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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 |
Hot Features
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Arricano Real Estate Plc (ARO)
Half-year Report
24-Sep-2020 / 07:00 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.
24 September 2020
Arricano Real Estate plc
("Arricano" or the "Company" or, together with its subsidiaries, the
"Group")
Unaudited Interim Results for the 6 months ended 30 June 2020
Arricano is one of the leading real estate developers and operators of
shopping centres in Ukraine. It owns and operates five completed shopping
centres comprising over 148,100 sqm of gross leasable area and land for a
further three sites under development.
Highlights
· The Covid-19 pandemic closed the Group's shopping centres for 10 weeks
from mid-March reducing recurring revenues by 18% to USD 14.2 million
(2019: USD 17.4 million)
· All shopping centres have now been open since beginning of June, the
Group is stable and has maintained occupancy at 99%
· USD 1.2 million (23%) employee and operating cost reductions achieved
· Underlying operating profit before revaluation of investment property
was therefore down by 16% to USD 9.6 million (2019: USD 11.4 million).
· Gain on revaluation of investment property of USD 30.1 million was
primarily related to an increase of USD in relation to Group's functional
currency. At the same time, the gain on revaluation was offset by a
foreign currency translation difference in the same amount included into
other comprehensive income.
· Profit before tax of USD 27.1 million (2019: USD 8.8 million)
· Cash flow from operating activities reduced by 35% from USD 10.1 million
to USD 6.5 million reflecting lower revenues and slower collection
· Net asset value was USD 131.0 million as at 30 June 2020 (31 December
2019: USD 127.9 million)
· Henceforward, the property portfolio is moving to one revaluation per
annum
Ganna Chubotina, Chief Executive Officer of Arricano, commented:
"Our trading performance like all businesses in the Ukraine and globally was
significantly influenced by the coronavirus pandemic in the first half of
2020. Social distancing meant our shopping centres were mostly closed
between March and May and this is reflected in our trading performance. Our
response to this challenge has been in two parts, firstly we worked quickly
and successfully to reduce our cost base where possible and secondly working
as a team, we focused on preparing for when we were allowed to re-commence
trading. Collaboration is at the heart of our approach and I believe it has
been instrumental in supporting our tenants and visitors during this
extraordinary period. Our shopping centres have now reopened, visitors are
increasing and we are moving towards returning to business as normal."
For further information please contact:
CEO:
Arricano Real Estate plc Tel: +357 25 582 535
Ganna Chubotina
Nominated Adviser and Broker:
WH Ireland Limited Tel: +44 (0)20 7220 1666
Chris Fielding
Financial PR: Tel: +44 (0)20 3151 7008
Novella Communications Limited
Tim Robertson/Fergus Young
Chief Executive Officer's Report
Introduction
I am pleased to report a resilient performance by the Company during an
extraordinary period for all businesses over the first six months of 2020.
Trading for the first two months of 2020 was positive with recurring revenue
17% ahead on the prior year, however, the impact in March on our business
with the near total closure of all five shopping centres naturally reduced
Group income and profitability.
Working as a team we responded by making USD 1.2 million of costs reductions
compared to the last year through a mix of temporary and permanent measures,
we supported our tenants on a case by case basis, which limited the
reduction in rental income whilst also maintaining investment in the
development of the Lukyanivka shopping centre project in Kyiv.
As a result the business is stable with occupancy of 99%, the shopping
centres are now open, visitor numbers are increasing and consumer sentiment
is improving. We are mindful of ensuring the safety of visitors, tenants and
employees and in each shopping centre hence strict PPE protocols are in
place and are being adhered to.
The focus for the second half of 2020 is to continue the rehabilitation of
the shopping centres, complete the current refinancing programme and, whilst
mindful of operating in uncertain times, focus again on inspiring consumers
to visit our shopping centres.
Results
Recurring revenues for the period decreased by 18% to USD 14.2 million
(2019: USD 17.3 million). Operating profit increased to USD 39.7 million,
compared to USD 10.4 million in 2019 primarily due to an increase in
investment property portfolio value denominated in functional currency and a
reduction in operating and employee costs of USD 1.2 million. At the same
time, the gain on revaluation in the amount of USD 30.1 million was offset
by a foreign currency translation difference in the same amount included
into other comprehensive income.
Profit before tax of USD 27.1 million (2019: profit before tax USD 8.8
million). The increase primarily reflects increase in investment property
portfolio value denominated in functional currency offset by increased
finance costs and a reduction in finance income of which USD 7.1 million
which are non-cash items relating to foreign exchange movements.
The Company is working with its lenders to restructure its existing banking
facilities in light of the pandemic and good progress is being made with the
average cost of bank loans from 31 July 2020 reducing to 10.7% from 12.5%
and capital repayment dates being extended.
Cash flow from operating activities was down by 35% from USD 10.1 million to
USD 6.5 million reflecting reduced income and slower collection with Group
cash balances as at 30 June 2020 of USD 4.9 million.
Net asset value was USD 131 million as at 30 June 2020 (31 December 2019:
USD 127.9 million).
The Market
The market in 2020 is like no other, as the world gets through the current
crisis and then works to return to a normal trading environment. This will
no doubt take time and there will be elements of social interaction which
will change permanently. We believe our strategy of working collaboratively
with mutual trust and respect will be well suited to navigating through
these periods and we are confident our malls will maintain their reputations
as market leading retail centres and continue to attract millions of
visitors each year.
We are already seeing consumer confidence returning, evidenced by the
gradual increase in visitor numbers across our portfolio. As before, our
strategy remains centred around improving customer experiences. We seek
innovative ways to influence and stimulate consumers, encouraging them to
visit our shopping centres and once inside focus on creating the right
balance between retail, leisure and socialising.
The first priority is the safety of our visitors and we have a rigorous
programme of cleaning together with offering contactless movement and
contactless sales, alongside the creation of additional opportunities for
self-service while shopping and delivery of purchased or ordered items. This
is essential for safety but also for re-building trust in our assets.
The next step is to help revive the retail market and implement traffic
generating projects in our malls. While everyone was required to stay at
home, online working and shopping grew substantially in the first half of
2020, however, it also demonstrated how much real shopping with
entertainment was missed. To capitalise on this sentiment Arricano has
focused on promoting offline shopping through multiple new communication
lines including offering new cultural and art exhibitions which blend the
emotional appeal of art and fashion. These events have helped increase
footfall and the duration of individual visits.
Another key element of improving the customer experience is through working
on the retail mix within each mall. We consistently focus on updating our
tenant formats, expanding product categories and opening up new popular
brands. With a very low vacancy rate it requires different and creative
techniques to complete renewals and attract new retail operators. While
understandably there has been less change to the retail mix in 2020 to date,
we anticipate more change in the second half of 2020 and into 2021.
In terms of the new developments, the Group is progressing Lukyanivka
project, Kyiv. The construction is underway, however, the COVID-19 pandemic
has slowed development and will result in some delays. Nevertheless our
commitment to the project remains unchanged with expected opening in 2022.
Outlook
Arricano is a successful business. Since 2014 we have been operating in
extremely challenging economic and political conditions and while Covid-19
brought a different set of challenges we have again continued to protect,
develop and invest in the future of the business. Central to our ability to
do this has been our focus on collaboration, working closely with our
partners to deliver mutual advantage on the basis success for our tenants
translates into success for our shopping centres.
The focus now is to get through and beyond the effects of COVID-19, which I
feel confident we will do by creating vibrant, socially exciting experiences
across our malls alongside offering premium retail experiences and by doing
this the Company will emerge in a good position.
Ganna Chubotina
Chief Executive Officer
23 September 2020
Note 30 June 2020 31 December
2019*
(unaudited)
(in thousands of USD)
Assets
Non-current assets
Investment property 4 294,387 289,300
Long-term VAT receivable 1,394 1,571
Property and equipment 90 130
Intangible assets 144 193
Total non-current assets 296,015 291,194
Current assets
Trade and other receivables 2,531 1,634
Loans receivable - -
Prepayments made and other assets 534 959
VAT receivable 2,663 1,909
Assets classified as held for sale 1,620 1,826
Income tax receivable 620 347
Cash and cash equivalents 4,895 6,905
Total current assets 12,863 13,580
Total assets 308,878 304,774
Note 30 June 2020 31 December
2019*
(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 69,045 46,962
Other reserves (61,983) (61,983)
Foreign currency translation (119,611) (100,581)
differences
Total equity 130,958 127,905
Non-current liabilities
Long-term loans and borrowings 5 25,807 26,954
Lease liabilities (2018: Finance - -
lease liability)
Trade and other payables 14,716 14,105
Other long-term liabilities 7 127 143
Deferred tax liability 10,140 10,693
Total non-current liabilities 50,790 51,895
Current liabilities
Short-term loans and borrowings 5 79,910 75,445
Trade and other payables 6 3,750 6,460
Taxes payable 3,915 3,789
Advances received 5,685 6,668
Current portion of lease 2 -
liabilities (2018: Current portion
of finance lease liability)
Other liabilities 7 33,868 32,612
Total current liabilities 127,130 124,974
Total liabilities 177,920 176,869
Total equity and liabilities 308,878 304,774
These consolidated interim condensed financial statements were approved by
the Board of Directors on 23 September 2020 and were signed on its behalf
by:
Juri Pold George Komodromos
Director Director
Note Six months ended Six months ended
30 June 2020 30 June 2019*
(unaudited) (unaudited)
(in thousands of
USD, except for
earnings per share)
Revenue 7 14,237 17,351
Other income - 1
Gain / (Loss) on 30,096 (991)
revaluation of
investment property
Goods, raw materials (378) (527)
and services used
Operating expenses (3,122) (4,058)
Employee costs (1,031) (1,302)
Depreciation and (66) (39)
amortization
Profit from 39,736 10,435
operating activities
Finance income 9 103 4,832
Finance costs 10 (12,702) (6,438)
Profit before income 27,137 8,829
tax
Income tax expense 11 (5,054) (273)
Profit for the 22,083 8,556
period
Other comprehensive
income
Items that may be
reclassified to
profit or loss:
Foreign exchange
(losses)/gains on
monetary items that
form part of net
investment in the (33,427) 15,916
foreign operation,
net of tax effect
Foreign currency 14,397 (6,733)
translation
differences
Total items that may (19,030) 9,183
be reclassified to
profit or loss
Other comprehensive (19,030) 9,183
income
Total comprehensive 3,053 17,739
income for the
period
Weighted average 103,270,637 103,270,637
number of shares (in
shares)
Basic and diluted 0.21 0.08
earnings per share,
USD
Note Six months ended Six months ended
30 June 2020 30 June 2019
(unaudited) (unaudited)
(in thousands of USD)
Cash flows from operating
activities
Profit before income tax 27,137 8,829
Adjustments for:
Interest income 8 (103) (279)
Interest expenses 5,574 6,438
Gain/(loss) on 4(a) (30,096) 991
revaluation of investment
property
Depreciation and 66 39
amortization
Unrealised foreign 7,115 (4,553)
exchange loss/(gain)
Allowance for bad debts 22 -
Operating cash flows 9,715 11,465
before changes in working
capital
Change in trade and other (807) 401
receivables and
prepayments made and
other assets
Change in VAT receivable (995) (1,267)
Change in trade and other (95) 2,071
payables
Change in advances (238) 282
received
Change in other 1,256 51
liabilities
Change in taxes payable 549 368
Income tax paid (679) (899)
Interest paid (2,166) (2,368)
Cash flows from operating 6,540 10,104
activities
Cash flows from investing
activities
Acquisition of investment (10,423) (9,912)
property, excluding
capitalized borrowing
costs and settlements of
payables due to
constructors
Acquisition of property (22) (82)
and equipment and
intangible assets
Interest received 103 279
Cash flows used in (10,342) (9,715)
investing activities
Note Six months ended Six months ended
30 June 2020 30 June 2019
(unaudited) (unaudited)
(in thousands of USD)
Cash flows from financing
activities
Proceeds from borrowings 8,000 13,251
Repayment of borrowings (5,991) (8,873)
Lease payments (2018: - (265)
Finance lease payments)
Cash flows from/ (used 2,009 4,113
in) financing activities
Net increase in cash and (1,793) 4,502
cash equivalents
Cash and cash equivalents 6,905 4,224
at 1 January
Effect of movements in (217) 411
exchange rates on cash
and cash equivalents
Cash and cash equivalents 4,895 9,137
at 30 June
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
thousands
of USD)
Balances 67 183,7 59,713 38,937 (61,9 (126,42 94,03
at 1 27 83) 9) 2
January
2019*
Total
comprehens
ive income
for the
period
Profit for - - - 8,556 - - 8,556
the period
Foreign - - - - - 15,916 15,91
exchange 6
gains on
monetary
items that
form part
of net
investment
in the
foreign
operation,
net of tax
effect
Foreign - - - - - (6,733) (6,73
currency 3)
translatio
n
difference
s
Total - - - - - 9,183 9,183
other
comprehens
ive income
Total - - - 8,556 - 9,183 17,73
comprehens 9
ive income
for the
period
Balances 67 183,7 59,713 47,493 (61,9 (117,24 111,7
at 31 June 27 83) 6) 71
2019
(unaudited
)
Attributable to equity holders of the parent
Share Share Non-reciprocal Retained Other Foreign Total
capit premi shareholders earnings reser currency
al um contribution ves translat
ion
differen
ces
(in
thousand
s of
USD)
Balances 67 183,7 59,713 46,962 (61,9 (100,581 127,90
at 1 27 83) ) 5
January
2020
Total
comprehe
nsive
income
for the
period
Profit 22,083 22,083
for the
period
(unaudit
ed)
Foreign (33,427) (33,42
exchange 7)
gains on
monetary
items
that
form
part of
net
investme
nt in
the
foreign
operatio
n, net
of tax
effect
(unaudit
ed)
Foreign 14,397 14,397
currency
translat
ion
differen
ces
(unaudit
ed)
Total (19,030) 19,030
other
comprehe
nsive
income
(unaudit
ed)
Total 22,083 (19.030) 3,053
comprehe
nsive
income
for the
period
(unaudit
ed)
Balances 67 183,7 59,713 69,045 (61,9 (119,611 130,95
at 30 27 83) ) 8
June
2020
(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.
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 2020, the Group
operates five shopping centres in Kyiv, Simferopol, Zaporizhzhya and Kryvyi
Rig with a total leasable area of over 148,100 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
The market in 2020 is like no other, as the world gets through the current
crisis and then works to return to a normal trading environment. This will
no doubt take time and there will be elements of social interaction which
will change permanently.
The first months of 2020 have seen significant global market turmoil
triggered by the outbreak of the coronavirus. Together with other factors,
this has resulted in a sharp decrease in the oil price and the stock market
indices, as well as a depreciation of the Ukrainian Hryvnia and Russian
ruble. These developments are further increasing the level of uncertainty in
the Ukrainian business environment.
Responding to the potentially serious threat the COVID-19 presents to public
health, Ukrainian government authorities have taken measures to contain the
outbreak, introducing restrictions on the movement of people within Ukraine
and the 'lock-down' of cities in regions likely to be affected by the
outbreak, suspension of transport links with Ukraine and entry restrictions
on visitors pending further developments. Some businesses have also
instructed employees to remain at home and curtailed or temporarily
suspended business operations.
The Ukrainian central and local governments, as part of their efforts to
combat the COVID-19 pandemic, temporarily restricted customers access to
Ukrainian retail shopping centres from 16 March 2019 to May 2020. This
decision resulted in the temporary closure of much of four out of five of
the Group's retail shopping centres: Prospekt (Kyiv), Rayon (Kyiv), City
Mall (Zaporizhzhia) and Sun Gallery (Kryvyi Rig). Starting from 28 March
2020 the fifth retail shopping center, South Gallery (Simferopol), was also
largely temporarily closed. However, the hypermarkets, pharmacies and some
other stores located within the centres continue to operate. The trading
activity of all the shopping centers was renewed during May 2020.
The events mentioned above had a significant impact on the Group's operating
activities, reducing recurring revenues by 18% to USD 14.2 million (2019:
USD 17.3 million).
The management of the company is already seeing consumer confidence
returning, evidenced by the gradual increase in visitor numbers across
Company's portfolio. As before, the strategy remains centred around
improving customer experiences. Management seeks innovative ways to
influence and stimulate consumers, encouraging them to visit the shopping
centres and once inside focus on creating the right balance between retail,
leisure and socialising.
Since 2014 Arricano has been operating in extremely challenging economic and
political conditions and while Covid-19 brought a different set of
challenges the management has again continued to protect, develop and invest
in the future of the business.
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 2019 ("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 2019. 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 2020 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 2019
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 2020 31 December 2019
UAH 26.69 23.69
RUB 69.95 61.91
Average USD exchange rates for the six months period ended 30 June are as
follows:
Currency 2020 2019
UAH 25.98 26.94
RUB 69.34 65.17
As at the date that these consolidated interim condensed financial
statements are authorised for issue, 23 September 2020, the exchange rate is
UAH 24,331 to USD 1.00 and
RUB 76,2711 to USD 1.00.
d) Going concern
As at 30 June 2020, the Group's current liabilities exceed its current
assets by
USD 114,270 thousand (unaudited).
At the same time, the Group has positive equity of USD 130,955 thousand
(unaudited) as at
30 June 2020, generated positive cash flows from operating activities of USD
6,540 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 negotiated restructuring of certain borrowings. Subsequent
to the reporting date the Group concluded the additional agreements to
postpone the maturity date with the entity under common control. According
to the agreements the Group will not be required to settle the short- term
loans payable, accrued interest to related parties totally amounting to
USD 10,000 thousand as at 30 June 2020 plus any accruing interest thereon
at least until 1 August 2021 and USD 21,288 thousand as at 30 June 2020 at
least until 1 August 2023.
· Subsequent to the reporting date the Group concluded the additional
agreement to postpone the maturity date of repayment of other liabilities
together with accrued interest. According to the agreement the Group will
not be required to settle the other short- term payables and accrued
interest totally amounting to USD 31,140 thousand as at 30 June 2020 at
least until 1 August 2023.
· Subsequent to the reporting date, the Group concluded the additional
agreement to postpone the maturity date of loan payable to a third party,
postponing the repayment of the loan until 1 August 2023, amounting to USD
24,408 thousand, which is payable on demand as at 30 June 2020 and
presented as short-term liability.
· Subsequent to the reporting date the Group concluded the additional
agreement with a third party to postpone the maturity date of repayment of
other liabilities together with accrued penalties. According to the
agreement the Group will not be required to settle the other short- term
payables and accrued penalties totally amounting to USD 410 thousand as at
30 June 2020 at least until 1 August 2023.
· Management makes all efforts to keep occupancy rates of its shopping
centers on high level. There was no significant decrease of occupancy
rates as at 30 June 2020 as compared to 31 December 2019.
· In accordance with the forecast for 2020 that is being revised on
ongoing basis, taking into account already existing and potential future
impact of COVID-19 on the Group's financial performance. The Group plans
to earn revenue that together with other measures undertaken by the
Group's management, including negotiations with lenders, will give an
ability to settle the Group's current liabilities in the normal course of
business.
· In addition, the Group's management has negotiated loans restructuring
with all financing banks with an aim to revise loan repayment schedules.
As a result of loans restructuring, scheduled cash outflows on secured
bank loans decreased in 2020.
Management believes that notwithstanding material uncertainty that may cast
significant doubt about the Group's ability to continue as a going concern
in the foreseeable future exists, the measures that management undertakes,
as described above, will allow the Group to maintain positive working
capital, generate positive operating cash flows and continue business
operations on going concern basis.
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 2020 and the year ended 31 December 2019, 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 Significant accounting policies
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
2019. A number of new standards are effective from 1 January 2020 but they
do not have a material effect on the Group's financial statements.
A number of new standards are effective for annual periods beginning after 1
January 2020 and earlier application is permitted; however, the Group has
not early adopted any of the forthcoming new or amended standards in
preparing these condensed consolidated interim financial statements.IFRS 16
Lease
The Group initially applied IFRS 16 Leases from 1 January 2019.
The Group applied IFRS 16 using the modified retrospective approach, under
which the cumulative effect of initial application is recognized in retained
earnings at 1 January 2019. Accordingly, the comparative information
presented for 2018 is not restated - i.e. it is presented, as previously
reported, under IAS 17 and related interpretations. The details of the
changes in accounting policies are disclosed below. Additionally, the
disclosure requirements in IFRS 16 have not generally been applied to
comparative information.
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 definition of a lease, as explained in Note
4(m).
On transition to IFRS 16, the Group elected to apply the practical expedient
to grandfather the assessment of which transactions are leases. The Group
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 for whether there is a lease under IFRS 16. Therefore, the
definition of a lease under IFRS 16 was applied only to contracts entered
into or changed on or after 1 January 2019.
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 recognized.
b) As a lessee
As a lessee, the Group leases three land plots under acting shopping malls
and three land plots sites under construction, as well as office premises.
The Group previously classified leases as operating or finance leases based
on its assessment of whether the lease transferred significantly all of the
risks and rewards incidental to ownership of the underlying asset to the
Group. Under IFRS 16, the Group recognises right-of-use assets and lease
liabilities for most of these leases - i.e. these leases are on-balance
sheet.
At commencement or on modification of a contract that contains a lease
component, the Group allocates the consideration in the contract to each
lease component on the basis of its relative stand-alone price. However, for
leases of properties in which it is a lessee, the Group has elected not to
separate non-lease components and account for the lease and associated
non-lease components as a single lease component.
Leases classified as operating leases under IAS 17
Previously, the Group classified office premises leases as operating leases
under IAS 17. The Group used a number of practical expedients when applying
IFRS 16 to leases previously classified as operating leases under IAS 17. In
particular, the Group:
· did not recognise right-of-use assets and liabilities for leases for
which the lease term ends within 12 months of the date of initial
application;
· did not recognise right-of-use assets and liabilities for leases of low
value assets;
· excluded initial direct costs from the measurement of the right-of-use
asset at the date of initial application; and
· used hindsight when determining the lease term.
Following these practical expedients, no right-of-use asset and lease
liability was recognised as a result of implementation of IFRS 16.
Leases classified as finance leases under IAS 17
As a lessee, the Group leases three land plots under acting shopping malls
and three land plots sites under construction.
These leases were classified as finance leases under IAS 17. For these
finance leases, the carrying amount of the right-of-use asset and the lease
liability at 1 January 2019 were determined at the carrying amount of the
lease asset and lease liability under IAS 17 immediately before that date.
These leases were classified as finance leases under IAS 17 and IAS 40
requirements. However, those leases include variable payments, which should
not be included in calculation of lease liability under IFRS 16. Therefore,
management derecognized respective lease asset and liability as at 1 January
2019 following requirements of IFRS 16.
c) As a lessor
The Group leases out its investment property. The Group has classified these
leases as operating leases. The Group is not required to make any
adjustments on transition to IFRS 16 for leases in which it acts as a
lessor.
The Group has applied IFRS 15 Revenue from Contracts with Customers to
allocate consideration in the contract to each lease and non-lease
component.
Amendments to IAS 23 Borrowing Costs
The Group has adopted amendments to IAS 23 Borrowing Costs issued by the
International Accounting Standards Board as part of Annual Improvements to
IFRS Standards 2015-2017 Cycle from 1 January 2019 and applies them to
borrowing costs incurred on or after that date. The amendments clarify that
the general borrowings pool used to calculate eligible borrowing costs
excludes only borrowings that specifically finance qualifying assets that
are still under development or construction. Therefore, the Group treats as
part of general borrowings any borrowing originally made to develop a
qualifying asset when substantially all of the activities necessary to
prepare that asset for its intended use or sale are complete. Borrowings
that were intended to specifically finance qualifying assets which are now
ready for their intended use or sale - or any non-qualifying assets - the
Group includes in its general pool. This amendment had no impact on the
Groups' consolidated financial statements.
A number of other new standards are effective from 1 January 2020 but they
do not have a material effect on the Group's interim condensed financial
statements. .
4 Investment property
(a) Movements in investment property
Movements in investment properties for the six months ended 30 June 2020 are
as follows: fair value gain on revaluation in the amount of USD 30,096
(unaudited) (six months ended 30 June 2019: fair value loss on revaluation
in the amount of USD 991 thousand (unaudited)); currency translation loss in
the amount of USD 33,049 thousand (unaudited) (six months ended 30 June
2019: gain USD 17,378 thousand (unaudited)); and additions in the amount of
USD 8,040 thousand (unaudited) (six months ended 30 June 2019: USD 6,387
thousand(unaudited)).
As at 30 June 2020, in connection with loans and borrowings, the Group
pledged as security investment property with a carrying value of USD 171,150
thousand (unaudited)
(31 December 2019: USD 171,150 thousand) (refer to Note 10(a)).
a) 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 2020, the fair value of investment property categorised within
Level 2 category is USD 29,600 thousand (unaudited) (31 December 2019: USD
29,600 thousand).
The revaluation of investment property took place as at 31 December 2019. To
assist with the estimation of the fair value of the Group's investment
property, 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.
Group Management carefully considered investment property revaluation as at
30 June 2020. As the result of the analysis of retail property market Group
Management took a decision not to engage independent property appraiser as
at 30 June 2020. The reason for the decision is that the estimated rental
value of property denominated in USD did not change significantly as
compared to 31 December 2019.
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 31 December 2019, the estimation of fair value was made using a net
present value calculation based on certain assumptions, the most important
of which were as follows:
· monthly weighted average rental rates per shopping centers excluding
turnover income, ranging from USD 9 to USD 22 per sq.m., comprising
minimum rental rate of USD 3 and maximum rental rate of USD 215 per sq.m.,
which were 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 98.8% to 100%, capitalisation
rates ranging from 12.3% to 16.0% p.a. which represented 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 2020, fair value of investment property, denominated in
functional currency amounted to UAH 5,637,393 thousand (unaudited) and RUB
3,826,336 thousand (unaudited) (31 December 2019: UAH 5,002,525 thousand and
RUB 3,386,242 thousand). The increase in fair value of investment property
in Ukrainian hryvnia and in Russian Rouble results from change in the
currency exchange rates.
Sensitivity at the date of valuation
The valuation model used to assess the fair value of investment property as
at 31 December 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 2,366 thousandlower. If
rental rates are 1% higher, then the fair value of investment properties
would USD 2,366 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
16,759 thousand lower. If the capitalisation rate is 1% less, then the
fair value of investment properties would USD 19,557 thousand higher.
· If the occupancy rate is 1% higher than that used in the valuation model
for shopping center "Sun Gallery" and is assumed to be 100% for other
shopping centers, the fair value of investment properties would be USD 283
thousand. If the occupancy rates are 1% less, then the fair value of
investment properties would be USD 2,106 thousand lower.
5 Loans and borrowings
This note provides information about the contractual terms of loans.
(in thousands of USD) 30 June 31 December 2019
2020 (unaudited)
Non-current
Secured bank loans 25,610 26,768
Unsecured loans from third 197 186
parties
25,807 26,954
Current
Secured bank loans (current 23,899 16,626
portion of secured long-term
bank loans)
Unsecured loans from related 31,603 35,161
parties (including current
portion of long-term loans
from related parties)
Unsecured loans from third 24,408 23,658
parties
79,910 75,445
105,717 102,399
Terms and debt repayment schedule
As at 30 June 2020, the terms and debt repayment schedule of bank loans are
as follows (unaudited):
(in Currency Nominal and Contractual Carrying
thousands effective year of value
of USD) interest rate maturity
Secured
bank
loans
Secured USD 10.50%-11.25% 2020-2026 38,880
bank
loans
Secured UAH 18.00%-19.75% 2020-2023 10,629
bank
loans
49,509
Unsecured
loans
from
related
parties
Unsecured USD 10.0%-12.0% 2019-2020 31,536
loans
from
related
parties
Unsecured UAH/USD 0-3.2% 2019 67
loans
from
related
parties
31,603
Unsecured
loans
from
third
parties
Unsecured USD 10.55% 2020 24,408
loan from
third
party
Unsecured USD 3.2% 2022 197
loans
from
third
parties
24,605
105,717
As at 31 December 2019, the terms and debt repayment schedule of loans and
borrowings are as follows:
(in Currency Nominal and Contractual Carrying
thousands effective year of value
of USD) interest rate maturity
Secured
bank
loans
Secured USD 10.50%-11.25% 2020-2024 31,589
bank
loans
Secured UAH 18.00%-19.75% 2020-2023 11,805
bank
loans
43,394
Unsecured
loans
from
related
parties
Unsecured USD 10.0%-12.0% 2019-2020 35,102
loans
from
related
parties
Unsecured UAH/USD 0-3.2% 2019 59
loans
from
related
parties
35,161
Unsecured
loans
from
third
parties
Unsecured USD 10.55% 2020 23,658
loan from
third
party
Unsecured USD 3.2% 2022 186
loans
from
third
parties
23,844
102,399
For a description of assets pledged by the Group in connection with loans
and borrowings refer to
Note 10(a).
As mentioned in Note 1(b), during the first months of 2020 the Group has
encountered significant global market turmoil triggered by the outbreak of
the COVID-19. Therefore, in order to keep the liquidity at the proper level,
Group has entered into amendments to the bank loan agreements:
JSC "State Savings Bank of Ukraine"
The Group has entered additional agreement to loan agreement with State
Savings Bank of Ukraine in order to postpone until 25 July 2024 the
repayment of the principal amount of the loan in the amount of USD 440
thousand , which was payable by 31 July 2020. Also, the payment of interest
which was payable by 31 July 2020 was postponed until November - December
2020.
JSC "Taskombank"
The Group has entered additional agreement to loan agreement with JSC
"Taskombank" to postpone until 24 June 2024 the repayment of the principal
amount of the loan in the amount of USD 690 thousand which was to be paid by
30 September 2020.
Syndicated loan from JSC "Tascombank" and PJSC "Universal Bank"
The Group has entered additional agreement to loan agreement to postpone
until 29 July 2023 the repayment of the principal amount of the loan in the
amount of USD 960 thousand, which was to be paid by 30 September 2020.
Raiffeisen Bank Aval
The Group has entered additional agreements to loan agreement for the
facility granted in 2015 with an outstanding principal of UAH 140,000
thousand, which is equal to USD 5,245 thousand as at 30 June 2020 to
postpone until 20 August 2020 the repayment of the principal amount of the
loan in the amount of UAH 5.9 million, which was to be paid in March-June
2020 and to postpone until 20 August 2020 the payment of interest, which was
to be paid by March-June 2020.
For the facility granted in 2019 with an outstanding principal of UAH 134
million, which is equal to USD 5,020 thousand as at 30 June 2020 to postpone
until 31 December 2023 the repayment of the principal amount of the loan in
the amount of UAH 1.2 million, which was to be paid in March-June 2020 and
to postpone until July 2020-January 2021 the payment of interest, which was
to be paid by March-June 2020.
Comfort letters
Based on the terms of the loan agreement with a third party, the loan with
the carrying amount of USD 24,409 thousand as at 30 June 2020 (31 December
2019: USD 23,658 thousand) is repayable on demand but not later than the
final repayment date of 31 July 2020. In September 2019, the Group obtained
a letter from the lender waiving the right to demand repayment of the loan
during eighteen months ending 31 December 2020. In April 2020 the lender
confirmed waiving the right to demand repayment of the loan principal and
any interest until 31 December 2020.
Loan due to related party in the amount of USD 28,128 thousand (31 December
2019: USD 27,162 thousand) has maturity on 30 June 2020. In addition, there
is loan due to related party in the amount of USD 3,407 thousand, which is
classified as on demand as at 30 June 2020 (31 December 2019: the loan
amounted to USD 7,700 thousand). In September 2019, the Group obtained a
letter from this lender waiving the right to demand repayment of these loans
during the eighteen months ending 31 December 2020. In April 2020 the lender
confirmed waiving the right to demand repayment of these loans until 31
December 2020.
During six months ended 30 June 2020 a number of other covenants under loan
agreements with banks were amended.
6 Trade and other payables
As at 30 December 2019 Trade and other payables mainly comprise the amount
of Payables for construction works, amounting to USD 2,680 thousand, which
was repaid as at 30 June 2020.
7 Other liabilities
As at 30 June 2020 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 11,139 thousand (unaudited), respectively (31
December 2019: USD 20,000 thousand and USD 10,167 thousand, respectively).
As at 30 June 2020 and 31 December 2019, deferred consideration is presented
as short-term in accordance with its contractual maturity, that is 30 June
2020, and bears 9.75% interest rate per annum.
Subsequent to the reporting date the maturity date of the deferred
consideration and accrued interest was postponed to 31 July 2023.
8 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 10,694 thousand (unaudited) for the six months
ended 30 June 2020 (six months ended 30 June 2019 (unaudited): USD 14,066
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.
2020 2019
(in thousands of USD) (unaudited)
Common parts exploitation services 3,415 3,150
Marketing services 128 135
3,543 3,285
9 Finance income
As at 30 June 2020, finance income comprises interest income of USD 103
thousand (unaudited) (six months ended 30 June 2019: foreign exchange gain
USD 4,553 thousand and interest income of USD 279 thousand).
10 Finance expenses
During six months ended 30 June 2020, finance expenses mainly comprises
interest expenses of USD 5,585 thousand (unaudited) (six months ended 30
June 2019: USD 6,150 thousand (unaudited)) and foreign exchange loss of USD
7,117 thousand (six months ended 30 June 2019: USD 0 thousand).
11 Income tax expenses
During six months ended 30 June 2020, Income tax expenses mainly comprises
deferred income tax expense of USD 4,677 thousand (unaudited) (six months
ended 30 June 2019: deferred income tax benefit of USD 300 thousand
(unaudited)) and current income tax expense of USD 377 thousand (six months
ended 30 June 2019: USD 573 thousand)
12 Financial risk management
During the six months ended 30 June 2020, the Group had no significant
changes in financial risk management policies as compared to 31 December
2019.
(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 2020 (unaudited) 31 December 2019
Carrying Fair value Carrying amount Fair value
amount
Level 2 Level 2
(in
thousands
of USD)
Financial
liabilitie
s not
measured
at fair
value
Non
-current
Secured 25,610 29,225 26,768 29,120
bank loans
Unsecured 197 210 186 199
loans from
third
parties
Payables 14,708 16,072 14,105 15,404
for
constructi
on works
40,515 45,507 41,059 44,723
Current
Secured 23,899 26,119 16,626 17,073
bank loans
(current
portion of
long-term
bank
loans)
Unsecured 31,603 32,091 35,161 35,369
loans from
related
parties
(including
current
portion of
long-term
loans
from
related
parties)
Unsecured 24,408 24,451 23,658 23,658
loans from
third
parties
Deferred 31,140 31,515 30,167 30,395
considerat
ion
111,050 112,247 105,612 106,495
151,565 157,754 146,671 151,218
13 Commitments and contingencies
(a) Pledged assets
In connection with loans and borrowings, the Group pledged the following
assets:
30 June 2020 31 December
(unaudited) 2019
(in thousands of USD)
Investment property (note 171,150 171,150
4(a))
Bank balances 464 1,135
171,614 206,085
As at 30 June 2020 (unaudited) and 31 December 2019, the Group has also
pledged the following:
· Rights on future income of Prisma Alfa LLC under all lease agreements
for the period of validity of loan agreement between Prisma Alfa LLC with
Raiffeisen Bank Aval.
· 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
48,469 thousand as at 30 June 2020 (unaudited) (31 December 2019: USD 61,549
thousand).
b) 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.
14 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. .Rauno Teder.
On 20 March 2020, Hillar Teder transferred his equity interest in Retail
Real Estate OU to Rauno Teder. As a result, Rauno Teder, who already had
held 15.92% of the issued voting rights of the Parent Company (7.48% -
directly and 8.34% through Deltamax Group OU), will acquire interest of
55.04% in the Parent Company (though RRE), thus increasing his aggregate
interest to 70.86% 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 2020 is represented by salary and bonuses of USD 252 thousand
(unaudited) (six months ended
30 June 2019: USD 456 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 2019 and 30 June 2020 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 2020 31 December
(unaudited) 2019
Short-term loans receivable 11,312 11,218
Trade receivables 16 18
Other receivables 8,160 8,160
Provision for impairment of (19,370) (19,376)
loans receivable and trade
and other receivables
118 20
Short-term loans and 31,603 35,161
borrowings
Trade and other payables 213 1,039
Advances received 26 29
Other liabilities - 30,167
31,842 66,396
Expenses incurred and income earned from transactions with entities under
common control for the six months ended 30 June are as follows:
2020 2019
(unaudited) (unaudited)
(in thousands of USD)
Interest expense (1,553) (2,420)
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.
15 Subsequent events
(a) Changes in loan agreements
In July 2020 LLC "Comfort Market Luks", a subsidiary of the Group, which
owns and operates the Kyiv Shopping Center "Prospekt" has entered into an
amendment to the current loan agreement with "State Savings Bank of Ukraine"
to decrease the interest rate from 10.5% to 8.5% per annum.
On 29 July 2020 the Group entered into a new loan agreement with "Raiffeisen
Bank Aval" to refinance two loans with the same bank granted in 2015 and in
2019. The main terms of the loan agreement are as follows:
· loan facility amount: up to UAH 290 million;
· repayment date: 31 December 2025;
· interest rate: 13.25% per annum.
· Fixed amount of principal repayment for the period of March - December
was waived. The amount of principal and interest repayment for the period
of March -December 2020 is calculated on the basis of cash inflows of the
project.
Also since August 2020 the Group agreed the reduction of interest rate from
10.75% to 9.75% per annum on the USD 12 million loan agreement of PJSC
"Ukrpangroup" with JSC "Tascombank" repayable in June 2024.
The Group has negotiated restructuring of certain borrowings. In September
2020 the Group concluded the additional agreements to postpone the maturity
date with the entity under common control. According to the agreements the
Group will not be required to settle the short- term loans payable, accrued
interest to related parties totally amounting to USD 10,000 thousand as at
30 June 2020 plus any accruing interest thereon until 1 August 2021 and USD
21,288 thousand as at 30 June 2020 at least until 1 August 2023.
In September 2020 the Group concluded the additional agreement to postpone
the maturity date of repayment of other liabilities together with accrued
interest. According to the agreement the Group will not be required to
settle the other short- term payables and accrued interest totally amounting
to USD 31,140 thousand as at 30 June 2020 until 1 August 2023..
In September 2020, the Group concluded the additional agreement to postpone
the maturity date of loan payable to third party, postponing the repayment
of the loan duntill 1 August 2023, amounting to USD 24,408 thousand, which
is payable on demand as at 30 June 2020 and presented as short-term
liability.
In September 2020 the Group concluded the additional agreement with third
party to postpone the maturity date of repayment of other liabilities
together with accrued penalties. According to the agreement the Group will
not be required to settle the other short- term payables and accrued
penalties totally amounting to USD 410 thousand as at 30 June 2020 until 1
August 2023.
Details of the loans' maturity postponement are disclosed in the table
below.
Lender Original Original New Previous New Previous New
agreemen and fac coupon coupon repayment repayment
t current ili pa pa date date
amount ty
includin siz
g e
capitali (US
sed D)
interest
(USD)
Retail Real Loan Initial 28, 12% 10.50% 30/06/2020 USD
Estate OU agreemen loan, 292 6,872,394,
("RRE") t, 18,000,0 ,77 01/08/2021
29/05/20 00 9 Remaining
14 As at balance,
31/07/20 01/08/2023
,
28,292,7
79
RRE Loan Initial 3,1 10.50% 10.50% 23/09/2019 01/08/2021
agreemen loan, 27,
t, 10,000,0 606
18/09/20 00
14 As at
31/07/20
,
3,127,60
6
Vunderbuilt Share Initial 31, 9.75% 10.50% 30/06/2020 01/08/2023
S.A. exchange deferred 305
agreemen consider ,24
t ation, 9
,05/09/2 20,000,0
013 00
As at
31/07/20
,
31,305,2
49
Vunderbuilt Loan Initial 24, 9.55% 10.50% 31/07/2020 01/08/2023
S.A. agreemen loan, 545
t, 15,300,0 ,02
05/07/20 00 7
13 As at
31/07/20
,
24,545,0
26
ISIN: CY0102941610
Category Code: MSCH
TIDM: ARO
LEI Code: 213800F8AMPULEKXFX22
OAM Categories: 3.1. Additional regulated information required to be
disclosed under the laws of a Member State
Sequence No.: 84757
EQS News ID: 1135861
End of Announcement EQS News Service
(END) Dow Jones Newswires
September 24, 2020 02:00 ET (06:00 GMT)
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