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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Arricano Real Estate Plc | LSE:ARO | London | Ordinary Share | CY0102941610 | ORD EUR0.0005 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.25 | 0.15 | 0.35 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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Arricano Real Estate Plc (ARO)
Arricano Real Estate Plc: Half-year Results
26-Sep-2019 / 12:30 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
25 September 2019
Arricano Real Estate plc
("Arricano" or the "Company" or, together with its subsidiaries, the
"Group")
Interim Results for the 6 months ended 30 June 2019
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 147,500 sqm of gross leasable area, a
49.97% shareholding in Assofit and land for a further three sites under
development.
Highlights:
· Total revenues increased by 17% to USD 17.3 million (30 June 2018: USD
14.8 million)
· Profit before tax, before revaluation gains/losses increased, largely
due to FX gains, by 53 % to USD 9.8 million (30 June 2018: USD 6.4
million)
· Total fair valuation of the Company's portfolio increased by c.9% USD
22.8 million to USD 281.3 million as at 30 June 2019 (31 December 2018:
USD 258.5 million) due to an USD15.6 million increase in the fair
valuation of operating property portfolio as well as USD7.2 million
construction progress on projects in development
· Occupancy increased to 99.9% as at 30 June 2019 (30 June 2018: 99.7%)
· Bank borrowings remain conservative at the property level with a loan to
investment property ratio of 15 % as at 30 June 2019 (31 December 2018:
14%).
· Total borrowings to investment property ratio is 37 % as at 30 June 2019
(31 December 2018: 37%)
· Net asset value USD 111.8 million (31 December 2018: USD 94 million)
· Signed 82 new lease agreements during H1 2019 compared to 68 in H1 2018
· Footfall in H1 2019 remained at the level of 23 million visitors
consistent with H1 2018
Ganna Chubotina, Acting CEO of Arricano, commented:
"This has been another good trading period for the Group building upon the
growth achieved in 2018. Our shopping malls are operating at virtually 100%
capacity, attracting over 23 million visitors during first half year 2019
which is reflected in the significant growth in profitability in this
period. The business has continued this momentum into the second half of the
year and is well placed to deliver an excellent result for the year."
For further information please contact:
Arricano Real Estate plc Tel: +380 44 594 9471
Ganna Chubotina, Acting CEO
Nominated Adviser and Broker Tel: +44 (0)20 7220 1666
WH Ireland Limited
Chris Fielding
Financial PR Tel: +44 (0)20 3151 7008
Novella Communications
Tim Robertson/Fergus Young
Acting Chief Executive's Statement
Introduction
I am delighted to be making my first financial statement as Acting CEO of
Arricano.
The Company has again delivered a strong trading performance for the first
six months of 2019 with a 17% increase in total revenues together with
significant growth in underlying profit before tax before revaluation
gains/losses to USD 9.8 million (2018: USD 6.4 million). Despite the
challenges of the wider political and economic environment, the Company
continues to expand and develop.
At the heart of the business is the appeal of the Group's malls both to
consumers and retail tenants. In July 2019, the vacancy rate across the
portfolio was just 0.1%, the lowest vacancy rate the Group has recorded
since 2012 and a reflection of the operating team's success in retaining and
attracting new tenants.
Reflecting the commercial strength of the business the Company has
successfully agreed 4 new banking facilities to provide USD 40 million of
fresh capital to progress current development projects in particular the
Lukyanivka project including for refinancing USD10.8 million of existing
loans.
Results
Revenues for the six months to 30 June 2019 increased by 17% to USD 17.3
million, compared with the same period last year, with net operating income
(before revaluation gains) from the operating properties increasing by 4 %
to USD 11.4 million compared to USD 11.0 million in H1 2018.
The Company reported an increase in pre-tax profit (excluding revaluation
gains) of USD 3.4 million to USD9.8 million (30 June 2018: USD 6.4 million).
Included in this performance are FX gains over the period of USD 4.6 million
(2018: USD 1.6 million)
The portfolio of property assets was independently valued as at 30 June 2019
by Expandia LLC, (part of the CBRE Affiliate Network) at USD 281.3 million
(31 December 2018: USD 258.5 million). The valuation incorporated a small
loss due to due to strengthening of functional currency.
Net profit after tax for the six months to 30 June 2019 was USD 8.6 million
(30 June 2018: USD 13.9 million) giving earnings per share of USD 0.08 (30
June 2018: USD 0.13).
· Bank debt at the half-year end was USD 41.1 million, with the majority
of borrowings at the project level at an average rate of 13.1%. Bank loans
mature between 2019 and 2024 and the Company's bank loan to investment
property value ratio is comparatively low at 15% as at 30 June 2019. In
addition, the Company had USD 9.1 million of cash and cash equivalents,
and non-bank loans of USD 62.5 million as at 30 June 2019. Total amount of
loans and borrowings as at 30 June 2019 was USD 103.6 million. Total
borrowings to investment property ratio is 37 % as at 30 June 2019 (31
December 2018: 37%)
Operational Review
The market environment continues to be challenging as it has been since
2012, however, Arricano has consistently shown that it is able to continue
to grow in these market conditions. Key to the Company's success has been a
relentless focus on enhancing the appeal of all of the Company's shopping
and entertainment centres. It is noteworthy that the average vacancy level
across all malls in Kyiv is 5.5% which compares starkly to the current
vacancy rate of the Arricano portfolio of 0.1 %.
Over the last 2 years digital interaction has been at the forefront of the
Company's marketing activities. Arricano has sought to work collaboratively
between consumers and retailers seeking to combine the physical experiences
in a mall with digital shopping experiences. The Company leads this
expertise in Ukraine and has established a media platform with over 200,000
subscribers and an average monthly reach of more than 4 million people. A
key focus has been to link this platform with retail activity but to do so
in an innovative manner so consumers are happy to receive content which they
do not view as advertising.
As ever, the operating team has been working to find the optimum mix of
retailers in each shopping mall, ensuring the best known and most popular
retailers are present but also combining a blend of new aspiring retailers
to create a fresh environment. In total, Arricano signed 82 new leases in
the first six months of 2019 (HY1 2018: 68). This was a good performance
increasing occupancy and achieving an average rental rate (excluding
hypermarkets) of USD 21.2 per sq.m. (HY1 2018: USD 18.5 per sq.m.).
It is the Company's strategy to recycle capital through the sale of mature
shopping and entertainment centres into both new development projects with
the potential for generating higher returns and the return of capital to
investors. In July 2019, Arricano confirmed it had entered into negotiations
to sell Sun Gallery and City Mall with Dragon Capital Investments Limited
and with other parties. Further updates with regard to these potential sales
will be made in due course.
The three development sites covering 14 ha. in Lukyanivka (Kyiv), Petrivka
(Kyiv), and Rozumovska (Odesa) continue to be progressed. With the capital
from the new banking facilities, the highly innovative Lukyanivka project
has made good progress and is expected to be completed in 2021.
Regarding the 49.97% 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.
People
From a trading perspective, this has been another successful period for the
?ompany which reflects the high levels of commitment and hard work from all
employees of Arricano and on behalf of the Board I would like to thank them.
Outlook
The excellent trading performance in the first six months means the business
is well placed to achieve a good result for the year. We are in the process
of refocusing the business with the possible sale of two mature sites which
will provide further capital to progress our new projects primarily in Kyiv.
At the same time, we will continue to push to improve all aspects of our
malls to enhance the experience of consumers and retailers and create
aspirational spaces to shop, relax and socialise. The second half of 2019
has begun well with trading patterns in line with our internal expectations.
Ganna Chubotina
Acting Chief Executive Officer
25 September 2019
INDEPENT 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 2019, the consolidated interim condensed
statements of profit or loss and other 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 condensed consolidated interim financial statements in accordance
with International Accounting Standard 34, "Interim Financial Reporting", as
adopted by the European Union. 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 as at and for the six months ended 30 June 2019 are not prepared,
in all material respects, in accordance with IAS 34, "Interim Financial
Reporting", as adopted by the European Union.
John C. Nicolaou, CPA
Certified Public Accountant and Register Auditor
For and on behalf of
KPMG Limited
Certified Public Accountants and Registered Auditors
11, June 16th 1943 Street,
3022 Limassol,
Cyprus
25 September 2019
Note 30 June 2019 31 December
2018*
(unaudited)
(in thousands of USD)
Assets
Non-current assets
Investment property 4 281,311 258,537
Long-term VAT receivable 1,490 568
Property and equipment 143 121
Intangible assets 136 101
Total non-current assets 283,080 259,327
Current assets
Trade and other receivables 1,401 1,640
Loans receivable 320 300
Prepayments made and other assets 744 781
VAT receivable 651 225
Assets classified as held for sale 1,653 1,562
Income tax receivable 464 178
Cash and cash equivalents 9,137 4,224
Total current assets 14,370 8,910
Total assets 297,450 268,237
Arricano Real Estate PLC
Consolidated interim condensed financial statements as at and
for the six months ended 30 June 2019
Consolidated condensed statement of financial position as at 30
June 2019
The consolidated condensed statement of financial position is to be read in
conjunction with the notes to, and forming part of, the consolidated interim
condensed financial statements set out on pages 10 to 27.
Note 30 June 2019 31 December
2018*
(unaudited)
(in thousands of USD)
Equity and Liabilities
Equity
Share capital 67 67
Share premium 183,727 183,727
Non-reciprocal shareholders 59,713 59,713
contribution
Retained earnings 47,493 38,937
Other reserves (61,983) (61,983)
Foreign currency translation (117,246) (126,429)
differences
Total equity 111,771 94,032
Non-current liabilities
Long-term loans and borrowings 5 26,858 44,501
Lease liabilities (2018: Finance 7,757 7,271
lease liability)
Trade and other payables 16,048 17,572
Other long-term liabilities 6 97 20,046
Deferred tax liability 8,998 6,917
Total non-current liabilities 59,758 96,307
Current liabilities
Short-term loans and borrowings 5 76,753 52,006
Trade and other payables 10,278 10,588
Taxes payable 1,938 1,476
Advances received 6,212 5,605
Current portion of lease 2 6
liabilities (2018: Current portion
of finance lease liability)
Other liabilities 6 30,738 8,217
Total current liabilities 125,921 77,898
Total liabilities 185,679 174,205
Total equity and liabilities 297,450 268,237
* The Group has initially applied IFRS 16 at 1 January 2019, using the
modified retrospective approach. Under this approach, comparative
information is not restated and the cumulative effect of initially applying
IFRS 16 is recognised in retained earnings at the date of initial
application. See Note 3.
These consolidated interim condensed financial statements were approved by
the Board of Directors on 25 September 2019 and were signed on its behalf
by:
Urmas Somelar Frank Lewis
Director Director
Note Six months ended Six months ended
30 June 2019 30 June 2018*
(unaudited) (unaudited)
(in thousands of
USD, except for
earnings per share)
Revenue 7 17,351 14,810
Other income 1 489
(Loss)/ gain on 4(a) (991) 9,765
revaluation of
investment property
Goods, raw materials (527) (455)
and services used
Operating expenses (4,058) (2,533)
Employee costs (1,302) (1,230)
Depreciation and (39) (46)
amortisation
Profit from 10,435 20,800
operating activities
Finance income 8 4,832 1,682
Finance costs (6,438) (6,282)
Profit before income 8,829 16,200
tax
Income tax expense (273) (2,300)
Profit for the 8,556 13,900
period
Other comprehensive
income
Items that may be
reclassified to
profit or loss:
Foreign exchange 21,666
gains on monetary
items that form part
of net investment in
the foreign 15,916
operation, net of
tax effect
Foreign currency (6,733) (13,437)
translation
differences
Total items that may 9,183 8,229
be reclassified to
profit or loss
Other comprehensive 9,183 8,229
income
Total comprehensive 17,739 22,129
income for the
period
Weighted average 103,270,637 103,270,637
number of shares (in
shares)
Basic and diluted 0.08 0.13
earnings per share,
USD
Arricano Real Estate PLC
Consolidated interim condensed financial statements as at and
for the six months ended 30 June 2019
Consolidated condensed statement of profit or loss and other
comprehensive income for the six months ended 30 June 2019
* The Group has initially applied IFRS 16 at 1 January 2019, using the
modified retrospective approach.
Under this approach, comparative information is not restated and the
cumulative effect of initially applying IFRS 16 is recognised in retained
earnings at the date of initial application. See Note 3.
Arricano Real Estate PLC
Consolidated interim condensed financial statements as at and
for the six months ended 30 June 2019
Consolidated condensed statement of cash flows for the six
months ended 30 June 2019
Note Six months ended Six months ended
30 June 2019 30 June 2018
(unaudited) (unaudited)
(in thousands of USD)
Cash flows from operating
activities
Profit before income tax 8,829 16,200
Adjustments for:
Interest income 8 (279) (108)
Finance costs 6,438 6,282
Loss/(gain) on 4(a) 991 (9,765)
revaluation of investment
property
Depreciation and 39 46
amortisation
Unrealised foreign 8 (4,553) (1,574)
exchange gain
Reversal of allowance for - (11)
bad debts
Accrual of provisions 1,554 -
Operating cash flows 13,019 11,070
before changes in working
capital
Change in trade and other 401 1,368
receivables and
prepayments made and
other assets
Change in VAT receivable (1,267) 46
Change in trade and other 517 (397)
payables
Change in advances 282 316
received
Change in other 51 6
liabilities
Change in taxes payable 368 (430)
Income tax paid (899) (498)
Interest paid (2,368) (2,330)
Cash flows from operating 10,104 9,151
activities
Cash flows from investing
activities
Acquisition of investment (9,912) (3,612)
property, excluding
capitalized borrowing
costs and settlements of
payables due to
constructors
Acquisition of property (82) (33)
and equipment and
intangible assets
Interest received 279 108
Cash flows used in (9,715) (3,537)
investing activities
Arricano Real Estate PLC
Consolidated interim condensed financial statements as at and
for the six months ended 30 June 2019
Consolidated condensed statement of cash flows for the six
months ended 30 June 2019 (continued)
Note Six months ended Six months ended
30 June 2019 30 June 2018
(unaudited) (unaudited)
(in thousands of USD)
Cash flows from financing
activities
Proceeds from borrowings 13,251 -
Repayment of borrowings (8,873) (4,165)
Lease payments (2018: (265) (268)
Finance lease payments)
Cash flows from/ (used 4,113 (4,433)
in) financing activities
Net increase in cash and 4,502 1,181
cash equivalents
Cash and cash equivalents 4,224 2,609
at 1 January
Effect of movements in 411 225
exchange rates on cash
and cash equivalents
Cash and cash equivalents 9,137 4,015
at 30 June
Arricano Real Estate PLC
Consolidated interim condensed financial statements as
at and for the six months ended 30 June 2019
Consolidated condensed statement of changes in equity
for the six months ended 30 June 2019
Attributable to equity holders of the parent
Share Share Non-reciprocal Retained Other Foreign Total
capit premi shareholders earnings reser currenc
al um contribution ves y
transla
tion
differe
nces
(in
thousand
s of
USD)
Balances 67 183,7 59,713 834 (61,9 (130,17 52,18
at 1 27 83) 6) 2
January
2018
Total
comprehe
nsive
income
for the
period
Profit - - - 13,900 - - 13,90
for the 0
period
Foreign - - - - - 21,666 21,66
exchange 6
gains on
monetary
items
that
form
part of
net
investme
nt in
the
foreign
operatio
n, net
of tax
effect
Foreign - - - - - (13,437 (13,4
currency ) 37)
translat
ion
differen
ces
Total - - - - - 8,229 8,229
other
comprehe
nsive
income
Total - - - 13,900 - 8,229 22,12
comprehe 9
nsive
income
for the
period
Balances 67 183,7 59,713 14,734 (61,9 (121,94 74,31
at 30 27 83) 7) 1
June
2018
(unaudit
ed)
Arricano Real Estate PLC
Consolidated interim condensed financial statements
as at and for the six months ended 30 June 2019
Consolidated condensed statement of changes in
equity for the six months ended 30 June 2019
(continued)
Attributable to equity holders of the parent
Share Share Non-reciprocal Retained Other Foreign Total
capit premi shareholders earnings reser currenc
al um contribution ves y
transla
tion
differe
nces
(in
thousand
s of
USD)
Balances 67 183,7 59,713 38,937 (61,9 (126,42 94,032
at 1 27 83) 9)
January
2019*
Total
comprehe
nsive
income
for the
period
Profit - - - 8,556 - - 8,556
for the
period
(unaudit
ed)
Foreign - - - - - 15,916 15,916
exchange
gains on
monetary
items
that
form
part of
net
investme
nt in
the
foreign
operatio
n, net
of tax
effect
(unaudit
ed)
Foreign - - - - - (6,733) (6,733
currency )
translat
ion
differen
ces
(unaudit
ed)
Total - - - - - 9,183 9,183
other
comprehe
nsive
income
(unaudit
ed)
Total - - - 8,556 - 9,183 17,739
comprehe
nsive
income
for the
period
(unaudit
ed)
Balances 67 183,7 59,713 47,493 (61,9 (117,24 111,77
at 30 27 83) 6) 1
June
2019
(unaudit
ed)
* The Group has initially applied IFRS 16 at 1 January 2019, using the
modified retrospective approach. Under this approach, comparative
information is not restated and the cumulative effect of initially applying
IFRS 16 is recognised in retained earnings at the date of initial
application. See Note 3.
Arricano Real Estate PLC
Consolidated interim condensed financial statements as at and
for the six months ended 30 June 2019
Notes to the consolidated interim condensed financial statements
1) Background
a) Organisation 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 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 2019, the Group
operates five shopping centres in Kyiv, Simferopol, Zaporizhzhya and Kryvyi
Rig with a total leasable area of over 147,500 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) Business environment
During the six months ended 30 June 2019, there was no significant change in
the business environment compared to those described in the Group's
consolidated financial statements as at and for the year ended 31 December
2018.
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
business environment on the operations and the financial position of the
Group. The future business environment may differ from management's
assessment.
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) and should be read in conjunction with the Group's last
annual consolidated financial statements as at and for the year ended 31
December 2018 ("last annual financial statements"). 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 2018. 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).
This is the first set of the Group's financial statements in which IFRS 16
has been applied. Changes to significant accounting policies are described
in Note 3.
The results for the six-month period ended 30 June 2019 are not necessarily
indicative of the results expected for the full year.
(b) Judgements 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 2018, except for valuation of loans receivable
and investment in Filgate Credit Enterprises Limited and valuation of trade
and other receivables, which are no longer considered significant areas of
estimation uncertainty or critical judgement.
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 in the Russian
Federation and have the Ukrainian Hryvnia (UAH) and Russian Rouble (RUB) as
their functional currencies since substantially all transactions and
balances of these entities are denominated in the mentioned currencies.The
Group entities located in Cyprus, Estonia, Isle of Man and BVI have the US
dollar as their functional currency, since substantially all transactions
and balances of these entities are denominated in US dollar.
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:
Currency 30 June 2019 31 December 2018
UAH 26.17 27.69
RUB 63.08 69.47
Average USD exchange rates for the six months period ended 30 June are as
follows:
Currency 2019 2018
UAH 26.94 26.77
RUB 65.17 59.47
As at the date that these consolidated interim condensed financial
statements are authorised for issue, 25 September 2019, the exchange rate is
UAH 24.21 to USD 1.00 and
RUB 63.71 to USD 1.00.
d) Going concern
As at 30 June 2019, the Group's current liabilities exceed its current
assets by
USD 111,551 thousand (unaudited).
At the same time, the Group has positive equity of USD 111,771 thousand
(unaudited) as at
30 June 2019, generated net profit of USD 8,556 thousand (unaudited) and
positive cash flows from operating activities of USD 10,104 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 short- term loans payable, accrued interest, other liabilities
and other payables to related parties totally amounting to USD 68,214
thousand (unaudited) as at 30 June 2019 plus any accruing interest thereon
at least until 31 December 2020.
· In September 2019, the Group has received a waiver from Barleypark
Limited, waiving repayment of the loan during eighteen months ending 31
December 2020, amounting to USD 22,796 thousand (unaudited), which is
payable on demand and presented as short- term liability as at 30 June
2019.
· Management makes all efforts to keep occupancy rates of its shopping
centres on current level. Besides, the Group managed to gradually increase
its rental rates during the six months ended 30 June 2019 for existing
tenants.
Management believes that the measures that it undertakes, as described
above, will allow the Group to maintain positive working capital and that no
material uncertainty that may cast significant doubt about the Group's
ability to continue as a going concern in the foreseeable future exists.
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 9(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 2019 and the year ended 31 December 2018, the Group operated in and was
managed as one operating segment, being property investment.
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 Changes in significant accounting policies
Except as described below, the accounting policies applied in these
consolidated interim condensed financial statements are the same as those
applied in the Group's consolidated financial statements as at and for the
year ended 31 December 2018.
The changes in accounting policies are also expected to be reflected in the
Group's consolidated financial statements as at and for the year ending 31
December 2019.
The Group has initially adopted IFRS 16 Leases from 1 January 2019. IFRS 16
introduced a single, on-balance sheet accounting model for lessees. The
Group has used practical expedient in respect of recognition exemption for
short-term leases, and thus no additional right-of-use assets representing
its rights to use the underlying assets and lease liabilities representing
its obligation to make lease payments were recognised. Lessor accounting
remains similar to previous accounting policies.
The Group has applied IFRS 16 using the modified retrospective approach,
under which the cumulative effect of initial application is recognised in
retained earnings at 1 January 2019.
As there were no differences in the amounts related to the Group's leases
resulting from adoption of IFRS 16 as at 1 January 2019, the information
presented for 2018 generally reflects requirements of IFRS 16. The details
of the new significant accounting policies and the nature of the changes to
previous accounting policies in relation to the Group's services are set out
below.
a) Definition of a lease
Previously, the Group determined at contract inception whether an
arrangement was or contained a lease under IFRIC 4 Determining Whether an
Arrangement contains a Lease. The Group now assesses whether a contract is
or contains a lease based on the new definition of a lease. Under IFRS 16, a
contract is, or contains, a lease if the contract conveys a right to control
the use of an identified asset for a period of time in exchange for
consideration.
On transition to IFRS 16, the Group elected to apply the practical expedient
to grandfather the assessment of which transactions are leases. It applied
IFRS 16 only to contracts that were previously identified as leases.
Contracts that were not identified as leases under IAS 17 and IFRIC 4 were
not reassessed. Therefore, the definition of a lease under IFRS 16 has been
applied only to contracts entered into or changed on or after 1 January
2019.
At inception or on reassessment of a contract that contains a lease
component, the Group allocates the consideration in the contract to each
lease and non-lease component on the basis of their relative stand-alone
prices. However, for leases of properties in which it is a lessee, the Group
has elected not to separate non-lease components and will instead account
for the lease and non-lease components as a single lease component.
b) As a lessee
The Group leases office premises and land plots under its investment
properties.
As a lessee, the Group previously classified leases as operating or finance
leases based on its assessment of whether the lease transferred
substantially all of the risks and rewards of ownership. Under IFRS 16, the
Group recognises right-of-use assets and lease liabilities for most leases -
i.e. these leases are on-balance sheet.
However, the Group has elected not to recognise right-of-use assets and
lease liabilities for some leases of low-value assets and for short-term
lease of office premises. The Group recognises the lease payments associated
with these leases as an expense on a straight-line basis over the lease
term.
The Group presents right-of-use assets that do not meet the definition of
investment property in 'property and equipment', the same line item as it
presents underlying assets of the same nature that it owns. Right-of-use
assets that meet the definition of investment property are presented within
investment property. The carrying amounts of right-of-use assets are as
below.
Investment property
(in thousands of USD)
Balance at 1 January 2019 46,985
Balance at 30 June 2019 47,807
The Group presents lease liabilities in "lease liabilities" in the
consolidated statement of financial position.
i) (i) Significant accounting policies
The Group recognises a right-of-use asset and a lease liability at the lease
commencement date. The right-of-use asset is initially measured at cost, and
subsequently at cost less any accumulated depreciation and impairment
losses, and adjusted for certain remeasurements of the lease liability. When
a right-of-use asset meets the definition of investment property, it is
presented in investment property. The right-of-use asset is initially
measured at cost and subsequently measured at fair value, in accordance with
the Group's accounting policies.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily
determined, the Group's incremental borrowing rate. Generally, the Group
uses its incremental borrowing rate as the discount rate.
The lease liability is subsequently increased by the interest cost on the
lease liability and decreased by lease payment made. It is remeasured when
there is a change in future lease payments arising from a change in an index
or rate, a change in the estimate of the amount expected to be payable under
a residual value guarantee, or as appropriate, changes in the assessment of
whether a purchase or extension option is reasonably certain to be exercised
or a termination option is reasonably certain not to be exercised.
ii) (ii) Transition
Previously, the Group classified property leases as operating leases under
IAS 17. These include office premises. The leases typically run for a period
of 3 years. As at 1 January 2019 remaining term of the Group's lease
agreements was less than 12 months.
The Group used the following practical expedient when applying IFRS 16 to
leases previously classified as operating leases under IAS 17:
· Applied the exemption not to recognise right-of-use assets and
liabilities for leases with less than 12 months of lease term.
Thus, no right-of-use asset and a lease liability were recognised in respect
of the lease of office facility.
c) As a lessor
The Group leases out its investment property. The Group has classified these
leases as operating leases.
The accounting policies applicable to the Group as a lessor are not
different from those under IAS 17 and the Group is not required to make any
adjustments on transition to IFRS 16 for leases in which it acts as a
lessor. However, the Group has applied IFRS 15 Revenue from Contracts with
Customers to allocate consideration in the contract to each lease and
non-lease component.
d) Impacts on financial statements
(i) Impacts on transition and for periods
Transition to IFRS 16 had no impact on the Group's interim condensed
financial statements.
A number of other new standards are effective from 1 January 2019 but they
do not have a material effect on the Group's financial statements.
4 Investment property
(a) Movements in investment property
Movements in investment properties for the six months ended 30 June 2019 are
as follows: fair value loss on revaluation in the amount of USD 991 thousand
(unaudited) (six months ended 30 June 2018: fair value gain on revaluation
in the amount of USD 9,765 thousand (unaudited)); currency translation gain
in the amount of USD 17,378 thousand (unaudited) (six months ended 30 June
2018: USD 8,680 thousand (unaudited)); and additions in the amount of
USD 6,387 thousand (unaudited) (six months ended 30 June 2018: USD 680
thousand(unaudited)).
As at 30 June 2019, in connection with loans and borrowings, the Group
pledged as security investment property with a carrying value of USD 162,350
thousand (unaudited)
(31 December 2018: USD 150,490 thousand) (refer to Note 10(a)).
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 2019, the fair value of investment property categorised within
Level 2 category is USD 29,600 thousand (unaudited) (31 December 2018: USD
29,300 thousand). To assist with the estimation of the fair value of the
Group's investment property as at 30 June 2019, 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 2019, 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 weighted average rental rates per shopping centers excluding
turnover income, ranging from USD 8 to USD 21 per sq.m., comprising
minimum rental rate of USD 3 and maximum rental rate of USD 186 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 99.4% to 99.9%, capitalisation
rates ranging from 12.3% to 16.0% p.a., and discount rate of 22% 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 2018, 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 weighted average rental rates per shopping centers excluding
turnover income, ranging from USD 8 to USD 20 per sq.m., comprising
minimum rental rate of USD 3 and maximum rental rate of USD 189 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 99.3% to 100.0% and
capitalisation rates ranging from 12.3% to 16.0% p.a., and discount rate
of 22% 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 30 June 2019, fair value of investment property, denominated in
functional currency amounted to UAH 5,296,076 thousand (unaudited) and RUB
3,311,469 thousand (unaudited) (31 December 2018: UAH 5,266,308 thousand and
RUB 3,445,742 thousand). The increase in fair value of investment property
in Ukrainian hryvnia results from increased rental payments invoiced in
Ukrainian hryvnia due to the increase in the exchange rates applied to the
USD equivalent of rental rates fixed in the rental contracts. The decrease
in fair value of investment property in Russian Rouble results from
revaluation of Russian Rouble while rental rates are fixed in USD in the
rental contracts.
Sensitivity at the date of valuation
The valuation model used to assess the fair value of investment property as
at 30 June 2019 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 2,253 thousand
(unaudited) (31 December 2018: USD 2,104 thousand) lower. If rental rates
are 1% higher, then the fair value of investment properties would be USD
2,253 thousand (unaudited) (31 December 2018: USD 2,104 thousand) higher.
· If the capitalisation rate applied is 1% higher than that used in the
valuation models, the fair value of investment properties would be USD
15,869 thousand (unaudited) (31 December 2018: USD 14,810 thousand) lower.
If the capitalisation rate is 1% less, then the fair value of investment
properties would be USD 18,502 thousand (unaudited) (31 December 2018: USD
17,266 thousand) higher.
· If the occupancy rate is assumed to be 100% for all Group shopping
centers, the fair value of investment properties would be USD 896 thousand
(unaudited) higher
(31 December 2018: if the occupancy rate is 1% higher than used in the
valuation model, the fair value of investment properties would be USD
1,922 thousand higher). If the occupancy rates are 1% less, then the fair
value of investment properties would be USD 2,013 thousand (unaudited) (31
December 2018: USD 1,922 thousand) lower.
5 Loans and borrowings
This note provides information about the contractual terms of loans.
(in thousands of USD) 30 June 31 December 2018
2019 (unaudited)
Non-current
Secured bank loans 26,668 28,171
Unsecured loans from related - 16,143
parties
Unsecured loans from third 190 187
parties
26,858 44,501
Current
Secured bank loans (current 14,442 8,089
portion of secured long-term
bank loans)
Unsecured loans from related 39,515 21,913
parties (including current
portion of long-term loans
from related parties)
Unsecured loans from third 22,796 22,004
parties
76,753 52,006
103,611 96,507
Terms and debt repayment schedule
As at 30 June 2019, the terms and debt repayment schedule of bank loans are
as follows (unaudited):
(in Currency Nominal Contractual year of Carrying
thousands interest maturity value
of USD) rate
Secured
bank loans
Tascombank USD 11.25-13% 2019-2023 18,742
and
Universal
Bank
Tascombank USD 10.75-12% 2019-2024 4,005
EBRD USD 7.5%+ 1m 2019-2020 7,022
LIBOR
Raiffeisen UAH 18.00% 2019-2020 6,036
Bank Aval
Raiffeisen UAH 19.75% 2019-2023 5,305
Bank Aval
41,110
Unsecured
loans from
related
parties
Retail Real USD 10.50% 2019 13,028
Estate OU
Retail Real USD 12.00% 2020 26,194
Estate OU
Retail Real USD 10.00% 2019 222
Estate OU
Loans from UAH/USD 0.00%-3.20% 2019 71
other
related
parties
39,515
Unsecured
loans from
third
parties
Barleypark USD 10.55% 2019 22,796
Limited
Loans from USD 3.20% 2022 190
other third
parties
22,986
103,611
As at 31 December 2018, the terms and debt repayment schedule of bank loans
are as follows:
Currency Nominal Contractual Carrying
interest rate year of value
maturity
(in thousands
of USD)
Secured bank
loans
Tascombank, USD 11.25-13.00% 2019-2023 15,578
VS Bank and
Universal
Bank
EBRD USD 7.50%+ 1m 2019-2020 8,913
LIBOR
EBRD USD 8.00%+ 3m 2019-2020 5,462
LIBOR
Raiffeisen UAH 18.00% 2019-2020 6,307
Bank Aval
36,260
Unsecured
loans from
related
parties
Retail Real USD 10.50% 2019 12,539
Estate OU
Retail Real USD 12.00% 2019-2020 25,225
Estate OU
Retail Real USD 10.00% 2019 215
Estate OU
Loans from UAH/USD 0.00%-3.20% 2019 77
other related
parties
38,056
Unsecured
loans from
third parties
Barleypark USD 10.55% 2019 22,004
Limited
Loans from USD 3.20% 2022 187
other third
parties
22,191
96,507
LIBOR for USD is as follows:
30 June 2019 31 December 2018
LIBOR USD 3M 2.43% 2.75%
LIBOR USD 1M 2.48% 2.38%
Raiffeisen Bank Aval
On 20 February 2019, the Group company, Prisma Alpha LLC, entered into a new
loan agreement with JSC "Raiffeisen Bank Aval" to finance the construction
of the Lukyanivka shopping and entertainment centre. The loan facility limit
comprises UAH 140,000 thousand, expires on 31 December 2023 and bears
interest of 19.75% per annum, in addition to an initial set up fee of 0.5%
from limit amount. Along with the loan agreement, the Group signed secondary
pledge agreements in respect of investment property of Prisma Alpha LLC in
the amount of USD 32,900 thousand as at 30 June 2019 and future rights on
income of LLC Prisma Alpha under the lease agreements.
Syndicated loan from JSC "Tascombank" and PJSC "Universal Bank"
On 30 July 2018, the Group entered into the syndicated loan agreement with
JSC "Tascombank", PJSC "VS Bank" and PJSC "Universal Bank" to refinance loan
from PJSC "Bank "St.Petersburg" initially amounting to USD 15,187 thousand
as at 30 June 2018. The new loan obtained initially amounted to USD 15,200
thousand, bears an interest rate of 11.25% during the period from July 2018
until December 2019 and of 13.00% during the period from January 2020 until
July 2023.
On 14 August 2018, the credit facility under the new loan agreement was
increased by USD 800 thousand to USD 16,000 thousand. Along with the loan
agreement, the Group signed pledge agreements in respect of investment
property of PrJSC "Livoberezhzhiainvest" in the amount of USD 43,190
thousand as at 31 December 2018 and investment in
"PrJSC Livoberezhzhiainvest". In October 2018 PJSC "VS Bank" was
restructured and its shares were acquired by JSC "Tascombank".
On 13 June 2019, the credit facility under the new loan agreement was
increased by
USD 4,000 thousand to USD 20,000 thousand. The new loan tranche obtained
bears an interest rate of 11.25% and loan administration fee of 0.2% per
annum during the period from
June 2019 until December 2019 and of 13.00% and loan administration fee of
0.2% per annum during the period from January 2020 until July 2023.
JSC "Taskombank"
On 27 June 2019 PrJSC "Ukrpangroup", the Group's company, entered into a new
loan facility agreement with JSC "Taskombank" to partially repay loan from
other Group's company and to finance construction of the Lukynavika shopping
and entertainment centre. The facility limits to USD 12,000 thousand,
expires on 26 June 2024 and bears interest of 10.75% and loan administration
fee of 0.2% per annum per annum for the first 18 months and thereafter at
12.00% and loan administration fee of 0.2% per annum.
Along with the loan agreement, the Group signed pledge agreements in respect
of investment property of PrJSC "Ukrpangroup" in the amount of USD 30,800
thousand as at 30 June 2019 and investment in PrJSC "Ukrpangroup".
No other changes to the loan contracts took place during six months ended 30
June 2019.
6 Other liabilities and other long-term liabilities
As at 30 June 2019, other liabilities mainly comprise the amount of
principal and the amount of interest of the deferred consideration that is
payable in respect of the acquisition in 2013 of
Wayfield Limited and its subsidiary Budkhol LLC, amounting to USD 20,000
thousand (unaudited) and USD 9,184 thousand (unaudited), respectively. As at
31 December 2018 the balance was presented as other long-term liabilities in
the amount of principal and as other current liabilities in the amount of
interest: USD 20,000 thousand and USD 8,217 thousand, respectively. Deferred
consideration has maturity on 30 June 2020 and was presented as short-term
as at 30 June 2019.
7 Revenue
The Group's operations are those described in the last annual financial
statements. The major amount of the Group's revenue is represented by rental
income from investment properties that falls within the requirements of IFRS
16 Leases and amounts to USD 14,066 thousand (unaudited) for the six months
ended 30 June 2019 (six months ended 30 June 2018 (unaudited): USD 11,900
thousand).
All other types of services are derived from contracts with customers and
fall within the scope of IFRS 15 Revenue.
(a) Disaggregation of revenue
The following table shows the revenue, other than rental income,
disaggregated by major service lines, as at 30 June. All below types of the
Group's revenue are represented by services transferred over time.
2019 2018
(in thousands of USD) (unaudited)
Common parts exploitation services 3,150 2,797
Marketing services 135 113
3,285 2,910
8 Finance income
As at 30 June 2019, finance income comprises foreign exchange gain in the
amount
of USD 4,553 thousand (unaudited) (six months ended 30 June 2018: USD 1,574
thousand) and interest income of USD 279 thousand (six months ended 30 June
2018: USD 108 thousand). The increase in foreign exchange gain mainly
relates to loans and borrowings denominated in US dollars and results from
strengthening position of Russian Rouble and Ukrainian hryvnia against US
dollar.
9 Financial risk management
During the six months ended 30 June 2019, the Group had no significant
changes in financial risk management policies as compared to 31 December
2018.
(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.
The following table shows the carrying amounts and fair values of financial
assets and financial liabilities, including their levels in the fair value
hierarchy. 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:
30 June 2019 (unaudited) 31 December 2018
Carrying Fair Carrying amount Fair
amount value value
Level 2 Level 2
(in
thousands of
USD)
Non-current
financial
liabilities
not measured
at fair
value
Secured bank 26,668 28,483 28,171 30,720
loans
Payables for 16,012 17,804 17,564 19,655
construction
works
42,680 46,287 45,735 50,375
10 Commitments and contingencies
(a) Pledged assets
In connection with loans and borrowings, the Group pledged the following
assets:
30 June 2019 31 December
(unaudited) 2018
(in thousands of USD)
Investment property (note 162,350 150,490
4(a))
Call deposits 3,263 2,410
Bank balances 33 41
165,646 152,941
As at 30 June 2019 (unaudited) and 31 December 2018, the Group has also
pledged the following:
· Future rights on income of Prisma Alfa LLC and Comfort Market Luks LLC
under all lease agreements;
· Investments in the following subsidiaries: PrJSC Ukrpangroup, Comfort
Market Luks LLC and PrJSC Livoberezhzhiainvest.
(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
57,134 thousand as at 30 June 2019 (unaudited) (31 December 2018: USD 18,285
thousand).
c) Taxation contingencies
(i) Ukraine
The 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.
(ii)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.
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.
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.
(iii)Republic of Cyprus
Operations of the Group in Cyprus are mainly limited to provision of
intra-group financing, transactions related to Assofit legal case and
various management activities. Transactions performed by the Cyprus entities
of the Group fall within the jurisdiction of Cyprus tax authorities. The
Cyprus tax system can be characterized by numerous taxes, legislation may be
applied retrospectively, open to wide interpretation. VAT and income tax
declarations are subject to review and investigation by authorities that are
enacted by law to impose severe fines, penalties and interest charges. A tax
year remains open for review by the Tax department during the six subsequent
calendar years, however under certain circumstances a tax year may remain
open longer.
Additionally, a new transfer pricing legislation was enacted in Cyprus from
30 June 2017, which requires entities to conduct intra-group financing
transactions on the arm's length principle (a principle under which
transactions are performed at market rates, as would have been performed
between unrelated entities). The legislation requires taxpayers to prepare
and submit to the tax authorities Transfer pricing study documents
justifying margins applied to the intra-group financing. The compliance of
margins applied to the arms' length principle could be a subject to scrutiny
on the basis of unjustified tax benefit concept. Given the fact that the
above rule has been in force for a limited period of time, currently, there
is no established practices of its application by the tax authorities, and
there can be no assurance that the tax authorities' interpretations of the
approaches used by the Group may differ, which could result in accrual of
fines and penalty interest on the Group.
During 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.
Management believes that it has adequately provided for tax liabilities
based on its interpretation of tax legislation, official pronouncements and
court decisions.
11 Related party transactions
(a) Control relationships
The Group's largest shareholders are Retail Real Estate OU, Dragon -
Ukrainian Properties and Development plc, Deltamax Group OU, Mr. Rauno Teder
and Mr. Jüri Põld. The Group's ultimate controlling party is Estonian
individual Mr. Hillar Teder. Mr. Hillar Teder indirectly controls 55.04% of
the voting shares of the Company. Apart from this, the adult son of
Mr. Hillar Teder, Mr. Rauno Teder, directly and indirectly controls 15.82%
of the voting shares of the Parent Company.
(b) Transactions with management and close family members
Key management remuneration
Key management compensation included in the consolidated condensed statement
of profit or loss and other comprehensive income for the six months ended 30
June 2019 is represented by salary and bonuses of USD 456 thousand
(unaudited) (six months ended
30 June 2018: USD 538 thousand (unaudited)).
Directors' interests
The direct and indirect interest of the members of the Board in share
capital of the Company as at 31 December 2018 and 30 June 2019 and as at the
date of signing of these consolidated interim condensed financial statements
is as follows:
Name Type of interest Effective shareholding rate
Mr. Jüri Põld Direct shareholding 7.07%
(c) Transactions and balances with entities under common control
Outstanding balances with entities under common control are as follows:
(in thousands of USD) 30 June 2019 31 December 2018
(unaudited)
Short-term loans receivable 11,077 10,941
Trade receivables 20 14
Other receivables 8,160 8,160
Provision for impairment of (19,236) (19,099)
loans receivable and trade
and other receivables
21 16
Long-term loans and - 16,143
borrowings
Short-term loans and 39,515 21,913
borrowings
Trade and other payables 1,039 1,049
Advances received 26 25
Other liabilities 29,184 28,217
69,764 67,347
Expenses incurred and income earned from transactions with entities under
common control for the six months ended 30 June are as follows:
2019 2018
(unaudited) (unaudited)
(in thousands of USD)
Interest expense (2,420) (2,409)
All outstanding balances with related parties are priced on an arm's length
basis and are to be settled in cash in accordance with contractual terms,
except for those mentioned in Note 2(d). None of the balances are secured.
d) Guarantees received
The Group's related parties issued guarantees securing loans payable by
UkrPanGroup PrJSC to the EBRD. The guarantee covered the total amount of
outstanding liabilities in relation to the EBRD of USD 5,462 thousand as at
31 December 2018. During the six months ended
30 June 2019 this loan was fully repaid by the Group.
12 Subsequent events
(a) Changes in loan agreements
On 25 July 2019, the Group entered into a new loan agreement with Joint
Stock Company "State Savings Bank of Ukraine". The new loan is secured by a
mortgage over Prospekt shopping and entertainment centre and a pledge of the
shares of LLC Comfort Market Luks and other securities provided by the
Group. The loan limit is USD 19,000 thousand, comprising a first tranche of
USD 6,808 thousand provided by the bank following satisfaction of certain
conditions and a second and following tranches with total amount up to USD
12,192 thousand to be provided at the bank's discretion following
satisfaction of certain conditions. The terms of loan is 60 months for the
first tranche and 84 months for the second tranche with 10.5% per annum
interest rate. The proceeds of the loan shall be used as to USD 6,808
thousand to refinance an existing 1m Libor+7,5% loan to the Group company,
LLC Comfort Market Luks from the European Bank for Reconstruction and
Development and remaining amount to finance ongoing construction of the
Lukyanivka shopping and entertainment centre.
(b) Potential property disposal
On 31 July 2019, the Group has entered into negotiations to sell two of its
shopping and entertainment centres, Sun Gallery and City Mall with fair
value as at 30 June 2019 amounting to USD 31,900 thousand and USD 32,900
thousand, respectively. The Company has entered into non-binding heads of
terms with Dragon Capital Investments Limited and with other parties in
relation to such sale.
ISIN: CY0102941610
Category Code: IR
TIDM: ARO
LEI Code: 213800F8AMPULEKXFX22
OAM Categories: 1.2. Half yearly financial reports and audit reports/limited
reviews
Sequence No.: 21470
EQS News ID: 880805
End of Announcement EQS News Service
(END) Dow Jones Newswires
September 26, 2019 07:30 ET (11:30 GMT)
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