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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Rose Grp | LSE:RGI | London | Ordinary Share | GG00B1H11J88 | ORD 0.0000004P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.625 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jun 2019 to Jun 2024
TIDMRGI
RNS Number : 9531C
R.G.I. International Limited
24 March 2014
Monday 24 March 2014
R.G.I. International Limited
(AIM: RGI)
2013 Audited Results
R.G.I. International Limited ("RGI" or the "Company"), the AIM listed developer of high quality residential properties in Moscow and the surrounding areas, today announces audited results for the full year ended 31 December 2013.
Highlights:
Operational
Microgorod V Lesu
-- Phase 1 of V Lesu received occupancy permits and is on track for residents to begin moving into finished apartments in H1 2014
-- The school and kindergarten are under roof and three of Phase 2's five residential buildings are under construction
-- 524 apartments were sold in 2013 totalling 37,716 sq. meters (2012: 619 apartments; 39,773 sq. m)
Tsvetnoy Central Market
-- New management team appointed to drive concession revenues and reduce costs -- Store mix improved with 15 new brands introduced -- Footfall of over 2 million visitors achieved for the first time (2012: 1.9m) -- Total store turnover increased 15% to $99 million (2012: $86m) -- RGI revenue from the store increased 23% to $24.3 million (2012: $19.8m) -- Store achieved break-even with operating profit of $0.6million (2012: $9.8m loss)
Other Projects
-- Planning permission received for Kvazar mixed use residential, office and retail project adjacent to V Lesu, including a 10,860 sq. meters eco-friendly office park
-- Divested Victory Park for $22 million -- Planning permission received to reconstruct and enlarge Moscow's historic Forum cinema
Financial
-- Operating profit of $7.5 million achieved (2012 loss: $66.2m)
-- Cash generated from sales of apartments at V Lesu held up well at $127.4 million (2012: $130.8m) despite a slowing Russian economy
-- General and administrative expenses reduced by 10% to $13.0 million (2012: $14.4m) -- EPRA NAV $3.63 per share (2012: $3.37) -- Equity to debt ratio of 2.1x (2012: 2.1x)
Corporate
-- Vnesheconombank (VEB) became a majority shareholder with a 73.4% holding -- Board streamlined from nine to six members, including three independent directors
Commenting, Chairman Emmanuel Blouin said:
"2013 was a transformational year for RGI as we welcomed a new majority shareholder and drew a line under a difficult period in the Company's history. We now enjoy a strong and stable shareholder base, an outstanding executive team, a demonstrated ability to deliver real estate and exciting growth prospects embedded in our current portfolio as well as potential acquisition opportunities. Our management team in Moscow has the experience to generate good deal flow, and the expertise to analyze opportunities quickly and thoroughly. In H1 2104 we will record our first revenues from residential sales at V Lesu and our business is well positioned for future growth. We must however caution that it is too early to fully assess the economic impact of the crisis in Ukraine and the Company is actively monitoring the situation."
ENDS
Complete Chairman's Statement, CEO Statement, Financial Review and audited financial statements follow.
The results included in this announcement are extracted from the audited consolidated financial statements of the Company for the year ended 31 December 2013, which have been approved by the Board of Directors on 21 March 2014.
The 2013 Annual Report is expected to be posted to shareholders in due course. Copies of the annual report and accounts will be made available on the Company's website www.rgi-international.com.
Enquiries:
RGI David Wood, Chief Financial Officer Anna Orlova, Head of Marketing and PR +7 495 933 6180 Citigate Dewe Rogerson - Financial PR Adviser Tom Baldock Jos Bieneman +44 (0) 20 72822889 Shore Capital - Nominated Adviser Stephane Auton Edward Mansfield +44 (0) 207 408 4090
About RGI
RGI has been successfully creating new markets in Moscow real estate since 1993. The Company's innovative drive played a key role in the transformation of Moscow's Golden Mile in the 1990s, when new landmark buildings were constructed that set the benchmark for modern living and working spaces in the rapidly changing Russian capital. Today the Company is focused on serving Moscow's growing middle class professionals by building aspirational, design led, residential communities. Its pioneering Microgorod V Lesu project has set new standards for the Moscow residential sector by offering homebuyers a well configured development, with good facilities and apartments finished to a high quality. In addition to its distinctive residential properties, RGI developed, owns and operates Tsvetnoy Central Market, Moscow's first iconic department store on Tsvetnoy Boulevard. The Company is listed on the LSE's AIM market and has significant land holdings in central Moscow.
For more information go to www.rgi-international.com
Chairman's Statement
2013 was a transformational year for RGI as we welcomed a new majority shareholder and drew a line under a difficult period in the Company's history.
The acquisition in Q1 2013 of a majority stake in RGI by Vnesheconombank ("VEB") represents a long-term portfolio investment by one of Russia's largest state owned banks. Our new shareholder provides the stability needed to plan for the long term on the basis of a relationship agreement that provides for VEB's representation on the Board while affirming the principles of best corporate governance practices.
The restructured Board has emerged as leaner, independent and better balanced. The elevation last spring of Andrey Nesterenko to the Board of Directors, along with the appointments of David Wood as CFO, Natalia Saakyants as Commercial Director and Petr Isaev as CEO of Tsvetnoy have put in place a dynamic and experienced team combining finance and property expertise to lead the Company.
With the full support of VEB, the Company has been able to push forward with building on the legacy of its visionary founder Boris Kuzinez, who created a business renowned in Moscow for distinctive, aspirational real estate built to a high quality. The RGI approach to design and build has been applied most recently to its large residential development, Microgorod V Lesu, in the Moscow Region, where over 30,000 people will live once the project is completed in 2022. Here, a very different kind of neighbourhood is taking shape, far removed from most of the mass market residential projects that are seen in the suburbs of Moscow.
This distinctive look and feel can also be seen at Tsvetnoy Central Market, the department store built, owned and operated by RGI in the centre of Moscow. Both developments have the concept of dynamic communities at their heart and it is this key focus, as well as design excellence and build quality that sets RGI apart as a developer and gives us the potential to deliver superior shareholder returns.
The opportunity for us is clear. RGI operates solely in Moscow, the 9(th) largest city economy in the world ranking ahead of cities such as Sao Paulo, Shanghai, Beijing and Washington DC. Home to the Russian Government it is also the headquarters of most of the multinationals operating in Russia across a range of industries. Moscow's economy is significantly diversified beyond the natural resources sector, with a large industrial base and fast growing technology and consumer sectors. Despite a growing population, as a result of immigration from the regions, unemployment remains low at around 0.5%.
This economic dynamism is resulting in a fast expanding, increasingly sophisticated and prosperous middle and upper-middle class, constituting a natural customer base for both our residential development and the Tsvetnoy department store. As in many Western cities, the pressure on a limited stock of suitable housing in the right areas is high. At V Lesu, we have completed Phase I, opening the doors on a new kind of community for the aspirational buyer. We are setting unique standards in terms of choice and quality in the fit-out of new apartments in a market still dominated by shell and core offerings. We are distinguishing ourselves by having underground parking spaces for every apartment accessible directly by lift. Above all, we are offering an attractive, safe, desirable neighbourhood with the on-site facilities and transport links needed to raise a modern family.
As we begin to deliver the first completely fitted-out apartments to residents in H1 2014, we are committed to growing RGI in a responsible way. This means looking beyond Phase 2, already under construction, to later phases of V Lesu and new, scalable projects with suitable risk-return profiles. At Tsvetnoy, we will continue our efforts to increase profitability while looking for opportunities to return capital from the operation. The Company's key objective remains to deliver a consistent level of positive cash flow each year to improve shareholder value, translating over time into growth in net asset value per share and a regular dividend stream.
Last year, we reported that we had rebranded the operating business in Russia as Rose Group, which has a better connection with consumers as a brand standing for the principles of innovation, design and product quality that have made Microgorod V Lesu a success. This year, the Directors are proposing to adopt that name formally for the Group as a whole to ensure alignment of our marketing and corporate messages. We will be adding such a resolution to the agenda for this year's AGM.
RGI invests capital in multi-year projects that, over the long run, have the potential to deliver superior returns. We now enjoy a strong and stable shareholder base, an outstanding executive team, a demonstrated ability to deliver real estate and exciting growth prospects embedded in our current portfolio as well as potential acquisition opportunities. Our management team in Moscow has the experience to generate good deal flow, and the expertise to analyse opportunities quickly and thoroughly. Our business is well positioned for future growth. We must however caution that it is too early to fully assess the economic impact of the crisis in Ukraine and the Company is actively monitoring the situation.
Emmanuel Blouin
Non-Executive Chairman
24 March 2014
CEO's Statement
I am pleased to report that good progress was made during 2013 against each of the Board's three main business objectives. We delivered on our key project goals at Microgorod V Lesu, we improved our operational performance at Tsvetnoy and we advanced our other portfolio projects. Our accomplishments include completing construction of Phase 1 of Lesu, beginning construction of Phase 2 and achieving break-even at Tsvetnoy. We have also made key personnel improvements at both the corporate level and at Tsvetnoy's operational business, bringing more specialist professionals to the team. Meanwhile the Rose Group brand is being defined more clearly than ever in the minds of Russian consumers. These factors combined contributed to a resilient performance during a year of slower growth for the Russian economy. We are succeeding with our strategy of targeting Moscow's growing middle class, as our sales performance at Microgorod V Lesu and growth in store turnover at Tsvetnoy both show.
Microgorod "V Lesu"
Our first challenge when we acquired the site at Microgorod V Lesu was to create a high quality city-scale residential development outside of Moscow with all necessary infrastructure present. Moscow, as distinct from the outlying Moscow region, has historically been sought after for many reasons, including the higher level of social services provided. The great achievement of V Lesu has been to attract central Moscow residents out to the Moscow Region - over 80% of our buyers are Moscow residents. This is a hugely significant statistic. Middle class customers are very comfortable coming to V Lesu because we are creating a community and the successful launch of Phase 2 with sales of 281 units in 2013 demonstrates that this is reaching a wider audience. We have good momentum as the development gains recognition and we were delighted that in November, V Lesu won the prestigious Urban Awards as the best comfort class residential project under construction in the Moscow region.
Against the backdrop described earlier, our total pre-sales were 15% lower in terms of units in 2013 versus 2012; however, in terms of square meters, the decrease was only 5% as more families were attracted to the project as it moved closer to 1(st) phase completion. This overall drop year was concurrent with a general slowdown in the Russian economy and high mortgage rates; however, Rose Group was able to maintain strong price growth during the year, despite evidence that other developers were not. In Phase 1, our average price per meter increased 17% over 2012. At Phase 2, where we initiated sales only in February 2013, the price per meter had increased approximately 4% by year-end.
The share of sales financed by mortgage contracts in 2013 was approximately 55% (2012: 57%), versus an average in Russia of only 25%. According to the Russian Agency for Mortgage Lending, by the end of 2013, disposable income had increased in real terms by 3.3% while interest rates were beginning to fall. As a result, the share of households for whom mortgage credit is available to finance the purchase of a home has increased from 26.5% in 2012 to 28-30%. These trends contributed to a stronger fourth quarter.
In Phase 1, Buildings 16, 17 and 18, received occupancy permits (passed state commissioning) in Q4 2013. These buildings are on track for residents to take ownership and move in during the first half of 2014, at which point the Company will recognize revenues from the sales. In addition, planning permissions were received in Q4 for RGI's Kvazar development, which is adjacent to the V Lesu development and comprises a 17.1 hectare residential and office development.
Tsvetnoy Central Market
At Tsvetnoy, our goal for 2013 was to significantly improve operational performance. Our first step was to bring in a new management team with a mandate to improve operating efficiencies and revenues from concessionaries. This has resulted in significant changes inside the store that have provided top line growth and enabled us to achieve operational break even performance by year end. Many European department stores take three years or more to reach break-even and we are pleased that Tsvetnoy, which become fully operational in 2011, has reached this milestone relatively early.
Tsvetnoy had record footfall in Q4 2013, with nearly 700,000 visitors (Q4 2012: 510,000). This increase is further evidence that the repositioning of the store earlier in 2013 is beginning to have results. The new management team has focused on more affordable fashion brands, and with a better mix in place the store is appealing to a broader customer base.
We were delighted when on October 30, the WGSN Global Fashion Awards in London declared Tsvetnoy the Best Store amongst strong competition which included finalists Colette (Paris), Evoluzione (India), Kate Spade (New York) and Harrods (London).
Central Moscow Developments
We made further advances in 2013 with our central Moscow developments. During the year, we received planning permission from the Moscow City Government to reconstruct and enlarge Moscow's oldest movie theater, "Forum". RGI is currently evaluating various concepts to proceed based on the permits. In October, we sold our Victory Park development for $22 million cash. The disposal of this project was in line with our strategy of focusing on the development of large scale residential schemes and frees up capital for the Company's other projects. We also continued to evaluate options for developing the residential portion of our Chelsea project and for our Ostozhenka 37 ultra-high-end residential development.
In an effort to advance the Khilkov luxury residential project, we initiated legal action against Litinor Financial Limited, our development partner. The action claims damages from Litonor following Litonor's failure to perform its obligations in accordance with the partnership agreement dated 19 September 2006.
Outlook
Our priorities for 2014 are to accelerate our development in several directions. At V Lesu, we are looking forward to welcoming the first residents shortly after we publish this report. As residents take ownership of their apartments, we will be able to recognize revenue for Phase 1 and record revenues and record our first profits from residential development. We expect the successful completion and handover of Phase 1 will make Phase 2 even more attractive to new buyers and have already begun to dig the foundations for the remaining two buildings of Phase 2. We are also aiming to complete the school and kindergarten, located within the development area of Phase 2, during this year.
As Tsvetnoy, we will continue to focus on improving operational performance. We have already identified the areas of the store where the biggest opportunities lie and our first step has been to convert the lower level into the Tsvetnoy Home Store, selling home and kitchenware. We have set high goals for increasing footfall, turnover and profits at the store, and are continuing to look at ways we can capitalize on the strong brand image of Tsvetnoy itself.
We will continue to advance our central Moscow projects in line with the timeframes that the permitting regime allows. At the same time, we will consider opportunities to divest or partner on these projects to free up capital and reduce risk.
In terms of corporate developments, we recognize that RGI's AIM listed shares need additional liquidity in order to reflect the value of the business. As part of our corporate strategy, the Board is engaged in an ongoing dialogue with VEB management on the issue.
We have developed a clear, sustainable long-term plan for RGI. As well as having a proven ability to execute major developments, RGI has a strong reputation in the industry and access to good deal flow. We will continue to seek opportunities to invest capital in projects where the risk-reward ratio is well balanced for shareholders.
I am confident that RGI can meet its strategic objectives but mindful of the risks that external events can have on our business and the Moscow housing market in general. Our view is that the Company is well positioned to weather the bouts of volatility in capital markets that have characterized 2014. Whatever the short-term brings, by operating efficiently and making the most of our clearly defined consumer proposition, RGI can look forward to a positive long-term future.
Andrey Nesterenko
Chief Executive Officer
Financial Review
We are pleased to report a return to operating profitability in 2013. For the year, our revenues increased 23% to $24 million, all of which was attributable to Tsvetnoy, as no revenues have yet been recognized at V Lesu. We had an operating profit of $7.5 million versus a loss of $66 million in 2012. This operating profit was attributable to a turnaround at Tsvetnoy, where EBITDA was $607,000 versus a negative $9.8 million a year ago. In addition, we recorded $22 million in unrealized gains on investment property (2012: $27 m) which was driven by permitting progress Kvazar and Forum. In addition, we realized gains on the sale of Victory Park for $22 million and were able to reduce general and administrative expenses by more than $1 million during the year.
RGI ended 2013 with over $26 million in cash, a net change of $1.8 million from year end 2012. The net cash outflow was decreased from $15 million in 2012. The single biggest element of cash flow for the year was $127 million (2012: $131m) received from presales of apartments at V Lesu. The 3% decline in dollar terms was largely as a result of a decrease in the average exchange rate. In rouble terms, receipts were virtually unchanged at RUR 4.0 billion. These receipts funded $111 million of investment in projects, up from $102 million in 2012. This higher level of expenditure reflects a higher pace of construction as we initiated work on Phase 2 during the year.
Other significant elements of cash flow for the year included $22 million in interest and net repayments of borrowings (2012: $22m) and $22 million proceeds from disposal of projects (2012: $6.3m).
At year end, our balance sheet was healthy. Our Net Asset Value measured under EPRA standards, which differs from IFRS, was $522.4 million (2012: $471.6m) or $3.63 per share, up 7.7% from 2012. RGI's IFRS net assets were $394 million, a 6% reduction from 2012. This reduction is largely driven by foreign exchange translation, which reduced the book NAV of Microgorod V Lesu by $22 million and the book NAV of Tsvetnoy by $16 million. A $93 million increase in property developed for sale was more than offset by $114 million increase in advances received for residential sales.
Borrowings declined from $194 million in 2012 to $186 million in 2013. We repaid $8 million of the permanent financing on Tsvetnoy and had a net decrease of $9 million in borrowings for Phase 1 of Microgorod V Lesu. This decrease was offset as we fully drew a RUR 500 million facility with Nomos Bank, but repaid a portion which was secured by Victory Park to end the year with a net new borrowing from Nomos Bank of $9 million.
The Fair Value of RGI's share in its projects as determined by JLL, our independent valuers, is as follows;
Hot Features
Premium
Development 2012* 2013
Tsvetnoy 231.5 230.3
V Lesu 360.6 347.2
Khilkov 38.0 38.3
Victory Park 12.3 -
Ostozhenka 37 9.4 7.3
Chelsea 8.0 9.0
Kvazar 27.9 69.6
Forum - 9.5
Ostozhenka 49 3.8 3.1
Total Fair Value 691.5 713.9
------ --------
* 2012 valuation was undertaken by DTZ
The reconciliation between the financial accounts and the EPRA standard is as follows:
31-Dec-13 31-Dec-12
NAV per the financial statements 394.4 422.5
Include:
(i) Revaluation of investment property - 17.9
(ii) Revaluation of property, plant and equipment 26.3 5.6
(iii) Revaluation of investment property held
under joint control 3.0 3.7
(iv) Revaluation of property developed for
sale 168.4 108.2
Exclude:
(v.a) Deferred tax 51.6 59.5
(vi) Non-controlling interests (50.1) (71.8)
EPRA NAV 593.6 545.5
(v.b) Include deferred tax (71.2) (73.9)
EPRA NNNAV 522.4 471.6
EPRA NAV $ per share 3.63 3.37
EPRA NNNAV $ per share 3.19 2.91
Explanation of adjustments
(i) Revaluation of investment property. Early stage projects held for development are carried in the IFRS accounts at cost less accumulated impairment. The NAV adjustment for revaluation in 2012 mainly related to Kvazar for which the fair value exceeded the historical cost.
(ii) Revaluation of property, plant and equipment relates to the excess for the Tsvetnoy fair value determined by JLL over the carrying value of the corresponding property, plant and equipment, which is accounted at cost less accumulated depreciation and impairment in the IFRS accounts.
(iii) Revaluation of investment property held under joint control stands for an increase to fair value of the Ostozhenka, 49 project carried at cost within the equity accounting for the joint venture, similar to (i) above.
(iv) Revaluation of property developed for sale stands for an increase to fair value of the residential part of the <<V Lesu>> project (including the related working capital items) carried at the lower of cost and net realisable value.
(v) Deferred tax
a. Exclude any deferred tax included in the financial statement under IFRS mainly in respect of the difference between the carrying value and the tax base of non-current investments and property developed for sale as this would only become payable if the assets were sold.
b. EPRA Triple Net Asset Value (NNNAV) includes an estimate of the deferred taxes likely to be payable upon realization of the fair values of the Group's assets in the normal course of business.
R.G.I. International Limited ANNUAL FINANCIAL REPORT 2013
All amounts in USD thousands unless otherwise stated
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
NOTE AS AT 31 DECEMBER AS AT 31 DECEMBER
2013 2012
============================================= ===== ================== ==================
ASSETS
============================================= ===== ================== ==================
Non-current assets
============================================= ===== ================== ==================
Investment property 5 67,808 66,159
============================================= ===== ================== ==================
Property, plant and equipment 6 212,723 236,311
============================================= ===== ================== ==================
Investment in jointly controlled entity 7 35,540 35,742
--------------------------------------------- ----- ------------------ ------------------
Input VAT 3,046 2,138
============================================= ===== ================== ==================
Intangible assets 1,248 1,505
============================================= ===== ================== ==================
Deferred income tax assets 8 11,770 9,274
============================================= ===== ================== ==================
Total non-current assets 332,135 351,129
============================================= ===== ================== ==================
Current assets
============================================= ===== ================== ==================
Property developed for sale 9 526,598 433,115
============================================= ===== ================== ==================
Receivables and prepayments 10 31,565 25,117
============================================= ===== ================== ==================
Other inventories 1,834 640
============================================= ===== ================== ==================
Cash and cash equivalents 11 26,400 28,243
============================================= ===== ================== ==================
Total current assets 586,397 487,115
============================================= ===== ================== ==================
Total assets 918,532 838,244
============================================= ===== ================== ==================
LIABILITIES
============================================= ===== ================== ==================
Non-current liabilities
============================================= ===== ================== ==================
Deferred income tax liabilities 8 63,413 66,124
--------------------------------------------- ----- ------------------ ------------------
Borrowings 12 129,206 138,225
--------------------------------------------- ----- ------------------ ------------------
Total non-current liabilities 192,619 204,349
============================================= ===== ================== ==================
Current liabilities
============================================= ===== ================== ==================
Borrowings 12 57,525 56,517
--------------------------------------------- ----- ------------------ ------------------
Trade and other payables 13 18,608 13,257
--------------------------------------------- ----- ------------------ ------------------
Advances from residential premises sales 255,392 141,602
--------------------------------------------- ----- ------------------ ------------------
Total current liabilities 331,525 211,376
============================================= ===== ================== ==================
Total liabilities 524,144 415,725
============================================= ===== ================== ==================
Equity
============================================= ===== ================== ==================
Share capital 14 1 1
--------------------------------------------- ----- ------------------ ------------------
Share premium 560,608 560,608
--------------------------------------------- ----- ------------------ ------------------
Share - based payment 15 - 2,948
--------------------------------------------- ----- ------------------ ------------------
Retained earnings (10,446) (15,693)
--------------------------------------------- ----- ------------------ ------------------
Translation reserve (184,383) (156,111)
--------------------------------------------- ----- ------------------ ------------------
Equity attributable to the owners of the Company 365,780 391,753
==================================================== ================== ==================
Non-controlling interest 28,608 30,766
============================================= ===== ================== ==================
Total equity 394,388 422,519
============================================= ===== ================== ==================
Total liabilities and equity 918,532 838,244
============================================= ===== ================== ==================
Approved for issue and signed on behalf of the Board of Directors on 21 March 2014.
Andrey Nesterenko David Wood CEO, Executive Director CFO, Executive Director
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
NOTE YEAR ENDED 31 DECEMBER
2013 2012
========================================= ===== ============ ===========
Gross revenue 16 24,324 19,809
----------------------------------------- ----- ------------ -----------
Property operating costs 16 (23,717) (29,671)
========================================= ===== ============ ===========
Net profit / (loss) from operation
of properties 16 607 (9,862)
========================================= ===== ============ ===========
Other operating income 757 1,012
----------------------------------------- ----- ------------ -----------
General and administrative expenses 17 (13,030) (14,351)
----------------------------------------- ----- ------------ -----------
Marketing expenses (4,460) (4,574)
----------------------------------------- ----- ------------ -----------
Depreciation and amortization (7,719) (7,945)
----------------------------------------- ----- ------------ -----------
Unrealised gains / (loss) on investment
property 5 21,829 (27,091)
----------------------------------------- ----- ------------ -----------
Realised gains on investment property 18 9,243 6,385
----------------------------------------- ----- ------------ -----------
Share in result of jointly controlled
entity 7 284 (9,772)
----------------------------------------- ----- ------------ -----------
Operating profit / (loss) 7,511 (66,198)
========================================= ===== ============ ===========
Finance income 19 421 9,557
----------------------------------------- ----- ------------ -----------
Finance costs 19 (8,108) (225)
----------------------------------------- ----- ------------ -----------
Loss before income tax (176) (56,866)
========================================= ===== ============ ===========
Income tax credit/(charge) 8 1,130 (1,966)
========================================= ===== ============ ===========
Profit / (loss) for the period 954 (58,832)
========================================= ===== ============ ===========
Basic and diluted income / (loss)
per share, USD 20 0.01 (0.34)
========================================= ===== ============ ===========
Profit / (loss) is attributable to:
========================================= ===== ============ ===========
Owners of the Company 894 (54,324)
----------------------------------------- ----- ------------ -----------
Non-controlling interest 60 (4,508)
----------------------------------------- ----- ------------ -----------
Profit / (loss) for the period 954 (58,832)
========================================= ===== ============ ===========
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME
NOTE YEAR ENDED 31 DECEMBER
2013 2012
============================================= ====== ==================== ===================
Profit / (loss) for the period 954 (58,832)
===================================================== ==================== ===================
Other comprehensive (loss)/profit
for the period:
============================================= ====== ==================== ===================
Items that may be reclassified subsequently
to profit or loss:
============================================= ====== ==================== ===================
Currency translation difference (30,490) 27,035
===================================================== ==================== ===================
Other comprehensive (loss)/profit
for the period (30,490) 27,035
,,
==================================================== ==================== ===================
Total comprehensive loss for the period (29,536) (31,797)
===================================================== ==================== ===================
Total comprehensive loss is attributable
to:
============================================= ====== ==================== ===================
Owners of the Company (27,378) (29,186)
===================================================== ==================== ===================
Non-controlling interest (2,158) (2,611)
===================================================== ==================== ===================
Total comprehensive loss for the period (29,536) (31,797)
===================================================== ==================== ===================
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
ATTRIBUTABLE TO OWNERS OF THE COMPANY:
NOTE SHARE SHARE SHARE-BASED RETAINED TRANSLATION TOTAL NON- TOTAL
CAPITAL PREMIUM PAYMENT EARNINGS RESERVE CONTROLLING EQUITY
INTEREST
=============== ===== ========= ======== ============ ========= ============ ========= ============ =========
Balance at 1
January
2012 1 560,608 269 38,631 (181,249) 418,260 33,377 451,637
=============== ===== ========= ======== ============ ========= ============ ========= ============ =========
Total
comprehensive
income
/ (loss) for
the year: - - - (54,324) 25,138 (29,186) (2,611) (31,797)
=============== ===== ========= ======== ============ ========= ============ ========= ============ =========
Loss for the
year - - - (54,324) - (54,324) (4,508) (58,832)
--------------- ----- --------- -------- ------------ --------- ------------ --------- ------------ ---------
Other
comprehensive
income - - - - 25,138 25,138 1,897 27,035
=============== ===== ========= ======== ============ ========= ============ ========= ============ =========
Share-based
payment 15 - - 2,679 - - 2,679 - 2,679
=============== ===== ========= ======== ============ ========= ============ ========= ============ =========
Balance at 31
December
2012 1 560,608 2,948 (15,693) (156,111) 391,753 30,766 422,519
=============== ===== ========= ======== ============ ========= ============ ========= ============ =========
Total
comprehensive
income
/ (loss) for
the year: - - - 894 (28,272) (27,378) (2,158) (29,536)
=============== ===== ========= ======== ============ ========= ============ ========= ============ =========
Income for the
year - - - 894 - 894 60 954
--------------- ----- --------- -------- ------------ --------- ------------ --------- ------------ ---------
Other
comprehensive
loss - - - - (28,272) (28,272) (2,218) (30,490)
=============== ===== ========= ======== ============ ========= ============ ========= ============ =========
Share-based
payment 15 - - (2,948) 4,353 - 1,405 - 1,405
=============== ===== ========= ======== ============ ========= ============ ========= ============ =========
Balance at 31
December
2013 1 560,608 - (10,446) (184,383) 365,780 28,608 394,388
=============== ===== ========= ======== ============ ========= ============ ========= ============ =========
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 DECEMBER
NOTE 2013 2012
=============================================== ===== ============= ==========
Cash flows from operating activities before
working capital changes
=============================================== ===== ============= ==========
Loss before income tax (176) (56,866)
----------------------------------------------- ----- ------------- ----------
Depreciation and amortization 7,719 7,945
----------------------------------------------- ----- ------------- ----------
Unrealized (gain)/loss on investment property 5 (21,829) 27,091
----------------------------------------------- ----- ------------- ----------
Share in result of jointly controlled
entity 7 (284) 9,772
----------------------------------------------- ----- ------------- ----------
Realized gains on investment property 18 (9,243) (6,385)
----------------------------------------------- ----- ------------- ----------
Finance costs/(income), net 19 7,687 (9,332)
----------------------------------------------- ----- ------------- ----------
Share-based payment 15 1,405 2,602
----------------------------------------------- ----- ------------- ----------
Working capital changes (14,721) (25,173)
=============================================== ===== ============= ==========
Change in trade and other payables 6,586 3,005
----------------------------------------------- ----- ------------- ----------
Advances from residential premises sales 127,415 130,787
----------------------------------------------- ----- ------------- ----------
Change in inventories (1,006) 2,271
----------------------------------------------- ----- ------------- ----------
Change in receivables and prepayments (8,779) (3,950)
----------------------------------------------- ----- ------------- ----------
Additions to property developed for sale (104,357) (94,992)
----------------------------------------------- ----- ------------- ----------
Interest paid and capitalized (16,501) (17,442)
----------------------------------------------- ----- ------------- ----------
Cash used in operations (11,363) (5,494)
=============================================== ===== ============= ==========
Income tax paid (122) (117)
----------------------------------------------- ----- ------------- ----------
Net cash used in operating activities (11,485) (5,611)
=============================================== ===== ============= ==========
Cash flows from investing activities
=============================================== ===== ============= ==========
Investment in jointly controlled entity (15) -
----------------------------------------------- ----- ------------- ----------
Additions to property, plant and equipment (1,072) (2,144)
----------------------------------------------- ----- ------------- ----------
Additions to investment property (5,951) (3,719)
----------------------------------------------- ----- ------------- ----------
Proceeds from disposal of projects 22,000 6,385
----------------------------------------------- ----- ------------- ----------
Compensation received from written off
projects - 6,546
----------------------------------------------- ----- ------------- ----------
Net cash generated from investing activities 14,962 7,068
=============================================== ===== ============= ==========
Cash flows from financing activities
=============================================== ===== ============= ==========
Repayment of bonds - (9,237)
----------------------------------------------- ----- ------------- ----------
Proceeds from borrowings 43,488 85,780
----------------------------------------------- ----- ------------- ----------
Repayment of borrowings (47,907) (92,286)
----------------------------------------------- ----- ------------- ----------
Net cash used in financing activities (4,419) (15,743)
=============================================== ===== ============= ==========
Effect of exchange rate changes on cash
and cash equivalents (901) (580)
=============================================== ===== ============= ==========
Net decrease in cash and cash equivalents (1,843) (14,866)
=============================================== ===== ============= ==========
Cash and cash equivalents, beginning of
the year 28,243 43,109
=============================================== ===== ============= ==========
Cash and cash equivalents, end of the
year 11 26,400 28,243
=============================================== ===== ============= ==========
A portion of the cash and cash equivalents was subject to certain restrictions in use as of 31 December 2013 and 2012 (Note 11).
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. THE R.G.I. INTERNATIONAL LIMITED GROUP
These consolidated financial statements of R.G.I. International Limited (hereinafter, "RGI" or the "Company") and its subsidiaries (together referred to as the "Group") and the Group's interest in jointly controlled entities for the year ended 31 December 2013 were authorized for issue in accordance with a resolution of the directors on 21 March 2014.
The Company was incorporated in Guernsey on 14 March 2006 as a limited liability company and its shares are quoted on the AIM market of the London Stock Exchange since December 2006.
The Company's ultimate parent and controlling party is the Russian State Corporation 'Bank for Development and Foreign Economic Affairs' (Vnesheconombank).
The Company's registered address is Frances House, Sir William Place, St. Peter Port, Guernsey, GY1 4EU.
The principal office of the Group's Russian operations is Korobeinikov Lane, 1, Moscow 119034, Russia.
The principal business activity of the Group is property development and property management in the Russian Federation, with its core business being the development and management of high-end office and retail businesses and luxury residential and premium economy class residential properties in central Moscow and the surrounding areas. The Group is also engaged in concession management as well as retail sales both of which are executed in the Tsvetnoy shopping center project.
The Group was involved in the development of the following projects during 2013 and 2012:
NAME OF PROJECT TYPE OF PROJECT GROUP'S INTEREST
CURRENT SHARE
---------------------- ------------------------ -------------------
2013 2012
====================== ======================== ========= ========
Jointly controlled
====================== ======================== ========= ========
Khilkov Residential 50% 50%
---------------------- ------------------------ --------- --------
Ostozhenka, 49 Residential 50% 50%
---------------------- ------------------------ --------- --------
Consolidated
---------------------- ------------------------ --------- --------
Microgorod<<V Lesu>> Residential/Commercial 82% 82%
---------------------- ------------------------ --------- --------
Kvazar Residential/Commercial 100% 100%
---------------------- ------------------------ --------- --------
Victory Park Mixed Use - 100%
---------------------- ------------------------ --------- --------
Chelsea Mixed Use 100% 100%
---------------------- ------------------------ --------- --------
Ostozhenka, 37 Residential 100% 100%
---------------------- ------------------------ --------- --------
Forum Mixed Use 100% 100%
---------------------- ------------------------ --------- --------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and with the requirements of the Companies (Guernsey) Law, 2008.
Preparation of the consolidated financial statements
The consolidated financial statements have been prepared on a going concern basis, applying the historical cost convention, except for the revaluation of certain financial assets and liabilities at fair value which are recognized through profit or loss and the revaluation of investment property and assets of disposal group classified as held for sale.
(a) Adopted standards effective for annual periods beginning on or after 1 January 2013:
Consolidated Financial Statements
* IFRS 10
Joint Arrangements
* IFRS 11
Disclosure of Interest in Other
* IFRS 12 Entities
Fair Value Measurement
* IFRS 13
Separate Financial Statements
* IAS 27 (as revised in 2011)
Investments in Associates and Joint
* IAS 28 (as revised in 2011) Ventures
Employee Benefits
* IAS 19 (as revised in 2011)
Disclosures - Offsetting Financial
* Amendments to IFRS 7 Assets and Liabilities
Presentation of Items of Other Comprehensive
* Amendments to IAS 1 Income
These amendments have not had a material effect on the Group's financial position or results of operations.
(b) Standards, amendments and interpretations issued but not effective and not applied for the financial year beginning 1 January 2013:
Effective for
annual periods
beginning
on or after
Financial Instruments
* IFRS 9 1 July 2015
Offsetting Financial Assets
* Amendments to IAS 32 and Financial Liabilities 1 January 2014
Investment Entities - Exemption
* Amendments to IFRS 10, IFRS 12 and IAS 27 from the consolidation of
particular subsidiaries 1 January 2014
The new standards, amendments and interpretations are not expected to affect significantly the Group's consolidated financial statements.
2.2 Consolidation
Subsidiaries are all entities (including special purpose entities) over which the Group has existing rights that give it the ability to direct the relevant activities, has rights to variable returns from its involvement and has the ability to affect those returns through its power over these entities.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. All intra-group transactions, balances and any unrealized profits or losses arising from intra-group transactions are eliminated in full on consolidation.
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
Accounting for business combinations under IFRS 3 only applies if it is considered that a business has been acquired. Under IFRS 3, 'Business combinations', a business is defined as an integrated set of activities and assets conducted and managed for the purpose of providing a return to investors or lower costs or other economic benefits directly and proportionately to policyholders or participants. A business generally consists of inputs, processes applied to those inputs, and resulting outputs that are, or will be, used to generate revenues. In the absence of such criteria, a group of assets is deemed to have been acquired.
For acquisitions meeting the definition of a business, the acquisition method of accounting is used. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Any contingent consideration to be transferred by the group is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognized amounts of acquiree's identifiable net assets.
Acquisition-related costs in relation to business combinations are expensed as incurred.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date and the resulting gain or loss, if any, is recognized in profit or loss.
For acquisitions of subsidiaries not meeting the definition of a business, the Group allocates the cost between the individual identifiable assets and liabilities in the Group based on their relative fair values at the date of acquisition. Such transactions or events do not give rise to goodwill.
2.3 Foreign currency translation
(a) Functional and presentation currency
The Group operates in a Russian Ruble ("RUR") economic environment. Accordingly, the functional currency of each of the Group's entities is the RUR. The Group's consolidated financial statements have been presented in US dollars ("USD"), as the Directors believe that this presentation is more appropriate for the users of these financial statements.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss for the year.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented net in the consolidated statement of comprehensive income within finance costs and finance income respectively, unless they are capitalized. All other foreign exchange gain and losses are presented net in the consolidated statement of comprehensive income.
(c) Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
-- assets and liabilities for each statement of financial position are translated at the closing rate at the date of that financial position;
-- income and expenses for each consolidated statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions);
-- components of equity are translated at the historical rate; and -- all resulting exchange differences are recognized in other comprehensive income.
On the disposal of a foreign operation (that is, a disposal of the group's entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation) all of the exchange differences accumulated in equity in respect of that operation attributable to the equity holders of the Company are reclassified to profit or loss.
In the case of a partial disposal that does not result in the Group losing control over a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognized in profit or loss.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognized in other comprehensive income.
At 31 December 2013, the principal rate of exchange used for translating foreign currency balances was 1 USD = RUR 32.7292 (at 31 December 2012: 1 USD = RUR 30.3727). The principal average rate of exchange used for translating income and expenses for 2013 was 1 USD = RUR 31.8480 (2012: 1 USD = RUR 31.0930).
2.4 Investment property
Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the companies in the consolidated Group, is classified as investment property. Investment property also includes property that is being constructed or developed for future use as investment property or for an undetermined use.
Investment property is measured initially at its cost, including related transaction costs and where applicable borrowing costs.
After initial recognition, investment property is carried at fair value. Investment property under construction is measured at fair value if the fair value is considered to be reliably determinable on a continuing basis. Investment properties under construction for which the fair value cannot be determined reliably, but for which the Group expects that the fair value of the property will be reliably determinable upon reaching a certain stage of development, are measured at cost less impairment until the fair value becomes reliably determinable or construction is completed - whichever is earlier. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods, such as recent prices on less active markets or discounted cash flow projections. Valuations are performed as of the end of the reporting period by professional valuation specialists who hold recognized and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the financial statements. Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active continues to be measured at fair value.
It may sometimes be difficult to determine reliably the fair value of the investment property under construction. In order to evaluate whether the fair value of an investment property under construction can be determined reliably, management considers the following factors, among others:
-- Status of construction permits. -- The provisions of the construction contract. -- The stage of completion. -- Whether the project/property is standard (typical for the market) or non-standard. -- The level of reliability of cash inflows after completion. -- The development risk specific to the property. -- Past experience with similar constructions.
The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions.
The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property. Some of those outflows are recognized as a liability, including finance lease liabilities in respect of leasehold land classified as investment property; others, including contingent rent payments, are not recognized in the financial statements.
Subsequent expenditure is capitalized to the asset's carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognized.
If a valuation obtained for a property held under a lease is net of all payments expected to be made, any related lease liability recognized separately in the consolidated statement of financial position is added back to arrive at the carrying value of the investment property for accounting purposes.
The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure other than those a rational market participant would take into account when determining the value of the property.
Changes in fair values are recognized in the profit or loss for the period. Investment properties are derecognized when they have been disposed of.
Where the Group disposes of a property at fair value in an arm's length transaction, the property is remeasured immediately prior to the sale to the agreed transaction price, and the adjustment is recorded in the profit or loss within net gain from fair value adjustment on investment property.
If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment. Its fair value at the date of reclassification becomes its cost for subsequent accounting purposes.
If an item of owner-occupied property becomes an investment property because its use has changed, any difference resulting between the carrying amount and the fair value of this item at the date of transfer is treated in the same way as a revaluation under IAS 16 Property, Plant and Equipment. Any resulting increase in the carrying amount of the property is recognized in profit or loss to the extent that it reverses a previous impairment loss, with any remaining increase recognized in other comprehensive income for the period. Any resulting decrease in the carrying amount of the property is initially charged in other comprehensive income against any previously recognized revaluation surplus, with any remaining decrease charged to profit or loss.
Where an investment property undergoes a change in use, evidenced by commencement of development with a view to sale, the property is transferred to inventories. A property's deemed cost for subsequent accounting as inventories is its fair value at the date of change in use.
2.5 Investment in jointly controlled entities
A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in which each partner has an interest. The entity operates in the same way as other entities, except that a contractual arrangement between the partners establishes joint control over the relevant activity of the entity which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. In the joint venture parties have rights to the net assets of the joint venture.
Investments in jointly controlled entities are accounted for using the equity method of accounting, based upon the percentage of ownership held by the Group. When the Group's share of losses exceeds its interest in an equity accounted investee, the carrying amount of the interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has a legal or constructive obligation or has made payments on behalf of the investee.
Profits and losses from transactions with jointly controlled entities are eliminated to the extent of the Group's interest in the entity.
2.6 Goodwill
Goodwill arising in a business combination represents the excess of the consideration transferred on an acquisition plus non-controlling interest of a business over the fair value of the Group's share of the net identifiable assets of the acquired business at the date of acquisition. Goodwill is tested at least annually, or upon an impairment trigger, for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment.
2.7 Impairment of non-financial assets
Non-financial assets that have an indefinite useful life - for example, goodwill - are not subject to amortization and are tested at least annually for impairment. Assets that are subject to depreciation or amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Impairment losses on goodwill are not reversed.
2.8 Property, plant and equipment
Land and buildings comprise mainly retail outlets and offices. Land and buildings are shown at cost, which is defined as the amount of cash or cash equivalents paid at the time of their acquisition or construction, less subsequent depreciation for buildings and impairment, if any.
All other property, plant and equipment (PPE) is stated at historical cost less accumulated depreciation and impairment, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items and where applicable any borrowing costs.
The cost of an item of PPE includes its purchase price and any direct attributable costs. Cost includes the cost of replacing part of an existing PPE at the time that the cost is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an item of PPE.
Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of those parts that are replaced is derecognized. All other repair and maintenance expenditures are charged to the consolidated statement of comprehensive income during the financial period in which they are incurred.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows:
-- Buildings 25-50 years -- Motor vehicles 3-5 years -- Furniture, fittings, office and computer equipment 3-8 years
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset's carrying amount is written down immediately to its recoverable amount if impairment indicators are identified and its carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the sales proceeds with carrying amount of the assets and are included in the consolidated statement of comprehensive income.
2.9 Accounts receivables and prepayments
Accounts receivables are recorded inclusive of Value Added Tax ("VAT") and are carried at amortized cost, net of provisions for impairment, if any. A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the provision is recognized in the consolidated statement of comprehensive income.
Prepayments are carried at cost less any accumulated impairment losses. A prepayment is classified as non-current when the goods or services relating to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as non-current upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has obtained control of the asset and it is probable that future economic benefits associated with the assets will flow to the Group. Other prepayments are written off to the consolidated statement of comprehensive income when the goods or services relating to the prepayments are received. If there is an indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding impairment loss is recognized in profit or loss for the year.
Non-current receivables represent VAT related to development projects, which is either to be recovered in the future from the Government Budget or included in property development costs after completion of each project, if such recovery is not deemed possible.
Trade receivables are amounts due from customers for services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.
2.10 Inventories
The Group's inventories include stock in trade in Tsvetnoy shopping center. They are carried at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less selling expenses. Any write-down to net realizable value is recognised as an expense in the period in which the write-down occurs.
2.11 Property developed for sale
Property developed for sale is defined as projects in which the Group participates as a contractor or as a promoter, and which include construction work with the intention to sell the entire building as a whole or parts thereof. Each project represents one building or a group of buildings.
A group of buildings is considered one project when the buildings at the same site are being constructed according to one building plan and under one building license, and are developed with the view for sale. Property developed for sale includes cost of land or of rights to the land that constitutes the relative portion of the area on which the construction work on projects is performed, plus the cost of the work executed on the projects as well as other costs allocated thereto, less the cumulative amounts recognized in profit or loss as cost of property developed for sale sold up to the end of the reporting period.
Where the estimated expenses for a building project indicate that a loss is expected, property developed for sale is written-down from cost to net realizable value. Buildings that are under construction are classified as property developed for sale on the face of the consolidated statement of financial position.
2.12 Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less.
Cash and cash equivalents are carried at amortized cost using the effective interest method.
2.13 Share capital
Shares are classified as equity when there is no obligation to transfer cash or other assets.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
2.14 Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.
2.15 Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized as finance cost over the period of the borrowings using the effective interest method.
Fees paid on the establishment of borrowings facilities are recognized as transaction costs of the borrowings to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.
Borrowings are classified as current liabilities when:
-- the Group expects to settle the liability in its normal operating cycle; -- it holds the liability primarily for the purpose of trading; -- the liability is due to be settled within 12 months after the reporting period; or
-- the Group does not have an unconditional right to defer settlement of the liability for at least 12 months after the date of the end of the reporting period.
2.16 Borrowing costs
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, including qualifying investment properties and property developed for sale, which are assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in profit or loss in the period in which they are incurred.
2.17 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognized in profit and loss, except to the extent that it relates to items recognized directly in other comprehensive income or equity - in which case, the tax is also recognized in other comprehensive income or equity.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation, and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects either accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by end of reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
The carrying value of the Group's investment property will generally be realized by a combination of income (rental stream during the period of use) and capital (the consideration on the sale at the end of use). In jurisdictions where different tax rates exist for income and capital gains, the Group considers the planned recovery of the asset and how that affects the tax rate used in the calculation of the deferred tax. The length of the period for which a property will be held prior to disposal is based on the Group's current plans and recent experience with similar properties. The capital gains tax rate applied is that which would apply on a direct sale of the property recorded in the consolidated statement of financial position regardless of whether the Group would structure the sale via the disposal of the subsidiary holding the asset, to which a different tax rate may apply. The deferred tax is then calculated based on the respective temporary differences and tax consequences arising from recovery through use and recovery through sale.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and in jointly controlled entities, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
2.18 Share-based payments
The Group operates an equity-settled share-based compensation plan or a Long Term Incentive Plan ("LTIP") under which the Group receives services from employees as consideration for equity instruments of the Group. The fair value of the employee's services received in exchange for the grant of the equity instruments is recognized as an expense. The total amount to be expensed is determined on the grant date by reference to the fair value of the equity instruments granted, including the impact of the market performance vesting condition and excluding the impact of the non-market vesting condition. For compensation plans with the non-market vesting condition, this condition is included in assumptions about the number of equity instruments that are expected to vest. The total amount expensed is recognized over the vesting period on a straight-line basis, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the Group revises its estimates of the number of equity instruments that are expected to vest based on the non-market vesting conditions, if any, in profit and loss, with a corresponding adjustment to equity. For market compensation plans with the market performance vesting conditions, the assumption reflecting the probability of meeting this condition is incorporated in the initial valuation of the grant. The resulting expense is recognized over the vesting period on a straight-line basis, irrespective of whether the market condition is satisfied.
2.19 Provisions
Provisions are recognized when:
-- the Group has a present legal or constructive obligation as a result of past events; -- it is probable that an outflow of resources will be required to settle the obligation; and -- the amount can be reliably estimated.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as finance cost.
2.20 Revenue recognition
(a) Sale of property developments
Revenue from the sale of property developments is recognized at the point of transfer of the risks and rewards of ownership and effective control. Until this point, any consideration received from customers is recorded as a liability under the caption "Advances from residential premises sales".
Revenue is measured at the fair value of the consideration received or receivable. In most cases, consideration is in the form of cash or cash equivalents and the amount of revenue is the amount of cash or cash equivalents received or receivable.
No revenues are recognized if there are significant uncertainties regarding recovery of consideration due, the cost incurred or to be incurred cannot be reliably measured, there is a risk of return, or there is continuing management involvement to the degree usually associated with ownership. Transfer of risks and rewards varies depending on the individual terms of the contract of sale.
(b) Concession revenue and other rental income
Rental income from operating leases is recognized on a straight line basis over the term of the lease.
Concession revenue is earned from leasing out commercial premises for variable fees linked to the tenants' retail sale turnovers. The contract terms for some of such tenants define certain minimum periodic amounts for these fees.
The Group collects receipts from retail customers on behalf of some tenants and then transfers them to the tenants, withholding the fees to which it is entitled under the agreements. Such fees are recognized as Group's revenue. The Group holds no title to any of the tenants' trading inventories.
(c) Sales of goods
Sales of goods are recognized when a Group entity sells a product to a customer. Revenue is measured at the fair value of the consideration received or receivable. In most cases, consideration is in the form of cash or cash equivalents such as credit cards and the amount of revenue is the amount of cash or cash equivalents received or receivable.
Revenue arising from the sale of goods is recognized when all of the following criteria have been satisfied:
-- the seller has transferred to the buyer the significant risks and rewards of ownership;
-- the seller retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
-- the amount of revenue can be measured reliably;
-- it is probable that the economic benefits associated with the transaction will flow to the seller, and
-- the costs incurred or to be incurred in respect of the transaction can be measured reliably. 2.21 Value added tax
Output value added tax related to sales is payable to tax authorities on the earlier of (a) collection of receivables from customers or (b) delivery of goods or services to customers. Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement of VAT on a net basis. VAT related to sales and purchases is recognized in the consolidated statement of financial position on a gross basis and disclosed separately as an asset and liability. Where provision has been made for impairment of receivables, impairment loss is recorded for the gross amount of the debtor, including VAT.
2.22 Interest income and expense
Interest income and expense are recognized within 'finance income' and 'finance costs' in profit or loss using the effective interest rate method, except for borrowing costs relating to qualifying assets, which are capitalized as part of the cost of that asset.
The effective interest method is a method of calculating the amortized cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or a shorter period where appropriate, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, pre-payment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
2.23 Employee benefits
Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual and sick leave, bonuses, awards in accordance with the long-term incentive plan ("LTIP"), and non-monetary benefits (such as health services) are accrued in the year in which the associated services are rendered by the employees of the Group. The Group has no legal or constructive obligation to make pension or similar benefit payments beyond the unified social tax and the share-based payments.
2.24 General and administrative expenses
All general and administrative expenses are recognized in the period when they are incurred. The expenses that are directly related to the Group activity in respect of a certain project (salaries of project staff and directors fees to the extent of their involvement in the development process) are capitalized as part of the cost of the project. The expenses that are not attributable to the projects are reflected in the consolidated statement of profit or loss.
2.25 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognized amounts, and there is an intention to either settle on a net basis, or to realize the asset and settle the liability simultaneously.
2.26 Earnings per share
Earnings per share are determined by dividing the profit or loss attributable to owners of the Company by the weighted average number of participating shares outstanding during the reporting year.
2.27 Amendment of the consolidated financial statements after issue
Any changes to these consolidated financial statements after issue require approval of the Board of Directors of the Group.
3. FINANCIAL RISK MANAGEMENT
The Group's activities expose it to a variety of financial risks: market risk (foreign exchange risk, interest rate risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group's financial performance.
The Treasury department of the Group identifies and evaluates financial risks in close co-operation with the Group's operating units. The Board of Directors provides principles for overall risk management, as well as instructions covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and use of derivative financial instruments.
Market risk
Foreign exchange risk
The functional currency of all entities within the Group is the Russian Ruble ("RUR"). Foreign exchange risk is the risk that the value of future transactions, recognized assets and liabilities and net investments in foreign operations will fluctuate due to changes in foreign currency exchange rates. At 31 December 2013, the Group was exposed to foreign exchange risks arising from currency exposures, primarily in respect of the US Dollar ("USD"). The Group's policy is not to enter into any currency hedging transactions in respect of these risks. However, since the majority of expenditure and revenues of the Group are denominated in both RUR and USD, the Board of Directors allocate the Group's cash resources based on the forecasted currency outflows.
Had the US dollar exchange rate on 31 December 2013 changed by 12% (a reasonably possible change in the current environment) the change in the carrying value of the dollar-denominated financial assets and liabilities and the effect on profit before tax would be as follows:
CARRYING CARRYING AMOUNT CARRYING AMOUNT
AMOUNT AFTER 12% INCREASE AFTER 12% DECREASE
IN USD EXCHANGE IN USD EXCHANGE
RATE RATE
----------------------------- ---------- -------------------- --------------------
USD denominated financial
assets 7,804 8,740 6,868
----------------------------- ---------- -------------------- --------------------
USD denominated financial
liabilities (139,378) (156,103) (122,653)
----------------------------- ---------- -------------------- --------------------
USD denominated financial
assets, net (131,574) (147,363) (115,785)
----------------------------- ---------- -------------------- --------------------
Net impact on profit/(loss)
before tax (15,789) 15,789
----------------------------- ---------- -------------------- --------------------
Net impact on equity (12,631) 12,631
----------------------------- ---------- -------------------- --------------------
As at 31 December 2012:
CARRYING CARRYING AMOUNT CARRYING AMOUNT
AMOUNT AFTER 10% INCREASE AFTER 10% DECREASE
IN USD EXCHANGE IN USD EXCHANGE
RATE RATE
----------------------------- ---------- -------------------- --------------------
USD denominated financial
assets 19,653 21,618 17,688
----------------------------- ---------- -------------------- --------------------
USD denominated financial
liabilities (149,473) (164,420) (134,526)
----------------------------- ---------- -------------------- --------------------
USD denominated financial
assets, net (129,820) (142,802) (116,838)
----------------------------- ---------- -------------------- --------------------
Net effect on profit/(loss)
before tax (12,982) 12,982
----------------------------- ---------- -------------------- --------------------
Net impact on equity (10,386) 10,386
----------------------------- ---------- -------------------- --------------------
The table below summarizes the Group's exposure to foreign currency exchange rate risk at the end of the reporting period:
31 December 2013 31 December 2012
------------------------------------------------- ------------------------------------------
Monetary Monetary Net statement Monetary Monetary Net statement
financial financial of financial financial financial of financial
assets liabilities position assets liabilities position
----- ----------- ------------- -------------- ----------- ------------- --------------
USD 7,804 (139,378) (131,574) 19,653 (149,473) (129,820)
----- ----------- ------------- -------------- ----------- ------------- --------------
EUR 102 (99) 3 139 (134) 5
----- ----------- ------------- -------------- ----------- ------------- --------------
GBP 146 - 146 453 - 453
----- ----------- ------------- -------------- ----------- ------------- --------------
NIS 1 - 1 44 - 44
----- ----------- ------------- -------------- ----------- ------------- --------------
8,053 (139,477) (131,424) 20,289 (149,607) (129,318)
----- ----------- ------------- -------------- ----------- ------------- --------------
Interest rate risk
The Group's interest rate risk arises from long-term borrowings. The OJSC "Sberbank" (further referred to as Sberbank) loan to LLC Central Market at variable interest rates exposes the Group to cash flow interest rate risk. The other borrowings of the Group, such as the LLC Jevosset's loan facility with Sberbank are subject to fixed interest rates and do not expose the Group to any interest rate risks. The Group is also exposed to variations in interest rates in relation to the interest earned on cash deposits. Reductions in interest rates would reduce the level of income earned by the Group on the surplus cash assets within the Group.
The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging.
For the Sberbank loan to LLC Central Market the Group is exposed to changes in 3 month USD LIBOR. As at 31 December 2013 an increase/decrease of 100 basis points in the 3 month USD LIBOR would result in USD 1,434,000 increase/decrease in interest expense incurred (2012:USD 1,432,000).
Fair Value of Financial Instruments
The Group's financial assets consist of cash and cash equivalents and receivables. The Group's financial liabilities consist of borrowings and payables. All of the Group's financial assets and liabilities are measured at amortized cost which approximates fair value due to the short-term nature of the financial instruments.
Credit risk
The Group is exposed to credit risk, which is the risk that a counterparty will not be able to pay all amounts in full when due. Financial assets, which potentially subject the Group to credit risk, consist principally of accounts receivable and cash and cash equivalents.
The carrying amount of accounts receivable and balances with banks represents the maximum amount that the Group is exposed to credit risk, which in 2013 was USD 30,907,000 (2012: USD 32,848,000).
86% of the above total credit exposure is related to cash and cash equivalents (2012: 86%).
Cash and cash equivalents are placed in high credit quality financial institutions, which are considered at the time of the deposit to have a minimal risk of default. The Directors believe the risk of default of these institutions is low, but will continue to monitor future placing of deposits in order to minimize credit risk exposure. 82% of cash balances are held with UniCredit Bank, 10% with Sberbank, 7% with ING Bank, 1% with UBS AG Bank (2012: 48% of cash balances are held with ING Bank NV, 38% with UniCredit Bank, 10% with Sberbank, 2% with UBS AG Bank, and 2% with First International Bank of Israel).
The remaining credit risk exposure is associated with trade and other receivables. Although collection of receivables could be influenced by economic factors, the Directors believe that there is no significant risk of loss to the Group beyond any provision already recorded.
Though there are no formal objectives, policies and processes for management of credit risk at the level of the Company, credit risk is managed at the shareholder level.
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group is exposed to daily calls on its available cash resources. Management monitors monthly rolling forecasts of the Group's cash flows.
Management estimates that the liquidity portfolio comprising cash and bank deposits can be realized in cash in order to meet unforeseen liquidity requirements. The Group's liquidity position is monitored and regular liquidity stress testing under a variety of scenarios covering both normal and more severe market conditions is performed by the management.
The liquidity management of the Group requires considering the level of liquid assets necessary to settle obligations as they fall due; maintaining access to a range of funding sources; maintaining funding contingency plans; and monitoring statement of financial position liquidity ratios against regulatory requirements.
The maturity dates of the Group's financial liabilities at 31 December 2013 are presented below. The amounts disclosed in the table are contractual undiscounted cash flows.
MATURITY DATE:
----------------------------------------------------------------------------
NOTE 2014 2015 2016 NEXT PERIODS TOTAL
----------------- ----- ------- ------- ------- ------------- --------
Borrowings 12 57,806 10,650 12,225 106,050 186,731
----------------- ----- ------- ------- ------- ------------- --------
Trade and other
payables 13 15,867 - - 1,094 16,961
----------------- ----- ------- ------- ------- ------------- --------
Total financial
liabilities 73,673 10,650 12,225 107,144 203,692
----------------- ----- ------- ------- ------- ------------- --------
The payment profile of the borrowings depends on the profile of pre-sales of the residential premises (Note 12).
The maturity dates of the Group's financial liabilities at 31 December 2012 are presented below. The amounts disclosed in the table are contractual undiscounted cash flows.
MATURITY DATE:
---------------------------------------------------------------------------
NOTE 2013 2014 2015 NEXT PERIODS TOTAL
----------------- ----- ------- ------ ------- ------------- --------
Borrowings 12 56,517 9,300 10,650 118,275 194,742
----------------- ----- ------- ------ ------- ------------- --------
Trade and other
payables 13 9,857 565 1,757 - 12,179
----------------- ----- ------- ------ ------- ------------- --------
Total financial
liabilities 66,374 9,865 12,407 118,275 206,921
----------------- ----- ------- ------ ------- ------------- --------
Capital management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The amount of capital that the Group managed is as following:
NOTE 2013 2012
-------------------------------- ----- --------- ---------
Total borrowings 12 186,731 194,742
-------------------------------- ----- --------- ---------
Less cash and cash equivalents 11 (26,400) (28,243)
-------------------------------- ----- --------- ---------
Net debt 160,331 166,499
-------------------------------- ----- --------- ---------
Total equity 394,388 422,519
-------------------------------- ----- --------- ---------
Total capital 554,719 589,018
-------------------------------- ----- --------- ---------
As of the 31 December 2013 the Group was subject to an externally imposed capital requirement, set out in the LLC Jevosset loan agreement with Sberbank to fund the construction of the Group's Microgorod <<V Lesu>> Project Phase 1. According to the agreement LLC Jevosset is required to maintain the level of equity investment not less than 30% of the total amount invested to-date in construction (less interest payments and other service fees) throughout the whole credit period. In the agreement between Central Market and Sberbank, the Tsvetnoy department store must generate a positive income higher than the interest and capital repayments due in the period by 10%. The Tsvetnoy entities did not achieve this throughout 2012 and therefore the Company agreed with Sberbank to deposit promissory notes to cover the expected shortfall (Note 12). The Group has complied with all other externally imposed capital requirements as of 31 December 2013.
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated and are based on the Directors' experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Directors also make certain judgments, apart from those involving estimations, in the process of applying the accounting policies. Judgments that have the most significant effect on the amounts recognized in the consolidated financial statements and which could cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:
Valuation and recoverable amounts of the property developed for sale, investment property and property, plant and equipment
The Group has obtained a report from an international valuation company, Jones Lang LaSalle ("JLL"), setting out the estimated market values for the Group's investment property, property developed for sale and property, plant and equipment in their current state as at 31 December 2013. JLL is an independent professionally qualified valuation specialist who holds a recognized relevant professional qualification and has recent experience in the locations and categories of the valued properties. The valuation was based on the assumption as to the best use of each property by a third party developer.
The development projects' valuation or recoverable amount was determined based on the best estimates of future cash flows, supported by the terms of any existing lease and other contracts and by external evidence such as current market prices for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. Had a different assessment been made of the assumptions underlying the valuation report the estimated fair values of the assets would have been higher or lower as at the above mentioned date.
Management has reviewed the appraisers' assumptions underlying discounted cash flow models used in the valuation, and confirmed that factors such as the discount rate applied have been appropriately determined considering the market conditions at the end of the reporting period. The discount cash flow methodology, which involves calculation of net present value of all future cost and income to be incurred and generated by property development, to derive market value via the residual method, i.e. assessing property as completed and deducting costs of development, is considered to provide a more accurate and sound valuation, taking into consideration the specific nature of the valued properties and limited market data available. Notwithstanding the above, management considers that the valuation of its property developed for sale and investment property is currently subject to an increased degree of judgment and an increased likelihood that actual proceeds on a sale may differ from the carrying value.
Microgorod <<V Lesu>>
The principal assumptions underlying the market value of the Group's development portfolio in respect of the Group's Microgorod <<V Lesu>> Development (Notes 5 and 9) taken at 100% of ownership are those related to current market level of: the projected sale and rent prices per square meter; the construction costs per square meter; the size of the project; the developer profit required and the level of other costs. The principal assumptions made, and the impact on the aggregate valuations by changing these assumptions as of 31 December 2013 is as follows:
-- Gross buildable area for the project is assumed to be 1.4 m square meters, comprising residential premises and related commercial and social facilities. If the area assumptions were to differ by 10% from management's estimates, the unrealized loss/gain on investment property would be an estimated USD 3.0 m lower or higher and no influence to the carrying value of property developed for sale;
-- Sale prices starting from USD 3,720 per square meter for residential premises, retail rent rates starting from USD 367 per square meter for commercial premises and parking sales price starting from USD 22,915 per lot and USD 11,458 per aboveground parking lot. If these values were to differ by 10% from management's estimates, the unrealized loss/gain on investment property would be an estimated USD 6.0 m lower or higher and no influence to the carrying value of property developed for sale;
-- Investment costs average at USD 1,185 per square meter of gross buildable area of the premises. If this value was to differ by 10% from management's estimates, the unrealized loss/gain on investment property would be an estimated USD 2.0 m lower or higher and no influence to the carrying value of property developed for sale;
-- Discount rate applied to the project cash flow of 18%. If this value was to differ by 1 percentage point ("pp.") from management's estimates, the unrealized loss/gain on investment property would be an estimated USD 2.0 m lower or higher and no influence to the carrying value of property developed for sale;
-- Construction completion date in 2025 and sales completion date in 2026. A one year delay in delivering the project would result in an estimated the unrealized loss on investment property of USD 5.0 m and no influence to the carrying value of property developed for sale.
The commercial part of the Microgorod <<V Lesu>> Development is classified as investment property (at fair value), whereas the residential part is classified as property developed for sale (at cost) as of the 31 December 2013. The costs of the project are allocated between the two parts on the basis of area, according to the proportion between the estimated total area of residential and commercial premises within the overall project and particularly within each Phase. The management believes the applied principle is reasonable as construction is not completed and the design for later Phases of the project is still in progress.
Tsvetnoy
The fair value of the Tsvetnoy project is estimated based on the income capitalization method, where the value is estimated from the expected market rental income streams and capitalization yields. The method considers net income generated by comparable property, capitalized to determine the value for the property which is subject to the valuation.
The principal assumptions underlying the estimation of the fair value are those related to the possible market rentals and appropriate discount rates. The impact on the valuation from any changes in these assumptions, with all other variables held constant, as of 31 December 2013 is as follows:
-- Rental and concession proceeds were assumed to vary from USD 150 to 30,500 per square meter for the first projected year depending on the retail type and area. Should these proceeds differ by 10% from management's estimates, the market value would be an estimated USD 25.0 m lower or higher without impairment to the carrying value of the project;
-- Exit yield of 10% of annual income, determining property value at sale. If this were to differ by 1 pp. from management's estimates it would result in an estimated market value USD 18.0 m lower or USD 22.0 m higher without impairment to the carrying value of the project;
-- Discount rate of 11% for net rental cash inflow. If these values differ by 1 pp. from management's estimates, the market value would be an estimated USD 4.0 m lower or higher without impairment to the carrying value of the project.
5. INVESTMENT PROPERTY
NOTE MICROGOROD KVAZAR FORUM CHELSEA OSTOZHENKA, VICTORY ZEMLIANOY TOTAL
<<V LESU>> 37 PARK
-------------------- ----- ------------- -------- ------ -------- ------------ --------- ---------- ---------
At 1 January 2012 59,986 9,086 - 10,238 8,476 11,061 - 98,847
-------------------- ----- ------------- -------- ------ -------- ------------ --------- ---------- ---------
Additions to
investment
property 3,088 366 - 252 13 - - 3,719
-------------------- ----- ------------- -------- ------ -------- ------------ --------- ---------- ---------
Reclassification of
costs
to property
developed
for sale 9 (15,213) - - - - - - (15,213)
-------------------- ----- ------------- -------- ------ -------- ------------ --------- ---------- ---------
Fair value loss (25,040) - - - - - - (25,040)
-------------------- ----- ------------- -------- ------ -------- ------------ --------- ---------- ---------
Borrowing costs
capitalized
(in accordance
with IAS
23) 858 - - - - - - 858
==================== ===== ============= ======== ====== ======== ============ ========= ========== =========
Reversal of
impairment - - - - 394 596 - 990
==================== ===== ============= ======== ====== ======== ============ ========= ========== =========
Impairment loss - - - (3,041) - - - (3,041)
==================== ===== ============= ======== ====== ======== ============ ========= ========== =========
Reversal of
impairment
due to permissions 18 - - - - - - 5,726 5,726
==================== ===== ============= ======== ====== ======== ============ ========= ========== =========
Disposal of the
project 18 - - - - - - (5,726) (5,726)
==================== ===== ============= ======== ====== ======== ============ ========= ========== =========
Translation
difference 2,740 554 - 549 518 678 - 5,039
-------------------- ----- ------------- -------- ------ -------- ------------ --------- ---------- ---------
At 31 December 2012 26,419 10,006 - 7,998 9,401 12,335 - 66,159
-------------------- ----- ------------- -------- ------ -------- ------------ --------- ---------- ---------
Additions to
investment
property 4,733 954 - 262 2 - - 5,951
==================== ===== ============= ======== ====== ======== ============ ========= ========== =========
Reclassification of
costs
to property
developed
for sale 9 - (8,712) - - - - - (8,712)
==================== ===== ============= ======== ====== ======== ============ ========= ========== =========
Fair value gain 406 10,548 - - - - - 10,954
==================== ===== ============= ======== ====== ======== ============ ========= ========== =========
Borrowing costs
capitalized
(in accordance
with IAS
23) 495 - - - - - - 495
==================== ===== ============= ======== ====== ======== ============ ========= ========== =========
Reversal of
impairment - - 9,763 1,360 - 1,210 - 12,333
==================== ===== ============= ======== ====== ======== ============ ========= ========== =========
Impairment loss - - - - (1,458) - - (1,458)
==================== ===== ============= ======== ====== ======== ============ ========= ========== =========
Disposal of the
project 18 - - - - - (12,974) - (12,974)
==================== ===== ============= ======== ====== ======== ============ ========= ========== =========
Translation
difference (2,053) (796) (263) (620) (637) (571) - (4,940)
-------------------- ----- ------------- -------- ------ -------- ------------ --------- ---------- ---------
At 31 December 2013 30,000 12,000 9,500 9,000 7,308 - - 67,808
-------------------- ----- ------------- -------- ------ -------- ------------ --------- ---------- ---------
The appraisal reports prepared by JLL as of 31 December 2013 and by DTZ Debenham Zadelhoff Limited as of 31 December 2012 were used to support management assessment of the fair value of the investment property (Level 3 of the hierarchy defined by IFRS 13) including the commercial part of the Microgorod <<V Lesu>> and Kvazar projects.
The Kvazar project was measured at cost as of 31 December 2012 as the early stage of the project caused significant uncertainties affecting the determination of its fair value. During the second half of 2013 the Group received the Project Planning approval from Krasnogorsk municipal authorities. The Directors, therefore, reassessed the fair value of the project accounting for the significant milestone reached in the course of the project development. Due to its location adjacent to the Microgorod <<V Lesu>> project site and its realisation plan related to that of Microgorod <<V Lesu>>, the Kvazar project naturally forms an additional phase of the Microgorod <<V Lesu>> project, moreover, it is now at the same stage of development as the other future phases of Microgorod <<V Lesu>> project. Consequently, the same principles are applied that led to reclassification of its residential part to costs of property developed for sale and measurement at fair value of its commercial part which comprise 17% of the total project fair value.
The Forum project formed a part of the Group's portfolio until 2009 as part of the Chelsea project. At the end of 2009 the Directors reassessed the scope of Chelsea project and part of the costs associated with the project were impaired. No value has been attributed to the Forum project since 2009 neither within the Chelsea project nor as a separate project. However, in the middle of 2013 the Group obtained the Land Plot Urban Plan (GPZU) from the Moscow Architecture Committee. Accordingly, the Directors revived the project and reinstated it back to the portfolio as a separate future development at the fair value. The fair value does not exceed the original cost.
The Chelsea and Ostozhenka, 37 projects are measured at cost less accumulated impairment because they are at the very early stages of development which causes significant uncertainties affecting the determination of their fair values, and because there is no readily available market evidence of such fair values.
The Zemlianoy project formed a part of the Group's portfolio until 2009. At the end of 2009 the Directors suspended the development and the costs associated with the project were impaired. No value has been attributed to the Zemlianoy project since 2009. However, at the beginning of 2012 the Group obtained a decision from the Urban Land Committee to prolong the investment contract and provide the Group with the land lease rights. Accordingly, the Directors revived the project and reinstated it back to the portfolio as a future development at the original cost which did not exceed the fair value. On 17 December 2012 the rights for the project were sold (Note 18).
According to the loan agreements with Sberbank and Nomos-Bank (Note 12) the Microgorod <<V Lesu>>, Ostozhenka, 37 and Chelsea projects are pledged as guarantees to secure the loans as at 31 December 2013.
The following table summarises the unrealized gains or losses on investment property. These arise from both assets held at fair value and from movements in provision for impairment when projects are recorded at cost.
31 DECEMBER 31 DECEMBER
2013 2012
-------------------------------------------- ------------ ------------
Fair value gain / (loss) on investment
property 10,954 (25,040)
-------------------------------------------- ------------ ------------
Impairment of investment property (1,458) (3,041)
-------------------------------------------- ------------ ------------
Reversal of impairment of investment
property 12,333 990
-------------------------------------------- ------------ ------------
Total unrealized gain/(loss) on investment
property 21,829 (27,091)
-------------------------------------------- ------------ ------------
The Group, through its Russian subsidiaries, has access to develop its projects through investment contracts with the Moscow City Government or through land use rights.
The land lease agreements held are detailed below:
ACQUISITION PERIOD OF THE
DATE OF LAND LEASE FROM
NAME OF SUBSIDIARY THAT HAS ENTITLEMENT USE RIGHTS THE DATE OF
TO THE LEASE AGREEMENT ACQUISITION
--------------------------------------------- -------------- --------------
LLC Ostozhie - Ostozhenka Project 30 June 2006 19 years
--------------------------------------------- -------------- --------------
LLC Central Market -Tsvetnoy Project 30 June 2006 46 years
--------------------------------------------- -------------- --------------
LLC Jevosset - Microgorod <<V Lesu>> Project 27 June 2007 48 years
--------------------------------------------- -------------- --------------
LLC Dinvest - Forum Project 22 February 21 years
2008
--------------------------------------------- -------------- --------------
LLC Kvazar - Kvazar Project 27 April 45 years
2010
--------------------------------------------- -------------- --------------
The Group's future minimum rental payments under non-cancellable operating land leases in effect as of 31 December 2013 are presented below:
Due in one year or less 2,111
--------------------------------------- -------
Due in more than one year but no more
than five years 6,801
--------------------------------------- -------
Due in more than five years 9,795
--------------------------------------- -------
Total operating land lease 18,707
--------------------------------------- -------
6. PROPERTY, PLANT AND EQUIPMENT
FURNITURE, OFFICE
LAND AND FITTINGS OFFICE AND SALES MOTOR TOTAL
BUILDING AND PREMISES COMPUTER OFFICE VEHICLES
EQUIPMENT EQUIPMENT
--------------------- ----------------------
TSVETNOY
------------------ --------------------------------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Cost at 1 January
2012 - - 9,754 808 - 430 10,992
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Accumulated
depreciation - - (1,632) (244) - (336) (2,212)
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Carrying amount
at
1 January 2012 - - 8,122 564 - 94 8,780
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Additions - - - - 2,063 81 2,144
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Disposals - - - (271) - - (271)
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Depreciation - - (400) (24) (301) (52) (777)
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Reclassification
from assets
of
disposal group
classified
as held for sale 216,947 8,935 - - - - 225,882
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Translation
reserve - - 478 28 41 6 553
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Cost at 31
December 2012 226,518 13,028 10,339 579 2,112 539 253,115
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Accumulated
depreciation (9,571) (4,093) (2,139) (282) (309) (410) (16,804)
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Carrying amount
at
31 December 2012 216,947 8,935 8,200 297 1,803 129 236,311
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Additions - 1,235 - 112 100 66 1,513
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Disposals - (509) (26) (21) - (26) (582)
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Depreciation (4,689) (2,088) (357) (86) (414) (52) (7,686)
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Translation
reserve (15,494) (606) (581) (22) (121) (9) (16,833)
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Cost at 31
December 2013 210,209 12,797 9,569 530 2,057 539 235,701
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Accumulated
depreciation (13,445) (5,830) (2,333) (250) (689) (431) (22,978)
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
Carrying amount
at
31 December 2013 196,764 6,967 7,236 280 1,368 108 212,723
------------------ --------------------- ---------------------- --------------------- --------------------- ------------------- --------------------- ------------------
According to the loan agreements with Sberbank and Nomos-Bank (Note 12) the Tsvetnoy project and office premises are pledged as guarantees to secure the loans.
7. INVESTMENT IN JOINTLY CONTROLLED ENTITY
The Group's investment in a jointly controlled entity relates to its 50% interest in Lafar Management Limited, which holds a 100% interest in LLC Stolichnoe Podvorie, an entity involved in the development of an ultra high-end residential building at 3 Khilkov Lane, Moscow, Russian Federation and an ultra high-end single family townhouse at 49 Ostozhenka Street, Moscow, Russian Federation.
The following table sets out the assets and liabilities of the joint venture, and the Group's share thereof. In addition, the table presents the Group's share of the results of the joint venture:
31 DECEMBER 31 DECEMBER
2013 2012
ASSETS
--------------------------------------------- ------------ ------------
Non-current assets
--------------------------------------------- ------------ ------------
Investment property 76,722 76,248
--------------------------------------------- ------------ ------------
Receivables 5 40
--------------------------------------------- ------------ ------------
Deferred income tax assets 1,547 1,459
--------------------------------------------- ------------ ------------
Total non-current assets 78,274 77,747
--------------------------------------------- ------------ ------------
Current assets
--------------------------------------------- ------------ ------------
Receivables and prepayments 93 100
--------------------------------------------- ------------ ------------
Cash and cash equivalents 38 38
--------------------------------------------- ------------ ------------
Total current assets 131 138
--------------------------------------------- ------------ ------------
Total assets 78,405 77,885
--------------------------------------------- ------------ ------------
LIABILITIES
--------------------------------------------- ------------ ------------
Non-current liabilities
--------------------------------------------- ------------ ------------
Deferred income tax liability 7,485 6,755
--------------------------------------------- ------------ ------------
Loans 66,551 67,104
--------------------------------------------- ------------ ------------
Total non-current liabilities 74,036 73,859
--------------------------------------------- ------------ ------------
Current liabilities
--------------------------------------------- ------------ ------------
Trade and other payables 329 270
--------------------------------------------- ------------ ------------
Total current liabilities 329 270
--------------------------------------------- ------------ ------------
EQUITY
--------------------------------------------- ------------ ------------
Share capital 1 1
--------------------------------------------- ------------ ------------
Retained earnings 14,450 33,994
--------------------------------------------- ------------ ------------
Profit/(loss) for the period 568 (19,544)
--------------------------------------------- ------------ ------------
Translation reserve (10,979) (10,695)
--------------------------------------------- ------------ ------------
Total equity 4,040 3,756
--------------------------------------------- ------------ ------------
Total liabilities and equity 78,405 77,885
--------------------------------------------- ------------ ------------
Investment in jointly controlled entity
(50%) 2,020 1,878
--------------------------------------------- ------------ ------------
Loans to jointly controlled entity (Note
23) 33,022 33,325
--------------------------------------------- ------------ ------------
Additional investment in jointly controlled
entity 498 539
--------------------------------------------- ------------ ------------
Total investment in jointly controlled
entity 35,540 35,742
--------------------------------------------- ------------ ------------
SHARE IN RESULT OF JOINTLY CONTROLLED
ENTITY 284 (9,772)
--------------------------------------------- ------------ ------------
The loans issued to the joint venture are past due as at the end of the reporting period and are collateralized (Notes 22 and 23).
The income for 12 months of USD 568,000 in 2013 (2012: loss of USD 19,544,000) includes income of USD 6,249,000 (comprising fair value gain on Khilkov project) and expenses of USD 5,681,000 consisting mainly of finance and income tax expenses (2012: income of USD 8,108,000 and an impairment loss of USD 27,652,000).
8. INCOME TAX
The income tax expense comprises the following:
2013 2012
------------------------------------ -------- ------
Total current tax charge 16 4
==================================== ======== ======
Total deferred tax (credit)/charge (1,146) 1,962
------------------------------------ -------- ------
Income tax (credit)/charge
for the year (1,130) 1,966
------------------------------------ -------- ------
The Group operates in three tax jurisdictions and the Company and its subsidiaries are subject to tax at the rates in force in their respective countries of tax residence, the Island of Guernsey, the Republic of Cyprus or the Russian Federation.
The Company is a Guernsey incorporated entity, which is registered with the Administrator of Income Tax in Guernsey in order to obtain an exempt status. It is not anticipated that any income, other than bank interest income, will arise in Guernsey and therefore the Company will not be subject to tax in Guernsey.
The tax rates for the Group's subsidiaries are currently 10% in Cyprus, 20% in the Russian Federation (2012: 10% in Cyprus, 20% in the Russian Federation).
Differences between the carrying amounts in the consolidated financial statements and the tax bases of assets and liabilities under statutory taxation regulations in Russia and other countries give rise to temporary differences. The tax effect of the movements in these temporary differences is detailed below and is recorded at the rate of 20% (2012: 20%) which represented the tax rate that had been enacted or substantively enacted by the end of the reporting period.
Reconciliation between the expected and the actual taxation charge is provided below: 2013 2012
---------------------------------------------------------- ------------------- ---------
Loss before taxation (176) (56,866)
---------------------------------------------------------- ------------------- ---------
Tax credit at the Russian statutory rate
of 20% (35) (11,373)
---------------------------------------------------------- ------------------- ---------
Tax effect of items not deductible or assessable
for taxation purposes:
---------------------------------------------------------- ------------------- ---------
Loss incurred in tax free jurisdictions 504 1,424
---------------------------------------------------------- ------------------- ---------
Income which is exempt from taxation: (5,670) (1,277)
---------------------------------------------------------- ------------------- ---------
* Disposal of subsidiaries (3,226) (1,277)
========================================================== =================== =========
(2,387) -
* Reversal of impairment of investment property
========================================================== =================== =========
(57) -
* Share in result of jointly controlled entity
========================================================== =================== =========
Non-deductible expenses: 4,071 13,192
========================================================== =================== =========
* Impairment of investment property - 608
========================================================== =================== =========
* Non-deductible regulation costs 3,260 10,238
---------------------------------------------------------- ------------------- ---------
* Share-based payment 289 520
---------------------------------------------------------- ------------------- ---------
* Share in result of jointly controlled entity - 1,826
---------------------------------------------------------- ------------------- ---------
522 -
* Other
---------------------------------------------------------- ------------------- ---------
Income tax (credit)/charge for the year (1,130) 1,966
---------------------------------------------------------- ------------------- ---------
The tax effect of the movements in the temporary differences for the year ended 31 December 2013 is:
RECOGNIZED IN CONSOLIDATED CREDITED/
STATEMENT OF COMPREHENSIVE INCOME (CHARGED)
DIRECTLY TO
OTHER
COMPREHENSIVE
INCOME
========================================================= =============== ============
1 JANUARY REVERSAL FAIR VALUE OTHER SALE OF
2013 OF IMPAIRMENT LOSS CHANGES INVESTMENT 31 DECEMBER
PROPERTIES 2013
================ ========== =============== =========== ========= ================ =============== ============
Tax effect of
deductible
temporary
difference:
---------------- ---------- --------------- ----------- --------- ---------------- --------------- ------------
Tax losses
carried
forward 9,067 - - 3,263 (11) (743) 11,576
---------------- ---------- --------------- ----------- --------- ---------------- --------------- ------------
Other 207 - - - - (13) 194
---------------- ---------- --------------- ----------- --------- ---------------- --------------- ------------
Recognized
deferred tax
asset 9,274 - - 3,263 (11) (756) 11,770
---------------- ---------- --------------- ----------- --------- ---------------- --------------- ------------
Tax effect of
taxable
temporary
difference:
---------------- ---------- --------------- ----------- --------- ---------------- --------------- ------------
Development
projects (66,124) (2,433) 292 (1,347) 1,382 4,817 (63,413)
---------------- ---------- --------------- ----------- --------- ---------------- --------------- ------------
Recognized
deferred tax
liability (66,124) (2,433) 292 (1,347) 1,382 4,817 (63,413)
================ ========== =============== =========== ========= ================ =============== ============
As at 31 December 2013 the Group recognized deferred tax assets in respect of unused tax losses carried forward of USD 57,880,000 expiring in the years 2020 to 2023.
The recognized deferred tax asset represents taxes arising on the tax losses carried forward to future periods, which will be recoverable through future deductions from taxable profits. Deferred income tax assets are recorded to the extent that realization of the related tax benefit is probable. The future taxable profits and the amount of tax benefits that are probable in the future are based on the current management expectations regarding the future performance.
The tax effect of the movements in the temporary differences for the year ended 31 December 2012 is:
RECOGNIZED IN CONSOLIDATED RECLASS CREDITED/
STATEMENT OF COMPREHENSIVE INCOME FROM (CHARGED)
ASSETS/ DIRECTLY
LIABILITIES TO OTHER
HELD COMPREHENSIVE
FOR SALE INCOME
================================================= ============ ============== ==========
1 JANUARY REVERSAL FAIR OTHER SALE OF 31
2012 OF VALUE CHANGES INVESTMENT DECEMBER
IMPAIRMENT LOSS PROPERTIES 2012
============= ========== =========== ========== ========= ============= ============ ============== ==========
Tax effect
of
deductible
temporary
difference:
------------- ---------- ----------- ---------- --------- ------------- ------------ -------------- ----------
Tax losses
carried
forward 2,406 - - (5,846) 84 12,128 295 9,067
------------- ---------- ----------- ---------- --------- ------------- ------------ -------------- ----------
Other - - - (209) 6 339 71 207
------------- ---------- ----------- ---------- --------- ------------- ------------ -------------- ----------
Recognized
deferred
tax asset 2,406 - - (6,055) 90 12,467 366 9,274
------------- ---------- ----------- ---------- --------- ------------- ------------ -------------- ----------
Tax effect
of taxable
temporary
difference:
------------- ---------- ----------- ---------- --------- ------------- ------------ -------------- ----------
Development
projects (51,374) (198) 5,008 (841) 7 (15,372) (3,354) (66,124)
------------- ---------- ----------- ---------- --------- ------------- ------------ -------------- ----------
Investment
in joint
controlled
entity
profit (120) - - 124 - - (4) -
------------- ---------- ----------- ---------- --------- ------------- ------------ -------------- ----------
Other 64 - - - - - (64) -
------------- ---------- ----------- ---------- --------- ------------- ------------ -------------- ----------
Recognized
deferred
tax
liability (51,430) (198) 5,008 (717) 7 (15,372) (3,422) (66,124)
============= ========== =========== ========== ========= ============= ============ ============== ==========
As at 31 December 2012 the Group recognized deferred tax assets in respect of unused tax losses carried forward of USD 45,335,000 expiring in the years 2020 to 2022.
9. PROPERTY DEVELOPED FOR SALE
MICROGOROD KVAZAR TOTAL
<<V LESU>>
At 1 January 2012 283,443 - 283,443
------------------------------------------- ------------ ------- ---------
Additional construction costs 99,849 - 99,849
------------------------------------------- ------------ ------- ---------
Reclassification of costs from investment
property (Note 5) 15,213 - 15,213
------------------------------------------- ------------ ------- ---------
Borrowing costs capitalized (in
accordance with IAS 23) 16,584 - 16,584
------------------------------------------- ------------ ------- ---------
Reclassification to property, plant
and equipment (2,063) - (2,063)
------------------------------------------- ------------ ------- ---------
Translation difference 20,089 - 20,089
------------------------------------------- ------------ ------- ---------
At 31 December 2012 433,115 - 433,115
------------------------------------------- ------------ ------- ---------
Additional construction costs 103,399 - 103,399
------------------------------------------- ------------ ------- ---------
Reclassification of costs from investment
property (Note 5) - 8,712 8,712
------------------------------------------- ------------ ------- ---------
Borrowing costs capitalized (in
accordance with IAS 23) 16,006 - 16,006
------------------------------------------- ------------ ------- ---------
Translation difference (34,400) (234) (34,634)
------------------------------------------- ------------ ------- ---------
At 31 December 2013 518,120 8,478 526,598
------------------------------------------- ------------ ------- ---------
10. RECEIVABLES AND PREPAYMENTS
31 DECEMBER 31 DECEMBER
2013 2012
----------------------------------------- ------------ ------------
Prepayments 27,059 19,847
----------------------------------------- ------------ ------------
Input VAT 2,364 2,469
----------------------------------------- ------------ ------------
Receivables 1,779 2,082
----------------------------------------- ------------ ------------
Tax reimbursement 363 440
----------------------------------------- ------------ ------------
Written off project costs reimbursement - 279
----------------------------------------- ------------ ------------
Total receivables and prepayments 31,565 25,117
----------------------------------------- ------------ ------------
11. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in hand, current accounts and amounts placed on deposit, as detailed below:
31 DECEMBER 31 DECEMBER
2013 2012
Non-interest bearing accounts
(in RUR) 2,351 1,924
--------------------------------- ------------ ------------
Non-interest bearing accounts
(mainly in USD) 4,695 7,815
--------------------------------- ------------ ------------
Promissory notes (in USD) 3,100 12,000
--------------------------------- ------------ ------------
Short-term deposit (in USD) 39 474
--------------------------------- ------------ ------------
Short-term deposit (in RUR) 16,215 6,030
--------------------------------- ------------ ------------
Total cash and cash equivalents 26,400 28,243
--------------------------------- ------------ ------------
Current accounts held in RUR, and mainly in USD, are non-interest bearing accounts. Interest is earned on the amounts of deposits at market interest rates (at rates up to 6.2% per annum on short term deposits in Russian Rubles).
The Board of Directors intends to continue placing surplus cash resources on deposits and with various money market funds with international financial institutions until such time as they are required for the business operations.
As of 31 of December 2013 the Group is subject to the restriction in use of its cash balance in respect of the promissory notes accounted for as cash equivalents in the financial statements. The promissory notes were issued by Sberbank in 2012 to the Group's subsidiary LLC Central Market in the amount of USD 12,000,000 as security for the loan facility of USD 150,000,000, provided by Sberbank to LLC Central Market on 30 June 2011. Contractually, the promissory notes remaining as at 31 December 2013 shall be converted to cash in the first half of 2014.
12. BORROWINGS
The loan agreements that were in place as at 31 December 2013 are set out below:
LENDER ORIGINAL TOTAL AMOUNT NOMINAL REPAYMENT OUTSTANDING INTEREST TOTAL LOAN OUTSTANDING
CURRENCY OF LOAN INTEREST DATE NOMINAL PAYABLE
OF LOAN FACILITY RATE AMOUNT
IN ORIGINAL 31 DEC 2013
CURRENCY
---------- --------------------- ------------------- -------------------- --------------------- ----------------------- -------------------- ---------------------------------------------
NON-CURRENT CURRENT
PORTION PORTION
---------- --------------------- ------------------- -------------------- --------------------- ----------------------- -------------------- ----------------------- --------------------
LIBOR
3m+ 29 June
Sberbank USD 150,000 PREMIUM* 2018 138,225 281 129,206 9,300
---------- --------------------- ------------------- -------------------- --------------------- ----------------------- -------------------- ----------------------- --------------------
22 May
Sberbank RUR 4,922,000 12.5% 2015 39,002 150 - 39,152
---------- --------------------- ------------------- -------------------- --------------------- ----------------------- -------------------- ----------------------- --------------------
Nomos 13 Dec
Bank RUR 500,000 12.5% 2014 9,073 - - 9,073
---------- --------------------- ------------------- -------------------- --------------------- ----------------------- -------------------- ----------------------- --------------------
Total borrowings 186,300 431 129,206 57,525
--------------------------------------------------------------------------------------------------- ----------------------- -------------------- ----------------------- --------------------
* the premium defaults to 6.5% provided all the cash generated from the
Tsvetnoy building operation is received in lender bank current accounts,
otherwise the premium increases to 9.5%
On 30 June 2011, the Group's subsidiary LLC Central Market entered into a loan facility of USD 150,000,000 with Sberbank. The loan is secured against the property rights to the Tsvetnoy building, the share capital of LLC Central Market, the right of a long term land lease which Tsvetnoy building occupies, promissory notes of Sberbank for the amount of USD 3,100,000 on 31 December 2013 (31 December 2012: USD 12,000,000) and the share capital of LLC Tsvetnoy Central Market, being the single lessee of the Tsvetnoy building. The purpose of the promissory notes acquisition is to guarantee interest and principal repayment for the next 12 months after the date of their acquisition. The loan facility has no recourse to the Company.
On 25 May 2011, the Group's subsidiary LLC Jevosset entered into a loan facility of RUR 4,922,000,000 with Sberbank. The loan is secured against the property rights to the Microgorod <<V Lesu>> Development Phase 1, the share capital of LLC Jevosset and the right of two long term land leases on which the Microgorod <<V Lesu>> project is being built. The loan facility has no recourse to the Company and is being used to fund the construction of the Microgorod <<V Lesu>> Project Phase 1.
The property rights to the Phase 1 of the Development consist of not less than 78,000 square meters of residential premises, 3,400 square meters of commercial premises, 1,150 parking lots and 85 related parking lots to be constructed as part of the Development. Due to the repayment scheme applied the mortgage value of a part of the property rights was repaid during 2013 which resulted in the total amount of 17,823 square meters of residential premises, 3,400 square meters of commercial premises, 279 parking lots and 45 related parking lots left as the security for the loan facility as of 31 December 2013 (31 December 2012: 34,846.77 square meters of residential premises, 3,400 square meters of commercial premises, 441 parking lots and 83 related parking lots).
As at 31 December 2013 the Sberbank loan facility was classified as current because of the repayment scheme applied. As the loan is secured against the property rights to the Microgorod <<V Lesu>> Development Phase 1 the Group has an obligation to repay the mortgage value of any part of those rights upon receiving proceeds according to any sale-purchase agreement in respect of those rights. The Group started to sell apartments in Phase 1 in 2011 and anticipates that the total projected amount of proceeds from future sales during 2014 will cover in full the repayment of the loan outstanding as of 31 December 2013.
On 19 December 2012 the Group's subsidiary LLL Project Bureau entered into a loan facility in the form of a credit line of RUR 500,000,000 with OJSC "Nomos-Bank". The loan is secured against guarantees of other Group companies such as LLC Profit Invest, LLC Ostozhie, LLC Titan along with a pledge of real estate property owned by the abovementioned Group companies. The carrying amount of the pledged real estate property equals USD 11,558,000.
The loans' fair value as at 31 December 2013 does not differ significantly from their carrying value.
The loan agreements that were in place as at 31 December 2012 are set out below:
LENDER ORIGINAL TOTAL AMOUNT NOMINAL REPAYMENT OUTSTANDING INTEREST TOTAL LOAN OUTSTANDING
CURRENCY OF LOAN INTEREST DATE NOMINAL PAYABLE
OF LOAN FACILITY RATE AMOUNT
IN ORIGINAL 31 DEC
CURRENCY 2012
---------- --------------------- ------------------- -------------------- --------------------- ----------------------- -------------------- ---------------------------------------------
NON-CURRENT CURRENT
PORTION PORTION
---------- --------------------- ------------------- -------------------- --------------------- ----------------------- -------------------- ----------------------- --------------------
LIBOR
3m+ 29 June
Sberbank USD 150,000 PREMIUM* 2018 146,325 301 138,225 8,401
---------- --------------------- ------------------- -------------------- --------------------- ----------------------- -------------------- ----------------------- --------------------
22 May
Sberbank RUR 4,922,000 12.5% 2015 47,930 186 - 48,116
---------- --------------------- ------------------- -------------------- --------------------- ----------------------- -------------------- ----------------------- --------------------
Total borrowings 194,255 487 138,225 56,517
--------------------------------------------------------------------------------------------------- ----------------------- -------------------- ----------------------- --------------------
* the premium defaults to 6.5% provided all the cash generated from the
Tsvetnoy building operation is received in lender bank current accounts,
otherwise the premium increases to 9.5%
13. TRADE AND OTHER PAYABLES
31 DECEMBER 31 DECEMBER
2013 2012
--------------------------------- ------------ ------------
Trade payables 15,870 10,224
--------------------------------- ------------ ------------
Deposits and advances 1,091 1,955
--------------------------------- ------------ ------------
Tax payables 1,647 1,078
--------------------------------- ------------ ------------
Total trade and others payables 18,608 13,257
--------------------------------- ------------ ------------
The increase in Trade payables at 31 December 2013 was due to the increase in activities in finishing Phase 1 Microgorod <<V Lesu>>.
14. SHARE CAPITAL
Share capital
The Company's share capital is denominated in British pounds ("GBP"). The Company's shares are stated at their par (nominal) value.
NUMBERS NOMINAL CARRYING
OF SHARES AMOUNT IN VALUE IN
AUTHORIZED ACTUAL GBP'000
AND ISSUED USD
------------------------------------ ------------ ---------------- ----------
Share capital as at 1 January 2012 161,786,978 0.65 1.23
------------------------------------ ------------ ---------------- ----------
Share capital as at 31 December
2012 161,786,978 0.65 1.23
------------------------------------ ------------ ---------------- ----------
Share capital as at 31 December
2013 163,736,978 0.65 1.00
------------------------------------ ------------ ---------------- ----------
The share capital of the Company comprises only ordinary shares, all of which bear voting rights and the right to dividends as approved at the General Meeting of the Company. No other additional rights or preferences are attached to this class of shares.
The shareholding structure as at 31 December 2013 was as follows:
TOTAL OWNERSHIP
SHARES IN THE COMPANY
SHAREHOLDERS HELD %
--------------------------------------- ------------ ----------------
LLC VEB Capital 71,000,000 43.37
--------------------------------------- ------------ ----------------
Direct Finance LLC 49,168,094 30.03
--------------------------------------- ------------ ----------------
AMG Group Limited 27,045,722 16.52
--------------------------------------- ------------ ----------------
Other (none individually greater than
3%) 16,523,162 10.08
--------------------------------------- ------------ ----------------
Total 163,736,978 100.00
--------------------------------------- ------------ ----------------
The shareholding structure as at 31 December 2012 was as follows:
TOTAL OWNERSHIP
SHARES IN THE COMPANY
SHAREHOLDERS HELD %
--------------------------------------- ------------ ----------------
D.E.S. Commercial Holdings Limited 65,063,393 40.22
--------------------------------------- ------------ ----------------
Synergy Classic Limited 36,010,000 22.26
--------------------------------------- ------------ ----------------
Sigrun Finance Incorporation 32,490,160 20.08
--------------------------------------- ------------ ----------------
Renaissance Capital Limited 4,846,174 3.00
--------------------------------------- ------------ ----------------
Prosperity Capital Management Limited 5,951,665 3.68
--------------------------------------- ------------ ----------------
Other (none individually greater than
3%) 17,425,586 10.76
--------------------------------------- ------------ ----------------
Total 161,786,978 100.00
--------------------------------------- ------------ ----------------
Share premium
The share premium represents the excess of contributions received over the nominal value of the shares issued.
15. SHARE-BASED PAYMENT
The Company operates a long term share award incentive plan (LTIP) that entitles eligible employees to acquire shares in the Company at no cost providing certain conditions are met. The primary condition is based on share price growth and dividend payments. The eligible shares vest in two equal amounts after the second and the third years following the grant date.
On 15 January 2013, following the decision made by the Remuneration Committee, pursuant to the rules of the LTIP (due to the change of main shareholder), the awards granted to Mr. Alan Hibbert, Mr. Yoram Evan and Mr. Andrey Nesterenko, have fully vested.
On 1 February 2013 the Company allotted a total of 1,950,000 new ordinary shares of GBP0.000000004 each fully paid to the following individuals in relation to the vesting of awards under the Company's LTIP:
(a) Mr. Alan Hibbert was issued 600,000 shares;
(b) Mr. Yoram Evan was issued 600,000 shares (due to the Board decision to extend the term of his LTIP, which would otherwise have expired in October 2012); and
(c) Mr. Andrey Nesterenko was issued 750,000 shares.
The portion of Directors' award shares amortized for the twelve month period ended 31 December 2013 was USD 1,405,000 (for 2012: USD 2,602,000).
No additional LTIP awards have been made in 2013 and currently there are no outstanding unvested awards.
16. NET PROFIT / (LOSS) FROM OPERATION OF PROPERTIES
Net property profit/(loss) is connected with Tsvetnoy department store operational activity.
2013 2012
------------------------------------ --------- ---------
Concession revenue 16,044 11,479
------------------------------------ --------- ---------
Gross sales of goods 8,280 8,330
------------------------------------ --------- ---------
Gross revenue 24,324 19,809
------------------------------------ --------- ---------
Cost of goods sold (5,093) (7,055)
------------------------------------ --------- ---------
Maintenance and utilities (6,078) (6,434)
------------------------------------ --------- ---------
Staff costs (6,972) (5,543)
------------------------------------ --------- ---------
Professional services (2,081) (4,916)
------------------------------------ --------- ---------
Property tax (2,896) (3,119)
------------------------------------ --------- ---------
State duties (597) (2,604)
------------------------------------ --------- ---------
Total property operating costs (23,717) (29,671)
------------------------------------ --------- ---------
Net profit / (loss) from operation
of properties 607 (9,862)
------------------------------------ --------- ---------
Concession revenue for 2013 includes a contractually fixed portion of USD 4,130,000 (2012: USD 2,413,000).
The increase in staff costs in 2013 was as a result recruiting additional staff with a consequent reduction in external professional services.
17. GENERAL AND ADMINISTRATIVE EXPENSES
2013 2012
------------------------------------ ------- -------
Wages and salaries 4,590 4,388
------------------------------------ ------- -------
Consulting and other professional
services 4,173 3,462
------------------------------------ ------- -------
Subsistence and office consumables
expenses 1,856 3,287
------------------------------------ ------- -------
Share-based payment 1,405 2,602
------------------------------------ ------- -------
Property tax 197 374
------------------------------------ ------- -------
Others 809 238
------------------------------------ ------- -------
Total general and administrative
expenses 13,030 14,351
------------------------------------ ------- -------
18. NET GAIN ON DISPOSAL
2013 2012
---------------------------- --------- --------
Net proceeds from sales 22,000 6,444
---------------------------- --------- --------
Cost of the projects (12,974) (5,785)
---------------------------- --------- --------
Reversal of impairment - 5,726
---------------------------- --------- --------
Translation difference 217 -
---------------------------- --------- --------
Total net gain on disposal 9,243 6,385
---------------------------- --------- --------
At 4 October 2013 an agreement for the sale of 100% shares in Grikima Holding Ltd which owns the Victory Park project was signed. The compensation received totaled USD 22,000,000 (excluding bank charges). The disposal of this project is in line with the Group's strategy of focusing on the development of large scale residential schemes and frees up capital for the Group's other projects.
At 17 December 2012 an agreement for the sale of 100% shares in Canalet Holding Ltd which owns Zemlianoy project was signed between the Group companies and Salerno Investments Ltd. The compensation received totaled USD 6,000,000 (excluding bank charges).
At 24 September 2012 an agreement for the sale of 100% shares in Swainhouse Enterprises Ltd which owns Maya project was signed between the Group companies and Cypress Enterprises Ltd. The compensation received totaled USD 500,000 (excluding bank charges).
19. FINANCE INCOME AND COSTS Finance income 2013 2012 ------------------------ ----- ------ Foreign exchange gains - 5,899 ------------------------ ----- ------ Interest income 140 1,571 ------------------------ ----- ------ Bank interest 281 800 ------------------------ ----- ------ Derivative transaction - 1,287 ------------------------ ----- ------ Total finance income 421 9,557 ------------------------ ----- ------ Finance costs 2013 2012 ------------------------------------------- --------- --------- Foreign exchange loss 8,108 - ------------------------------------------- --------- --------- Interest expenses 16,501 17,525 ------------------------------------------- --------- --------- Consumer Price Index adjustments on bonds - 142 ------------------------------------------- --------- --------- Total finance costs before capitalization 24,609 17,667 ------------------------------------------- --------- --------- Capitalized finance costs (16,501) (17,442) ------------------------------------------- --------- --------- Total finance costs 8,108 225 ------------------------------------------- --------- --------- 20. EARNINGS PER SHARE
The basic and diluted earnings per share have been calculated by dividing the net loss attributable to the owners of the Company by the weighted average number of ordinary shares outstanding during the period.
The basic and diluted earnings per share are presented below:
2013 2012
-------------------------------------------------------- ------------ ------------
Income attributable to owners of the Company 894 (54,324)
-------------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares outstanding
during the year 163,566,019 161,786,978
-------------------------------------------------------- ------------ ------------
Basic and diluted earnings per share for the income
attributable to the owners of the Company during
the year (expressed in USD per share) 0.01 (0.34)
-------------------------------------------------------- ------------ ------------
21. SEGMENT INFORMATION
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (CODM). The chief operating decision-maker who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer, who makes strategic decisions.
For the purpose of financial reporting for the year ended 31 December 2013 the Group identified two reportable segments: Assets management (Tsvetnoy department store) and Development (Development projects of the Group).
Due to the nature of trading of the Tsvetnoy Project it is managed separately from the other activities of the Group. The Tsvetnoy project has its own management team who report to the CEO and have the objective of increasing rental and other revenues from this investment. The Asset management segment earns revenue by leasing out the sales floor space, acting as an agent in retail and selling goods in its own shopping space.
The major source from which the Development segment derives its revenue is the sale of apartments in Microgorod <<V Lesu>> which commences in 2014.
The Group does not split the business into geographical segments due to the fact that all business activities are performed in one geographical area, Moscow and the Moscow Region.
The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies.
DEVELOPMENT ASSET MANAGEMENT TOTAL
SEGMENT
-------------------------------- ---------------------- ---------------------- ----------------------
2013 2012 2013 2012 2013 2012
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Revenue from external
customers - - 24,324 19,809 24,324 19,809
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Retail operating costs - - (23,717) (29,671) (23,717) (29,671)
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Other operating income 757 1,012 - - 757 1,012
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
General and administrative
expenses (13,030) (14,351) - - (13,030) (14,351)
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Marketing expenses (4,460) (4,574) - - (4,460) (4,574)
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Unrealized gain/(loss)
on investment property,
net 21,829 (27,091) - - 21,829 (27,091)
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Share in result of jointly
controlled entity 284 (9,772) - - 284 (9,772)
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Gain on disposal, net 9,243 6,385 - - 9,243 6,385
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Segment result 14,623 (48,391) 607 (9,862) 15,230 (58,253)
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Depreciation and amortization (7,719) (7,945)
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Finance (costs)/income,
net (7,687) 9,332
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Income tax 1,130 (1,966)
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Profit / (loss) 954 (58,832)
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Reportable segment assets 691,035 584,129 227,497 254,115 918,532 838,244
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Reportable segment liabilities (367,971) (261,790) (156,173) (153,935) (524,144) (415,725)
-------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
The Group's business is strictly divided into two segments leaving no Group companies that are not included in either of the two segments, the total amounts of the segments assets and liabilities, revenues and expenses for 12 months of 2013 and 2012 are equal to the summary amounts of these financial statements items cumulatively for the Group. In this regard no reconciliations between the total of the reportable segments' assets and liabilities, revenues and expenses and the Group's corresponding amount are performed. Intersegment revenue and expenses are immaterial.
22. CONTINGENCIES, COMMITMENTS AND OPERATING RISKS
Legal proceedings
On 22 April 2013 the Company has begun legal action against Litonor Financial Limited ("Litonor"), its development partner in the Khilkov luxury residential project in central Moscow (Note 7).
The action claims damage from Litonor following Litonor's failure to perform its obligations in accordance with the partnership agreement dated 19 September 2006.
The action was launched in the District Court of Nicosia, Cyprus ("the Court") by R.G.I. Residential Holdings Limited ("RGI Residential"), a Cyprus registered subsidiary of RGI. RGI Residential owns a 50% stake in LLC Stolichnoe Podvorie, the developer of the Khilkov project.
Further to the above action and pursuant to an application by RGI Residential, the Court has granted an injunction preventing Litonor from disposing of its shares in the Khilkov project.
The aim of the legal action is to encourage the partner to fulfill his obligations under the partnership agreement. The Company believes that these legal actions will speed up the Khilkov project development or recover fully the investments (including the acquisition price).
Tax contingencies
The Company has exempt tax status in Guernsey. The Group also operates in the Cypriot and Russian tax jurisdictions.
Russian tax and customs legislation which were enacted or substantively enacted at the end of the reporting period were subject to varying interpretations when being applied to the transactions and activities of the Group. Consequently, tax positions taken by management and the formal documentation supporting the tax positions may be successfully challenged by relevant authorities. Russian tax administration is gradually strengthening, including the fact that there is a higher risk of review of tax transactions without a clear business purpose or with tax incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances, if a court determines that the taxpayer has obstructed or hindered a tax inspection, reviews may cover longer periods.
Russian transfer pricing legislation enacted during the year affects all transactions from 1 January 2012. It introduces significant reporting and documentation requirements. The transfer pricing legislation that is applicable to transactions on or prior to 31 December 2011 also provides the possibility for tax authorities to make transfer pricing adjustments and to impose additional tax liabilities in respect of all controllable transactions, provided that the transaction price differs from the market price by more than 20%. Controllable transactions include transactions with interdependent parties, as determined under the Russian Tax Code, all cross-border transactions (irrespective of whether performed between related or unrelated parties), transactions where the price applied by a taxpayer differs by more than 20% from the price applied in similar transactions by the same taxpayer within a short period of time, and barter transactions. Significant difficulties exist in interpreting and applying transfer pricing legislation in practice. Any prior existing court decisions may provide guidance, but are not legally binding for decisions by other, or higher level, courts in the future.
Tax liabilities arising from transactions between companies are determined using actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the entity.
The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on the assumption that these companies are not subject to Russian profits tax, because they do not have a permanent establishment in Russia. This interpretation of relevant legislation may be challenged but the impact of any such challenge cannot be reliably estimated currently; however, it may be significant to the financial position and/or the overall operations of the entity.
As Russian tax legislation does not provide definitive guidance in certain areas, the Group adopts, from time to time, interpretations of such uncertain areas that reduce the overall tax rate of the Group. While management currently estimates that the tax positions and interpretations that it has taken can probably be sustained, there is a possible risk that an outflow of resources will be required should such tax positions and interpretations be challenged by the relevant authorities.
Capital expenditure commitments
At 31 December 2013, the Group had contractual capital expenditure commitments in respect of property development totaling USD 92,035,774 (2012: USD 95,213,000).
The Group has already allocated the necessary resources in respect of these commitments. The Group believes that future net income and funding will be sufficient to cover this and any similar such commitments.
Guarantees
During the reporting period the Group has not granted or provided collateral to third parties, except for the liens provided to Sberbank in relation to the Tsvetnoy and Microgorod <<V Lesu>> Projects and liens provided to Nomos-Bank (Note 12).
Insurance policies
The Group holds insurance policies in relation to its assets, operations, and in respect of public liability or other insurable risks. The total insurance coverage is USD 465,885,000 (2012: USD 233,160,000).
Environmental matters
The enforcement of environmental regulations in the Russian Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognized immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated but could be material. Under existing legislation, the Directors believe that there are no significant liabilities for environmental damage.
Operating environment of the Group
The Russian Federation displays certain characteristics of an emerging market, including relatively high inflation and high interest rates. Tax, currency and customs legislation within the Russian Federation is subject to varying interpretations and frequent changes and contribute to the challenges faced by entities currently operating in the Russian Federation. The future economic direction of the Russian Federation is heavily influenced by the fiscal and monetary policies adopted by the government, together with developments in the legal, regulatory, and political environment. Management is unable to predict all developments in the economic environment which could have an impact on the Group's operations and consequently what effect, if any, they could have on the financial position of the Group.
The market in Russia for many types of real estate has demonstrated some recovery from the impact of the volatile global financial markets. As such the carrying value of the property development portfolio has been updated to reflect market conditions at the end of the reporting period. Management is unable to reliably determine the effects on the Group's future financial position of any potential future deterioration in the liquidity of the financial markets and the increased volatility in the currency and equity markets. Management believes it is taking all necessary measures to support the sustainability and growth of the Group's business in the current business and economic environment.
Management determined impairment provisions by considering the economic situation and outlook at the end of the reporting period. Provisions for trade receivables are determined using the 'incurred loss' model required by the applicable accounting standards. These standards require recognition of impairment losses for receivables that arose from past events and prohibit recognition of impairment losses that could arise from future events, no matter how likely those future events are.
23. RELATED PARTY TRANSACTIONS
Parties are generally considered to be related if the parties are under common control or if one party has the ability to control the other party or can exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.
The Group had no other transactions and balances with related parties disclosed elsewhere in these financial statements or detailed below during the reporting period ended 31 December 2013 and 31 December 2012.
Borrowings
LAFAR STOLICHNOE PODVORIE
MANAGEMENT LIMITED LLC
======================================== ==================== ====================
Total outstanding loans and accrued
interest due from related parties on
1 January 2012 27,436 3,832
======================================== ==================== ====================
Loans issued to related parties during 26 -
2012
======================================== ==================== ====================
Total interest income during 2012 1,438 355
======================================== ==================== ====================
Translation difference - 238
======================================== ==================== ====================
Total outstanding loans and accrued
interest due from related parties on
31 December 2012 28,900 4,425
---------------------------------------- -------------------- --------------------
Loans issued to related parties during 15 -
2013
======================================== ==================== ====================
Total interest income during 2013 - -
======================================== ==================== ====================
Translation difference - (318)
---------------------------------------- -------------------- --------------------
Total outstanding loans and accrued
interest due from related parties on
31 December 2013 28,915 4,107
---------------------------------------- -------------------- --------------------
Lafar Management Limited is a jointly controlled entity in which the Group holds an economic interest of 50%. Litonor Financial Limited holds the remaining 50% of the voting shares of Lafar Management Limited. Lafar Management Limited holds 100% of the share capital of its Russian subsidiary, LLC Stolichnoe Podvorie.
Key management remuneration
In the reporting period, the Directors of the Group received compensation in the form of salary and other benefits classified as short-term in accordance with IAS 19 "Employee Benefits". The total remuneration and benefits accrued to the Directors, excluding the share-based payments (Note 15), was USD 2,472,000 (2012: USD 2,594,000). There are no other individuals who are not members of the Board of Directors who are considered to be key management in the Group.
DIRECTORS' REMUNERATION AND BENEFITS 2013 2012 --------------------------------------------------- ------ ------ Andrey Nesterenko, Chief Executive Officer (appointed 17 May 2013) 1,083 404 =================================================== ====== ====== Alan Hibbert, Chief Financial Officer (until 31.05.2013) 442 508 =================================================== ====== ====== Yoram Evan, Director (until 31.05.2013) 386 435 =================================================== ====== ====== Emmanuel Blouin, Non-Executive 120 120 =================================================== ====== ====== Reginald Webb, Non-Executive 102 120 =================================================== ====== ====== Mark Holdsworth, Non-Executive 102 120 =================================================== ====== ====== Jacob Kriesler, Non-Executive Chairman (until 08.03.2013) 80 120 =================================================== ====== ====== Timothy Fenwick, Non-Executive (until 03.07.2013) 60 120 =================================================== ====== ====== Boris Kuzinez, President (until 08.03.2013) 30 465 =================================================== ====== ====== Alexey Titov, Non- Executive (appointed 22 - 31 May 2013) =================================================== ====== ====== Emanuel Kuzinez, Director (until 08.03.2013) 20 120 =================================================== ====== ====== Yuriy Borisenko, Non-Executive (until 05.07.2013) 15 34 =================================================== ====== ====== Pavel Altuhov, Non-Executive (until 11.03.2013) 6 28 =================================================== ====== ====== Kevin Hennessy, Non-Executive (appointed 4 - 11 December 2013) =================================================== ====== ====== Total remuneration and benefits accrued 2,472 2,594 --------------------------------------------------- ------ ------
In addition the awards shares were granted to executive Directors as a part of its Long Term Incentive Plan (Note 15).
There are no long-term remuneration and benefits provided by compensation agreements with the key management and non-executive directors, other than the Plan described above.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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