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Frontier Development PLC — Earnings Release 2013
Nov 19, 2013
7652_10-q_2013-11-19_2a670135-d913-4ae7-8cbf-08d7213e12a1.html
Earnings Release
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RNS Number : 3447T
AFI Development PLC
19 November 2013
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION
IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN
19 November 2013
AFI DEVELOPMENT PLC
("AFI DEVELOPMENT" OR "THE COMPANY")
RESULTS FOR THE NINE MONTHS TO 30 SEPTEMBER 2013
RENTAL INCOME INCREASED 20% YEAR-ON-YEAR
AFI Development, a leading real estate company focused on developing property in Russia, has today announced its financial results for the nine month period ended 30 September 2013.
Nine months 2013 financial highlights
· Revenues for the nine months to 30 September 2013, including net proceeds from the sale of trading properties, reached US$162.3 million
- Rental income increased 20% year-on-year to US$105.1 million (US$36.6 million for Q3 2013 compared to US$28.4 million in Q3 2012)
- AFIMALL City contribution amounted to US$74.6 million (compared to US$62.1 million in the first nine months of 2012)
· Net profit reached US$84.1 million, compared to a net loss of US$276.6 million in the first nine months of 2012
· Gross profit grew 74% year-on-year to US$58.4 million
· Gross value of portfolio of properties remained largely unchanged at US$2,532 million
· Cash and deposits remain high at US$140.3 million
· The Company decreased the interest rate on the AFIMALL City loan in US dollars from 3 months LIBOR+6.7% to 3 months LIBOR+5.02%
Operational highlights
· AFIMALL City operations continue to improve
- Rental revenue up 20% year-on-year to US$74,5 million
- Continued growth in occupancy with total leased area reaching circa 82,046 sq.m. as at 30 September 2013 (from 80,020 sq.m. as at 30 June 2013 and 74,353 sq.m. at year-end 2012)
· Binding agreement to dispose of Building 1 at Aquamarine III reached in November 2013
- Building 1 at Aquamarine III to be sold for US$91.5 million excluding VAT, resulting in expected profit of US$14.6 million
· Land lease agreement for construction of residential and commercial space signed at Paveletskaya II in November 2013, resulting in a US$64.8 net valuation gain (due to an increase in the fair value of the project)
Commenting on today's announcement, Lev Leviev, Executive Chairman of AFI Development, said:
"We are encouraged by the strong retail demand which is reflected in the steady progress of all performance indicators at AFIMALL City. Our successful sale of the first building within our Aquamarine III development is further testament to the continued strength of the Moscow real estate market. We remain committed to our long-standing strategy of delivering high quality projects tailored to the needs of our residential and commercial customers and look to the future with confidence."
Q3 2013 Results Conference Call:
AFI Development will hold a conference call for analysts and investors to discuss its Q3 2013 financial results on Wednesday, 20 November 2013, following the publication of the Company's financial results.
The details for the conference call are as follows:
Date: Wednesday, 20 November 2013
Time: 6pm Moscow (2pm GMT)
Dial-in Tel: International: +44 (0) 20 3003 2666
UK toll-free: 0808 109 0700
US toll-free: 1 866 966 5335
Russia toll-free: 8 10 8002 4902044
Password: AFI
Please dial in 5/10 minutes prior to the commencement time giving your name, company and stating that you are dialling into the AFI Development conference call quoting the reference AFI.
A replay facility will be available for 1 week following the call.
To access the recording, please dial +44 (0)20 8196 1998 and enter access code 8879626.
Prior to the conference call, the Q3 2013 Investor Presentation of AFI Development will be published on the Company website at http://www.afi-development.com/en/investor-relations/reports-presentations on 20 November 2013 by 2pm Moscow time (10am GMT).
- ends -
For further information, please contact:
AFI Development, Moscow +7 495 796 9988
Ilya Kutnov
Ekaterina Shubina
Citigate Dewe Rogerson, London +44 20 7638 9571
David Westover
Sandra Novakov
Shelly Chadda
About AFI Development
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 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.
Chairman and Executive Director's Combined Statement
The growth momentum for revenue and profits of AFI Development has continued throughout the third quarter of 2013. Rental income and realised profit demonstrate convincing growth since the beginning of the year.
We are very pleased with the disposal of the first building within our Aquamarine III project. The Company expects to realise a net profit of US$14.6 million on completion of this transaction.
Supported by the strong retail demand, AFIMALL City continues to show steady progress in rental revenues and occupancy levels. At the same time, construction works at Odinbourg ("Otradnoe ") progress as planned whilst construction at our Tverskaya Plaza Ic development is due to start during the first quarter of next year.
We are also encouraged by the recent signing of the addendum to the land lease agreement at our Paveletskaya Phase II development, which not only allows us to recognise the market value of the project on our balance sheet, but also puts us one step closer to starting construction at this site.
Projects update
AFIMALL City
Revenues and occupancy levels at AFIMALL City continue on their steady growth path. Notwithstanding ongoing construction in the Moscow City area, AFIMALL City continues to attract existing and new customers.
On 17 August 2013 Bellgate Constructions Limited, the Company subsidiary owning and operating AFIMALL City, signed an addendum to the existing loan facility agreement on the reduction of the interest rate for the US dollar portion of the loan from LIBOR + 6.7% to LIBOR + 5.02% p.a., effective from 3 September 2013. At the end of Q3 2013 the outstanding loan amount, denominated in US dollars, was circa US$309.4 million.
Tverskaya Plaza Ic
The design works are approaching the final stage while the Company is finalising its preparations for a general contractor tender. In parallel, the site is being prepared for the start of construction planned for Q1 2014.
Odinbourg (Otradnoe)
Construction works continue as planned at the site in Odintsovo. The marketing concept for the project has been finalised and the Company will soon be in a position to start pre-sales.
Subsequent events
Disposal of building 1 at Aquamarine III
On 7 November, the Company announced that it had reached a binding agreement to dispose of Building 1 in the Aquamarine III office complex in Moscow. Under the transaction, Krown Investments LLC, the subsidiary holding rights to Aquamarine III, sells premises of the first 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 is to be paid in cash and amounts to Russian rouble equivalent of US$91.5 million and applicable Russian VAT.
Completion of the transaction is subject to a condition that AFI Development removes the existing mortgage over the disposed premises and the land lease rights in favour of VTB Bank JSC. VTB Bank JSC has already consented to the transaction. The Company expects the transaction to be completed in December 2013.
Paveletskaya Phase II
In November 2013, the Company subsidiary MKPK JSC and the Moscow city authorities signed an addendum to the land lease agreement for the Paveletskaya Phase II project, amending the permitted use of land from industrial to the construction of residential and commercial premises. The addendum is in line with the previous decisions of the Moscow 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 on the Company balance sheet: the market value of the project confirmed by Cushman & Wakefield, the Company's independent valuers, is US$92.6 million as opposed to the current book value of US$11.6 million. The resulting US$81.0 million gross valuation gain (US$64.8 million net of taxation) is included in AFI Development's Q3 2013 results.
As previously announced, in Paveletskaya Phase II the Company will be allowed to construct 151,373 sq.m.
Lev Leviev Mark Groysman
Executive Chairman of the Board Executive Director
ANNEX A
30.9.13 - Very significant property disclosure
1. AFIMALL City
| (Data based on 100%. Share of the Company in the property - 100%) | Current quarter (Q3 2013) | Comparative data | ||||
| Q3 2013 | Q2 2013 | Q1 2013 | Q4 2012 | Q3 2012 | Q2 2012 | |
| Value of the property (000'USD) | 1,160,000 | 1,160,000 | 1,160,000 | 1,160,000 | 1,160,000 | 1,160,000 |
| NOI in the period (000'USD) | 17,003 | 16,704 | 14,644 | 9,482 | 12,506 | 12,509 |
| Revaluation gains (losses) in the period (000'USD) | (10,727)* | 31,470 | 14,040 | (12,697) | (44,874) | 22,181 |
| Average occupancy rate in the period (from shops area only) (%) | 85% | 83% | 81% | 77% | 77% | 76% |
| Rate of return (%) | 5.5% | 5.4% | 4.9% | 4.2% | 4.4% | 4.5% |
| Average rent per sq.m. (USD/annum) | 1,251 | 1,259 | 1,257 | 1,243 | 1,254 | 1,245 |
| Average rent per sq.m. in agreements signed in the period (USD/annum) | 1,038 | 1,127 | 964 | 1,214 | 2,651 | 2,026 |
2. Ozerkovskaya III
| (Data based on 100% beginning in Q1 2013. Share of the Company in the property - 100%) | Current quarter (Q3 2013) | Comparative data (based on 50% Company share prior to Q4 2012 inclusive) | ||||
| Q3 2013 | Q2 2013 | Q1 2013 | Q4 2012 | Q3 2012 | Q2 2012 | |
| Value of the property (000'USD) | 389,100 | 389,100 | 389,100 | 194,127 | 193,497 | 193,497 |
| Revaluation gains (losses) in the period (000'USD) | (1,929)* | 8,528 | 2,547 | 1,401 | (6,176) | 7,911 |
* Note: revaluation loss in the current quarter is related to currency exchange rate fluctuations
3. Tverskaya Plaza IV
| (Data based on 100%. Share of the Company in the property subsidiary -95%) | Current quarter (Q3 2013) | Comparative data | ||||
| Q3 2013 | Q2 2013 | Q1 2013 | Q4 2012 | Q3 2012 | Q2 2012 | |
| Value of the property (000'USD) | 168,900 | 168,900 | 168,000 | 168,000 | 164,632 | 164,632 |
| Revaluation gains (losses) in the period (000'USD) | (102)* | 974 | 18 | 2,988 | 0 | (17,754) |
4. Tverskaya Plaza II
| (Data based on 100%. Share of the Company in the property - 100%) | Current quarter (Q3 2013) | Comparative data | ||||
| Q3 2013 | Q2 2013 | Q1 2013 | Q4 2012 | Q3 2012 | Q2 2012 | |
| Value of the property (000'USD) | 31,500 | 31,500 | 30,600 | 30,600 | 31,500 | 31,500 |
| Revaluation gains (losses) in the period (000'USD) | (197)* | (2,082) | (2,014) | (1,572) | (1,334) | (47,850) |
* Note: revaluation loss in the current quarter is related to currency exchange rate fluctuations
5. Bolshaya Pochtovaya
| (Data based on 100%. Share of the Company in the property -99.7%) | Current quarter (Q3 2013) | Comparative data | ||||
| Q3 2013 | Q2 2013 | Q1 2013 | Q4 2012 | Q3 2012 | Q2 2012 | |
| Value of the property (000'USD) | 142,300 | 142,300 | 141,300 | 141,300 | 140,600 | 140,600 |
| Revaluation gains (losses) in the period (000'USD) | (215)* | 1,526 | 708 | (622) | (1,197) | (71,999) |
6. Kossinskaya
| (Data based on 100%. Share of the Company in the property - 100%) | Current quarter (Q3 2013) | Comparative data | ||||
| Q3 2013 | Q2 2013 | Q1 2013 | Q4 2012 | Q3 2012 | Q2 2012 | |
| Value of the property (000'USD) | 103,500 | 103,500 | 102,700 | 102,700 | 102,280 | 102,280 |
| Revaluation gains (losses) in the period (000'USD) | (4,275)* | (1,512) | (1,577) | (531) | (1,060) | (48,625) |
* Note: revaluation loss in the current quarter is related to currency exchange rate fluctuations
ANNEX B
30.9.13 - Very significant loans disclosure
| Balance as of 30.09.2013 | 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 Q3 2013 financial statement were reported | The date that the lender is checking the borrower is line with the covenants |
| USD 309,385,605 and RUR 9,508,778,667 (USD 293,978,954). Total amount in USD as of 30.09.2013 is USD 603,364,559 | Specific project financed by a Bank, member of the VTB Group | RUR/USD loan provided in five tranches totalling RUR 21 billion. Each tranche can be drawn 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: 1% 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 tranch draw down on 3 August 2012 in 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 is available during the period from 14.02.2014 until 28.02.2014. The changers referring the terms of available period for the tranche 5 (until 28.02.2014) was initiated by AFID on 28.03.2013. After the expiration of the aforesaid drowdown periods, the tranches, which were not claimed, cannot be drawn down. | (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 Q3 2013 was 802 million Rubles ; (2) Liquidation Value determined by an external valuer appointed by the Bank is USD 807 million | 19 November 2013 | (1) Borrower's revenues are checked quarterly; (2) Liquidation value is checked twice a year, on 22 December and on 22 June. |
AFI DEVELOPMENT PLC
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the period from 1 January 2013 to 30 September 2013
C O N T E N T S
Independent auditors' report on review of condensed consolidated interim financial information
Condensed consolidated income statement
Condensed consolidated statement of comprehensive income
Condensed consolidated statement of changes in equity
Condensed consolidated statement of financial position
Condensed consolidated statement of cash flows
Notes to the condensed consolidated interim financial statements
Independent auditors' report on review of condensed consolidated interim financial information to the members of AFI DEVELOPMENT PLC
Introduction
We have reviewed the accompanying condensed consolidated statement of financial position of AFI Development PLC as at 30 September 2013 and the related condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the nine-month period then ended and a summary of significant accounting policies and other explanatory notes (interim financial information). The Company's Board of Directors is responsible for the preparation and fair presentation of this interim financial information in accordance with International Financial Reporting Standard IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this interim financial information 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 information 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 interim financial information is not prepared, in all material respects, in accordance with International Financial Reporting Standard IAS 34 "Interim Financial Reporting".
Marios G. Gregoriades CPA
Certified Public Accountant and Registered Auditor
For and on behalf of
KPMG Limited
Certified Public Accountants and Registered Auditors
14 Esperidon Street
1087 Nicosia, Cyprus
18 November 2013
CONDENSED CONSOLIDATED INCOME STATEMENT
For the period from 1 January 2013 to 30 September 2013
| For the three months ended |
For the nine months ended |
||||
| 1/7/13- | 1/7/12- | 1/1/13- | 1/1/12- | ||
| 30/9/13 | 30/9/12 | 30/9/13 | 30/9/12 | ||
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | ||
| Note | |||||
| Revenue | 4 | 38,396 | 30,021 | 162,289 | 94,918 |
| Other income | 766 | 136 | 4,430 | 258 | |
| Operating expenses | (18,061) | (14,265) | (57,507) | (47,216) | |
| Carrying value of trading properties sold | 14 | (1,264) | (818) | (33,225) | (3,796) |
| Administrative expenses | 5 | (2,320) | (3,868) | (13,034) | (15,935) |
| Other expenses | 6 | (1,460) | (670) | (4,062) | (1,007) |
| Total expenses | (23,105) | (19,621) | (107,828) | (67,954) | |
| Share of the after tax (loss)/profit of joint ventures | 11 | 256 | (9,107) | (504) | 6,289 |
| Gross Profit | 16,313 | 1,429 | 58,387 | 33,511 | |
| Profit on disposal of investment in joint venture | 23 | - | 9 | 32,088 | 2,346 |
| Valuation gain/(loss) on properties | 9, 10 | 47,501 | (59,564) | 105,891 | (243,405) |
| Impairment loss on inventory of real estate | (109) | - | (958) | (65,445) | |
| 47,392 | (59,564) | 104,933 | (308,850) | ||
| Results from operating activities | 63,705 | (58,126) | 195,408 | (272,993) | |
| Finance income | 6,305 | 25,519 | 18,472 | 29,718 | |
| Finance costs | (16,787) | (12,738) | (105,198) | (45,401) | |
| Net finance costs | 7 | (10,482) | 12,781 | (86,726) | (15,683) |
| Profit/(loss) before tax | 53,223 | (45,345) | 108,682 | (288,676) | |
| Tax expense | 8 | (12,423) | 9,425 | (24,623) | 12,116 |
| Profit/(loss) for the period | 40,800 | (35,920) | 84,059 | (276,560) | |
| Profit/(loss) attributable to: | |||||
| Owners of the Company | 40,157 | (35,732) | 81,892 | (269,790) | |
| Non-controlling interests | 643 | (188) | 2,167 | (6,770) | |
| Profit/(loss) for the period | 40,800 | (35,920) | 84,059 | (276,560) | |
| Earnings per share | |||||
| Basic and diluted earnings per share (cent) | 3.84 | (3.41) | 7.82 | (25.75) |
The notes form an integral part of the condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period from 1 January 2013 to 30 September 2013
| For the three months ended |
For the nine months ended |
|||
| 1/7/13- | 1/7/12- | 1/1/13- | 1/1/12- | |
| 30/9/13 | 30/9/12 | 30/9/13 | 30/9/12 | |
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
| Profit/(loss) for the period | 40,800 | (35,920) | 84,059 | (276,560) |
| Other comprehensive income to be reclassified to profit or loss in subsequent periods | ||||
| Translation difference reclassified to income statement on disposal of joint venture | - | (367) | 30,288 | (161) |
| Foreign currency translation differences for foreign operations | 4,190 | 38,791 | (31,098) | 24,722 |
| Total comprehensive income for the period | 44,990 | 2,504 | 83,249 | (251,999) |
| Total comprehensive income attributable to: | ||||
| Owners of the parent | 44,337 | 2,726 | 81,145 | (244,966) |
| Non-controlling interests | 653 | (222) | 2,104 | (7,033) |
| 44,990 | 2,504 | 83,249 | (251,999) | |
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 2013 to 30 September 2013
| Attributable to the owners of the Company | Non-controlling interests | Total |
| 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 2012 | 1,048 | 1,763,409 | (178,491) | 277,503 | 1,863,469 | 3,887 | 1,867,356 | |
| Total comprehensive income for the period | ||||||||
| Loss for the period | - | - | - | (269,790) | (269,790) | (6,770) | (276,560) | |
| Total other comprehensive income | - | - | 24,824 | - | 24,824 | (263) | 24,561 | |
| Total comprehensive income for the period | - | - | 24,824 | (269,790) | (244,966) | (7,033) | (251,999) | |
| Transactions with owners of the Company, recognised directly in equity | ||||||||
| Share option expense | - | - | - | 515 | 515 | - | 515 | |
| Balance at 30 September 2012 | 1,048 | 1,763,409 | (153,667) | 8,228 | 1,619,018 | (3,146) | 1,615,872 | |
| 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 for the period | ||||||||
| Profit for the period | - | - | - | 81,892 | 81,892 | 2,167 | 84,059 | |
| Total other comprehensive income | - | - | (747) | - | (747) | (63) | (810) | |
| Total comprehensive income for the period | - | - | (747) | 81,892 | 81,145 | 2,104 | 83,249 | |
| Transactions with owners of the Company, recognised directly in equity | ||||||||
| Share option expense | - | - | - | 3,672 | 3,672 | - | 3,672 | |
| Balance at 30 September 2013 | 1,048 | 1,763,409 | (145,357) | 95,225 | 1,714,325 | (872) | 1,713,453 |
The notes form an integral part of the condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2013
| 30/9/13 | 31/12/12 | |||
| Note | US$ '000 | US$ '000 | ||
| Assets | ||||
| Investment property | 9 | 1,679,904 | 1,292,300 | |
| Investment property under development | 10 | 631,692 | 567,737 | |
| Share of investment in joint ventures | 11 | 5,914 | 82,414 | |
| Property, plant and equipment | 12 | 69,814 | 76,555 | |
| Long-term loans receivable | 13 | 21,695 | 113,491 | |
| VAT recoverable | 244 | 493 | ||
| Goodwill | - | 153 | ||
| Non-current assets | 2,409,263 | 2,133,143 | ||
| Trading properties | 14 | 6,585 | 3,597 | |
| Trading properties under construction | 15 | 120,684 | 141,787 | |
| Inventory | 584 | 623 | ||
| Short-term loans receivable | 13 | 91 | 92 | |
| Trade and other receivables | 16 | 90,425 | 78,276 | |
| Current tax assets | 3,028 | 2,341 | ||
| Cash and cash equivalents | 17 | 140,268 | 174,849 | |
| Assets held for sale | 18 | - | 71,292 | |
| Current assets | 361,665 | 472,857 | ||
| Total assets | 2,770,928 | 2,606,000 | ||
| Equity | ||||
| Share capital | 1,048 | 1,048 | ||
| Share premium | 1,763,409 | 1,763,409 | ||
| Translation reserve | (145,357) | (144,610) | ||
| Retained earnings | 95,225 | 9,661 | ||
| Total equity attributable to owners of the Company | 19 | 1,714,325 | 1,629,508 | |
| Non-controlling interests | (872) | (2,976) | ||
| Total equity | 1,713,453 | 1,626,532 | ||
| Liabilities | ||||
| Long-term loans and borrowings | 20 | 803,865 | 554,551 | |
| Long-term amounts payable | 21 | - | 38,324 | |
| Deferred tax liabilities | 126,116 | 81,947 | ||
| Deferred income | 21,436 | 20,163 | ||
| Non-current liabilities | 951,417 | 694,985 | ||
| Short-term loans and borrowings | 20 | 20,616 | 17,345 | |
| Trade and other payables | 22 | 85,442 | 267,138 | |
| Current liabilities | 106,058 | 284,483 | ||
| Total liabilities | 1,057,475 | 979,468 | ||
| Total equity and liabilities | 2,770,928 | 2,606,000 | ||
The condensed consolidated interim financial statements were approved by the Board of Directors on 18 November 2013.
The notes form an integral part of the condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from 1 January 2013 to 30 September 2013
| 1/1/13- | 1/1/12- | ||
| 30/9/13 | 30/9/12 | ||
| Note | US$ '000 | US$ '000 | |
| #### Cash flows from operating activities | |||
| Profit/(loss) for the period | 84,059 | (276,560) | |
| Adjustments for: | |||
| Depreciation | 12 | 1,446 | 1,196 |
| Interest income | 7 | (3,399) | (12,994) |
| Interest expense | 7 | 50,168 | 41,369 |
| Share option expense | 3,672 | 515 | |
| Net valuation (gain)/loss on properties | (104,933) | 308,850 | |
| Share of loss/(profit) in joint ventures | 504 | (6,289) | |
| Profit on disposal of investments in joint venture/subsidiaries | 23 | (32,088) | (2,337) |
| Translation reserve reclassified upon disposal of joint venture | 7 | 30,288 | - |
| Profit on sale of property, plant and equipment | (39) | (65) | |
| Goodwill written off | 153 | - | |
| Loans written off | 7 | (15,031) | - |
| Unrealised loss/(gain) on foreign exchange | 7 | 23,708 | (16,724) |
| Tax expense/(benefit) | 8 | 24,623 | (12,116) |
| 63,131 | 24,845 | ||
| Change in trade and other receivables | (11,339) | (6,887) | |
| Change in inventories | 1 | (1,066) | |
| Change in trading properties and trading properties under construction | 21,553 | (4,568) | |
| Change in trade and other payables | (68,300) | (10,104) | |
| Change in deferred income | 2,560 | (175) | |
| Cash generated from operating activities | 7,606 | 2,045 | |
| Taxes paid | (1,162) | (1,878) | |
| Net cash from operating activities | 6,444 | 167 | |
| Cash flows from investing activities | |||
| Net cash inflow from the disposal of subsidiaries | 23 | 3,380 | 5,789 |
| Net cash outflow for the acquisition of assets and liabilities | 11 | (202,462) | - |
| Proceeds from sale of property, plant and equipment | 356 | 1,091 | |
| Interest received | 2,694 | 6,281 | |
| Change in advances and amounts payable to builders | 16, 22 | (11,014) | 1,083 |
| Payments for construction of investment property under development | 9, 10 | (20,065) | (17,365) |
| Payments for the acquisition of investment property | 21 | (43,544) | (43,967) |
| Capital contributions in joint ventures | - | (37) | |
| Dividends received from joint ventures | - | 14,990 | |
| Change in VAT recoverable | 3,731 | 42,401 | |
| Acquisition of property, plant and equipment | 12 | (596) | (7,079) |
| Net cash (used in)/from investing activities | (267,520) | 3,187 | |
| Cash flows from financing activities | |||
| Payments for loans receivable | - | (6,661) | |
| Proceeds from repayment of loans receivable | - | 2,714 | |
| Proceeds from loans and borrowings | 20 | 306,854 | 572,216 |
| Repayment of loans and borrowings | (19,124) | (533,188) | |
| Repayment of a loan from a related party | (14,354) | - | |
| Interest paid | (42,578) | (41,963) | |
| Net cash from/(used in) financing activities | 230,798 | (6,882) | |
| Effect of exchange rate fluctuations | (4,303) | (1,988) | |
| Net decrease in cash and cash equivalents | (34,581) | (5,516) | |
| Cash and cash equivalents at 1 January | 174,849 | 71,837 | |
| Cash and cash equivalents at 30 September | 17 | 140,268 | 66,321 |
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 2013 to 30 September 2013
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% 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 of the Company for the period from 1 January 2013 to 30 September 2013 comprise of 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 preparation
Statement of compliance
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". They do not include all of the information and disclosures required for a complete set of 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 annual consolidated financial statements as at and the for the year ended 31 December 2012. These interim financial statements were authorised for issue by the Company's Board of Directors on 18 November 2013.
Judgements and Estimates
In preparing these interim financial statements management is required to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, 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 applied to the consolidated financial statements as at and for the year ended 31 December 2012.
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 2012, except for the adoption of new standards and interpretations effective as of 1 January 2013.
New standards, interpretations and amendments adopted by the Group (continued)
The Group applies, for the first time, certain standards and amendments that require restatement of previous financial statements. These include IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 13 Fair Value Measurement and amendments to IAS 1 Presentation of Financial Statements. As required by IAS 34, the nature and the effect of these changes are disclosed below.
Several other new standards and amendments apply for the first time in 2013. However, they do not impact the annual consolidated financial statements of the Group or the interim condensed consolidated financial statements of the Group.
The nature and the impact of each new standard/amendment are described below:
IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1
The amendments to IAS 1 introduce a grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or recycled) to profit or loss at a future point in time now have to be presented separately from items that will never be reclassified. The amendment affected presentation only and had no impact on the Group's financial position or performance.
IAS 1 Clarification of the requirement for comparative information (Amendment)
The amendment to IAS 1 clarifies the difference between voluntary additional comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional voluntarily comparative information does not need to be presented in a complete set of financial statements.
An opening statement of financial position must be presented when an entity applies an accounting policy retrospectively, makes retrospective restatements, or reclassifies items in its financial statements, provided any of those changes has a material effect on the statement of financial position at the beginning of the preceding period. The amendment clarifies that a third balance sheet does not have to be accompanied by comparative information in the related notes. Under IAS 34, the minimum items required for interim condensed financial statements do not include an opening statement of financial position.
IAS 34 Interim financial reporting and segment information for total assets and liabilities (Amendment)
The amendment clarifies the requirements in IAS 34 relating to segment information for total assets and liabilities for each reportable segment to enhance consistency with the requirements in IFRS 8 Operating Segments. Total assets and liabilities for a reportable segment need to be disclosed only when the amounts are regularly provided to the chief operating decision maker and there has been a material change in the total amount disclosed in the entity's previous annual consolidated financial statements for that reportable segment. The Group has been providing this disclosure already as total segment assets were reported to the chief operating decision maker (CODM).
IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements
IFRS 10 establishes a single control model that applies to all entities including special purpose entities. IFRS 10 replaces the parts of previously existing IAS 27 Consolidated and Separate Financial Statements that dealt with consolidated financial statements and SIC-12 Consolidation - Special Purpose Entities. IFRS 10 changes the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in IFRS 10, all three criteria must be met, including:
(a) an investor has power over an investee; (b) the investor has exposure, or rights, to variable returns from its involvement with the investee; and (c) the investor has the ability to use its power over the investee to affect the amount of the investor's returns. IFRS 10 had no impact on the consolidation of investments held by the Group.
IFRS 11 Joint Arrangements and IAS 28 Investment in Associates and Joint Ventures
IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities - Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture under IFRS 11 must be accounted for using the equity method.
The application of this new standard impacted the financial position of the Group by replacing proportionate consolidation of all the joint ventures of the Group, with the equity method of accounting. IFRS 11 is effective for annual periods beginning on or after 1 January 2013. The effect of IFRS 11 is described in more detail in note 11, which includes quantification of the effect on the financial statements.
IFRS 13 Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The application of IFRS 13 has not materially impacted the fair value measurements carried out by the Group. IFRS 13 also requires specific disclosures on fair values, some of which replace existing disclosure requirements in other standards, including IFRS 7 Financial Instruments: Disclosures. Some of these disclosures are specifically required for financial instruments by IAS 34.16A(j), thereby affecting the interim condensed consolidated financial statements period. The Group provides these disclosures in note 24.
The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
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 % change % change
Russian Roubles quarter year to date
As of: for US$1
30 September 2013 32.3451 (1.11) 6.5
30 June 2013 32.7090 n/a n/a
31 March 2013 31.0834 n/a n/a
31 December 2012 30.3727 (5.7)
30 September 2012 30.9169 (5.8) (4.0)
Average rate during:
Nine-month period ended 30 September 2013 31.6170
Nine-month period ended 30 September 2012 31.0724
Three-month period ended 30 September 2013 32.7977
Three-month period ended 30 September 2012 32.0072
3. significant accounting policies
The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2012, except for the adoption of new standards and interpretations effective as of 1 January 2013 as described in the previous note.
4. 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 commercial properties for future lease or sale.
· Development Projects - Residential projects: Include construction and sale 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 | |||||||
| 30/9/1313 | 30/9/12 | 30/9/13 | 30/9/12 | 30/9/13 | 30/9/12 | 30/9/13 | 30/9/12 | 30/9/13 | 30/9/12 | 30/9/13 | 30/9/12 | |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| External revenues | 54,377 | 26 | 2,709 | 4,641 | 80,775 | 68,102 | 13,204 | 8,873 | 11,224 | 13,276 | 162,289 | 94,918 |
| Inter-segment revenue | - | - | - | 2 | - | 6 | 14 | - | 368 | 658 | 382 | 666 |
| Reportable segment (loss)/profit before tax | 1,106 | 7,837 | (3,146) | 552 | 914 | 14,786 | 2,280 | (760) | (10,427) | (9,612) | (9,273) | 12,803 |
| 30/9/13 | 31/12/12 | 30/9/13 | 31/12/12 | 30/9/13 | 31/12/12 | 30/9/13 | 31/12/12 | 30/9/13 | 31/12/12 | 30/9/13 | 31/12/12 | |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| Reportable segment assets | 699,606 | 267,282 | 167,106 | 133,019 | 1,262,186 | 1,263,638 | 55,360 | 56,549 | 391,945 | 418,051 | 2,576,203 | 2,138,539 |
| Reportable segment liabilities | 253,134 | 217,960 | 72 | 11,151 | 775,529 | 724,484 | (2,766) | 23,469 | 3,928 | 5,657 | 1,029,897 | 982,721 |
Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items.
| 1/1/13- 30/9/13 |
1/1/12- 30/9/12 |
|
| US$ '000 | US$ '000 | |
| Revenues | ||
| Total revenue for reportable segments | 162,671 | 95,584 |
| Elimination of inter-segment revenue | (382) | (666) |
| Consolidated revenue | 162,289 | 94,918 |
| 1/1/13- 30/9/13 |
1/1/12- 30/9/12 |
|
| US$ '000 | US$ '000 | |
| Profit or loss | ||
| Total profit or (loss) for reportable segments before tax | (9,273) | 12,803 |
| Other profit or (loss) | (18,562) | (1,264) |
| Share of the after tax (loss)/profit of joint ventures | (504) | 6,289 |
| Profit on disposal of investment in joint venture/subsidiaries | 32,088 | 2,346 |
| Valuation gain/(loss) on properties | 105,891 | (243,405) |
| Impairment loss on inventory of real estate | (958) | (65,445) |
| Consolidated profit/(loss) before tax | 108,682 | (288,676) |
5. ADMINISTRATIVE EXPENSES
| For the three months ended |
For the nine months ended |
|||
| 1/7/13- 30/9/13 |
1/7/12- 30/9/12 |
1/1/13- 30/9/13 |
1/1/12- 30/9/12 |
|
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
| Consultancy fees | 417 | 993 | 1,573 | 3,853 |
| Legal fees | 190 | 138 | 744 | 1,106 |
| Auditors' remuneration | 130 | 320 | 509 | 770 |
| Valuation expenses | 47 | 245 | 152 | 373 |
| Directors' remuneration | 367 | 95 | 1,094 | 251 |
| Salaries and wages | - | - | 2 | 181 |
| Depreciation | 37 | - | 129 | 131 |
| Insurance | 44 | 61 | 232 | 191 |
| Provision for Doubtful Debts | (1,615) | 34 | (21) | 3,877 |
| Share option expense | 1,247 | 348 | 3,672 | 515 |
| Donations | 1,133 | 1,052 | 3,237 | 3,152 |
| Other administrative expense | 323 | 582 | 1,711 | 1,535 |
| 2,320 | 3,868 | 13,034 | 15,935 |
6. other expenses
| For the three months ended |
For the nine months ended |
|||
| 1/7/13- 30/9/13 |
1/7/12- 30/9/12 |
1/1/13- 30/9/13 |
1/1/12- 30/9/12 |
|
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
| Prior year's VAT non recoverable | 280 | 649 | 1,130 | 911 |
| Compensation paid for fire damages | - | - | 832 | - |
| Sundries | 1,180 | 21 | 2,100 | 96 |
| 1,460 | 670 | 4,062 | 1,007 |
7. FINANCE COST AND FINANCE INCOME
| For the three months ended |
For the nine months ended |
|||
| 1/7/13- 30/9/13 |
1/7/12- 30/9/12 |
1/1/13- 30/9/13 |
1/1/12- 30/9/12 |
|
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
| Interest income | 1,191 | 4,361 | 3,399 | 12,994 |
| Loans written off | 25 | - | 15,031 | - |
| Net change in fair value of financial assets | 69 | - | 42 | - |
| Net foreign exchange gain | 5,020 | 21,158 | - | 16,724 |
| Finance income | 6,305 | 25,519 | 18,472 | 29,718 |
| Interest expense on loans and borrowings | 2 | (654) | (156) | (2,134) |
| Interest expense on bank loans | (15,392) | (7,826) | (45,866) | (39,312) |
| Interest capitalised | - | 825 | - | 5,103 |
| Net change in fair value of financial assets | - | (24) | - | (118) |
| Translation reserve reclassified upon disposal of joint venture (note 23) | - | - | (30,288) | - |
| Net foreign exchange loss | - | - | (23,708) | - |
| Other finance costs | (1,397) | (5,059) | (5,180) | (8,940) |
| Finance costs | (16,787) | (12,738) | (105,198) | (45,401) |
| Net finance costs | (10,482) | 12,781 | (86,726) | (15,683) |
8. tAX EXPENSE
| For the three months ended |
For the nine months ended |
||||
| 1/7/13- 30/9/13 |
1/7/12- 30/9/12 |
1/1/13- 30/9/13 |
1/1/12- 30/9/12 |
||
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | ||
| Current tax expense | |||||
| Current year | 458 | 384 | 1,065 | 1,432 | |
| Adjustment for prior years | 38 | 136 | 229 | 236 | |
| Deferred tax expense/(benefit) | |||||
| Origination and reversal of temporary differences | 11,927 | (9,945) | 23,329 | (13,784) | |
| Total income tax expense/(benefit) | 12,423 | (9,425) | 24,623 | (12,116) | |
9. INVESTMENT PROPERTY
| 30/9/13 | 31/12/12 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 1,292,300 | 1,246,988 |
| Transfer from investment property under development | - | 40,600 |
| Acquisitions/(disposals) | 388,254 | (3,160) |
| Renovations/additional cost | 13,004 | 16,557 |
| Fair value adjustment | 42,175 | (50,334) |
| Effect of movement in foreign exchange rates | (55,829) | 41,649 |
| Balance 30 September / 31 December | 1,679,904 | 1,292,300 |
The carrying amount of investment property is the fair value of the property as determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. Fair values were determined having regard to recent market transactions for similar properties in the same location as the Group's investment property. The same applies for investment property under development in note 10 below. The last valuation took place on 30 June 2013. The cumulative adjustments, for all projects, are shown in line "Fair value adjustment" in the table above.
Acquisitions represent the impact of the acquisition of the 50% of joint venture Krown Investments LLC, thereafter owned at 100% and treated as a subsidiary. See note 11 for further details.
The decrease due to the effect of the foreign exchange rates is a result of the weakening of the rouble compared to the US Dollar by 6.5%, during the nine-month period ended 30 September 2013. The fair value adjustment gain is mostly related to this rouble weakening.
10. INVESTMENT PROPERTY UNDER DEVELOPMENT
| 30/9/13 | 31/12/12 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 567,737 | 805,998 |
| Construction costs | 7,061 | 3,833 |
| Acquisition | 846 | - |
| Capitalised interest | - | 4,761 |
| Transfer to investment property | - | (40,600) |
| Fair value adjustment | 63,716 | (215,543) |
| Effect of movements in foreign exchange rates | (7,668) | 9,288 |
| Balance 30 September / 31 December | 631,692 | 567,737 |
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 & Wakefield, the Company's independent appraisers, is US$92.6 million, as of 30 September 2013, as opposed to book value of US$11.6 million. The resulting US$81.0 million gross valuation gain (US$64.8 million net of taxation) is included in the income statement of the nine month period ended 30 September 2013.
According to the article dated 29.10.2013 and published on the official 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 first 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 significant delay and, thus, pose high uncertainty with the timeline of the subject Plaza IIa project.
Based on the above, the Company recognised a decrease in the fair value of the property of US$13.3 million. The valuation was also determined by the Company's independent appraisers and the fair value loss was recorded in the current period's income statement.
The decrease due to the effect of the foreign exchange rates is a result of the rouble weakening compared to the US Dollar by 6.5% during the nine-month period ended 30 September 2013.
11. SHARE OF INVESTMENT IN JOINT VENTURES
| 30/9/13 | 31/12/12 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 82,414 | 174,975 |
| Capital contribution | - | 37 |
| Dividends received | - | (52,441) |
| Share of (loss)/profit (net of share of tax) | (504) | 23,881 |
| Acquisition of 100% of assets and liabilities of joint venture | (75,599) | - |
| Transfer to assets held for sale | - | (71,292) |
| Effect of movements in exchange rates | (397) | 7,254 |
| Balance 30 September / 31 December | 5,914 | 82,414 |
The Group's joint ventures are comprised of the following:
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.
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 notes 18 and 23.
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 above mentioned acquisition of the 50% shareholding in the previously joint venture Krown Investments LLC had the following effect on the Group's assets and liabilities:
| US$ '000 | |
| Assets | |
| Investment property | 388,254 |
| Investment property under development | 846 |
| Investment in joint ventures | (75,599) |
| Loan receivable form joint ventures | (91,893) |
| Trading properties | 6,944 |
| Trade and other receivables | 6,966 |
| Current tax asset | 1,666 |
| Cash | 684 |
| 237,868 | |
| Liabilities | |
| Deferred tax liabilities | (21,315) |
| Trade and other payables | (13,407) |
| Total net assets at fair value/Purchase consideration transferred | 203,146 |
| Analysis of cash flows on acquisition: | |
| Consideration paid | (203,146) |
| Cash acquired | 684 |
| Net cash outflow for acquisition of assets and liabilities | (202,462) |
Change in accounting policy
Under IAS 31 Interests in Joint Ventures (prior to the transition to IFRS 11), the Group's interest in these joint ventures was classified as a jointly controlled entity and the Group's share of the assets, liabilities, revenue, income and expenses were proportionately consolidated in the consolidated financial statements. Upon adoption of IFRS 11, the Group has determined its interest to be a joint venture and it is required to be accounted for using the equity method. The effect of applying IFRS 11 is as follows:
| Impact on the comparative income statement | 1/1/12-30/9/12 |
| US$ '000 | |
| Decrease in the reported revenue | (29,151) |
| Decrease in other income | (2,295) |
| Decrease in operating expenses | 6,295 |
| Decrease in administrative expenses | 383 |
| Decrease in other expenses | 546 |
| Decrease in valuation loss of investment property | 2,255 |
| Decrease in the carrying value of trading properties sold | 4,970 |
| Decrease in gross profit | (16,997) |
| Decrease in finance cost | 11,459 |
| Decrease in profit on disposal of investments in subsidiaries | (367) |
| Decrease in operating profit | (5,905) |
| Increase in share of profit in joint venture | 6,289 |
| Increase in profit before tax | 384 |
| Decrease in income tax benefit | (384) |
| Net impact on profit after tax | - |
| Impact on comparative statement of financial position | 31/12/12 |
| US$ '000 | |
| Increase in net investment in joint venture (non-current) | 82,414 |
| Decrease in investment property and investment property under development | (194,550) |
| Increase in loans receivable | 112,732 |
| Decrease in inventories and trade and other receivables | (868) |
| Decrease in cash and cash equivalents | (3,346) |
| Decrease in current tax assets | (536) |
| Increase in trading properties | 1,485 |
| Decrease in property, plant and equipment | (26,355) |
| Decrease in assets held for sale | (114,596) |
| Decrease in trade and other payables (current) | 6,377 |
| Decrease in deferred tax liability | 22,646 |
| Decrease in liabilities held for sale | 114,597 |
| Net impact on equity | - |
There is no material impact on the interim condensed consolidated statement of cash flows or the basic and diluted Earnings per share.
12. PROPERTY, PLANT AND EQUIPMENT
| 30/9/13 | 31/12/12 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 76,555 | 66,663 |
| Additions | 596 | 7,134 |
| Interest capitalised | - | 368 |
| Depreciation for the period/year | (1,446) | (1,971) |
| Disposals | (317) | (450) |
| Effect of movements in foreign exchange rates | (5,574) | 4,811 |
| Balance 30 September / 31 December | 69,814 | 76,555 |
13. LOANS RECEIVABLE
| 30/9/13 | 31/12/12 | |
| US$ '000 | US$ '000 | |
| Long-term loans | ||
| Loans to joint ventures (note 27) | 20,925 | 112,732 |
| Loans to non-related companies | 770 | 759 |
| 21,695 | 113,491 |
| Short-term loans | ||
| Loans to non-related companies | 91 | 92 |
Terms and loan repayment schedule
Terms and conditions of outstanding loans were as follows:
| Currency | Nominal | Year of | 30/9/13 | 31/12/12 | |
| interest rate | maturity | US$ '000 | US$ '000 | ||
| Unsecured loans to joint ventures | USD | 11.5% | 2014 | 11,608 | 95,426 |
| RUR | 19.5% | 2014 | 9,317 | 17,306 | |
| Unsecured loans to non-related companies | RUR | "CBR Rate"*1.1 | 2014 | 34 | 36 |
| USD | 2.5% | 2014 | 736 | 723 | |
| RUR | 11% | On demand | 91 | 92 | |
| 21,786 | 113,583 |
Due to the reason that the Group acquired, during the period, the remaining 50% of the assets and liabilities of the joint venture Krown Investments LLC any loan balance with other Group entities are now eliminated in full upon consolidation. See note 11 for more details.
14. TRADING PROPERTIES
| 30/9/13 | 31/12/12 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 3,597 | 7,372 |
| Acquisition | 6,944 | - |
| Transfer from trading properties under construction | 29,772 | - |
| Disposals | (33,225) | (3,846) |
| Effect of movements in exchange rates | (503) | 71 |
| Balance 30 September / 31 December | 6,585 | 3,597 |
Trading properties comprise of the 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 income statement.
The transfer from trading properties under construction 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. The transaction was structured in two stages. The first stage entailed a sale-purchase transaction between Bellgate and VTB Bank of 21,354 sq.m. of parking space. During the second stage 9,247 sq.m. owned (at completion) by VTB Bank will be exchanged for 7,847 sq. m. owned by Bellgate. The first 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$29,772 thousand were recognised in the income statement during second quarter of 2013..
15. TRADING PROPERTIES UNDER CONSTRUCTION
| 30/9/13 | 31/12/12 | |
| US$ '000 | US$ '000 | |
| Balance 1 January after reclassification of comparative | 141,787 | 129,598 |
| Transfer to trading properties | (29,772) | - |
| Construction costs | 10,714 | 9,592 |
| Effect of movements in exchange rates | (2,045) | 2,597 |
| Balance 30 September / 31 December | 120,684 | 141,787 |
Trading properties under construction comprise of "Odinburg" project which involves primarily the construction of residential properties.
The 643 parking places underneath AFIMALL City were completed during the period, reclassified to trading properties and disposed according to the agreement with VTB Bank described in note 14 above.
16. TRADE AND OTHER RECEIVABLES
| 30/9/13 | 31/12/12 | |
| US$ '000 | US$ '000 | |
| Advances to builders | 38,269 | 29,836 |
| Amounts receivable from related parties (note 27) | 9,763 | 5,290 |
| Trade receivables net | 8,586 | 13,891 |
| Other receivables | 18,936 | 12,827 |
| VAT recoverable | 10,688 | 15,033 |
| Tax receivables | 4,183 | 1,399 |
| 90,425 | 78,276 |
Trade receivables net
Trade receivables are presented net of an accumulated provision for doubtful debts of US$13,715 thousand (2012: US$13,736 thousand).
17. CASH AND CASH EQUIVALENTS
| 30/9/13 | 31/12/12 | |
| Cash and cash equivalents consist of: | US$ '000 | US$ '000 |
| Cash at banks | 140,103 | 174,750 |
| Cash in hand | 165 | 99 |
| 140,268 | 174,849 |
18. ASSETS HELD FOR SALE
In December 2012 the Company entered into an agreement to dispose of, its 50% of stake in Westec Four Winds Limited (along with its partner, Snegiri Development), which had developed and operated Four Winds. The deal was completed in January 2013 with total consideration received by the Company of circa US$103.4 million. The transaction also resulted in reduction of overall debt of AFI Development following the removal of the project loan by Nordea Bank from its consolidated balance sheet. The total profit on disposal was US$50,725 thousand, US$18,637 thousand of which were recognised as a fair value gain in 2012 and the rest upon completion. The corresponding translation reserve was reclassified to profit or loss upon the disposal of the joint venture in January 2013. An amount of US$30,288 was reclassified as realised foreign exchange loss in financing expenses.
19. SHARE CAPITAL AND RESERVES
| 30/9/13 | 31/12/12 | |
| Share Capital | US$ '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$0.001 each |
524 524 |
524 524 |
| 1,048 | 1,048 |
Employee Share option plan
There were no changes as to the employee share option plan during the nine-month period ended 30 September 2013 apart from the cancelation of 523,848 options due to the resignation of an employee.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations to the Group presentation currency and the foreign exchange differences on loans designated as loans to an investee company which are accounted for as part of the investor's investment (IAS21.15) as their repayment is not planned or likely to occur in the foreseeable future. These foreign exchange differences are recognised directly to Translation Reserve.
Retained earnings
The amount at each reporting date is available for distribution. No dividends were proposed, declared or paid during the period ended 30 September 2013.
20. LOANS AND BORROWINGS
| 30/9/13 | 31/12/12 | |
| US$ '000 | US$ '000 | |
| Non-current liabilities | ||
| Secured bank loans | 803,865 | 554,551 |
| Current liabilities | ||
| Secured bank loans | 19,860 | 1,357 |
| Unsecured loans from other non-related companies | 756 | 15,988 |
| 20,616 | 17,345 |
There were no material changes to loans during the nine month period ended 30 September 2013 apart from the following:
On 25 January 2013 Krown Investments LLC ("Krown"), a 100% subsidiary, acquired a new secured loan from JSC VTB Bank for refinancing the repayment of borrowings due to related parties. This loan agreement offers a credit line of US$220 million, which was drawn down during the first 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 80% of sale proceeds should be directed to the Bank for the repayment of the loan.
During the period the Group received the third and the fourth tranche, of total apprx. US$86,854 million (RUR 2,633 million), of the secured loan from a bank of the VTB Group ("the Bank") signed on 22 June 2012 by its subsidiary Bellgate Construction Ltd ("Bellgate"). This new loan facility agreement offers 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 refinance existing loans previously issued by JSC VTB Bank. The remaining funds are designated for the refinancing of construction costs related to the AFIMALL City parking and for the financing of the outstanding payments constituting part of the consideration for the acquisition of the parking.
On 17 August 2013 Bellgate Constructions Limited signed an addendum to the current Loan Facility Agreement with a bank of the VTB Group. 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 effective upon the registration date of the mortgage agreements, on 3 September 2013.
During the period Eitan K LLC, a 100% subsidiary, repaid in full the outstanding loan amount obtained from Sberbank, which as at 1 January 2013 amounted to US$20 million, ahead of the contractual repayment date.
21. LONG TERM AMOUNTS PAYABLE
Represented an amount payable to the City of Moscow, for the acquisition of the parking area under the AFIMALL City. The amount is payable in three yearly installments starting from February 2012 and with the last falling due in February 2014. On the 28 February 2013 the company paid the second installment of RUR 1,333 million (approx. US$ 43,544 thousand) and the third installment, which is payable within the next twelve months, is presented as current liability in "Trade and other payables", see note 22 below.
22. TRADE AND OTHER PAYABLES
| 30/9/13 | 31/12/12 | |
| US$ '000 | US$ '000 | |
| Trade payables | 10,482 | 2,821 |
| Payables to related parties (note 27) | 7,225 | 6,095 |
| Amount payable to builders | 8,092 | 5,999 |
| VAT and other taxes payable | 14,393 | 17,074 |
| Receipts in advance from sale of investment | - | 100,000 |
| Receipts in advance for the sale of parking places | - | 61,734 |
| Amount payable for the acquisition of properties (note 21) | 39,259 | 43,068 |
| Other payables | 5,991 | 30,347 |
| 85,442 | 267,138 |
Payables to related parties
Include an amount of US$6,359 thousand (31/12/12: US$3,761 thousand) payable to Danya Cebus Rus LLC, related party of the Group, for new contracts signed in relation to the construction of Group's projects.
Receipts in advance from sale of investment
In 2012 the Company received an advance payment for the disposal of the Westec Four Winds plaza which was classified as current liability until the completion of the transaction in January 2013.
23. DISPOSAL OF INVESTMENTS IN JOINT VENTURE/SUBSIDIARIES
| 30/9/13 | 30/9/12 | |
| US$ '000 | US$ '000 | |
| The profit on disposal of joint venture consists of: | ||
| Profit on disposal of Westec Four Winds Ltd | 32,088 | - |
| Profit on disposal of OOO Ozerkovka | - | 2,635 |
| Loss on disposal of Roppler Engineering Limited and its subsidiary OOO CDM |
- | (289) |
| 32,088 | 2,346 |
The selling price of the disposal of Westec Four Winds Ltd was US$103,380 thousand. The resulting profit on sale amounting to US$32,088 thousand was recognised in income statement and a translation reserve of US$30,288 thousand was reclassified as a realised exchange loss in financing expenses of the income statement.
The above disposal had the following effect on the Group's assets and liabilities:
| 30/9/13 | |
| US$ '000 | |
| Investment property | (177,996) |
| Property, plant and equipment | (109) |
| VAT recoverable | (2) |
| Trading properties | (322) |
| Trade and other receivables | (2,769) |
| Cash disposed off reclassified to assets held for sale at the end of 2012 | (4,691) |
| Long-term loans and borrowings | 81,408 |
| Deferred tax liabilities | 26,614 |
| Deferred income | 3,366 |
| Trade and other payables | 2,690 |
| Current tax payable | 519 |
| Net identifiable assets | (71,292) |
| Consideration received in cash | 103,380 |
| Amount received in advance in the prior year | (100,000) |
| Net cash inflow from the disposal of joint venture during the period | 3,380 |
24. FINANCIAL INSTRUMENTS
Set out below an overview of the financial instruments, other than cash and short term deposits, held by the group as at 30 September 2013:
| Loans and receivables | ||
| Financial assets | USD'000 | |
| Loans receivable | 21,695 | |
| Total non-current | 21,695 | |
| Trade and other receivables | 75,554 | |
| Loans receivable | 91 | |
| Total current | 75,645 | |
| Total | 97,340 | |
| Financial liabilities | ||
| Interest bearing loans and borrowings | 803,865 | |
| Total non-current | 803,865 | |
| Trade and other payables | 71,049 | |
| Interest bearing loans and borrowings | 20,616 | |
| Total current | 91,665 | |
| Total | 895,530 |
Set out below is a comparison of the carrying amounts and fair values of financial instruments as at 30 September 2013:
| Carrying amount | Fair value | |
| USD'000 | USD'000 | |
| Financial assets | ||
| Loans receivable | 21,695 | 21,695 |
| Total non-current | 21,695 | 21,695 |
| Loans receivable | 91 | 91 |
| Total current | 91 | 91 |
| Total | 21,786 | 21,786 |
| Financial liabilities | ||
| Interest bearing loans and borrowings | 803,865 | 827,132 |
| Total non-current | 803,865 | 827,132 |
| Interest bearing loans and borrowings | 20,616 | 20,616 |
| Total current | 20,616 | 20,616 |
| Total | 824,481 | 847,748 |
25. CONTINGENCIES
There weren't any contingent liabilities as at 30 September 2013.
26. 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 2012.
Cyprus business and economic environment
In regards to the recent events and the current economic conditions in Cyprus, the Board of Directors is of the opinion that the Company's operations have not been adversely affected by the current economic conditions in Cyprus as the Company does not have significant credit exposure with respect to local credit institutions and customers and all of its investments and their operations are outside Cyprus.
27. RELATED PARTIES
| 30/9/13 | 31/12/12 | |
| Outstanding balances with related parties | US$ '000 | US$ '000 |
| Assets | ||
| Amounts receivable from joint ventures | 16 | 4,978 |
| Amounts receivable from other related companies | 9,747 | 312 |
| Long term loan receivable from joint ventures | 20,925 | 112,732 |
| Liabilities | ||
| Deferred income from related company | 269 | 267 |
| Amounts payable to joint ventures | 157 | 1,631 |
| Amounts payable to ultimate holding company | 533 | 461 |
| Amounts payable to other related companies | 6,535 | 4,003 |
| Transactions with the key management personnel | 30/9/13 | 30/9/12 |
| US$ '000 | US$ '000 | |
| Key management personnel compensation: Short-term employee benefits |
3,580 | 2,224 |
| Share option scheme expense | 3,672 | 515 |
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 | 30/9/13 | 30/9/12 |
| US$ '000 | US$ '000 | |
| Revenue | ||
| Joint venture - consulting services | - | 1,818 |
| Joint venture - interest income | 1,897 | 12,170 |
| Joint venture - other income | 11 | - |
| Related company - rental income | 976 | 891 |
| Other related party transactions | 30/9/13 | 30/9/12 |
| US$ '000 | US$ '000 | |
| Expenses | ||
| Ultimate holding company - administrative expenses | 334 | 241 |
| Joint venture - operating expenses | 146 | 133 |
| Joint venture - administrative expenses | 10 | - |
| Construction services capitalised | ||
| Related company - construction services | 7,184 | - |
28. GROUP ENTITIES
During the nine-month period ended 30 September 2013 the Group disposed of its 50% share in the joint venture Westec Four Winds Ltd and its subsidiary Dulverton Ltd as described in note 23 above. The Group also acquired the remaining 50% of the assets and liabilities of Krown Investments LLC and now owns 100% of Krown's share capital.
29. SUBSEQUENT EVENTS
· On 7 November 2013 the Company announced that it had reached a binding agreement to dispose of Building 1 of the Ozerkovskaya (Aquamarine) phase III office complex in Moscow. Under the transaction, Krown Investments LLC, the subsidiary holding the rights to Ozerkovskaya (Aquamarine) phase III, sells premises of the first 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 is to be paid in cash and amounts to Russian rouble equivalent of US$91.5 million and applicable Russian VAT resulting in expected profit of US$14.6 million.
Completion of the transaction is subject to a condition that AFI Development removes the existing mortgage over the disposed premises and the land lease rights in favour of VTB Bank JSC. VTB Bank JSC has already consented to the transaction. The Company expects the transaction to be completed in December 2013.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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