22 Sep 2017 07:03
Arricano Real Estate Plc (ARO) Arricano Real Estate Plc: Interim Results for the 6 months ended 30 June 2017 22-Sep-2017 / 07:00 GMT/BST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. 22 September 2017 Arricano Real Estate plc ("Arricano" or the "Company" or, together with its subsidiaries, the "Group") Interim Results for the 6 months ended 30 June 2017 Arricano is one of the leading real estate developers and operators of shopping centres in Ukraine. Today, Arricano owns and operates five completed shopping centres comprising 147,800 sqm of gross leasable area, a 49.9% shareholding in Assofit and land for a further three sites under development. Highlights: Total revenues are up 18.7% at USD12.9 million (30 June 2016: USD10.9 million), reflecting management efforts to boost income with innovations and service initiatives across the portfolio. Operating profit (including revaluation gains) was USD24.0 million (30 June 2016: USD16.8 million) Profit before tax was USD18.4 million (30 June 2016: USD8.3 million) Total fair valuation of the Company's portfolio was USD197.9 million as at 30 June 2017 (as at 31 December 2016: USD175.7 million) Occupancy increased to 98.8% as at 30 June 2017, compared to 98.3% as at 31 December 2016 Borrowings remain conservative at the property level with a loan to investment property ratio of 23.8% as at 30 June 2017 compared to 28.5% as at 31 December 2016 Signed 52 new lease agreements during H1 2017 compared to 82 in H1 2016
Mykhailo Merkulov, CEO of Arricano, commented: "It is very pleasing to report that Arricano has delivered a significant increase in revenues and profits despite operating in a challenging environment albeit there are increasing signs of economic improvement. We are steadily growing the business by being very focused on our core principles of creating shopping centres that are a pleasure to visit and retail spaces that retailers want to rent. The fact that we are now nearly operating at full capacity shows we are going in the right direction."
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Chief Executive's Statement Introduction I am pleased to be able to report that the Company has performed extremely well in the first six months of 2017 and increased operating profit by 42%. Given the wider market environment we believe this is a very creditable performance. Our focus remains on developing and improving the social spaces in all five of our shopping malls so that visitors are not only coming to shop but also to relax and enjoy the other facilities on offer. The success of this focus is reflected by the Group reaching 98.8% occupancy across the portfolio. Politically Ukraine continues to make progress, the government is publicly committed to weeding out corruption and this is beginning to have a positive impact. The Hryvna improved against the US Dollar in the period which has helped support consumer confidence and has improved commercial borrowing costs. Results Revenues for the six months to 30 June 2017 increased by 19% to USD12.9 million, compared with the same period last year, but due to significant increase in legal and consultancy costs, Net operating income (excluding revaluation gains) from the operating properties was USD8.3 million compared to USD7.7 million in H1 2016. The Company reported a significant increase in pre-tax profit of USD18.4 million (30 June 2016: USD8.3 million) following a gain on the revaluation of investment properties of USD15.6 million (30 June 2016: gain of USD9.1 million). Net profit after tax for the six months to 30 June 2017 was USD15.9 million (30 June 2016: USD7.7 million) giving earnings per share of USD0.15 (30 June 2016: USD0.07). The portfolio of property assets was independently valued as at 30 June 2017 by Expandia LLC, (part of the CBRE Affiliate Network) at USD197.9 million (31 December 2016: USD175.7 million). The valuation uplift came from an increase in rental rates, positive currency movement, increased occupancy and improvement in tenant mix further helped by an improving general economy. Bank debt at the half-year end was USD47.2 million, with the majority of borrowings at the project level at an average rate of 11.1%. Loans mature between 2017 and 2020 and the Company's loan to investment property value ratio is comparatively low at 23.8% as at 30 June 2017. In addition, the Company had USD4.2 million of cash and cash equivalents, and non-bank loans of USD53.3 million as at 30 June 2017. Operational Review 2017 has seen the Company focus on the 'Customer Experience' as part of the Group's continuous drive to improve the appeal and style of its shopping centres. The convenience of creating a central area for retailers and customers to meet has been around for centuries in the shape of a local market and now in the form of the modern shopping mall. The principles remain true of creating a convivial space for people to shop, socialise and enjoy themselves under one roof. Arricano has focused on developing its concepts for future generations of customers. As part of this focus, in March 2017 Arricano ran a mystery shopping programme in the Prospekt Mall and used the results to work with 'partner tenants' to develop positive opportunities further and provide solutions to negative issues. Collaboration with tenants is a key point of differentiation for Arricano. Generally, tenants are not used to working in close partnership with a landlord, however, the experience and feedback from tenants has been very positive. Especially as they realise that Arricano views the success of the tenants and the shopping malls as inextricably linked. Reflecting the Company's partnership approach to working alongside tenants, the Company decided to continue its free educational program for tenants called B2B Upgrade, aimed at training shop personnel. The program is extremely popular amongst tenants across the portfolio, and relatively inexpensive to Arricano; in 2017 the Company provided sales training more than 700 retailers' employees. The program as a result has generated a lot of goodwill between Arricano and its tenants and has helped to re-enforce our partnership approach. The success of the Company's activities has been reflected in the increase in occupancy across the portfolio to 98.8%. The Hryvnia in 2017 has been relatively stable improving slightly against the USD which has helped underpin consumer confidence. Alongside this, the World Bank is forecasting GDP growth for Ukraine in 2017 of 2.0% rising to 3.5% in 2018. Business confidence generally has been stable. Arricano signed a total of 52 new leases in first six months of 2017 covering approximately 2,773 sq.m. This was a good performance increasing occupancy and achieving an average rental rate of USD15.9 per sq.m. Of the 52 retailers, 21 were new to the Group and all the incoming tenants are good quality which will further help to increase the appeal of the shopping centres. The three development sites covering 14 ha. in Lukianivka (Kyiv), Petrivka (Kyiv), and Rozumovska (Odesa) continue to be progressed. Negotiations with international lenders are taking place currently and it is expected that progress on these projects will increase as additional funds are secured. Regarding the 49.9% shareholding in Assofit Holdings Limited ("Assofit"), a holding company, which held the Sky Mall shopping centre, the Company continues to pursue Stockman Interhold S.A. concerning the ownership of Assofit. Outlook Arricano remains well placed to continue its steady progression. Our shopping malls are full and we continue to refine and enhance their appeal to visitors and tenants. We see their development as a collaboration between ourselves and our tenants as we work very closely with them to maximise our and their businesses. This approach has proven both unusual and successful. There is no doubt the business's growth remains restricted while Ukraine's economic and political uncertainty continues, however, when the environment does improve Arricano will be in an exceptionally strong position to further develop its business. The Company has delivered a strong performance in the first 6 months of 2017 and is well placed to build upon this in the second half of the year. People On behalf of the Board I would like to thank everyone involved with the Company for their commitment and hard work during the year so far. The business is performing well and this is all down to the Arricano team.
Mykhailo Merkulov Chief Executive Officer 21 September 2017
INDEPENDENT AUDITORS' REPORT ON REVIEW OF CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS TO ARRICANO REAL ESTATE PLC
Introduction
We have reviewed the accompanying consolidated interim condensed statement of financial position of Arricano Real Estate PLC and its subsidiaries ("the Group") as at 30 June 2017, the consolidated interim condensed statements of comprehensive income, changes in equity and cash flows for the six- month period then ended, and notes to the interim financial statements ("the consolidated interim condensed financial statements"). Management is responsible for the preparation and presentation of these consolidated interim condensed financial statements in accordance with IAS34 "Interim Financial Reporting". Our responsibility is to express a conclusion on these consolidated interim condensed financial statements based on our review.
Scope of Review
We conducted our review in accordance with 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 consolidated interim condensed financial statements do not present fairly, in all material respects, the financial position of the Group as at 30 June 2017, and of its financial performance and its cash flows for the six-month period then ended in accordance with IAS 34 "Interim Financial Reporting".
Emphasis of matter
Without qualifying our conclusion we draw your attention to the following:
1. Note 1(b) to the consolidated interim condensed financial statements, which describes the political and social unrest and regional tensions in Ukraine that started in November 2013 and escalated in 2014 and afterwards. The events referred to in Note 1(b) have adversely affected the Group and could continue to adversely affect the Group's results and financial position in a manner not currently determinable.
2. Note 2(d) to the consolidated interim condensed financial statements, which describes that as at 30 June 2017 the Group's current liabilities exceed current assets by USD 55,775 thousand. This condition, along with the other matters described in Note 2(d), indicate the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.
3. Note 13 (d) (ii) to the consolidated interim condensed financial statements, which describe that, as at 30 June 2017, the Group was involved as a defendant in a lawsuit concerning the request of the claimant for demolishing of the part of the shopping center held by one of the subsidiaries with an area of 0.73 ha, equaling to 37% of leasable area of this shopping center. The potential financial effect as well as the ultimate outcome of the legal case cannot be currently determined.
John C. Nicolaou, CPA Certified Public Accountant and Registered Auditor for and on behalf of KPMG Limited Certified Public Accountants and Registered Auditors
11, June 16th 1943 Street 3022 Limassol Cyprus
Limassol, 21 September 2017
Consolidated interim condensed statement of financial position as at 30 June 2017
Consolidated interim condensed statement of profit or loss and other comprehensive income for the six months ended 30 June 2017
Consolidated interim condensed statement of cash flows for the six months ended 30 June 2017
Notes to the Consolidated condensed financial statements
1 Background (a) Organization and operations Arricano Real Estate PLC (Arricano, the Company or the Parent Company) is a public company that was incorporated in Cyprus and is listed on the AIM Market of the London Stock Exchange. The Parent Company's registered address is office 1002, 10th floor, Nicolaou Pentadromos Centre, Thessalonikis Street, 3025 Limassol, Cyprus. Arricano and its subsidiaries are referred to as the Group, and their principal place of business is in Ukraine. The main activities of the Group are investing in the development of new properties in Ukraine and leasing them out. As at 30 June 2017, the Group operates five shopping centres in Kyiv, Simferopol, Zaporizhzhya and Kryvyi Rig with a total leasable area of over 147,800 square meters and is in the process of development of two new investment projects in Kyiv and Odesa, with one more project to be consequently developed. (b) Ukrainian business environment Ukraine's political and economic situation has deteriorated significantly since 2014. Following political and social unrest, which started in November 2013, in March 2014 various events in Crimea led to the annexation of the Republic of Crimea by the Russian Federation, which was not recognised by Ukraine and many other countries. This event resulted in a significant deterioration of the relationship between Ukraine and the Russian Federation. Following the instability in Crimea, regional tensions have spread to the Eastern regions of Ukraine, primarily Donetsk and Lugansk regions. In May 2014, protests in those regions escalated into military clashes and armed conflict between supporters of the self-declared republics of the Donetsk and Lugansk regions and the Ukrainian forces, which continued through the date of these consolidated interim condensed financial statements. As a result of this conflict, part of the Donetsk and Lugansk regions remains under control of the self-proclaimed republics, and Ukrainian authorities are not currently able to fully enforce Ukrainian laws on this territory. Unrest in Donetsk and Lugansk does not affect the flow of current business of the Group. Political and social unrest combined with the military conflict in the Donetsk and Lugansk regions has deepened the ongoing economic crisis, caused a fall in the country's gross domestic product and foreign trade, deterioration in state finances, depletion of the National Bank of Ukraine's foreign currency reserves, significant devaluation of the national currency and a further downgrading of the Ukrainian sovereign debt credit ratings. Following the devaluation of the national currency, the National Bank of Ukraine introduced certain administrative restrictions on currency conversion transactions, which among others included restrictions on purchases of foreign currency by individuals and companies, the requirement to convert large part of foreign currency proceeds to local currency, restrictions on payment of dividends abroad, a ban on early repayment of foreign loans and restrictions on cash withdrawals from banks. These events had a negative effect on Ukrainian companies and banks, significantly limiting their ability to obtain financing on domestic and international markets. 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. As at 30 June 2017, the carrying value of the Group's investment property located in Simferopol, the administrative centre of the Republic of Crimea, amounted to USD 40,900 thousand (unaudited) (31 December 2016: USD 35,400 thousand). The ultimate effect of these developments in the Republic of Crimea on the Group's ability to continue operations in this region, to realise its related assets and to maintain and secure its ownership rights cannot yet be determined. 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 further negatively affect the Group's results and financial position in a manner not currently determinable. These consolidated interim condensed financial statements reflect management's current assessment of the impact of the Ukrainian business environment on the operations and the financial position of the Group. The future business environment may differ from management's assessment. (c) Cyprus business environment According to the Cyprus Statistical Service, economic growth for 2016 was estimated at the level of 2.8% compared to 2015. Even though the financial services sector showed negative growth, there has been an increase in the Gross Domestic Product which is mainly attributed to the hotels, construction, manufacturing and the wholesale and retail trade sectors. The economic growth was mainly driven by the increase in private consumption, which benefited from the reduction in unemployment and the consequent increase in disposable income. The growth was also supported by the slower pace of reductions in public spending and the increase in investments. On 17 March 2017 the credit rating of the country rose from BB to BB +. Despite the significant steps towards economic recovery, a degree of uncertainty still exists, as certain issues remain to be resolved, such as the high index of non-performing loans, the high unemployment and the implementation of privatization and reforms of the public services sector. The current economic environment of Cyprus is not expected to have a significant impact on the operations of the Group as the Group does not hold significant funds in Cypriot financial institutions. On the basis of the evaluation performed, the Group's management has concluded that no additional provisions or impairment charges are necessary. The Group's management believes that it is taking all the necessary measures to maintain the viability of the Group and the development of its business in the current business and economic environment. 2 Basis of preparation (a) Statement of compliance These consolidated interim condensed financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union (EU). Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual financial statements as at and for the year ended 31 December 2016. These consolidated interim condensed financial statements do not include all the information required for full annual financial statements prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU). The results for the six-month period ended 30 June 2017 are not necessarily indicative of the results expected for the full year. (b) Judgments and estimates Preparing the consolidated interim condensed financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense and the disclosure of contingent assets and liabilities. Actual results may differ from these estimates. In preparing these consolidated interim condensed financial statements, 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 2016. (c) Functional and presentation currency The functional currency of Arricano Real Estate PLC is the US dollar (USD). The majority of Group entities are located in Ukraine and have the Ukrainian Hryvnia (UAH) as their functional currency, except for Voyazh-Krym LLC, which has the Russian Rouble (RUB) as its functional currency starting from 1 May 2014, following the changes in the Ukrainian business environment described in note 1(b). The Group entities located in Cyprus, Estonia and Isle of Man have the US dollar as their functional currency, since substantially all transactions and balances of these entities are denominated in US dollar. The Group entity located in the Russian Federation, Green City LLC, has the Russian Rouble (RUB) as its functional currency, since substantially all transactions and balances of this entity are denominated in the Russian Rouble. For the benefits of principal users, the management chose to present the consolidated interim condensed financial statements in USD, rounded to the nearest thousand. In translating the consolidated interim condensed financial statements into USD the Group follows a translation policy in accordance with International Financial Reporting Standard IAS 21 The Effects of Changes in Foreign Exchange Rates and the following rates are used: Historical rates: for the equity accounts except for net profit or loss and other comprehensive income (loss) for the year. Year-end rate: for all assets and liabilities. Rates at the dates of transactions: for the statement of profit or loss and other comprehensive income and for capital transactions.UAH and RUB are not freely convertible currencies outside Ukraine and the Russian Federation, and, accordingly, any conversion of UAH and RUB amounts into USD should not be construed as a representation that UAH and RUB amounts have been, could be, or will be in the future, convertible into USD at the exchange rate shown, or any other exchange rate. The principal USD exchange rates used in the preparation of these consolidated interim condensed financial statements are as follows:
Average USD exchange rates for the six months period ended 30 June are as follows:
As at the date that these consolidated interim condensed financial statements are authorised for issue, 21 September 2017, the exchange rate is UAH 26.19 to USD 1.00 and RUB 58.13 to USD 1.00. (d) Going concern As at 30 June 2017, the Group's current liabilities exceed current assets by USD 55,775 thousand (unaudited). This condition indicates the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern. At the same time, the Group has positive equity of USD 45,340 thousand (unaudited) as at 30 June 2017, generated net profit of USD 15,909 thousand (unaudited) and positive cash flows from operating activities of USD 5,013 thousand (unaudited) for the six months then ended. Management is undertaking the following measures in order to ensure the Group's continued operation on a going concern basis: The Group has financial support from the ultimate controlling party. Based on representations received in writing from the entities under common control, management believes that the Group will not be required to settle the outstanding loans, accrued interest, other liabilities and other payables to related parties in the amount of USD 7,966 thousand (unaudited) plus any accruing interest thereon at least until 30 June 2018. The Group will be able to draw on existing facilities granted from entities under common control, should this be required for operational and other needs of the Group. In September 2017, the Group has received a waiver from Barleypark Limited, waiving repayment of the loan during twelve months ending 30 June 2018, amounting to USD 19,591 thousand, which is payable on demand and presented as short- term liability as at 30 June 2017. During the six months ended 30 June 2017, management was able to conclude a number of new tenancy agreements and increase occupancy rate of its shopping centres. Besides, the Group managed to gradually increase its rental rates during the year for existing tenants.Management believes that the measures that it undertakes, as described above, will allow the Group to maintain positive working capital and operate on a going concern basis in the foreseeable future. These consolidated interim condensed financial statements are prepared on a going concern basis, which contemplates the realisation of assets and the settlement of liabilities in the normal course of business. (e) 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. 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. Further information about the assumptions made in measuring fair values is included in the following notes: Note 4(b) - investment property; and Note 12(a) - fair values.(f) Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. Management believes that during the six months ended 30 June 2017 and the year ended 31 December 2016, the Group operated in and was managed as one operating segment, being property investment, with all investment properties located in Ukraine and the Republic of Crimea. The Board of Directors, which is considered to be the chief operating decision maker of the Group for IFRS 8 Operating Segments purposes, receives semi-annually management accounts that are prepared in accordance with IFRS as adopted by the EU and which present aggregated performance of all the Group's investment properties. 3 Significant accounting policies The accounting policies applied by the Group in these consolidated interim condensed financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2016. (a) New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are not yet effective for the six-month period ended 30 June 2017, and have not been applied in preparing these consolidated interim condensed financial statements. Of these pronouncements, potentially the following will have an impact on the Group's operations. The Group plans to adopt these standards and interpretations when they become effective. IFRS 9 Financial Instruments IFRS 9 Financial instruments, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement, and includes revised guidance on the classification and measurement of financial instruments, impairment of financial assets and hedge accounting. Classification - Financial assets and liabilities IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The standard eliminates the existing IAS 39 categories of held-to-maturity, loans and receivables and available for- sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are not separated. Instead, the whole hybrid instrument is assessed for classification. Equity investments are measured at fair value. IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. Impairment - Financial assets and contract assets IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' model. The new impairment model applies to financial assets measured at amortised cost and FVOCI and the contract assets. The new impairment model generally requires to recognise expected credit losses in profit or loss for all financial assets, even those that are newly originated or acquired. Under IFRS 9, impairment is measured as either expected credit losses resulting from default events on the financial instrument that are possible within the next 12 months ('12-month ECL') or expected credit losses resulting from all possible default events over the expected life of the financial instrument ('lifetime ECL'). Initial amount of expected credit losses recognised for a financial asset is equal to 12-month ECL (except for certain trade and lease receivables, and contract assets, or purchased or originated credit-impaired financial assets). If the credit risk on the financial instrument has increased significantly since initial recognition, the loss allowance is measured at an amount equal to lifetime ECL. Financial assets for which 12-month ECL is recognised are considered to be in stage 1; financial assets that have experienced a significant increase in credit risk since initial recognition, but are not defaulted are considered to be in stage 2; and financial assets that are in default or otherwise credit-impaired are considered to be in stage 3. Measurement of expected credit losses is required to be unbiased and probability-weighted, should reflect the time value of money and incorporate reasonable and supportable information that is available without undue cost or effort about past events, current conditions and forecasts of future economic conditions. Under IFRS 9, credit losses are recognised earlier than under IAS 39, resulting in increased volatility in profit or loss. It will also tend to result in an increased impairment allowance, since all financial assets will be assessed for at least 12-month ECL and the population of financial assets to which lifetime ECL applies is likely to be larger than the population with objective evidence of impairment identified under IAS 39. Disclosures IFRS 9 will require extensive new disclosures, in particular about credit risk and expected credit losses. Transition IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018. Early adoption of the standard is permitted. The Group does not intend to adopt the standard earlier. The classification and measurement and impairment requirements are generally applied retrospectively (with some exemptions) by adjusting the opening retained earnings and reserves at the date of initial application, with no requirement to restate comparative periods. Since as at 30 June 2017, the total amount of unrecoverable and overdue loans receivable and trade and other receivables was provided for and the remaining amount is not material, the expected impact of implementation is considered to be not significant. IFRS 15 Revenue from Contracts with Customers IFRS 15 Revenue from Contracts with Customers 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 Programmes. Rendering of services Under IFRS 15, the total consideration in the service contracts will be allocated to all services based on their stand-alone selling prices. The stand-alone selling prices will be determined based on the list prices at which the Group sells the services in separate transactions. Transition IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. Since the revenue of the Group is mainly represented by the rental income in accordance with IAS 17 Leases and the amount of revenue from other services rendered is not significant, the expected impact of implementation is considered to be not significant. Various Improvements to IFRSs Various Improvements to IFRSs have been dealt with on a standard-by-standard basis. A number of amendments to standards and interpretations are not yet effective for the six-month period ended 30 June 2017, and have not been applied in preparing these consolidated interim condensed financial statements. Management plans to adopt these pronouncements when they become effective, and has not yet analysed the likely impact of them on its consolidated financial statements. 4 Investment property (a) Movements in investment property Movements in investment properties for the six months ended 30 June 2017 are as follows:
Movements in investment properties for the six months ended 30 June 2016 are as follows:
As at 30 June 2017, in connection with loans and borrowings, the Group pledged as security investment property with a carrying value of USD 104,300 thousand (unaudited) (31 December 2016: USD 103,337 thousand) (refer to note 13(a)). During the six months ended 30 June 2017, disposal of property under construction is represented by reversal of capitalised charges in respect of an agreement on customer share participation in the creation and development of engineering, transport and social infrastructure of Odesa due to win of the related court case (refer to note 13(d)(iii)). (b) Determination of fair value The fair value measurement, developed for determination of fair value of the Group's investment property, is categorised within Level 3 category due to significance of unobservable inputs to the entire measurement, except for certain land held on the leasehold which is not associated with completed property and is therefore categorised within Level 2 category. As at 30 June 2017, the fair value of investment property categorised within Level 2 category is USD 27,000 thousand (unaudited) (31 December 2016: USD 26,800 thousand). To assist with the estimation of the fair value of the Group's investment property as at 30 June 2017, which is represented by the shopping centres, management engaged registered independent appraiser Expandia LLC, part of the CBRE Affiliate network, having a recognised professional qualification and recent experience in the location and categories of the projects being valued. The fair values are based on the estimated rental value of property. A market yield is applied to the estimated rental value to arrive at the gross property valuation. When actual rents differ materially from the estimated rental value, adjustments are made to reflect actual rents. The valuation is prepared in accordance with the practice standards contained in the Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors ("RICS") or in accordance with International Valuation Standards published by the International Valuation Standards Council. Valuations reflect, when appropriate, the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting vacant accommodation, the allocation of maintenance and insurance responsibilities between the Company and the lessee, and the remaining economic life of the property. When rent reviews or lease renewals are pending with anticipated reversionary increases, it is assumed that all notices, and when appropriate counter-notices, have been served validly and within the appropriate time. Land parcels are valued based on market prices for similar properties. As at 30 June 2017, the estimation of fair value is made using a net present value calculation based on certain assumptions, the most important of which are as follows (unaudited): monthly rental rates, ranging from USD 2.00 to USD 124.00 per sq.m., which are based on contractual and market rental rates, adjusted for discounts or fixation of rental rates in Ukrainian hryvnia at a pre-agreed exchange rate, occupancy rates ranging from 96.4% to 100%, and discount rates ranging from 16.80% to 22.00% p.a., which represent key unobservable inputs for determination of fair value. all relevant licenses and permits, to the extent not yet received, will be obtained, in accordance with the timetables as set out in the investment project plans.As at 31 December 2016, the estimation of fair value is made using a net present value calculation based on certain assumptions, the most important of which are as follows: monthly rental rates, ranging from USD 1.00 to USD 131.40 per sq.m., which are based on contractual and market rental rates, adjusted for discounts or fixation of rental rates in Ukrainian hryvnia at a pre-agreed exchange rate, occupancy rates ranging from 97.6% to 100%, and discount rates ranging from 18.40% to 24.40% p.a., which represent key unobservable inputs for determination of fair value. all relevant licenses and permits, to the extent not yet received, will be obtained, in accordance with the timetables as set out in the investment project plans.The reconciliation from the opening balances to the closing balances for Level 3 fair value measurements is presented in note 4(a). As at 30 June 2017, fair value of investment property, denominated in functional currency amounted to UAH 4,050,564 thousand (unaudited) and RUB 1,500,772 thousand (unaudited) (31 December 2016: UAH 3,706,114 thousand and RUB 1,358,715 thousand). The increase in fair value of investment property results from increased rental payments invoiced in Ukrainian hryvnia and Russian Rouble due to the increase in the average rental rates applied to the USD equivalent of rental rates fixed in the rental contracts. Sensitivity at the date of valuationThe valuation model used to assess the fair value of investment property as at 30 June 2017 is particularly sensitive to unobservable inputs in the following areas: If rental rates are 1% less than those used in valuation models, the fair value of investment properties would be USD 1,524 thousand (unaudited) (31 December 2016: USD 1,309 thousand) lower. If rental rates are 1% higher, then the fair value of investment properties would be USD 1,524 thousand (unaudited) (31 December 2016: USD 1,309 thousand) higher. If the discount rate applied is 1% higher than that used in the valuation models, the fair value of investment properties would be USD 10,173 thousand (unaudited) (31 December 2016: USD 8,505 thousand) lower. If the discount rate is 1% less, then the fair value of investment properties would be USD 11,753 thousand (unaudited) (31 December 2016: USD 9,783 thousand) higher. If the occupancy rate is 1% higher than that used in the valuation model for shopping center "Prospekt" and are assumed to be 100% for other shopping centers, the fair value of investment properties would be USD 1,015 thousand (unaudited) higher (31 December 2016: if the occupancy rates are 1% higher than those used in the valuation and are assumed to be 100% for shopping center in Kyiv, the fair value of investment properties would be USD 956 thousand higher). If the occupancy rates are 1% less, then the fair value of investment properties would be USD 1,367 thousand (unaudited) (31 December 2016: USD 1,154 thousand) lower.5 Equity Share capital is as follows:
All shares rank equally with regard to the Parent Company's residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Parent Company. During the six months ended 30 June 2017 and 30 June 2016, the Parent Company did not declare any dividends. Earnings per share The calculation of basic earnings per share for the six-month period ended 30 June 2017 was based on the profit for the six-month period ended 30 June 2017 attributable to ordinary shareholders of USD 15,909 thousand (unaudited) and a weighted average number of ordinary shares outstanding as at 30 June 2017 of 103,270,637 (unaudited) (2016 (unaudited): USD 7,683 thousand and 103,270,637 shares). The Group has no potential dilutive ordinary shares. 6 Loans and borrowings This note provides information about the contractual terms of loans.
Terms and debt repayment schedule As at 30 June 2017, the terms and debt repayment schedule of bank loans are as follows (unaudited):
As at 31 December 2016, the terms and debt repayment schedule of bank loans are as follows:
LIBOR for USD is as follows:
EBRD On 28 March 2017, the Group signed agreement with the EBRD pledging rights on future income under the agreement with the anchor tenant (refer to note 13(a)). On 31 March 2017, the Group terminated agreements with the EBRD on pledge of investment property of PrJSC Grandinvest and Voyazh-Krym LLC in the amount of USD 17,770 thousand as at 30 June 2017 (unaudited) (31 December 2016: USD 15,237 thousand) and pledge of investment in PrJSC Grandinvest (refer to note 13(a)). On 6 April 2017, the Group terminated agreements with the EBRD on pledge of property rights under the investment agreement between PrJSC Grandinvest, PrJSC Livoberezhzhiainvest and Voyazh-Krym LLC (refer to note 13(a)). PJSC "Bank "St.Petersburg"On 6 June 2017, the Group signed amendments to the loan agreements with PJSC "Bank "St.Petersburg" stipulating a decrease in the amount of loan principal payable for the period from June till August 2017 by USD 606 thousand. As at 30 June 2017 (unaudited) and 31 December 2016, the Group has not fulfilled an obligation to replace the existing pledge of investment property by other investment properties acceptable by PJSC "Bank "St.Petersburg", which was considered as the event of default under the loan agreements concluded with the bank. In addition, the Group has not replenished the deposit pledged as a collateral for the amount of USD 1,200 thousand within the time period required by the loan agreement. As a result, such loans were presented as short-term as at 31 December 2016. During the six months ended 30 June 2017, management obtained the letter from PJSC "Bank "St.Petersburg" waving the above breaches of loan covenants. Accordingly, management believes that the bank will not demand early repayment of the loans. Consequently, as at 30 June 2017, loans with the principal amounting to USD 16,910 thousand (unaudited) were presented according to their contractual maturities. Retail Real Estate OUOn 27 September 2016, the loan payable to Bytenem Co Limited was assigned to Retail Real Estate OU. On 30 June 2017, the Group signed amendment to the loan agreement with Retail Real Estate OU stipulating prolongation of the maturity date till 30 June 2020. On 16 February 2017, the loan payable to Gingerfin Holdings was assigned to Retail Real Estate OU and prolonged till 1 July 2018. As at 30 June 2017, the undrawn credit facilities from this related party amount to USD 9,607 thousand (unaudited) (31 December 2016: USD 9,607 thousand). Barleypark LimitedBased on the terms of the loan agreement the loan is repayable on demand but not later than the final repayment date. On 30 June 2017, the Group signed amendment to the loan agreement with Barleypark stipulating prolongation of the maturity date till 31 July 2020. Subsequent to the reporting period end, the Group obtained the letter from the lender waiving the right to demand repayment of the loan during twelve months ending 30 June 2018. During the six months ended 30 June 2017, following the changes in shareholding of Barleypark Limited, the counterparty ceased to be a related party of the Group and the loan was re-classified to Unsecured loans from third parties category. 7 Trade and other payables Trade and other payables are as follows:
As at 30 June 2017, included in payables for construction works is UAH denominated payable with the nominal value of USD 3,956 thousand (unaudited) with maturity on 20 December 2020 (31 December 2016: USD 3,797 thousand). This payable is measured at amortised cost under the effective interest rate of 18.02% per annum. Also, included in payables for construction works as at 30 June 2017 are EUR denominated payables under a commission agreement concluded with a third party with the nominal value of USD 2,333 thousand (unaudited) (31 December 2016: USD 2,838 thousand) with maturity on 15 September 2019. As at 30 June 2017 and 31 December 2016, these payables relate to construction works performed at shopping centre "Prospekt", are presented in accordance with their contractual maturity and measured at amortised cost under the effective interest rate of 6.85% (unaudited) (31 December 2016: 6.38%) per annum. 8 Other liabilities As at 30 June 2017, other long-term liabilities comprise mainly of the amount of principal and other current liabilities comprise of the amount of interest of the deferred consideration that is payable in respect of the acquisition of Wayfield Limited and its subsidiary Budkhol LLC, amounting to USD 20,000 thousand (unaudited) and USD 5,284 thousand (unaudited), respectively (31 December 2016: other current liabilities mainly comprise of the deferred consideration, amounting to USD 24,317 thousand, including accrued interest of USD 4,317 thousand). On 30 June 2017, the Group signed an amendment to the share exchange agreement with Vunderbuilt in order to postpone the payment of deferred consideration to Bytenem Co Limited from 30 June 2017 to 30 June 2020. 9 Revenue Revenue for the six months ended 30 June is as follows:
For the six months ended 30 June 2017, 17% of the Group's rental income was earned from two tenants (13% and 4%, respectively) (unaudited) (six months ended 30 June 2016: 21% of the Group's rental income was earned from two tenants: 15% and 6%, respectively (unaudited)). The Group rents out premises in the shopping centres to tenants in accordance with lease agreements predominantly concluded for a period of 12-30 months, save for the hypermarkets and large network retails chains, which enter into long term lease agreements. In accordance with lease agreements, rental rates are usually established in USD and are settled in Ukrainian hryvnias and Russian Roubles using the exchange rates established by the National Bank of Ukraine and Central Bank of the Russian Federation, as applicable. However, taking into account the current market conditions, the Group provides temporary discounts to its tenants by applying lower exchange rates than those established by the National Bank of Ukraine, in arriving to the rent payment for the particular month. Management believes that these measures will allow the Group to maintain occupancy rates in the shopping centres at a relatively high level during the current deteriorated period in Ukrainian business environment. Management believes that these measures are temporary until the Ukrainian business environment stabilises. The Group's lease agreements with tenants usually include 3-15 months cancellation clause. The Group believes that execution of the option to prolong the lease period upon expiration of non-cancellable period on the terms different to those agreed during the non-cancellable period, is not substantiated. Accordingly, upon calculation of rental income for the period the Group does not take into account rent payments, which are prescribed by the agreements upon expiration of the period during which the agreement cannot be cancelled. 10 Finance income and finance costs Finance income and finance costs for the six months ended 30 June are as follows:
11 Income tax expense (a) Income tax expense Income taxes for the six months ended 30 June are as follows:
Corporate profit tax rate for Ukrainian entities is fixed at 18%. While computing the deferred tax liability that arises on the temporary differences between carrying amounts and tax values of assets and liabilities of Voyazh-Krym LLC, registered in the Republic of Crimea, as at 30 June 2017 and 31 December 2016, management of the Group reflected the tax consequences that are applicable under the legislation of the Russian Federation that is being applied for all companies operating in the Republic of Crimea. In absence of clear regulations that will be applicable to the Republic of Crimea, management expects that reversal of temporary differences will be done under the laws of the Russian Federation. The applicable tax rate for the entities operating under the laws of the Russian Federation is 20%. The applicable tax rates are 12.5% for Cyprus companies and 20% for Estonian companies, and nil tax for companies incorporated in the Isle of Man. (b) Reconciliation of effective tax rate The difference between the total expected income tax expense for the six months ended 30 June computed by applying the Ukrainian statutory income tax rate to profit before tax and the reported tax expense is as follows:
In accordance with existing Ukrainian legislation tax losses can be carried forward and utilised indefinitely. As at 30 June 2017, management has not recognised deferred tax assets amounting to USD 24,579 thousand (unaudited) (31 December 2016: USD 29,261 thousand) mainly in respect of tax losses carried forward because of significant uncertainties regarding their realisation. During the six months ended 30 June 2017, deferred tax benefit for the amount of USD 1,899 thousand was recognised in other comprehensive income (six months ended 30 June 2016: USD 414 thousand) (unaudited). 12 Financial risk management During the six months ended 30 June 2017, the Group had no significant changes in financial risk management policies as compared to 31 December 2016. (a) Fair values Estimated fair values of the financial assets and liabilities have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to produce the estimated fair values. Accordingly, the estimates are not necessarily indicative of the amounts that could be realised in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values. The estimated fair values of financial assets and liabilities are determined using discounted cash flow and other appropriate valuation methodologies, at year-end, and are not indicative of the fair value of those instruments at the date these consolidated interim condensed financial statements are prepared or distributed. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Group's entire holdings of a particular financial instrument. Fair value estimates are based on judgments regarding future expected cash flows, current economic conditions, risk characteristics of various financial instruments and other factors. Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities not considered financial instruments. In addition, tax ramifications related to the realisation of the unrealised gains and losses can have an effect on fair value estimates and have not been considered. Management believes that for all the financial assets and liabilities, the carrying value is estimated to approximate the fair value as at 30 June 2017 (unaudited) and 31 December 2016. Such fair value was estimated by discounting the expected future cash flows under the market interest rate for similar financial instruments that prevails as at the reporting date. The estimated fair value is categorised within Level 2 of the fair value hierarchy. 13 Commitments and contingencies (a) Pledged assets In connection with loans and borrowings, the Group pledged the following assets:
As at 30 June 2017 (unaudited), the Group has also pledged the following: Rights on future income of Prizma Alfa LLC and Comfort Market Luks LLC under all lease agreements; Investments in the following subsidiaries: PrJSC UkrPanGroup, PrJSC Livoberezhzhiainvest, Comfort Market Luks LLC; Rights on future income of PrJSC UkrPanGroup under agreement with anchor tenant.As at 31 December 2016, the Group has also pledged the following: Rights on future income of Prizma Alfa LLC and Comfort Market Luks LLC under all lease agreements; Investments in the following subsidiaries: PrJSC Grandinvest, PrJSC UkrPanGroup, Comfort Market Luks LLC and PrJSC Livoberezhzhiainvest; Property rights under the Investment Agreement between PrJSC Grandinvest, PrJSC Livoberezhzhiainvest and Voyazh-Krym LLC.(b) Construction commitments The Group entered into contracts with third parties to construct a shopping centre in Kyiv and a shopping centre in Odesa for the total amount of USD 21,327 thousand as at 30 June 2017 (unaudited) (31 December 2016: USD 20,584 thousand). (c) Operating lease commitments The Group as lessorThe Group entered into lease agreements on its investment property portfolio that consists of five operating shopping centres. These non-cancellable lease agreements have remaining terms from twelve to thirty months. All agreements include a clause to enable upward revision of the rent rate on an annual basis according to prevailing market conditions. The future minimum lease payments under non-cancellable leases are as follows:
(d) Litigations In the ordinary course of business, the Group is subject to legal actions and complaints. (i) Legal case in respect of Assofit Holdings LimitedStarting from November 2010 the Group has been involved in an arbitration dispute with Stockman Interhold S.A. (Stockman), which was the majority shareholder of Assofit Holdings Limited (Assofit), regarding invalidation of the Call Option Agreement dated 25 February 2010. In accordance with this Call Option Agreement, Arricano was granted the option to acquire the shareholding of Stockman being equal to 50.03 per cent in the share capital of Assofit during the period starting from 15 November 2010 up to 15 March 2011. In November 2010, the Company sought to exercise the option granted by the Call Option Agreement, however the buy-out was suspended by legal and arbitration proceedings that were initiated by Stockman in relation to the validity of the termination of the agreement relating to the call option under the Call Option Agreement. In the seventh award delivered on 5 May 2016, the tribunal of the London Court of International Arbitration has found that Stockman is in breach of the Call Option Agreement and has taken "steps deliberately to dissipate and misappropriate Assofit's assets". As a result, the tribunal has ordered Stockman to transfer, or procure the transfer of, the Option Shares to Arricano within 30 days of the award. Upon registration of the transfer, Arricano shall pay to Stockman the Option Price minus damages, which when netted out brings the balance to nil. In the event that Stockman does not transfer, or procure the transfer of the Option Shares, Arricano may elect instead to claim damages in lieu of the share transfer. In its latest award, being the eighth award, made on 17 August 2016, the tribunal of the London Court of International Arbitration has awarded the costs of approximately USD 0.9 million to be paid by Stockman to Arricano. No receivable was recognised in these consolidated interim condensed financial statements, as recoverability of the related asset was not certain. In July 2017, the hearing regarding challenges of the fifth, the sixth and the seventh award by Stockman has taken place. As at the date that these consolidated interim condensed financial statements are authorised for issuance, the results of respective hearing are not yet available. As at the date that these consolidated interim condensed financial statements are authorised for issuance, a number of related legal cases are under the consideration of the District Court of Nicosia. In September 2014, Assofit Holdings Limited transferred the shares of Prizma Beta LLC to Financial and Investment Solutions BV, a company registered in the Netherlands, despite the fact that an Interim Receiver was appointed in Assofit at that period of time with the responsibility of collecting and safeguarding Assofit's assets. Further in September 2014, Joint-Stock Bank Pivdeniy PJSC, Ukraine, which had an outstanding mortgage loan due from Prizma Beta LLC of USD 32,000 thousand, exercised its right to recover the abovementioned loan by means of reposession of ownership rights to the Sky Mall shopping centre which was pledged to secure this loan in September 2014. As at the date that these consolidated interim condensed financial statements are authorised for issuance, shares of Prizma Beta LLC and ownership rights for the Sky Mall shopping centre remain to be alienated. As at 30 June 2017 (unaudited) and 31 December 2016, the Group holds 49.97% of nominal voting rights in Assofit without retaining significant influence. In prior years' consolidated financial statements of the Group until 31 December 2013, investment in Assofit was recognised in the statement of financial position as available for-sale financial asset at its carrying amount of USD 20,727 thousand. Due to loss of the legal control over the major operating asset being the Sky Mall shopping centre in September 2014, management believes that investment in Assofit is fully impaired as at 30 June 2017 (unaudited) and 31 December 2016. (ii) Legal case in respect of Voyazh-Krym LLCStarting from October 2013, the Group has been involved in the legal proceedings regarding demolishing of the part of the shopping centre "South Gallery" located in Simferopol with an area of 0.73 ha. On 22 January 2016, Arbitration court of the Russian Federation ruled against Voyazh-Krym LLC and the latter filed an appeal. On 27 December 2016, the Court of Central District has cancelled the previous decision of 20 September 2016 and decided to reconsider the case under the rules of the arbitration court. As at the date that these consolidated interim condensed financial statements are authorised for issuance, the hearing has not taken place yet. Management believes that the Group will be successful in defending its rights further in court, if this is required. Otherwise, Voyazh-Krym LLC may be required to perform reconstruction of the part of the shopping center stated at USD 20,600 thousand (unaudited) as at 30 June 2017. (iii) Other developments during the periodOn 17 April 2014, a claim was filed against Mezokred Holding LLC by a third party individual seeking to nullify the resolution issued by the Kyiv City Council, according to which the latter has approved the allocation to Mezokred Holding LLC of a land plot in Obolon District of Kyiv for the construction of a hypermarket and entitled Mezokred Holding LLC to lease this land plot for a period of 25 years. During 2016 and 2017, the court of first, appeal and cassation instances ruled in favour of Mezokred Holding LLC. On 3 October 2016, the claim was filed against Vektor Capital LLC by Odesa City Council to recover indebtedness in respect of the agreement on customer share participation in the creation and development of engineering, transport and social infrastructure of Odesa. During the six months ended 30 June 2017, Vektor Capital LLC has won the related case, according to which the due date of repayment of all fees was postponed until finalization of construction of the shopping center. Management is unaware of any other significant actual, pending or threatened claims against the Group. (e) Taxation contingencies (i) UkraineThe Group performs most of its operations in Ukraine and therefore within the jurisdiction of the Ukrainian tax authorities. The Ukrainian tax system can be characterised by numerous taxes and frequently changing legislation which may be applied retroactively, open to wide interpretation and in some cases are conflicting. Instances of inconsistent opinions between local, regional, and national tax authorities and between the Ministry of Finance and other state authorities are not unusual. Tax declarations are subject to review and investigation by a number of authorities that are enacted by law to impose severe fines, penalties and interest charges. A tax year remains open for review by the tax authorities during the three subsequent calendar years, however under certain circumstances a tax year may remain open longer. These facts create tax risks substantially more significant than typically found in countries with more developed systems. Management believes that it has adequately provided for tax liabilities based on its interpretation of tax legislation and official pronouncements. However, the interpretations of the relevant authorities could differ and the effect on these consolidated interim condensed financial statements, if the authorities were successful in enforcing their interpretations, could be significant. No provisions for potential tax assessments have been made in these consolidated interim condensed financial statements. (ii) Republic of CrimeaAs a result of the events described in note 1(b), Ukrainian authorities are not currently able to enforce Ukrainian laws on the territory of the Republic of Crimea. Starting from April 2014, this territory is subject to the transitional provisions of tax rules established by the Russian government to ensure gradual introduction of federal laws into the territory. Although these transitional provisions were thought to put certain relief on the entities registered in the Republic of Crimea, interpretations of these provisions by the tax authorities may be different from the tax payers' view. Effective from 1 January 2015, the territory of the Republic of Crimea is subject to general legislation of the Russian Federation. The taxation system in the Russian Federation continues to evolve and is characterised by frequent changes in legislation, official pronouncements and court decisions, which are sometimes contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to review and investigation by a number of authorities, which have the authority to impose severe fines, penalties and interest charges. A tax year generally remains open for review by the tax authorities during the three subsequent calendar years; however, under certain circumstances a tax year may remain open longer. Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive and substance-based position in their interpretation and enforcement of tax legislation. These circumstances may create tax risks in the Russian Federation that are substantially more significant than in other countries. Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Russian tax legislation, official pronouncements and court decisions. However, the interpretations of the tax authorities and courts, especially due to reform of the supreme courts that are resolving tax disputes, could differ and the effect on these consolidated interim condensed financial statements, if the authorities were successful in enforcing their interpretations, could be significant. In addition, a number of new laws introducing changes to the Russian tax legislation have been recently adopted. In particular, starting from 1 January 2015 changes aimed at regulating tax consequences of transactions with foreign companies and their activities were introduced, such as concept of beneficial ownership of income, etc. These changes may potentially impact the Group's tax position and create additional tax risks going forward. This legislation is still evolving and the impact of legislative changes should be considered based on the actual circumstances. (iii) Republic of CyprusDuring the prior years, the Group incurred certain foreign legal expenses, where the VAT accounted for on these expenses was fully claimed. Management believes that the Group properly claimed the VAT accounted for on these expenses, on the basis of the plans to further collect reimbursement of the said expenses, being purely of legal nature, from respective parties in full. Since as at the date of issue of these consolidated interim condensed financial statements the management has just started to implement its plans, the transactions will not be complete in the view of VAT authorities, and the Group may be liable to pay VAT of approximately USD 1,853 thousand plus related interest and penalties. No provision for the VAT liability or related penalties is made in these consolidated interim condensed financial statements as management believes that it is not probable that such VAT liability will materialise, as the Group will proceed with the implementation of the plan on the reimbursement of expenses. 14 Related party transactions (a) Control relationships The Group's largest shareholders are Retail Real Estate OU, OU Ekspert Kapital, Dragon - Ukrainian Properties and Development plc, Deltamax Group OU, Rauno Teder and Jüri Põld. The Group's ultimate controlling party is Estonian individual Hillar Teder. Hillar Teder indirectly controls 55.45% of the voting shares of the Parent Company. Apart from this, the adult son of Hillar Teder controls 7.48% of the voting shares of the Parent Company. (b) Transactions with management and close family members Key management remunerationKey management compensation included in the consolidated condensed statement of profit or loss and other comprehensive income for the six months ended 30 June 2017 is represented by salary and bonuses of USD 384 thousand (unaudited) (six months ended 30 June 2016: USD 308 thousand (unaudited)).
(c) Transactions and balances with entities under common control Outstanding balances with entities under common control are as follows:
None of the balances are secured. The terms and conditions of significant transactions and balances with entities under common control are described in notes 6, 7 and 8. Expenses incurred and income earned from transactions with entities under common control for the six months ended 30 June are as follows:
Prices for related party transactions are determined on an ongoing basis. (d) Guarantees received The Group's related parties issued guarantees securing loans payable by Ukrainian subsidiaries of Arricano Real Estate PLC to the EBRD (loans payable by Comfort Market Luks LLC and UkrPanGroup PrJSC) and PJSC "Bank "St.Petersburg" (loans payable by Livoberezhzhiainvest PrJSC). The guarantees cover the total amount of outstanding liabilities in relation to the EBRD as at 30 June 2017 of USD 21,852 thousand (unaudited) (31 December 2016: USD 23,939 thousand) and in relation to PJSC "Bank "St.Petersburg" as at 30 June 2017 of USD 16,948 thousand (unaudited) (31 December 2016: USD 17,650 thousand). 15 Subsequent events (a) Changes in loan agreements On 15 August 2017, the Group signed amendments to the loan agreements with PJSC "Bank "St.Petersburg" stipulating a decrease in the amount of loan principal payable for the period from September 2017 till February 2018 by USD 1,215 thousand. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ISIN: | CY0102941610 |
| Category Code: | IR |
| TIDM: | ARO |
| LEI Code: | 213800F8AMPULEKXFX22 |
| Sequence No.: | 4648 |
| End of Announcement | EQS News Service |
611869 22-Sep-2017
UK-Regulatory-announcement transmitted by DGAP - a service of EQS Group AG. The issuer is solely responsible for the content of this announcement.