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ARRICANO REAL ESTATE PLC (FRA:CY010294) Arricano Real Estate Plc: Final Results

Directive transparence : information réglementée

17/04/2019 08:00

Arricano Real Estate Plc (ARO)
Arricano Real Estate Plc: Final Results

17-Apr-2019 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.


17 April 2019

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014

 

Arricano Real Estate plc

("Arricano" or the "Company" or, together with its subsidiaries, the "Group")

 

Final Results for the 12 months ended 31 December 2018

 

Arricano is one of the leading real estate developers and operators of shopping centres in Ukraine. Today, Arricano owns and operates five completed shopping centres comprising  147 ,300 sqm of gross leasable area, a 49.97% shareholding in Assofit and land for a further three sites under development.

 

Highlights

 

·          Recurring revenues increased by 14% to USD31.5 million (2017: USD27.5 million)

 

·          Net operating income (excluding revaluation gains) increased by 19% to USD20.9 million (2017: USD17.6 million)

 

·          16.8% uplift in the valuation of the Company's portfolio to USD258.5 million as at 31 December 2018 (2017: USD 221.3 million)

 

·          Very nearly fully let with occupancy rates for 2018 increasing to 99.70% against 98.65% in 2017

 

·          As at 31 December 2018, total bank borrowings down by 16% to USD36.3 million (2017: USD43.1 million)

 

·          As at 31 December 2018, total borrowings down by 2.23 % to USD96.5 million (2017: USD98.7 million)

 

·          Net asset value increased by 80% to USD94.0 million as at 31 December 2018 (2017: USD52.2 million)

 

·          New Board appointments: Urmas Somelar as a  Non-executive Chairman; and Frank Lewis as an Independent Non-executive Director.

 

Post year-end

 

·          secured new USD5.15 million loan facility with Raiffeisen Bank Aval JSC, to finance in part the construction of the Lukianivka shopping and entertainment centre in Kyiv.

 

Urmas Somelar, Non-executive Chairman of Arricano, commented:

 

"Arricano has delivered a very strong performance, increasing revenues and net operating income by 14% and 19%, respectively. The Group is in a stable position from which it is planning to expand and we expect 2019 will be another year of continued progress with a focus on working collaboratively with consumers visiting our shopping centres and our retail tenants."

 

 

For further information please contact:

 

CEO:

Arricano Real Estate plc

Mykhailo Merkulov

 

 

Tel: +38 (044) 594 94 70 (1)

Nominated Adviser and Broker:

WH Ireland Limited

Chris Fielding  

 

Tel: +44 (0)20 7220 1666

 

Financial PR:

Novella Communications Limited

Tim Robertson/Toby Andrews

 

 

Tel: +44 (0)20 3151 7008

 

Chairman's Statement

 

2018 saw Arricano increase rental income by 15% to USD25.6 million and grow net operating income by 19% to USD20.9 million. This would be a good performance by a mature business in a stable market environment; given the context of achieving it against the challenges facing businesses in the Ukraine, it is an excellent performance and builds upon a similarly strong performance in the prior year.

 

Whilst the social and economic conditions continue to be challenging, the Group has performed strongly relative to domestic peers. In particular, Arricano has differentiated itself by continuing to develop the portfolio, expanding in 2014 through the opening of the Prospekt Mall and more recently securing a new loan in February 2019 with Raiffeisen Bank Aval JSC to fund in part the development of the Lukianivka site in Kyiv.

 

Across the Group's shopping and entertainment centres the Group has continued to lead in innovative marketing solutions and digital communications. As always, Arricano has sought to work collaboratively between consumer, retailer and landlord on the basis that sharing data openly will generate increased growth and customer satisfaction. Trust and effective collaboration are at the heart of the multiple initiatives that are ongoing across the portfolio. Marketing B2C strategy is focused on enhancing quality and quantity of communication. Total media capacity of malls in SMM channels is about 200 thousand followers with an average monthly reach more than 4 million people, which make the digital resources of the Group an efficient media platform and communication tool. 

 

These efforts are reflected in the significant increase in visitor numbers achieved over the year, up by 6% to 47.8 million visitors. The Group is consistently achieving impressive increases in visitor numbers year on year and this is primarily driven by the focus on making each shopping and entertainment centre a place which consumers want to visit not simply to shop at but also to relax and socialise.

 

An important part of Arricano's appeal is due to the retail mix in each centre. The management team is focused on constantly refreshing the retail mix so that each site continues to offer new brands and experiences alongside keeping traditional favourites. The popularity of the shopping and entertainment centres means demand has remained strong. This is reflected in occupancy across the portfolio improving to 99.7%, up from 98.7% at 31 December 2018, demonstrating Arricano's ability to both attract new and keep existing tenants.  In 2018, the Company signed 137 new lease agreements relating to 20,157 sqm of retail space.

 

As at 31 December 2018, Arricano had over 147,300 sqm of completed assets spread across five completed shopping centres. In addition, the Group also owns lease rights for 14 ha. of development land divided into three specific sites which are at varying stages of development. These are in Lukianivka and Petrivka (both Kyiv), as well as Rozumovska (Odesa).

 

Regarding the 49.97% shareholding in Assofit Holdings Limited ("Assofit"), a holding company, which held the Sky Mall shopping centre, the Company continues to pursue Stockman Interhold S.A. ("Stockman") concerning its call option over the balance of the shares of Assofit. The Company announced in January 2018 that the High Court of Justice in London (the "High Court") had dismissed an application made by Stockman for permission to appeal the High Court's earlier judgement in which it had previously dismissed Stockman's various challenges to the Fourth, Fifth and Seventh Awards (the "LCIA Awards") rendered in the London Court of International Arbitration proceedings between Arricano and Stockman.

 

During 2018, Arricano was nominated for, and won a series of, industry awards reflecting the Group's leadership across multiple areas. Of particular note, was the achievements of Sun Gallery and City Mall in being winners at the VII National Retail Award of Ukraine Retail Awards "Consumer Choice - 2018", sponsored by PwC Ukraine.

 

On behalf of the Board I would like to thank every employee and stakeholder connected to Arricano for their contribution and commitment to the business during 2018 and I look forward to working together towards achieving another successful year in 2019.

 

We expect 2019 to be a good year for the Group. Arricano is now consistently profitable and we are again looking to expand the portfolio with the development of the market leading and highly innovative Lukianivka project. This, together with our ongoing success in increasing the consumer appeal of our shopping centres, demonstrated by the increase in visitor numbers and our success in working collaboratively with retailers both physically and digitally, makes the Board confident of delivering another strong trading performance in 2019.

 

Urmas Somelar

Non-Executive Chairman

16 April 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chief Executive Officer's Report

 

Introduction

 

Arricano has now been consistently building momentum since addressing the challenges faced by all Ukrainian businesses in 2014. Despite the upheaval caused socially and economically, consumers have continued to come to our shopping and entertainment centres. In 2014, visitor numbers fell to 22.3 million then grew by over 20% p.a. to 47.8 million visitors in the year under review, demonstrating our recovery and the ongoing increasing popularity of our malls.

 

This has come in part from our focus on making our shopping and entertainment centres places where people want to come to, not just to shop at but also to meet friends and relax. In this aim we have been successful. Our next aim is to combine our physical success with digital success, we describe it as "phygital competence" (physical + digital).

 

From a trading perspective 2018 was a good year. The business has delivered across nearly all metrics. We have increased profits, reduced debt, vacancy is down to just 0.03% and we achieved a net asset value increase of 80% to USD94.0 million.

 

Results

 

Recurring revenues for the period were up 14% at USD31.5 million (2017:USD27.5 million). As a result, the Net Operating Income ("NOI") from operating properties excluding revaluation gain was up 19% at USD20.9 million, compared to USD17.6 million in 2017.

 

The portfolio of assets was externally and independently valued as at 31 December 2018 by Expandia LLC, part of the CBRE Affiliate Network. The portfolio was valued at USD258.5 million (31 December 2017: USD221.3 million), the increase in the value of the portfolio was primarily driven by the increase in rental income and through conservative operational cost management.

 

Profit before tax increased by almost 40% to USD46.6 million (2017: USD33.6 million). This increase was achieved through a combination of improved recurring revenues and a reduction in finance costs.  

 

Bank debt at the year-end was USD36.3 million down 16% from USD43.1 million at the prior year end, with the majority of borrowings at the project level at an average interest rate of 12%.  Loans mature between 2019 and 2023 and the Group's bank loans to investment property value ratio is 14%. In addition, there was USD 2.4 million of restricted cash, cash equivalents, and restricted deposits, as at 31 December 2018 (2017: USD 1.2 million).

 

The Market

 

In 2018 sales of electronic and home appliances increased by more than 9.5% with the bestselling items being smartphones and mobiles phones, up by 37%. The market trend in Ukraine, as it is in Europe, is towards digitalisation in all aspects of consumer's lives. Our challenge has been to respond creatively and combine the physical social spaces of our malls with digital communication and move to help our retailers provide omnichannel offers.

 

Our media platform now has in excess of 200,000 active subscribers and has recorded millions of views. Content is coming from a variety of sources. In 2018, a particularly popular video experiment borrowed from the Harry Potter films and projected ghosts flying through our Prospekt mall. The response resulted in thousands of views without any advertising and made clear the potential to do more to link this style of interaction with sales promotions. As always our approach is to work collaboratively with retailers and consumers, sharing data together and building trust and respect with the aim of everyone achieving their goals through working together. As a result, the number of tenants working with e-commerce has nearly doubled from 39 to 72.

 

As previously announced, we invested in an online portal for tenants providing a broad range of tools for tenants' use from access to administrative resources, to a range of potential revenue generating opportunities for tenants to participate in.

 

Merchandising mix is at the heart of every successful mall. Knowing our customers and understanding their aspirations is key. 42.1% of our revenue from tenants across our 5 malls are from fashion stores with the balance of revenue being: 6.4% health and beauty; 8.3% restaurants and food; 9.0% entertainment/services; 10.1% accessories, jewellery and homeware; 10.4% electronics; and 13.7% hypermarkets. In the third quarter of 2018, there was a focus on strengthening our presence in fashion, including men's fashion, with each shopping mall introducing 2-3 new popular clothing stores, both Ukrainian and international brands.

 

These efforts are clearly producing results given the 6% increase in visitor numbers during the year. Alongside achieving a good mix of tenants, an important reason behind the popularity of the Group's shopping centres is having the right balance of social spaces within each centre. With this in place, visitors can come and find their favourite retailers under one roof and also enjoy the well-designed social spaces in which to meet, eat and relax.

 

In terms of the new developments, the Group is progressing projects in Odesa and Lukyanivka, Kyiv. The main focus is on development of the Lukyanivka project; construction is underway with initial financing completed in February 2019 and the project remains on track to complete in 2021.

 

Outlook

 

These results reflect the success of our hard work over the last 5 years. Our malls are market leading and, to maintain this position, we are focused on the future. It is clear shopping is going through an evolution here as it is elsewhere, as the convenience of online purchases is altering traditional habits. Rather than this be a challenge we see it as an opportunity and we are responding accordingly. Our work with consumers and retailers on digital communications is proving successful not only in creating new experiences but also in strengthening the relationships we enjoy with both these groups. This, together with all the other elements of our business means we are confident of being able to continue to increase revenues in 2019 in line with management expectations.

 

 

Mykhailo Merkulov

Chief Executive Officer

16 April 2019

 

 

 

 

 

 

 

 

Operating Portfolio

 

In the following section we have provided an overview of each asset in the operating portfolio.

 

Sun Gallery (Kryvyi Rig)

 

Sun Gallery, which opened in 2008, is one of the largest shopping malls in Kryvyi Rig. It is located at 30-richchia Peremohy Square, in the Saksahanskyi district in the north-eastern part of Kryvyi Rig. It has easy access by car and has good public transport links. The primary shopping centre catchment area includes almost the whole territory of the Saksahanskyi district and part of the Pokrovskyy district. The secondary area covers the Dovhyntsivskyi district.

 

The shopping centre is on two levels, spanning a total GLA of approximately 37,600 sqm. There are approximately 141 tenants, including a children's entertainment zone and a food court with restaurants and cafes. During 2018, 19 new agreements were signed, bringing new brands to the Sun Gallery, including brands that were previously unavailable in the region.

 

Key statistics

 

*      GLA - c. 37,600 sqm

 

*      Vacancy rate as at 31 December 2018 - 0.2 per cent.

 

*      Average monthly rental rate 2018 - USD 14.6 /sqm

 

*      Average monthly visitors 2018 - 0.4 million

 

*      Bank debt at 31 December 2018 - USD 5.5 million

 

*      Valuation at 31 December 2018 - USD 30.3 million

 

City Mall (Zaporizhzhia)

 

City Mall, which opened in 2007, is one of the largest shopping centres in Zaporizhzhia with a total GLA of approximately 21,500 sqm on a single level. The shopping centre is located on the Dnipro river approximately 3km from Zaporizhzhia city centre, between two densely populated areas of Zaporizhzhia in the Alexandrovskyy administrative district (1b Zaporizska street), with convenient accessibility by public and private transport.

 

City Mall comprises a gallery and hypermarket with approximately 93 international and local tenants, including a food court, a children's entertainment zone and car parking, which is shared with DIY superstore Epicenter. City Mall's anchor tenants are the hypermarket Auchan, which is the largest in the city, McDonald's and the electronics store Comfy. During 2018, 15 new contracts were signed bringing new brands to the City Mall, including brands that were previously unavailable in the region. Building on the fourth successive year of nil vacancy rates, the tenant portfolio continues to be strengthened, with fashion and electronic stores.

 

Key statistics

 

*      GLA - c. 21,500 sqm

 

*      Vacancy rate as at 31 December 2018 - 0.0 per cent.

 

*      Average monthly rental rate 2018 - USD 29.1 /sqm

 

*      Average monthly visitors 2018 - 0.5 million

 

*      Bank debt at 31 December 2018 - USD 6.3 million

 

*      Valuation at 31 December 2018 - USD 30.5 million

 

South Gallery (Simferopol)

 

The site is located in the north of Simferopol, about five minutes' driving distance from one of the city's major crossroads, Moskovska Square. The site is linked to the city centre and residential areas east of the city by one of the main thoroughfares of Simferopol. The primary shopping centre catchment area includes northern parts of the Kyivskyi and Zaliznychnyi districts. The secondary area covers almost the whole city, except for its very southern parts.

 

South Gallery shopping centre (Phases I and II) is situated on a land plot with a total area of 10.2 ha. Phase I, which opened in 2009, of the shopping centre tenants include Auchan (international hypermarket chain), with a small gallery. Since the completion of Phase II in February 2014 the mall has become a regional destination shopping centre with a total GLA of 33,400 sqm.

 

During 2018, 49 new lease contracts were signed, including fashion, electronics and other stores.

 

Key statistics

 

*      GLA - 33,400 sqm

 

*       Vacancy rate as at 31 December 2018 - 0.01 per cent.

 

*      Average monthly rental rate 2018 - USD 21.9 /sqm

 

*      Average monthly visitors 2018 - 0.8 million

 

*      Bank debt at 31 December 2018 - USD Nil

 

*      Valuation at 31 December 2018 - USD 49.6 million

 

RayON (Kyiv)

 

The RayON shopping centre, which opened to the public in August 2012, is located in the north east of Kyiv along the left bank of the Dnipro river, with satisfactory transportation links.

 

The shopping centre has a GLA of approximately 23,900 sqm on two levels, with approximately 860 parking spaces. The concept for RayON is a district shopping centre, which focuses on food, clothing and convenience products. The shopping centre is anchored by a Silpo foods supermarket, one of the biggest supermarket chains in Ukraine and a member of the Fozzy group. Electronics supermarket Comfy also operates within the shopping centre.

 

RayON, which has several restaurants and a children's entertainment zone to complement the retail facilities, is located in the middle of the Desnjanski district, one of the most densely populated areas in Kyiv.

 

During 2018, 27 new lease contracts were signed, including fashion and electronics stores.

 

Key statistics

 

*      GLA - c. 23,900 sqm

 

*      Vacancy rate as at 31 December 2018 -  0.35 per cent.

 

*      Average monthly rental rate 2018 - USD 20.1 /sqm

 

*      Average monthly visitors 2018 - 0.57 million

 

*      Bank debt at 31 December 2018 - USD  15.6 million

 

*      Valuation at 31 December 2018 - USD 44.1 million

 

Prospect (Kyiv)

 

SEC Prospect is located directly on the inner ring road of Kyiv on the left bank of the Dnipro river in the Desnianskyi administrative district, with good automobile accessibility and public transport links. The area is recognised as a popular shopping destination, located close to a large open-air market and a bazaar-style shopping centre (SC Darynok).

 

The SEC consists of a two-storey retail and leisure complex with a GLA of approximately 30,666 sq. m. and parking with 1,350 parking spaces. The centre opened at the end of 2014.

 

2018 saw the successful continuation of free training sessions for shop personnel, building on demand from the previous years. During 2018, 26 new lease contracts were signed. Brands such as ProSport and Eldorado were introduced as tenants, with international brands such as Puma, Lush, Orsay, Parfois, and Love Republic also joining the centre.

 

Key statistics

 

*      GLA - c. 30,900 sqmm

 

*      Vacancy rate as at 31 December 2018 - 0.7 per cent.

 

*      Average monthly rental rate 2018 - USD 16.9 /sqm

 

*      Average monthly visitors 2018 - 1.7 million

 

*      Bank debt at 31 December 2018 - USD 8.9 million

 

*      Valuation at 31 December 2018 - USD 56 million

 

 

 

Development Properties

 

Lukianivka (Kyiv)

 

The Lukianivka development property is located on the right bank of Kyiv in the Shevchenkivskyi administrative district. The land plot has a total area of 4.19 hectares. The Group is constructing its flagship complex in the central business district of Kyiv, with a more upmarket vision in terms of concept and tenant mix. The Lukianivka development property allows for the construction of a multi-functional complex, consisting of shopping and leisure, office and residential centres including, inter alia, a hypermarket, shops and shopping galleries, a leisure and entertainment area, a food court restaurants and a service area. The property will also have two underground parking levels and several office and residential buildings, construction of which will continue after completion of the shopping centre. It is expected that the GLA of the shopping and entertainment centre will be over 50,000 sqm.

 

The Group obtained the relevant construction permit in June 2013. Construction is underway with initial financing completed in February 2019 and the project remains on track to complete in 2021.

 

Land plot:

4.19 hectares

Title:

Leasehold title plus title to several buildings (historical landmarks) on the site

Development:

Retail, leisure and entertainment centre

Gross construction area (GBA):

c.71,339 sqm for the shopping centre (plus c.38,480 sqm GBA for parking)

Gross leasable area (GLA):

c.50,000+ sqm

Parking spaces:

To include roof parking and underground parking

Type:

City shopping centre (pocket hypermarket anchored) with office and  residential spaces

Actual construction start date:

Q4 2013

Forecast opening date:

2021

 

Rozumovska (Odesa)

 

The Black Sea port of Odesa is Ukraine's fourth largest city, with over one million inhabitants, and is a popular leisure destination. The Rozumovska development property is located partly on the façade of Rozumovska Street close to its intersection with Balkovska Street, in the Malynovskyi administrative district of Odesa, in close proximity to public transportation links. Rozumovska Street connects directly to the highway to Kyiv.

 

The Group has signed a lease agreement for the land plot with a total area of 4.5 hectares. The Rozumovska development property is expected to be a three-storey shopping and entertainment centre with a sufficient number of parking spaces to accommodate customer demand. The target GLA is approximately 38,000 sqm, including a hypermarket, shops and shopping galleries, a leisure and entertainment area, a food court restaurants and a service area. The preliminary design concept of the project has been completed and the developer is currently applying for the relevant consents and permits, given current market conditions.

 

Land plot:

4.5 hectares

Location:

Odesa

Title:

Leasehold

Development:

Retail, leisure and entertainment centre

Gross construction area (GBA):

To be defined

Gross leasable area (GLA):

38,000 sqm (expected)

Parking spaces:

1,400

Type:

Regional mall (hypermarket anchored)

Expected construction start date:

to be defined

Forecast opening date:

to be defined

 

Petrivka (Kyiv)

 

The Petrivka development property is located on the right bank of the Dnipro river in Kyiv, in the Obolonskyi administrative district. The site on leasehold has an area of 5.4 ha. The Group is currently considering the best use of the site, which could include both creative, leisure, edutainment, IT cluster office, residential and retail use.

 

 

Finance Report

 

The Group's revenue mainly consists of rental income from the portfolio of the completed properties. During the year ended 31 December 2018 the Company's rental income amounted to USD25.6 million (2017: USD22.1million).

 

The total fair valuation of the Company's portfolio increased by 17% to USD258.5 million as at 31 December 2018 (2017: USD221.3 million). The main reasons for the increase of fair value of the Group's portfolio were successful rotations of lessees, increase in rental rates and close control of costs. Operating expenses during the period were USD 7.4 million, compared to USD7.1 million in the previous year.

 

As a result of the above, profit from operating activities was USD63.2 million (2017: USD 65.4 million) reflecting a smaller increase in revaluation gains compared to the prior year.

 

Finance expenses in 2018 reduced significantly to USD17.5 million (2017 USD32.5 million), while finance income increased to USD0.9 million (2017 USD0.7 million).

 

The Company's net profit for the year ended 31 December 2018 was USD38.1 million (2017: USD25.8 million).

 

Net Asset Value as at 31 December 2018 was USD94.0 million (2017: USD52.2 million), resulting in an Adjusted Net Asset Value per Share, up 78%, of USD 0.91 (2017: USD 0.51).

 

Total assets, as at 31 December 2018, amounted to USD268.2 million (2017: USD230.9 million), an increase of 16 % from the previous year. This mainly related the increase in investment property value.

 

Cash balances as at 31 December 2018, including cash equivalents and current deposits, amounted to USD4.22 million (2017: USD2.61 million).

 

As at 31 December 2018, the Group had USD 96.5 million (2017: USD 98.7 million) of outstanding borrowings

 

 

Consolidated statement of financial position as at 31 December 2018

 

 

 

Note

31 December

2018

31 December

2017 *

(in thousands of USD)

 

 

 

 

 

 

 

Assets

 

 

 

Non-current assets

 

 

 

Investment property

4

  258,537

  221,265

Long-term VAT receivable

 

568

  1,016

Property and equipment

 

121

  146

Intangible assets

 

101

  42

 

 

 

 

Total non-current assets

 

  259,327

  222,469

 

 

 

 

Current assets

 

 

 

Trade and other receivables

6

1,640

  2,364

Loans receivable

5

300

  296

Prepayments made and other assets

 

781

  427

VAT receivable

 

225

  1,011

Assets classified as held for sale

7

1,562

  1,541

Income tax receivable

 

                      178

  228 

Cash and cash equivalents

8

                   4,224

   2,609 

 

 

 

 

Total current assets

 

8,910

   8,476

 

 

 

 

Total assets

 

  268,237

    230,945 

 

 

 

 

 

 

 

 

Note

31 December

2018

31 December

2017 *

(in thousands of USD)

 

 

 

 

 

 

 

Equity and Liabilities

 

 

 

Equity

9

 

 

Share capital

 

                        67

  67

Share premium

 

               183,727

  183,727

Non-reciprocal shareholders contribution

 

                 59,713

  59,713

Retained earnings

 

                 38,937

      834

Other reserves

 

               (61,983)

    (61,983)

Foreign currency translation differences

 

             (126,429)

     (130,176)

 

 

 

 

Total equity

 

                 94,032

       52,182

 

 

 

 

Non-current liabilities

 

 

 

Long-term borrowings

11

                 44,501

  58,765

Advances received

14

                           -

  125

Finance lease liability

12

                   7,271

  7,037

Long-term trade and other payables

13

                 17,572

  9,885

Other long-term liabilities

15

                 20,046

  20,091

Deferred tax liability

20

                   6,917

   5,091

 

 

 

 

Total non-current liabilities

 

                 96,307

   100,994

 

 

 

 

Current liabilities

 

 

 

Short-term borrowings

11

                 52,006

  39,891

Trade and other payables

13

                 10,588

  25,258

Taxes payable

 

                   1,476

  1,429

Advances received

14

                   5,605

  4,922

Current portion of finance lease liability

12

                         6

  2

Other liabilities

15

                   8,217

  6,267

 

 

 

 

Total current liabilities

 

                 77,898

  77,769

 

 

 

 

Total liabilities

 

               174,205

   178,763

 

 

 

 

Total equity and liabilities

 

            268,237

   230,945

 

 

 

 

 

 

Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2018

 

 

 

 

Note

2018

2017 *

(in thousands of USD, except for earnings per share)

 

 

 

 

 

 

 

Revenue

16

31,520

  27,549

Other income

 

  510

  368

Gain on revaluation of investment property

4(a)

42,249

  47,873

Goods, raw materials and services used

17

(1,061)

  (977)

Operating expenses

18

(7,416)

  (7,146)

Salary costs

 

(2,178)

  (1,790)

Salary related charges

 

(359)

  (294)

Depreciation and amortisation

 

(89)

  (130)

 

 

 

 

Profit from operating activities

 

  63,176

   65,453

 

 

 

 

Finance income

19

951

668

Finance costs

19

  (17,546)

(32,545)

 

 

 

 

Profit before income tax

 

46,581

33,576

Income tax expense

20

  (8,478)

(7,769)

 

 

 

 

Net profit for the year

 

38,103 

25,807

 

 

 

 

Items that will be reclassified to profit or loss:

 

 

 

Foreign exchange gains/ (losses) on monetary items that form part of net investment in the foreign operation, net of tax effect

 

  8,798

(4,407)

Foreign currency translation differences

 

  (5,051)

6,602

 

 

 

 

Total items that will be reclassified to profit or loss

 

  3,747

2,195

 

 

 

 

Other comprehensive income

 

  3,747

2,195

 

 

 

 

Total comprehensive income for the year

 

    41,850

 

28,002

 

 

 

 

Weighted average number of shares (in shares)

10

103,270,637

 

103,270,637

 

 

 

 

Basic and diluted earnings per share, USD

10

  0.36896

0.24990

 

 

 

 

 

 

 

 

 

Consolidated statement of cash flows for the year ended 31 December 2018

 

 

Note

2018

2017 *

(in thousands of USD)

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

Profit before income tax

 

46,581

33,576

Adjustments for:

 

 

 

Finance income

19

(951)

(668)

Finance costs, excluding foreign exchange loss

19

13,728

32,090

Gain on revaluation of investment property

4(a)

(42,249)

(47,873)

Depreciation and amortisation

 

89

130

Unrealised foreign exchange loss

 

3,818

455

Other income

 

-

(368)

Fee for restructuring of accounts payable

18

1,128

-

Write-off of VAT receivable

 

732

-

Allowance for bad debts

18

-

425

 

 

 

 

Operating cash flows before changes in working capital

 

22,876

17,767

 

 

 

 

Change in trade and other receivables

 

768

(1,304)

Change in prepayments made and other assets

 

(354)

46

Change in VAT receivable

 

550

196

Change in income tax receivable and taxes payable

 

28

370

Change in trade and other payables

 

(1,208)

1,027

Change in advances received

 

499

348

Change in other liabilities

 

(44)

(179)

Income tax paid

 

(930)

(1,486)

Interest paid

 

(4,890)

(5,226)

 

 

 

 

Cash flows from operating activities

 

17,295

11,559

 

 

 

 

Cash flows from investing activities

 

 

 

Acquisition of investment property and settlements of payables due to constructors

 

(8,708)

(6,622)

Acquisition of property and equipment

 

(122)

(70)

Interest received

 

215

240

 

 

 

 

Cash flows used in investing activities

 

(8,615)

(6,452)

 

 

 

 

 

 

 

 

Note

2018

2017 *

(in thousands of USD)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from borrowings

11

16,200

-

Repayment of borrowings

11

(22,396)

(6,777)

Finance lease payments

11

(895)

(659)

 

 

 

 

Cash flows used in financing activities

 

(7,091)

(7,436)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

1,589

(2,329)

Cash and cash equivalents at 1 January

 

2,609

4,953

Effect of movements in exchange rates on cash and cash equivalents

 

26

(15)

 

 

 

 

Cash and cash equivalents at 31 December

8

4,224

2,609

 

 

 

 

 

 

Non-cash movements

During the year ended 31 December 2018, an acquisition of a land plot held on leasehold of
USD 142 thousand occurred through a finance lease (2017: USD 396 thousand).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated statement of changes in equity as at and for the year ended 31 December 2018

 

 

 

Attributable to equity holders of the parent

 

Share capital

Share premium

Non-reciprocal shareholders contribution

Retained earnings (Accumulated deficit)

Other reserves

Foreign currency translation differences

Total

 

(in thousands of USD)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at 1 January 2017

67

183,727

59,713

(24,973)

(61,983)

(132,371)

24,180

 

Total comprehensive income/(loss) for the year

 

 

 

 

 

 

 

 

Net profit for the year

  -

  -

  -

  25,807

  -

  -

  25,807

 

Foreign exchange losses on monetary items that form part of net investment in the foreign operation, net of tax effect

  -

  -

  -

  -

  -

  (4,407)

  (4,407)

 

Foreign currency translation differences

  -

  -

  -

  -

  -

  6,602

  6,602

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income for the year

  -

  -

  -

  -

  -

  2,195

  2,195

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

  -

  -

  -

  25,807

  -

  2,195

  28,002

 

 

 

 

 

 

 

 

 

 

Balances at 31 December 2017

  67

  183,727

  59,713

  834

  (61,983)

  (130,176)

  52,182

 

 

 

 

 

 

 

 

 

 
                 

 

 

 

 

Attributable to equity holders of the parent

 

Share capital

Share premium

Non-reciprocal shareholders contribution

Retained earnings

Other reserves

Foreign currency translation differences

Total

 

(in thousands of USD)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at 1 January 2018 *

  67

  183,727

  59,713

  834

  (61,983)

  (130,176)

  52,182

 

Total comprehensive income/(loss) for the year

 

 

 

 

 

 

 

 

Net profit for the year

-

-

-

    38,103

-

-

  38,103

 

Foreign exchange gains on monetary items that form part of net investment in the foreign operation, net of tax effect

-

-

-

-

-

  8,798

  8,798

 

Foreign currency translation differences

-

-

-

-

-

  (5,051)

  (5,051)

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income for the year

-

-

-

-

-

  3,747

  3,747

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

                  -

                    -

                    -

    38,103

                      -

  3,747

  41,850

 

 

 

 

 

 

 

 

 

 

Balances at 31 December 2018

                67

         183,727

           59,713

    38,937

           (61,983)

        (126,429)

  94,032

 

 

 

 

 

 

 

 

 

 
                 

 

 

Notes to the consolidated financial statements

 

 

1        Background

(a)      Organisation and operations

Arricano Real Estate PLC (Arricano, the Company or the Parent Company) is a public company that was incorporated in Cyprus and is listed on the AIM Market of the London Stock Exchange. The Parent Company's registered address is office 1002, 10th floor, Nicolaou Pentadromos Centre, Thessalonikis Street, 3025 Limassol, Cyprus. Arricano and its subsidiaries are referred to as the Group, and their principal place of business is in Ukraine.

The main activities of the Group are investing in the development of new properties in Ukraine and leasing them out. As at 31 December 2018, the Group operated five shopping centres in Kyiv, Simferopol, Zaporizhzhya and Kryvyi Rig with a total leasable area of over 147,300 square meters and was and remains in the process of development of two new investment projects in Kyiv and Odesa, with one more project to be developed.

The average number of employees employed by the Group during the year is 103 (2017: 106).

(b)     Ukrainian business environment

The Group's operations are primarily located in Ukraine. The political and economic situation in Ukraine has been subject to significant turbulence in recent years and demonstrates characteristics of an emerging market. Consequently, operations in the country involve risks that do not typically exist in other markets.

An armed conflict in certain parts of Lugansk and Donetsk regions, which started in spring 2014, has not been resolved and part of the Donetsk and Lugansk regions remains under control of the self-proclaimed republics, and Ukrainian authorities are not currently able to fully enforce Ukrainian laws in this territory. Various events in March 2014 led to the accession of the Republic of Crimea to the Russian Federation, which was not recognised by Ukraine and many other countries. This event resulted in a significant deterioration of the relationship between Ukraine and the Russian Federation.

In November 2018, following an incident between the Russian and Ukrainian military around a waterway connecting the Azov Sea and the Black Sea, the Ukrainian authorities introduced martial law for a 30-days period in 10 regions located along the Russian and Moldovian border, the Azov Sea and the Black Sea coast. The martial law was terminated at the end of December 2018, after 30 days.

Ukraine's economic situation deteriorated significantly in 2014-2016 as a result of the fall in trade with the Russian Federation and military tensions in Eastern Ukraine. Although instability continued throughout 2017-2018, the Ukrainian economy continued to show signs of recovery with the inflation rate slowing down, reduced depreciation of hryvnia against major foreign currencies, growing international reserves of the National Bank of Ukraine (the "NBU") and a general revival in business activity.

During 2016-2018, the NBU took certain steps to provide relief to the currency control restrictions introduced in 2014-2015. In particular, the required share of foreign currency proceeds subject to mandatory sale on the interbank market was gradually decreased, while the settlement period for export-import transactions in foreign currency was increased. Also, the NBU allowed Ukrainian companies to pay dividends abroad subject to a certain monthly limitation. In February 2019, a new law on currency and currency transactions came into force. The new law abolished a number of restrictions, defined new principles of currency operations, currency regulation and supervision, and resulted in significant liberalisation of foreign currency transactions and capital movements.

The banking system remains fragile due to low level of capital and weak asset quality and Ukrainian companies and banks continue to suffer from a lack of funding from domestic and international financial markets.

The International Monetary Fund (the "IMF") continued to support the Ukrainian government under the four-year Extended Fund Facility (the "EFF") Program approved in March 2015. In October 2018 the government of Ukraine reached an agreement with the IMF on a new fourteen-months Stand-By program, which will replace the existing EFF program. Other international financial institutions have also provided significant technical support in recent years to help Ukraine restructure its external debt and launch various reforms (including anti-corruption, corporate law, and gradual liberalization of the energy sector).

In December 2018, Moody's upgraded Ukraine's credit rating to Caa1, with a stable outlook, reflecting the reaching of an agreement on further cooperation with the IMF, positive expectations regarding certain reforms and improved foreign affairs. Further stabilisation of economic and political environment depends on the continued implementation of structural reforms and other factors.

Whilst management believes it is taking appropriate measures to support the sustainability of the Group's business in the current circumstances, a continuation of the current unstable business environment could negatively affect the Group's results and financial position in a manner not currently determinable. These consolidated financial statements reflect management's current assessment of the impact of the Ukrainian business environment on the operations and the financial position of the Group. The future business environment may differ from management's assessment.

(c)      Cyprus business environment

The Cyprus economy has been adversely affected during the last few years by the economic crisis. The negative effects have to some extent been resolved, following the negotiations and the relevant agreements reached with the European Commission, the European Central Bank and the International Monetary Fund (IMF) for financial assistance which was dependent on the formulation and the successful implementation of an Economic Adjustment Program.  The agreements also resulted in the restructuring of the two largest (systemic) banks in Cyprus through a "bail in".

The Cyprus Government has successfully completed earlier than anticipated the Economic Adjustments Program and exited the IMF program on 7 March 2016, after having recovered in the international   markets and having only used EUR 7,25  billion of the total EUR 10 billion earmarked in the financial bailout.  Under the new Euro area rules, Cyprus will continue to be under surveillance by its lenders with bi-annual post-program visits until it repays 75% of the economic assistance received.

Although there are signs of improvement, especially in the macroeconomic environment of the country's economy including growth in GDP and reducing unemployment rates, significant challenges remain that could affect the estimates of the Group's cash flows and its assessment of impairment of financial and non-financial assets.

The Group's management believes that it is taking all the necessary measures to maintain the viability of the Group and the development of its business in the current business and economic environment and that no adverse impact on the Group's operations is expected.

(d)     Russian business environment

The Group's operations are also carried out in the Russian Federation. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation.

Starting in 2014, the United States of America, the European Union and some other countries imposed and gradually expanded economic sanctions against a number of Russian individuals and legal entities. The imposition of the sanctions has led to increased economic uncertainty, including more volatile equity markets, a depreciation of the Russian rouble, a reduction in both local and foreign direct investment inflows and a significant tightening in the availability of credit. As a result, some Russian entities may experience difficulties accessing the international equity and debt markets and may become increasingly dependent on state support for their operations. The longer-term effects of the imposed and possible additional sanctions are difficult to determine.

The consolidated financial statements reflect management's assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from management's assessment.

2       Basis of preparation

(a)        Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union (EU).

This is the first set of the Group's financial statements where IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments have been applied. Changes to significant accounting policies are described in Notes 3(с) and 3(l).

(b)      Basis of measurement

The consolidated financial statements have been prepared under the historical cost basis except for investment property, which is carried at fair value.

(c)       Functional and presentation currency

The functional currency of Arricano Real Estate PLC is the US dollar (USD). The majority of Group entities are located in either Ukraine or in the Russian Federation and have the Ukrainian Hryvnia (UAH) or Russian Rouble (RUB)  as their functional currencies since substantially all transactions and balances of these entities are denominated in the mentioned currencies. The Group entities located in Cyprus, Estonia, Isle of Man and BVI have the US dollar as their functional currency, since substantially all transactions and balances of these entities are denominated in US dollar.

For the benefits of principal users, the management chose to present the consolidated financial statements in USD, rounded to the nearest thousand.

In translating the consolidated financial statements into USD the Group follows a translation policy in accordance with International Financial Reporting Standard IAS 21 The Effects of Changes in Foreign Exchange Rates and the following rates are used:

  • Historical rates: for the equity accounts except for net profit or loss and other comprehensive income (loss) for the year.
  • Year-end rate: for all assets and liabilities.
  • Rates at the dates of transactions: for the statement of profit or loss and other comprehensive income and for capital transactions.

UAH and RUB are not freely convertible currencies outside Ukraine and the Russian Federation, and, accordingly, any conversion of UAH and RUB amounts into USD should not be construed as a representation that UAH and RUB amounts have been, could be, or will be in the future, convertible into USD at the exchange rate shown, or any other exchange rate.

The principal USD exchange rates used in the preparation of these consolidated financial statements are as follows.

 

Year-end USD exchange rates as at 31 December are as follows:

Currency 

2018

2017

UAH

27.69

28.07

RUB

69.47

57.60

Average USD exchange rates for the years ended 31 December are as follows:

Currency

2018

2017

UAH

27.22

26.60

RUB

62.88

58.30

As at the date these consolidated financial statements are authorised for issue, 16 April 2019, the exchange rate is UAH 26.71 to USD 1.00 and RUB 64.25 to USD 1.00.

(d)     Use of judgments, estimates and assumptions

The preparation of consolidated financial statements in conformity with IFRSs as adopted by the EU requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses and the disclosure of contingent assets and liabilities. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements and have significant risk of resulting in a material adjustment within the next financial year are included in the following notes:

  • Note 2(c) - determination of functional currency,
  • Note 4 - valuation of investment property,
  • Note 5 - valuation of loans receivable and investment in Filgate Credit Enterprises Limited,
  • Note 21(c) - valuation of trade and other receivables,
  • Note 7(a) - classification of assets held for sale,
  • Note 22(d)(i) - legal case in respect of Assofit Holdings Limited and valuation of related financial asset at fair value through other comprehensive income (FVOCI).

(e)      Going concern

As at 31 December 2018, the Group's current liabilities exceeded its current assets by
USD 68,988 thousand. This condition indicates the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.

At the same time, the Group has positive equity of USD 94,032 thousand as at 31 December 2018, generated net profit of USD 38,103 thousand and positive cash flows from operating activities amounting to
USD 17,295 thousand for the year then ended.

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

  • The Group has financial support from the ultimate controlling party. Based on representations received in writing from entities under common control, management believes that the Group will not be required to settle the outstanding accrued interest and other accounts payable to related parties in the amount of USD 21,360 thousand plus any accruing interest during the year ending 31 December 2019.
  • The Group received a waiver from Barleypark Limited waiving repayment of the loan during twelve months ending 31 December 2019 amounting to USD 22,004 thousand, which is payable on demand and presented as short-term liability as at 31 December 2018.
  • During the year ended 31 December 2018, management was able to conclude a number of new tenancy agreements and increase occupancy rate of its shopping centres. Besides, the Group managed to gradually increase its rental rates during the year for existing tenants.
  • In accordance with the budget approved for 2019, the Group plans to increase its operating income during the next year.

Management believes that the measures that it undertakes, as described above, will allow the Group to maintain the positive working capital and operate on a going concern basis in the foreseeable future.

These consolidated financial statements are prepared on a going concern basis, which contemplates the realisation of assets and the settlement of liabilities in the normal course of business.

(f)       Measurement of fair values

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

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

  • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
  • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
  • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

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

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

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

  • Note 4 - investment property; and
  • Note 21(f)(iii) - fair values.

(g)     Change in presentation

Management made some minor amendments to comparative information in a way that it conforms with the current year presentation.

3       Significant accounting policies and transition to new standards

Except as disclosed in Notes 3(c) and 3(l), the accounting policies set out below have been applied consistently to all periods presented in these financial statements.

(a)   Basis of consolidation

(i)           Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.

 

The Group measures goodwill at the acquisition date as:

  • The fair value of the consideration transferred; plus
  • The recognised amount of any non-controlling interests in the acquiree; plus
  • If the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less
  • The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Transaction costs, other than those associated with the issue of debt or equity securities that the Group incurs in connection with a business combination, are expensed as incurred.

Any contingent consideration payable is recognised at fair value at the acquisition date. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

When the acquisition of subsidiaries does not represent a business, it is accounted for as an acquisition of a group of assets and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based on their relative fair values, and no goodwill or deferred tax is recognised.

(ii)         Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.

 

Consolidated entities as at 31 December are as follows:

Name

 

Country of incorporation

Cost

% of ownership

 

 

 

2018

2017

2018

2017

(in thousands of USD, except for % of ownership)

 

 

 

 

 

 

 

 

 

 

 

 

 

Praxifin Holdings Limited

 

Cyprus

3

3

100.00%

100.00%

U.A. Terra Property Management Limited

 

Cyprus

3

3

100.00%

100.00%

Museo Holdings Limited

 

Cyprus

3

3

100.00%

100.00%

Sunloop Co Limited

 

Cyprus

3

3

100.00%

100.00%

Lacecap Limited

 

Isle of Man

3

3

100.00%

100.00%

Beta Property Management Limited

 

Cyprus

3

3

100.00%

100.00%

Voyazh-Krym LLC

 

Ukraine

363

363

100.00%

100.00%

PrJSC Livoberezhzhiainvest

 

Ukraine

69

69

100.00%

100.00%

PrJSC Grandinvest

 

Ukraine

69

69

100.00%

100.00%

Arricano Property Management LLC

 

Ukraine

5

5

100.00%

100.00%

PrJSC Ukrpangroup

 

Ukraine

59

59

100.00%

100.00%

Prisma Alfa LLC

 

Ukraine

4

4

100.00%

100.00%

Arricano Development LLC

 

Ukraine

9

9

100.00%

100.00%

Prisma Development LLC

 

Ukraine

4

4

100.00%

100.00%

Arricano Real Estate LLC

 

Ukraine

-

-

100.00%

100.00%

Twible Holdings Limited

 

Cyprus

-

-

100.00%

100.00%

Gelida Holding Limited

 

Cyprus

-

-

100.00%

100.00%

Sapete Holdings Limited

 

Cyprus

-

-

100.00%

100.00%

Wayfield Limited

 

Cyprus

-

-

100.00%

100.00%

Comfort Market Luks LLC

 

Ukraine

40,666

40,666

100.00%

100.00%

Mezokred Holding LLC

 

Ukraine

8,109

8,109

100.00%

100.00%

Vektor Capital LLC

 

Ukraine

11,441

11,441

100.00%

100.00%

Budkhol LLC

 

Ukraine

31,300

31,300

100.00%

100.00%

Budkholinvest LLC

 

Ukraine

-

-

100.00%

100.00%

Green City LLC

 

Russian Federation

-

-

100.00%

100.00%

RRE Development Services OU

 

Estonia

-

-

100.00%

100.00%

Coppersnow Limited

 

British Virgin Islands

-

-

100.00%

100.00%

On 31 July 2017, the Parent Company established Coppersnow Limited, a company incorporated in British Virgin Islands for the purpose of facilitating management activities.

(iii)       Interests in equity-accounted investees

The Group's interests in equity-accounted investees comprise interests in associates.

Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity.

Interest in associates is accounted for using the equity method and is recognised initially at cost. The cost of the investment includes transaction costs.

The consolidated financial statements include the Group's share of the profit or loss and other comprehensive income of equity accounted investees from the date that significant influence commences until the date that significant influence ceases.

When the Group's share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest including any long-term investments, is reduced to zero, and the recognition of further losses is discontinued, except to the extent that the Group has an obligation or has made payments on behalf of the investee.

The listing of associates as at 31 December is as follows:

Name

 

Country of incorporation

             % of ownership

 

 

 

2018

2017

 

 

 

 

 

Filgate Credit Enterprises Limited

 

Cyprus

49.00%

49.00%

 

On 14 December 2016, the Parent Company acquired a non-controlling interest (49% of corporate rights) of Filgate Credit Enterprises Limited from Weather Empire, the company under common control incorporated in Cyprus, in exchange for loan receivable from Weather Empire Limited as an additional instrument in legal proceedings regarding gaining control over the Sky Mall. As part of the above acquisition, the rights to receive certain loans payable by Filgate Credit Enterprises Limited to entities under common control in amount of USD 215,891 thousand were reassigned to the Group for a nominal amount of USD 1. The fair value of these loans receivable is considered to be nil at the date of reassignment.

In addition, a call share option agreement was concluded granting an option to the Parent Company to purchase the remaining 51% of the corporate rights of Filgate Credit Enterprises Limited within 5 years from the effective date. Exercise of the call option depends on certain criteria and occurrence of certain condition, and, as at the date of these consolidated financial statements are authorised for issuance, the call option had not been exercised by the Group. Thus, the rights under the call option agreement were not taken into consideration upon recognition of investment in Filgate Credit Enterprises Limited and determination of the investment's classification.

(iv)        Transactions with entities under common control

Acquisitions from entities under common control

Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for using book value accounting. Any result from the acquisition is recognised directly in equity.

Disposals to entities under common control

Disposals of interests in subsidiaries to entities that are under the control of the shareholder that controls the Group are accounted for using book value accounting. Any result from the disposal is recognised directly in equity.

(v)          Loss of control

Upon the loss of control, the Group derecognises the carrying amounts of the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as measured at FVOCI (2017: an available-for-sale) financial asset depending on the level of influence retained.

(vi)        Transactions eliminated on consolidation

Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing these consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(b)       Foreign currency transactions and operations

(i)            Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rates as at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period.

Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of the transaction.

Foreign currency transactions of Group entities located in Ukraine

In preparation of these consolidated financial statements for the retranslation of the operations and balances of Group entities located in Ukraine denominated in foreign currencies, management applied the National Bank of Ukraine's (NBU) official rates. Management believes that application of these rates substantially serves comparability purposes. 

(ii)          Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to USD at exchange rates at the reporting date. The income and expenses of foreign operations are translated to USD at exchange rates at the dates of the transactions.

Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of, such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and presented in the foreign currency translation difference reserve in equity.

(c)       Financial instruments

The Group has initially applied IFRS 9 from 1 January 2018.

IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.

Additionally, the Group has adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that are applied to disclosures about 2018 but have not been generally applied to comparative information.

Adoption of this standard did not have significant impact on the Group's consolidated financial statements.

The following table below explains the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group's financial assets and financial liabilities as at 1 January 2018.

(in thousands of USD)

Original classification under IAS 39

 

New classification

under IFRS 9

 

Original carrying amount under IAS 39

 

New carrying amount under IFRS 9

Financial assets

 

 

 

 

 

 

 

Trade and other     

    receivables

Loans and receivables

 

Amortised cost

 

    2,364

 

 2,364

Loans receivable

Loans and receivables

 

Amortised cost

 

296

 

296

Cash and cash equivalents

Loans and receivables

 

Amortised cost

 

    2,609

 

    2,609

Total financial assets

 

 

 

 

   5,269

 

              5,269  

 

 

 

 

 

 

 

 

 

 (in thousands of USD)

Original classification under IAS 39

 

New classification

under IFRS 9

 

Original carrying amount under IAS 39

 

New carrying amount under IFRS 9

Financial assets

 

 

 

 

 

 

 

Loans and borrowings

Other financial liabilities

 

Other financial liabilities

 

98,656

 

98,656

Finance lease liability

Other financial liabilities

 

Other financial liabilities

 

  7,039

 

  7,039

Other liabilities

Other financial liabilities

 

Other financial liabilities

 

 26,358

 

 26,358

Trade and other payables

Other financial liabilities

 

Other financial liabilities

 

  35,143

 

  35,143

Total financial liabilities

 

 

 

 

167,196

 

             167,196

 
                           

Adoption of IFRS 9 had no effect on the carrying amount of financial assets and financial liabilities.

Transition

The Group has used an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements. Therefore, comparative periods have not been restated. No differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 (including impairment) were recognised. Respectively, there is no impact on the Group's basic and diluted earnings per share for the years ended 31 December 2018 and 2017. Accordingly, the information presented for 2017 generally reflects the requirements of IFRS 9 and IAS 39. Additional information about how the Group measures the allowance for impairment is described in
Note 3(j).

 

The determination of the business model within which a financial asset is held has been made on the basis of the facts and circumstances that existed at the date of initial application.

Policy applicable after 1 January 2018

(i)                 Recognition and initial measurement

Trade receivables are initially recognised when they are originated.

All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

(ii)              Derecognition

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value.

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.

(iii)            Classification and subsequent measurement of financial assets

On initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI - debt investment; FVOCI - equity investment; or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

  • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
  • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

  • it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
  • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment's fair value in OCI. This election is made on an investment-by-investment basis.

The Group's financial assets comprise trade and other receivables, loans receivable and cash and cash equivalents and are classified into the financial assets at amortised cost category.

These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

Cash and cash equivalents comprise cash balances on the current accounts and call deposits.

(iv)             Financial assets - Business model assessment

The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:

  • the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management's strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets;
  • how the performance of the portfolio is evaluated and reported to the Group's management;
  • the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;
  • how managers of the business are compensated - e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and
  • the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.

Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Group's continuing recognition of the assets.

Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.

(v)                Financial assets - Assessment whether contractual cash flows are solely payments of principal and interest

For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:

  • contingent events that would change the amount or timing of cash flows;
  • terms that may adjust the contractual coupon rate, including variable-rate features;
  • prepayment and extension features; and
  • terms that limit the Group's claim to cash flows from specified assets (e.g. non-recourse features).

A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.

(vi)             Classification and subsequent measurement of financial liabilities

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it meets the definition of held-for-trading or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss (except for the part of the fair value change that is due to changes in the Group's own credit risk, that is recognised in other comprehensive income). Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.

The Group measures all of its financial liabilities at amortised cost.

(vii)           Offsetting

Financial assets and liabilities are offset and the net amount presented in the statements of financial position when, and only when, the Group currently has a legally enforceable right to set off and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group currently has a legally enforceable right to set off if that right is not contingent on a future event and enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the Group and all counterparties.

Policy applicable before 1 January 2018

The Group classified its non-derivative financial assets as loans and receivables and available-for-sale financial assets.

The Group classified non-derivative financial liabilities into the other financial liabilities category.

(i)                 Non-derivative financial assets and financial liabilities - recognition and derecognition

The Group initially recognised loans and receivables on the date that they are originated. All other financial assets and financial liabilities were recognised initially on the trade date at which the Group became a party to the contractual provisions of the instrument. The Group derecognised a financial asset when the contractual rights to the cash flows from the asset expired, or it transferred the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset were transferred. Any interest in transferred financial assets that was created or retained by the Group was recognised as a separate asset or liability.

(ii)               Derecognition

The Group derecognised a financial liability when its contractual obligations were discharged or cancelled or expired. Financial assets and liabilities were offset and the net amount was presented in the consolidated statement of financial position when, and only when, the Group had a legally enforceable right to set off the recognised amounts and intended either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group had a legally enforceable right to set off if that right is not contingent on a future event and enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the Group and all counterparties.

(iii)            Non-derivative financial assets - measurement

Loans and receivables

Loans and receivables were a category of financial assets with fixed or determinable payments that were not quoted in an active market. Such assets were recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables were measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprised the following classes of financial assets: trade and other receivables, loans receivable and cash and cash equivalents.

Cash and cash equivalents

Cash and cash equivalents comprised cash balances, call deposits and highly liquid investments with maturities of three months or less from the acquisition date that were subject to insignificant risk of changes in their fair value.

(iv)             Non-derivative financial liabilities - measurement

The Group classified non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities were recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities were measured at amortised cost using the effective interest method.

 

Other financial liabilities comprised loans and borrowings, finance lease liability, trade and other payables and other liabilities.

(d)     Capital and reserves

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

Share premium

Share premium reserves include amounts that were created due to the issue of share capital at a value price greater than the nominal.

Non-reciprocal shareholders contribution

Non-reciprocal shareholders contribution reserve includes contributions made by the shareholders directly in the reserves. The shareholders do not have any rights to these contributions which are distributable at the discretion of the Board of Directors, subject to the shareholders' approval.

Retained earnings

Retained earnings include accumulated profits and losses incurred by the Group.

Other reserves

Other reserves comprise the effect of acquisition and disposal of subsidiaries under common control, change in non-controlling interest in these subsidiaries and the effect of forfeiture of shares.

 

Foreign currency translation differences

Foreign currency translation differences comprise foreign currency differences arising from the translation of the financial statements of foreign operations and foreign exchange gains and losses from monetary items that form part of the net investment in the foreign operation.

(e)      Investment properties

Investment properties are those that are held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in production or supply of goods or services or for administrative purposes.

Investment properties principally comprise freehold land, leasehold land and investment properties held for rental income earning or future redevelopment.

Leasehold of land under operating lease is classified and accounted for as an investment property when the definition of investment property is met. Under investment property accounting, the right to use the land is measured at fair value and the obligation to pay rentals is accounted for as a finance lease.

(i)            Initial measurement and recognition

Investment properties are measured initially at cost, including related acquisition costs. Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self-constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs.

If the Group uses part of the property for its own use, and part to earn rentals or for capital appreciation, and the portions can be sold or leased out separately, they are accounted for separately. Therefore the part that is rented out is investment property. If the portions cannot be sold or leased out separately, the property is investment property only if the company-occupied portion is insignificant.

(ii)         Subsequent measurement

Subsequent to initial recognition investment properties are stated at fair value. Any gain or loss arising from a change in fair value is included in profit or loss in the period in which it arises.

When the Group begins to redevelop an existing investment property for continued future use as investment property, the property remains an investment property, which is measured at fair value, and is not reclassified to property and equipment during the redevelopment.

When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.

Investment properties are derecognised on disposal or when they are permanently withdrawn from use and no future economic benefits are expected from their disposal. The gain or loss on disposal is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is recognised as gain or loss in profit or loss.

It is the Group's policy that an external, independent valuation company, having an appropriate recognised professional qualification and recent experience in the location and category of property being appraised, values the portfolio as at each reporting date. The fair value is the amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm's length transaction. The valuation is prepared in accordance with International Valuation Standards published by the International Valuation Standards Council.

(iii)       Property under development (construction)

Property that is being constructed or developed for future use as an investment property and for which it is not possible to reliably determine fair value is accounted for as an investment property that is stated at cost until construction or development is complete, or until it becomes possible to reliably determine its fair value. When construction is performed on land previously classified as an investment property and measured at fair value, such land continues to be accounted at fair value throughout the construction phase.

(f)       Property and equipment

(i)            Recognition and measurement

Items of property and equipment are measured at cost less accumulated depreciation and impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.

The gain or loss on disposal of an item of property and equipment is determined by comparing the proceeds from disposal with the carrying amount of property and equipment, and is recognised net within other income/other operating expenses in profit or loss.

(ii)         Reclassification to investment property

When the use of a property changes from owner-occupied to investment property, the property is re-measured to fair value and reclassified to investment property. Any gain arising on re-measurement is recognised in profit or loss to the extent that it reverses a previous impairment loss on the specific property, with any remaining gain recognised in other comprehensive income and presented in the revaluation reserve in equity. Any loss is recognised immediately in profit or loss.

(iii)       Subsequent costs

The cost of replacing part of an item of property and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred.

(iv)        Depreciation

Items of property and equipment are depreciated from the date that they are installed and are ready for use, or in respect of internally constructed assets, from the date that the asset is completed and ready for use. Depreciation is based on the cost of an asset less its residual value.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:

  • vehicles and equipment                                      5 years
  • fixture and fittings                                               2.5 - 5 years

Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

(g)      Intangible assets

(i)            Recognition and measurement

Intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses.

(ii)         Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.

(iii)       Amortisation

Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value.

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use since this most closely reflects the expected pattern of consumption of future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows:

  • software                                                  3-5 years

Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

(h)     Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

(i)        Assets classified as held for sale

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale.

Such assets, or disposal group, are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets or investment property, which continue to be measured in accordance with the Group's other accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss.

Intangible assets and property and equipment once classified as held for sale are not amortised or depreciated.

(j)       Impairment

(i)            Impairment - financial assets

Policy applicable from 1 January 2018

The Group uses 'expected credit loss' (ECL) model. This impairment model applies to financial assets measured at amortised cost, contract assets, but not to investments in equity instruments.

The financial assets at amortised cost consist of trade and other receivables, cash and cash equivalents and loans receivable.

Loss allowances are measured on either of the following bases:

  • 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and
  • lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.

The Group measures loss allowances at an amount equal to lifetime ECLs, except for bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition, for which loss allowances are measured as
12-month ECLs.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment.

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

The Group considers a financial asset to be in default when:

  • the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or
  • the financial asset is more than 90 days past due.

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).

ECLs are discounted at the effective interest rate of the financial asset.

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Presentation of allowance for ECL

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.

Impairment losses related to trade and other receivables are presented under 'operating expenses' and impairment losses on other financial assets are presented under 'finance costs', similar to the presentation under IAS 39, and not presented separately in the consolidated interim condensed statement of profit or loss and other comprehensive income due to materiality considerations.

As at 1 January 2018, there was no change in the allowance for impairment for the Group's financial assets due to implementation of IFRS 9.

(ii)         Non-financial assets

The carrying amounts of non-financial assets, other than investment property, deferred tax assets and inventory are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash-generating unit (CGU). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

The Group's corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs) and then to reduce the carrying amount of the other assets in the CGU (group of CGUs) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Policy applicable before 1 January 2018

Non-derivative financial assets

A financial asset not carried at fair value through profit or loss was assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset was impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets were impaired included default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers in the Group, economic conditions that correlate with defaults, the disappearance of an active market for a security or observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost was objective evidence of impairment.

Financial assets measured at amortised cost

The Group considered evidence of impairment for financial assets measured at amortised cost at both a specific asset and collective level. All individually significant assets were individually assessed for impairment. Those found not to be impaired were then collectively assessed for any impairment that had been incurred but not yet identified. Assets that were not individually significant were collectively assessed for impairment by grouping together assets with similar risk characteristics.

In assessing collective impairment the Group used historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management's judgement as to whether current economic and credit conditions were such that the actual losses were likely to be greater or less than suggested by historical trends.

An impairment loss was calculated as the difference between an asset's carrying amount, and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses were recognised in profit or loss and reflected in an allowance account. When the Group considered that there were no realistic prospects of recovery of the asset, the relevant amounts were written off. Interest on the impaired asset continued to be recognised through the unwinding of the discount. When a subsequent event caused the amount of impairment loss to decrease and the decrease could be related objectively to an event occurring after the impairment was recognised, the decrease in impairment loss was reversed through profit or loss.

Available-for-sale financial assets

Impairment losses on available-for-sale financial assets were recognised by reclassifying the losses accumulated in the fair value reserve in equity, to profit or loss. The cumulative loss that was reclassified from equity to profit or loss was the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions attributable to application of the effective interest method were reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increased and the increase could be related objectively to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss was reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security was recognised in other comprehensive income.

(k)     Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

(l)        Revenue

The Group has initially applied IFRS 15 from 1 January 2018. Due to the transition method chosen by the Group in applying this standard, comparative information throughout these consolidated financial statements has not been restated to reflect the requirements of the new standard.

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.

Revenue of the Group is mainly represented by rental income recognised in accordance with
IAS 17 Leases.

For revenue from services in respect of exploitation of common parts and other services the Group has adopted IFRS 15 Revenue from Contracts with Customers using the cumulative effect method (without practical expedients). As there were no differences in the amounts of revenue resulting from the adoption of IFRS 15 as at 1 January 2018, the information presented for 2017 generally reflects the requirements of IFRS 15. 

The details of the new significant accounting policies and the nature of the changes to previous accounting policies in relation to the Group's services are set out below.

Under IFRS 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control - at a point in time or over time - requires judgement.

Type of service

Nature, timing of satisfaction of performance obligations, significant payment terms

Policy applicable from and before
1 January 2018

Common parts exploitation services

Common parts exploitation services represent reimbursement by tenants of expenses on maintenance of common parts in shopping centres (e.g.  utilities, cleaning, insurance, repairs, parking).

Revenue is recognised over time as those services are provided. As the Group has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Group's services provided to date, the Group uses practical expedient available in IFRS 15 and recognises revenue in the amount to which the Group has a right to invoice. Invoices for revenue from common parts exploitation services are issued on a monthly basis and are usually payable within 5-15 days.

Under IFRS 15, the total consideration in the service contracts that are partially within the scope of this Standard and partially within the scope of IAS 17 Leases is allocated to all services based on their stand-alone selling prices. The stand-alone selling price is determined based on contractually stated price that is defined separately for each obligation and reflects market prices for the similar services.

Revenue is recognised in profit or loss over time in the period when the services are provided, recovery of consideration is probable and when the amount of revenue can be measured reliably.

Marketing services

Revenue is recognised over time as those services are provided.As the Group has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Group's services provided to date, the Group uses practical expedient available in IFRS 15 and recognises revenue in the amount to which the Group has a right to invoice.  Invoices for marketing services are issued on a monthly basis and are usually payable within 5-15 days.

Under IFRS 15, the total consideration in the service contracts is allocated to all services based on their stand-alone selling prices. The stand-alone selling price is determined based on the list prices at which the Group sells the services in separate transactions.

Revenue is recognised in profit or loss over time in the period when the services are provided, recovery of consideration is probable and when the amount of revenue can be measured reliably.

(i)            Rental income from investment property

Rental income from investment property is recognised in profit or loss on a straight-line basis over the term of the lease.

(m)     Leases

(i)            Determining whether an arrangement contains a lease

At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. This will be the case if the fulfilment of the arrangement is dependent on the use of a specific asset and the arrangement conveys a right to use the asset.

At inception or upon reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group's incremental borrowing rate.

(ii)         Leased assets

Assets held by the Group under leases that transfer to the Group substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Other leases are operating leases and the leased assets are not recognised in the consolidated statement of financial position.

(iii)       Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance cost and the reduction of the outstanding liability. The finance cost is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the contingency no longer exists and the lease adjustment is known.

(n)     Finance income and costs

Finance income comprises interest income on funds invested, foreign currency gains, income from derecognition of finance lease liabilities and gains on initial recognition of financial liabilities at fair value.

Finance costs comprise interest expense on borrowings and on deferred consideration, foreign exchange losses, costs from recognition of finance lease liabilities.

Interest income or expense is recognised using the effective interest method.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

The 'effective interest rate' is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:

  • the gross carrying amount of the financial asset; or
  • the amortised cost of the financial liability.

In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortised cost of the liability. However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.

Foreign currency gains and losses arising on loans receivable and borrowings are reported on a net basis as either finance income or finance cost.

(o)      Income tax expense

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

  • temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
  • temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and
  • taxable temporary differences arising on the initial recognition of goodwill.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. For this purpose, the carrying amount of investment property measured at fair value is presumed to be recovered through sale, and the Group has not rebutted this presumption.

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes, penalties and late-payment interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact the tax expense in the period that such a determination is made.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amount of taxable temporary differences is insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.

(p)     Earnings per share

The Group presents basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held.

As at 31 December 2018 and 2017, there were no potential dilutive ordinary shares.

(q)     Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. Management believes that during the current year and prior year, the Group operated in and was managed as one operating segment, being property investment, with investment properties located in Ukraine and the Republic of Crimea.

The Board of Directors, which is considered to be the chief operating decision maker of the Group for IFRS 8 Operating Segments purposes, receives semi-annually management accounts that are prepared in accordance with IFRSs as adopted by the EU and which present aggregated performance of all the Group's investment properties.

(r)      New standards and interpretations not yet adopted

A number of new Standards, amendments to Standards and Interpretations are effective for annual periods beginning after 1 January 2019 and have not been applied in preparing these consolidated financial statements. Of these pronouncements, potentially the following will have an impact on the Group's operations. The Group does not plan to adopt this standard early.

(i)       IFRS 16

IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard - i.e. lessors continue to classify leases as finance or operating leases.

IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial application of IFRS 16.

Transition

The Group plans to apply IFRS 16 initially on 1 January 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparative information.

The Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.

The expected impact of implementation of IFRS 16 is considered to be not significant. 

(ii)     Other standards and interpretations 

The following amended standards and interpretations are not expected to have a significant impact on the Group's consolidated financial statements.

  • IFRIC 23 Uncertainty over Tax Treatments.
  • Prepayment Features with Negative Compensation (Amendments to IFRS 9).

 

4       Investment property

(a)       Movements in investment property

Movements in investment property for the years ended 31 December are as follows:

 

Land held on freehold

Land held on leasehold

Buildings

Prepayment for investment property

Property under construction

 

 

Total

(in thousands of USD)

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2017

5,800

43,054

116,700

20

10,089

175,663

 

 

 

 

 

 

 

Additions

-

396

-

-

978

  1,374

Disposals

-

-

-

(3)

(634)

  (637)

Fair value gains on              

  revaluation      

276

4,348

43,249

-

-

47,873

Currency translation         

  adjustment                                        

224

(1,251)

(1,659)

(1)

(321)

    (3,008)

 

 

 

 

 

 

 

At 31 December 2017/

1 January 2018

                       6,300

               46,547

                    158,290

                          16

                    10,112

            221,265

 

 

 

 

 

 

 

Additions

-

142

-

-

  1,236

  1,378

Fair value gains/(losses) 

  on revaluation      

911

(482)

  41,820

-

-

  42,249

Currency translation         

  adjustment                                        

(911)

778

  (6,320)

8

90

  (6,355)

 

 

 

 

 

 

 

At 31 December 2018

6,300

46,985

193,790

24

  11,438

  258,537

 

 

 

 

 

 

 

During the year ended 31 December 2018, the acquisition of a land plot held on leasehold of                                      USD 142 thousand occurred through a finance lease (2017: USD 396 thousand) (refer to Note 12).

As at 31 December 2018, in connection with loans and borrowings, the Group pledged as security investment property with a carrying value of USD 150,490 thousand (2017: USD 117,790 thousand)
(refer to Note 22 (a)).

During the year ended 31 December 2017, disposal of property under construction is represented by reversal of capitalised charges in respect of an agreement on customer share participation in the creation and development of engineering, transport and social infrastructure of Odesa due to win of the related court case.

During the year ended 31 December 2018, 75% of total construction services were purchased from one counterparty (2017: 79%).

(b)     Determination of fair value

The fair value measurement, developed for determination of fair value of the Group's investment property, is categorised within Level 3 category due to significance of unobservable inputs to the entire measurement, except for certain land held on the leasehold which is not associated with completed property and is therefore categorised within Level 2 category. As at 31 December 2018, the fair value of investment property categorised within the Level 2 category is USD 29,300 thousand
(2017: USD 29,100 thousand). To assist with the estimation of the fair value of the Group's investment property as at 31 December 2018, which is represented by the shopping centres, management engaged registered independent appraiser Expandia LLC, part of the CBRE Affiliate network, having a recognised professional qualification and recent experience in the location and categories of the projects being valued.

The fair values are based on the estimated rental value of property. A market yield is applied to the estimated rental value to arrive at the gross property valuation. When actual rents differ materially from the estimated rental value, adjustments are made to reflect actual rents. The valuation is prepared in accordance with the practice standards contained in the Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors ("RICS") or in accordance with International Valuation Standards published by the International Valuation Standards Council.

Valuations reflect, when appropriate, the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting vacant accommodation, the allocation of maintenance and insurance responsibilities between the Group and the lessee, and the remaining economic life of the property. When rent reviews or lease renewals are pending with anticipated reversionary increases, it is assumed that all notices and, when appropriate, counter-notices, have been served validly and within the appropriate time.

Land parcels are valued based on market prices for similar properties.

As at 31 December 2018, the estimation of fair value was made using a net present value calculation based on certain assumptions, the most important of which were as follows:

  • monthly rental rates, ranging from USD 3 to USD 189 per sq.m., which were based on contractual and market rental rates, adjusted for discounts or fixation of rental rates in Ukrainian hryvnia at a pre-agreed exchange rate, occupancy rates ranging from 99.3% to 100.0%, capitalisation rates ranging from 12.3% to 16.0% p.a., and discount rate of 22% which represented key unobservable inputs for determination of fair value;
  • all relevant licenses and permits, to the extent not yet received, will be obtained, in accordance with the timetables as set out in the investment project plans.

As at 31 December 2017, the estimation of fair value is made using a net present value calculation based on certain assumptions, the most important of which are as follows:

  • monthly rental rates, ranging from USD 2.00 to USD 150.00 per sq.m., which are based on contractual and market rental rates, adjusted for discounts or fixation of rental rates in Ukrainian hryvnia at a
    pre-agreed exchange rate, occupancy rates ranging from 95.4% to 100.0%, capitalisation rates ranging from 12.5% to 16.0% p.a., and discount rate of 22% which represent key unobservable inputs for determination of fair value.
  • all relevant licenses and permits, to the extent not yet received, will be obtained, in accordance with the timetables as set out in the investment project plans.

The reconciliation from the opening balances to the closing balances for Level 3 fair value measurements is presented in Note 4(a).

As at 31 December 2018, the fair value of investment property denominated in functional currency amounted to UAH 5,266,308 thousand and RUB 3,445,742 thousand (2017: UAH 4,414,974 thousand and RUB 2,695,689 thousand). The increase in fair value of investment property results from increased rental payments invoiced in Ukrainian hryvnia and Russian Rouble due to the increase in the exchange rates applied to the USD equivalent of rental rates fixed in the rental contracts.

Sensitivity at the date of valuation

 

The valuation model used to assess the fair value of investment property as at 31 December 2018 is particularly sensitive to unobservable inputs in the following areas:

  • If rental rates are 1% less than those used in valuation models, the fair value of investment properties would be USD 2,104 thousand (2017: USD 1,738 thousand) lower. If rental rates are 1% higher, then the fair value of investment properties would be USD 2,104 thousand (2017: USD 1,738 thousand) higher.
  • If the discount rate applied is 1% higher than that used in the valuation models, the fair value of investment properties would be USD 14,810 thousand (2017: USD 11,973 thousand) lower. If the discount rate is 1% less, then the fair value of investment properties would be USD 17,266 thousand (2017: USD 13,907 thousand) higher.
  • If the occupancy rate is 1% higher than that used in the valuation model, the fair value of investment properties would be USD 1,922 thousand higher (2017: if the occupancy rate is 1% higher than that used in the valuation model for shopping center "Prospect" and is assumed to be 100% for other shopping centers, the fair value of investment properties would be USD 668 thousand higher). If the occupancy rates are 1% less, then the fair value of investment properties would be USD 1,922 thousand
    (2017: USD 1,539 thousand) lower.

5       Loans receivable

Loans receivable as at 31 December are as follows:

 

2018

2017

(in thousands of USD)

 

 

 

 

 

Short-term loans receivable due from related parties

8,491

  8,491

Accrued interest receivable due from related parties

2,450

  2,178

Short-term loans receivable due from third parties

300

  296

Impairment of loans receivable due from related parties

  (10,941)

  (10,669)

 

 

 

 

300

  296

 

 

 

Included in loans receivable as at 31 December 2018 is a loan due from Filgate Credit Enterprises Limited amounting to USD 10,840 thousand (2017: USD 10,568 thousand), out of which the amount of                                USD 8,390 thousand is overdue. This loan receivable was impaired as at 31 December 2018 and 2017.

 

6      Trade and other receivables

Trade and other receivables as at 31 December are as follows:

 

 

 

(in thousands of USD)

2018

2017

 

 

 

Trade receivables from related parties

14

  13

Other receivables from related parties

8,160

  8,160

Allowance for impairment

(8,158)

  (8,158)

 

 

 

 

16

  15

 

 

 

Trade receivables from third parties

1,332

  1,238

Other receivables from third parties

362

  1,182

Allowance for impairment

(70)

  (71)

 

 

 

 

1,624

  2,349

 

 

 

 

1,640

  2,364

 

 

 

As at 31 December 2018, included in other receivables from related parties are receivables from Dniprovska Prystan PrJSC amounting to USD 7,796 thousand (2017: USD 7,796 thousand), which are overdue. In 2012, the court ruled to initiate bankruptcy proceedings against the mentioned related party and, as at 31 December 2018, the decision which would declare Dniprovska Prystan PrJSC insolvent has not yet been made. Full amount of receivable was impaired as at 31 December 2018 and 2017.     

7       Assets classified as held for sale

(a)       Movements in assets classified as held for sale

Movements in assets classified as held for sale for the years ended 31 December are as follows:

 

Land held on leasehold

Buildings

Prepayment for investment property

Property under construction

Other assets

 

 

Total

(in thousands of USD)

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2017

-

-

-

-

1,590

1,590

 

 

 

 

 

 

 

Currency translation adjustment

-

-

-

-

(49)

(49)

 

 

 

 

 

 

 

At 31 December 2017/

1 January 2018

-

-

-

-

1,541

1,541

 

 

 

 

 

 

 

Currency translation adjustment

-

-

-

-

  21

  21

 

 

 

 

 

 

 

At 31 December 2018

-

-

-

-

1,562

1,562

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in other assets classified as held for sale as at 31 December 2018, is a land plot with a carrying amount of USD 1,562 thousand (2017: USD 1,541 thousand), land lease rights for which were intended to be amended by one of the Group's subsidiaries, Comfort Market Luks LLC, in respect of allocation of part of such land plot to a third party in accordance with an investment agreement concluded between the parties. Based on this investment agreement, Comfort Market Luks LLC acted as an intermediary in construction of a hypermarket with the total estimated area of 11,769 square meters and a parking lot with a total estimated area of 20,650 square meters.

As at 31 December 2018, the construction of the hypermarket and a parking lot is finalised and, except for the lease rights for the abovementioned land plot to be allocated to a third party, the owner of the hypermarket, the investment agreement is considered to be fulfilled. Management expects that the lease rights for the land plot under the hypermarket will be transferred to the third party in 2019 subject to completion of formal legal procedures. As at 31 December 2018, advance payment received under this agreement (Note 14) amounts to USD 1,661 thousand (2017: USD 1,639 thousand) and will be settled upon transfer of the lease rights for the land plot.

8       Cash and cash equivalents

Cash and cash equivalents as at 31 December are as follows:

(in thousands of USD)

                    2018

                        2017

 

 

 

Bank balances

  1,842

374

Call deposits

  2,382

2,235

 

 

 

 

  4,224

2,609

 

 

 

As at 31 December 2018, in connection with loans and borrowings, the Group pledged as security bank balances and call deposits with a carrying value of USD 41 thousand and USD 2,410 thousand, respectively (2017: USD 29 thousand and USD 1,153 thousand, respectively) (Note 22(a)).

As at 31 December 2018, cash and cash equivalents placed with two bank institutions amounted to                      USD 3,335 thousand, or 79 % of the total balance of cash and cash equivalents (2017: USD 2,482 thousand, or 95%). In accordance with  Moody's  rating, one of these  banks is  rated  Caa1 and another is non - rated (AS SEB Pank) as at 31 December 2018, respectively (2017: Caa3 and non-rated (AS SEB Pank), respectively).

9       Share capital

Share capital as at 31 December is as follows:

 

2018

2018

2018

2017

2017

2017

 

Number of shares

US dollars

EUR

Number of shares

US dollars

EUR

 

 

 

 

 

 

 

Issued and fully paid

 

 

 

 

 

 

At 1 January and 31 December

103,270,637

66,750

51,635

103,270,637

66,750

51,635

 

 

 

 

 

 

 

Authorised

 

 

 

 

 

 

At 1 January and 31 December

106,000,000

68,564

53,000

106,000,000

68,564

53,000

 

 

 

 

 

 

 

Par value, EUR

-

-

0.0005

-

-

0.0005

 

 

 

 

 

 

 

All shares rank equally with regard to the Parent Company's residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Parent Company.

During the years ended 31 December 2018 and 2017, the Parent Company did not declare any dividends.

10              Earnings per share

The calculation of basic earnings per share for the years ended 31 December 2018 and 2017 was based on the profit for the years ended 31 December 2018 and 2017 attributable to ordinary shareholders of
USD 38,103 thousand and USD 25,807 thousand, respectively, and weighted average number of ordinary shares outstanding as at 31 December 2018 and 2017 of 103,270,637.

The Group has no potential dilutive ordinary shares.

11              Loans and borrowings

This Note provides information about the contractual terms of loans. For more information about the Group's exposure to interest rate and foreign currency risk, refer to Note 21.

 

2018

2017

(in thousands of USD)

 

 

 

 

 

Non-current

 

 

Secured bank loans

28,171

  33,502

Unsecured loans from related parties

16,143

  25,263

Unsecured loans from third parties

  187

-

 

 

 

 

  44,501

  58,765

 

 

 

Current

 

 

Secured bank loans (current portion of long-term bank loans)

8,089

  9,616

Unsecured loans from related parties (including current portion of long-term loans   
  from related parties)

  21,913

  9,855

Unsecured loans from third parties

22,004

  20,420

 

 

 

 

                       52,006

  39,891

 

 

 

 

                     96,507

  98,656

 

 

 

 

 

Terms and debt repayment schedule

As at 31 December 2018, the terms and debt repayment schedule of loans and borrowings are as follows:

(in thousands of USD)

Currency

Nominal interest rate

Contractual year of maturity

Carrying value

 

 

 

 

 

Secured bank loans

 

 

 

 

Tascombank, VS Bank and
Universal Bank

USD

11.25-13.00%

2019-2023

                   15,578

EBRD

USD

7.50%+ 1m LIBOR

2019-2020

                     8,913

EBRD

USD

8.00%+ 3m LIBOR

2019-2020

                     5,462

Raiffeisen Bank Aval

UAH

18.00%

2019-2020

                     6,307

 

 

 

 

 

 

 

 

 

       36,260

 

 

 

 

 

Unsecured loans from related parties

 

 

 

 

Retail Real Estate OU

USD

10.50%

2019

                   12,539

Retail Real Estate OU

USD

12.00%

2019-2020

                   25,225

Retail Real Estate OU

USD

10.00%

2019

                        215

Loans from other related parties

UAH/USD

0.00%-3.20%

2019

  77

 

 

 

 

 

 

 

 

 

    38,056

 

 

 

 

 

Unsecured loans from third parties

 

 

 

 

Barleypark

USD

10.55%

2019

                   22,004

Loans from other third parties

USD

3.20%

2022

  187

 

 

 

 

 

 

 

 

 

  22,191

 

 

 

 

 

 

 

 

 

96,507

 

 

 

 

 

 
             

As at 31 December 2017, the terms and debt repayment schedule of loans and borrowings are as follows:

(in thousands of USD)

Currency

Nominal interest rate

Contractual year of maturity

Carrying value

 

 

 

 

 

Secured bank loans

 

 

 

 

PJSC "Bank "St.Petersburg"

USD

10.50%

2018-2020

  16,062

EBRD

USD

1M LIBOR + 7.50%

2018-2020

  12,679

Raiffeisen Bank Aval

UAH

18.00%

2018-2020

  7,358

EBRD

USD

3M LIBOR + 8.00%

2018-2020

  7,019

 

 

 

 

 

 

 

 

 

  43,118

 

 

 

 

 

Unsecured loans from related parties

 

 

 

 

Retail Real Estate OU

USD

12.00%

2018-2020

  23,288

Retail Real Estate OU

USD

10.50%

   2018-2019

  11,382

Retail Real Estate OU

USD

10.00%

2018-2019

  200

Loans from other related parties

UAH/USD

0%-3.20%

2018

  248

 

 

 

 

 

 

 

 

 

  35,118

 

 

 

 

 

Unsecured loans from third parties

 

 

 

 

Barleypark Limited

USD

10.55%

2018

  20,420

 

 

 

 

 

 

 

 

 

  20,420

 

 

 

 

 

 

 

 

 

  98,656

 

 

 

 

 

 
             

As at 31 December LIBOR for USD is as follows:

 

2018

2017

 

 

 

LIBOR USD 3M

2.75%

1.50%

LIBOR USD 1M

2.38%

1.38%

For a description of assets pledged by the Group in connection with loans and borrowings refer to
Note 22(a).

PJSC "Bank "St.Petersburg"

During the year ended 31 December 2018, the Group signed amendments to the loan agreements with PJSC "Bank "St.Petersburg" stipulating a decrease in the amount of loan principal payable for the period from March 2018 till June 2018 by USD 730 thousand.

During the year ended 31 December 2017, the Group signed amendments to the loan agreements with PJSC "Bank "St.Petersburg" stipulating a decrease in the amount of loan principal payable for the period from June 2017 till February 2018 by USD 1,818 thousand.

During the year ended 31 December 2018 and as at 31 December 2017, the Group has not fulfilled an obligation to replace the existing pledge of investment property by other investment properties acceptable to PJSC "Bank "St.Petersburg", which was considered as the event of default under the loan agreements concluded with the bank. In addition, the Group has not replenished the deposit pledged as a collateral for the amount of USD 1,200 thousand within the time period required by the loan agreement. In June 2018 management obtained the letter from PJSC "Bank "St.Petersburg" waving the above breaches of loan covenants.

In August 2018, the loans payable due to PJSC "Bank "St.Petersburg" were fully settled and pledge of investment property of PrJSC Livoberezhzhiainvest in the amount of USD 43,190 thousand as at
31 December 2018, pledge of investment in PrJSC Livoberezhzhiainvest and pledge in respect of property rights under the Investment Agreement between PrJSC Grandinvest, PrJSC Livoberezhzhiainvest and Voyazh-Krym LLC under pledge agreements with PJSC "Bank "St.Petersburg" were terminated.

Syndicated loan from JSC "Tascombank", PJSC "VS Bank" and PJSC "Universal Bank"

On 30 July 2018, the Group entered into the syndicated loan agreement with JSC "Tascombank", 
PJSC "VS Bank" and PJSC "Universal Bank" to refinance loan from PJSC "Bank "St.Petersburg" initially amounting to USD 15,187 thousand as at 30 June 2018. The new loan obtained initially amounted to                     USD 15,200 thousand, bears an interest rate of 11.25% during the period from July 2018 until December 2019 and of 13.00% during the period from January 2020 until July 2023.
On 14 August 2018, the credit facility under the new loan agreement was increased by USD 800 thousand to USD 16,000 thousand. Along with the loan agreement, the Group signed pledge agreements in respect of investment property of PrJSC "Livoberezhzhiainvest" in the amount of
USD 43,190 thousand as at 31 December 2018 and investment in "PrJSC Livoberezhzhiainvest".

EBRD

On 28 March 2017, the Group signed an agreement with the EBRD pledging rights on future income under the agreement with the anchor tenant (refer to Note 22(a)).

On 31 March 2017, the Group terminated agreements with the EBRD on pledge of investment property of PrJSC "Grandinvest" and LLC "Voyazh-Krym" and pledge of investment in PrJSC "Grandinvest" (refer to Note 22(a)).

 

Barleypark Limited

Based on the terms of the loan agreement the loan is repayable on demand but not later than the final repayment date. On 30 June 2017, the Group signed an amendment to the loan agreement with Barleypark stipulating prolongation of the maturity date till 31 July 2020. Subsequent to the reporting period end, the Group obtained a letter from the lender waiving the right to demand repayment of the loan during twelve months ending 31 December 2019. During the year ended 31 December 2017, following the changes in shareholding of Barleypark Limited, the counterparty ceased to be a related party of the Group and the loan was re-classified to unsecured loans from third parties.

Retail Real Estate OU

On 30 June 2017, the Group signed amendment to the loan agreement with Retail Real Estate OU stipulating prolongation of the maturity date until 30 June 2020.

On 16 February 2017, the loan payable to Gingerfin Holdings was assigned to Retail Real Estate OU and prolonged until 1 January 2019.

Reconciliation of movements of liabilities to cash flows arising from financing activities

Movements of liabilities for the year ended 31 December 2018 are as follows:

 

Loans and borrowings

Finance lease liabilities

 

                      Total

(in thousands of USD)

 

 

 

 

Balance at 1 January 2018

98,656

7,039

 

105,695

 

 

 

 

 

Proceeds from borrowings

  16,200

-

 

  16,200

Repayment of borrowings

(22,396)

-

 

(22,396)

The effect of changes in foreign exchange rates

41

96

 

137

Other finance income (Note 19)

  (736)

-

 

(736)

Additions to finance leases

-

142

 

142

Interest expense

  9,258

-

 

9,258

Other finance costs

45

  895

 

  940

Interest paid

(4,561)

  (895)

 

  (5,456)

 

 

 

 

 

Balance at 31 December 2018

96,507

7,277

 

103,784

 

 

 

 

 

 

 

Movements of liabilities for the year ended 31 December 2017 are as follows:

 

Loans and borrowings

Finance lease liabilities

 

                      Total

(in thousands of USD)

 

 

 

 

Balance at 1 January 2017

101,084

6,857

 

107,941

 

 

 

 

 

Repayment of borrowings

  (6,777)

  -

 

  (6,777)

The effect of changes in foreign exchange rates

                       (272)

                  (214)

 

                      (486)

Additions to finance leases

-

  396

 

  396

Interest expense (Note 19)

  9,801

  - 

 

  9,801  

Other finance costs

  46

  659

 

  705

Interest paid

  (5,226)

  (659)

 

   (5,885)

 

 

 

 

 

Balance at 31 December 2017

98,656

7,039

 

105,695

 

 

 

 

 

 

12              Finance lease liability

Finance lease liabilities as at 31 December are payable as follows:

 

Future minimum lease payments

Interest

Present value of minimum lease payments

Future minimum lease payments

Interest

Present value of minimum lease payments

 

2018

2018

2018

2017

2017

2017

(in thousands of USD)

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than six months

445

441

4

  405

  404

  1

Between six and twelve months

443

441

2

  405

  404

  1

Between one and two years

885

881

4

  811

  807

  4

Between two and five years

2,656

2,638

18

  2,837

  2,820

  17

More than five years

40,853

33,604

7,249

  38,823

  31,807

  7,016

 

 

 

 

 

 

 

 

45,282

38,005

7,277

  43,281

  36,242

  7,039

 

 

 

 

 

 

 

The imputed finance costs on the liability are based on the Group's incremental borrowing rate ranging from 13.0% to 17.2% as at 31 December 2018 and 2017.

During the year ended 31 December 2018, as a result of a change in land lease rate indices and land lease payments calculation methodology imposed by the state authorities, the Group recognised a finance lease liability amounting to USD 142 thousand with no impact on profit or loss and recognised a finance lease asset for the amount of USD 142 thousand (refer to Note 4(a)) (2017 USD 396 thousand and USD 396 thousand, respectively).

Future minimum lease payments as at 31 December 2018 and 2017, are based on management's assessment that is based on actual lease payments effective as at 31 December 2018 and 2017, respectively, and expected contractual changes in the lease payments. The future lease payments are subject to review and approval by the municipal authorities and may differ from management's assessment.

The contractual maturity of land lease agreements ranges from 2019 to 2039. The Group intends to prolong these lease agreements for the period of usage of the investment property being constructed on the leased land. Consequently, the minimum lease payments are calculated for a period of 50 years.

13              Trade and other payables

Trade and other payables as at 31 December are as follows:

(in thousands of USD)

2018

2017

 

 

 

Non-current liabilities

 

 

Payables for construction works

17,564

  9,877

Trade and other payables to third parties

8

  8

 

 

 

 

17,572

   9,885

 

 

 

Current liabilities

 

 

Payables for construction works

6,961

  21,124

Trade and other payables to related parties

1,049

  1,137

Trade and other payables to third parties

  2,578

  2,997

 

 

 

 

  10,588

  25,258

 

 

 

 

  28,160

   35,143

 

 

 

As at 31 December 2018 and 2017, included in payables for construction works are USD denominated payables with the nominal value of USD 4,349 thousand with maturity on 30 June 2021 and bearing an interest rate of 10.00% per annum.

Also, included in payables for construction works as at 31 December 2018 are EUR denominated payables under a commission agreement concluded with a third party with the nominal value of USD 1,268 thousand (2017: USD 2,039 thousand) with maturity on 15 September 2019. As at 31 December 2018 and 2017, these payables relate to construction works performed at shopping centre "Prospect", are presented in accordance with their contractual maturity and measured at amortised cost under the effective interest rate of 6.01% (2017: 6.54%) per annum.

Further, included in payables for construction works as at 31 December 2018 are accrued financial charges under construction agreements with third parties amounting to USD 12,998 thousand
(31 December 2017: USD 16,838 thousand). During the year ended 31 December 2017, the constructors claimed the Group to reimburse finance and foreign currency losses incurred by constructors due to untimely fulfillment of obligations by the Group companies under construction agreements. The Group agreed to reimburse the charges claimed. On 12 July 2018 constructors further claimed the Group to settle the fee for restructuring of accounts payable of 10.00% in the amount of USD 1,128 thousand for untimely fulfillment of obligations in respect of charges payable in the amount of USD 11,282 thousand as at the date. The Group agreed to settle the fee and constructors agreed to renegotiate the terms of charges payable. As a result of renegotiation, interest rate of 10.00% per annum was imposed on charges payable, they were converted to USD and maturity was postponed to 31 December 2025.

As at 31 December 2017 part of charges payable in the amount of
USD 12,153 thousand had maturity on 31 December 2018, part of USD 1,893 thousand - on
30 June 2021 and bore an interest rate of 10.00%, and the remaining part of charges payable of
USD 2,792 thousand with the nominal value of USD 3,220 thousand had maturity on 30 June 2019 and was measured at amortised cost under the effective interest rate of 10.00% per annum.

The Group's exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 21.

14              Advances received

Advances from customers as at 31 December are as follows:

(in thousands of USD)

2018

2017

 

 

 

Non-current

 

 

Advances from third parties

-

  125

 

 

 

 

-

  125

 

-

 

Current

 

 

Advances received under investment agreement (refer to Note 7)

1,661

  1,639

Advances from third parties

3,919

  3,259

Advances from related parties

25

  24

 

 

 

 

5,605

  4,922

 

 

 

 

5,605

  5,047

 

 

 

Advances from third parties are mainly represented by prepayments from tenants for the period from one to two months.

15              Other liabilities

Other liabilities as at 31 December are as follows:

(in thousands of USD)

2018

2017

 

 

 

Non-current

 

 

Deferred consideration

20,000

20,000

Other long-term liabilities

46

91

 

 

 

 

20,046

20,091

 

 

 

Current

 

 

Deferred consideration

8,217

6,267

 

 

 

 

8,217

6,267

 

 

 

 

28,263

26,358