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Interim Results

22/09/2021 12:01pm

UK Regulatory (RNS & others)


Arricano Real Estate (LSE:ARO)
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Arricano Real Estate Plc (ARO) Interim Results 22-Sep-2021 / 12:00 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.

-----------------------------------------------------------------------------------------------------------------------

22 September 2021 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 2021

Arricano is one of the leading real estate developers and operators of shopping centres in Ukraine with over 148,100 sqm of gross leasable area under operation and land for a further three sites under development.

Highlights

-- Operating activity was still affected by COVID-19 restrictions with the shopping centres in differentregions partially closed for up to 59 days

-- Group revenue increased by 19% to USD 16.9 million (2020: USD 14.2 million)

-- Underlying operating profit before revaluation of investment property increased by 23% to USD 11.9million (2020: USD 9.6 million)

-- Group average occupancy was 99.5%, as at 30 June 2021

-- Investment property revaluation loss of USD 9.0 million was due to the Hryvnia strengthening against theUS Dollar, this was then offset by a foreign exchange gain of USD 10.2 million included in Other ComprehensiveIncome

-- The total value of the investment property portfolio comprised USD 281.6 million (31 December 2020: USD275.5 million)

-- Net asset value increased to USD 125.2 million (31 December 2020: USD 119.4 million)

-- Cash flows from operating activity were USD 10.0 million, an increase by 52% compared to the six monthended 30 June 2020

-- Average cost of bank loans continued to decrease, down from 10.1% as at 31 December 2020, to 8.3% as at30 June 2021

Ganna Chubotina, Chief Executive Officer of Arricano, commented:

"Despite the challenges created by the global pandemic, our portfolio of shopping centres continued to operate close to capacity with occupancy at 99.5%. This demonstrates, in our view, that we have been successful in supporting some of our tenants through the last 18 months and equally importantly the appeal amongst our tenant base of retaining their retail presence in our centres over a period when the retail market has been very challenging. While the impact of COVID-19 remains, normal trading is returning which enables us to switch from protecting the business to once again growing it."

For further information please contact:

CEO: 
Arricano Real Estate plc 
Ganna Chubotina                 Tel: +357 25 582 535 
 
Nominated Adviser and Broker: 
 
WH Ireland Limited 
                                Tel: +44 (0)20 7220 1666 
Chris Fielding/Ben Good 
 
Financial PR: 
 
Novella Communications Limited 
                                Tel: +44 (0)20 3151 7008 
Tim Robertson/Fergus Young 
 

Chief Executive Officer's Report

Introduction

I am pleased to be reporting on a positive trading performance for the first six months of 2021. While the effects of the global pandemic are still visible, visitor numbers to our shopping centres accelerated fast when restrictions were lifted, much faster than when they were lifted in 2020 and continue to rise; indicating that our customers are no longer avoiding social space for fear of COVID-19 and are instead keen to return to normal retail patterns.

Our ability to retain occupancy at 99.5% during a very challenging period for all retailers reflects well on our business. This led to revenue generation of USD 16.9 million, which is just 2% below pre-COVID-19 revenue levels in 2019, a good result especially as the portfolio was partially closed for nearly two of the six months under review. That being the case, the Company is performing well and is positioned, assuming trading remains restriction free, to continue to grow and develop.

Overall, we believe the retail market is recovering, in response to increased consumer spending and a general improvement in consumer confidence.

Results

Recurring revenues for the period increased by 19% to USD 16.9 million (2020: USD 14.2 million). Underlying operating profit before revaluation of investment property increased to USD 11.9 million (2020: USD 9.6 million).

The revaluation of the investment property portfolio, resulted in a loss of USD 9.0 million (6 months 2020: gain of USD 30.1 million), caused by the rise in value of the Hryvna against the USD dollar. However, the revaluation effect was offset by foreign exchange gains in the amount of USD 10.2 million included in Other Comprehensive Income. The total value of investment property portfolio comprised USD 281.6 million (31 December 2020: USD 275.5 million).

The Company has continued to make excellent progress in bringing the cost of borrowings down with the average cost of bank loans decreasing from an average of 10.1% as at 31 December 2020 to 8.3% as at 30 June 2021.

Cash flow from operating activities was USD 10.0 million with Group cash balances as at 30 June 2021 of USD 15.0 million (31 December 2020: USD 12.0 million).

Net asset value increased to USD 125.2 million (31 December 2020: USD 119.4 million).

Operating Review

Each year our shopping centres welcome tens of millions of visitors. To maintain and grow this level of interest and loyalty, which Arricano has achieved over the last years, requires hard work and a continual focus on evolving the customer experience. In 2021, despite the distractions of managing the impact of the pandemic, 41 new tenants were introduced into the portfolio.

New additions improve retail mix within each mall by expanding the most successful product categories. In the Rayon shopping mall, the fast fashion and electronics categories were expanded and in the Prospect shopping mall, the well-known French sports retailer Decathlon opened in May 2021 with a 2,000 sqm retail space, quickly adding to both visitor numbers and operating income.

As the challenges associated with the pandemic have reduced, key categories such as fast fashion, sporting goods, home appliances and electronics, and goods for home and interior have shown positive turnover growth in comparison to 2020 when shopping centres were under greater restrictions.

Alongside introducing new tenants into the retail mix, the Group continued to focus on direct dialogue with individual tenants with a focus on promoting closer working partnerships. Sharing of data is also key to evolving tenant partnerships. In the period under review, the Group has been testing and implementing new analytical products for tracking customer behavior, tenant turnover and providing a greater analysis of footfall across multiple different categories, as well as conversion into sales and other trading indicators, all in real time.

It is worth noting there has been a gradual recovery in the F&B segment as well as a moderate recovery in cinemas and entertainment centres, though they continue to operate with some restrictions relating to social distancing.

Operational experience gained in 2020 and the reduced impact of the pandemic enabled the introduction of a smart-leasing strategy. Each tenant was judged individually when providing assistance in rent relief based on their sales performance which, together with a general improvement in trading by all tenants, led to very low vacancy rates in the portfolio.

The safety of all visitors and employees remains the Group's first priority. Alongside adhering to strict PPE protocols, Arricano introduced vaccination points across all shopping centres with the assistance of local authorities and support of the Ministry of Health. As part of this initiative, all Arricano shopping centre employees were given an opportunity to be vaccinated.

Arricano continues to focus on promoting offline shopping through multiple communication venues, including cultural and art exhibitions. Recently, a new unique project in the Prospect shopping mall drew out the influences fashion and professional life have had on each other. This was a very popular project and, along with other similar projects, has helped to increase footfall and visit times.

While development projects have naturally slowed over the past 18 months, the Group is progressing the Lukianivka project, Kyiv. Although there have been a number of delays, commitment to the project remains unchanged and it is still expected to open in 2023.

As part of the Group's ESG policy, we continue to support our shopping centres' communities with charitable and educational activities, which also help to strengthen local loyalty, stimulate footfall and increase both visit times and number of stores visited. We also continue to engage with consumers around social responsibility topics focusing on brands with strong social responsibility credentials and/or extensive charitable works.

People

The first half-year of 2021 was still challenging for the Company, but the successful performance of the Group reflects high levels of commitment and hard work from all employees of Arricano and on behalf of the Board I would like to thank them.

Changes to the Board

In July 2021, Urmas Somelar decided to retire as a Director and as Chairman of the Board for personal reasons.

The Board has agreed that Mr Georgios Komodromos, an independent non-executive director of the Company, will succeed Mr Somelar as Chairman pending the appointment of a permanent independent successor.

Management and the Directors would like to thank Mr Somelar for his contribution and valuable advice over the last few years.

Outlook

Though the market situation and shopping centres performance within the remaining months of 2021 directly depends on the pandemic dynamics and any potential restrictions, with our focus on long-term partnerships with our tenants, I feel confident we will continue to perform and are well placed to make a good start in 2022.

                                                 30 June 2021          31 December 
                                   Note 
                                                 (unaudited)                      2020 
 
(in thousands of USD) 
 
Assets 
Non-current assets 
Investment property                4                        281,581    275,452 
Long-term VAT receivable                                        4,297  4,130 
Property and equipment                                             113 94 
Intangible assets                                                  118 126 
 
Total non-current assets                                    286,109    279,802 
 
Current assets 
Trade and other receivables                                     1,270  1,673 
Prepayments made and other assets                                  594 479 
VAT receivable                                                     308 576 
Assets classified as held for sale                              1,591  1,529 
Income tax receivable                                              391 380 
Cash and cash equivalents                                     14,988   12,062 
 
Total current assets                                          19,142     16,699 
 
Total assets                                                305,251           296,501 
 
                                                     30 June 2021     31 December 
                                         Note 
                                                     (unaudited)  2020 
 
 
 
(in thousands of USD) 
 
Equity and Liabilities 
Equity 
Share capital                                        67                                     67 
Share premium                                        183,727      183,727 
Non-reciprocal shareholders contribution             59,713       59,713 
Retained earnings                                    66,756       67,142 
Other reserves                                       (61,983)     (61,983) 
Foreign currency translation differences             (123,046)    (129,272) 
 
Total equity                                         125,234      119,394 
 
Non-current liabilities 
Long-term borrowings                     5           70,266       73,458 
Long-term trade and other payables       6           15,935       15,330 
Long-term advances received                          281          - 
Other long-term liabilities              7           31,469       31,462 
Deferred tax liability                               6,243        5,796 
 
Total non-current liabilities                        124,194      126,046 
 
Current liabilities 
Short-term loans and borrowings          5           35,317       32,360 
Short-term trade and other payables      6           4,001        3,712 
Taxes payable other than income tax                  4,246        5,015 
Short-term advances received                         6,158        5,503 
Other short-term liabilities             7           6,101        4,471 
 
Total current liabilities                            55,823       51,061 
 
Total liabilities                                    180,017      177,107 
 
Total equity and liabilities                         305,251      296,501 
 
 

These consolidated interim condensed financial statements were approved by the Board of Directors on 22 September 2021 and were signed on its behalf by:

 
 
 
George Komodromos    Juri Pold 
 
Director             Director 
                                                                                                            Six months 
                                                                                        Six months ended 30 ended 
                                                                                   Note June 2021 
                                                                                                            30 June 
                                                                                                            2020 
                                                                                        (unaudited)         (unaudited) 
(in thousands of USD, except for earnings per share) 
 
Revenue                                                                            8    16,906              14,237 
(Loss) / Gain on revaluation of investment property                                     (9,027)             30,096 
Goods, raw materials and services used                                                  (483)               (378) 
Operating expenses                                                                      (3,463)             (3,122) 
Employee costs                                                                          (1,019)             (1,031) 
Depreciation and amortization                                                           (57)                (66) 
 
Profit from operating activities                                                        2,857               39,736 
 
Finance income                                                                     9    2,381               103 
Finance costs                                                                      10   (6,362)             (12,702) 
 
(Loss) / Profit before income tax                                                       (1,124)             27,137 
Income tax gain / (expense)                                                        11   738                 (5,054) 
 
(Loss) / Profit for the period                                                          (386)               22,083 
 
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      11,322              (33,427) 
in the foreign operation, net of tax effect 
Foreign currency translation differences                                                (5,096)             14,397 
 
Total items that may be reclassified to profit or loss                                  6,226               (19,030) 
 
Other comprehensive income                                                              6,226               (19,030) 
 
Total comprehensive income for the period                                               5,840               3,053 
 
Weighted average number of shares (in shares)                                           103,270,637         103,270,637 
 
Basic and diluted earnings per share, USD                                               (0.0037)            0.21 
 
 
 
                                                                                             Six months     Six months 
                                                                                             ended          ended 
                                                                                        Note 
                                                                                             30 June 2021   30 June 
                                                                                                            2020 
                                                                                             (unaudited)    (unaudited) 
 
(in thousands of USD) 
 
Cash flows from operating activities 
Profit before income tax                                                                     (1,124)        27,137 
Adjustments for: 
Interest income, excluding foreign exchange gain                                        9    (338)          (103) 
Interest expenses, excluding foreign exchange loss                                      10   6,362          5,574 
Loss/ (gain) on revaluation of investment property                                      4(a) 9,027          (30,096) 
Depreciation and amortization                                                                57             66 
Unrealised foreign exchange (gain)/loss                                                      (1,982)        7,115 
Allowance for bad debts                                                                      133            22 
 
Operating cash flows before changes in working capital                                       12,135         9,715 
 
Change in trade and other receivables and prepayments made and other assets                  342            (807) 
Change in VAT receivable                                                                     221            (995) 
Change in trade and other payables                                                           285            (95) 
Change in advances received                                                                  825            (238) 
Change in other liabilities                                                                                 1,256 
                                                                                             - 
Change in taxes payable                                                                      (835)          549 
Income tax paid                                                                              (605)          (679) 
Interest paid                                                                                (2,401)        (2,166) 
 
Cash flows from operating activities                                                         9,967          6,540 
 
Cash flows from investing activities 
Acquisition of investment property, excluding capitalized borrowing costs and                (4,059)        (10,423) 
settlements of  payables due to constructors 
Acquisition of property and equipment and intangible assets                                  (68)           (22) 
Interest received                                                                            96             103 
 
Cash flows used in investing activities                                                      (4,031)        (10,342) 
 
                                                                        Six months ended Six months ended 
                                                                   Note 
                                                                        30 June 2021     30 June 2020 
                                                                        (unaudited)      (unaudited) 
 
(in thousands of USD) 
 
Cash flows from financing activities 
Proceeds from borrowings                                                3,192            8,000 
Repayment of borrowings                                                 (6,398)          (5,991) 
 
Cash flows from/ (used in) financing activities                         (3,206)          2,009 
 
Net increase in cash and cash equivalents                               2,730            (1,793) 
Cash and cash equivalents at 1 January                                  12,062           6,905 
Effect of movements in exchange rates on cash and cash equivalents      196              (217) 
 
Cash and cash equivalents at 30 June                                    14,988           4,895 
 
 
 
 
 
 
                                              Attributable to equity holders of the parent 
                                                              Non-reciprocal                   Foreign 
                                              Share   Share   shareholders   Retained Other    currency      Total 
                                              capital premium contribution   earnings reserves translation 
                                                                                               differences 
(in thousands of USD) 
 
Balances at 1 January 2020                    67      183,727 59,713         46,962   (61,983) (100,581)     127,905 
Total comprehensive income for the period 
Profit for the period (unaudited)                                            22,083                          22,083 
Foreign exchange gains on monetary items that 
form part of net investment in the foreign                                                     (33,427)      (33,427) 
operation, net of tax effect (unaudited) 
Foreign currency translation differences                                                       14,397        14,397 
(unaudited) 
 
Total other comprehensive income                                                               (19,030)      (19,030) 
 
Total comprehensive income for the period                                    22,083            (19,030)      3,053 
 
Balances at 30 June 2020 (unaudited)          67      183,727 59,713         69,045   (61,983) (119,611)     130,958 
 
 
 
 
                                                Attributable to equity holders of the parent 
                                                                Non-reciprocal                   Foreign 
                                                Share   Share   shareholders   Retained Other    currency       Total 
                                                capital premium contribution   earnings reserves translation 
                                                                                                 differences 
(in thousands of USD) 
 
Balances at 1 January 2021                      67      183,727 59,713         67,142   (61,983) (129,272)      119,394 
Total comprehensive income for the period 
Profit for the period (unaudited)                                              (386)                            (386) 
Foreign exchange gains on monetary items that 
form part of net investment in the foreign                                                       11,322         11,322 
operation, net of tax effect (unaudited) 
Foreign currency translation differences                                                         (5,096)        (5,096) 
(unaudited) 
 
Total other comprehensive income                                                                 6,226          6,226 
 
Total comprehensive income for the period                                      (386)             6,226          5,840 
 
Balances at 30 June 2021 (unaudited)            67      183,727 59,713         66,756   (61,983) (123,046)      125,234 
 
 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 2021, the Group operates 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 developed. b. Business environment

The Group's operations are primarily located in Ukraine. Consequently, the Group is exposed to the economic and financial markets of Ukraine, which display characteristics of an emerging market. The political and economic situation in Ukraine has been subject to significant turbulence in recent years. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which, together with other legal and fiscal impediments, contribute to the challenges faced by entities operating in Ukraine. Additionally, an armed conflict in certain parts of Lugansk and Donetsk regions, which started in spring 2014, has not been resolved and part of the Donetsk and Lugansk regions remains under control of the self-proclaimed republics, and Ukrainian authorities are not currently able to fully enforce Ukrainian laws on this territory. Various events in March 2014 led to the accession of the Republic of Crimea to the Russian Federation, which was not recognised by Ukraine and many other countries. Consequently, operations in the country involve risks that do not typically exist in other markets.

Despite this, the world's economy was significantly affected by COVID-19 pandemic. After the economic crisis held in 2020, in the first half-year 2021 there was a strengthening of the Ukrainian, Russian Federation and Cyprus operating environments. The local authorities are introducing some operating restrictions from time to time, however, these restrictions allow the businesses to operate at least at the minimum level.

During 6 months period ended 30 June 2021, the Ukrainian hryvnia and the Russian Ruble have strengthened against US dollar, a positive indicator of the economic situation in the areas of operations of the Group's shopping centres.

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.

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 2020 ("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 2020. 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 2021 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 2020. c. Functional and presentation currency

The functional currency of Arricano Real Estate PLC is the US dollar (USD). The 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 aforementioned 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 choose 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 incomeand 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 2021 31 December 2020 
UAH           27.18        28.27 
RUB           72.37         73.88 

Average USD exchange rates for the six months period ended 30 June are as follows:

Currency       2021  2020 
UAH            27.78 25.98 
RUB            74.33 69.34 

As at the date that these consolidated interim condensed financial statements are authorised for issue, 22 September 2021, the exchange rate is UAH 26.71 to USD 1.00 and RUB 73.21 to USD 1.00. d. Going concern

As at 30 June 2021, the Group's current liabilities exceeded its current assets by USD 36,681 thousand (unaudited).

At the same time, the Group had positive equity of USD 125,234 thousand (unaudited) as at 30 June 2021, and generated positive cash flows from operating activities of USD 9,967 thousand (unaudited) for the six months then ended.

Management is undertaking the following measures in order to ensure the Group's continuing operation on a going concern basis:

-- Management makes all efforts to keep occupancy rates of its shopping centers at current levels. Besides,the Group managed to gradually increase its rental rates during the reporting period for existing tenants.

-- The Group expects it will be able to draw on existing facilities granted from entities under commoncontrol, should this be required for operational and other needs of the Group.

-- In accordance with the forecast for 2021 that is being revised on ongoing basis, taking into accountalready existing and potential future impact of COVID-19 on the Group's financial performance, the Group plans toearn revenue that together with other measures undertaken by the Group's management, including negotiations withlenders, will give an ability to settle the Group's current liabilities in the normal course of business.

-- In addition, management expects that certain lenders will not exercise their right to require settlementof accrued interest for total amount of USD 8,126 thousand, and thus according to the respective agreements, after1 August 2021 this accrued interest will be capitalised and reclassified to non-current liabilities in accordancewith contractual terms (see Note 15).

Management believes that notwithstanding any 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 financial statements are prepared on a going concern basis, which contemplates the realisation of assets and the settlement of liabilities in the normal course of business. e. Measurement of fair values

A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the following notes:

-- Note 4(b) - investment property; and

-- Note 12(a) - fair values. f. Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. Management believes that during the six months ended 30 June 2021 and the year ended 31 December 2020, the Group operated in and was managed as one operating segment, being property investment.

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 2020.

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 2021.

A number of other new pronouncements are effective from 1 January 2021 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 2021 are as follows: fair value loss on revaluation in the amount of USD 9,027 thousand (unaudited) (six months ended 30 June 2020: fair value gain on revaluation in the amount of USD 30,096 thousand (unaudited)); currency translation gain in the amount of USD 10,179 thousand (unaudited) (six months ended 30 June 2020: loss USD 33,049 thousand (unaudited)); and additions in the amount of USD 4,987 thousand (unaudited) (six months ended 30 June 2020: USD 8,040 thousand(unaudited)).

As at 30 June 2021, in connection with loans and borrowings, the Group pledged as security investment property with a carrying value of USD 160,500 thousand (unaudited) (31 December 2020: USD 160,500 thousand) (refer to Note 13(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 the Level 3 category due to the 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 the Level 2 category. As at 30 June 2021, the fair value of investment property categorised within the Level 2 category is USD 29,400 thousand (unaudited) (31 December 2020: USD 29,400 thousand).

The most recent independent revaluation of investment property took place as at 31 December 2020. 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 2021. In light of the analysis of the retail property market, Group Management took a decision not to engage an independent property appraiser as at 30 June 2021. The reason for the decision is that the estimated value of property denominated in USD did not change significantly as compared to 31 December 2020.

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 where 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 2020, 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 9to USD 19 per sq.m., comprising minimum rental rate of USD 3 and maximum rental rate of USD 203 per sq.m., whichwere based on contractual and market rental rates, adjusted for discounts or fixation of rental rates in Ukrainianhryvnia at a pre-agreed exchange rate, occupancy rates ranging from 98.1% to 100%, capitalisation rates rangingfrom 12.5% to 16.5% p.a. which represented key unobservable inputs for determination of fair value; and

-- all relevant licences and permits, to the extent not yet received, will be obtained, in accordance withthe timetables set out in the investment project plans.

As at 30 June 2021, the fair value of investment property, denominated in the functional currency, amounted to UAH 5,440,695 thousand (unaudited) and RUB 3,314,651 thousand (unaudited) (31 December 2020: UAH 5,660,575 thousand and RUB 3,383,507 thousand). The decrease in fair value of investment property in Ukrainian Hryvnia and in Russian Rouble resulted from the 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 2020 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 propertieswould be USD 2,206 thousand lower. If rental rates are 1% higher, then the fair value of investment propertieswould USD 2,206 thousand higher.

-- If the capitalisation rate applied is 1% higher than that used in the valuation models, the fair value ofinvestment properties would be USD 15,294 thousand lower. If the capitalisation rate is 1% less, then the fairvalue of investment properties would USD 17,785 thousand higher.

-- If the occupancy rate is 1% higher than that used in the valuation model, the fair value of investmentproperties would be USD 1,997 thousand higher. If the occupancy rates are 1% less, then the fair value ofinvestment properties would be USD 1,998 thousand lower.

5 Loans and borrowings

This note provides information about the contractual terms of loans.

                                                                                          30 June 
(in thousands of USD)                                                                                    31 December 
                                                                                          2021           2020 
                                                                                          (unaudited) 
Non-current 
Secured bank loans                                                                        24,350         27,293 
Unsecured loans from related parties                                                      21,420         21,420 
Unsecured loans from third parties                                                        24,496         24,745 
 
                                                                                          70,266             73,458 
 
Current 
Secured bank loans (current portion of secured long-term bank loans)                      22,938         19,631 
Unsecured loans from related parties (including current portion of long-term loans from   9,727          11,630 
related parties) 
Unsecured loans from third parties                                                        2,652          1,099 
 
                                                                                          35,317           32,360 
 
                                                                                          105,583          105,818 
 

Terms and debt repayment schedule

As at 30 June 2021, the terms and debt repayment schedule of bank loans are as follows (unaudited):

(in thousands of USD)              Currency Nominal and effective interest    Contractual year of        Carrying 
                                            rate                              maturity                   value 
 
Secured bank loans 
Secured bank loans                 USD      6.5%-8.0%                         2023-2026                        39,377 
Secured bank loans                 UAH      13.25%                            2025                               7,911 
 
                                                                                                               47,288 
 
Unsecured loans from related 
parties 
Unsecured loans from related       USD      10.50%                            2021-2023                        30,845 
parties 
Unsecured loans from related       USD      10.0%                             on demand 
parties                                                                                                  252 
Unsecured loans from related       UAH/USD  0-3.2%                            2019 
parties                                                                                                  50 
 
                                                                                                               31,147 
 
Unsecured loans from third parties 
Unsecured loan from third party    USD      10.50%                            2021-2023                        26,946 
Unsecured loans from third parties USD      3.0%                              2022 
                                                                                                         202 
 
                                                                                                               27,148 
 
                                                                                                             105,583 
 
 

As at 31 December 2020, the terms and debt repayment schedule of loans and borrowings are as follows:

(in thousands of USD)              Currency Nominal and effective interest    Contractual year of         Carrying 
                                            rate                              maturity                    value 
 
Secured bank loans 
Secured bank loans                 USD      7.50%-11.25%                      2023-2025                   38,656 
Secured bank loans                 UAH      13.25%                            2025                        8,268 
 
                                                                                                                 46,924 
 
Unsecured loans from related 
parties 
Unsecured loans from related       USD      10.5%                             2021-2023                   32,788 
parties 
Unsecured loans from related       USD      10.0%                             on demand                   212 
parties 
Unsecured loans from related       UAH/USD  0-3.2%                            2019                        50 
parties 
 
                                                                                                          33,050 
 
Unsecured loans from third parties 
Unsecured loan from third party    USD      10.50%                            2023                        25,645 
Unsecured loans from third parties USD      3.0%                              2022                        199 
 
                                                                                                            25,844 
 
                                                                                                          105,818 
 
 

For a description of assets pledged by the Group in connection with loans and borrowings refer to Note 13(a). a. Joint Stock Company "Taskombank"

During the 6 months period ended 30 June 2021, the Group signed an amendment to the loan agreement with Joint Stock Company "Taskombank" stipulating a decrease in the annual interest rate from 9.75% to 8.0%.

During the 6 months period ended 30 June 2021, the Group signed an amendment to the loan agreement with Joint Stock Company "Taskombank" stipulating a decrease in the annual interest rate from 11.25% to 8.0%. The loan is syndicated with PJSC "Universal Bank". b. Joint Stock Company "State Savings Bank of Ukraine"

During the 6 months period ended 30 June 2021, the Group received tranches on the existing loan facility with a bank in the amount of USD 3,192 thousand to finance the construction of the Lukianivka shopping and entertainment centre. The tranche facility expires on 25 July 2026.

Besides this, the Group signed an amendment to the loan agreement with Joint Stock Company "State Saving Bank of Ukraine" stipulating a decrease in the annual interest rate from 7.5% to 6.5%..

In accordance with the loan agreement, the lender may require early repayment of the loan facility amount. Respectively, the total loan amount of USD 17,020 thousand is presented within the current liabilities as at 30 June 2021.

During the 6 months period ended 30 June 2021 a number of covenants under loan agreements with banks were amended.

6 Trade and other payables

As at 30 June 2021, included in payables for construction works are accrued financial charges under construction agreement with third parties amounting to USD 15,928 thousand (31 December 2020: USD 15,323 thousand). In 2017-2018, the constructors claimed the Group to reimburse finance and foreign currency losses incurred by constructors due to untimely fulfillment of obligations by the Group companies under construction agreements, as well as fee for restructuring of accounts payable. As a result of negotiation accomplished on 12 July 2017, interest rate of 10.00% per annum was imposed on charges payable, they were converted to USD and maturity was postponed to 31 December 2025.

7 Other liabilities

As at 30 June 2021, 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 31,305 thousand (unaudited) and USD 3,008 thousand (unaudited), respectively (31 December 2020: USD 31,305 thousand and USD 1,378 thousand, respectively). As at 30 June 2021 and 31 December 2020, deferred consideration is presented in accordance with its final contractual maturity and bears 10.5% interest rate per annum.

8 Revenue

The revenue for the 6 months period ended 30 June is represented as follows:

                                       2021   2020 
(in thousands of USD) 
 
Rental income: 
Fixed lease payments                   12,013 9,725 
Variable lease payments                1,177  969 
 
                                       13,190 10,694 
 
Revenue from contract with customers: 
Common parts exploitation services     3,566  3,415 
Marketing services                     150    128 
 
                                       3,716  3,543 
 
                                       16,906 14,237 
 

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 13,190 thousand (unaudited) for the six months ended 30 June 2021 (six months ended 30 June 2020 (unaudited): USD 10,694 thousand).

All other types of services are derived from contracts with customers and fall within the scope of IFRS 15 Revenue.

9 Finance income

During six months ended June 2021 finance income comprised foreign exchange gain of USD 2,043 thousand, interest income of USD 229 thousand, other finance income of USD 109 thousand (unaudited) (six months ended 30 June 2020: interest income of USD 103 thousand).

10 Finance expenses

During six months ended 30 June 2021 finance expenses comprised interest expenses of USD 6,362 thousand (unaudited) (six months ended 30 June 2020: interest expenses of USD 5,585 thousand and foreign exchange loss of USD 7,117 thousand (unaudited).

11 Income tax expenses

During six months ended 30 June 2021 income tax expenses mainly comprised deferred income tax benefit of USD 1,242 thousand (unaudited) (six months ended 30 June 2020: deferred income tax expense of USD 4,677 thousand (unaudited)) and current income tax expense of USD 504 thousand (six months ended 30 June 2020: USD 377 thousand)

12 Financial risk management

During the six months ended 30 June 2021, the Group had no significant changes in financial risk management policies as compared to 31 December 2020.

(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 2021                          31 December 2020 
                                                                              Fair value                   Fair value 
                                                             Carrying amount              Carrying amount 
                                                                              Level 2                      Level 2 
 
(in thousands of USD) 
 
Financial liabilities not measured at fair value 
Non -current 
Secured bank loans                                           24,350           24,838      27,293           30,804 
Unsecured loans from related parties                         21,420           23,768      21,420           20,049 
Unsecured loans from third parties                           24,496           27,413      24,745           24,791 
Payables for construction works                              15,935           17,641      15,330           18,082 
Deferred consideration                                       31,305           34,932      31,305           31,376 
Other long-term liabilities                                  164              164         157              157 
 
                                                             117,670          128,756     120,250          125,259 
 
 
Current 
Secured bank loans (current portion of long-term 
                                                             22,938           13,756      19,631           23,189 
   bank loans) 
Unsecured loans from related parties 
  (including current portion of long-term loans              9,727            10,511      11,630           11,108 
  from related parties) 
Unsecured loans from third parties                           2,652            2,570       1,099            1,141 
Deferred consideration                                       3,008            3,356       1,369            1,381 
 
                                                             38,325           30,193      33,729           36,819 
 
                                                             155,995          158,949     153,979          162,078 
 
 

13 Commitments and contingencies

(a) Pledged assets

In connection with loans and borrowings, the Group pledged the following assets:

                                30 June 2021 (unaudited) 31 December 2020 
(in thousands of USD) 
 
Investment property (note 4(a)) 160,500                  160,500 
Bank balances                   1,132                    212 
 
                                161,632                  160,712 
 

As at 30 June 2021 (unaudited) and 31 December 2020, the Group had also pledged the following:

-- Rights on future income of Prisma Alfa LLC under all lease agreements for the period of validity of loanagreement between Prisma Alfa LLC with Raiffeisen Bank Aval.

-- Investments in the following subsidiaries: Comfort Market Luks LLC and PrJSC Livoberezhzhiainvest (31December 2020: 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 50,761 thousand as at 30 June 2021 (unaudited) (31 December 2020: USD 53,255 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, is 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 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 the 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 the 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 characterised by numerous taxes, legislation may be applied retrospectively, and can be 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 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 practice of its application by the tax authorities, and there can be no assurance that the tax authorities' interpretations of the approaches will concur with those used by the Group, which could result in the 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 the 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 Capital Investments Limited, Deltamax Group OU, Mr. Rauno Teder and Mr. Jüri Põld. The Group's ultimate controlling party is the Estonian individual Mr. Rauno Teder.

During the year ended 31 December 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), acquired 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 2021 is represented by salary and bonuses of USD 293 thousand (unaudited) (six months ended 30 June 2020: USD 252 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 2020 and 30 June 2021 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:

                                                                                    30 June 2021         31 December 
                                                                                    (unaudited)          2020 
(in thousands of USD) 
 
Short-term loans receivable                                                         11,344               11,208 
Trade receivables                                                                   1                    1 
Other receivables                                                                   8,160                8,160 
Provision for impairment of trade and other receivables and loans receivable from   (19,503)             (19,366) 
related parties 
 
                                                                                    2                    3 
 
Long-term loans and borrowings                                                      21,420               21,420 
Short-term loans and borrowings                                                     9,727                11,630 
Trade and other payables                                                            214                  218 
Advances received                                                                   25                   24 
 
                                                                                    31,386               33,292 
 

Expenses incurred and income earned from transactions with entities under common control for the six months ended 30 June are as follows:

                       2021        2020 
                       (unaudited) (unaudited) 
(in thousands of USD) 
 
Interest expense       (1,502)      (1,553) 

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. None of the balances are secured.

15 Subsequent events

Subsequently to the reporting date, the maturities of certain amounts of accrued interest on loans and borrowings and other payables, that were presented within current liabilities as at 30 June 2021, were changed to 1 August 2023, because of non-execution of the contractual rights of the lenders to require settlement of these amounts by 1 August 2021. As at 30 June 2021, such accrued interest is represented within loans and borrowings from related parties amounting to USD 2,717 thousand, loans and borrowings from third parties amounting to USD 2,401 thousand and other current liabilities amounting to USD 3,008 thousand. This has improved the liquidity position of the Group.

-----------------------------------------------------------------------------------------------------------------------

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.:   122690 
EQS News ID:    1235157 
 
End of Announcement  EQS News Service 
=------------------------------------------------------------------------------------
 

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