22 Nov 2016 07:00
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION
IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN
22 November 2016
AFI DEVELOPMENT PLC
("AFI DEVELOPMENT" OR "THE COMPANY")
RESULTS FOR THE NINE MONTHS TO 30 SEPTEMBER 2016
Improvement in gross profit reflects focus on cost efficiency
AFI Development, a leading real estate company focused on developing property in Russia, has today announced its financial results for the nine months ended 30 September 2016.
9M 2016 financial highlights
· Revenue for 9M 2016, including proceeds from the sale of trading properties, reached US$114.4 million (58% increase year-on-year):
- Rental and hotel operating income declined 14% year-on-year to US$61.6 million, mainly due to the rouble depreciation
- AFIMALL City contribution stood at US$48.2 million (9M 2015: US$54.6 million), down 12% year-on-year
- Sale of residential contributed US$52.7 million
· Gross profit increased by 11% year-on-year to US$38.6 million (9M 2015: US$34.8 million), reflecting management focus on efficiency and cost control
· Net loss for 9M 2016 amounted to US$55.7 million, against a loss of US$20.7 million in 9M 2015, largely due to valuation losses in H1 2016
· Total gross value of portfolio of properties remained stable at US$1.41 billion
· Cash, cash equivalents and marketable securities as of 30 September 2016 stood at US$20.4 million
9M 2016 operational highlights
· At Odinburg, all of the pre-sold apartments in Building 1 have now been delivered to customers. The number of sale contracts signed amounted to 699 (97% of total) in Building 1 and 332 (47% of total) in Building 2 as of 21 November 2016
· At the AFI Residence Paveletskaya residential development, the main construction phase and pre-sales of residential units which started in December 2015 continue to plan; 118 units ("flats" and "apartments"1) have been pre-sold to date
· AFIMALL City has managed to retain the majority of its tenants (despite large number or lease expirations in 2016) and welcomed several new retailers to the Mall during the third quarter:
- NOI declined to US$37.8 million in 9M 2016, from US$41.0 million in 9M 2015, mainly due to the rouble depreciation
In September 2016, AFI Development and VTB agreed to amend the terms of the loan facility agreements related to the Ozerkovskaya III and the AFIMALL City projects. The amendments included the deferral of the quarterly principal payments due on the loan facility agreements to maturity of each of the loans and the removal of the existing covenants to the Ozerkovskaya III Loan Facility. VTB has sought additional security in respect of the loans which now includes cross default provisions between each of the loans and a suretyship from Bellgate Constructions Limited ("Bellgate"), which owns the AFIMALL City project, in respect of the Ozerkovskaya III Loan Facility. For details please refer to Note 20 to the Financial Statements.
Commenting on today's announcement, Lev Leviev, Executive Chairman of AFI Development, said:
"Having reached an agreement with the VTB Bank has enabled us to retain all of our assets and to regain focus on construction and marketing of our residential projects under development and on managing our yielding commercial properties. The gradual improvement in macroeconomic indicators, which we witnessed during the first half of the year, has continued into the third quarter. AFI Development remains well positioned to capitalise on future opportunities as further improvement in the Russian economy translates into more favourable operating conditions for our projects. AFI Development currently develops two residential projects: Odinburg (total gross buildable area of 821 thousand sq.m) and AFI Residence Paveletskaya (total gross buildable area of 133 thousand sq.m), while in Q1 2017 we plan to launch two other residential projects: Bolshaya Pochtovaya (total gross buildable area of 170 thousand sq.m) and Botanic Garden (total gross buildable area of 255 thousand sq.m)."
9M 2016 results conference call:
AFI Development will hold a conference call for analysts and investors to discuss its 9M 2016 financial results on Wednesday, 23 November 2016, following the publication of the Company's financial results.
The details for the conference call are as follows:
Date: Wednesday, 23 November 2016
Time: 2pm GMT (5pm Moscow)
Dial-in Tel: International: +44 (0)20 3003 2666
UK toll free: 0808 109 0700
US toll-free: 1 866 966 5335
Russia toll-free: 8 10 8002 4902044
Password: AFI
Please dial in 5-10 minutes prior to the start time giving your name, company and stating that you are dialling into the AFI Development conference call quoting the reference AFI.
Prior to the conference call, the 9M 2016 Investor Presentation of AFI Development will be published on the Company website at http://www.afi-development.com/en/investor-relations/reports-presentations on 23 November 2016 by 11am GMT (2pm Moscow time).
- ends -
For further information, please contact:
AFI Development, +7 495 796 9988
Ilya Kutnov, Corporate Affairs/Investments Director (Responsible for arranging the release of this announcement)
Citigate Dewe Rogerson, London +44 20 7638 9571
David Westover
Sandra Novakov
This announcement contains inside information.
About AFI Development
Established in 2001, AFI Development is one of the leading real estate development companies operating in Russia.
AFI Development is listed on the Main Market of the London Stock Exchange and aims to deliver shareholder value through a commitment to innovation and continuous project development, coupled with the highest standards of design, construction and quality of customer service.
AFI Development focuses on developing and redeveloping high quality commercial and residential real estate assets across Russia, with Moscow being its main market. The Company's existing portfolio comprises commercial projects focused on offices, shopping centres, hotels and mixed-use properties, and residential projects. AFI Development's strategy is to sell the residential properties it develops and to either lease the commercial properties or sell them for a favourable return.
AFI Development is a leading force in urban regeneration, breathing new life into city squares and neighbourhoods and transforming congested and underdeveloped areas into thriving new communities. The Company's long-term, large-scale regeneration and city infrastructure projects establish the necessary groundwork for the successful launch of commercial and residential properties, providing a strong base for future.
Legal disclaimer
Some of the information in these materials may contain projections or other forward-looking statements regarding future events, the future financial performance of the Company, its intentions, beliefs or current expectations and those of its officers, directors and employees concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and business. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could," "may" or "might" or the negative of such terms or other similar expressions. These statements are only predictions and that actual events or results may differ materially. Unless otherwise required by applicable law, regulation or accounting standard, the Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Company, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia and market change in the industries the Company operates in, as well as many other risks specifically related to the Company and its operations.
Executive Chairman's statement
We are delighted to have reached an agreement with VTB Bank PJSC ("VTB") in September, according to which the terms of the existing loan facility agreements have been amended with provision of additional securities to VTB by the Company. As a result of this agreement, AFI Development has been able to retain all its assets while VTB agreed to postpone the principal payments to maturity of both the AFIMALL City and the Ozerkovskaya III loan facilities.
We are encouraged by the continued gradual improvement in the macroeconomic environment in Russia during the third quarter of 2016, which saw a further reduction in the Central Bank key lending rate to 10% in September and a relatively stable rouble.
The 58% year-on-year increase in our revenues for the first nine months of 2016 to US$114.4 million, along with our continued focus on maintaining a high level of efficiency and cost control, led to an 11% improvement in our gross profit to US$38.6 million. The active management of our yielding properties, namely the AFIMALL City, office properties in Moscow and our hotels, played a key role in achieving this result. Our net loss of US$55.7 million for the first nine months of the year is largely attributable to valuation losses recorded during the first half of the year and the rouble depreciation.
Our activities in the residential segment have been focused on construction and marketing of Odinburg and AFI Residence Paveletskaya. At the same time, we are preparing to launch two additional projects in Q1 2017, AFI Residence Pochtovaya and Botanic Garden.
Projects update
AFIMALL City
Amidst continuously difficult conditions in the retail market, management efforts in the AFIMALL City were focused on various marketing initiatives aimed at stimulating footfall, on retaining existing tenants and attracting new ones.
Despite large number of lease expirations scheduled in 2016, AFIMALL City has managed to renew the leases or re-lease the areas to new tenants: the occupancy at the end of Q3 2016 grew to 82% (from 78% as of the end of 2015).
New openings at AFIMALL City during the third quarter included a Wrangler jeans outlet, a Casual Day apparel shop and a Delta Computers outlet. In November 2016, Armani Exchange also opened a shop at the Mall.
Odinburg
All the pre-sold apartments in Building 1 have now been delivered to customers. With construction works being finalised at Building 2, the Company has commenced preparations for state-commissioning of the building to be able to start delivery of the apartments to customers in Q1 2017.
As of the date of publication of this report, 700 (97%) of contracts for sale of apartments in Building 1 and 332 (47%) of contracts for Building 2 have been signed.
AFI Residence Paveletskaya (Paveletskaya II)
In December 2015, AFI Development successfully launched the main construction phase of the project and pre-sales of residential units. At AFI Residence Paveletskaya there are two types of residential units: fully residentially zoned units referred to as "flats" and commercially zoned units that, according to common market practice in Russia, are sold and referred to as "apartments" and can be used for permanent residence. Pre-sales of both "flats" and "apartments" started simultaneously with the construction launch. As of the date of publication of this report, 118 contracts for pre-sales of both "flats" and "apartments" have been signed.
Aquamarine III (Ozerkovskaya III)
AFI Development continues to market office space in the complex to potential buyers and tenants.
AFI Residence Pochtovaya
The Company is planning to launch the main construction phase of AFI Residence Pochtovaya in Q1 2017.
Botanic Garden
AFI Development is finalising the documentation for the project and is planning to launch the main construction phase in Q1 2017.
Lev Leviev Executive Chairman of the Board |
|
ANNEX A
30.9.2016 - Very significant property disclosure
1. AFIMALL City
(Data based on 100%. Share of the Company in the property - 100%) | Current quarter | Comparative data | |||
| Q3 2016 | Q2 2016 | Q1 2016 | Q4 2015 | Q3 2015 |
Value of the property (000'USD) | 656,800 | 656,800 | 666,000 | 685,200 | 990,000 |
NOI in the period (000'US$) | 13,247 | 10,971 | 13,6002 | 12,259 | 11,943 |
Revaluation gains (losses) in the period (000'US$) | (5,438) | (24,700) | (40,960) | (276,764) | 59,918 |
Occupancy rate at the end of the period (%) | 82% | 78% | 82% | 78% | 76% |
Rate of return (%) | 7.7% | 7.5% | 8.2% | 7.8% | 5.5% |
Average rent per sq.m. (US$/annum) | 880 | 941 | 828 | 1,103 | 1,057 |
Average rent per sq.m. in agreements signed in the period (US$/annum) | 685 | 487 | 2483 | 989 | 664 |
ANNEX B
30.9.2016 - Very significant loans disclosure
Balance as of 30.09.2016 | Lender type: Bank, Institutional etc. | Indexation/ currency exposure & interest rate | Liens and material legal restrictions on the property | Covenants | Cross default mechanism | Any other covenants or restriction that might increase the cost of debt | In case it is a credit line facility - what are the terms&conditions for draw downs | The methods/way that the covenant is calculated | Covenant calculation results | The date of 9M 2016 financial statement were reported | The date that the lender is checking the borrower is line with the covenants |
USD 276,885,605 and RUR 9,650,623,032 (USD 152,801,034). Total amount in USD as of 30.09.2016 is USD 429,686,639 | Specific project financed by VTB Bank JSC | RUR/USD loan provided in five tranches totalling RUR 21 billion. Each tranche can be drown down either in US Dollars or in Rubles (at Company's discretion). The loan facility has differentiated interest rates which are currency dependent: 9.5% for loans drawn down in Russian rubles and 3 months LIBOR + 5.02% for loans drawn down in US dollars. The interest on the loans is payable on a quarterly basis, throughout the term of the credit line. The principal is due to be fully repaid in April 2018. The RUR interest rate may be unilaterally increased by the lending bank, should one of the interest indicators stipulated by the Russian Central Bank and specified in the loan agreement be increased; the interest rate will be increased by the amount of the interest indicator increase. | 1. Liens over all the Bellgate's shares2. AFI Development PLC company guarantee, limited to USD 1,000,0003. Mortgage over 100% of the premises of AFIMALL City4. Mortgage over the premises in the Parking owned by Bellgate, upon registration of Bellgate's rights to land plot under the Parking5. Permission to debit Bellgate's account held in the lending bank 6. Additional mortgage over the premises of the "Aquamarine" Hotel in Moscow, to be removed in case Bellgate (the borrower) redeems USD 20 million of the principal 7. Additional guarantee by Semprex LLC, a Russian Company - an indirect subsidiary of AFI Development Plc, to be removed in case Bellgate (the borrower) redeems USD 20 million of the principal | (1) Bellgate'(the Borrower) should have minumum quarterly revenues, ranging from RUR 651,000,000 in Q3 2012 to RUR 1,139,000,000 in Q1 2018. Penalty: 0.5% per annum extra charge to the interest rate applicable under the loan agreement- applicable only for the quarter when the aforesaid revenue threshold was not achieved;(2) Liquidation Value of the property should be higher than sum of the outstanding principal and six months interest. | N/A | N/A | The loan is given in five tranches: 1st tranche drawn down on 29 June 2012, 2nd tranche drawn down on 3 August 2012 on the amount USD 69, 385,604.64 (RUR 2,252,000,000), 3rd tranche of RUR 1,300,000,000 drawn down on 01.02.2013, 4th tranche of RUR 1,333,333,333.33 drawn down on 28.02.2013 , 5th tranche of RUR 1,333,333,333.34 drawn down on 28.02.2014. | (1) The total of revenue, including VAT, calculated quarterly; (2) The Liquidation Value is determined by an external valuer appointed by the Bank. | (1) The minimum quarterly revenue for Q3 2016 was 1 367 millions Roubles incl. VAT;(2) Liquidation Value determined by an external valuer appointed by the Bank is USD 477,5 million/RUR 31,5 bln (VAT not included) | 22 November 2016 | (1) Borrowers revenues are checked quarterly; (2) Liquidation value is checked twice a year, on December and on August. |
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the period from 1 January 2016 to 30 September 2016
C O N T E N T S
Independent auditors' report on review of condensed consolidated interim financial information
Condensed consolidated income statement
Condensed consolidated statement of comprehensive income
Condensed consolidated statement of changes in equity
Condensed consolidated statement of financial position
Condensed consolidated statement of cash flows
Notes to the condensed consolidated interim financial statements
Independent auditors' report on review of condensed consolidated interim financial information to the members of AFI DEVELOPMENT PLC
Introduction
We have reviewed the accompanying condensed consolidated statement of financial position of AFI Development PLC as at 30 September 2016, the condensed consolidated statements of income and comprehensive income for the three-month and the nine-month period then ended and the statement of changes in equity and cash flows for the nine-month period then ended, and notes to the interim financial statements ('the condensed consolidated interim financial statements'). The Company's Board of Directors is responsible for the preparation and presentation of these condensed consolidated interim financial statements in accordance with IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on these condensed consolidated interim financial statements based on our review.
Scope of Review
We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements as at 30 September 2016 is not prepared, in all material respects, in accordance with IAS 34 "Interim Financial Reporting".
Emphasis of Matter
Without qualifying our conclusion, we draw attention to note 2i to the condensed consolidated interim financial statements which describes that the Group incurred a net loss after tax of US$55,689 thousand, driven by a decrease in the value of Group property assets by US$111,401 thousand and the continuous decline of cash and cash equivalents and marketable securities down to US$20,382 thousand. Furthermore, the maturity of the loans and borrowings, early 2018 will require the Group to make a lump sum payment of the principal of the loans with a current balance of $620,773 thousand. These conditions along with other matters as set forth in note 2i, indicate the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.
Maria H. Zavrou, FCCA
Certified Public Accountant and Register Auditor
For and on behalf of
KPMG Limited
Certified Public Accountants and Registered Auditors
14 Esperidon Street
1087 Nicosia, Cyprus
21 November 2016
CONDENSED CONSOLIDATED INCOME STATEMENT
For the period from 1 January 2016 to 30 September 2016
|
| For the three months ended | For the nine months ended | |||
|
| 1/7/16- | 1/7/15- | 1/1/16- | 1/1/15- | |
|
| 30/9/16 | 30/9/15 | 30/9/16 | 30/9/15 | |
|
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
| Note |
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| |
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|
|
|
|
| |
Revenue | 6 | 24,706 | 21,123 | 114,413 | 72,199 | |
|
|
|
|
|
| |
Other income |
| 349 | 1,303 | 2,833 | 2,711 | |
|
|
|
|
|
| |
Operating expenses | 8 | (9,339) | (9,288) | (27,064) | (30,415) | |
Carrying value of trading properties sold | 14 | (2,732) | 8 | (48,298) | (627) | |
Administrative expenses | 7 | (1,908) | (2,308) | (5,319) | (7,236) | |
Other expenses |
| (357) | (160) | (964) | (1,179) | |
Total expenses |
| (14,336) | (11,748) | (81,645) | (39,457) | |
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|
|
| |
Share of after tax profit/(loss) of joint ventures |
| 735 | (1,612) | 3,034 | (589) | |
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| |
Gross Profit |
| 11,454 | 9,066 | 38,635 | 34,864 | |
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| |
Profit on disposal of investment property |
| 30 | - | 1,768 | - | |
|
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| |
Decrease in fair value of properties | 11,12 | (10,541) | 98,466 | (111,401) | 56,129 | |
Impairment loss on inventory of real estate |
| - | - | - | (662) | |
|
| (10,541) | 98,466 | (111,401) | 55,467 | |
|
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|
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| |
Results from operating activities |
| 943 | 107,532 | (70,998) | 90,331 | |
|
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| |
Finance income |
| 7,814 | 714 | 45,798 | 3,447 | |
Finance costs |
| (11,321) | (89,627) | (33,067) | (109,307) | |
Net finance (costs)/income | 9 | (3,507) | (88,913) | 12,731 | (105,860) | |
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| |
(Loss)/profit before tax |
| (2,564) | 18,619 | (58,267) | (15,529) | |
Tax benefit/(expense) | 10 | 167 | (6,146) | 2,578 | (5,204) | |
|
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| |
(Loss)/Profit for the period |
| (2,397) | 12,473 | (55,689) | (20,733) | |
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(Loss)/Profit attributable to: |
|
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|
|
| |
Owners of the Company |
| (2,432) | 11,682 | (55,565) | (21,424) | |
Non-controlling interests |
| 35 | 791 | (124) | 691 | |
|
| (2,397) | 12,473 | (55,689) | (20,733) | |
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Earnings per share |
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Basic and diluted earnings per share (cent) |
| (0.23) | 1.12 | (5.30) | (2.04) | |
The notes form an integral part of the condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period from 1 January 2016 to 30 September 2016
| For the three months ended | For the nine months ended | ||
| 1/7/16- | 1/7/15- | 1/1/16- | 1/1/15- |
| 30/9/16 | 30/9/15 | 30/9/16 | 30/9/15 |
| US$ '000 | US$ '000 | US$ '000 | US$ '000 |
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(Loss)/Profit for the period | (2,397) | 12,473 | (55,689) | (20,733) |
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Other comprehensive income Items that are or may be reclassified subsequently to profit or loss |
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Realised translation differences on disposal of subsidiaries transferred to income statement | - | 2,572 |
- |
1,742 |
Foreign currency translation differences for foreign operations |
1,921 |
(20,176) |
25,878 |
(15,505) |
Other comprehensive income for the period | 1,921 | (17,604) | 25,878 | (13,763) |
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Total comprehensive income for the period | (476) | (5,131) | (29,811) | (34,496) |
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Total comprehensive income attributable to: |
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Owners of the parent | (521) | (5,744) | (29,824) | (35,115) |
Non-controlling interests | 45 | 613 | 13 | 619 |
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| (476) | (5,131) | (29,811) | (34,496) |
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The notes form an integral part of the condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period from 1 January 2016 to 30 September 2016
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|
Attributable to the owners of the Company | Non-controlling interests |
Total equity |
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| Share | Share | Capital | Translation | Retained |
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| Capital | Premium | reserve | Reserve | Earnings | Total |
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| US$'000 | US$ '000 | US$ '000 | US$ '000 | US$ '000 | US$ '000 | US$ '000 | US$ '000 |
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Balance at 1 January 2016 | 1,048 | 1,763,409 | (9,201) | (338,951) | (620,786) | 795,519 | (3,919) | 791,600 |
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Total comprehensive income for the period |
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Loss for the period | - | - | - | - | (55,565) | (55,565) | (124) | (55,689) |
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Other comprehensive income | - | - | - | 25,741 | - | 25,741 | 137 | 25,878 |
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Total comprehensive income for the period |
- |
- |
- |
25,741 |
(55,565) |
(29,824) |
13 |
(29,811) |
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Transactions with owners of the Company Contributions and distributions |
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Share option expense | - | - | - | - | 738 | 738 | - | 738 |
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Balance at 30 September 2016 | 1,048 | 1,763,409 | (9,201) | (313,210) | (675,613) | 766,433 | (3,906) | 762,527 |
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Balance at 1 January 2015 | 1,048 | 1,763,409 | - | (314,880) | (158,982) | 1,290,595 | (8,817) | 1,281,778 |
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Total comprehensive income for the period |
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Loss for the period | - | - | - | - | (21,424) | (21,424) | 691 | (20,733) |
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Other comprehensive income | - | - | - | (13,691) | - | (13,691) | (72) | (13,763) |
| ||||||||||||
Total comprehensive income for the period |
- |
- |
- |
(13,691) |
(21,424) |
(35,115) |
619 |
(34,496) |
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Transactions with owners of the Company Contributions and distributions |
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Share option expense | - | - | - | - | 1,839 | 1,839 | - | 1,839 |
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Changes in ownership interest |
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Acquisition of non-controlling interests |
- |
- |
(9,201) |
- |
- |
(9,201) |
7,601 |
(1,600) |
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Balance at 30 September 2015 | 1,048 | 1,763,409 | (9,201) | (328,571) | (178,567) | 1,248,118 | (597) | 1,247,521 |
| ||||||||||||
The notes form an integral part of the condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2016
|
| 30/9/16 | 31/12/15 | |
| Note | US$ '000 | US$ '000 | |
Assets |
|
|
| |
Investment property | 11 | 904,400 | 933,700 | |
Investment property under development | 12 | 231,865 | 238,925 | |
Property, plant and equipment | 13 | 30,093 | 26,280 | |
Long-term loans receivable |
| 15,347 | 14,316 | |
Inventory of real estate |
| 22,662 | 18,570 | |
VAT recoverable |
| 15 | 33 | |
Non-current assets |
| 1,204,382 | 1,231,824 | |
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| |
Trading properties | 14 | 7,365 | 2,062 | |
Trading properties under construction | 15 | 203,405 | 204,392 | |
Other investments | 16 | 6,735 | 15,921 | |
Inventory |
| 558 | 477 | |
Short-term loans receivable |
| 19 | 101 | |
Trade and other receivables | 17 | 37,447 | 29,017 | |
Current tax assets |
| 1,610 | 1,622 | |
Cash and cash equivalents | 18 | 13,647 | 26,545 | |
Current assets |
| 270,786 | 280,137 | |
|
|
|
| |
Total assets |
| 1,475,168 | 1,511,961 | |
|
|
|
| |
Equity |
|
|
| |
Share capital |
| 1,048 | 1,048 | |
Share premium |
| 1,763,409 | 1,763,409 | |
Translation reserve |
| (313,210) | (338,951) | |
Capital reserve |
| (9,201) | (9,201) | |
Retained earnings |
| (675,613) | (620,786) | |
Equity attributable to owners of the Company | 19 | 766,433 | 795,519 | |
Non-controlling interests |
| (3,906) | (3,919) | |
Total equity |
| 762,527 | 791,600 | |
|
|
|
| |
Liabilities |
|
|
| |
Long-term loans and borrowings | 20 | 620,773 | 389,799 | |
Deferred tax liabilities |
| 16,029 | 25,567 | |
Deferred income |
| 9,792 | 8,543 | |
Non-current liabilities |
| 646,594 | 423,909 | |
|
|
|
| |
Short-term loans and borrowings | 20 | 687 | 224,315 | |
Trade and other payables | 21 | 29,517 | 18,163 | |
Advances from customers |
| 35,843 | 53,974 | |
Current liabilities |
| 66,047 | 296,452 | |
|
|
|
| |
Total liabilities |
| 712,641 | 720,361 | |
|
|
|
| |
Total equity and liabilities |
| 1,475,168 | 1,511,961 | |
The condensed consolidated interim financial statements were approved by the Board of Directors on 21 November 2016.
The notes form an integral part of the condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from 1 January 2016 to 30 September 2016
| 1/1/16- | 1/1/15- | |
| 30/9/16 | 30/9/15 | |
Note | US$ '000 | US$ '000 | |
Cash flows from operating activities |
|
|
|
Loss for the period |
| (55,689) | (20,733) |
Adjustments for: |
|
|
|
Depreciation | 13 | 532 | 734 |
Net finance (income)/costs | 9 | (13,017) | 105,560 |
Share option expense |
| 738 | 1,839 |
Decrease/(increase) in fair value of properties | 11,12 | 111,401 | (56,129) |
Impairment loss on inventory of real estate |
| - | 662 |
Share of (profit)/loss in joint ventures |
| (3,034) | 589 |
Profit on disposal of investment property |
| (1,768) | - |
Profit on sale of property, plant and equipment |
| (22) | - |
Tax (benefit)/expense | 10 | (2,578) | 5,204 |
|
| 36,563 | 37,726 |
Change in trade and other receivables |
| 436 | 50 |
Change in inventories |
| (7) | 126 |
Change in trading properties and trading properties under construction |
| 6,081 | (19,430) |
Change in advances and amounts payable to builders of trading properties under construction |
|
9,901 |
(11,304) |
Change in advances from customers |
| (24,427) | 23,168 |
Change in trade and other payables |
| (2,114) | 1,617 |
Change in VAT recoverable |
| (2,799) | 2,367 |
Change in deferred income |
| (61) | (2,015) |
Cash generated from operating activities |
| 23,573 | 32,305 |
Taxes paid |
| (285) | (460) |
Net cash from operating activities |
| 23,288 | 31,845 |
|
|
|
|
Cash flows from investing activities |
|
|
|
Proceeds from sale of other investments |
| 18,526 | 1,318 |
Proceeds from disposal of investment property |
| 1,099 | - |
Proceeds from sale of property, plant and equipment |
| 100 | 1 |
Interest received |
| 4,317 | 2,289 |
Change in advances and amounts payable to builders |
| (2,008) | (1,609) |
Payments for construction of investment property under development | 12 | (2,838) | (7,960) |
Payments for the acquisition/renovation of investment property | 11 | (117) | (1,929) |
Dividends received from joint ventures |
| 219 | 3,250 |
Change in VAT recoverable |
| (315) | 3,262 |
Acquisition of property, plant and equipment | 13 | (243) | (253) |
Acquisition of other investments |
| (9,506) | (20,551) |
Proceeds from repayments of loans receivable |
| 141 | - |
Payments for loans receivable |
| (6) | (106) |
Net cash from/(used in) investing activities |
| 9,369 | (22,288) |
|
|
|
|
Cash flows from financing activities |
|
|
|
Acquisition of non-controlling interest |
| - | (1,600) |
Proceeds from loans and borrowings | 20 | - | 10,000 |
Repayment of loans and borrowings |
| (13,090) | (29,500) |
Interest paid |
| (33,312) | (34,428) |
Net cash used in financing activities |
| (46,402) | (55,528) |
|
|
|
|
Effect of exchange rate fluctuations |
| 847 | (5,039) |
|
|
|
|
Net decrease in cash and cash equivalents |
| (12,898) | (51,010) |
Cash and cash equivalents at 1 January |
| 26,545 | 86,756 |
Cash and cash equivalents at 30 September | 18 | 13,647 | 35,746 |
The notes form an integral part of the condensed consolidated interim financial statements.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the period from 1 January 2016 to 30 September 2016
1. INCORPORATION AND PRINCIPAL ACTIVITY
AFI Development PLC (the "Company") was incorporated in Cyprus on 13 February 2001 as a limited liability company under the name Donkamill Holdings Limited. In April 2007 the Company was transformed into public company and changed its name to AFI Development PLC. The address of the Company's registered office is 165 Spyrou Araouzou Street, Lordos Waterfront Building, 5th floor, Flat/office 505, 3035 Limassol, Cyprus. As of 7 September 2016 the Company is a 64.88% subsidiary of Flotonic Limited, a private holding company registered in Cyprus, 100% owned by Mr Lev Leviev. Prior to that, the Company was a 64.88% subsidiary of Africa Israel Investments Ltd ("Africa-Israel"), which is listed in the Tel Aviv Stock Exchange ("TASE"). The remaining shareholding of "A" shares is held by a custodian bank in exchange for the GDRs issued and listed in the London Stock Exchange ("LSE"). On 5 July 2010 the Company issued by way of a bonus issue, 523,847,027 "B" shares, which were admitted to a premium listing on the Official List of the UK Listing Authority and to trading on the main market of LSE. On the same date, the ordinary shares of the Company were designated as "A" shares.
These condensed consolidated interim financial statements ("interim financial statements") as at and for the nine months ended 30 September 2016 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in jointly controlled entities.
The principal activity of the Group is real estate investment and development. The principal activity of the Company is the holding of investments in subsidiaries and joint ventures.
2. basis of Accounting
i. Going concern basis of accounting
As set out in its results for the year ended 31 December 2015, the Group has experienced difficult trading conditions driven by macro-economic and geopolitical developments affecting the Russian economy as a whole and a deterioration in demand for real estate assets across the country. Whilst the general economy has shown some signs of stabilisation during the 9 months of 2016 (with higher oil prices and inflation on a downward trend), the performance of the real estate sector remains weak.
Against this backdrop, AFI Development PLC reported net losses during the year ended 31 December 2015 of US$467 million, which predominately related to a decrease in the value of the Group's property assets by approximately US$0.5 billion to US$1.4 billion. Cash and cash equivalents and marketable securities also declined by US$50.8 million during 2015 to US$42.5 million as at 31 December 2015.
For the nine-month period ended 30 September 2016, the Group has recognised a net loss after tax of US$55,689 thousand, driven by a decrease in the value of Group property assets by US$111,401 thousand and the continuous decline of cash and cash equivalents and marketable securities down to US$20,382 thousand. Furthermore, as described in the below paragraphs, the maturity of the loans, early 2018 will require the Group to make a lump sum payment of the principal of the loans with a current balance of $620,773 thousand. These conditions, along with other matters set forth below, indicate the existence of material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.
Following the events disclosed in the condensed financial statements for the six-month period ended 30 June 2016, the Company and VTB signed, on 27 September 2016, addenda to the Ozerkovskaya III and AFIMALL City Loan Facilities. The addenda, as disclosed in detail in note 20, Loans and Borrowings, provided the deferral of the quarterly principal payments due on the Loan Facility Agreements to maturity of each of the Loans and the removal of the existing covenants to the Ozerkovskaya III Loan Facility, in consideration for which VTB has sought additional security in respect of the Loans which now includes cross default provisions between each of the Loans and a suretyship from Bellgate Constructions Limited ("Bellgate"), which holds the AFIMALL City project, in respect of the Ozerkovskaya III Loan Facility.
In addition, Mr Leviev has, on the same date, provided VTB with a Guarantee, pursuant to which Mr Leviev has undertaken to guarantee, for a period of 10 months, the obligations of Krown under the Ozerkovskaya III Loan Facility. The Guarantee, which is enforceable for 12 months, provides additional security to VTB in respect of the Ozerkovskaya III Loan Facility. Prior to this and as described in note 19i "Share Capital and Reserves" Mr Leviev acquired 679,748,454 shares in the Company, previously held by Africa Israel Investments Ltd, which represents 64.88% of the Company's share capital.
As a result of the above amendments to the Loan Facility Agreements and the Guarantee being entered into, the Board of Directors of AFI Development decided not to proceed with the Disposal transaction announced on 15 July 2016 and the loans were reclassified from short term to long term liabilities.
Management anticipates that any additional financing budgeted based on its estimated operating cash flows will be secured by new bank facilities and loans, some of which are well into negotiations with banks including VTB. Management expects to continue the construction of projects classified as "Trading properties under construction" as described in Note 15, which are "Odinburg" and "Paveleskaya phase II" and commence the construction of "Pochtovaya" and "Botanic Garden".
Management estimates that the Group will generate sufficient operating cash flows so as to meet the Loan Facilities interest payments. Management explores all options in relation to repaying the Loan Facilities when they fall due in 2018, which may or may not include the disposal of certain assets or projects or refinance of AFIMALL City loan. Management considers its different options and is developing a plan on how to approach the loans at maturity and secure further financing to continue in operational existence for the foreseeable future.
Considering all the above conditions and assumptions, the interim financial statements have been prepared on a going concern basis, which assumes that the Group will be in a position to continue its operations in the foreseeable future and it is noted that no reclassifications or adjustments were included with reference to the values of the Group's assets and liabilities, which may be required if the Group is not able to continue operating as a "going concern".
ii. Statement of compliance
These interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2015 ('last annual financial statements'). They do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last financial statements.
iii. Functional and presentation currency
These consolidated financial statements are presented in United States Dollars which is the Company's functional currency. All financial information presented in United States Dollars has been rounded to the nearest thousands, except when otherwise indicated.
Foreign operations
Each entity of the Group determines its own functional currency and items included in the financial statements of each entity are measured using its functional currency. Where the functional currency of an entity of the Group is other than US Dollars, which is the presentation currency of the Group, then the financial statements of the entity are translated in accordance with IAS 21 'The effects of changes in foreign exchange rates".
The table below shows the exchange rates of Russian Roubles, which is the functional currency of the Russian subsidiaries of the Group, to the US Dollar which is the presentation currency of the Group:
Exchange rate % change % change
Russian Roubles quarter year to date
As of: for US$1
30 September 2016 63.1581 (1.7) (13.3)
30 June 2016 64.2575 (5.0) (11.8)
31 March 2016 67.6076 (7.2) (7.2)
31 December 2015 72.8827 29.5
30 September 2015 66.2367 19.3 17.7
Average rate during:
Nine-month period ended 30 September 2016 68.3667 15.3
Six-month period ended 30 June 2016 70.2583 22.4
Three-month period ended 31 March 2016 74.6283 20.0
Nine-month period ended 30 September 2015 59.2777 67.5
3. use of judgements and estimates
In preparing these interim financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.
The significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2015.
a. Measurement of fair values
The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the CFO.
The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.
Significant valuation issues are reported to the Group Audit Committee.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
· Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
· Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
4. significant accounting policies
The accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2015.
New standards, interpretations and amendments adopted by the Group
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2015, except for the adoption of new standards and interpretations effective as of 1 January 2016.
Several new standards and amendments apply for the first time in 2016. However, they do not impact the annual consolidated financial statements of the Group or the interim condensed consolidated financial statements of the Group.
Standards, amendments to standards, and interpretations issued but not yet endorsed by the EU
IFRS 15 - "Revenue from Contracts with Customers". The new standard provides a unified application that regulates the accounting treatment of revenue arising from contracts with customers. This standard supersedes IAS 18 "Revenue" and IAS 11 "Construction Contracts" and the accompanying interpretations thereof. The core principle of the standard is the recognition of revenue from the transfer of goods or services to customers in an amount that represents the economic benefits that the entity expects to receive in return for them. As such, the standard stipulates that the recognition of revenue will occur when the entity transfers the goods and/or services to the customer and the customer obtains control of those goods or services.
The standard is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted under IFRS. However since not endorsed by the EU yet, early adoption is not permitted by the Group.
IFRS 16 - "Leases". The new standard requires companies to bring most leases on-balance sheet, recognizing new assets and liabilities. All companies that lease major assets for use in their business will see an increase in reported assets and liabilities. The standard introduces new estimates and judgmental thresholds that affect the identification, classification and measurement of lease transactions. This will affect a wide variety of sectors including retailers that lease stores. The larger the lease portfolio, the greater the impact on key reporting metrics. The new standard takes effect in January 2019. Before that, companies will need to gather significant additional data about their leases and make new estimates and calculations.
5. OPERATING SEGMENTS
The Group has 5 reportable segments, as described below, which are the Group's strategic business units. The following summary describes the operation in each of the Group's reportable segments:
· Development Projects - Commercial projects: Include construction of property for future lease.
· Development Projects - Residential projects: Include construction and selling of residential properties.
· Asset Management: Includes the operation of investment property for lease.
· Hotel Operation: Includes the operation of Hotels.
· Other - Land bank: Includes the investment and holding of property for future development.
Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Group's management team. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm's length basis.
| Development projects | Asset management | Hotel Operation | Other - land bank | Total | |||
| Commercial projects | Residential projects |
|
|
|
|
|
|
| 30/9/16 | 30/9/15 | 30/9/16 | 30/9/15 | 30/9/16 | 30/9/15 | 30/9/16 | 30/9/15 | 30/9/16 | 30/9/15 | 30/9/16 | 30/9/15 |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenues | - | - | 53,762 | 804 | 50,477 | 58,123 | 8,271 | 8,476 | 1,902 | 4,796 | 114,412 | 72,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment revenue | - | - | - | - | 6,719 | 5,322 | 2 | 1 | 8,451 | 9,880 | 15,172 | 15,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment (loss)/profit before tax | - | - | 535 | (1,780) | (25,623) | (26,017) | 2,077 | 1,713 | (40,159) | 10,622 | (63,170) | (15,462) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 30/9/16 | 31/12/15 | 30/9/16 | 31/12/15 | 30/9/16 | 31/12/15 | 30/9/16 | 31/12/15 | 30/9/16 | 31/12/15 | 30/9/16 | 31/12/15 |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets | - | - | 335,455 | 246,645 | 904,466 | 943,046 | 27,766 | 25,174 | 198,905 | 284,373 | 1,466,592 | 1,499,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities | - | - | 62,229 | 67,152 | 657,827 | 650,565 | 795 | 661 | 2,656 | 15,499 | 723,507 | 733,877 |
Reconciliation of reportable segment profit or loss
| 1/1/16- 30/9/16 | 1/1/15- 30/9/15 |
| US$ '000 | US$ '000 |
|
|
|
Total loss before tax for reportable segments | (63,170) | (15,462) |
Unallocated amounts: |
|
|
Other profit or loss | 1,869 | 522 |
Share of profit/(loss) of joint ventures, net of tax | 3,034 | (589) |
Loss before tax | (58,267) | (15,529) |
6. REVENUE
| For the three months ended | For the nine months ended | ||
| 1/7/16- 30/9/16 | 1/7/15- 30/9/15 | 1/1/16- 30/9/16 | 1/1/15- 30/9/15 |
| US$ '000 | US$ '000 | US$ '000 | US$ '000 |
|
|
|
|
|
Investment property rental income | 18,737 | 18,251 | 53,304 | 62,919 |
Sales of trading properties (note 14) | 2,953 | 97 | 52,677 | 692 |
Hotel operation income | 2,965 | 2,740 | 8,271 | 8,476 |
Construction consulting/management fees | 51 | 35 | 161 | 112 |
| 24,706 | 21,123 | 114,413 | 72,199 |
7. ADMINISTRATIVE EXPENSES
| For the three months ended | For the nine months ended | ||
| 1/7/16- 30/9/16 | 1/7/15- 30/9/15 | 1/1/16- 30/9/16 | 1/1/15- 30/9/15 |
| US$ '000 | US$ '000 | US$ '000 | US$ '000 |
|
|
|
|
|
Consultancy fees | 782 | 247 | 1,470 | 610 |
Legal fees | 511 | 174 | 790 | 432 |
Auditors' remuneration | 201 | 86 | 350 | 372 |
Valuation expenses | 1 | 53 | 57 | 120 |
Directors' remuneration | 340 | 379 | 1,032 | 1,107 |
Depreciation | 27 | 33 | 89 | 83 |
Insurance | 58 | 53 | 171 | 150 |
Provision for Doubtful Debts | (480) | (327) | (1,063) | (923) |
Share option expense | 208 | 564 | 738 | 1,839 |
Donations | 3 | 699 | 644 | 2,111 |
Other administrative expense | 257 | 347 | 1,041 | 1,335 |
| 1,908 | 2,308 | 5,319 | 7,236 |
8. OPERATING EXPENSES
The decrease during the period relates to the continuous effort of the Group for a cost saving optimisation program and a reversal of last year's over provision of property tax amounting to US$1,229 thousand.
9. FINANCE COST AND FINANCE INCOME
| For the three months ended | For the nine months ended | ||
| 1/7/16- 30/9/16 | 1/7/15- 30/9/15 | 1/1/16- 30/9/16 | 1/1/15- 30/9/15 |
| US$ '000 | US$ '000 | US$ '000 | US$ '000 |
|
|
|
|
|
Interest income | 450 | 277 | 1,696 | 2,036 |
Loans write off | - | (3) | - | 76 |
Net foreign exchange gain | 7,364 | - | 44,102 | - |
Net change in fair value of financial assets | - | 440 | - | 1,335 |
Finance income | 7,814 | 714 | 45,798 | 3,447 |
|
|
|
|
|
Interest expense on loans and borrowings | (11,230) | (11,316) | (32,554) | (34,567) |
Translation reserve reclassified upon disposal of subsidiary |
- |
(2,572) |
- |
(1,742) |
Net change in fair value of financial assets | 9 | - | (227) | - |
Net foreign exchange loss | - | (75,625) | - | (72,703) |
Other finance costs | (100) | (114) | (286) | (300) |
Finance costs | (11,321) | (89,627) | (33,067) | (109,307) |
|
|
|
|
|
Net finance (costs)/income | (3,507) | (88,913) | 12,731 | (105,860) |
10. tAX (benefit)/expense
| For the three months ended | For the nine months ended | |||
|
| 1/7/16- 30/9/16 | 1/7/15- 30/9/15 | 1/1/16- 30/9/16 | 1/1/15- 30/9/15 |
|
| US$ '000 | US$ '000 | US$ '000 | US$ '000 |
| Current tax expense |
|
|
|
|
| Current year | 77 | 194 | 205 | 550 |
|
|
|
|
|
|
| Deferred tax (benefit)/expense |
|
|
|
|
| Origination and reversal of temporary differences |
(244) |
5,952 |
(2,783) |
4,654 |
|
Total income tax (benefit)/expense |
(167) |
6,146 |
(2,578) |
5,204 |
11. INVESTMENT PROPERTY
Reconciliation of carrying amount
| 30/9/16 | 31/12/15 |
| US$ '000 | US$ '000 |
|
|
|
Balance 1 January | 933,700 | 1,375,416 |
Renovations/additional cost | 117 | 2,013 |
Disposals | (500) | - |
Fair value adjustment | (85,957) | (332,361) |
Effect of movement in foreign exchange rates | 57,040 | (111,368) |
Balance 30 September / 31 December | 904,400 | 933,700 |
The investment property was revalued by independent appraisers on 30 June 2016. The cumulative adjustments, for all projects, are shown in line "Fair value adjustment" in the table above. The fair value adjustment is mainly a result of the effect of the Russian economic conditions on the real estate market and partly relates to the Rouble strengthening offsetting the increase thereof.
The increase due to the effect of the foreign exchange rates is a result of the strengthening of the Rouble compared to the US Dollar by 13.3%, during the nine months period ended 30 September 2016.
Based on the management's assessment the fair value of the assets within the portfolio reported has not significantly changed since the valuation of 30 June 2016.
12. INVESTMENT PROPERTY UNDER DEVELOPMENT
| 30/9/16 | 31/12/15 |
| US$ '000 | US$ '000 |
|
|
|
Balance 1 January | 238,925 | 431,474 |
Construction costs | 2,838 | 10,906 |
Transfer to trading properties under construction (note 15) | - | (69,300) |
Fair value adjustment | (25,444) | (102,003) |
Effect of movements in foreign exchange rates | 15,546 | (32,152) |
Balance 30 September / 31 December | 231,865 | 238,925 |
The investment property under development was revalued by independent appraisers on 30 June 2016. The cumulative adjustments, for all projects, are shown in line "Fair value adjustment" in the table above. The fair value adjustment is mainly a result of the effect of the Russian economic conditions on the real estate market and partly relates to the Rouble strengthening offsetting the increase thereof.
The increase due to the effect of the foreign exchange rates is a result of the strengthening of the Rouble compared to the US Dollar by 13.3%, during the nine months period ended 30 September 2016.
Based on the management's assessment the fair value of the assets within the portfolio reported has not significantly changed since the valuation of 30 June 2016.
13. PROPERTY, PLANT AND EQUIPMENT
| 30/9/16 | 31/12/15 |
| US$ '000 | US$ '000 |
|
|
|
Balance 1 January | 26,280 | 35,101 |
Additions | 243 | 56 |
Transfer from trading properties (note 14) | - | 212 |
Depreciation for the period / year | (532) | (963) |
Disposals | (78) | (1) |
Effect of movements in foreign exchange rates | 4,180 | (8,125) |
Balance 30 September / 31 December | 30,093 | 26,280 |
14. TRADING PROPERTIES
| 30/9/16 | 31/12/15 |
| US$ '000 | US$ '000 |
|
|
|
Balance 1 January | 2,062 | 2,979 |
Transfer from trading properties under construction (note 15) | 53,821 | - |
Transfer to property, plant and equipment (note 13) | - | (212) |
Disposals | (48,070) | (609) |
Effect of movements in exchange rates | (448) | (96) |
Balance 30 September / 31 December | 7,365 | 2,062 |
Trading properties comprise of unsold apartments and parking places.
The transfer from trading properties under construction represents the completion of the construction of a number of flats of "Odinburg" project. During the period the sale of 694 flats, 2 offices and 43 parking places were recognised, upon transferring of the rights to the buyers according to the signed acts of acceptance, in the income statement.
15. TRADING PROPERTIES UNDER CONSTRUCTION
| 30/9/16 | 31/12/15 |
| US$ '000 | US$ '000 |
|
|
|
Balance 1 January | 204,392 | 133,036 |
Transfer to trading properties (note 14) | (53,821) | - |
Transfer from investment property under development (note 12) | - | 69,300 |
Construction costs | 41,482 | 33,670 |
Disposals | (770) | - |
Impairment loss | - | (13,400) |
Effect of movements in exchange rates | 12,122 | (18,214) |
Balance 30 September / 31 December | 203,405 | 204,392 |
Trading properties under construction comprise "Odinburg" and "Paveletskaya Phase II" projects, which involves primarily the construction of residential properties.
16. OTHER INVESTMENTS
The decrease in other investments is due to sale of bonds for US$5.5 million and maturity of bonds for US$3.7 million during the period.
17. TRADE AND OTHER RECEIVABLES
| 30/9/16 | 31/12/15 |
| US$ '000 | US$ '000 |
|
|
|
Advances to builders | 22,718 | 18,383 |
Amounts receivable from related parties (note 25) | 388 | 337 |
Trade receivables, net | 3,318 | 3,381 |
Other receivables | 3,469 | 3,037 |
VAT recoverable | 4,384 | 858 |
Tax receivables | 3,170 | 3,021 |
| 37,447 | 29,017 |
Trade receivables net
Trade receivables are presented net of an accumulated provision for doubtful debts of US$9,790 thousand (31/12/2015: US$11,402 thousand).
18. CASH AND CASH EQUIVALENTS
| 30/9/16 | 31/12/15 |
Cash and cash equivalents consist of: | US$ '000 | US$ '000 |
|
|
|
Cash at banks | 13,483 | 26,374 |
Cash in hand | 164 | 171 |
| 13,647 | 26,545 |
19. SHARE CAPITAL AND RESERVES
| 30/9/16 | 31/12/15 | |
1. Share capital | US$ '000 | US$ '000 | |
|
|
| |
Authorised |
|
| |
2,000,000,000 shares of US$0.001 each | 2,000 | 2,000 |
|
|
|
|
|
Issued and fully paid |
|
|
|
523,847,027 A shares of US$0.001 each 523,847,027 B shares of US$0.001 each | 524 524 | 524 524 |
|
| 1,048 | 1,048 |
|
On 7 September 2016, Mr Leviev, the Company's controlling shareholder, and Africa Israel Investments Ltd ("AI") completed an agreement according to which, Mr Leviev acquired AI's entire holding of securities of AFI Development (the "Purchased Securities"). The transaction provided that in consideration for the Purchased Securities Mr Leviev paid AI, through Flotonic Limited a fully owned private company, NIS550 million, an effective price of US$0.2148 per share. As a result, Flotonic Limited now holds 336,948,796 Global Depository Receipts (issued over "A" ordinary shares) and 342,799,658 Depository Interests (issued over "B" ordinary shares), representing in aggregate 64.88% of the Company's issued share capital.
Additionally, Mr Leviev has personally granted a call option to AI in respect of 51,933,807 GDRs and 52,835,598 B ordinary shares (approximately 10% of the Company's issued share capital) at a price of US$0.216 per 1 GDR and US$0.295 per 1 "B" ordinary share. The call option has been assigned by AI to trustees on behalf of AI bondholders and the trustees may exercise the Call Option within three years from the date of completion of the Purchase Transaction upon instructions of the AI bondholders.
2. Employee Share option plan
There were no changes as to the employee share option plan during the nine-month period ended 30 September 2016 apart from the fact that the last third and final tranche of the options granted on 21 May 2012 have vested during the period.
3. Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations to the Group presentation currency and the foreign exchange differences on loans designated as loans to an investee company which are accounted for as part of the investor's investment (IAS21.15) as their repayment is not planned or likely to occur in the foreseeable future. These foreign exchange differences are recognised directly to Translation Reserve.
4. Retained earnings
Retained earnings are available for distribution at each reporting date. No dividends were proposed, declared or paid during the nine-month period ended 30 September 2016.
20. LOANS AND BORROWINGS
| 30/9/16 | 31/12/15 |
| US$ '000 | US$ '000 |
Non-current liabilities |
|
|
Secured bank loans | 620,773 | 389,799 |
|
|
|
Current liabilities |
|
|
Secured bank loans | 410 | 224,076 |
Unsecured loans from other non-related companies | 277 | 239 |
| 687 | 224,315 |
The following changes to the loans, took place during the 3rd quarter of 2016:
Amendments to the Loan Facility Agreements
Krown Investments LLC ("Krown"), a Company subsidiary which holds Ozerkovskaya III a completed Class A office complex in Moscow, and VTB have signed on 27 September 2016 an addendum to the Ozerkovskaya III Loan Facility pursuant to which:
(i) the existing covenants (being the debt service coverage ratio and the loan to value covenants) which Krown is currently in breach of, have been removed;
(ii) all quarterly principal payments due under the facility including the quarterly principal payment due on 30 June 2016 and which has not been paid, will be deferred to maturity, being 26 January 2018; and
(iii) the Company will provide additional security to VTB in consideration of the above.
All other terms of the facility, including interest payments, remain the same.
Pursuant to the additional security, a new share pledge by the Company over 100% of the share capital of Bellgate has been entered into with VTB (the "Bellgate Share Pledge"). The Bellgate Share Pledge continues to cover the obligations of Bellgate pursuant to the AFIMALL City Loan Facility (with any liability arising now being satisfied by, inter alia, the transfer of the pledged shares to VTB), and now also covers the obligations of Krown in respect of the Ozerkovskaya III Loan Facility. In addition, within 60 calendar days of this addendum, the Company and VTB shall execute the following agreements which will provide additional security, being a:
· Share pledge agreement over 100% of the share capital of each of Titon LLC (which holds the Company's interest in the Kossinskaya project) and Semprex LLC (which holds the Company's interest in the Aquamarine Hotel);
· Mortgage agreement over the Kossinskaya project;
· Suretyship agreements with each of Titon LLC, Rognestar Finance Limited (the parent company of Titon LLC), Bellgate, Semprex LLC and Aquamare Tre Ltd (the parent company of Semprex LLC) for the full amount of the Ozerkovskaya III Loan Facility;
· Second ranking mortgage agreement over AFIMALL City and the Aquamarine Hotel; and
· Pledge agreement over the equipment used to operate the Kossinskaya project.
Bellgate Construction Limited ("Bellgate"), which holds AFIMALL City Shopping Centre, a shopping and entertainment centre in Moscow City, the business district of Moscow, and VTB have signed on 27 September 2016 an addendum to the AFIMALL City Loan Facility pursuant to which:
(i) all quarterly principal payments due under the facility, including the quarterly principal payment due on 30 June 2016 and which has not been paid, will be deferred to maturity, being 1 April 2018; and
(ii) the Company will provide additional security to VTB in consideration of the above.
All other terms of the facility, including covenants and interest payments, remain the same.
Within 60 calendar days of this addendum, the Company and VTB shall also execute the following agreements:
· Second ranking pledge agreement over 100% of the share capital of each of Krown and Titon LLC (which holds the Kossinskaya project);
· Pledge agreement over 100% of the share capital of each of Semprex LLC and AFI FM LLC (the property management company for the AFIMALL City Shopping Centre);
· Suretyship agreements with each of Krown, AFI FM LLC, Inscribe Limited (parent company of AFI FM LLC), Titon LLC, Rognestar Finance Limited and Aquamare Tre Ltd for the full amount of the AFIMALL City Loan Facility;
· Second ranking mortgage agreement over each of the Ozerkovskaya III project and the Kossinskaya project; and
· Second ranking pledge agreement over the equipment used to for operate the Kossinskaya project.
The Guarantee and New Loan
In addition to the addendum to the Loan Facility Agreements described above, Mr Leviev has, on the same date, provided VTB with the Guarantee, being a personal guarantee and indemnity deed under English law from Mr Leviev to VTB, pursuant to which Mr Leviev has undertaken to guarantee, for a period of 10 months, the obligations of Krown under the Ozerkovskaya III Loan Facility. The Guarantee, which is enforceable for 12 months, provides additional security to VTB in respect of the Ozerkovskaya III Loan Facility.
Should VTB enforce the Guarantee, the payment by Mr Leviev of any amounts under the Guarantee will lead to a discharge of Krown's respective payment obligations under the Ozerkovskaya III Loan Facility and any such payment made by Mr Leviev to VTB under the Guarantee will be deemed the granting of a new loan between the Company and Mr Leviev (the "New Loan"). If, as a result of the enforcement of the Guarantee, the Ozerkovskaya III Loan Facility is repaid in full by Mr Leviev, all claims of VTB under the security documents in respect of Krown's secured obligations under the Ozerkovskaya III Loan Facility will fall away.
The New Loan will accordingly only become effective in the event that VTB enforces the Guarantee and Mr Leviev makes a payment to VTB. The New Loan, if drawn, would be unsecured, accrue interest at an annual rate of 7.0% plus three month LIBOR payable quarterly, be a maximum amount of US$220 million, being equal to the maximum value of the Ozerkovskaya III Loan Facility, and repayable in full on or before 26 January 2018. The interest rate and maturity date of the New Loan are the same as the Ozerkovskaya III Loan Facility.
As a result of the above amendments to the Loan Facility Agreements and the Guarantee being entered into, the Disposal transaction will not proceed and the loans were reclassified from short term to long term liabilities.
|
|
21. TRADE AND OTHER PAYABLES
| 30/9/16 | 31/12/15 |
| US$ '000 | US$ '000 |
|
|
|
Trade payables | 6,306 | 7,815 |
Payables to related parties (note 25) | 486 | 657 |
Amount payable to builders | 13,853 | 3,297 |
VAT and other taxes payable | 5,597 | 4,613 |
Other payables | 3,275 | 1,781 |
| 29,517 | 18,163 |
Payables to related parties
Include an amount of US$28 thousand (31/12/15: US$27 thousand) payable to Danya Cebus Rus LLC, related party of the Group, for contracts signed in relation to the construction of Group's project.
22. FINANCIAL INSTRUMENTS
Carrying amounts and fair values
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels and the fair value hierarchy for financial instruments measured at fair value. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
Carrying amount | Fair value | ||||||||
Non-current assets | Current assets |
| |||||||
Loans Receivable |
Trade and other receivables | Other investments, Including derivatives |
Cash and cash equivalents |
Loans receivable |
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
30 September 2016 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 |
Financial assets measured at fair value |
|
|
|
|
|
|
|
|
|
|
Investment in listed debt securities | - | - | 6,715 | - | - | 6,715 | 6,715 |
|
| 6,715 |
Financial assets not measured at fair value |
|
|
|
|
|
|
|
|
|
|
Loans receivable | 15,347 | - | - | - | 19 | 15,366 |
|
|
|
|
Trade and other receivables | - | 7,175 | - | - | - | 7,175 |
|
|
|
|
Cash and cash equivalents | - | - | - | 13,647 | - | 13,647 |
|
|
|
|
| 15,347 | 7,175 | 6,715 | 13,647 | 19 | 42,903 |
|
|
|
|
31 December 2015 |
|
|
|
|
|
|
|
|
|
|
Financial assets measured at fair value |
|
|
|
|
|
|
|
|
|
|
Investment in listed debt securities | - | - | 15,901 | - | - | 15,901 | 15,901 | - | - | 15,901 |
Financial assets not measured at fair value |
|
|
|
|
|
|
|
|
|
|
Loans receivable | 14,316 | - | - | - | 101 | 14,417 |
|
|
|
|
Trade and other receivables | - | 6,755 | - | - | - | 6,755 |
|
|
|
|
Cash and cash equivalents | - | - | - | 26,545 | - | 26,545 |
|
|
|
|
| 14,316 | 6,755 | 15,901 | 26,545 | 101 | 63,618 |
|
|
|
|
| Carrying amount | Fair value | ||||||
| Non-current liabilities | Current liabilities |
| |||||
| Interest bearing loans and borrowings | Trade and other payables | Interest bearing loans and borrowings |
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
30 September 2016 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 |
Financial liabilities not measured at fair value |
|
|
|
|
|
|
|
|
Interest bearing loans and borrowings | (620,773) | - | (687) | (621,460) |
|
|
| (605,917) |
Trade and other payables | - | (23,920) | - | (23,920) |
|
|
|
|
| (620,773) | (23,920) | (687) | (645,380) |
|
|
|
|
31 December 2015 |
|
|
|
|
|
|
|
|
Financial liabilities not measured at fair value |
|
|
|
|
|
|
|
|
Interest bearing loans and borrowings | (389,799) | - | (224,315) | (614,114) |
|
|
| (583,635) |
Trade and other payables | - | (13,550) | - | (13,550) |
|
|
|
|
| (389,799) | (13,550) | (224,315) | (627,664) |
|
|
|
|
23. CONTINGENCIES
There weren't any contingent liabilities as at 30 September 2016.
24. FINANCIAL RISK MANAGEMENT
The Group's financial risk management objectives and policies are consistent with that disclosed in the consolidated financial statements as at and for the year ended 31 December 2015.
Russian business and economic environment
The Group's operations are primarily located in the Russian Federation. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation.
Gross domestic product fell 0.4 percent in the third quarter from a year earlier after a decline of 0.6 percent in the previous three months, according to Federal Statistics Service.
Credible macroeconomic policy has prevented worse double dip recession, resulting from the fall in oil prices and sanctions. External risks have diminished, leading Fitch to raise Russia's credit rating outlook from negative to stable. The Central Bank of Russia continued its path of interest rate cuts, decreasing the key rate from 10.5% to 10% in September 2016. The next decrease is expected not earlier than 1-2 quarter 2017 (Monetary Policy Report of CBR), implying its primary goal to target inflation rate, which is moderating but still above the target. GDP growth is expected at the level of 1.2% in 2017 after a contraction of 0.7% in 2016 (Oxford Economics).
The real estate market is at the bottom now, providing attractive investment opportunities. In the third quarter 2016, USD 1.46bn was invested in the commercial real estate, compared to USD 173mn in the second quarter 2016 and USD 2.3bn in the first quarter. Mortgages are replacing consumer financing, indicating growing interest of households to residential housing. Still, real income and domestic consumption are lowering.
The interim financial statements reflect management's assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from management's assessment.
25. RELATED PARTIES
| 30/9/16 | 31/12/15 |
(i) Outstanding balances with related parties | US$ '000 | US$ '000 |
Assets |
|
|
Amounts receivable from joint ventures | 11 | 10 |
Amounts receivable from ultimate holding company | - | 203 |
Amounts receivable from other related companies | 377 | 124 |
Long term loans receivable from joint ventures | 15,306 | 14,246 |
Short term loan receivable from joint venture | - | 98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 30/9/16 | 31/12/15 |
(i) Outstanding balances with related parties (continued) | US$ '000 | US$ '000 |
Liabilities |
|
|
Amounts payable to joint ventures | 13 | 6 |
Amounts payable to ultimate holding company | - | 492 |
Amounts payable to other related companies | 473 | 159 |
Deferred income from related company | 139 | 125 |
(ii) Transactions with the key management personnel | 1/1/16- 30/9/16 | 1/1/15- 30/9/15 |
| US$ '000 | US$ '000 |
Key management personnel compensation Short-term employee benefits | 2,011 | 2,119 |
Share option scheme expense | 738 | 1,839 |
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. The person is a member of the key management personnel of the entity or its parent (includes the immediate, intermediate or ultimate parent). Key management is not limited to directors; other members of the management team also may be key management.
(iii) Other related party transactions | 1/1/16- 30/9/16 | 1/1/15- 30/9/15 |
| US$ '000 | US$ '000 |
Revenue |
|
|
Related companies - rental income | 478 | 619 |
Joint venture - consulting services | 127 | 112 |
Joint venture - interest income | 990 | 1,076 |
Expenses |
|
|
Ultimate holding company - administrative expenses | - | 251 |
Related companies - administrative expenses | 157 | - |
Joint venture - operating expenses | 40 | 46 |
Construction services capitalised or recognised in advances to builders |
|
|
Related company - construction services | - | 981 |
26. SUBSEQUENT EVENTS
There were no material events that took place after the nine month period end and until the date of the approval of these financial statements by the Board of Directors on 21 November 2016.
1 At AFI Residence Paveletskaya there are two types of residential units: fully residentially zoned units referred to as "flats" and commercially zoned units that, according to common market practice in Russia, are sold and referred to as "apartments" and can be used for permanent residence.
2 Changed after adjustments of OPEX in the first quarter of 2016
3 Represented mainly by exhibition areas (6th floor, ci. 4 ths. sqm) leased by single tenant