 million compared to net profit of US$6.0 in Q1 2015, mainly due to a valuation loss
· Cash, cash equivalents and marketable securities stood at US$32.5 million as of 31 March 2016
Q1 2016 operational highlights
· Following the VTB Bank warning that it would exercise its right under the loan facility agreements to claim early repayment of the loans if certain conditions were not met, the Bank and the Company are considering the possibility of reaching an agreement to release the AFI Development Group from both loans owed to the Bank of current balance of US$611.1 million. The Bank has communicated to the Company that it expects to conclude the negotiations not later than 31 May 2016
· In Odinburg, the delivery of apartments in Building 1 commenced in March 2016, while the construction of Building 2 continues. The number of sale contracts signed amounted to 698 (97% of total) in Building 1 and 158 (22% of total) in Building 2 as of 16 May 2016
· The main construction phase and pre-sale of apartments at the Paveletskaya II residential development commenced in December 2015; 45 flats and 4 "apartments" have been pre-sold to date
· Despite the difficult market conditions, AFIMALL City retained the majority of its tenants and welcomed several new retailers to the Mall during the quarter
- NOI declined to US$12.4 million in Q1 2016 compared to US$13.7 million in Q1 2015
Commenting on today's announcement, Lev Leviev, Executive Chairman of AFI Development, said:
"Ongoing macroeconomic difficulties continued to affect our results in the first quarter of 2016. At the same time, the Company is committed to continue the development of our existing projects. I believe that the results of our negotiations with the VTB Bank, while removing credit exposure to the VTB Bank and neutralising the risks related to servicing a foreign currency loan, will ensure further stable development of the Company".
Q1 2016 Results Conference Call:
AFI Development will hold a conference call for analysts and investors to discuss its Q1 2016 financial results on Wednesday, 18 May 2016, following the publication of the Company's financial results.
The details for the conference call are as follows:
Date: Wednesday, 18 May 2016
Time: 15:00 BST (17:00 Moscow)
Dial-in Tel: International: +44 (0)20 3003 2666
US toll-free: 1 866 966 5335
Russia toll-free: 8 10 8002 4902044
Password: AFI
Please dial in 5/10 minutes prior to the commencement time giving your name, company and stating that you are dialling into the AFI Development conference call quoting the reference AFI.
Prior to the conference call, the Q1 2016 Investor Presentation of AFI Development will be published on the Company website at http://www.afi-development.com/en/investor-relations/reports-presentations on 18 May 2016 by 12pm BST (2pm Moscow).
- ends -
For further information, please contact:
AFI Development, Moscow +7 495 796 9988
Ilya Kutnov
Citigate Dewe Rogerson, London +44 20 7638 9571
David Westover
Sandra Novakov
About AFI Development
AFI Development is one of the leading real estate development companies operating in Russia. Established in 2001, the Company 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 of customer service.
AFI Development focuses on developing and redeveloping high quality commercial and residential real estate assets across Russia, with Moscow being its main market. The Company's existing portfolio comprises commercial projects focused on offices, shopping centres, hotels and mixed-use properties, and residential projects. AFI Development's strategy is to sell the residential properties it develops and to either lease the commercial properties or sell them for a favourable return.
AFI Development is a leading force in urban regeneration, breathing new life into city squares and neighbourhoods and transforming congested and underdeveloped areas into thriving new communities. The Company's long-term, large-scale regeneration and city infrastructure projects establish the necessary groundwork for the successful launch of commercial and residential properties, providing a strong base for future.
Legal Disclaimer
Some of the information in these materials may contain projections or other forward-looking statements regarding future events, the future financial performance of the Company, its intentions, beliefs or current expectations and those of its officers, directors and employees concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and business. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could," "may" or "might" or the negative of such terms or other similar expressions. These statements are only predictions and that actual events or results may differ materially. Unless otherwise required by applicable law, regulation or accounting standard, the Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Company, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia and market change in the industries the Company operates in, as well as many other risks specifically related to the Company and its operations.
Executive Chairman's Statement
Although the general economy has shown signs of stabilisation in the first quarter (with higher oil prices and inflation on the downward trend following the highs reached in 2015), the performance of the real estate sector remains weak.
Our focus on operational efficiency has resulted in a gross profit of US$15.1 million for the quarter, a 34% increase compared to Q1 2015. However, due to valuation losses we incurred a net loss of US$31.9 million for the quarter.
Following the VTB Bank warning that it would exercise its right under the loan facility agreements to claim early repayment of the loans if certain conditions were not met, the Bank and the Company are considering the possibility of reaching an agreement to release the AFI Development Group from both loans owed to the Bank in exchange for the disposal to the Bank of several significant assets. The Bank has communicated to the Company that it expects to conclude the negotiations not later than 31 May 2016.
We are committed to continue the construction of our residential projects "Odinburg" and "AFI Residence Paveletskaya" and to commence the construction of "Bolshaya Pochtovaya".
Projects update
AFIMALL City
During the first quarter, the construction of the underground passage between the AFIMALL City and the Mercury City Tower was completed. The new passage connects the AFIMALL with this office-residential tower with the total buildable area of 174,000 sqm, further increasing the potential traffic to the Mall.
During the quarter, AFIMALL City welcomed several new tenants, including B&G Store (children apparel), Pepen (women apparel) and Mario Mikke (shoes and accessories).
Odinburg
Construction works of Phase 1 ("Korona") are currently underway. During Q1 2016, the final fit-out, engineering systems installations and landscaping works at Building 1 of the first phase of Odinburg were completed and the delivery of apartment started in late March. With the apartments at Building 1 almost fully sold, the marketing and sales activities have been focused on Building 2. As of the date of publication of this report, 698 out of 723 contracts for sales of apartments in Building 1 have been signed, while for Building 2 158 out of 706 contracts have been signed.
AFI Residence Paveletskaya (Paveletskaya II)
In December 2015, AFI Development successfully launched the main construction phase of the project. Flats and "apartments" pre-sales started simultaneously with the construction launch. As of the date of publication of this report, 45 contracts for sales of flats and 4 for sales of "apartments" have been signed.
Aquamarine III (Ozerkovskaya III)
The Company continues to market office space in the complex to potential buyers and tenants.
Tverskaya Plaza Ic
AFI Development plans to start construction of this project as soon as debt financing on favourable terms has been secured and the market environment becomes more supportive.
Bolshaya Pochtovaya
Design works and preparations for construction at Bolshaya Pochtovaya continue. The Company plans to start construction of the project in H2 2016.
| Lev Leviev Executive Chairman of the Board |
ANNEX A
31.3.2016 - Very significant property disclosure
1. AFIMALL City
| (Data based on 100%. Share of the Company in the property - 100%) | Current quarter (Q1 2016) | Comparative data | |||
| Q1 2016 | Q4 2015 | Q3 2015 | Q2 2015 | Q1 2015 | |
| Value of the property (000'USD) | 666,000 | 685,200 | 990,000 | 990,000 | 1,000,000 |
| NOI in the period (000'US$) | 12,442 | 12,259 | 11,943 | 15,395 | 13,686 |
| Revaluation gains (losses) in the period (000'US$) | (33,356) | (276,764) | 59,918 | (28,970) | 13,821 |
| Occupancy rate at the end of the period (%) | 82% | 78% | 76% | 77% | 83% |
| Rate of return (%) | 7.5% | 7.8% | 5.5% | 5.9% | 5.5% |
| Average rent per sq.m. (US$/annum) | 828 | 1,103 | 1,057 | 1,144 | 1,117 |
| Average rent per sq.m. in agreements signed in the period (US$/annum) | 248[1] | 989 | 664 | 1,399 | 832 |
2. Bolshaya Pochtovaya
| Investment property and features | Financial data | Completion at the end of the year (%) | Share of the property areas regarding which binding rental contracts were signed by end of the year (%) | Data on evaluation and underlying assumptions | |||||||
| Reporting period | Cumulative cost at the end of the year. Including land, construction, and others. (consolidated) (USD thousands) | Data on fair value and revaluations | Appraiser and experience | Evaluation model | Additional underlying assumptions (as relevant) | ||||||
| Fair value at the end of the year (consolidated) (USD thousands) | Book value at the end of the year (consolidated) (USD thousands) | Revaluation gains for the year (consolidated) (USD thousands) | |||||||||
| Property name | Located at 24, 30, 34 Bolshaya Pochtovaya Street, Moscow | 2015 | 227,743 | 71,460 | 71,460 | (33,458) | 65% | - | JLL | DCF | Cap rate - 11% Discount rate - 22% Average apt price USD 2,750/sq.m.; commercial USD 2,331/ sq.m. |
| Operating currency | USD | ||||||||||
| Purchase date of the property or land on which the property is constructed | Lease agreements for 5 land plots designed to be used for the property were purchased by the holding company in 2007, 2012 and 2014 | 2014 | 226,127 | 108,300 | 108,300 | (39,873) | 43 % | - | Cushman&Wakefield | DCF | Cap Rate - 11% Discount rate - 22% Average market sale price for apartments - 5,000 USD/sq.m; Retail - 4,000 USD/sq.m; |
| Company's effective share (%) | 99.7 | ||||||||||
| Presentation in the consolidated financial statements | Fully consolidated | ||||||||||
| Estimated construction completion date | 2019[2] | 2013 | 204,344 | 139,400 | 139,400 | (834) | 39% | - | Cushman&Wakefield | DCF | Cap Rate -10% Discount rate - 19% Average market sale price for apartments - 6,000 USD/sq.m; Retail - 5,000 USD/sq.m |
| Designated property areas (by use)[3] | 170,350 sq.m., including, inter alia: Residential - 56,952 Commercial - 6,200 Offices - 28,008 |
||||||||||
| Total anticipated investment (including land, construction and misc.) (in USD thousands) | 352,065 |
ANNEX B
31.3.2016 - Very significant loans disclosure
| Balance as of 31.03.2016 | Lender type: Bank, Institutional etc. | Indexation/ currency exposure & interest rate | Liens and material legal restrictions on the property | Covenants | Cross default mechanism | Any other covenants or restriction that might increase the cost of debt | In-case it is a credit line facility - what are the terms&conditions for draw downs | The methods/way that the covenant is calculated | Covenant calculation results | The date of Q1 2016 financial statement were reported | The date that the lender is checking the borrower is line with the covenants |
| USD 276,885,605 and RUR 9,650,623,004 (USD 142 744 647). Total amount in USD as of 31.03.2016 is USD 419,630,252 | Specific project financed by VTB Bank JSC | RUR/USD loan provided in five tranches totalling RUR 21 billion. Each tranche can be drown down either in US Dollars or in Rubles (at Company's discretion). The loan facility has differentiated interest rates which are currency dependent: 9.5% for loans drawn down in Russian rubles and 3 months LIBOR + 5.02% 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. The principal is due to be fully repaid in April 2018. The RUR interest rate may be unilaterally increased by the lending bank, should one of the interest indicators stipulated by the Russian Central Bank and specified in the loan agreement be increased; the interest rate will be increased by the amount of the interest indicator increase. | 1. Liens over all the Bellgate's shares 2. AFI Development PLC company guarantee, limited to USD 1,000,000 3. Mortgage over 100% of the premises of AFIMALL City 4. Mortgage over the premises in the Parking owned by Bellgate, upon registration of Bellgate's rights to land plot under the Parking 5. Permission to debit Bellgate's account held in the lending bank 6. Additional mortgage over the premises of the "Aquamarine" Hotel in Moscow, to be removed in case Bellgate (the borrower) redeems USD 20 million of the principal 7. Additional guarantee by Semprex LLC, a Russian Company - an indirect subsidiary of AFI Development Plc, to be removed in case Bellgate (the borrower) redeems USD 20 million of the principal |
(1) Bellgate'(the Borrower) should have minumum quarterly revenues, ranging from RUR 651,000,000 in Q3 2012 to RUR 1,139,000,000 in Q1 2018. Penalty: 0.5% per annum extra charge to the interest rate applicable under the loan agreement- applicable only for the quarter when the aforesaid revenue threshold was not achieved; (2) Liquidation Value of the property should be higher than sum of the outstanding principal and six months interest. |
N/A | N/A | The loan is given in five tranches: 1st tranche drawn down on 29 June 2012, 2nd tranche drawn down on 3 August 2012 on the amount USD 69, 385,604.64 (RUR 2,252,000,000), 3rd tranche of RUR 1,300,000,000 drawn down on 01.02.2013, 4th tranche of RUR 1,333,333,333.33 drawn down on 28.02.2013 , 5th tranche of RUR 1,333,333,333.34 drawn down on 28.02.2014. | (1) The total of revenue, including VAT , calculated quarterly; (2) The Liquidation Value is determined by an external valuer appointed by the Bank. | (1) The minimum quarterly revenue for Q1 2016 was 1 084 millions Roubles incl. VAT ; (2) Liquidation Value determined by an external valuer appointed by the Bank is USD 491,5 million/RUR 34,5 bln (VAT not included) | 31 March 2016 | (1) Borrowers revenues are checked quarterly; (2) Liquidation value is checked twice a year, on December and on August. |
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the period from 1 January 2016 to 31 March 2016
Independent auditors' report on review of condensed consolidated interim financial information
Condensed consolidated income statement
Condensed consolidated statement of comprehensive income
Condensed consolidated statement of changes in equity
Condensed consolidated statement of financial position
Condensed consolidated statement of cash flows
Notes to the condensed consolidated interim financial statements
Independent auditors' report on review of condensed consolidated interim financial statements to the members of AFI DEVELOPMENT PLC
Introduction
We have reviewed the accompanying condensed consolidated statement of financial position of AFI Development PLC as at 31 March 2016, the condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the three-month period then ended, and notes to the interim financial statements ('the condensed consolidated interim financial statements'). The Company's Board of Directors is responsible for the preparation and presentation of this condensed consolidated interim financial statements in accordance with IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this condensed consolidated interim financial statements based on our review.
Scope of Review
We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements as at 31 March 2016 is not prepared, in all material respects, in accordance with IAS 34 "Interim Financial Reporting".
Emphasis of Matter
Without qualifying our conclusion, we draw attention to note 2i to the condensed consolidated interim financial statements which describes that the Group incurred a net loss of US$31,861 thousand for the three-month period ended 31 March 2016, as at that date current liabilities exceed current assets by US$409,888 thousand and that the Group is in negotiations with VTB Bank for full settlement of its loans. These conditions along with other matters as set forth in note 2i, indicate the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.
Maria H. Zavrou, FCCA
Certified Public Accountant and Register Auditor
For and on behalf of
KPMG Limited
Certified Public Accountants and Registered Auditors
14 Esperidon Street
1087 Nicosia, Cyprus
16 May 2016
For the period from 1 January 2016 to 31 March 2016
| 1/1/16- | 1/1/15- | ||
| 31/3/16 | 31/3/15 | ||
| US$ '000 | US$ '000 | ||
| Note | |||
| Revenue | 6 | 27,365 | 24,446 |
| Other income | 2,184 | 1,135 | |
| Operating expenses | 8 | (7,693) | (11,395) |
| Carrying value of trading properties sold | 14 | (6,182) | - |
| Administrative expenses | 7 | (1,664) | (2,714) |
| Other expenses | (13) | (397) | |
| Total expenses | (15,552) | (14,506) | |
| Share of the after tax profit of joint ventures | 1,058 | 122 | |
| Gross Profit | 15,055 | 11,197 | |
| (Decrease)/increase in fair value of properties | 11, 12 | (60,275) | 21,444 |
| Impairment loss on inventory of real estate | - | (658) | |
| Net valuation (loss)/gain on properties | (60,275) | 20,786 | |
| Results from operating activities | (45,220) | 31,983 | |
| Finance income | 21,195 | 2,325 | |
| Finance costs | (10,669) | (28,358) | |
| Net finance income/(costs) | 9 | 10,526 | (26,033) |
| (Loss)/profit before tax | (34,694) | 5,950 | |
| Tax benefit | 10 | 2,833 | 50 |
| (Loss)/profit for the period | (31,861) | 6,000 | |
| (Loss)/profit attributable to: | |||
| Owners of the Company | (31,787) | 5,944 | |
| Non-controlling interests | (74) | 56 | |
| (31,861) | 6,000 | ||
| Earnings per share | |||
| Basic and diluted earnings per share (cent) | 3.03 | 0.57 |
The notes form an integral part of the condensed consolidated interim financial statements.
For the period from 1 January 2016 to 31 March 2016
| 1/1/16- | 1/1/15- | |
| 31/3/16 | 31/3/15 | |
| US$ '000 | US$ '000 | |
| (Loss)/profit for the period | (31,861) | 6,000 |
| Other comprehensive income Items that are or may be reclassified subsequently to profit or loss |
||
| Realised translation difference on disposal of subsidiaries transferred to income statement | - | (830) |
| Foreign currency translation differences for foreign operations | 14,396 | (4,917) |
| Other comprehensive income for the period | 14,396 | (5,747) |
| Total comprehensive income for the period | (17,465) | 253 |
| Total comprehensive income attributable to: | ||
| Owners of the Company | (17,490) | 117 |
| Non-controlling interests | 25 | 136 |
| (17,465) | 253 | |
The notes form an integral part of the condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period from 1 January 2016 to 31 March 2016
| Attributable to the owners of the Company | Non-controlling interests | Total equity | |||||||||||||||||||
| Share | Share | Capital | Translation | Retained | |||||||||||||||||
| Capital | Premium | reserve | Reserve | Earnings | Total | ||||||||||||||||
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | US$ '000 | US$ '000 | US$ '000 | US$ '000 | ||||||||||||||
| Balance at 1 January 2016 | 1,048 | 1,763,409 | (9,201) | (338,951) | (620,786) | 795,519 | (3,919) | 791,600 | |||||||||||||
| Total comprehensive income for the period | |||||||||||||||||||||
| Loss for the period | - | - | - | - | (31,787) | (31,787) | (74) | (31,861) | |||||||||||||
| Other comprehensive income | - | - | - | 14,297 | - | 14,297 | 99 | 14,396 | |||||||||||||
| Total comprehensive income for the period | - | - | - | 14,297 | (31,787) | (17,490) | 25 | (17,465) | |||||||||||||
| Transactions with owners of the Company Contributions and distributions |
|||||||||||||||||||||
| Share option expense | - | - | - | - | 282 | 282 | - | 282 | |||||||||||||
| Balance at 31 March 2016 | 1,048 | 1,763,409 | (9,201) | (324,654) | (652,291) | 778,311 | (3,894) | 774,417 | |||||||||||||
| Balance at 1 January 2015 | 1,048 | 1,763,409 | - | (314,880) | (158,982) | 1,290,595 | (8,817) | 1,281,778 | |||||||||||||
| Total comprehensive income for the period | |||||||||||||||||||||
| Profit for the period | - | - | - | - | 5,944 | 5,944 | 56 | 6,000 | |||||||||||||
| Other comprehensive income | - | - | - | (5,827) | - | (5,827) | 80 | (5,747) | |||||||||||||
| Total comprehensive income for the period | - | - | - | (5,827) | 5,944 | 117 | 136 | 253 | |||||||||||||
| Transactions with owners of the Company Contributions and distributions |
|||||||||||||||||||||
| Share option expense | - | - | - | - | 657 | 657 | - | 657 | |||||||||||||
| Balance at 31 March 2015 | 1,048 | 1,763,409 | - | (320,707) | (152,381) | 1,291,369 | (8,681) | 1,282,688 | |||||||||||||
The notes form an integral part of the condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2016
| 31/3/16 | 31/12/15 | |||
| Note | US$ '000 | US$ '000 | ||
| Assets | ||||
| Investment property | 11 | 912,600 | 933,700 | |
| Investment property under development | 12 | 237,025 | 238,925 | |
| Property, plant and equipment | 13 | 28,302 | 26,280 | |
| Long-term loans receivable | 13,891 | 14,316 | ||
| Inventory of real estate | 20,397 | 18,570 | ||
| VAT recoverable | 32 | 33 | ||
| Non-current assets | 1,212,247 | 1,231,824 | ||
| Trading properties | 14 | 35,215 | 2,062 | |
| Trading properties under construction | 15 | 178,745 | 204,392 | |
| Other investments | 8,410 | 15,921 | ||
| Inventory | 515 | 477 | ||
| Short-term loans receivable | 130 | 101 | ||
| Trade and other receivables | 16 | 29,543 | 29,017 | |
| Current tax assets | 1,656 | 1,622 | ||
| Cash and cash equivalents | 17 | 24,132 | 26,545 | |
| Current assets | 278,346 | 280,137 | ||
| Total assets | 1,490,593 | 1,511,961 | ||
| Equity | ||||
| Share capital | 1,048 | 1,048 | ||
| Share premium | 1,763,409 | 1,763,409 | ||
| Translation reserve | (324,654) | (338,951) | ||
| Capital reserve | (9,201) | (9,201) | ||
| Retained earnings | (652,291) | (620,786) | ||
| Equity attributable to owners of the Company | 18 | 778,311 | 795,519 | |
| Non-controlling interests | (3,894) | (3,919) | ||
| Total equity | 774,417 | 791,600 | ||
| Liabilities | ||||
| Long-term loans and borrowings | 19 | - | 389,799 | |
| Deferred tax liabilities | 18,823 | 25,567 | ||
| Deferred income | 9,119 | 8,543 | ||
| Non-current liabilities | 27,942 | 423,909 | ||
| Short-term loans and borrowings | 19 | 612,923 | 224,315 | |
| Trade and other payables | 20 | 18,230 | 18,163 | |
| Advances from customers | 57,081 | 53,974 | ||
| Current liabilities | 688,234 | 296,452 | ||
| Total liabilities | 716,176 | 720,361 | ||
| Total equity and liabilities | 1,490,593 | 1,511,961 | ||
The condensed consolidated interim financial statements were approved by the Board of Directors on 16 May 2016.
The notes form an integral part of the condensed consolidated interim financial statements.
For the period from 1 January 2016 to 31 March 2016
| 1/1/16- | 1/1/15- | ||
| 31/3/16 | 31/3/15 | ||
| Note | US$ '000 | US$ '000 | |
| #### Cash flows from operating activities | |||
| (Loss)/profit for the period | (31,861) | 6,000 | |
| Adjustments for: | |||
| Depreciation | 13 | 184 | 232 |
| Net finance (income)/costs | 9 | (10,619) | 25,949 |
| Share option expense | 282 | 657 | |
| Decrease/(increase) in fair value of properties | 60,275 | (20,786) | |
| Share of profit in joint ventures | (1,058) | (122) | |
| Profit on sale of property, plant and equipment | (24) | - | |
| Tax benefit | 10 | (2,833) | (50) |
| 14,346 | 11,880 | ||
| Change in trade and other receivables | (537) | 1,896 | |
| Change in inventories | (1) | 45 | |
| Change in trading properties and trading properties under construction | (1,419) | (4,843) | |
| Change in advances and amounts payable to builders of trading properties under construction | 2,542 | (3,629) | |
| Change in advances from customers | (1,001) | 8,535 | |
| Change in trade and other payables | (1,507) | (3,142) | |
| Change in VAT recoverable | (252) | (3) | |
| Change in deferred income | (82) | (234) | |
| Cash generated from operating activities | 12,089 | 10,505 | |
| Taxes paid | (133) | (232) | |
| Net cash from operating activities | 11,956 | 10,273 | |
| Cash flows from investing activities | |||
| Proceeds from sale of other investments | 12,242 | 1,172 | |
| Proceeds from sale of property, plant and equipment | 87 | - | |
| Interest received | 1,859 | 1,140 | |
| Change in advances and amounts payable to builders | 16,20 | 8 | (387) |
| Payments for construction of investment property under development | 12 | (339) | (1,114) |
| Payments for the acquisition/renovation of investment property | 11 | (36) | (1,198) |
| Change in VAT recoverable | 63 | 520 | |
| Acquisition of property, plant and equipment | 13 | (150) | (5) |
| Dividends received from joint ventures | 201 | - | |
| Acquisition of other investments | (4,643) | - | |
| Payments for loans receivable | (3) | (106) | |
| Net cash from investing activities | 9,289 | 22 | |
| Cash flows from financing activities | |||
| Repayment of loans and borrowings | (11,540) | (16,500) | |
| Interest paid | (10,986) | (8,019) | |
| Net cash used in financing activities | (22,526) | (24,519) | |
| Effect of exchange rate fluctuations | (1,132) | (4,179) | |
| Net decrease in cash and cash equivalents | (2,413) | (18,403) | |
| Cash and cash equivalents at 1 January | 26,545 | 86,756 | |
| Cash and cash equivalents at 31 March | 17 | 24,132 | 68,353 |
The notes form an integral part of the condensed consolidated interim financial statements.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the period from 1 January 2016 to 31 March 2016
1. INCORPORATION AND PRINCIPAL ACTIVITY
AFI Development PLC (the "Company") was incorporated in Cyprus on 13 February 2001 as a limited liability Company under the name Donkamill Holdings Limited. In April 2007 the Company was transformed into public company and changed its name to AFI Development PLC. The address of the Company's registered office is 165 Spyrou Araouzou Street, Lordos Waterfront Building, 5th floor, Flat/office 505, 3035 Limassol, Cyprus. The Company is a 64.88% (31/12/2015: 64.88%) subsidiary of Africa Israel Investments Ltd ("Africa-Israel"), which is listed in the Tel Aviv Stock Exchange ("TASE"). The remaining shareholding of "A" shares is held by a custodian bank in exchange for the GDRs issued and listed in the London Stock Exchange ("LSE"). On 5 July 2010 the Company issued by way of a bonus issue, 523,847,027 "B" shares, which were admitted to a premium listing on the Official List of the UK Listing Authority and to trading on the main market of LSE. On the same date, the ordinary shares of the Company were designated as "A" shares.
These condensed consolidated interim financial statements ("interim financial statements") as at and for the three months ended 31 March 2016 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in jointly controlled entities.
The principal activity of the Group is real estate investment and development. The principal activity of the Company is the holding of investments in subsidiaries and joint ventures.
2. basis of ACCOUNTING
i. Going concern basis of accounting
The Group has recognised a net loss after tax of US$31,861 thousand for the three-month period ended 31 March 2016 and as at that date current liabilities exceed current assets by US$409,888 thousand. These conditions, along with other matters set forth below, indicate the existence of material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.
In more detail, as described in Note 19, on 29 March 2016 an operating subsidiary of the Company, AFI RUS LLC, received a letter from Bank VTB PJSC ("the Bank"). The letter stated that the Bank had reached a conclusion that Bellgate Construction Limited and Krown Investments LLC (the borrowers under the AFIMALL City and the Ozerkovskaya III loan facilities respectively) had experienced, in the opinion of the Bank, material adverse changes in their financial conditions and there had appeared other circumstances that indicate that their obligations under the loan facility agreements could be not met on time. According to the letter, the Bank proposed that the Company "implement steps aimed at removing possible negative consequences of the aforesaid circumstances, no later than 30 calendar days from today", otherwise the Bank will exercise its right under the loan facility agreements to claim early repayment of the loans. Based on this, the total amount of the outstanding loan of Bellgate Construction Ltd (US$420 million) was also reclassified to current liabilities, in addition to the Ozerkovskaya III loan which was already reclassified during 2015.
Following the above letter and further to the discussions and negotiations between the Company and the Bank, the two parties are considering the possibility of reaching an agreement on cessation of the indebtedness of the loan facility agreements, of current balance of US$611,115 thousand, by transferring to the Bank several significant assets, of combined book value of US$877,384 thousand. The Company is in the process of analysing this proposal having examined other financing alternatives, such as refinancing through other bank loans or acquiring financing from its holding company, which were deemed non feasible. During these discussions, the Bank has communicated to the Company that it expects to reach agreement on the cessation of the indebtedness by no later than 31 May 2016. Due to the nature and significance of such a transaction, any agreement between the parties will be subject to, inter alia, formal documentation and the necessary regulatory and shareholder approvals, if necessary.
If such negotiations bring the parties to an agreement, the Group is estimating that the effect will be a decrease in its equity in the amount of approximately US$266 million. Apart from loss on disposal the transaction may attract income tax, VAT, deferred tax liability and translation reserve adjustments which cannot be estimated reliably as the structure of the agreement is still under negotiation. The actual amounts of the profit or loss and equity effect upon conclusion of the agreement may differ from the above estimate, based on the details and structure of the agreement.
Management believes that it will be in a position to conclude the negotiations with the Bank and is confident that the rest of the Group's projects will not be affected. Management anticipates that any additional financing budgeted based on its estimated operating cash flows will be secured by new bank facilities and loans, some of which are well into negotiations with other banks. Management expects to continue the construction of projects classified as "Trading properties under development" as described in Note 15, which are "Odinburg" and "Paveleskaya phase II" and commence the construction of "Pochtovaya".
Management acknowledges that uncertainty remains over the Group's ability to meet its funding requirements and to refinance or repay its bank loan facilities as they fall due. However, as described above, Management considers that the Group is taking adequate steps to resolve the issue with the VTB loan facilities and secure further financing to continue in operational existence for the foreseeable future. If for any reason the Group is unable to continue as a going concern, then this could have an impact on the Group's ability to realise assets at their recognised values, in particular investment properties and trading properties and to extinguish liabilities in the normal course of business at the amounts stated in the interim consolidated financial statements.
The cumulative impact of these factors creates uncertainty regarding the Group's ability to execute its business plans in an orderly and/or timely manner and with respect to its ability to pay its liabilities in an orderly and/or timely manner. The interim financial statements have been prepared on a going concern basis, which assumes that the Group will be in a position to continue its operations in the foreseeable future and it is noted that no reclassifications or adjustments were included with reference to the values of the Group's assets and liabilities, which may be required if the Group is not able to continue operating as a "going concern".
In reaching such a conclusion, Management has made several assumptions and judgements as to the outcome of future events. The most material assumptions are:
a) The Group will successfully resolve the issue with the Bank through the proposed exchange of the assets in full settlement of the loans since other financing alternatives, such as refinancing through other bank loans or acquiring financing from its holding company may be less feasible.
b) The Group will be in a position to secure financing, if needed, for its residential properties so as to continue their construction.
c) The Group will achieve the sales volume and sale prices as projected in its estimated operational cash flows.
ii. Statement of compliance
These interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2015 ('last annual financial statements'). They do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last financial statements.
iii. Functional and presentation currency
These consolidated financial statements are presented in United States Dollars which is the Company's functional currency. All financial information presented in United States Dollars has been rounded to the nearest thousand, except when otherwise indicated.
Foreign operations
Each entity of the Group determines its own functional currency and items included in the financial statements of each entity are measured using its functional currency. Where the functional currency of an entity of the Group is other than US Dollars, which is the presentation currency of the Group, then the financial statements of the entity are translated in accordance with IAS 21 'The effects of changes in foreign exchange rates".
The table below shows the exchange rates of Russian Roubles, which is the functional currency of the Russian subsidiaries of the Group, to the US Dollar which is the presentation currency of the Group:
Exchange rate
Russian Roubles
As of: for US$1 Change
%
31 March 2016 67.6076 (7.2)
31 December 2015 72.8827 29.5
31 March 2015 58.4643 3.9
Average rate during:
Three-month period ended 31 March 2016 74.6283 20.0
Three-month period ended 31 March 2015 62.1919 77.9
3. USE OF JUDGEMENTS AND ESTIMATES
In preparing these interim financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.
The significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2015.
Measurement of fair values
The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the CFO.
The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.
Significant valuation issues are reported to the Group Audit Committee.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
· Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
· Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
4. significant accounting policies
The accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2015.
New standards, interpretations and amendments adopted by the Group
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2015, except for the adoption of new standards and interpretations effective as of 1 January 2016.
Several new standards and amendments apply for the first time in 2016. However, they do not impact the annual consolidated financial statements of the Group or the interim condensed consolidated financial statements of the Group.
Standards, amendments to standards, and interpretations issued but not yet endorsed by the EU
IFRS 15 - "Revenue from Contracts with Customers". The new standard provides a unified application that regulates the accounting treatment of revenue arising from contracts with customers. This standard supersedes IAS 18 "Revenue" and IAS 11 "Construction Contracts" and the accompanying interpretations thereof. The core principle of the standard is the recognition of revenue from the transfer of goods or services to customers in an amount that represents the economic benefits that the entity expects to receive in return for them. As such, the standard stipulates that the recognition of revenue will occur when the entity transfers the goods and/or services to the customer and the customer obtains control of those goods or services.
The standard is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted under IFRS. However since not endorsed by the EU yet, early adoption is not permitted by the Group.
5. OPERATING SEGMENTS
The Group has 5 reportable segments, as described below, which are the Group's strategic business units. The following summary describes the operation in each of the Group's reportable segments:
· Development Projects - Commercial projects: Include construction of property for future lease.
· Development Projects - Residential projects: Include construction and selling of residential properties.
· Asset Management: Includes the operation of investment property for lease.
· Hotel Operation: Includes the operation of Hotels.
· Other - Land bank: Includes the investment and holding of property for future development.
Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Group's management team. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm's length basis.
| Development projects | Asset management | Hotel Operation | Other - land bank | Total | ||||
| Commercial projects | Residential projects | |||||||
| 31/3/16 | 31/3/15 | 31/3/16 | 31/3/15 | 31/3/16 | 31/3/15 | 31/3/16 | 31/3/15 | 31/3/16 | 31/3/15 | 31/3/16 | 31/3/15 | |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| External revenues | - | - | 7,317 | 23 | 16,799 | 20,820 | 2,362 | 2,438 | 887 | 1,165 | 27,365 | 24,446 |
| Inter-segment revenue | 41 | 124 | 227 | 164 | - | 1,189 | - | 16 | 5 | 329 | 273 | 1,822 |
| Segment (loss)/profit before tax | (4,466) | 3,665 | 307 | (1,178) | (24,005) | 3,261 | (323) | 872 | (11,211) | (1,702) | (39,698) | 4,918 |
| 31/3/16 | 31/12/15 | 31/3/16 | 31/12/15 | 31/3/16 | 31/12/15 | 31/3/16 | 31/12/15 | 31/3/16 | 31/12/15 | 31/3/16 | 31/12/15 | |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| Segment assets | 65,721 | 66,070 | 251,425 | 242,781 | 904,677 | 925,227 | 28,978 | 20,970 | 187,251 | 191,627 | 1,438,052 | 1,446,675 |
| Segment liabilities | 5,280 | 6,639 | 56,743 | 52,223 | 639,736 | 643,756 | - | - | 3,891 | 5,415 | 705,650 | 708,033 |
Reconciliation of reportable segment profit or loss:
| 1/1/16- 31/3/16 |
1/1/15- 31/3/15 |
|
| US$ '000 | US$ '000 | |
| Total profit before tax for reportable segments | (39,698) | 4,918 |
| Unallocated amounts: | ||
| Other profit or loss | 3,946 | 910 |
| Share of profit of joint ventures, net of tax | 1,058 | 122 |
| (Loss)/profit before tax | (34,694) | 5,950 |
6. REVENUE
| 1/1/16- 31/3/16 |
1/1/15- 31/3/15 |
|
| US$ '000 | US$ '000 | |
| Investment property rental income | 17,662 | 21,966 |
| Sales of trading properties (note 14) | 7,297 | - |
| Hotel operation income | 2,362 | 2,438 |
| Construction consulting/management fees | 44 | 42 |
| 27,365 | 24,446 |
7. ADMINISTRATIVE EXPENSES
| 1/1/16- 31/3/16 |
1/1/15- 31/3/15 |
|
| US$ '000 | US$ '000 | |
| Consultancy fees | 136 | 181 |
| Legal fees | 89 | 164 |
| Auditors' remuneration | 68 | 66 |
| Valuation expenses | - | 35 |
| Directors' remuneration | 340 | 252 |
| Depreciation | 30 | 30 |
| Insurance | 46 | 52 |
| Provision for Doubtful Debts | - | 148 |
| Share option expense | 282 | 657 |
| Donations | 300 | 710 |
| Other administrative expenses | 373 | 419 |
| 1,664 | 2,714 |
8. OPERATING EXPENSES
The decrease during the period relates to the continues effort of the Group for a cost saving optimisation program and a reversal of last year's over provision of property tax amounting to US$1,158 thousand.
9. FINANCE COST AND FINANCE INCOME
| 1/1/16- 31/3/16 |
1/1/15- 31/3/15 |
|
| US$ '000 | US$ '000 | |
| Interest income | 744 | 760 |
| Net foreign exchange gain | 20,451 | - |
| Translation reserve reclassified upon disposal of subsidiary | - | 830 |
| Net change in fair value of financial assets | - | 662 |
| Loans written off | - | 73 |
| Finance income | 21,195 | 2,325 |
| Interest expense on loans and borrowings | (10,462) | (11,247) |
| Net change in fair value of financial assets | (114) | - |
| Net foreign exchange loss | - | (17,027) |
| Other finance costs | (93) | (84) |
| Finance costs | (10,669) | (28,358) |
| Net finance income/(costs) | 10,526 | (26,033) |
10. tAX BENEFIT
| 1/1/16- 31/3/16 |
1/1/15- 31/3/15 |
|
| US$ '000 | US$ '000 | |
| Current tax expense | ||
| Current year | 57 | 201 |
| Deferred tax benefit | ||
| Origination and reversal of temporary differences | (2,890) | (251) |
| Total income tax benefit | (2,833) | (50) |
11. INVESTMENT PROPERTY
Reconciliation of carrying amount
| 31/3/16 | 31/12/15 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 933,700 | 1,375,416 |
| Renovations/additional cost | 36 | 2,013 |
| Fair value adjustment | (50,192) | (332,361) |
| Effect of movement in foreign exchange rates | 29,056 | (111,368) |
| Balance 31 March / 31 December | 912,600 | 933,700 |
During the period, the independent appraisers of the Company have performed updated valuations for the projects AFIMALL and Aquamarine III Business Center. Based on these valuations the fair value of the projects as at 31 March 2016 equal to US$666,000 thousand and US$197,400 respectively compared to US$685,200 thousand and US$199,300 respectively on 31 December 2015. Additionally, for the rest of the projects, the appraisers have performed a desktop valuation review whereby they have confirmed that the market value of the projects have not changed materially since 31 December 2015.
The fair value adjustment in the table above represents the adjustments of AFIMALL and Aquamarine III Business Center projects as explained above. The increase due to the effect of the foreign exchange fluctuation is a result of the rouble strengthening compared to the US Dollar by 7.2% during the first quarter of 2016. Part of the fair value adjustment is a result of this rouble strengthening.
12. INVESTMENT PROPERTY UNDER DEVELOPMENT
| 31/3/16 | 31/12/15 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 238,925 | 431,474 |
| Construction costs | 339 | 10,906 |
| Transfer to trading properties under construction (note 15) | - | (69,300) |
| Fair value adjustment | (10,083) | (102,003) |
| Effect of movements in foreign exchange rates | 7,844 | (32,152) |
| Balance 31 March / 31 December | 237,025 | 238,925 |
Based on the desktop valuation review performed by the independent appraisers the market value of the projects have not changed materially since 31 December 2015.
The increase due to the effect of the foreign exchange fluctuation is a result of the rouble strengthening compared to the US Dollar by 7.2% during the first quarter of 2016. The fair value adjustment loss is mostly related to this rouble strengthening.
13. PROPERTY, PLANT AND EQUIPMENT
| 31/3/16 | 31/12/15 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 26,280 | 35,101 |
| Additions | 150 | 56 |
| Transfer from trading properties (note 14) | - | 212 |
| Depreciation for the period/year | (184) | (963) |
| Disposals | (63) | (1) |
| Effect of movements in foreign exchange rates | 2,119 | (8,125) |
| Balance 31 March / 31 December | 28,302 | 26,280 |
14. TRADING PROPERTIES
| 31/3/16 | 31/12/15 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 2,062 | 2,979 |
| Transfer from trading properties under construction (note 15) | 39,787 | - |
| Transfer to property, plant and equipment (note 13) | - | (212) |
| Disposals | (6,182) | (609) |
| Effect of movements in exchange rates | (452) | (96) |
| Balance 31 March / 31 December | 35,215 | 2,062 |
Trading properties comprise of unsold apartments and parking places.
The transfer from trading properties under construction represents the completion of the construction of a number of flats of "Odinburg" project. During the period the sale of 104 flats was recognised, upon transferring of the rights to the buyers according to the signed acts of acceptance, in the income statement.
15. TRADING PROPERTIES UNDER CONSTRUCTION
| 31/3/16 | 31/12/15 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 204,392 | 133,036 |
| Transfer to trading properties (note 14) | (39,787) | - |
| Transfer from investment property under development (note 12) | - | 69,300 |
| Construction costs | 7,190 | 33,670 |
| Impairment loss | - | (13,400) |
| Effect of movements in exchange rates | 6,950 | (18,214) |
| Balance 31 March / 31 December | 178,745 | 204,392 |
Trading properties under construction comprise "Odinburg" and "Paveletskaya Phase II" projects, which involve primarily the construction of residential properties.
16. TRADE AND OTHER RECEIVABLES
| 31/3/16 | 31/12/15 | |
| US$ '000 | US$ '000 | |
| Advances to builders | 17,763 | 18,383 |
| Amounts receivable from related parties (note 24) | 361 | 337 |
| Trade receivables, net | 4,004 | 3,381 |
| Other receivables | 3,372 | 3,037 |
| VAT recoverable | 1,138 | 858 |
| Tax receivable | 2,905 | 3,021 |
| 29,543 | 29,017 |
Trade receivables, net
Trade receivables are presented net of an accumulated provision for doubtful debts of US$11,572 thousand (2015: US$11,402 thousand).
17. CASH AND CASH EQUIVALENTS
| 31/3/16 | 31/12/15 | |
| US$ '000 | US$ '000 | |
| Cash at banks | 23,922 | 26,374 |
| Cash in hand | 210 | 171 |
| Cash and cash equivalents in the statement of cash flows | 24,132 | 26,545 |
18. SHARE CAPITAL AND RESERVES
| 31/3/16 | 31/12/15 | |
| (i) Share capital | US$ '000 | US$ '000 |
| Authorised | ||
| 2,000,000,000 shares of US$0.001 each | 2,000 | 2,000 |
| Issued and fully paid | ||
| 523,847,027 A shares of US$0.001 each 523,847,027 B shares of US$0.001 each |
524 524 |
524 524 |
| 1,048 | 1,048 |
(ii) Employee share option plan
There were no changes as to the employee share option plan during the three-month period ended 31 March 2016.
(iii) Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations to the Group presentation currency and the foreign exchange differences on loans designated as loans to an investee company which are accounted for as part of the investor's investment (IAS21.15) as their repayment is not planned or likely to occur in the foreseeable future. These foreign exchange differences are recognised directly to Translation Reserve.
(iv) Retained earnings
Retained earnings are available for distribution at each reporting date. No dividends were proposed, declared or paid during the three-month period ended 31 March 2016.
(v) Capital reserve
Represents the effect of the acquisition of the 10% non-controlling interests in Bioka Investments Ltd and its subsidiary Nordservice LLC previously held at 90%.
19. LOANS AND BORROWINGS
| 31/3/16 | 31/12/15 | |
| US$ '000 | US$ '000 | |
| Non-current liabilities | ||
| Secured bank loans | - | 389,799 |
| Current liabilities | ||
| Secured bank loans | 612,665 | 224,076 |
| Unsecured loans from other non-related companies | 258 | 239 |
| 612,923 | 224,315 |
The following changes to the loans took place during the quarter ended 31 March 2016:
On 29 March 2016 the operating subsidiary of the Company, AFI RUS LLC received a letter from Bank VTB PJSC ("the Bank"). The letter stated that the Bank had reached a conclusion that Bellgate Construction Limited and Krown Investments LLC (the borrowers under the AFIMALL City and the Ozerkovskaya III loan facilities respectively) had experienced, in the opinion of the Bank, material adverse changes in their financial conditions and there had appeared other circumstances that indicate that their obligations under the loan facility agreements could be not met on time. According to the letter, the Bank proposed that the Company "implement steps aimed at removing possible negative consequences of the aforesaid circumstances, no later than 30 calendar days from today", otherwise the Bank will exercise its right under the loan facility agreements to claim early repayment of the loans. Based on this, the total amount of the outstanding loan of Bellgate Construction Ltd (US$420 million) was also reclassified to current liabilities, in addition to the Ozerkovskaya III loan which was already reclassified during 2015.
Following the above letter and further to the discussions and negotiations between the Company and the Bank, the two parties are considering the possibility of reaching an agreement on cessation of the indebtedness of the loan facility agreements, of current balance of US$611,115 thousand, by transferring to the lender several significant assets, of combined book valued of US$877.4 million.
The Company is in the process of analysing this proposal having examined other financing alternatives, such as refinancing through other bank loans or acquiring financing from its holding company, which were deemed non feasible. During these discussions, the Bank has communicated to the Company that it expects to reach agreement on the cessation of the indebtedness by no later than 31 May 2016. Due to the nature and significance of such a transaction, any agreement between the parties will be subject to, inter alia, formal documentation and the necessary regulatory and shareholder approvals, if necessary.
20. TRADE AND OTHER PAYABLES
| 31/3/16 | 31/12/15 | |
| US$ '000 | US$ '000 | |
| Trade payables | 5,463 | 7,815 |
| Payables to related parties (note 24) | 505 | 657 |
| Amount payable to builders | 4,315 | 3,297 |
| VAT and other taxes payable | 4,921 | 4,613 |
| Other payables | 3,026 | 1,781 |
| 18,230 | 18,163 |
Payables to related parties
Include an amount of US$27 thousand (31/12/15: US$27 thousand) payable to Danya Cebus Rus LLC, a related party of the Group, for contracts signed in relation to the construction of Group's projects.
21. FINANCIAL INSTRUMENTS
Carrying amounts and fair values
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels and the fair value hierarchy for financial instruments measured at fair value. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
| Carrying amount | Fair value | ||||||||
| Non-current assets | Current assets | ||||||||
| Loans Receivable |
Trade and other receivables |
Other investments, Including derivatives |
Cash and cash equivalents |
Loans receivable |
Total | Level 1 | Level 2 | Level 3 | Total |
| 31 March 2016 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 |
| Financial assets measured at fair value | ||||||||||
| Investment in listed debt securities | - | - | 8,390 | - | - | 8,390 | 8,390 | - | - | 8,390 |
| Financial assets not measured at fair value | ||||||||||
| Loans receivable | 13,891 | - | - | - | 130 | 14,021 | ||||
| Trade and other receivables | - | 7,737 | - | - | - | 7,737 | ||||
| Cash and cash equivalents | - | - | - | 24,132 | - | 24,132 | ||||
| 13,891 | 7,737 | 8,390 | 24,132 | 130 | 54,280 | |||||
| 31 December 2015 | ||||||||||
| Financial assets measured at fair value | ||||||||||
| Investment in listed debt securities | - | - | 15,901 | - | - | 15,901 | 15,901 | - | - | 15,901 |
| Financial assets not measured at fair value | ||||||||||
| Loans receivable | 14,316 | - | - | - | 101 | 14,417 | ||||
| Trade and other receivables | - | 6,755 | - | - | - | 6,755 | ||||
| Cash and cash equivalents | - | - | - | 26,545 | - | 26,545 | ||||
| 14,316 | 6,755 | 15,901 | 26,545 | 101 | 63,618 |
| Carrying amount | Fair value | |||||||
| Non-current liabilities | Current liabilities | |||||||
| Interest bearing loans and borrowings |
Trade and other payables |
Interest bearing loans and borrowings | Total | Level 1 | Level 2 | Level 3 | Total | |
| 31 March 2016 | US$'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 | - | - | (612,923) | (612,923) | (612,923) | |||
| Trade and other payables | - | (13,309) | - | (13,309) | ||||
| - | (13,309) | (612,923) | (626,232) | |||||
| 31 December 2015 | ||||||||
| Financial liabilities not measured at fair value | ||||||||
| Interest bearing loans and borrowings | (389,799) | - | (224,315) | (614,114) | (583,635) | |||
| Trade and other payables | - | (13,550) | - | (13,550) | ||||
| (389,799) | (13,550) | (224,315) | (627,664) |
22. CONTINGENCIES
There are no any contingent liabilities as at 31 March 2016.
23. FINANCIAL RISK MANAGEMENT
The Group's financial risk management objectives and policies are consistent with that disclosed in the consolidated financial statements as at and for the year ended 31 December 2015.
Russian business and economic environment
The Group's operations are primarily located in the Russian Federation. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation.
Russian economy would contract this year by 1.8%, before growth is expected to resume at a modest rate of 0.8% in 2017 (IMF).
Russia has experienced two major shocks: oil and sanctions. Russia's anticipated economic recovery has been delayed, and the country continues to adjust to an adverse external environment of lower oil prices and international sanctions. Russia's rouble exhibited further volatility amid negative dynamics in commodity markets.
The adjustment to the worsening external environment caused an estimated 10 percent drop in gross domestic income, which sapped consumer demand and discouraged investment.
Following a strong contraction in 2015 by 3.7%, Russia's economic activity decreased in Q1 by 2.0% in annual terms. Heading into Q2, leading indicators suggest that the economy is still fragile.
The interim financial statements reflect management's assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from management's assessment.
24. RELATED PARTIES
| 31/3/16 | 31/12/15 | |
| (i) Outstanding balances with related parties | US$ '000 | US$ '000 |
| Assets | ||
| Amounts receivable from joint ventures | 11 | 10 |
| Amounts receivable from ultimate holding company | 203 | 203 |
| Amounts receivable from other related companies | 147 | 124 |
| Long term loans receivable from joint ventures | 13,837 | 14,246 |
| Short term loan receivable from joint venture | 106 | 98 |
| Liabilities | ||
| Amounts payable to joint ventures | 7 | 6 |
| Amounts payable to ultimate holding company | 370 | 492 |
| Amounts payable to other related companies | 128 | 159 |
| Deferred income from related company | 134 | 125 |
| (ii) Transactions with key management personnel | 1/1/16- 31/3/16 |
1/1/15- 31/3/15 |
| US$ '000 | US$ '000 | |
| Key management personnel compensation Short-term employee benefits |
656 | 707 |
| Share option scheme expense | 282 | 657 |
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Director (whether executive or otherwise) of that entity. The person is a member of the key management personnel of the entity or its Parent (includes the immediate, intermediate or Ultimate Parent). Key management is not limited to Directors; other members of the management team also may be key management.
| (iii) Other related party transactions | 1/1/16- 31/3/16 |
1/1/15- 31/3/15 |
| US$ '000 | US$ '000 | |
| Revenue | ||
| Related companies - rental income | 143 | 217 |
| Joint venture - consulting services | 39 | 36 |
| Joint venture - interest income | 311 | 346 |
| Expenses | ||
| Ultimate Holding Company - operating expenses | 38 | 112 |
| Joint venture - operating expenses | 12 | 15 |
| (iv) Other related party transactions | 1/1/16- 31/3/16 |
1/1/15- 31/3/15 |
| US$ '000 | US$ '000 | |
| Construction services capitalised or recognised in advances to builders | ||
| Related company - construction services | - | 935 |
25. SUBSEQUENT EVENTS
Subsequent to 31 March 2016 there were no events that took place which have a bearing on the understanding of these financial statements other than the ongoing discussions and negotiations with the VTB bank to reach an agreement for the full settlement of the loans as described in note 2i and 19.
[1] Represented mainly by exhibition areas (6th floor, circa 4,000 sqm) leased by single tenant
[2] Based on the assumptions that were used in JLL valuation as at December 31, 2015 and concerns the whole project.
[3] The holding company has obtained lease rights in relation to 4 land plots for construction purposes and to 1 land plot for the purposes of
operation of several unfinished buildings. The holding company will need to change permitted use of such land plot for construction. Currently
the Company also seeks to obtain an additional land plot for development of the project.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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