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Frontier Development PLC — Interim / Quarterly Report 2015
Aug 25, 2015
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Interim / Quarterly Report
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RNS Number : 9364W
AFI Development PLC
25 August 2015
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION
IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN
25 August 2015
AFI DEVELOPMENT PLC
("AFI DEVELOPMENT" OR "THE COMPANY")
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2015
Satisfactory operational results amidst continuing macroeconomic uncertainty
AFI Development, a leading real estate company focused on developing property in Russia, has today announced its financial results for the six months ended 30 June 2015.
H1 2015 financial highlights
· Revenues for the six months to 30 June 2015, including proceeds from the sale of trading properties, reached US$51.1 million:
- Rental and hotel operating income declined 33% year-on-year to US$50.4 million
- AFIMALL City contribution stood at US$38.5 million (H1 2014: US$56.6 million), down 32% year-on-year
· Gross profit for H1 2015 declined slightly to US$25.8 million (H1 2014: US$27.5 million)
· Net loss for H1 2015 was US$ 33.2 million, against a profit of US$3.7 million in H1 2014, largely due to valuation losses in Q2 2015
· Total gross value of portfolio of properties decreased marginally to US$1.98 billion at the end of Q2 2015, compared to US$1.99 billion at the end of Q1 2015
· Cash, cash equivalents and marketable securities as of 30 June 2015 were US$78.6 million
H1 2015 operational highlights
· AFIMALL City recorded revenue of US$38.5 million for H1 2015:
- NOI was US$29.1 million for the six months, compared to US$39.3 million in H1 2014
- Average monthly footfall in June 2015 was 19% higher than that in June 2014
· Over 90% of apartments at Odinburg Building 1 pre-sold (710 sale contracts signed as of 24 August 2015 in both Buildings 1 and 2)
Commenting on today's announcement, Lev Leviev, Executive Chairman of AFI Development, said:
"Amidst a challenging operating environment and in the face of continued macroeconomic uncertainty, our focus during the first half of the year was firmly on managing factors under our control. At AFIMALL City, we supported our tenants through a number of marketing initiatives which resulted in strong growth in footfall to the Mall, against a market-wide decline. At the same time, we reinforced our efforts aimed at reducing our operating costs, which led to a significant reduction in all of our expenses. Finally, development and marketing of non-yielding properties continues with steady progress across all projects."
H1 2015 results conference call:
AFI Development will hold a conference call for analysts and investors to discuss its H1 2015 financial results on Wednesday, 26 August 2015, following the publication of the Company's financial results.
The details for the conference call are as follows:
Date: Wednesday, 26 August 2015
Time: 3pm BST (5pm Moscow)
Dial-in Tel: International: +44 (0) 20 3003 2666
UK toll free: 0808 109 0700
US toll-free: 1 866 966 5335
Russia toll-free: 8 10 8002 4902044
Password: AFI
Please dial in 5/10 minutes prior to the 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 H1 2015 Investor Presentation of AFI Development will be published on the Company website at http://www.afi-development.com/en/investor-relations/reports-presentations on 26 August 2015 by 12am (noon) BST (2pm Moscow time).
- 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.
Executive Chairman's and Executive Director's combined statement
Our operating environment during the first half of 2015 remained challenging as a result of negative trends in Russia's macroeconomic indicators and continued currency volatility, which had an adverse effect on business activity and consumer purchasing power in our market.
In such an environment, we continued to focus on the profitability of our business. Our revenue in Q2 2015 increased by 9% to US$26.6 million compared to US$24.4 in Q1 2015. At the same time, operating expenses decreased further during the second quarter to US$9.7 million versus US$11.4 in Q1 2015. As a result, gross profit in Q2 2015 was 30% higher at US$14.6 million than in Q1 2015 (US$11.2 million).
Gross profit for H1 2015 reached US$25.8 million (H1 2014: US$27.5 million), a moderately good operating result in the current environment.
The operating performance of AFIMALL City was also affected by the difficult conditions in the retail industry. Retail sales in Russia during the first half of the year were 8% lower in real terms against the same period of 2014 with footfall across Moscow's shopping centres at the lowest level since 2011. At the same time, rental agreements across the market have been subject to renegotiation due to the difficult trading conditions and the volatility of the Rouble against the US dollar.
As such, AFIMALL City experienced a higher level of tenant rotation during H1 2015, which in combination with temporary rent discounts led to a 32% revenue decline to US$38.5 million (H1 2014: US$56.6 million). However, the success of our marketing efforts is reflected in the positive trend in the Mall's footfall at the end of the six-month period.
Concurrently, development of our non-yielding assets continues with pre-sales at Building 1 of our Odinburg development nearly concluded and construction of Building 2 on track for completion to plan. Marketing of office space at our Aquamarine III development is also progressing with a number of high-profile tenants signed up, whilst preparations for construction and marketing of Paveletskaya Phase II and design works at Bolshaya Pochtovaya continue.
Projects update
AFIMALL City
Due to above-mentioned market dynamics, AFIMALL City saw some tenant rotation in the second quarter. Encouragingly, however, the Mall's footfall improved by 19% in June 2015 compared to June 2014.
In May 2015, a "sales and discounts night" promotional event marked the fourth birthday of AFIMALL City, with most tenants offering significant discounts on their goods, while the shopping centre extended its trading hours for a period of three days.
Odinburg
During Q2 2015, construction of Building 1 of the first phase of Odinburg (the "Korona" complex) entered its final stage, while construction of Building 2 continued. As of the date of publication of this report, more than 90% of apartments in Building 1 have been pre-sold with sales of Building 2 also progressing to plan (710 contracts for sales of apartments signed in both buildings at the date of this report's publication).
Aquamarine III (Ozerkovskaya III)
The Company continues to market office space in this property to potential buyers and tenants. Several tenants have already leased space in the complex, with the most recent addition being Brown-Forman, the Kentucky-based producer of Jack Daniel's whiskey, Finlandia vodka and other well-known spirits, who selected Aquamarine III for its Russian headquarters.
Paveletskaya Phase II
Preparations for construction and marketing of Paveletskaya Phase II continued during the second quarter as the project team prepared documentation for the general contractor tender. In parallel, negotiations regarding the financing of construction are underway with several banks.
Bolshaya Pochtovaya
The design works for Bolshaya Pochtovaya are currently ongoing. We are on track to obtain a construction permit for this development during 2015.
Market overview - general Moscow real estate
Macroeconomic environment
GDP decline in Russia during the second quarter of 2015 reached 3.4% (according to the Ministry of Economic Development), driven to a large extent by reduced government spending. Following a period of stabilisation during the first quarter of the year, the Rouble continued its decline against the US dollar, mainly as a result of a fall in oil prices in June and July.
As the federal budget deficit increased to 3.7% of GDP during the first five months of the year, the Government implemented a restrictive fiscal policy which is expected to continue into the third quarter of the year. Retail sales during the first half of the year were 8% lower in real terms against the same period of 2014. At the same time, inflation saw a significant decline during the second quarter and international reserves stabilised at around $355-$360 billion.
With a seasonal decline in the current account surplus and expected growth in external debt repayments, the pressure on both the Rouble and international reserves is expected to increase during the second half of the year.
Recovery in business activity also remains unlikely in the absence of further reduction in interest rates, with the key lending rate at 11% (as of today), more than 400 basis points above pre-crisis levels.
(Source: CBRE Russia Macroeconomic Report, Q2 2015, Ministry of Economic Development of the Russian Federation)
Moscow office market
Following a challenging 2014 and Q1 2015, the office market showed a more positive trend during the second quarter of the year.
The volume of new deliveries for the first half of the year totalled 224,300 sq.m., driven by a 47% increase during the second quarter when 66% of deliveries met Class A requirements.
Take up during the second quarter increased by 30% quarter-on-quarter and 120% year-on-year to 187,000 sq.m. with a significant increase in Class A take up driven by a small number of large scale deals. This trend played an important role in keeping overall vacancy rates stable with Class A vacancy levels recording a small decline, from 27.4% in the first quarter to 25.8% in the second.
Across 12% of available Class A space, rental rates declined during the second quarter - Class A Prime rents decreased by 5% to $820-950 per sq.m. whilst Class A rents in centrally-located office buildings saw a decline of between 0% and 7% to an average of $600-750 per sq.m. Rents for decentralised Class A office buildings and Class B buildings remained stable.
Looking to the second half of 2015, it is expected that about 1.1 million sq.m. of new office space will be supplied. This figure is 300,000 sq.m. lower than expected at the start of the year as a number of delivery dates have been postponed due to the current oversupply and limited demand.
(Source: Q2 2015 Office Market View, CBRE; Marketbeat Russia Q2 2015, Cushman & Wakefield)
Moscow retail market
During the first half of 2015, Moscow saw completion of five new shopping centres with a total GLA of 306,000 sq.m. These opened with anchor tenants and no more than 30% of gallery occupancy. The remainder of 2015 and 2016 are expected to see noticeably fewer new openings with no more than 1.3 million sq.m. of retail space in quality shopping malls delivered to the market. The majority of new shopping malls are expected to have soft openings with the leasing process expected to take up to two or three years from delivery.
Despite difficult market conditions, established shopping centres in Moscow have retained high occupancy levels with vacancy rates averaging around 2.17% versus a Moscow average rate of 8%. However, footfall has been at the lowest levels since 2011 due to the weakening purchasing power of consumers.
Following the strong correction of rental rates in late 2014, rents in the first half of 2015 remained relatively stable. Prime rents are estimated at around $3,800 per sq.m. with average rents at around $1,450 per sq.m.
The majority of lease contracts are denominated in roubles and valid for a short-term period with lease agreements in US dollars executed only in prime shopping centres in Moscow. Rental rates expressed as a percentage of turnover have also become more widespread. The differential between rents commanded by established and newly-opened shopping malls has increased further in 2015 leading to reduced relevance of the concept of average rental rates.
Looking ahead to the second half of 2015, there is a risk of vacancy rates rising to 11-12%. At the same time, given the weak retail sales and the high volume of new retail space delivered, average rental rates are expected to fall by a further 5-10% in US dollar terms by year-end.
(Source: Q2 2015 Office Market View, CBRE; Marketbeat Russia Q2 2015, Cushman & Wakefield; Moscow Shopping Centre Market Q2 2015, JLL)
Moscow and Moscow Region residential market
According to Mosgorstat, the volume of commissioned residential construction in Moscow for the first half of 2015 amounted to 1.8 million sq. m., which is 17.5% higher than in the same period last year.
By the end of June 2015, the weighted average asking price of new business-class residential construction in Moscow amounted to 283 thousand roubles per sq. m. (US$4,964). Compared with the end of June 2014, prices increased on average by 8%.
In the Moscow Region, as of June 2015, the average price per sq. m. in the business-class segment reached US$1,450, or RUR80,500.
(Source: IntemarkSavills, Peresvet)
| Lev Leviev Executive Chairman of the Board |
Mark Groysman Executive Director |
ANNEX A
30.6.2015 - Very significant property disclosure
1. AFIMALL City
| (Data based on 100%. Share of the Company in the property - 100%) | Current quarter (Q2 2015) | Comparative data | |||
| Q2 2015 | Q1 2015 | Q4 2014 | Q3 2014 | Q2 2014 | |
| Value of the property (000'USD) | 990,000 | 1,000,000 | 1,000,000 | 1,160,000 | 1,160,000 |
| NOI in the period (000'US$) | 15,395 | 13,686 | 18,641 | 25,007 | 22,501 |
| Revaluation gains (losses) in the period (000'US$) | (28,970) | 13,821 | (3,655) | 88,473 | (35,442) |
| Average occupancy rate in the period (%) | 77% | 83% | 85% | 82% | 82% |
| Rate of return (%) | 5.9% | 5.5% | 8.3% | 7.4% | 6.8% |
| Average rent per sq.m. (US$/annum) | 1,144 | 1,117 | 1,147 | 1,201 | 1,202 |
| Average rent per sq.m. in agreements signed in the period (US$/annum) | 1,399 | 832 | 1,035 | 1,667 | 1,286 |
Balance sheet values of properties
| Property[1] | Valuation 30/06/2015, US Dollars | Valuation 31/12/2014, US Dollars | Change in valuation, % | Balance sheet value 30/06/2015, US Dollars | Balance sheet value 31/12/2014, US Dollars | |
| Investment property | ||||||
| 1 | H2O | 10 300 000 | 12 100 000 | -15% | 10 300 000 | 12 100 000 |
| 2 | Ozerkovskaya Phase III | 293 000 000 | 300 000 000 | -2% | 293 000 000 | 300 000 000 |
| 3 | Berezhkovskaya[2] | 15 762 000 | 15 762 000 | 0% | 21 300 000 | 21 300 000 |
| 4 | AFIMALL City | 990 000 000 | 1 000 000 000 | -1% | 990 000 000 | 1 000 000 000 |
| 5 | Paveletskaya Phase I[3] | 16 462 220 | 19 338 150 | -15% | 16 600 000 | 19 500 000 |
| 6 | Plaza II | 14 100 000 | 15 200 000 | -7% | 14 100 000 | 15 200 000 |
| 7 | Plaza Ib | 4 700 000 | 5 400 000 | -13% | 4 700 000 | 5 400 000 |
| 8 | Sadovaya -Samotechnaya | 1 900 000 | 1 916 234 | -1% | 1 900 000 | 1 916 234 |
| Total | 1 346 224 220 | 1 369 716 384 | -2% | 1 351 900 000 | 1 375 416 234 | |
| Investment property under development | ||||||
| 9 | Plaza Ic | 87 700 000 | 87 700 000 | 0% | 87 700 000 | 87 700 000 |
| 10 | Plaza IIa | 3 600 000 | 3 600 000 | 0% | 3 600 000 | 3 600 000 |
| 11 | Plaza IV[4] | 101 753 623 | 101 753 623 | 0% | 107 109 076 | 107 109 076 |
| 12 | Paveletskaya Phase II[5] | 68 724 810 | 66 840 580 | 3% | 69 300 000 | 67 400 000 |
| 13 | Kossinskaya | 45 500 000 | 53 700 000 | -15% | 45 500 000 | 53 700 000 |
| 14 | Bolshaya Pochtovaya | 108 300 000 | 108 300 000 | 0% | 108 300 000 | 108 300 000 |
| Total | 415 578 433 | 421 894 203 | -1% | 421 557 895 | 427 809 076 | |
| Trading property & Trading property under development | ||||||
| 15 | Odinburg | n/a | n/a | 143 852 448 | 133 035 537 | |
| 16 | Four Winds Residential | n/a | n/a | 0 | 624 284 | |
| 17 | Ozerkovskaya Phase II | n/a | n/a | 2 570 317 | 2 355 115 | |
| Total | - | 146 422 765 | 136 014 935 | |||
| Inventory of real estate | ||||||
| 18 | Botanic Garden[6] | 19 440 000 | 18 100 000 | 7% | 21 600 000 | 20 111 111 |
| Total | 19 440 000 | 18 100 000 | 7% | 21 600 000 | 20 111 111 | |
| Land Bank Properties | ||||||
| 19 | Ruza | n/a | n/a | 3 665 000 | 3 665 000 | |
| 20 | Boryspol (Ukraine) | - | - | - | - | |
| Total | - | - | 3 665 000 | 3 665 000 | ||
| Hotels | ||||||
| 21 | Aquamarine Hotel | n/a | n/a | 17 261 209 | 17 343 063 | |
| 22 | Plaza Spa Hotel in Kislovodsk | n/a | n/a | 14 588 397 | 14 414 050 | |
| 23 | Plaza Spa Hotel in Zheleznovodsk | n/a | n/a | 12 364 466 | 12 249 094 | |
| 24 | Park Plaza hotel development in Kislovodsk | n/a | n/a | 4 295 010 | 4 241 520 | |
| Total | - | - | 48 509 082 | 48 247 727 | ||
| Grand Total | 1 781 242 653 | 1 809 710 586 | -2% | 1 993 654 742 | 2 011 264 084 |
ANNEX B
30.6.2015 - Very significant loans disclosure
| Balance as of 30.06.2015 | 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 Q2 2015 financial statement were reported | The date that the lender is checking the borrower is line with the covenants |
| USD 296,385,605 and RUR 9,508,778,667(USD 173,809,938). Total amount in USD as of 30.06.2015 is USD 470,195,543 | 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 Q2 2015 was 1 037 million Roubles incl. VAT ; (2) Liquidation Value determined by an external valuer appointed by the Bank is USD 601.3 million/RUR 33.7 bln (VAT excluded) | 25 August 2015 | (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 2015 to 30 June 2015
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the period from 1 January 2015 to 30 June 2015
C O N T E N T S
Independent auditors' report on review of condensed consolidated interim financial information
Condensed consolidated income statement
Condensed consolidated statement of comprehensive income
Condensed consolidated statement of changes in equity
Condensed consolidated statement of financial position
Condensed consolidated statement of cash flows
Notes to the condensed consolidated interim financial statements
Independent auditors' report on review of condensed consolidated interim financial information to the members of AFI DEVELOPMENT PLC
Introduction
We have reviewed the accompanying condensed consolidated statement of financial position of AFI Development PLC as at 30 June 2015, the condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the six-month period then ended and notes to the interim financial information ('the condensed consolidated interim financial information'). The Company's Board of Directors is responsible for the preparation and presentation of this condensed consolidated interim financial information in accordance with IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this condensed consolidated 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 condensed consolidated interim financial information as at 30 June 2015 is not prepared, in all material respects, in accordance with IAS 34 "Interim Financial Reporting".
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
24 August 2015
CONDENSED CONSOLIDATED INCOME STATEMENT
For the period from 1 January 2015 to 30 June 2015
| For the three months ended |
For the six months ended |
|||||
| 1/4/15- | 1/4/14- | 1/1/15- | 1/1/14- | |||
| 30/6/15 | 30/6/14 | 30/6/15 | 30/6/14 | |||
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | |||
| Note | ||||||
| Revenue | 6 | 26,630 | 39,579 | 51,076 | 76,234 | |
| Other income | 273 | 1,274 | 1,408 | 3,003 | ||
| Operating expenses | 6 | (9,732) | (15,550) | (21,127) | (37,322) | |
| Carrying value of trading properties sold | (635) | (1,047) | (635) | (1,047) | ||
| Administrative expenses | 7 | (2,214) | (3,646) | (4,928) | (11,050) | |
| Other expenses | 8 | (622) | (663) | (1,019) | (2,924) | |
| Total expenses | (13,203) | (20,906) | (27,709) | (52,343) | ||
| Share of the after tax profit of joint ventures | 901 | 1,244 | 1,023 | 600 | ||
| Gross Profit | 14,601 | 21,191 | 25,798 | 27,494 | ||
| Profit on disposal of investment in subsidiaries | - | - | - | 61 | ||
| Valuation (loss)/gain on properties | 11,12 | (63,781) | (46,818) | (42,337) | 26,461 | |
| Impairment loss on inventory of real estate | (4) | (8,341) | (662) | (8,696) | ||
| (63,785) | (55,159) | (42,999) | 17,765 | |||
| Results from operating activities | (49,184) | (33,968) | (17,201) | 45,320 | ||
| Finance income | 21,187 | 24,858 | 6,485 | 4,508 | ||
| Finance costs | (12,101) | (14,187) | (23,432) | (43,888) | ||
| Net finance income/(costs) | 9 | 9,086 | 10,671 | (16,947) | (39,380) | |
| (Loss)/profit before tax | (40,098) | (23,297) | (34,148) | 5,940 | ||
| Tax benefit/(expense) | 10 | 892 | 2,767 | 942 | (2,198) | |
| (Loss)/profit for the period | (39,206) | (20,530) | (33,206) | 3,742 | ||
| (Loss)/profit attributable to: | ||||||
| Owners of the Company | (39,050) | (19,495) | (33,106) | 4,524 | ||
| Non-controlling interests | (156) | (1,035) | (100) | (782) | ||
| (39,206) | (20,530) | (33,206) | 3,742 | |||
| Earnings per share | ||||||
| Basic and diluted earnings per share (cent) | (3.73) | (1.86) | (3.16) | 0.43 | ||
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period from 1 January 2015 to 30 June 2015
| For the three months ended |
For the six months ended |
|||
| 1/4/15- | 1/4/14- | 1/1/15- | 1/1/14- | |
| 30/6/15 | 30/6/14 | 30/6/15 | 30/6/14 | |
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
| (Loss)/profit for the period | (39,206) | (20,530) | (33,206) | 3,742 |
| 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) | (77) |
| Foreign currency translation differences for foreign operations | 9,588 | 28,869 | 4,671 | (11,972) |
| Other comprehensive income for the period | 9,588 | 28,869 | 3,841 | (12,049) |
| Total comprehensive income for the period | (29,618) | 8,339 | (29,365) | (8,307) |
| Total comprehensive income attributable to: | ||||
| Owners of the parent | (29,488) | 9,325 | (29,371) | (7,508) |
| Non-controlling interests | (130) | (986) | 6 | (799) |
| (29,618) | 8,339 | (29,365) | (8,307) | |
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period from 1 January 2015 to 30 June 2015
| 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 2015 | 1,048 | 1,763,409 | (314,880) | (158,982) | 1,290,595 | (8,817) | 1,281,778 | ||
| Total comprehensive income for the period | |||||||||
| Loss for the period | - | - | - | (33,106) | (33,106) | (100) | (33,206) | ||
| Other comprehensive income | - | - | 3,735 | - | 3,735 | 106 | 3,841 | ||
| Total comprehensive income for the period | - | - | 3,735 | (33,106) | (29,371) | 6 | (29,365) | ||
| Transactions with owners of the Company Contributions and distributions |
|||||||||
| Share option expense | - | - | - | 1,275 | 1,275 | - | 1,275 | ||
| Balance at 30 June 2015 | 1,048 | 1,763,409 | (311,145) | (190,813) | 1,262,499 | (8,811) | 1,253,688 | ||
| Balance at 1 January 2014 | 1,048 | 1,763,409 | (150,454) | 117,655 | 1,731,658 | (2,179) | 1,729,479 | ||
| Total comprehensive income for the period | |||||||||
| Profit for the period | - | - | - | 4,524 | 4,524 | (782) | 3,742 | ||
| Other comprehensive income | - | - | (12,032) | - | (12,032) | (17) | (12,049) | ||
| Total comprehensive income for the period | - | - | (12,032) | 4,524 | (7,508) | (799) | (8,307) | ||
| Transactions with owners of the Company Contributions and distributions |
|||||||||
| Share option expense | - | - | - | 2,385 | 2,385 | - | 2,385 | ||
| Balance at 30 June 2014 | 1,048 | 1,763,409 | (162,486) | 124,564 | 1,726,535 | (2,978) | 1,723,557 | ||
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2015
| 30/6/15 | 31/12/14 | |||
| Note | US$ '000 | US$ '000 | ||
| Assets | ||||
| Investment property | 11 | 1,351,900 | 1,375,416 | |
| Investment property under development | 12 | 425,223 | 431,474 | |
| Property, plant and equipment | 13 | 35,088 | 35,101 | |
| Long-term loans receivable | 15,821 | 18,071 | ||
| Inventory of real estate | 21,600 | 20,111 | ||
| VAT recoverable | 39 | 42 | ||
| Non-current assets | 1,849,671 | 1,880,215 | ||
| Trading properties | 14 | 2,570 | 2,979 | |
| Trading properties under construction | 15 | 143,853 | 133,036 | |
| Other investments | 16 | 27,070 | 6,499 | |
| Inventory | 381 | 615 | ||
| Short-term loans receivable | 128 | 1 | ||
| Trade and other receivables | 17 | 43,653 | 38,961 | |
| Current tax assets | 1,380 | 1,307 | ||
| Cash and cash equivalents | 18 | 51,578 | 86,756 | |
| Current assets | 270,613 | 270,154 | ||
| Total assets | 2,120,284 | 2,150,369 | ||
| Equity | ||||
| Share capital | 1,048 | 1,048 | ||
| Share premium | 1,763,409 | 1,763,409 | ||
| Translation reserve | (311,145) | (314,880) | ||
| Retained earnings | (190,813) | (158,982) | ||
| Equity attributable to owners of the Company | 19 | 1,262,499 | 1,290,595 | |
| Non-controlling interests | (8,811) | (8,817) | ||
| Total equity | 1,253,688 | 1,281,778 | ||
| Liabilities | ||||
| Long-term loans and borrowings | 20 | 629,702 | 455,097 | |
| Deferred tax liabilities | 100,927 | 102,621 | ||
| Deferred income | 11,300 | 12,966 | ||
| Non-current liabilities | 741,929 | 570,684 | ||
| Short-term loans and borrowings | 20 | 46,110 | 231,684 | |
| Trade and other payables | 21 | 23,154 | 28,216 | |
| Advances from customers | 22 | 55,403 | 38,007 | |
| Current liabilities | 124,667 | 297,907 | ||
| Total liabilities | 866,596 | 868,591 | ||
| Total equity and liabilities | 2,120,284 | 2,150,369 | ||
The condensed consolidated interim financial statements were approved by the Board of Directors on 24 August 2015.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from 1 January 2015 to 30 June 2015
| 1/1/15- | 1/1/14- | ||
| 30/6/15 | 30/6/14 | ||
| Note | US$ '000 | US$ '000 | |
| #### Cash flows from operating activities | |||
| (Loss)/profit for the period | (33,206) | 3,742 | |
| Adjustments for: | |||
| Depreciation | 13 | 493 | 886 |
| Net finance costs | 9 | 16,761 | 39,165 |
| Share option expense | 1,275 | 2,385 | |
| Net valuation loss/(gain) on properties | 11,12 | 42,337 | (26,461) |
| Impairment loss on inventory of real estate | 662 | 8,696 | |
| Share of profit in joint ventures | (1,023) | (600) | |
| Profit on disposal of investment in subsidiaries | - | (61) | |
| Profit on sale of property, plant and equipment | - | (15) | |
| Tax (benefit)/expense | 10 | (942) | 2,198 |
| 26,357 | 29,935 | ||
| Change in trade and other receivables | (663) | (3,278) | |
| Change in inventories | 234 | 39 | |
| Change in trading properties and trading properties under construction | (10,948) | (20,368) | |
| Change in advances and amounts payable to builders of trading properties under construction | (7,011) | (6,341) | |
| Changes in advances from customers | 16,342 | 21,564 | |
| Change in trade and other payables | (5,086) | (17,779) | |
| Change in VAT recoverable | 2,625 | 231 | |
| Change in deferred income | (1,778) | 301 | |
| Cash generated from operating activities | 20,072 | 4,304 | |
| Taxes (paid)/received | (459) | (451) | |
| Net cash from operating activities | 19,613 | 3,853 | |
| Cash flows from investing activities | |||
| Net cash inflow from the disposal of subsidiaries | - | 1,400 | |
| Proceeds from sale of other investments | 1,172 | - | |
| Proceeds from sale of property, plant and equipment | 1 | 33 | |
| Interest received | 1,856 | 3,301 | |
| Change in advances and amounts payable to builders | (2,388) | 3,052 | |
| Payments for construction of investment property under development | 12 | (2,632) | (39,558) |
| Payments for the acquisition/renovation of investment property | 11 | (1,576) | (39,540) |
| Dividends received from joint ventures | 3,250 | - | |
| Change in VAT recoverable | 2,828 | 1,948 | |
| Acquisition of property, plant and equipment | 13 | (20) | (240) |
| Acquisition of other investments | (20,551) | (1,019) | |
| Taxes paid on disposal of investment property | - | (4,005) | |
| Payments for loans receivable | (106) | - | |
| Net cash used in investing activities | (18,166) | (74,628) | |
| Cash flows from financing activities | |||
| Proceeds from loans and borrowings | 20 | 10,000 | 36,986 |
| Repayment of loans and borrowings | (23,000) | (13,000) | |
| Interest paid | (23,409) | (28,157) | |
| Net cash used in financing activities | (36,409) | (4,171) | |
| Effect of exchange rate fluctuations | (216) | (6,450) | |
| Net decrease in cash and cash equivalents | (35,178) | (81,396) | |
| Cash and cash equivalents at 1 January | 86,756 | 193,330 | |
| Cash and cash equivalents at 30 June | 18 | 51,578 | 111,934 |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the period from 1 January 2015 to 30 June 2015
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 ("interim financial statements") of the Company as at and for the six months ended 30 June 2015 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 preparation
Statement of compliance
These interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". 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 annual consolidated financial statements as at and for the year ended 31 December 2014.
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 | % change quarter | % change six months/ year | |
| As of: | for US$1 | ||
| 30 June 2015 | 55.5240 | (5.0) | (1.3) |
| 31 March 2015 | 58.4643 | 3.9 | |
| 31 December 2014 | 56.2584 | 71.9 | |
| 30 June 2014 | 33.6306 | 2.8 |
| Average rate during: | |||
| Six-month period ended 30 June 2015 | 57.3968 | 64.1 | |
| Three-month period ended 31 March 2015 | 62.1919 | 77.9 | |
| Six-month period ended 30 June 2014 | 34.9796 | 12.8 |
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, 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 2014.
a. Measurement of fair values
The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the 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 such 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 observable market 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 2014.
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 2014, except for the adoption of new standards and interpretations effective as of 1 January 2015.
Several new standards and amendments apply for the first time in 2015. 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 | |||||
| 30/6/1513 | 30/6/14 | 30/6/15 | 30/6/14 | 30/6/15 | 30/6/14 | 30/6/15 | 30/6/14 | 30/6/15 | 30/6/14 | 30/6/15 | 30/6/14 | |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| External revenues | - | 1 | 668 | 1,343 | 42,118 | 62,086 | 5,736 | 8,037 | 2,554 | 4,767 | 51,076 | 76,234 |
| Inter-segment revenue | 226 | 1 | 377 | 1 | 2,465 | - | 40 | 8 | 707 | 221 | 3,815 | 231 |
| Segment (loss)/profit before tax | (243) | (1,603) | (1,569) | (473) | 13,835 | 2,002 | 983 | 1,459 | (5,122) | (11,565) | 7,884 | (10,180) |
| 30/6/15 | 31/12/14 | 30/6/15 | 31/12/14 | 30/6/15 | 31/12/14 | 30/6/15 | 31/12/14 | 30/6/15 | 31/12/14 | 30/6/15 | 31/12/14 | |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| Segment assets | 203,233 | 360,275 | 196,229 | 197,844 | 1,339,003 | 1,578,882 | 28,051 | 53,598 | 248,814 | 392,075 | 2,015,330 | 2,582,674 |
| Segment liabilities | 11,116 | 4,501 | 56,445 | 22,193 | 775,137 | 987,433 | - | - | 11,192 | 2,860 | 853,890 | 1,016,987 |
Reconciliation of reportable segment profit or loss
| 1/1/15- 30/6/15 |
1/1/14- 30/6/14 |
|
| US$ '000 | US$ '000 | |
| Total profit or loss for reportable segments | 7,884 | (10,180) |
| Other profit or loss | (56) | (2,306) |
| Share of the after tax profit of joint ventures | 1,023 | 600 |
| Profit on disposal of investment in subsidiaries | - | 61 |
| Valuation (loss)/gain on properties | (42,337) | 26,461 |
| Impairment loss on inventory of real estate | (662) | (8,696) |
| (Loss)/profit before tax | (34,148) | 5,940 |
6. REVENUE AND OPERATING EXPENSES
The decrease of revenue and operating expenses in comparison with first half of 2014 of 33% and 43% respectively is mainly due to the change of the average rate of Rouble from first half of 2014 to first half of 2015. In addition the Company has offered temporary rent discounts to the tenants of the investment properties and in parallel has implemented a cost saving optimisation program. For more information on foreign exchange rates used refer to note 2 above.
7. ADMINISTRATIVE EXPENSES
| For the three months ended |
For the six months ended |
|||
| 1/4/15- 30/6/15 |
1/4/14- 30/6/14 |
1/1/15- 30/6/15 |
1/1/14- 30/6/14 |
|
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
| Consultancy fees | 182 | 431 | 363 | 986 |
| Legal fees | 94 | 251 | 258 | 422 |
| Auditors' remuneration | 220 | 254 | 286 | 406 |
| Valuation expenses | 32 | 37 | 67 | 65 |
| Directors' remuneration | 476 | 357 | 728 | 1,308 |
| Depreciation | 20 | 45 | 50 | 92 |
| Insurance | 45 | 71 | 97 | 140 |
| Provision for Doubtful Debts | (744) | (776) | (596) | 1,687 |
| Share option expense | 618 | 1,165 | 1,275 | 2,385 |
| Donations | 702 | 1,301 | 1,412 | 2,588 |
| Other administrative expense | 569 | 510 | 988 | 971 |
| 2,214 | 3,646 | 4,928 | 11,050 |
8. other expenses
| For the three months ended |
For the six months ended |
|||
| 1/4/15- 30/6/15 |
1/4/14- 30/6/14 |
1/1/15- 30/6/15 |
1/1/14- 30/6/14 |
|
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
| Prior year's VAT non recoverable | 6 | (109) | 11 | 600 |
| Sundries | 616 | 55 | 1,008 | 1,607 |
| Legal claim accrual | - | 717 | - | 717 |
| 622 | 663 | 1,019 | 2,924 |
9. FINANCE COST AND FINANCE INCOME
| For the three months ended |
For the six months ended |
|||
| 1/4/15- 30/6/15 |
1/4/14- 30/6/14 |
1/1/15- 30/6/15 |
1/1/14- 30/6/14 |
|
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
| Interest income | 999 | 1,359 | 1,759 | 4,045 |
| Translation reserve reclassified upon disposal of subsidiary | - | - | 830 | - |
| Loans write off | 6 | - | 79 | - |
| Net foreign exchange gain | 19,949 | 22,876 | 2,922 | - |
| Net change in fair value of financial assets | 233 | 623 | 895 | 463 |
| Finance income | 21,187 | 24,858 | 6,485 | 4,508 |
| Interest expense on loans and borrowings | (11,999) | (14,084) | (23,246) | (27,934) |
| Net foreign exchange loss | - | - | - | (15,017) |
| Other finance costs | (102) | (103) | (186) | (937) |
| Finance costs | (12,101) | (14,187) | (23,432) | (43,888) |
| Net finance income/(costs) | 9,086 | 10,671 | (16,947) | (39,380) |
10. tAX (Benefit)/EXPENSE
| For the three months ended |
For the six months ended |
||||
| 1/4/15- 30/6/15 |
1/4/14- 30/6/14 |
1/1/15- 30/6/15 |
1/1/14- 30/6/14 |
||
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | ||
| Current tax expense | |||||
| Current year | 155 | 193 | 356 | 389 | |
| Adjustment for prior years | - | 49 | - | 105 | |
| 155 | 242 | 356 | 494 | ||
| Deferred tax (benefit)/expense | |||||
| Origination and reversal of temporary differences | (1,047) | (3,009) | (1,298) | 1,704 | |
| Total income tax (benefit)/expense | (892) | (2,767) | (942) | 2,198 | |
11. INVESTMENT PROPERTY
Reconciliation of carrying amount
| 30/6/15 | 31/12/14 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 1,375,416 | 1,609,800 |
| Reclassification to trading properties | - | (432) |
| Renovations/additional cost | 1,576 | 6,814 |
| Fair value adjustment | (31,554) | 110,782 |
| Effect of movement in foreign exchange rates | 6,462 | (351,548) |
| Balance 30 June / 31 December | 1,351,900 | 1,375,416 |
The increase due to the effect of the foreign exchange rates is a result of the strengthening of the Rouble compared to the US Dollar by 1.3%, during the first half of 2015.
The investment property was revalued by independent appraisers on 30 June 2015 with an overall decrease in the carrying amount of the properties of US$23.516 thousand. The fair value adjustment is mainly a result of the effect of the Russian economic conditions on the real estate market and partly relates to the Rouble strengthening offsetting the increase thereof.
12. INVESTMENT PROPERTY UNDER DEVELOPMENT
| 30/6/15 | 31/12/14 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 431,474 | 635,266 |
| Construction costs | 2,632 | 83,820 |
| Disposal | - | (1,400) |
| Fair value adjustment | (10,783) | (196,666) |
| Effect of movements in foreign exchange rates | 1,900 | (89,546) |
| Balance 30 June / 31 December | 425,223 | 431,474 |
The increase due to the effect of the foreign exchange rates is a result of the strengthening of the Rouble compared to the US Dollar by 1.3%, during the first half of 2015. The investment property under development was revalued by independent appraisers on 30 June 2015 showing an overall decrease in the carrying amount of US$6,251 thousand. The fair value adjustment is mainly a result of the effect of the Russian economic conditions on the real estate market and partly relates to the Rouble strengthening offsetting the increase thereof.
13. PROPERTY, PLANT AND EQUIPMENT
| 30/6/15 | 31/12/14 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 35,101 | 69,735 |
| Additions | 20 | 593 |
| Depreciation for the period / year | (493) | (1,595) |
| Disposals | (1) | (98) |
| Effect of movements in foreign exchange rates | 461 | (33,534) |
| Balance 30 June / 31 December | 35,088 | 35,101 |
14. TRADING PROPERTIES
| 30/6/15 | 31/12/14 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 2,979 | 6,409 |
| Reclassification from investment property | - | 432 |
| Disposals | (635) | (1,632) |
| Effect of movements in exchange rates | 226 | (2,230) |
| Balance 30 June / 31 December | 2,570 | 2,979 |
Trading properties comprise unsold apartments and parking places.
15. TRADING PROPERTIES UNDER CONSTRUCTION
| 30/6/15 | 31/12/14 | |
| US$ '000 | US$ '000 | |
| Balance 1 January | 133,036 | 127,213 |
| Construction costs | 9,823 | 35,874 |
| Effect of movements in exchange rates | 994 | (30,051) |
| Balance 30 June / 31 December | 143,853 | 133,036 |
Trading properties under construction comprise "Odinburg" project which involves primarily the construction of residential properties.
16. OTHER INVESTMENTS
The increase in other investments is due to the investment in a $20 million portfolio of marketable securities using partly own funds and partly a loan from Bank Julius Baer & Co Ltd. For further details of the loan refer to note 20.
17. TRADE AND OTHER RECEIVABLES
| 30/6/15 | 31/12/14 | |
| US$ '000 | US$ '000 | |
| Advances to builders | 29,438 | 20,200 |
| Amounts receivable from related parties (note 26) | 310 | 387 |
| Trade receivables net | 4,271 | 6,014 |
| Other receivables | 4,136 | 3,540 |
| VAT recoverable | 1,602 | 7,141 |
| Tax receivables | 3,896 | 1,679 |
| 43,653 | 38,961 |
Trade receivables net
Trade receivables are presented net of an accumulated provision for doubtful debts of US$10,042 thousand (2014: US$12,753 thousand).
18. CASH AND CASH EQUIVALENTS
| 30/6/15 | 31/12/14 | |
| Cash and cash equivalents consist of: | US$ '000 | US$ '000 |
| Cash at banks | 51,389 | 86,504 |
| Cash in hand | 189 | 252 |
| 51,578 | 86,756 |
19. SHARE CAPITAL AND RESERVES
| 30/6/15 | 31/12/14 | |
| 1 Share capital | US$ '000 | US$ '000 |
| Authorised | ||
| 2,000,000,000 shares of US$0.001 each | 2,000 | 2,000 |
| Issued and fully paid | ||
| 523,847,027 A shares of US$0.001 each 523,847,027 B shares of US$0.001 each |
524 524 |
524 524 |
| 1,048 | 1,048 |
2 Employee Share option plan
There were no changes as to the employee share option plan during the six-month period ended 30 June 2015, apart from the fact that tranche 2 of the option has now vested in relation to 5,063,854 B shares of the Company.
3 Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations to the Group presentation currency and the foreign exchange differences on loans designated as loans to an investee company which are accounted for as part of the investor's investment (IAS21.15) as their repayment is not planned or likely to occur in the foreseeable future. These foreign exchange differences are recognised directly to Translation Reserve.
4 Retained earnings
The amount at each reporting date is available for distribution. No dividends were proposed, declared or paid during the six-month period ended 30 June 2015.
20. LOANS AND BORROWINGS
| 30/6/15 | 31/12/14 | |
| US$ '000 | US$ '000 | |
| Non-current liabilities | ||
| Secured bank loans | 629,702 | 455,097 |
| Current liabilities | ||
| Secured bank loans | 45,798 | 231,297 |
| Unsecured loans from other non-related companies | 312 | 387 |
| 46,110 | 231,684 |
The changes to the loans during the six-month period ended 30 June 2015 were the following:
The two year loan from VTB Bank which was received on 25 January 2013, with a maturity on 24 January 2015, by the Group's subsidiary Krown Investments LLC ("Krown") was reclassified to non-current liabilities. In January 2015, prior to maturity, the subsidiary signed an addendum to the loan facility agreement with VTB Bank OJSC ("the Bank), extending the term of the loan to 26 January 2018. In addition to extending the term of the loan, the new addendum amended the payment schedule, interest rate conditions and introduced new covenants. The payment schedule anticipates repayments of the principal starting from the 4th quarter of 2015, while the new covenants include a "Debt Service Coverage Ratio" of 1.2 also applicable as from the 4th quarter of 2015 and a "Loan to Value ratio" of 65% applicable from January 2015. In line with the addendum, on 26th January 2015 Krown paid US$10 million to the Bank, being a partial repayment of the outstanding loan amount, thus reducing the total to US$195 million. Approximately 90% of the principal is to be paid at maturity.
Taking into account the current market situation, the Company estimates that may not be in a position to meet DSCR covenant in the 4th quarter 2015. Under the agreement in case of breach of LTV and DSCR Covenants the Borrower shall repay the Principal Debt in the amount sufficient to reach the necessary Covenants not later than 90 calendar days from the Date the claim of the Bank had been submitted.
Based on recent independent valuation of the Ozerkovskaya III project, there is a risk that the borrower, Krown Investments LLC, will not meet the Loan-To-Value covenant and the lender, VTB Bank JSC, may require a partial repayment of the loan to reduce the outstanding loan amount. Based on this, the Company reclassified approximately US$4 million from non-current to current liabilities.
Company is now in advance negotiations with the bank for an additional grace period for covenants completion.
During the period, a subsidiary of the Group, AFID Finance S.A., obtained a short-term loan facility from Bank Julius Baer & Co Ltd, for an amount of US$10 million. The loan was used for the acquisition of marketable securities through an investment account with the same bank. The interest rate is equal to the bank refinancing rate plus 0.75% p.a. and the loan is repayable on demand. The loan is guaranteed with the portfolio of assets managed by the bank.
21. TRADE AND OTHER PAYABLES
| 30/6/15 | 31/12/14 | |
| US$ '000 | US$ '000 | |
| Trade payables | 7,609 | 8,654 |
| Payables to related parties (note 26) | 759 | 2,264 |
| Amount payable to builders | 6,982 | 7,626 |
| VAT and other taxes payable | 5,072 | 7,373 |
| Other payables | 2,732 | 2,299 |
| 23,154 | 28,216 |
Payables to related parties
Include an amount of US$29 thousand (31/12/14: US$1,465 thousand) payable to Danya Cebus Rus LLC, related party of the Group, for contracts signed in relation to the construction of Group's project.
22. ADVANCES FROM CUSTOMERS
The Group has continued its pre-sale in "Odinburg" residential project. During the period the Group has sold 141 properties and received additional down payments from customers.
23. FINANCIAL INSTRUMENTS
Carrying amounts and fair values
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels and the fair value hierarchy for financial instruments measured at fair value. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
| Carrying amount | Fair value | |||||||||
| Non-current assets | Current assets | |||||||||
| Loans Receivable |
Trade and other receivables |
Other investments, Including derivatives |
Cash and cash equivalents |
Loans receivable |
Total | Level 1 | Level 2 | Level 3 | Total | |
| 30 June 2015 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 |
| Financial assets measured at fair value | ||||||||||
| Investment in listed debt securities | - | - | 27,050 | - | - | - | 27,050 | - | - | 27,050 |
| Financial assets not measured at fair value | ||||||||||
| Loans receivable | 15,821 | - | - | - | 128 | 15,949 | ||||
| Trade and other receivables | - | 38,155 | - | - | - | 38,155 | ||||
| Cash and cash equivalents | - | - | - | 51,578 | - | 51,578 | ||||
| 15,821 | 38,155 | 27,050 | 51,578 | 128 | ||||||
| 31 December 2014 | ||||||||||
| Financial assets measured at fair value | ||||||||||
| Investment in listed debt securities | - | - | 6,499 | - | - | 6,499 | 6,499 | - | - | 6,499 |
| Financial assets not measured at fair value | ||||||||||
| Loans receivable | 18,071 | - | - | - | 1 | 18,072 | ||||
| Trade and other receivables | - | 30,141 | - | - | - | 30,141 | ||||
| Cash and cash equivalents | - | - | - | 86,756 | - | 86,756 | ||||
| 18,071 | 30,141 | 6,499 | 86,756 | 1 | 141,468 |
| Carrying amount | Fair value | |||||||
| Non-current liabilities | Current liabilities | |||||||
| Interest bearing loans and borrowings |
Trade and other payables |
Interest bearing loans and borrowings | Total | Level 1 | Level 2 | Level 3 | Total | |
| 30June 2015 | US$'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 |
(629,702) | - | (46,110) | (675,812) | (716,982) | |||
| Trade and other payables |
- | (18,082) | - | (18,082) | ||||
| (629,702) | (18,082) | (46,110) | (693,894) | |||||
| 31 December 2014 | ||||||||
| Financial liabilities not measured at fair value |
||||||||
| Interest bearing loans and borrowings |
(455,097) | - | (231,684) | (686,781) | (735,004) | |||
| Trade and other payables |
- | (20,843) | - | (20,843) | ||||
| (455,097) | (20,843) | (231,684) | (707,624) |
24. CONTINGENCIES
There weren't any contingent liabilities as at 30 June 2015.
25. 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 2014.
Russian business and economic environment
The Group's operations are primarily located in the Russian Federation. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation.
The Russian economy continued to be in a state of stagnation. The economic growth rate showed a 4.6% decrease in the second quarter of 2015 compared to a decrease of 2.2% in the first quarter of 2015. International sanctions and oil prices continue to affect the economy with a predicted growth between minus 2.5% to 3.8% for 2015 fiscal year. The rouble impaired between end of June and August 2015 more than circa 17% percent reaching the 64 rouble to a dollar mark in mid-August.
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.
26. RELATED PARTIES
| 30/6/15 | 31/12/14 | |
| (i) Outstanding balances with related parties | US$ '000 | US$ '000 |
| Assets | ||
| Amounts receivable from joint ventures | 12 | 20 |
| Amounts receivable from ultimate holding company | 203 | 203 |
| Amounts receivable from other related companies | 95 | 164 |
| Long term loans receivable from joint ventures | 15,711 | 17,962 |
| Short term loan receivable from joint venture | 127 | - |
| Liabilities | ||
| Amounts payable to joint ventures | 8 | 131 |
| Amounts payable to ultimate holding company | 492 | 433 |
| Amounts payable to other related companies | 259 | 1,700 |
| Deferred income from related company | 164 | 156 |
| (ii) Transactions with the key management personnel | 1/1/15- 30/6/15 |
1/1/14- 30/6/14 |
| US$ '000 | US$ '000 | |
| Key management personnel compensation Short-term employee benefits |
1,532 | 3,461 |
| Share option scheme expense | 1,275 | 2,385 |
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 | 1/1/15- 30/6/15 |
1/1/14- 30/6/14 |
| US$ '000 | US$ '000 | |
| Revenue | ||
| Related companies - rental income | 458 | 812 |
| Joint venture - consulting services | 77 | - |
| Joint venture - interest income | 725 | 1,027 |
| Expenses | ||
| Ultimate holding company - operating expenses | 172 | 221 |
| Joint venture - operating expenses | 31 | 86 |
| (iv) Other related party transactions | 1/1/15- 30/6/15 |
1/1/14- 30/6/14 |
| US$ '000 | US$ '000 | |
| Construction services capitalised or recognised in advances to builders |
||
| Related company - construction services | 935 | 610 |
27. SUBSEQUENT EVENTS
There were no events that took place after 30 June 2015 and up to the date of approval of these interim financial statements apart from the following:
· On 19 August 2015 the Company acquired remaining 10% share in Bioka Investments Limited, company holding development rights in the Botanic Garden project, and became 100% owner of the project. Total consideration of the transaction amounted to US$1.6 million.
[1] The project portfolio includes 50% owned joint ventures, which are accounted for by equity method
[2] Valuation figures represent Company's share (74%)
[3] Valuation figures represent Company's share (99.17%)
[4] Valuation figures represent Company's share (95%)
[5] Valuation figures represent Company's share (99.17%)
[6] Valuation figures represent Company's share (90%)
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR USSVRVWAWUAR
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