Annual Report • Jul 17, 2017
Annual Report
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For the year ended 31 December 2016
| Page | |
|---|---|
| Board of Directors and other officers | |
| Declaration of the Members of the Board of Directors and the Company official responsible for the drafting of the consolidated financial statements |
$\overline{2}$ |
| Management Report | $3 - 8$ |
| Independent Auditors' report | $9 - 13$ |
| Consolidated statement of profit or loss and other comprehensive income | 14 |
| Consolidated statement of financial position | 15 |
| Consolidated statement of changes in equity | $16 - 17$ |
| Consolidated statement of cash flows | 18 |
| Notes to the consolidated financial statements | 19 - 67 |
| Board of Directors | Konstiantyn Molodkovets - Executive Director, CEO |
|---|---|
| Denys Molodkovets - Executive Director, CFO | |
| Konstantin Anisimov - Non-Executive Director (resigned on 25 August 2015) |
|
| Mykhailo Chubai - Non-Executive Director (resigned on 25 August 2015) |
|
| Audit Committee | Denys Molodkovets - Head of Committee (appointed on 25 August 2015) |
| Konstiantyn Molodkovets (appointed on 25 August 2015) |
|
| Konstantin Anisimov - Head of Committee (resigned on 25 August 2015) |
|
| Mykhailo Chubai (resigned on 25 August 2015) |
|
| Remuneration Committee | Konstiantyn Molodkovets - Head of Committee (appointed on 25 August 2015) |
| Denys Molodkovets (appointed on 25 August 2015) |
|
| Mykhailo Chubai - Head of Committee (resigned on 25 August 2015) |
|
| Konstantin Anisimov (resigned on 25 August 2015) |
|
| Secretary | Boomer Secretarial Limited 3 Michael Koutsofta Str. 3031, Limassol Cyprus |
| Independent Auditors | KPMG Limited |
| Registered Office | 3 Michael Koutsofta Str. 3031, Limassol Cyprus |
In accordance with article 9(3)(c) and (7) of the Transparency Requirements (Securities Listed for Trading on a Regulated Market) Law of 2007 (the "Law"), as amended from time to time, we, the Members of the Board of Directors and the Company official responsible for the drafting of the consolidated financial statements of KDM Shipping Public Limited (the "Company") for the year ended 31 December 2016, confirm that to the best of our knowledge:
a) the annual consolidated financial statements presented on pages 14 to 67:
Members of the Board of Directors:
| Konstiantyn Molodkovets | |
|---|---|
| Denys Molodkovets |
Company official responsible for the drafting of the consolidated financial statements of the Company for the year ended 31 December 2016:
Denys Molodkovets
Nicosia, 14 July 2017
The Board of Directors of KDM Shipping Public Limited (the "Company") presents to the members its annual report together with the audited consolidated financial statements of the Company and of its subsidiary companies (together with the Company referred to as the "Group") for the year ended 31 December 2016
During 2016, the Group has discontinued its passenger transportation segment. Other principal activities of the Group remained the same as in the previous year, and are cargo freight, ship repair and trading in grain, corn, oil and barley.
Changes in Group structure related to discontinuation of the passenger transportation segment and new acquisitions are described in notes 5 and 16 to the consolidated financial statements respectively.
The financial results of the Group for the year ended 31 December 2016 are set out on page 14 to the consolidated financial statements. Loss for the year attributable to owners of the Company amounted to USD 8 199 thousand (2015: loss USD 5 839 thousand) which the Board of Directors recommends to be transferred to retained earnings.
Current financial position as presented in the consolidated financial statements is not considered satisfactory and the Board of Directors is making an effort to reduce the Company losses.
Ship Repair department is still experiencing a low demand for its services from third parties. The order pool is suffering as a result of low utilization of the shipyard having effect on the performance. Gross loss for the segment amounted to USD 171 thousand (2015: loss USD 239 thousand).
Passenger segment remained highly dependent on economic situation in Ukraine, disposable income of Ukrainians and tourist inflow. As a result, management has discontinued the passenger transportation segment in August 2016.
Freight segment had continued exhibiting an overall weak performance as last year. Freight tariffs remain low, management is continuing their efforts on cutting the segment's operational costs. Gross loss for the segment amounted to USD 1 681 thousand (2015: USD 180 thousand).
The Group's revenue for the year ended 31 December 2016 amounted to USD 26 096 thousand (2015: USD 20 629 thousand)
The Board of Directors does not recommend the payment of a dividend and the net profit for the year is retained.
The main risks and uncertainties faced by the Group and the steps taken to manage these risks, are described in note 27 to the consolidated financial statements.
Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the reporting date. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history and monitors on a continuous basis the ageing profile of its receivables.
Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. Management monitors the current liquidity position of the Group based on expected cash flows and expected revenue receipts.
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group's management monitors the interest rate fluctuations on a continuous basis and acts accordingly.
The ongoing political and economic instability in Ukraine which commenced at the end of 2013 and led to a deterioration of state finances, volatility of financial markets, illiquidity on capital markets, higher inflation and devaluation of the national currency against major foreign currencies has continued in 2016, though to a lesser extent as compared to 2014 and 2015.
Inflation rate in Ukraine during 2016 reduced to 12% (as compared to 43% in 2015), while GDP returned to growth of 1% (after 9% decline in 2015). Devaluation of Ukrainian Hryvnia during 2016 has been moderate. In 2016 the National Bank of Ukraine ("NBU") has made certain steps to ease the currency control restrictions introduced in 2014 and 2015. Current restrictions are effective until rescinded by the NBU. The banking system remains fragile due to its weak level of capital, low asset quality caused by the economic situation, national currency devaluation, changing regulations and other factors.
The final resolution and the effects of the political and economic crisis are difficult to predict but may have further severe effects on the Ukrainian economy.
The uncertain economic conditions in Ukraine have affected the cash flow forecasts of the Group's management in relation to the impairment assessment for financial and non-financial assets. The Group's management has assessed whether any impairment provisions are deemed necessary for the Group's financial assets carried at amortised cost by considering the economic situation and outlook at the end of the reporting period.
Although, Group's management considers that all necessary actions are being performed to maintain financial stability of the Group in current situation, continuation of crisis may adversely affect results and financial position of the Group, but it is currently impossible to estimate the effect. These consolidated financial statements reflect current management estimation of Ukrainian business environment influence on the financial position of the Group. Situation development may differ from management expectations. These financial statements were not adjusted to reflect events after the reporting period.
In this difficult market, it is Management's belief that its main objective is to maintain good working relationship with all of the partners and keep strong position in cargo transportation market and agriculture commodity trading. Additional attention should be paid to new charterers that are appearing on the market of Group's geography of operations.
There were no changes in the share capital of the Company during the year.
The Board of Directors has adopted the Code of Corporate Governance (the "Code") of the Warsaw Stock Exchange ("WSE") which is available in the WSE website.
At present, the Corporate Governance Code is not fully implemented. There are specific provisions of the Code which cannot be adopted since they are either contrary to and/or do not accord with the provisions of the Articles of Association of the Company. The Board of Directors will endeavour to remedy these as soon as practicable.
The Company is governed by the Board of Directors. Companies formed under the Cyprus Companies Law, Cap. 113, do not have supervisory board and management board. Cyprus companies have a Board of Directors, members of which are appointed to fill certain executive and non-executive positions. The management of the business and the conduct of the affairs of the Company are vested in the Board of Directors. The Board of Directors used to be comprised by four members, two of which were nonindependent and the remaining two were independent. This is in compliance with the provisions of the Articles of Association of the Company, which requires that the Board of Directors comprise by at least two Directors, two of which shall be independent.
Directors are appointed at general meetings. There is no requirement in the Articles of Association for the retirement of Directors by rotation, thus all Directors continue in office, unless they resign or following an ordinary resolution from the Company shareholders.
The Company has an Audit Committee and a Remuneration Committee. Analysis of their responsibilities is disclosed separately in this report.
The emoluments and other benefits of Directors of the Company are presented below:
| Emoluments | Other benefits | Total | |
|---|---|---|---|
| USD | USD | USD | |
| Konstiantyn Molodkovets | 15 000 | $\bullet$ | 15 000 |
| Denys Molodkovets | 13 000 | $\qquad \qquad$ | 13 000 |
The interest in the Company's share capital held directly or indirectly by each member of the Board of Directors at 31 December 2016 and at 9 July 2017 (5 days before the date of approval of the consolidated financial statements by the Board of Directors) are disclosed separately in this report.
The shareholders/(owners) holding directly or indirectly more than 5% interest in the Company's share capital at 31 December 2016 and at 9 July 2017 (5 days before the date of approval of the consolidated financial statements by the Board of Directors) are disclosed separately in this report.
There are currently no shares in issue holding special or limited rights.
The Board of Directors can proceed with the issue of shares following an ordinary resolution from the Company shareholders. For the repurchase of the Company shares a special resolution from the Company's shareholders is required, in accordance with the provisions of Section 57 of Cyprus Companies Law.
The Report on Corporate Governance has been prepared in accordance with the provisions of the Code and includes the above-mentioned explanations, as well as the information required by the relevant Article of the Directive.
The shareholders holding directly or indirectly more than 5% interest in the Company's share capital at 31 December 2016 and at 9 July 2017 (5 days before the date of approval of the consolidated financial statements by the Board of Directors) were as follows:
| 31 December 2016 | 10 July 2017 | |
|---|---|---|
| $\frac{6}{6}$ | $\frac{0}{n}$ | |
| Konstiantyn Molodkovets | 54.86 | 54,86 |
| Denys Molodkovets | 12.88 | 12.88 |
In accordance with Article 4(b) of the Cyprus Securities and Exchange Commission Directive the interest in the Company's share capital held directly or indirectly by each member of the Board of Directors at 31 December 2016 and at 9 July 2017 (5 days before the date of approval of the consolidated financial statements by the Board of Directors) were as follows:
| 31 December 2016 | 10 July 2017 | |
|---|---|---|
| $\mathbf{v}_{\alpha}$ | $\frac{0}{n}$ | |
| Konstiantyn Molodkovets | 54,86 | 54.86 |
| Denys Molodkovets | 12.88 | 12.88 |
During the year ended 31 December 2016 the Group did not operate any branches.
The members of the Board of Directors as at 31 December 2016 and at the date of this report are presented on page 1.
In accordance with the Company's Articles of Association all directors presently members of the Board continue in office.
There were no significant changes in the assignment of responsibilities and remuneration of the Board of Directors.
The Directors are responsible for formulating, reviewing and approving the Company's and its subsidiary companies' strategies, budgets, certain items of capital expenditures and senior personnel appointments. Being a Company listed on the main market of Warsaw Stock Exchange, the Directors have established audit and remuneration committees to improve corporate governance.
The Directors are responsible for formulating, reviewing and approving the Company's and its subsidiary companies' strategies, budgets, certain items of capital expenditures and senior personnel appointments. Being a company listed on the Warsaw Stock Exchange, the Directors have established audit and remuneration committees to improve corporate governance.
The Audit Committee assists the Company's Board of Directors in discharging its responsibilities with regard to financial reporting, external and internal audits and controls, including reviewing the annual consolidated financial statements, reviewing and monitoring the extent of the non-audit work undertaken by external auditors, advising on the appointment of external auditors and reviewing the effectiveness of the internal audit activities, internal controls and risk management systems. The ultimate responsibility for reviewing and approving the annual consolidated financial statements and the half yearly financial statements remains with the Board of Directors.
The Remuneration Committee assists the Board of Directors in discharging its responsibilities in relation to remuneration, including making recommendations to the Board of Directors and/or the general meeting of the shareholders of the Company on the policy on executive remuneration, determining the individual remuneration and benefits package of each of the Executive Directors and recommending and monitoring the remuneration of senior management below Board level.
The events that occurred after the reporting period are described in note 30 to the consolidated financial statements.
Disclosed in note 26 to the consolidated financial statements.
The independent auditors of the Company, KPMG Limited, have expressed their willingness to continue in office. A resolution giving authority to the Board of Directors to reappoint them and to fix their remuneration will be submitted at the forthcoming Annual General Meeting.
By order of the Board of Directors.
Boomer Secretarial Limited Secretary
Nicosia, 14 July 2017
KPMG Limited Chartered Accountants 14 Esperidon Street, 1087 Nicosia, Cyprus P.O. Box 21121, 1502 Nicosia, Cyprus T: +357 22 209000, F: +357 22 678200
We have audited the accompanying consolidated financial statements of KDM Shipping Public Limited (the "Company") and its subsidiaries (the "Group"), which are presented on pages 14 to 67, and comprise the consolidated statement of financial position as at 31 December 2016, and the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Company as at 31 December 2016, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS-EU) and the requirements of the Cyprus Companies Law, Cap. 113, as amended from time to time (the "Companies" Law, Cap. 113").
We conducted our audit in accordance with International Standards on Auditing ("ISAs"). Our responsibilities under those standards are further described in the "Auditors' responsibilities for the audit of the consolidated financial statements" section of our report. We are independent of the Company in accordance with the Code of Ethics for Professional Accountants of the International Ethics Standards Board for Accountants ("IESBA Code"), and the ethical requirements in Cyprus that are relevant to our audit of the consolidated financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
N.G. Sysmis A.K. Christofides P.G. Leizou, A.M. Gregoriades, D.S. Vakis, A.A. Apostologi NO Systems AN Universidence PG Locou AM Gregorades, D.S. Vakis A.A. Apostolou, S.A. Locates M.A. Locates, S.G. Soforcious M.M. Antonados C.V. Vasitiour, P.E. Antonians S.A. (1990), A.A. Shammouts G.N. A. Shammouts G.N. Tra
KIFMG Tell full a private cliningthy initial by shares rug stered unitiating the regist at this investment in the regist at the company of the state of the company of the state of the company of the state of the state of t
Eimassol
P.O. Box 50161-3601 $T_35725869000$
F $35725363842$
Larnaca
P.O. Box 40075-6300
T. +357-24 200000 $F + 357.24.200200$
Paralimn / Ayia Napa
P O Box 33200 5311 $T_35723820080$
F $35723820084$
Polis Chrysochori
P.O. Box 66014-8330 $+35776322003$
F +35726322722
$\Omega$
We draw attention to notes $2(d)$ , $2(f)$ and 29 to the consolidated financial statements, which describe the political and social unrest and regional tensions in Ukraine. The impact of the events referred to in notes $2(d)$ , $2(f)$ and 29 about the continuing economic and political crisis in Ukraine and their final resolution cannot be determined and may adversely affect the Ukrainian economy and the operations of the Group and its ability to meet its obligations as they fall due. Our opinion is not qualified in respect of this matter.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Refer to Note 4 (operating segments) and Note 15 (vessels, property, plant and equipment) to the consolidated financial statements.
| The key audit matter | How the matter was addressed in our audit |
|---|---|
The deterioration of the Group's operations and performance during the last few years and the carrying amount of the Group's net assets being greater than its market capitalization point out to an increased risk of recoverability of the carrying amount of its vessels.
The management of the Group has reviewed the impairment indicators and assessed its vessels for potential impairment by engaging an external valuator to determine the fair value of the vessels who has used a value-in-use model. In determining the value-in use, the expected future cash flows to be generated by each vessel were discounted to their present value.
We have determined the impairment of vessels to be a key audit matter due to its significance to the consolidated financial statements and the inherent uncertainty, and subjectivity involved in forecasting and discounting future cash flows, which are the basis of the assessment of recoverability.
Our audit approach in this area included, among others:
The Board of Directors is responsible for the other information. The other information comprises the information included in the Management Report, but does not include the consolidated financial statements and our auditors' report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon, except as required by the Companies Law, Cap.113.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. Our report in this regard is presented in the "Report on other legal requirements" section.
The Board of Directors is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with IFRS-EU and the requirements of the Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless there is an intention to either liquidate the Company or to cease operations, or there is no realistic alternative but to do so.
The Board of Directors is responsible for overseeing the Group's financial reporting process.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates $\bullet$ and related disclosures made by the Board of Directors.
Conclude on the appropriateness of the Board of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Group to cease to continue as a going concern.
We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Pursuant to the additional requirements of the Auditors' Law of 2017, L.53(I)/2017, as amended from time to time ("Law L.53(I)/2017"), we report the following:
This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Section 69 of the Law L.53(I)/2017, as amended from time to time and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to.
The engagement partner on the audit resulting in this independent auditors' report is Maria A. Papacosta.
Maria A. Papacosta, FCCA 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
14 July 2017
| Note | 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|---|
| Continuing operations | |||
| Revenue | 6 | 26 0 96 | 20 629 |
| Cost of sales | $\overline{7}$ | (27291) | (20 477) |
| Gross (loss)/profit | (1195) | 152 | |
| Other operating income | 47 | 46 | |
| Selling and distribution expenses | 9 | (49) | (227) |
| Administrative expenses | 8 | (636) | (456) |
| Other operating expenses | 10 | (4813) | (4243) |
| Loss from operating activities | 11 | (6646) | (4728) |
| Finance income | 13 | 5 | 1 |
| Finance costs | 13 | (68) | (10) |
| Net finance expenses | (63) | (9) | |
| Loss before taxation | (6709) | (4737) | |
| Taxation | 14 | 39 | (313) |
| Loss from continuing operations | (6 670) | (5050) | |
| Discontinued operation | |||
| Loss from discontinued operation, net of tax | 5 | (1, 524) | (790) |
| Loss for the year | (8194) | (5840) | |
| Other comprehensive income | |||
| Items that are or may be reclassified subsequently to profit or loss | |||
| Effect from translation into presentation currency | (1877) | (571) | |
| Total comprehensive income for the year | (10 071) | (6411) | |
| Loss for the year attributable to: | |||
| Owners of the Company | (8199) | (5839) | |
| Non-controlling interests | 5 | (1) | |
| (8194) | (5840) | ||
| Total comprehensive income attributable to: | |||
| Owners of the Company | (9138) | (6380) | |
| Non-controlling interests | (933) | (31) | |
| (10 071) | (6.411) | ||
| Loss per share | |||
| Basic and fully diluted loss per share (USD) | 25 | (0.88) | (0,63) |
| Loss per share – Continuing operations | |||
| Basic and fully diluted loss per share (USD) | 25 | (0, 72) | (0, 54) |
The notes on pages 19 to 67 are an integral part of these consolidated financial statements.
| Note | 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|---|
| Assets | |||
| Vessels, property, plant and equipment | 15 | 8957 | 15 9 59 |
| Non-current assets | 8957 | 15 9 59 | |
| Inventories | 17 | 76 | 4 1 9 7 |
| Trade and other receivables | 18 | 6036 | 5972 |
| Cash and cash equivalents | 19 | 23 490 | 19 864 |
| Current assets | 29 602 | 30 033 | |
| Total assets | 38 559 | 45992 | |
| Equity | |||
| Share capital | 20 | 118 | 118 |
| Share premium | 23 570 | 23 570 | |
| Retained earnings | 25 655 | 33 854 | |
| Foreign currency translation reserve | (18419) | (17480) | |
| Equity attributable to owners of the Company | 30 924 | 40 062 | |
| Non-controlling interests | (902) | 31 | |
| Total equity | 30 022 | 40 093 | |
| Liabilities | |||
| Deferred tax liabilities | 22 | 485 | 604 |
| Other long-term liabilities | 24 | 39 | 71 |
| Non-current liabilities | 524 | 675 | |
| Loans and borrowings | 21 | 4 1 4 6 | 4 0 0 0 |
| Short-term notes | 29 | 38 | |
| Trade and other payables | 23 | 3838 | 1 1 8 6 |
| Current liabilities | 8013 | 5 2 2 4 | |
| Total liabilities | 8537 | 5899 | |
| Total equity and liabilities | 38 559 | 45992 |
On 14 July 2017, the Board of Directors of KDM Shipping Public Limited approyed and authorised for issue these consolidated financial statements.
Konstiantyn Molodkovets Director, CEO
Denys Molodkovets Director, CFO
The notes on pages 19 to 67 are an integral part of these consolidated financial statements.
| For the year ended 31 December 2016 | |||||||
|---|---|---|---|---|---|---|---|
| Attributable to owners of the Company | |||||||
| Share capital | premium Share |
translation currency Foreign reserve |
Retained earnings |
Total | controlling interests Non- |
equity Total |
|
| 000, GSD | 000. dSD | USD'000 | 000.GSD | USD'000 | 000.dSD | DO0.GSD | |
| Balance at 1 January 2015 | 18 | 23570 | (16939) | 39 693 | 46442 | 62 | 46504 |
| Effect from translation into presentation currency Comprehensive income Loss for the year |
(541) | (5839) | (5839) (541) |
$\Xi$ 3 | (5840) (571 |
||
| Total comprehensive expense | ٠ | (541) | (5839) | (6380) | $\Xi$ | (6411) | |
| Balance at 31 December 2015 | 역 | 23.570 | (17.480) | 33854 | 40.062 | न्न | 40.093 |
| Balance at 1 January 2016 | 118 | 23570 | (17480) | 33854 | 40062 | 51 | 40093 |
| Effect from translation into presentation currency Comprehensive income Loss for the year |
t | (939) | (8199) | (8199) (939) |
in (938) |
(8194) (187) |
|
| Total comprehensive expense | U. | ٠ | (939) | (8199) | (9138) | (933) | 10 071) |
| Balance at 31 December 2016 | 역 | 23.570 | 118419) | 25.655 | 30924 | $\frac{1902}{2}$ | 30.022 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
KDM SHIPPING PUBLIC LIMITED
| ł | ||
|---|---|---|
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The above requirements of the Law are not applied in the case of the Company due to the fact that its owners are not residents in Cyprus for tax purposes.
| Note | 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|---|
| Cash flows from operating activities | |||
| Loss for the year | (8194) | (5840) | |
| Adjustments for: | |||
| Depreciation of vessels, property, plant and equipment | 15 | 1 1 4 6 | 1070 |
| Provision for impairment of receivables | 18 | 647 | 2 739 |
| VAT write-off | 1 | 12 | |
| Loss on disposal of vessels, property, plant and equipment | 10 ° | 119 | |
| Loss from discontinued operations | 5 | 1 5 2 4 | (790) |
| Payables written-off | (37) | ||
| Impairment of inventory | 589 | ||
| Impairment of vessels, property, plant and equipment | 15 | 3 2 7 2 | |
| Interest income | (5) | (1) | |
| Discount of notes issued | 13 | 68 | 10 |
| Income tax expense | 14 | (39) | 159 |
| Foreign exchange differences | 552 | 1453 | |
| Cash flows used in operations before working capital changes | (1028) | (517) | |
| Decrease in inventories | 4 1 2 1 | 2639 | |
| Increase in trade and other receivables | (1461) | (2090) | |
| Increase in trade and other payables | 2652 | 177 | |
| Cash flows from operations | 4 2 8 4 | 209 | |
| Tax paid | |||
| Net cash flows from operating activities | 4 2 8 4 | 209 | |
| Cash flows from investing activities | |||
| Payment for acquisition of vessels, property, plant and equipment | 15 | (49) | (1299) |
| Proceeds from disposal of vessels, property, plant and equipment | 1700 | ||
| Disposal of discontinued operation | (52) | (4) | |
| Interest received | 1 | ||
| Net cash flows (used in)/from investing activities | (100) | 398 | |
| Cash flows from financing activities | |||
| Proceeds from non-bank loans | 537 | ||
| Repayment of non-bank loans | (391) | ||
| Net cash flows from financing activities | 146 | ||
| Net increase in cash and cash equivalents | 4330 | 607 | |
| Cash and cash equivalents at the beginning of the year | 19 864 | 18833 | |
| Effect from translation into presentation currency | (704) | 424 | |
| Cash and cash equivalents at the end of the year | 19 | 23 490 | 19.864 |
KDM Shipping Public Limited (the "Company") was incorporated in Cyprus on 2 December 1999 as a private limited liability company under the Cyprus Companies Law, Cap. 113. Its Registered Office is at 3 Michael Koutsofta Str., 3031, Limassol, Cyprus. The Company is currently listed on the main market of Warsaw Stock Exchange.
The Company was initially established under the name V.S. Marine Engineering Services Limited. On 21 December 2011, the Company was re-registered as a public limited company and changed its name to KDM Shipping Public Limited.
The consolidated financial statements for the year ended 31 December 2016 comprise the financial statements of the Company and its subsidiaries (together with the Company referred to as the "Group").
During 2016, the Group has discontinued its passenger transportation segment. Other principal activities of the Group remained the same as in the previous year, and are cargo freight, ship repair and trading in grain, corn, oil and barley.
The history of the Group began in 2001 with acquisition by the principal owner of River Sea type vessels for the purpose of cargo transportation in the region of Black, Azov and Mediterranean Seas. By using River Sea vessels low drought inland ports of Russia and Ukraine are easily accessible as well as any Sea port within the region of operations. Currently the Group's fleet of vessels is in private ownership. Entire fleet of vessels is in compliance with Ukrainian Maritime Registry of Shipping. The Group specializes in transportation of all general cargo such as: All Grain, SFSM, Scrap Metal, Pine Logs, Metals, Glass, Chemical Fertilizers.
From 2002 the Group's principal owner started investing into acquisition of Ship Repair Yard in Kherson region of Ukraine, and had full control by 2004. This was a strategic investment in reaching a vertically integrated shipping business. By this point in time the Group had its own crewing, technical maintenance and ship repair departments. The Yard specialized in the repair of middle tonnage fishing fleet, River Sea vessels, special purpose vessels, floating cranes, dredgers and tugs. This helped the Group not only to cut down on costs involved in repair of its own fleet of vessels as well as improving quality control but to get additional profitability from undertaking repair works for other ship owners.
The shipyard was heavily involved in improving its repair facilities and increasing productivity. Nevertheless, during this period management of the Group had undertaken a number of successful projects in segmental reporting in shipbuilding, ship modernization that generated additional revenue streams as well as reducing the risks for the entire Group.
The Group's subsidiaries, country of incorporation, their principal activities and effective ownership percentage are disclosed in note 16 to the consolidated financial statements.
On 9 August 2012, the shares of the Company were admitted on the regulated market of the Warsaw Stock Exchange. On 11 June 2013, following the second public offering 2 000 000 new shares subscribed at issue price of PLN 30 per share (note 20).
The parent company of the Group is KDM Shipping Public Limited, with an issued share capital of 9 296 000 ordinary shares with nominal value of EUR 0.01 per share. The shares were distributed as follows:
| 31 December 2016 | 31 December 2015 | |||
|---|---|---|---|---|
| Owner | Number of | Ownership | Number of | Ownership |
| shares | Interest | shares | Interest | |
| ℅ | $\%$ | |||
| Konstiantyn Molodkovets | 5 100 000 | 54,86 | 5 100 000 | 54,86 |
| (KM Management Limited) | ||||
| Denys Molodkovets | 1 197 321 | 12,88 | 1 197 321 | 12,88 |
| (Denhold Management Limited) | ||||
| Oleksyi Veselovskyy (1) | 200 000 | 2,15 | 200 000 | 2,15 |
| Konstantin Anisimov | ||||
| Liudmila Molodkovets | ۰ | |||
| Iurii Molodkovets | ||||
| Public | 2798676 | 30,11 | 2798676 | 30,11 |
| 9 296 000 | 100,00 | 9 296 000 | 100,00 |
(1) Since Mr. Veselovskyy passed away on 25 March 2012, these Shares in the Issuer constitute a part of estate to be transferred to heirs of Mr. Veselovskyy. The heir(s) will enter into possession of the Shares not earlier than after 6 months from the date of death, while the title to the shares will have passed to the relevant heir(s) as of the date of death.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law, Cap.113 and are for the year ended 31 December 2016.
The consolidated financial statements have been prepared under the historical cost convention.
As from 1 January 2016, the Group adopted all changes to International Financial Reporting Standards (IFRSs) which are relevant to its operations. This adoption did not have a material effect on the consolidated financial statements of the Company.
The following Standards, Amendments to Standards and Interpretations have been issued but are not yet effective for annual periods beginning on 1 January 2016. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these Standards early.
• IFRS 15 "Revenue from contracts with customers" (effective for annual periods beginning on or after 1 January 2018).
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programs. The Group does not expect the adoption of these amendments in future periods to have a material effect on its financial statements.
• IFRS 9 "Financial Instruments" (effective for annual periods beginning on or after 1 January 2018).
IFRS 9 replaces the existing guidance in IAS 39. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. The Group does not expect the adoption of these amendments in future periods to have a material effect on its financial statements.
• IAS 7 (Amendments) "Disclosure Initiative" (effective for annual accounting periods beginning on or after 1 January 2017).
The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and noncash changes.
The Group does not expect the adoption of this standard in future periods to have a material effect on its financial statements.
• IAS 12 (Amendments) "Recognition of Deferred Tax Assets for Unrealised Losses" (effective for annual accounting periods beginning on or after 1 January 2017).
The amendments clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value.
The Group does not expect the adoption of this standard in future periods to have a material effect on its financial statements.
• Annual Improvements to IFRSs 2014-2016 Cycle (effective for annual periods beginning on or after 1 January 2017 (IFRS 12) and 1 January 2018 (IFRS 1 and IAS 28)).
The annual improvements impact three standards. The amendments to IFRS 1 remove the outdated exemptions for first-time adopters of IFRS. The amendments to IFRS 12 clarify that the disclosure requirements for interest in other entities also apply to interests that are classified as held for sale or distribution. The amendments to IAS 28 clarify that the election to measure at fair value through profit or loss an investment in associate or a joint venture that is held by an entity that is a venture capital organisation, or other qualifying entity, is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition. The Group does not expect the adoption of these improvements in future periods to have a material effect on its financial statements.
• IFRS 2 (Amendments) "Classification and Measurement of Share-based Payment Transactions" (effective for annual periods beginning on or after 1 January 2018). The amendments cover three accounting areas: a) measurement of cash-settled share-based payments; b) classification of share-based payments settled net of tax withholdings; and c) accounting for a modification of a share-based payment from cash-settled to equity-settled. The new requirements could affect the classification and/or measurements of these arrangements - and potentially the timing and amount of expense recognised for new and outstanding awards. The Group does not expect the adoption of these amendments in future periods to have a material effect on its financial statements.
• IFRS 4 (Amendments) "Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts" (effective for annual periods beginning on or after 1 January 2018).
The amendments intend to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard (expected as IFRS 17). The amendments provide two options for entities that issue insurance contracts within the scope of IFRS 4: a) an option permitting entities to reclassify from profit or loss to other comprehensive income some of the income or expenses arising from designated financial assets (overlay approach) or b) an optional temporary exemption from applying IFRS 9 whose predominant activity is issuing contracts within the scope of IFRS 4 (deferral approach). The Group does not expect the adoption of these amendments in future periods to have a material effect on its financial statements.
• IFRS 15 (Clarifications) "Revenue from Contracts with Customers" (effective for annual periods beginning on or after 1 January 2018).
The amendments in Clarifications to IFRS 15 address three of the five topics identified i.e. identifying performance obligations, principal versus agent considerations, and licensing. The clarifications provide some transition relief for modified contracts and completed contracts. Additionally, the IASB concluded that it was not necessary to amend IFRS 15 with respect to the collectability or measuring non-cash consideration. The Group does not expect the adoption of this clarification in future periods to have a material effect on its financial statements.
Adoption of new and revised International Financial Reporting Standards and Interpretations (continued)
• IAS 40 (Amendments) "Transfers of Investment Property" (effective for annual periods beginning on or after 1 January 2018).
The amendments clarify when a company should transfer a property asset to, or from, investment property. A transfer is made when, and only when, there is an actual change in use i.e. an asset meets or ceases to meet the definition of investment property and there is evidence of the change in use. A change in management intention alone does not support a transfer. In addition, it is clarified that the revised examples of evidence of a change in use in the amended version of IAS 40 are not exhaustive. The Group does not expect the adoption of this clarification in future periods to have a material effect on its financial statements.
• IFRIC 22 "Foreign Currency Transactions and Advance Consideration" (effective for annual periods beginning on or after 1 January 2018).
The interpretation clarifies that the transaction date is the date on which the company initially recognises the prepayment or deferred income arising from the advance consideration. For transactions involving multiple payments or receipts, each payment or receipt gives rise to a separate transaction date. The Group does not expect the adoption of this interpretation in future periods to have a material effect on its financial statements.
• IFRS 16 "Leases" (effective for annual periods beginning on or after 1 January 2019).
IFRS 16 introduces a single, on-balance lease sheet accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard - i.e. lessors continue to classify leases as finance or operating leases. IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The Group does not expect the adoption of this standard in future periods to have a material effect on its financial statements.
The preparation of the consolidated financial statements in accordance with IFRS requires from management to exercise judgment, to make estimates and assumptions that influence the application of accounting principles and the reported amounts of assets, liabilities, income and expenses. The estimates and underlying assumptions are based on historical experience and various other factors that are deemed to be reasonable based on knowledge available at that time. Actual results may deviate from such estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
Work in progress is stated at cost plus any attributable profit less any foreseeable losses and less amounts received or receivable as progress payments. The cost of work in progress includes materials, labour and direct expenses plus attributable overheads based on a normal level of activity. The Group uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at each reporting period.
The Group reviews its trade and other receivables for evidence of their recoverability. Such evidence includes the customer's payment record and the customer's overall financial position. If indications of irrecoverability exist, the recoverable amount is estimated and a respective provision for bad and doubtful debts is made. The amount of the provision is charged through the profit or loss. The review of credit risk is continuous and the methodology and assumptions used for estimating the provision are reviewed regularly and adjusted accordingly.
The Group provides for doubtful debts to cover potential losses when a customer may be unable to make necessary payments. In assessing the adequacy of provision for doubtful debts, management considers the current economic conditions in general, the age of accounts receivable, the Group's experience in writing off receivables, solvency of customers and changes in conditions of settlements. Economic changes, industry situation or financial position of separate customers may result in adjustments related to the amount of provision for doubtful debts reflected in the consolidated financial statements as impairments of receivables.
Bad debts which are recovered are written-off from the consolidated statement of financial position along with a corresponding adjustment to the provision for doubtful debts, and the recovered amount is recognised in profit or loss.
Significant judgment is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Deferred tax assets are reviewed at each reporting period and reduced to the extent that there is no longer any probability for sufficient taxable profit to be received, which enables utilization of the whole number of or a part of deferred tax assets. Estimate of probability includes judgments, which are based on expected characteristics of activity. To estimate the probability of utilising deferred tax assets in future, various factors are used, including previous years' results, operating plans, expiry of tax losses recovery, strategies of tax planning. Should actual results differ from the estimates, and should such estimates need to be reviewed in future periods, this can negatively influence the financial position, financial results and cash flows. Should the estimated utilisation of deferred tax assets be reduced, such reduction is to be recognised in consolidated statement of comprehensive income.
The Group reviews its inventory records for evidence regarding the saleability of inventory and its net realizable value on disposal. The provision for obsolete and slow-moving inventory is based on management's past experience, taking into consideration the value of inventory as well as the movement and the level of stock of each category of inventory.
The amount of provision is recognized in the profit or loss. The review of the net realisable value of the inventory is continuous and the methodology and assumptions used for estimating the provision for obsolete and slow-moving inventory are reviewed regularly and adjusted accordingly.
The carrying value of the Group's vessels represents their original cost at the time they were delivered or purchased less depreciation calculated using an estimated useful life of vears from the date the vessels were originally delivered from the shipyard. In the shipping industry, useful life in this range has become the standard. The actual life of a vessel may be different. If the economic life assigned to the vessel proves to be too long because of new regulations or other future events, higher depreciation expense and impairment losses could result in future periods related to a reduction in the useful life of the vessel.
The carrying value of the Group's vessel may not represent its fair market value at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of new construction. Historically, both charter rates and vessel values tend to be cyclical. The Group records impairment losses only when events occur that cause the Group to believe that future cash flows for the vessel will be less than its carrying value. The carrying amount of vessel held and used by the Group is reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of the vessel may not be fully recoverable. In such instances, an impairment charge would be recognized if the estimate of the discounted future cash flows expected to result from the use of the vessel and its eventual disposition is less than the vessel's carrying amount.
In developing estimates of future cash flows, the Group must make assumptions about future charter rates, ship operating expenses and the estimated remaining useful life of the vessel. These assumptions are based on historical trends as well as future expectations. Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions may be highly subjective.
The Group's Management applies significant assumptions in the measurement and recognition of provisions for and risks of exposure to contingent liabilities, related to existing legal proceedings and other unsettled claims, and also other contingent liabilities. Management's judgment is required in estimating the probability of a successful claim against the Group or the crystallising of a material obligation, and in determining the probable amount of the final settlement or obligation. Due to uncertainty inherent in the process of estimation, actual expenses may differ from initial estimates. Such preliminary estimates may alter as new information is received, from internal specialists within the Group, if any, or from third parties, such as lawyers. Revision of such estimates may have a significant effect on the future results of operating activity.
Contingent liabilities
Contingent liabilities are determined by the occurrence or non-occurrence of one or more future events. Measurement of contingent liabilities is based on management's judgments and estimates of the outcomes of such future events. In particular, the tax laws in Ukraine are complex and significant management judgement is required to interpret those laws in connection with the tax affairs of the Group, which is open to challenge by the tax authorities. Additionally, the economic and political situation in Ukraine may have an impact (note 29).
The ongoing political and economic instability in Ukraine which commenced at the end of 2013 and led to a deterioration of state finances, volatility of financial markets, illiquidity on capital markets, higher inflation and devaluation of the national currency against major foreign currencies has continued in 2016, though to a lesser extent as compared to 2014 and 2015.
Inflation rate in Ukraine during 2016 reduced to 12% (as compared to 43% in 2015), while GDP returned to growth of 1% (after 9% decline in 2015). Devaluation of Ukrainian Hryvnia during 2016 has been moderate. In 2016 the National Bank of Ukraine ("NBU") has made certain steps to ease the currency control restrictions introduced in 2014 and 2015. Current restrictions are effective until rescinded by the NBU. The banking system remains fragile due to its weak level of capital, low asset quality caused by the economic situation, national currency devaluation, changing regulations and other factors.
The final resolution and the effects of the political and economic crisis are difficult to predict but may have further severe effects on the Ukrainian economy.
The uncertain economic conditions in Ukraine have affected the cash flow forecasts of the Group's management in relation to the impairment assessment for financial and non-financial assets. The Group's management has assessed whether any impairment provisions are deemed necessary for the Group's financial assets carried at amortised cost by considering the economic situation and outlook at the end of the reporting period.
Although, Group's management considers that all necessary actions are being performed to maintain financial stability of the Group in current situation, continuation of crisis may adversely affect results and financial position of the Group, but it is currently impossible to estimate the effect. These consolidated financial statements reflect current management estimation of Ukrainian business environment influence on the financial position of the Group. Situation development may differ from management expectations. These financial statements were not adjusted to reflect events after the reporting period.
Measurement of fair values
A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
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 Board of Directors.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the relevant notes.
The functional currency of most of the companies of the Group is US Dollar ("USD"). Transactions in currencies other than the functional currency of the Group's companies are treated as transactions in foreign currencies. The Group's management decided to use US dollar ("USD") as the presentation currency for financial and management reporting purposes for the convenience of its principal users. Exchange differences arising from the translation to presentation currency are classified on equity and transferred to the Company's translation reserve.
These consolidated financial statements have been prepared under the going concern basis, which assumes the realisation of assets and settlement of liabilities in the course of ordinary economic activity. Renewals of the Group's assets, and the future activities of the Group, are significantly influenced by the current and future economic environment in Ukraine. The Board of Directors and Management are closely monitoring the events in the current operating environment of the Group as described in note 29 to the consolidated financial statements and has assessed the current situation and there is no indication of adverse effects while at the same time are taking all the steps to secure Group's short and long-term viability. To this effect, they consider that the Group is able to continue its operations as a going concern.
The following accounting policies have been applied consistently for all the years presented in these consolidated financial statements. The accounting policies have been consistently applied by all companies of the Group.
Certain comparative amounts in the consolidated statement of profit or loss and other comprehensive income have been reclassified or re-presented as a result of an operation discontinued during the current year.
Subsidiaries are entities controlled by the Group. Control exists where the Group 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.
The financial statements of subsidiaries acquired or disposed during the year are included in the consolidated statement of profit and loss and other comprehensive income from the date that control commences until the date control ceases.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring them in line with the accounting policies of the Group.
Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity as transactions with owners acting in their capacity as owners. No adjustments are made to goodwill and no gain or loss is recognised in profit or loss.
When the Group loses control of a subsidiary, the resulting profit or loss is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. The resulting profit or loss is recognised in profit or loss.
Any interest retained in the former subsidiary is measured at fair value when control is lost.
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS.
When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that quality as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in profit or loss.
When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.
Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses and tax assets and liabilities.
The Group is organised by reportable segments and this is the primary format for segmental reporting. Each reportable segment provides products or services which are subject to risks and rewards that are different than those of other reportable segments.
The Group presents also information on the basis of geographic location: segment revenue is based on the geographical location of customers and segment assets are based on the geographical location of the assets.
A discontinued operation is a component of the Group's business, the operations and cash flows of which can be clearly distinguished form the rest of the Group and which:
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale.
When an operation is classified as a discontinued operation, the comparative statement of profit or loss and other comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative year.
Revenue comprises the invoiced amount for the sale of services in the course of the ordinary activities of the Group. Revenue is recorded net of Value Added Tax, rebates and discounts. Revenues earned by the Group are recognised on the following bases:
Sale of products
Sales of products are recognised when significant risks and rewards of ownership of the products have been transferred to the customer, which is usually when the Group has sold or delivered the products to the customer, the customer has accepted the products and collectability of the related receivable is reasonably assured.
Sales of services are recognised in the accounting period in which the services are rendered by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
Finance income includes interest income which is recognised on an accrual basis.
Interest expense and other costs on borrowings to finance construction or production of qualifying assets are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed.
Income tax expense represents the sum of the current tax and deferred tax.
Tax liabilities and assets for the current and prior periods are measured at the amount expected to be paid to or recovered from the taxation authorities, using the tax rates and laws that have been enacted, or substantively enacted, by the reporting period. Current tax includes any adjustments to tax payable in respect of previous periods.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Currently enacted tax rates are used in the determination of deferred tax.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority.
Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency rates prevailing at the date of the transaction.
Monetary assets and liabilities are translated into the functional currency of each Group company, at the rates ruling at the reporting period. Foreign exchange gains and losses, arising from transactions in foreign currency, and also from translation of monetary assets and liabilities into the functional currency of each Group company at the rate ruling at the end of the year, are recognised in profit or loss.
The exchange rates used in the preparation of these consolidated financial statements are as follows:
| Currency | 31 December | Weighted average | 31 December | Weighted average |
|---|---|---|---|---|
| 2016 | for the year 2016 | 2015 | for the year 2015 | |
| USD - UAH | 27,1739 | 25,5435 | 24,0007 | 21,8290 |
| USD - RUB | 61,3497 | 66,6448 | 72,8827 | 60,9579 |
The foreign currencies may be freely convertible on the territory of Ukraine at the exchange rate which is close to the exchange rate established by the National Bank of Ukraine. At the moment, the Ukrainian Hryvnia is not a freely convertible currency outside Ukraine.
The financial results and position of each subsidiary are translated into the presentation currency as follows:
The amount payable to the owners of the Company in the form of dividends is recognised as a liability in the financial statements of the Group in the period the dividends were approved by the owners of the Company.
Vessels, property, plant and equipment ("VPPE") are recognised by the Group as an asset only in a case, when:
Any subsequent expenses, increasing the future economic benefits from the asset, are treated as additions. Otherwise, the Group recognises subsequent expenditure as expenses of the period, in which they have been incurred. The Group divides all expenses, related to VPPE, into the following types:
After initial recognition as an asset, the Group applies the model of accounting for the VPPE at historical cost, net of accumulated depreciation and any accumulated losses from impairment, taking into account estimated residual values of such assets at the end of their useful lives. Such cost includes the cost of replacing significant parts of the plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of VPPE are required to be replaced from time to time, the Group recognises such parts as individual assets with specific estimated useful lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognised in the carrying value of the VPPE as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the profit or loss statement as incurred.
Expenditure for repairs and maintenance of VPPE is charged to profit or loss of the year in which it is incurred. The cost of major renovations and other subsequent expenditure is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset.
Depreciation is recognised in profit or loss on the straight-line method over the useful lives of each part of an item of vessels, property, plant and equipment. The estimated useful lives of the Group's VPPE are as follows:
| Years | |
|---|---|
| Buildings | $30 - 50$ |
| Vessels | $25 - 35$ |
| Vessels improvements | 7 |
| Vessels under construction | not depreciated |
| Plant and equipment | $15 - 25$ |
| Vehicles | $4 - 10$ |
| Furniture and fittings | $4 - 10$ |
| Other | $4 - 10$ |
No depreciation is provided on land.
Depreciation methods, useful lives of assets and residual values are reviewed at each reporting period and adjusted if appropriate.
Assets under construction comprise costs directly related to construction of vessels and property, plant and equipment including an appropriate allocation of directly attributable variable overheads that are incurred in construction. Construction in progress is not depreciated.
An asset is not depreciated during the quarter of placing into operation. The acquired asset is depreciated starting from the following quarter from the date of placing into operation and depreciation is fully accumulated when useful life terminates
An item of vessels, property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is included in profit or loss when the asset is derecognised.
At each reporting period, the Group evaluates whether any indicators of possible impairment of an asset exist. If the recoverable value of an asset or a group of assets within VPPE is lower than their carrying (residual) value, the Group recognises such asset or group of assets as impaired, and accrues a provision for impairment of the amount of excess of the carrying value over the recoverable value of the asset. Impairment losses are recognised immediately in profit or loss.
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument.
(i) Trade receivables
Trade receivables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.
Cash and cash equivalents comprise cash balances and call deposits of three months.
(iii) Borrowings
Borrowings are recorded initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.
Notes issued are initially recognised at fair value and are subsequently measured at amortised cost using the effective interest method.
$(v)$ Trade payables
Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.
The Group assesses at each reporting period the carrying value of its non-current assets to determine whether there is any objective evidence that non-current assets are impaired. If any such evidence exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). If it is not possible to estimate the recoverable amount of the cash-generating unit to which the asset belongs (the asset's cash-generating unit).
The expected recoverable amount of a cash-generating unit's fair value less cots to sell and its value in use. In estimating value in use, the future cash flows are discounted to present value using a pre-tax reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit.
If expected recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying value, the carrying value of the asset (or cash-generating unit) shall be reduced to its recoverable amount. that reduction is an impairment loss, unless the asset is carried at revalued model. Any impairment loss of a revalued asset shall be treated as a revaluation decrease. If the impairment loss is reversed subsequently, the carrying value of an asset (or cash-generating unit) increases to the revised and estimated amount of its recoverable amount, where increased carrying value does not exceed the carrying value which could be determined only in the case where impairment loss for an asset (or cash-generating unit) was recognised in the previous years. Reversal of the impairment loss is recognised as profit immediately.
Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated statement of financial position.
Inventories are measured at the lower of cost and net realisable value. The cost is determined using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less the costs to completion and selling expenses.
The cost of inventories comprises all expenses for acquisition, processing and other expenses incurred in bringing the inventories to their present location and condition. The cost of work in progress includes materials, labour and direct expenses plus attributable overheads based on a normal level of activity.
The Group regularly reviews inventories to determine whether there are any indicators of damage, obsolescence, slow movement, or a decrease in net realizable price. When such event takes place, the amount by which inventories are impaired, is reported in profit or loss.
Ordinary shares are classified as equity. The difference between the fair value of the consideration received and the nominal value of the share capital issued is transferred to the share premium account. Incremental costs directly attributable to the issue of shares, net of any tax effects, are recognised as a deduction from equity.
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.
The expense relating to any provision is presented in the consolidated statement of profit or loss net of any reimbursement. if the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects where appropriate the risks to specific to liability. The unwinding of the discount is recognised as finance cost.
Non-current liabilities represent amounts that are due more than twelve months from the reporting period.
There are two rates of value added taxes: 20% – on import and sales of goods and services in the territory of Ukraine and 0% - on export of goods and rendering of services and works outside Ukraine.
The VAT liability is equal to the total amount of VAT accrued during the reporting period and arises at the earlier of goods shipment to the customer or at the date of receipt of payment from the client.
VAT credit is the amount by which a taxpayer is entitled to reduce his/her VAT liabilities in the reporting period. The right to VAT credit arises on the earlier of the date of payment to supplier or the date of receipt of goods by the Company.
For goods and services supplied at the 20% tax rate, revenue, expenses and assets are recognised net of VAT amount, unless:
The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statement of financial position.
Contingent liabilities are not recognized in the consolidated financial statements. Such liabilities are disclosed in the notes to the consolidated financial statements, with the exception of when the probability of an outflow of resources embodying economic benefits is remote.
Contingent assets are not recognized in the consolidated financial statements, but are disclosed in the notes in such cases when there is a possibility of receiving the economic benefits.
Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year.
The Group adjusts the consolidated financial statements amounts if events after the reporting period require adjustments. Events after the reporting period requiring adjustments of the consolidated financial statements amounts relate to the confirmation or contradiction of the circumstances prevailing at the reporting period, as well as estimates and judgments of management, which are made under conditions of uncertainty and incompleteness of information at the reporting period.
If non-adjusting events that occurred after the reporting period are significant, non-disclosure of information about them may affect the economic decisions of users which are made on the basis of these financial statements. Accordingly, the Group discloses the nature of such events and estimates of their financial effect or states the impossibility of such estimate for each material category of non-adjusting events that occurred after the reporting period.
A reportable segment is a separable component of a business entity that produces goods or provides services to individuals (or groups of related products or services) in a particular economic environment that is subject to risks and generate revenues other than risks and income of those components that are peculiar to other reportable segments.
Reportable segments are reported in a manner consistent with internal reporting provided to the chief operating decision-maker. All reportable segments results are reviewed regularly by the Group's CEO to make decisions about resources to be allocated to the segment and to assess its performance and for which discrete financial information is available.
The operating businesses are organised and managed separately according to the nature of products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.
For the year ended 31 December 2016 the Group identified the following four reportable segments, which include products and services, that differ by levels of risk and conditions of generation of income:
| 2016 | Passenger transportation |
||||
|---|---|---|---|---|---|
| Freight USD'000 |
Ship repair USD'000 |
(discontinued) USD'000 |
Grain USD'000 |
Total USD'000 |
|
| Revenue | 3731 | 945 | 114 | 21 4 20 | 26 210 |
| Cost of sales | (5451) | (1116) | (153) | (20, 724) | (2744) |
| Gross profit | (1720) | (171) | (39) | 696 | (1234) |
| Expenses | (786) | (566) | (62) | (765) | (2179) |
| Other material non-cash items | |||||
| Impairment losses on non- | |||||
| financial assets | (2878) | (394) | (3 272) | ||
| Loss from operating activities | (5384) | (737) | (495) | (69) | (6685) |
| Net finance cost | (65) | 2 | (63) | ||
| Loss before tax | (5449) | (735) | (495) | (69) | (6748) |
| Tax | 39 | 39 | |||
| Net loss for the year | (5.449) | (696) | (495) | (69) | (6709) |
| Non-current assets | 4534 | 4 4 2 3 | 8957 | ||
| Current assets | 24 793 | 114 | 4 6 9 5 | 29 602 | |
| Total assets | 29.327 | 4537 | 4 695 | 38 559 | |
| Non-current liabilities | 33 | 491 | 524 | ||
| Current liabilities | 1 204 | 5 0 7 5 | 1734 | 8013 | |
| Total liabilities | 1 237 | 5566 | 734 | 8537 |
| 2015 | Freight USD'000 |
Ship repair USD'000 |
Passenger transportation (discontinued) USD'000 |
Grain USD'000 |
Total USD'000 |
|---|---|---|---|---|---|
| Revenue | 4845 | 594 | 211 | 15 190 | 20 840 |
| Cost of sales | (4665) | (833) | (302) | (14979) | (20 779) |
| Gross profit | 180 | (239) | (91) | 211 | 61 |
| Expenses | (3 247) | (987) | (853) | (57) | (5144) |
| Other material non-cash items | |||||
| Impairment losses on non- | |||||
| financial assets | (589) | (589) | |||
| Loss from operating activities | (3067) | (1815) | (944) | 154 | (5672) |
| Net finance cost | (9) | (9) | |||
| Loss before tax | (3067) | (1824) | (944) | 154 | (5681) |
| Tax | (313) | 154 | (159) | ||
| Net loss for the year | (3.067) | (2137) | (790) | 154 | (5840) |
| Non-current assets | 11 722 | 3511 | 726 | ||
| Current assets | 25 753 | 180 | 66 | 15 959 | |
| Total assets | 37475 | 4034 | 30 033 | ||
| 3.691 | 792 | 4034 | 45 992 | ||
| Non-current liabilities | 627 | 48 | 675 | ||
| Current liabilities | 607 | 4 1 1 4 | 502 | 5 2 2 4 | |
| Total liabilities | 607 | 4 7 4 1 | 550 | 5899 |
Reportable segment information related to geographical location for the year ended 31 December 2016 and 31 December 2015 is presented below. Sales revenue analysis was based on the geographical location of customers and segment assets are based on the geographical location of the assets.
$\overline{a}$
| ZU16 | 2015 | |
|---|---|---|
| USD'000 | USD'000 | |
| Caspian region | 11 4 29 | 1 2 6 9 |
| Turkey | 8 1 1 5 | 15 618 |
| China | 4 2 2 2 | 1617 |
| Georgia | 773 | 417 |
| Russia | 399 | 257 |
| Ukraine | 328 | 524 |
| Italy | 88 | 295 |
| Bulgaria | 87 | 120 |
| Other countries | 655 | 723 |
| Total | 26.096 | 20 840 |
The impairment loss was recognised in relation to Freight, Ship Repair and Passenger transportation segments which is analysed as follows:
| 2016 USD'000 |
2015 USD'000 |
|---|---|
| Vessels, property, plant and equipment | |
| Freight (2878) |
|
| Passenger transportation (394) |
|
| Ship repair ۰ |
(589) |
| Impairment loss (3 272) |
(589) |
In the light of the deterioration of the activities of the ship repair and passenger transportation services, due to the political and economic environment in the Ukraine, the management estimated the recoverable amount of the related segments.
The recoverable amount of the segments was based on external valuation received for vessels, property, plant and equipment and on management assumption for the rest. The external valuators method used was the value in use.
The key assumption used in the estimation of the recoverable amount is set out below.
| 2016 | 2015 | |
|---|---|---|
| Discount rate | $18\% - 20\% - 15\% - 26\%$ |
In August 2016, management discontinued its passenger transportation segment. The Group sold LLC Riverest Tur, the segment operating company, and all related assets. The related assets were previously classified as held-for-sale in the interim consolidated financial statements for the six months ended 30 June 2016. The comparative consolidated statement of profit or loss and other comprehensive income has been re-presented to show the discontinued operation separately from continuing operations.
An impairment loss of USD 394 thousand writing down the carrying amount of the disposal group to its fair value less costs to sell has been included in 'other operating expenses' in the consolidated statement of profit or loss and other comprehensive income (note 10).
Results of discontinued operation are as follows:
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Revenue | 114 | 211 |
| Cost of sales | (153) | (302) |
| Gross profit | (39) | (91) |
| Expenses | (456) | (853) |
| Loss from operating activities | (495) | (944) |
| Taxation | 154 | |
| Loss from operating activities, net of tax | (495) | (790) |
| Loss on sale of discontinued operation | (1029) | |
| Income tax on gain on sale of discontinued operation | ||
| Loss from discontinued operation, net of tax | (1524) | (790) |
| Basic and fully diluted loss per share (USD) | (0.16) | (0.09) |
Cash flows from (used in) discontinued operation are as follows:
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Net cash flows (used in)/from operating activities Net cash flows used in investing activities |
(287) (52 |
206 |
| Net cash flows for the year | 339 | 202 |
The above cash flows analysis on discontinued operation is not disclosed separately on the face of the consolidated financial statements
Effect of disposal on the financial position of the Group is as follows:
| 2016 USD'000 |
|
|---|---|
| Non-current assets | (726) |
| Current assets | (66) |
| Non-current liabilities | 48 |
| Current liabilities | 502 |
| Net assets and liabilities | (242) |
| Consideration received | |
| Cash and cash equivalents disposed of | (4) |
| Net cash inflows | |
Total administrative expenses
| 2016 USD'000 |
2015 USD'000 |
||
|---|---|---|---|
| Sales of goods | 21 4 20 | 15 190 | |
| Rendering of services | 4 6 7 6 | 5 4 3 9 | |
| Total revenue | 26 096 | 20 629 | |
| COST OF SALES 7. |
|||
| 2016 USD'000 |
2015 USD'000 |
||
| Cost of goods sold | 20 724 | 14 7 29 | |
| Cost of services rendered | 6 5 6 7 | 5 748 | |
| Total cost of sales | 27 291 | 20477 | |
| Cost of sales by elements were as follows: | |||
| Note | 2016 USD'000 |
2015 USD'000 |
|
| Materials | 22 038 | 15824 | |
| Third party services | 2554 | 2 5 3 2 | |
| Payroll and related charges | 12 | 1 5 6 4 | 1 2 7 7 |
| Depreciation of vessels, property, plant and equipment Total |
15 | 1 1 3 5 | 844 |
| 27 291 | 20 477 | ||
| ADMINISTRATIVE EXPENSES 8. |
|||
| Note | 2016 USD'000 |
2015 USD'000 |
|
| Third party services | 421 | 293 | |
| Payroll and related charges | 12 | 115 | 105 |
| Depreciation of vessels, property, plant and equipment Travelling |
15 | 11 | 3 |
| Office and other materials | 5 5 |
21 8 |
|
| Taxes and duties | 74 | 23 | |
| Sundry expenses | 5 | 3 |
$\frac{636}{2}$
456
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Third party services | 49 | 227 |
| Total selling and distribution expenses | 49 | 227 |
| Note | 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|---|
| Impairment of vessels, property, plant and equipment | 15 | 3 2 7 2 | |
| Provision for impairment of receivables | 18 | 647 | 2655 |
| Loss from foreign exchange difference, net | 552 | 1453 | |
| Fines and penalties | 329 | 15 | |
| VAT write-off | 12 | ||
| Impairment of inventory | |||
| Loss on disposal of vessels, property, plant and equipment | 99 | ||
| Sundry expenses | 12 | -9 | |
| Total other operating expenses | 4813 | 4 2 4 3 |
| Note | 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|---|
| Operating loss is stated after charging the following items: | |||
| Impairment of vessels, property, plant and equipment | 15 | 3 2 7 2 | |
| Staff costs | 12 | 1679 | 1 3 8 2 |
| Depreciation of vessels, property, plant and equipment | 15 | 1 1 4 6 | 847 |
| Provision for impairment of receivables | 10 | 647 | 2655 |
| Independent auditors' remuneration for the statutory audit of annual | |||
| accounts | 45 | 57 | |
| Independent auditor's remuneration for other assurance service | 42 | 44 | |
| Impairment of inventory | |||
| Loss on disposal of vessels, property, plant and equipment | 10 | 99 | |
| Independent auditor's remuneration for tax advice |
Payroll and related charges for the year ended 31 December 2016 were presented as follows:
| Note | 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|---|
| Wages and salaries | 1632 | 1 3 4 2 | |
| Contributions to social funds | 47 | 40 | |
| Total staff costs | 11 | 1679 | 1382 |
| 2016 USD'000 |
2015 USD'000 |
||
| Production personnel Administrative personnel |
7 8 |
1 5 6 4 | 1 2 7 7 |
| Total staff costs | 115 1679 |
105 1382 |
|
| The average number of employees was as follows: | |||
| 2016 | 2015 | ||
| Average number of employees, persons | 110 | 136 | |
| Key management personnel | 18 | 21 | |
| 13. NET FINANCE COSTS |
|||
| 2016 USD'000 |
2015 USD'000 |
||
| Finance income Bank interest Total finance income |
5 | $\mathbf{1}$ | |
| Finance costs | |||
| Interest expense Discount of notes issued Total interest expense |
(68) (68) |
(10) (10) |
|
| Net finance costs | (63) | $\overline{10}$ |
| Note | 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|---|
| Deferred tax - (credit)/charge | 22 | (39) | 313 |
| Credit for the year | (39) | 313 |
Reconciliation of tax based on the taxable income and tax based on accounting losses:
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Accounting loss before taxation | (6709) | (4 737) |
| Income tax, taxable at the rate of 18% (2015: 18%) Income tax, taxable at the rate of $12,5\%$ (2015: $12,5\%$ ) Items not deductible/assessable for tax purposes |
(149) (25) 135 |
(357) (20) 690 |
| Tax as per consolidated statement of profit or loss and other comprehensive income - (credit)/charge |
| ļ |
|---|
| l |
| İ |
| ļ |
| ו ו |
| ບ | ||||
|---|---|---|---|---|
| USD'000 | 15579 | . | ||
| buildings | USD'000 | 5630 | ||
| Balance at 1 January | ||||
| Additions | $\ddot{\phantom{0}}$ | |||
| 300 |
USD'000
USD'000
USD'000
USD'000
USD'000
onstruction USD'000
Total
Other
and fittings Furniture
Vehicles
Plant and equipment
Vessels under
Vessels
Land and
2016
| Balance at 1 January | 5630 | 15579 | 3182 | 993 47 |
$\frac{8}{5}$ | 64 | $\mathcal{L}$ | 25580 |
|---|---|---|---|---|---|---|---|---|
| Additions | $\frac{6}{3}$ | |||||||
| Disposals | $(1059)$ $(322)$ $(334)$ |
|||||||
| Exchange differences | (188) | $\begin{array}{c} (111) \ (111) \ (114) \end{array}$ | Ξ | |||||
| Reclassification to assets held for sale | (2) | (3182) | වූ වූ | (35) | ⊖ິສ | व | ||
| Balance at 31 December 2016 | $\frac{5440}{5}$ | 14296 | 59 | ສ | မှု | ピ | 20864 | |
| Depreciation and impairment losses | ||||||||
| Balance at 1 January | 2943 | 1196 | SS | 5 | ||||
| Depreciation for the year | 131 | 270 54 |
$\mathbf{\mathsf{u}}$ | |||||
| On disposals | ||||||||
| Exchange differences | (100) | 5 075 956 350 3878 2 878 |
ම | 9621 146 146 1350) (1383) (1283) |
||||
| Impairment charge | ||||||||
| Reclassification to assets held for sale | $\overline{5}$ | 1960 | ම | $\Xi$ | බ | |||
| Balance at 31 December 2016 | 2974 | 8505 | 310 | 42 | 67 | 11907 | ||
| Carrying amounts | ||||||||
| Balance at 31 December 2016 | $-2.466 =$ | 5791 | 681 | 8957 |
In 2016 management decided to dispose of its passenger transportation segment. As a result, impairment charge of USD 394 thousand was recognised in profit or loss. Therefore, the net carrying amount of passenger vessels was reclassified as assets held for sale. As at 31 December 2016 management carried out an impairment assessment of its transport vessels. As a result, impairment charge of USD 2 878 thousand was recognised in profit or loss. Net book value of vessels used to secure the Group's bank loans is disclosed in note 21.
| ١ |
|---|
| l |
| l |
| 2015 | Land and buildings |
Vessels | Vessels under |
equipment Plant and |
Vehicles | and fittings Furniture |
Other | Total |
|---|---|---|---|---|---|---|---|---|
| USD'000 | USD'000 | construction USD'000 |
DO0.GSD | $000, \mathrm{dS}$ | 000.GSD | USD'000 | OOO.GSC | |
| Balance at 1 January Cost |
6873 | 57 | အ | 86 | 28 283 | |||
| Additions | 1219 | 4 258 111 |
586 656 |
3168 (1700) (3498) |
||||
| Disposals | ご | |||||||
| Exchange differences | (2462) | $\begin{array}{c} 16\ 238 \ 1\ 173 \ (1\ 641) \ (1\ 641) \ (198) \end{array}$ | (249) | $(38)$ $(49)$ |
$\left(21\right)$ | $\binom{3}{1}$ | ||
| Reclassification to assets held for sale | 6678 (679 |
(673) | ||||||
| Internal transfer | ||||||||
| Balance at 31 December 2015 | 5630 | 15579 | 3182 | 993 | 56 | $\mathcal{L}$ | 76 | 25580 |
| Depreciation and impairment losses | ||||||||
| Balance at 1 January | 4279 | 1196 | 342 | အ | 94 | |||
| Depreciation for the year | 147 | 4287 864 (49) (27) |
$\mathbf{\mathcal{L}}$ | 10 290 1 070 (1 665) (1 665) |
||||
| On disposals | (25) | |||||||
| Exchange differences | $(1483)$ . | $\overline{5}$ | $\overline{14}$ | $\overline{15}$ | ||||
| Balance at 31 December 2015 | 2943 | 5075 | 196 | 270 | ၵ | $\mathcal{C}$ | 9621 | |
| Balance at 31 December 2015 Carrying amounts |
$2.687 =$ | 10.504 | 1_986 | 723 | 15959 | |||
In 2015 Management decided not to continue the repair of a vessel under construction due to the big investment required and rather use it as scrap metal in the ship repair activities. Therefore, the net carrying amount of
The details of the subsidiaries are as follows:
| Name | Country of incorporation |
Principal activities | 2016 Effective holding $\frac{9}{6}$ |
2015 Effective holding $\frac{9}{6}$ |
|---|---|---|---|---|
| KD Shipping Co. Limited Inc. | Panama | Bareboat charterer of vessels, |
100,00 | 100,00 |
| LLC Danapris | Ukraine | commodities trader Ukrainian holding company |
99,84 | 99,84 |
| LLC Capital Shipping Company | Ukraine | Ship owner, safety and technical license |
99,57 | 99,57 |
| LLC Hylea-Servise LLC Riverest Tur |
Ukraine Ukraine |
Ship repair services Passenger transportation Management |
99,57 | 99,57 99,88 |
| Infoland Incorporated LLC First Kherson Shipbuilding Yard |
Panama | services | 100,00 | 100,00 |
| (formerly LLC Kuybyshev KSRY) | Ukraine | Ship repair services | 100,00 | 100,00 |
| LLC Marine Management | Russian Federation |
Ship operator | 100,00 | 100,00 |
| Bemax Marketing LTD | Marshall Islands Dormant | 100,00 | ٠ | |
| Intention Development LTD | Marshall Islands Dormant | 100,00 | ||
| Promo Ring LTD | Marshall Islands Dormant | 100,00 | ||
| Star Value LTD | Marshall Islands Dormant | 100,00 | ||
| Terra Empire LTD | Marshall Islands Dormant | 100,00 | ÷ | |
| Unlimited Mark LTD | Marshall Islands Dormant | 100,00 | ||
| KD Bulk | Marshall Islands Dormant | 100,00 | $\overline{a}$ | |
| KD Cargo | Marshall Islands Dormant | 100,00 | ||
| KD Logistics | Marshall Islands Dormant | 100,00 | ||
| KD Maritime | Marshall Islands Dormant | 100,00 | ||
| Mak Agro Grains Cereals and Legumes Trading LLC |
United Arab Emirates |
Commodities trader 51,00 |
In August 2016 the Group sold its stake in LLC Riverest Tur since management has decided to discontinue the passenger transportation segment.
The Representative office of KD Shipping Co Limited has been established without the right to conduct commercial activity in Ukraine.
In September 2016 the Group acquired a 51% stake in share capital of Mak Agro Grains Cereals and Legumes Trading LLC, a commodities trading company.
LLC Capital Shipping Company, LLC Danapris and LLC Hylea-Servise are in the process of liquidation.
Group subsidiaries incorporated in Marshall Islands are dormant companies and will be liquidated.
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Fuel | 64 | 54 |
| Materials | 11 | 95 |
| Work in progress | 13 | |
| Goods for resale | $\bullet$ | 4 0 3 3 |
| Other inventories | ||
| Total inventories | 197 |
In 2015 management decided not to continue the repair of a vessel under construction due to the big investment required and rather use it as scrap metal in the ship repair activities. Therefore, the net carrying amount of the vessel was reclassified to inventory.
During 2015 an impairment of USD 589 thousand was recognised in profit or loss to write down inventories to their net realisable value.
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Trade receivables | 1678 | 389 |
| Less: Provision for impairment of trade receivables | (354) | |
| Trade receivables - net | 1678 | 35 |
| Prepayments | 5 3 5 4 | 7682 |
| Less: Provision for prepayments | (2198) | (1924) |
| VAT recoverable | 120 | 157 |
| Other receivables | 1082 | 44 |
| Less: Provision for impairment of other receivables | (22) | |
| Total trade and other receivables | 6036 | 5 972 |
| Current portion | 6 0 3 6 | 5972 |
| Total | 6036 | 5972 |
Ageing analysis of trade and other receivables:
| Gross amount 2016 USD'000 |
Impairment 2016 USD'000 |
Gross amount 2015 USD'000 |
Impairment 2015 USD'000 |
|
|---|---|---|---|---|
| Not past due | 2 602 | $\blacksquare$ | 15 | |
| Past due 0-30 days | 42 | ٠ | 7 | |
| Past due 31-120 days | 116 | - | 27 | 14 |
| More than 120 days | 384 | 362 | ||
| 2.760 | 433 | 376 |
Movement in provision for impairment of receivables:
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Balance at 1 January | 2 3 0 0 | 1403 |
| Impairment losses recognised on receivables | 680 | 2 7 3 9 |
| Amount written off as uncollectible | (749) | (1424) |
| Bad debts recovered | (33) | (22) |
| Effect of translation to presentation currency | (396) | |
| Balance at 31 December | 2 1 9 8 | 2 3 0 0 |
The exposure of the Group to credit risk and impairment losses and to liquidity risk in relation to trade and other receivables is reported in note 27 to the consolidated financial statements.
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Cash at bank | 23 490 | 19857 |
| Bank deposits | $\blacksquare$ | |
| Total cash and cash equivalents | 23 490 | 19 864 |
For the purposes of the consolidated statement of cash flows, the cash and cash equivalents include the following:
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Cash and cash equivalents | 23 4 9 0 | 19 864 |
| Total | 23 4 90 | 19864 |
The exposure of the Group to credit risk and impairment losses and to liquidity risk in relation to cash and cash equivalents is reported in note 27 to the consolidated financial statements.
| 2016 Number of shares |
2016 USD'000 |
2015 Number of shares |
2015 USD'000 |
|---|---|---|---|
| 20 000 000 | 265 | 20 000 000 | 265 |
| 9 296 000 | 118 | 9 296 000 | 118 |
The owners of the parent company as at 31 December 2016 were as follows:
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Konstiantyn Molodkovets Denys Molodkovets |
65 15 |
65 15 |
| Oleksyi Veselovskyy Public ÷. |
2 36 |
$\overline{2}$ 36 |
| 118 | 118 |
On 11 June 2013, the Company issued 2 000 000 new shares following the second public offering. The offer price for each Company's share was established at PLN 30 (USD 9,31/EUR 7,34) and the investors subscribed for 2 000 000 shares of the Company which represent 21,5% of the total issued share capital.
As a result of the above, the ordinary share capital increased to USD 118 thousand and is divided into 9 296 000 ordinary shares of EUR 0,01 each and share premium of USD 23 570 thousand net of transaction costs.
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Short-term liabilities | ||
| Non-bank loans | 146 | $\qquad \qquad \blacksquare$ |
| Bank loans | 4 0 0 0 | 4 0 0 0 |
| Total loans and borrowings | 4 1 4 6 | 4000 |
Bank loans are secured as follows:
$\bullet$ By mortgage against the vessels with net book value of USD 2 549 thousand (2015: USD 3 285 thousand)
The interest rates at the reporting period were as follows:
| 2016 | 2015 | |
|---|---|---|
| Bank loans | $3M$ Libor + 10,5% $3M$ Libor + 10,5% |
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Balance at 1 January | 604 | 699 |
| Credit in profit or loss | (39) | |
| Debit in profit or loss | 159 | |
| Exchange difference | (80) | (254) |
| Balance at 31 December | 485 | 604 |
Influence of temporary difference on deferred tax
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Vessels, property, plant and equipment | (491) | (650) |
| Provisions | 46 | |
| Net deferred tax liability | (485) | (604) |
| 2016 USD'000 |
2015 | |
|---|---|---|
| USD'000 | ||
| Trade payables | 2514 | 458 |
| Salaries contributions and other related taxes | 367 | 106 |
| Payable to directors/owners | 85 | 154 |
| Advances received | 41 | 31 |
| Other accounts payable | 560 | 174 |
| Other taxes payable | 24 | 14 |
| Deferred income | 4 | 4 |
| Interest payable | 243 | 245 |
| Total trade and other payables | 3838 | 1 1 8 6 |
The exposure of the Group to liquidity risk in relation to trade and other payables is reported in note 27 to the consolidated financial statements.
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Long-term notes payable | 83 | 83 |
| Discount | (44) | (12) |
| Total other long-term liabilities | 30 |
The above amounts relate to bills issued by the Group.
Maturity of other long-term liabilities:
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Between one year and five years | 30 20 |
The exposure of the Group to liquidity risk in relation to other long-term liabilities is reported in note 27 to the consolidated financial statements.
The calculation of loss per share for the year ended 31 December 2016 and 31 December 2015 was based on the loss attributable to ordinary owners and the weighted number of ordinary shares outstanding as follows:
Loss attributable to ordinary owners:
| 2016 USD'000 |
2015 (restated) USD'000 |
|
|---|---|---|
| Loss for the year from continuing operations | (6 670) | (5050) |
| Loss for the year from discontinued operation | (1524) | (790) |
| Loss for the year | (8194) | (5840) |
| Number of ordinary shares: | ||
| 2016 '000 |
2015 '000' |
|
| Weighted average number of ordinary shares at 31 December | 9296 | 9 2 9 6 |
| Total basic and fully diluted loss per share (USD) | (0, 88) | (0, 63) |
| Basic and fully diluted loss per share $(USD)$ – Continuing operations | (0, 72) | (0, 54) |
| Basic and fully diluted loss per share (USD) - Discontinued operation | (0,16) | (0,09) |
Loss per share is the loss for the year after taxation divided by the weighted average number of shares in issue for each year.
There are no options or instruments convertible into new shares and so basic and diluted earnings per share are the same.
The majority of the Company's share capital is held by Konstiantyn Molodkovets who owns 54,86% and Denys Molodkovets who owns 12,88%. During the year ended 31 December 2016 30,11% of the Company's share capital is traded at the Warsaw Stock Exchange and is held by both institutional and retail investors.
In the ordinary course of its business, the Group has engaged and continue to engage in transactions with both related and unrelated parties.
For the purposes of these consolidated financial statements, parties are considered to be related if one party has the ability to control the other party, is under common control, or can exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.
According to these criteria the related parties of the Group are divided into the following categories:
A. Key management;
B. Companies whose activities are significantly influenced by the Group's owners.
Salary costs of key management for the year ended 31 December 2013 and 2012 were as follows:
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Salaries Contributions to pension funds |
59 ጸ |
56 |
| Total | 67 | |
| Number of key management personnel was as follows: | ||
| 2016 | 2015 | |
| Number of key management personnel, persons |
Companies whose activities are significantly influenced by the Group's owners:
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Revenue | 607 | |
| Administrative expenses | (22) | (1) |
| Other operating (expenses)/income | (9) | 13 |
| Total | 576 | 12 |
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Payable to directors/owners | 67 | -54 |
| (iv) Outstanding balances with related parties |
2016 USD'000 |
2015 USD'000 |
| Non-bank loans | 46 |
The Group is exposed to the following risks from its use of financial instruments:
The Company's Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework.
The Group's risk management policies are established to identify and analyse the risks faced by the Group. to set appropriate risk limits and controls, and monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and in the Group's activities.
The Group is not a finance company; thus, it uses financial instruments as may be necessary in order to obtain finance for its activities, not for the purpose of receiving income. In the process of its activities, the Group uses the following financial instruments: cash and cash equivalents, loans, accounts receivable, bank loans and accounts payable.
The Group is exposed to the following risks resulting from the use of financial instruments: credit risk, liquidity risk and market risk including foreign currency risk and interest rate risk of fair value. This explanation contains information relating to the Group's exposure to each of those risk types mentioned above, Group's objectives, its policy and procedures of these risks measurement and management.
Credit risk is the risk of financial loss for the Group in case of non-fulfilment of financial obligations by a client or counterparty under the respective agreement. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history and monitors on a continuous basis the ageing profile of its receivables.
The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer.
The Group recognises impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this amount are a specific loss component that relates to individually significant exposures and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified.
For the year ended 31 December 2016 USD 4 904 thousand (2015: USD 9 096 thousand) or 19% (2015: 44%) from the Group's revenue refers to the sales transactions carried out with one of the Group's clients.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting period was presented as follows:
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Cash at bank Trade and other receivables |
23 490 2 7 6 0 |
19857 57 |
| Bank deposits | $\sim$ | |
| 26 250 | 19 9 21 |
In 2016 and 2015 the majority of the cash and cash equivalents of the Group are held with banks and financial institutions in Ukraine which are not rated.
Liquidity risk is the risk of the Group's failure to fulfil its financial obligations at the date of maturity. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group has procedures with the object of minimising such losses such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities.
Retween
The table below represents the expected maturity of components of working capital:
| Carrying amounts USD'000 |
Contractual cash flows USD'000 |
3 months or less USD'000 |
$3 - 12$ months USD'000 |
Between 1-5 years USD'000 |
More than 5 years USD'000 |
|
|---|---|---|---|---|---|---|
| Loans and borrowings | 4 1 4 6 | 4 1 4 6 | 4 1 4 6 | |||
| Trade and other payables | 3 3 1 7 | 3 3 1 7 | 3317 | |||
| Short-term notes | 38 | 53 | 53 | |||
| Other long-term liabilities | 71 | 83 | 83 | |||
| 7 572 | 7599 | 7516 | 83 | |||
| 31 December 2015 | Between | |||||
| Carrying amounts |
Contractual cash flows |
3 months or less |
$3 - 12$ months |
Between $1-5$ years |
More than 5 years |
|
| USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | |
| Loans and borrowings Trade and other payables |
4 0 0 0 877 |
4 0 0 0 877 |
4 0 0 0 877 |
|||
| Short-term notes | 38 | 42 | 42 | |||
| Other long-term liabilities | 71 | 95 | ۰ | 95 |
Market risk is the risk of negative influence of changes in market prices, such as foreign exchange rates and interest rates, on revenue position of the Group or on the value of the Group's available financial instruments.
The objective of market risk management is to provide control over the Group's exposure to market risk, as well as keeping its level within reasonable limits. Description of the Group's exposure to such market components as currency risk and interest rate risk, is given below.
Foreign currency risk which represents a part of market risk is the risk of change in the value of financial instruments due to changes in foreign exchange rates. Management does not use derivative financial instruments to hedge foreign currency risks and does not follow an official policy for distribution of risks between liabilities in one or another currency. However, in the period of receiving new borrowings and loans, Management uses its own estimates to take the decision as for which currency denomination will be more favourable for the Group during the expected period till maturity.
The Group's exposure to foreign currency risk and the amount in local currency as at 31 December 2016 and 2015 based on carrying amounts was as follows:
| 31 December 2016 | Euro USD'000 |
United States Dollar USD'000 |
|---|---|---|
| Assets | ||
| Trade and other receivables | 4 | |
| Cash and cash equivalents | 2 3 7 1 | $\overline{3}$ |
| 2 3 7 1 | $\overline{7}$ | |
| Liabilities | ||
| Loans and borrowings | (4000) | |
| Trade and other payables | (50) | |
| (4050) | ||
| Net exposure | 2 3 7 1 | (4043) |
| 31 December 2015 | Euro USD'000 |
United States Dollar USD'000 |
| Assets | ||
| Cash and cash equivalents | $\overline{2}$ | 21 |
| Liabilities | $\overline{2}$ | 21 |
| Loans and borrowings | (4000) | |
| (4000) | ||
| $\overline{2}$ | (3979) |
An increase of 100 basis points in foreign currency rates at 31 December would have decreased profit and equity by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. For a decrease of 100 basis points there would be an equal and opposite impact on the profit and equity.
| Effect on profit or loss | Effect on equity | ||||
|---|---|---|---|---|---|
| 2016 USD'000 |
2015 USD'000 |
2016 USD'000 |
2015 USD'000 |
||
| Euro United States Dollar |
24 | $\bullet$ | 24 | $\qquad \qquad \blacksquare$ | |
| (40) (16) |
(40) (40) |
(40) (16) |
(40) (40) |
||
Interest rate risk is the risk that expenditure or the value of financial instruments will fluctuate due to changes in market interest rates. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group's management monitors the interest rate fluctuations on a continuous basis and acts accordingly.
As at 31 December 2016 and 31 December 2015 the structure of interest financial instruments of the Group grouped according to the types of interest rates, was presented as follows:
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Fixed rate instruments | ||
| Financial assets | ۰ | |
| Financial liabilities | $\blacksquare$ | |
| Variable rate instruments | ||
| Financial liabilities | (4000) | (4000) |
| (4000) | (3993) |
An increase of 100 basis points in interest rates at 31 December 2016 would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. For a decrease of 100 basis points there would be an equal and opposite impact on the profit and equity.
| Effect on profit or loss | Effect on equity | |||
|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | |
| USD'000 | USD'000 | USD'000 | USD'000 | |
| Variable rate instruments | (40) | (40) | (40) | (40) |
| (40) | (40) | (40) | (40) |
The Group's management follows the policy of providing a firm capital base which allows supporting the trust of investors, creditors and market and ensuring future business development.
The Group manages its capital to ensure that it will be able to continue as a going concern while increasing the return to owners through the strive to improve the debt to equity ratio. The Group's overall strategy remains unchanged from last year.
To manage capital, the Group's management, above all, uses calculations of financial leverage coefficient (ratio of leverage ratio) and ratio between net debt and EBITDA.
Financial leverage is calculated as a ratio between net debt and total amount of capital. This ratio measures net debt as a proportion of the capital of the Group, i.e. it correlates the debt with total equity and shows whether the Group is able to pay the amount of outstanding debts. An increase in this coefficient indicates an increase in borrowings relative to the total amount of the Group's capital. Monitoring this indicator is necessary to keep the optimal correlation between own funds and borrowings of the Group in order to avoid problems from over leverage. It is calculated as cumulative borrowings net of cash and cash equivalents. Total amount of capital is calculated as own capital reflected in the consolidated statement of financial position plus the amount of net debt.
For the ratio of net debt to EBITDA, the calculation of net debt is as stated above. EBITDA is an indicator of income before taxes, interest depreciation and amortization. It is useful for the Group's financial analysis, since the Group's activity is connected with long-term investments in vessels, property, plant and equipment. EBITDA does not include depreciation, so that in the Group's opinion, it reflects the approximate cash flows deriving from the Group's income in a more reliable way.
The ratio of net debt to EBITDA gives an indication of whether income obtained from operating activities is sufficient to meet the Group's liabilities.
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Short-term loans | 4 1 4 6 | 4 0 0 0 |
| Total amount of borrowings | 4 1 4 6 | 4 0 0 0 |
| Cash and cash equivalents | (23 490) | (19864) |
| Net debt | (19344) | (15864) |
| Share capital | 118 | 118 |
| Share premium | 23 570 | 23 570 |
| Retained earnings | 25 655 | 33 854 |
| Effect from translation into presentation currency | (18419) | (17480) |
| Non-controlling interests | (902) | 31 |
| Total equity | 30 022 | 40 093 |
| Total amount of equity and net debt | 10678 | 24.229 |
| Financial leverage coefficient | $(182,52)\%$ | $(65.48)\%$ |
For the years ended 31 December 2016 and 2015 the ratio of net debt to EBITDA amounted to:
| 2016 USD'000 |
2015 USD'000 |
|
|---|---|---|
| Loss for the year | (8194) | (5840) |
| Income tax credit | (39) | 159 |
| Finance costs, net | 63 | 9 |
| Impairment losses | 3 2 7 2 | 589 |
| EBIT (Earnings before interest and income tax) | (4898) | (5083) |
| Depreciation and amortization | 1 1 4 6 | 1 0 7 0 |
| EBITDA (Earnings before interest, income tax, depreciation and | ||
| amortisation) | (3 752) | (4.013) |
| Net debt/EBITDA | 519.46% | 395.32% |
During the year there were no changes in approaches to capital management. The Group is not subject to any external regulatory capital requirements.
The Group has an established control framework with respect to the measurements of fair value.
The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.
The different levels have been defined as follows:
The financial assets and financial liabilities of the Group are not measured at fair value and their carrying amount is a reasonable approximation of fair value.
Fair value of financial instruments is defined at the amount at which instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm's length transaction, other than in forced or liquidation sale. As no readily available market exists for a large part of the Group's financial instruments, judgment is necessary in arriving at fair value, based on current economic conditions and specific risks attributable to the instruments. The estimates presented herein are not necessarily indicative of the amounts the Group could realize in a market exchange from the sale of its full holding of a particular instrument.
Main operating activities of the Group are not carried out in Ukraine; however, the Group's performance is affected by the development of the political situation in Ukraine and Russia. Laws and other regulatory acts affecting the activities of entities in Ukraine may be subject to changes during short periods of time. As a result, assets and operating activity of the Group may be exposed to the risk in case of any unfavourable changes in political and economic environment.
The ongoing political and economic instability in Ukraine which commenced at the end of 2013 and led to a deterioration of state finances, volatility of financial markets, illiquidity on capital markets, higher inflation and devaluation of the national currency against major foreign currencies has continued in $2016$ , though to a lesser extent as compared to 2014 and 2015.
Inflation rate in Ukraine during 2016 reduced to 12% (as compared to 43% in 2015), while GDP returned to growth of 1% (after 9% decline in 2015). Devaluation of Ukrainian Hryvnia during 2016 has been moderate. In 2016 the National Bank of Ukraine ("NBU") has made certain steps to ease the currency control restrictions introduced in 2014 and 2015. Current restrictions are effective until rescinded by the NBU. The banking system remains fragile due to its weak level of capital, low asset quality caused by the economic situation, national currency devaluation, changing regulations and other factors.
The final resolution and effects of the political and economic crisis are difficult to predict but may have further severe effects on the Ukrainian economy.
Whilst management believes it is taking appropriate measures to support the sustainability of the Group's business in the current circumstances, a continuation of the current unstable business environment could negatively affect the Group's results and financial position in a manner not currently determinable. These consolidated financial statements reflect management's current assessment of the impact of the Ukrainian business environment on the operations and financial position of the Group. The future business environment may differ from management's assessment. These consolidated financial statements do not include any adjustment for the impact of events in Ukraine that have occurred after the reporting period.
As a result of unstable economic situation in Ukraine, tax authorities in Ukraine pay more and more attention to the business cycles. In connection with this, tax laws in Ukraine are subject to frequent changes. Furthermore, there are cases of their inconsistent application, interpretation and execution. Non-compliance with laws and norms may lead to serious fines and penalties.
The Company operates in the Cypriot tax jurisdiction and its subsidiaries in the Ukrainian tax jurisdiction. The Company's management must interpret and apply existing legislation to transactions with third parties and its own activities. Significant judgment is required in determining the provision for direct and indirect taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
The Group's uncertain tax positions are reassessed by management at every reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the reporting period and any known Court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management's best estimate of the expenditure required to settle the obligations at the reporting period.
While the Group's management believes the enactment of the Tax Code of Ukraine will not have significant negative impact on the Group's financial results in the foreseeable future, as of the date these financial statements were authorized for issue management was in the process of assessing its effects of its adoption on the operations of the Group considering the fact that the above are only applicable to operating activities that are maintained in Ukraine (ship repair and passenger business).
In the course of its economic activities, the Group is involved in legal proceedings with third parties. In most cases, the Group is the initiator of such proceedings with the purpose of preventing from losses in the economic sphere or minimizing them.
The Group's management considers that as at the reporting period, active legal proceedings on such matters will not have any significant influence on its financial position.
Most of the Group's employees receive pension benefits from the Pension Fund, Ukrainian state organization, in accordance with the regulations and laws of Ukraine. Group is obliged to deduct a certain percentage of salaries to the Pension Fund to pay pensions.
As at 31 December 2016 the Group had no liabilities for any supplementary pension payments, health care, insurance or other benefits after retirement to their working or former employees.
The Group had no contingent liabilities as at 31 December 2016.
There were no material events after the reporting period, which affect the consolidated financial statements as at 31 December 2016 except as described below:
Warsaw Stock Exchange Management Board took a decision to suspend trading of shares of KDM Shipping Public Limited until the day of disclosing the annual report for the year 2016 to the public.
On 14 July 2017, the Board of Directors of KDM Shipping Public Limited approved and authorised for issue these consolidated financial statements
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