TIDMARO
RNS Number : 2143W
Arricano Real Estate PLC
21 April 2021
21 April 2021
Arricano Real Estate plc
("Arricano" or the "Company" or, together with its subsidiaries,
the "Group")
Final Results
Audited Results for the 12 months ended 31 December 2020
Highlights
-- he Group's revenue was down by 13% to USD 32.3 million (2019:
USD 37.3 million) as a result of COVID-19 restrictions implemented
by government and resulting in significant interruption to
trading
-- To offset the impact of COVID-19, the Group reduced costs by
US 2.2 million (17%) compared to 2019
-- Underlying operating profit before revaluation of investment
property was lower by 11% at USD 21.7 million (2019: USD 24.4
million)
-- Gain on revaluation of investment property of USD 24.9
million was primarily related to an increase of USD in relation to
Group's functional currency.
-- As a result, Group's net profit increased to USD 20.2 million (2019: USD 8.0 million)
-- The total fair valuation of the Group's portfolio decreased
to USD 275.5 million (2019: USD 289.3 million) primarily due to
uncertainty in the overall situation in retail due to COVID-19
challenges that resulted in an increase in capitalization rates
used in valuation of properties.
-- Net asset value was therefore USD 119.4 million as at 31
December 2020 (31 December 2019: USD 127.9 million)
Ganna Chubotina , Chief Executive Officer of Arricano,
commented:
"During 2020, the government in Ukraine put in place
restrictions to reduce human interaction to combat the COVID-19
pandemic. These measures resulted in the partial closure of the
Arricano shopping malls for between 52-81 days (depending on
region), restricting visitor access to essential stores. However,
despite the temporary closure of retail stores and reduced access,
the occupancy rate across the Arricano portfolio remained at 99%,
the same level it has been since 2018 and revenue decreased by just
13% reflecting, we believe, a very resilient performance by the
Group as a whole."
For further information please contact:
CEO: Tel: +357 25 582 535
Arricano Real Estate plc
Ganna Chubotina
Nominated Adviser and Broker: Tel: +44 (0)20 7220 1666
WH Ireland Limited
Chris Fielding/ Matt Chan
Financial PR: Tel: +44 (0)20 3151 7008
Novella Communications Limited
Tim Robertson/Fergus Young
Chief Executive Officer's Report
Introduction
I am pleased to confirm that during 2020 despite the significant
restrictions caused by the Covid-19 pandemic, our shopping malls
continued to perform well, largely retaining their tenant base,
attracting millions of visitors and still adding new international
brands as tenants. This is reflected in the trading performance
which saw underlying operating profits (before revaluation effect)
delivered at USD 21.7 million just 11% lower compared to prior year
despite shopping malls being closed for extended periods.
Critical to the Company's performance in this period was our
ability to reduce our costbase by USD 2.2 million compared to the
last year. In addition, we supported our tenants on a case by case
basis, which limited the reduction in rental income whilst also
maintaining investment in the development of the Lukyanivka
shopping centre project in Kyiv.
Since the year end, further lockdowns have been introduced by
the local government in Ukraine for 2.5 weeks in January 2021 and
then another lockdown was introduced in Kyiv on 20 March 2021 and
in Zaporozhya on 3 April 2021. As a result of the latest lockdowns,
apart from hypermarkets, pharmacies and some other essential
stores, outlets in Arricano's Prospekt, Rayon and City Mall centres
remain closed until further notice.
Results
Recurring revenues for the period decreased by 13% to USD 32.3
million (2019: USD 37.3 million). Underlying operating profit
before revaluation of investment property was USD 21.7 million,
compared to USD 24.4 million. Gain on revaluation of investment
property of USD 24.9 million was primarily related to an increase
of USD in relation to Group's functional currency. At the same
time, the gain on revaluation was offset by a foreign exchange loss
in the amount of USD 9.7 million and USD 28.7 million foreign
currency translation difference included into other comprehensive
income.
Net profit amounted to USD 20.2 million (2019: USD 8.0
million).
The total fair valuation of the Group's portfolio decreased to
USD 275.5 million (2019: USD 289.3 million) primarily due to
uncertainty in the overall situation in retail due to COVID-19
challenges that resulted in an increase in capitalization rates
used in valuation of properties.
Net asset value was USD 119.4 million as at 31 December 2020 (31
December 2019: USD 127.9 million)
Operational Review
Like many businesses we were challenged in 2020 to operate as
never before and I am pleased to report we responded strongly to
this challenge. I believe we have learnt new ways of operating
which we can take forward to the benefit of all our stakeholders. I
am particularly grateful to the employees of Arricano for the
dedication and sacrifices they made during this period to support
the long-term prospects for the Company.
Key to our success has been our strategy of working
collaboratively with mutual trust and respect which has helped us
navigate through these periods and we are confident our malls will
maintain their reputations as market leading retail centres and
continue to attract millions of visitors each year.
When we were allowed to trade, we saw consumer confidence
returning, alongside a gradual increase in visitor numbers across
our portfolio. As before, our strategy remains centred around
improving customer experiences. We seek innovative ways to
influence and stimulate consumers, encouraging them to visit our
shopping centres and once inside focus on creating the right
balance between retail, leisure and socialising.
Throughout the crisis and continuing today, our first priority
is the safety of our visitors and we have a rigorous programme of
cleaning together with offering contactless movement and
contactless sales, alongside the creation of additional
opportunities for self-service while shopping and delivery of
purchased or ordered items. This is essential for safety but also
for re-building trust in our assets.
Critically, the number of visitors to the malls in 2020,
including the periods of government restrictions, amounted to 33.1
million visitors, which is only 19% less than in 2019. Equally
noteworthy, is that when the shopping malls were operating
normally, visitor numbers only decreased by 5% compared to the same
period in 2019. These are strong indicators in terms of the
significant appeal of our shopping centres amongst consumers.
While everyone was required to stay at home, online working and
shopping grew substantially in the first half of 2020, however,
when consumers were allowed to shop physically they did so in large
numbers demonstrating how much real shopping with entertainment was
missed. To capitalise on this sentiment Arricano has focused on
promoting physical shopping through multiple new communication
lines including offering new cultural and art exhibitions which
blend the emotional appeal of art and fashion. These events have
helped increase footfall and the duration of individual visits.
During 2020, Arricano Group signed 89 new lease agreements
covering a total area of 8884 sq.m., representing 6 per cent of the
operating estate. New tenants include New Yorker, Flo and
Decathlon. We consistently focus on updating our tenant formats,
expanding product categories and opening up new popular brands. We
maintained our very low vacancy rate through adopting different and
creative techniques to complete renewals and attract new retail
operators.
In terms of the new developments, the Group is continuing to
progress the Lukyanivka project, Kyiv. Construction is underway,
however, the COVID-19 pandemic has slowed development and will
result in some delays. Nevertheless our commitment to the project
remains unchanged with expected opening in 2022.
Outlook
I am extremely proud that we continued to develop our business
despite the challenges brought by COVID-19. Despite being closed
for nearly a one third of the year, we maintained 99% occupancy,
attracted new international tenants, progressed the development of
the Lukyanivka project and limited the impact on our profitability
by making significant cost reductions across the business. While
trading is still currently restricted, I am totally confident, that
when allowed, our business will return to pre-COVID performance
levels.
Ganna Chubotina
Chief Executive Officer
21 April 2021
Arricano Real Estate PLC
Consolidated financial statements as at and for the year ended
31 December 2020
Consolidated statement of financial position as at 31 December
2020
Note 31 December 31 December
20 20 2019
(in thousands of USD)
Assets
Non-current assets
Investment property 5 275,452 289,300
Long-term VAT receivable 4,130 1,571
Property and equipment 94 130
Intangible assets 126 193
Total non-current assets 279,802 291,194
Current assets
Trade and other receivables 7 1 , 673 1,634
Loans receivable 6 - -
Prepayments made and other assets 479 959
VAT receivable 576 1,909
Assets classified as held for sale 8 1,529 1,826
Income tax receivable 380 347
Cash and cash equivalents 9 12,062 6,905
Total current assets 16,699 13,580
Total assets 296,501 304,774
Note 31 December 31 December
20 20 2019
(in thousands of USD)
Equity and Liabilities
Equity 10
Share capital 67 67
Share premium 183,727 183,727
Non-reciprocal shareholders contribution 59,713 59,713
Retained earnings 67,142 46,962
Other reserves (61,983) (61,983)
Foreign currency translation differences (129,272) (100,581)
Total equity 119,394 127,905
Non-current liabilities
Long-term borrowings 12 73,458 26,954
Long-term trade and other payables 13 15,330 14,105
Other long-term liabilities 15 31,462 143
Deferred tax liability 19 5,796 10,693
Total non-current liabilities 126,046 51,895
Current liabilities
Short-term borrowings 12 32,360 75,445
Trade and other payables 13 3,712 6,460
Taxes payable other than income
tax 5,015 3,789
Advances received 14 5,503 6,668
Other liabilities 15 4,471 32,612
Total current liabilities 51,061 124,974
Total liabilities 177,107 176,869
Total equity and liabilities 296,501 304,774
Arricano Real Estate PLC
Consolidated financial statements as at and for the year ended
31 December 2020
Consolidated statement of profit or loss and other comprehensive
income for the year ended 31 December 2020
Note 20 20 2019
(in thousands of USD, except for
earnings per share)
Revenue 16 32,303 37,252
Gain/(loss) on revaluation of investment 5 (a
property ) 24,859 (12,177)
Goods, raw materials and services
used (1,005) (1,196)
Operating expenses 17 (7,412) (8,994)
Salary costs (1,753) (2,179)
Salary related charges (335) (375)
Depreciation and amortisation (131) (98)
Profit from operating activities 46,526 12,233
Finance income 18 143 8,943
Finance costs 18 (21,887) (12,319)
Net finance costs (21,744) (3,376)
Profit before income tax 24,782 8,857
( 4 , 602
Income tax expense 19 ) (832)
Net profit for the year 2 0 , 180 8,025
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 ( 49 , 834
operation, net of tax effect 20(f)(i) ) 46,014
Foreign currency translation differences
on foreign operations 20(f)(i) 21,143 (20,166)
Total items that will be reclassified ( 28 , 691
to profit or loss ) 25,848
( 28 , 691
Other comprehensive income (loss) ) 25,848
Total comprehensive income (loss)
for the year (8,511) 33,873
Weighted average number of shares
(in shares) 11 103,270,637 103,270,637
Basic and diluted earnings per share,
USD 11 0. 19541 0.07771
Arricano Real Estate PLC
Consolidated financial statements as at and for the year ended
31 December 2020
Consolidated statement of cash flows for the year ended 31
December 2020
Note 2020 2019
(in thousands of USD)
Cash flows from operating activities
Profit before income tax 24,782 8,857
Adjustments for:
Finance income, excluding foreign
exchange gain 18 (143) (470)
Finance costs, excluding foreign
exchange loss 18 12,213 12,319
(Gain) / loss on revaluation of investment
property 5(a) (24,859) 12,177
Depreciation and amortisation 131 98
Unrealized foreign exchange loss
/ (gain) 18 9,674 (8,473)
Accrual of provisions 845 2,445
Operating cash flows before changes
in working capital 22,643 26,953
Change in trade and other receivables (108) 593
Change in prepayments made and other
assets 569 (34)
Change in VAT receivable 17 (2,363)
Change in taxes payable 1,704 1,914
Change in trade and other payables ( 4, 667) 1,820
Change in advances received 62 170
Change in other liabilities (432 ) 98
Income tax paid (917) ( 1, 578)
Interest paid (7,934) (4,937)
Cash flows from operating activities 10,937 22,636
Cash flows from investing activities
Acquisition of investment property
and settlements of payables due to
constructors (7,749) (20,174)
Acquisition of property and equipment (85) (159)
Interest received 143 470
Cash flows used in investing activities (7,691) (19,863)
Note 2020 2019
(in thousands of USD)
Cash flows from financing activities
Proceeds from borrowings 12 18, 232 27,839
Repayment of borrowings 12 (1 5, 094) (28,245)
Cash flows from/(used in) financing
activities 3,1 38 (406)
Net increase in cash and cash equivalents 6,384 2,367
Cash and cash equivalents at 1 January 6,905 4,224
Effect of movements in exchange rates
on cash and cash equivalents (1,227) 314
Cash and cash equivalents at 31 December 9 12,062 6,905
Non-cash movements
During the year ended 31 December 2020 and 31 December 2019, no
non-cash movement took place.
The consolidated statements of cash flows is to be read in
conjunction with the notes to and forming part of the financial
statements set out on pages 11 to 62.
Arricano Real Estate PLC
Consolidated financial statements as at and for the year ended
31 December 2020
Consolidated statement of changes in equity as at and for the
year ended 31 December 2020
Attributable to equity holders of the parent
------------------------------------------------------------------------------------------------------------------------------
Non-reciprocal Foreign currency
shareholders Retained translation
Share capital Share premium contribution earnings Other reserves differences Total
(in thousands of
USD)
Balances at 1
January 201 9 67 183,727 59,713 38,937 (61,983) (126,429) 94,032
Total
comprehensive
income/(loss)
for the year
Net profit for
the year - - - 8,025 - - 8,025
Foreign exchange
gains on
monetary
items that form
part of net
investment
in the foreign
operation, net
of
tax effect
(Note 20(f)(i)) - - - - - 46,014 46,014
Foreign currency
translation
differences - - - - - (20,166) (20,166)
Total other
comprehensive
income
for the year - - - - - 25,848 25,848
Total
comprehensive
income for
the year - - - 8,025 - 25,848 33,873
Balances at 31
December 201 9 67 183,727 59,713 46,962 (61,983) (100,581) 127,905
The consolidated statement of changes in equity is to be read in
conjunction with the notes to, and forming part of, the
consolidated financial statements set out on pages from 10 to
62.
Attributable to equity holders of the parent
----------------------------------------------------------------------------------------------------
Foreign
Non-reciprocal currency
Share Share shareholders Retained Other translation
capital premium contribution earnings reserves differences Total
(in thousands of
USD)
Balances at 1
January 20 20 67 183,727 59,713 46,962 (61,983) (100,581) 127,905
Total
comprehensive
income/(loss)
for the year
Net profit for
the year - - - 20,180 - - 20,180
Foreign exchange
gains on
monetary
items that form
part of net
investment
in the foreign
operation, net
of
tax effect
(Note 20(f)(i)) - - - - - (49,834) (49,834)
Foreign currency
translation
differences - - - - - 21,143 21,143
Total other
comprehensive
income
for the year - - - - - ( 28,691) ( 28,691)
Total
comprehensive
income for
the year - - - 20,180 - ( 28,691) (8,511)
Balances at 31 (61,98 3
December 20 20 67 183,727 59,713 67,142 ) (129,272) 119,394
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 2020, the Group operated five shopping centres in
Kyiv, Simferopol, Zaporizhzhya and Kryvyi Rig with a total leasable
area of over 147,900 square meters and is in the process of
development of two new investment projects in Kyiv and Odesa, with
one more project to be developed.
The average number of employees employed by the Group during the
year is 78 (2019: 94).
(b) Ukrainian business environment
The Group's operations are primarily located in Ukraine.
Consequently, the Group is exposed to the economic and financial
markets of Ukraine, which display characteristics of an emerging
market.
The political and economic situation in Ukraine has been subject
to significant turbulence in recent years. The legal, tax and
regulatory frameworks continue development, but are subject to
varying interpretations and frequent changes which together with
other legal and fiscal impediments contribute to the challenges
faced by entities operating in Ukraine. Additionally, an armed
conflict in certain parts of Lugansk and Donetsk regions, which
started in spring 2014, has not been resolved and part of the
Donetsk and Lugansk regions remains under control of the
self-proclaimed republics, and Ukrainian authorities are not
currently able to fully enforce Ukrainian laws on this territory.
Various events in March 2014 led to the accession of the Republic
of Crimea to the Russian Federation, which was not recognised by
Ukraine and many other countries. Consequently, operations in the
country involve risks that do not typically exist in other
markets.
The first months of 2020 have seen significant global market
turmoil triggered by the outbreak of the COVID-19. Together with
other factors, this has resulted in a sharp decrease in the oil
price and the stock market indices, as well as a depreciation of
the Ukrainian hryvnia and Russian ruble. Responding to the
potentially serious threat the COVID-19 presents to public health,
Ukrainian government authorities have taken measures to contain the
outbreak, introducing restrictions on the movement of people within
Ukraine and the 'lock-down' of cities in regions likely to be
affected by the outbreak, suspension of transport links with
Ukraine and entry restrictions on visitors pending further
developments. Some businesses have also instructed employees to
remain at home and curtailed or temporarily suspended business
operations.
The Ukrainian central and local governments, as part of their
efforts to combat the COVID-19 pandemic, temporary restricted
customers access to Ukrainian retail shopping centres from 16 March
2020 until 10 May 2020. This decision has resulted in the temporary
closure of four out of five of the Group's retail shopping centres:
Prospekt (Kyiv), Rayon (Kyiv), City Mall (Zaporizhzhia) and Sun
Gallery (Kryvyi Rig). Starting from 28 March 2020 until 17 May 2020
the fifth retail shopping center, South Gallery (Simferopol), was
also temporarily closed. However, the hypermarkets, pharmacies and
some other stores located within the centres continued to
operate.
Subsequent to the reporting date, lockdown was introduced by the
government in Ukraine for 2.5 weeks in January 2021 and then
another lockdown was introduced in Kyiv from 20 March 2021 till 30
April 2021 and in Zaporozhya on 3 April 2021. As a result of the
latest lockdown, apart from hypermarkets, pharmacies and some other
essential stores, outlets in Arricano's Prospekt, Rayon and City
Mall centres remain closed until further notice. Its other shopping
centres, however, are trading normally.
Whilst management believes it is taking appropriate measures to
support the sustainability of the Group's business in the current
circumstances related to COVID-19 pandemic, a continuation of the
current unstable business environment would 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 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 estimates of the Group's cash flows and
its assessment of impairment of financial and non-financial
assets.
With the recent and rapid development of the Coronavirus disease
(COVID-19) pandemic the world economy entered a period of
unprecedented health care crisis that has caused considerable
global disruption in business activities and everyday life.
Many countries have adopted extraordinary and economically
costly containment measures. Certain countries have required
companies to limit or even suspend normal business operations.
Governments have implemented restrictions on travelling as well as
strict quarantine measures throughout the year.
In Cyprus, on 15 March 2020, the Council of Ministers in an
extraordinary meeting, announced that it considers that Cyprus is
entering a state of emergency considering the uncertain situation
as it unfolds daily, the growing spread of COVID-19 outbreak and
the World Health Organization's data on the situation.
To this end, certain measures have been taken by the Republic of
Cyprus since then with a view to safeguarding public health and
ensuring the economic survival of working people, businesses,
vulnerable groups and the economy at large. The financial effect of
the current crisis on the global economy and overall business
activities cannot be estimated with reasonable certainty though,
due to the pace at which the outbreak expands and the high level of
uncertainties arising from the inability to reliably predict the
outcome. Management's current expectations and estimates could
differ from actual results.
(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 the
characteristics of an emerging market. The legal, tax and
regulatory frameworks continue development, but are subject to
varying interpretations and frequent changes which contribute
together with other legal and fiscal impediments 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 have 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 COVID-19 coronavirus pandemic has further increased
uncertainty in the business environment.
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
o 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).
(e) 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.
(f) 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 20 20 201 9
UAH 28.27 23.68
RUB 73.8 8 61.91
Average USD exchange rates for the years ended 31 December are
as follows:
Currency 20 20 2019
UAH 26.9 6 25.85
RUB 71.94 64.74
As at the date these consolidated financial statements are
authorised for issue, 21 April 2021, the exchange rate is UAH 28.01
to USD 1.00 and RUB 76.02 to USD 1.00.
(g) 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 5 - valuation of investment property,
(h) Going concern
As at 31 December 20 20 , the Group's current liabilities exceeded its current assets by
USD 34,362 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 119,394
thousand as at 31 December 20 20 , generated net profit of USD 20,
18 0 thousand and positive cash flows from operating activities
amounting to USD 1 0 , 937 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:
-- Management makes all efforts to keep occupancy rates of its
shopping centers on current level. Besides, the Group managed to
gradually increase its rental rates during the year for existing
tenants.
-- The Group expects it will be able to draw on existing
facilities granted from entities under common control, should this
be required for operational and other needs of the Group.
-- In accordance with the forecast for 2021 that is being
revised on ongoing basis, taking into account already existing and
potential future impact of COVID-19 on the Group's financial
performance, the Group plans to earn revenue that together with
other measures undertaken by the Group's management, including
negotiations with lenders, will give an ability to settle the
Group's current liabilities in the normal course of business.
-- In addition, the Group's management received a waiver from
the bank lender for application of the condition based on which the
lender can request repayment of the full amount of the loan during
3-month period (Note 12) and as result the loan part in amount of
USD 13,168 thousand presented as at 31 December 2020 as short-term
liabilities is expected to be repayable after 31 December 2021. The
waiver is active for 12-months period after 31 December 2020.
Management believes that notwithstanding material uncertainty
that may cast significant doubt about the Group's ability to
continue as a going concern in the foreseeable future exists, the
measures that management undertakes, as described above, will allow
the Group to maintain positive working capital, generate positive
operating cash flows and continue business operations on going
concern basis.
These consolidated 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.
(i) 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 5 - investment property; and
-- Note 20(f)(iii) - fair values.
3 Changes in accounting policies
The Group has early adopted COVID-19-Related Rent Concessions -
Amendment to IFRS 16 issued on 28 May 2020. The amendment
introduces an optional practical expedient for leases in which the
Group is a lessee - i.e. for leases to which the Group applies the
practical expedient, the Group is not required to assess whether
eligible rent concessions that are a direct consequence of the
COVID-19 coronavirus pandemic are lease modifications. The
amendment had no significant impact on the financial
statements.
4 Significant accounting policies and transition to new standards
The accounting policies set out below have been applied
consistently to all periods presented in these consolidated
financial statements, and have been applied consistently by Group
entities.
(a) Basis of consolidation
(i) Business combinations
The Group accounts for business combinations using the
acquisition method when the acquired set of activities and assets
meets the definition of a business and control is transferred to
the Group. In determining whether a particular set of activities
and assets is a business, the Group assesses whether the set of
assets and activities acquired includes, at a minimum, an input and
substantive process and whether the acquired set has the ability to
produce outputs.
The Group has an option to apply a 'concentration test' that
permits a simplified assessment of whether an acquired set of
activities and assets is not a business. The optional concentration
test is met if substantially all of the fair value of the gross
assets acquired is concentrated in a single identifiable asset or
group of similar identifiable assets.
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 Cost % of ownership
incorporation
20 20 2019 20 20 2019
(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%
British Virgin
Coppersnow Limited Islands - - 100.00% 100.00%
(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. A joint venture is an arrangement in which the Group has
joint control, whereby the Group has rights to the net assets of
the arrangement, rather than rights to its assets and obligations
for its liabilities.
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, after adjustments to align the accounting
policies with those of the Group, from the date that significant
influence or joint control commences until the date that
significant influence or joint control 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 % of ownership
incorporation
20 20 2019
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 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.
(j) 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 differences are generally recognised in profit
or loss.
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.
(k) Financial instruments
(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) Modification of financial assets and financial liabilities
Financial assets
If the terms of a financial asset are modified, the Group
evaluates whether the cash flows of the modified asset are
substantially different. If the cash flows are substantially
different (referred to as 'substantial modification'), then the
contractual rights to cash flows from the original financial asset
are deemed to have expired. In this case, the original financial
asset is derecognised and a new financial asset is recognised at
fair value.
The Group performs a quantitative and qualitative evaluation of
whether the modification is substantial, i.e. whether the cash
flows of the original financial asset and the modified or replaced
financial asset are substantially different. The Group assesses
whether the modification is substantial based on quantitative and
qualitative factors in the following order: qualitative factors,
quantitative factors, combined effect of qualitative and
quantitative factors. If the cash flows are substantially
different, then the contractual rights to cash flows from the
original financial asset deemed to have expired. In making this
evaluation the Group analogizes to the guidance on the
derecognition of financial liabilities.
The Group concludes that the modification is substantial as a
result of the following qualitative factors:
-- change the currency of the financial asset;
-- change in collateral or other credit enhancement;
-- change of terms of financial asset that lead to non-compliance with SPPI criterion.
If the cash flows of the modified asset carried at amortised
cost are not substantially different, then the modification does
not result in derecognition of the financial asset. In this case,
the Group recalculates the gross carrying amount of the financial
asset and recognises the amount arising from adjusting the gross
carrying amount as a modification gain or loss in profit or loss.
The gross carrying amount of the financial asset is recalculated as
the present value of the renegotiated or modified contractual cash
flows that are discounted at the financial asset's original
effective interest rate. Any costs or fees incurred adjust the
carrying amount of the modified financial asset and are amortised
over the remaining term of the modified financial asset.
Financial liabilities
The Group derecognises a financial liability when its terms are
modified and the cash flows of the modified liability are
substantially different. In this case, a new financial liability
based on the modified terms is recognised at fair value. The
difference between the carrying amount of the financial liability
extinguished and the new financial liability with modified terms is
recognised in profit or loss.
If a modification (or exchange) does not result in the
derecognition of the financial liability the Group applies
accounting policy consistent with the requirements for adjusting
the gross carrying amount of a financial asset when a modification
does not result in the derecognition of the financial asset, i.e.
the Group recognises any adjustment to the amortised cost of the
financial liability arising from such a modification (or exchange)
in profit or loss at the date of the modification (or
exchange).
Changes in cash flows on existing financial liabilities are not
considered as modification, if they result from existing
contractual terms, e.g. changes in fixed interest rates initiated
by banks due to changes in the central bank key rate, if the loan
contract entitles banks to do so and the Group has an option to
either accept the revised rate or redeem the loan at par without
penalty. The Group treats the modification of an interest rate to a
current market rate using the guidance on floating-rate financial
instruments. This means that the effective interest rate is
adjusted prospectively.
The Group performs a quantitative and qualitative evaluation of
whether the modification is substantial considering qualitative
factors, quantitative factors and combined effect of qualitative
and quantitative factors. The Group concludes that the modification
is substantial as a result of the following qualitative
factors:
- change the currency of the financial liability;
- change in collateral or other credit enhancement;
- inclusion of conversion option;
- change in the subordination of the financial liability.
For the quantitative assessment the terms are substantially
different if the discounted present value of the cash flows under
the new terms, including any fees paid net of any fees received and
discounted using the original effective interest rate, is at least
10 per cent different from the discounted present value of the
remaining cash flows of the original financial liability. If an
exchange of debt instruments or modification of terms is accounted
for as an extinguishment, any costs or fees incurred are recognised
as part of the gain or loss on the extinguishment. If the exchange
or modification is not accounted for as an extinguishment, any
costs or fees incurred adjust the carrying amount of the liability
and are amortised over the remaining term of the modified
liability.
(viii) 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.
(l) 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.
(m) 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.
(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.
(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.
(n) 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. 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.
(o) 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.
(p) 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.
(q) 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.
(r) Impairment
(i) Impairment - financial assets
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 on receivables and cash and cash equivalents are
included in other expenses (and income from reversal of such
expenses is included in other income) and are not shown separately
in the statement of financial performance for reasons of
materiality.
(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.
(s) 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.
(t) Revenue
Revenue of the Group is mainly represented by rental income
recognized in accordance with
IFRS 16 Leases. For revenue from services in respect of
exploitation of common parts and marketing services the Group has
adopted IFRS 15 Revenue from Contracts with Customers. 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.
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 IFRS 16 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.
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.
(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.
(u) Leases
At inception of the contract, the Group assessed whether a
contract is, or contains a lease. A contract is, or contains a
lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange of consideration.
To assess whether a contract conveys the right to control the use
of the identified asset, the Group uses the definition of a lease
in IFRS 16.
(i) As a lessee
At commencement or on modification of a contract that contains a
lease component, the Group allocates the consideration in the
contract to each lease component on the basis of its relative
stand-alone prices. However, for the leases of property the Group
has elected not to separate non-lease components and account for
the lease and non-lease components as a single lease component.
The Group recognizes a right-of-use asset and a lease liability
at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease
liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an
estimate of costs to dismantle and remove the underlying asset or
to restore the underlying asset or the site on which it is located,
less any lease incentives received.
The right-of-use asset is subsequently accounted for in
accordance with the accounting policy applicable to that asset:
-- If accounted for as investment property, then measured at
fair value following policy described in the Note 4(e).
-- If accounted for as property and equipment, then depreciated
using the straight-line method from the commencement date to the
end of the lease term, unless the lease transfers ownership of the
underlying asset to the Group by the end of the lease term or the
cost of the right-of-use asset reflects that the Group will
exercise a purchase option. In that case the right-of-use asset
will be depreciated over the useful life of the underlying asset,
which is determined on the same basis as those of property and
equipment. In addition, the right-of-use asset is periodically
reduced by impairment losses, if any, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate. Generally, the Group uses its incremental borrowing
rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining
interest rates from various external financing sources and makes
certain adjustments to reflect the terms of the lease and type of
the asset leased.
Lease payments included in the measurement of the lease
liability comprise the following:
-- fixed payments, including in-substance fixed payments;
-- variable lease payments that depend on an index or a rate,
initially measured using the index or rate as at the commencement
date;
-- amounts expected to be payable under a residual value guarantee; and
-- the exercise price under a purchase option that the Group is
reasonably certain to exercise, lease payments in an optional
renewal period if the Group is reasonably certain to exercise an
extension option, and penalties for early termination of a lease
unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the
effective interest method. It is remeasured when there is a change
in future lease payments arising from a change in an index or rate,
if there is a change in the Group's estimate of the amount expected
to be payable under a residual value guarantee, if the Group
changes its assessment of whether it will exercise a purchase,
extension or termination option or if there is a revised
in-substance fixed lease payment.
When the lease liability is remeasured in this way, a
corresponding adjustment is made to the carrying amount of the
right-of-use asset, or is recorded in profit or loss if the
carrying amount of the right-of-use asset has been reduced to
zero.
The Group presents right-of-use assets that do not meet the
definition of investment property in 'property and equipment' and
lease liabilities in 'loans and borrowings' in the statement of
financial position.
The Group has elected not to recognize right-of-use assets and
lease liabilities for leases of low-value assets and short-term
leases. The Group recognizes the lease payments associated with
these leases as an expense on a straight-line basis over the lease
term.
In accordance with IFRS 16 variable payments which do not depend
on index or rate, for example which do not reflect changes in
market rental rates, should not be included in the measurement of
lease liability. In respect of municipal or federal land leases
where lease payments are based on cadastral value of the land plot
and do not change until the next revision of that value or the
applicable rates (or both) by the authorities, the Group has
determined that, under the current revision mechanism, the land
lease payments cannot be considered as either variable that depend
on index or rate or in-substance fixed, and therefore these
payments are not included in the measurement of the lease
liability.
(ii) As a lessor
At inception or on modification of a contract that contains a
lease component, the Group allocates the consideration in the
contract to each lease component on the basis of their relative
stand-alone prices.
When the Group acts as a lessor, it determines at lease
inception whether each lease is a finance lease or an operating
lease.
To classify each lease, the Group makes an overall assessment of
whether the lease transfers substantially all of the risks and
rewards incidental to ownership of the underlying asset. If this is
the case, then the lease is a finance lease; if not, then it is an
operating lease. As part of this assessment, the Group considers
certain indicators such as whether the lease is for the major part
of the economic life of the asset.
When the Group is an intermediate lessor, it accounts for its
interests in the head lease and the sub-lease separately. It
assesses the lease classification of a sub-lease with reference to
the right-of-use asset arising from the head lease, not with
reference to the underlying asset. If a head lease is a short-term
lease to which the Group applies the exemption described above,
then it classifies the sub-lease as an operating lease.
If an arrangement contains lease and non-lease components, then
the Group applies IFRS 15 to allocate the consideration in the
contract.
The Group recognises lease payments received under operating
leases as income on a straight-line basis over the lease term as
part of revenue.
(v) 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.
(w) 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.
(x) 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 20 20 and 201 9 , there were no potential
dilutive ordinary shares.
(y) 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.
(z) New standards and interpretations not yet adopted
A number of new standards are effective for annual periods
beginning after 1 January 2020 and earlier application is
permitted; however, the Group has not early adopted the new or
amended standards in preparing these consolidated financial
statements.
The Group has not started a formal assessment of potential
impact on its consolidated financial statements resulting of the
following amended standards and interpretations:
-- Onerous contracts - Cost of Fulfilling a Contract (Amendments to IAS 37).
-- Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16).
-- Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16).
-- Reference to Conceptual Framework (Amendments to IFRS 3).
-- Classification of Liabilities as Current or Non-current (Amendments to IAS 1).
-- IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts.
5 Investment property
(b) Movements in investment property
Movements in investment property for the years ended 31 December
are as follows:
Prepayment for
Land held on Land held on investment Property under
freehold leasehold Buildings property construction Total
(in thousands of
USD)
At 1 January 201 9 6,300 46,985 193,790 24 11,438 258,537
Derecognition of
right-of-use
assets * - (7,27 7 ) - - - (7,277)
Additions - - - - 9,173 9,173
Disposals - - - (17) - (17)
Fair value
gains(losses) on
revaluation (804) (6,162) (5,211) - - (12,177)
Currency
translation
adjustment 804 6,504 30,971 1 2,781 41,061
At 31 December 201
9 /
1 January 20 20 6,300 40,050 219,550 8 23, 392 289, 300
Additions - - 127 251 10,078 10,456
Disposals - - - (3) - (3)
Fair value gain on
revaluation 567 6,406 17,886 - - 24,859
Currency
translation
adjustment (1,06 7 ) (6,7 56 ) (37,0 6 2) (123) (4,152) (49,160)
At 31 December 20
20 5,800 39,700 200,501 133 29,318 275,452
* Derecognition of right-of-use assets during 2019 is a result
of IFRS 16 application starting from 1 January 2019.
Capitalised borrowing costs related to the construction of
Lukianivka shopping and entertainment center to USD 1,731 thousand
(201 9 : USD 776 thousand), with a capitalisation rate of 11.3%
(2019: 10.5%).
As at 31 December 20 20 , in connection with loans and
borrowings, the Group pledged as security investment property with
a carrying value of USD 160,500 thousand (201 9 : USD 171,150
thousand)
(refer to Note 21 (a)).
During the year ended 31 December 20 20 , 95% of total
construction services were purchased from one counterparty (201 9 :
93 %).
(aa) 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 20 20 , the
fair value of investment property categorised within the Level 2
category is USD 29,400 thousand (201 9 : USD 29, 6 00 thousand). To
assist with the estimation of the fair value of the Group's
investment property as at 31 December 2020, which is represented by
the shopping centres and land, 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 20 20 , the estimation of fair value was made
using a net present value calculation based on certain assumptions,
the most important of which were as follows:
-- monthly weighted average rental rates per shopping centers
excluding turnover income, ranging from USD 9 to USD 19 per sq.m.,
comprising minimum rental rate of USD 3 and maximum rental rate of
203 USD per sq.m., which were based on contractual and market
rental rates, adjusted for discounts or fixation of rental rates in
Ukrainian hryvnia at a pre-agreed exchange rate, occupancy rates
ranging from 98.1% to 100%, and capitalisation rates ranging from
12. 5 % to 16. 5 % p.a. which represented key unobservable inputs
for determination of fair value;
-- all relevant licenses and permits, to the extent not yet
received, will be obtained, in accordance with the timetables as
set out in the investment project plans.
As at 31 December 201 9 , the estimation of fair value is made
using a net present value calculation based on certain assumptions,
the most important of which are as follows:
-- monthly weighted average rental rates per shopping centers
excluding turnover income, ranging from USD 8 to USD 20 per sq.m.,
comprising minimum rental rate of USD 3 and maximum rental rate of
USD 189 per sq.m., which are based on contractual and market rental
rates, adjusted for discounts or fixation of rental rates in
Ukrainian hryvnia at a pre-agreed exchange rate, occupancy rates
ranging from 98.8% to 100.0%, and capitalisation rates ranging from
12.3% to 16.0% p.a. 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
5(a).
As at 31 December 20 20 , the fair value of investment property
denominated in functional currency amounted to UAH 5,660,575
thousand and RUB 3,383,507 thousand (201 9 : UAH 5,002,525 thousand
and RUB 3,386,242 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 20 20 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 2,206
thousand (201 9 : USD 2,366 thousand) lower. If rental rates are 1%
higher, then the fair value of investment properties would USD
2,206 thousand (2019: USD 2,366 thousand) higher.
-- If the capitalisation rate applied is 1% higher than that
used in the valuation models, the fair value of investment
properties would be USD 15,294 thousand (201 9 : USD 16,759
thousand) lower. If the capitalisation rate is 1% less, then the
fair value of investment properties would USD 17,785 thousand
(2019: USD 19,557 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 1,997 thousand higher (201 9: if t the occupancy rate is 1%
higher than that used in the valuation model for shopping center
"Sun Gallery" and is assumed to be 100% for other shopping centers,
the fair value of investment properties would be USD 283 thousand
higher) . If the occupancy rates are 1% less, then the fair value
of investment properties would be USD 1,998 thousand (2019: USD
2,106 thousand) lower.
6 Loans receivable
Loans receivable as at 31 December are as follows:
20 20 201 9
(in thousands of USD)
Short-term loans receivable due from related parties 8,489 8,499
Accrued interest receivable due from related parties 2,719 2,719
Impairment of loans receivable due from related parties (11,208) (11,218)
- -
Included in loans receivable as at 31 December 20 20 is a loan
due from Filgate Credit Enterprises Limited amounting to USD 11,109
thousand (201 9 : USD 11,109 thousand). This loan receivable was
fully impaired as at 31 December 20 20 and 201 9 .
7 Trade and other receivables
Trade and other receivables as at 31 December are as
follows:
(in thousands of USD) 20 20 201 9
Trade receivables from related parties 1 18
Other receivables from related parties 8,160 8,160
Allowance for impairment (8,158) (8,158)
3 20
Trade receivables from third parties 1,720 1,621
Other receivables from third parties 112 75
Allowance for impairment (162) (82)
1,670 1,614
1,673 1,634
As at 31 December 20 20 , included in other receivables from
related parties are receivables from Dniprovska Prystan PrJSC
amounting to USD 7,796 thousand (201 9 : USD 7,796 thousand), which
are overdue. In 2012, the court ruled to initiate bankruptcy
proceedings against the mentioned related party and, on 20 May
2019, the decision which declare Dniprovska Prystan PrJSC insolvent
has been made. Full amount of receivable was impaired as at 31
December 20 20 and 201 9 .
8 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:
Prepayment for
Land held on investment Property under
leasehold Buildings property construction Other assets Total
(in thousands of
USD)
At 1 January 201
9 - - - - 1,562 1,562
Currency
translation
adjustment - - - - 264 264
At 31 December
201 9 /
1 January 20 20 - - - - 1,826 1,826
Currency
translation
adjustment - - - - (297) (297)
At 31 December 20
20 - - - - 1,529 1,529
Included in other assets classified as held for sale as at 31
December 20 20 , is a land plot with a carrying amount of USD 1,529
thousand (201 9 : USD 1,826 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 20 20 and 201 9 , 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 202 1 subject to completion of formal legal
procedures. As at 31 December 20 20 , advance payment received
under this agreement amounts to USD 1,627 thousand (201 9 : USD
1,942 thousand) and will be settled upon transfer of the lease
rights for the land plot.
9 Cash and cash equivalents
Cash and cash equivalents as at 31 December are as follows:
(in thousands of USD) 20 20 2019
Bank balances 12,06 2 4,126
Call deposits - 2,779
12,062 6,905
As at 31 December 20 20 , in connection with loans and
borrowings, the Group pledged as security bank balances with a
carrying value of USD 212 thousand (201 9 : USD 1,135 thousand)
(Note 21(a)). However, the use of this balance is not
restricted.
As at 31 December 2020, cash and cash equivalents placed with
two bank institutions amounted to
USD 9,800 thousand, or 81% of the total balance of cash and cash
equivalents (2019: USD 5,114 thousand, or 74%). In accordance with
Moody's rating, one of these banks is rated Baa3 and another is B3
as at 31 December 2020 (2019: Caa1 and non-rated,
respectively).
10 Share capital
Share capital as at 31 December is as follows:
20 20 20 20 20 20 201 9 201 9 201 9
Number Number
of shares US dollars EUR 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 20 20 and 201 9 , the Parent
Company did not declare any dividends.
11 Earnings per share
The calculation of basic earnings per share for the years ended
31 December 20 20 and 201 9 was based on the profit for the years
ended 31 December 20 20 and 201 9 attributable to ordinary
shareholders of
USD 20,180 thousand and USD 8,025 thousand, respectively, and
weighted average number of ordinary shares outstanding as at 31
December 20 20 and 20 19 of 103,270,637.
The Group has no potential dilutive ordinary shares.
12 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 20.
20 20 2019
(in thousands of USD)
Non-current
Secured bank loans 27,293 26,768
Unsecured loans from related parties 21,420 -
Unsecured loans from third parties 24,745 186
73,458 26,954
Current
Secured bank loans (current portion of long-term
bank loans) 19,631 16,626
Unsecured loans from related parties (including
current portion of long-term loans
from related parties) 11,630 35,161
Unsecured loans from third parties 1,099 23,658
32,360 75,445
105,818 102,399
Terms and debt repayment schedule
As at 31 December 20 20 , the terms and debt repayment schedule
of loans and borrowings are as follows:
Nominal and effective
(in thousands of USD) Currency interest rate Contractual year of maturity Carrying value
Secured bank loans
Secured bank loans USD 7.50%- 11 . 25 % 2023-2025 38,656
Secured bank loans UAH 13. 2 5% 2025 8,268
46,924
Unsecured loans from related
parties
Unsecured loans from related
parties USD 10.5% 202 1 -2023 32,788
Unsecured loans from related
parties USD 10.0% on demand 212
Unsecured loans from related
parties UAH/USD 0-3.2% 201 9 50
33,050
Unsecured loans from third
parties
Unsecured loan from third
party USD 10.5 0 % 2023 25,645
Unsecured loan from third
party USD 3.0% 2022 199
25,844
105,818
As at 31 December 2019, the terms and debt repayment schedule of
loans and borrowings are as follows:
Nominal and effective
(in thousands of USD) Currency interest rate Contractual year of maturity Carrying value
Secured bank loans
Secured bank loans USD 10.50%-11.25% 2020-2024 31,589
Secured bank loans UAH 18.00%-19.75% 2020-2023 11,805
43,394
Unsecured loans from related
parties
Unsecured loans from related
parties USD 10.0%-12.0% 2019-2020 35,102
Unsecured loans from related
parties UAH/USD 0-3.2% 201 9 59
35,161
Unsecured loans from third
parties
Unsecured loan from third
party USD 10.55% 2020 23,658
Unsecured loans from third
parties USD 3.2% 2022 186
23,844
102,399
For a description of assets pledged by the Group in connection
with loans and borrowings refer to
Note 21(a).
(a) Joint Stock Company "Taskombank"
During the year ended 31 December 2020, the Group signed a
number of amendments to the loan agreement with carrying value as
at 31 December 2020 equal to USD 10,883 thousand with Joint Stock
Company "Taskombank" stipulating an decrease in the annual interest
rate from 10.75% to 9.75% and changes to the repayment schedule of
the loan principal.
During the year ended 31 December 2020, the Group signed
amendment to the loan agreement with carrying value as at 31
December 2020 equal to USD 13,214 thousand with Joint Stock Company
"Taskombank" stipulating changes to the repayment schedule of the
loan principal. The loan is syndicated with PJSC "Universal
Bank".
(b) Joint Stock Company "State Savings Bank of Ukraine"
During the year ended 31 December 2020, the Group received
tranches on the existing loan facility with a bank in the amount of
USD 9,000 thousand to finance the construction of the Lukianivka
shopping and entertainment centre. The tranche facility expires on
25 July 2026 and bears interest per initial agreement of 7.50% per
annum. During the year ended 31 December 2020, the Group signed a
number of amendments to the loan agreement stipulating a decrease
in the annual interest rate of the received tranche by 3.0%.
In accordance with the loan agreement, the lender may require
early repayment of the loan facility amount. Respectively, the
total loan amount of USD 14,578 thousand is presented within the
current liabilities as at 31 December 2020.
(c) Joint Stock Company "Raiffeisen Bank Aval"
During the year ended 31 December 2020, the Group refinance
existing loan facilities with a bank with a new loan agreement. The
loan is payable on 31 December 2025 and bears interest of 13.25%
per annum. The facility is secured with the same collateral as for
the previous loans provided by the bank, no additional assets were
pledged.
(d) Unsecured loan from third party
During the year ended 31 December 2020, the Group signed
amendment to the loan agreement with a third party, with carrying
value as at 31 December 2020 amounting to USD 25,645 thousand
stipulating capitalization of accrued interest as at 1 August 2020,
prolongation of maturity date till 1 August 2023 and decrease in
the annual interest rate of the received facility from 10.55% to
10.5%.
(e) Unsecured loan from related party
During the year ended 31 December 2020, the Group signed
amendments to two loans with Retail Real Estate OU, the parent
company, with carrying values as at 31 December 2020 amounting to
USD 3,128 thousand and USD 28,293 thousand stipulating
capitalization of accrued interest as at 1 August 2020,
prolongation of maturity date till 1 August 2021 and 1 August 2023
and capitalization or repayment of accrued interest annually,
respectively, and decrease of interest rate from 12.0% to 10.5% for
the loan amounting to USD 28,293 thousand.
Reconciliation of movements of liabilities to cash flows arising
from financing activities
Movements of liabilities for the year ended 31 December 20 20
are as follows:
Loans and borrowings Total
(in thousands of USD)
B alance at 1 January 20 20 102,399 102,399
Proceeds from borrowings 18 ,232 18 ,232
Repayment of borrowings (15,09 4 ) (15,09 4 )
The effect of changes in foreign exchange rates (1,8 72) (1,8 72)
Interest expense 10 ,098 10,098
Interest paid (7,945) (7,945)
Balance at 31 December 20 20 105,818 105,818
Movements of liabilities for the year ended 31 December 201 9
are as follows:
Loans and borrowings Finance lease liabilities Total
(in thousands of USD)
B alance at 1 January 201
9 96,507 7,277 103,784
Proceeds from borrowings 27,839 2 7 , 839
Repayment of borrowings (28,245) - (28,245)
The effect of changes in
foreign exchange rates 2, 401 - 2,401
Derecognition of financial
lease liability (Note
4(m)) - (7,277) (7,277)
Additions to finance - - -
leases
Interest expense (Note 18) 8,834 - 8,834
Interest paid (4,937) - (4,937)
Balance at 31 December 201
9 102,399 - 102,399
13 Trade and other payables
Trade and other payables as at 31 December are as follows:
(in thousands of USD) 20 20 2019
Non-current liabilities
Payables for construction works 15,330 14,105
15,330 14,105
Current liabilities
Payables for construction works - 2,680
Trade and other payables to related parties 218 1,039
Trade and other payables to third parties 3, 494 2,741
3,7 12 6,460
19,0 42 20,565
As at 31 December 2020, included in payables for construction
works are accrued financial charges under construction agreement
with third parties amounting to USD 15,323 thousand (31 December
2019: USD 14,096 thousand). In 2017-2018, the constructors claimed
the Group to reimburse finance and foreign currency losses incurred
by constructors due to untimely fulfillment of obligations by the
Group companies under construction agreements, as well as fee for
restructuring of accounts payable. As a result of negotiation
accomplished on 12 July 2017, interest rate of 10.00% per annum was
imposed on charges payable , they were converted to USD and
maturity was postponed to 31 December 2025.
The Group's exposure to currency and liquidity risk related to
trade and other payables is disclosed in Note 20.
14 Advances received
Advances from customers as at 31 December are as follows:
(in thousands of USD) 20 20 2019
Advances received under investment agreement
(refer to Note 8) 1,627 1,942
Advances from third parties 3,852 4,697
Advances from related parties 24 29
5,503 6,668
5,503 6,668
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) 20 20 2019
Non-current
Deferred consideration 31,305 -
Other long-term liabilities 157 143
31,462 143
Current
Deferred consideration 1,378 30,167
Tax provision 3,093 2,445
4,471 32,612
35,933 32,755
Deferred consideration is represented with amount payable to a
third party that also granted the Group unsecured loans (Note
12(d)), in respect of the acquisition of Wayfield Limited and its
subsidiary Budkhol LLC, and includes principal and accrued interest
on deferred consideration in amount of USD 31,305 thousand and USD
1,378 thousand, respectively (2019: USD 20,000 thousand presented
as current liability and USD 10,167 thousand presented as current
liability, respectively).
During the year ended 31 December 2020, the Group signed
amendment to the agreement stipulating prolongation of maturity
date till 1 August 2023 and increase in the annual interest rate
from 9.75% to 10.5% and capitalization or repayment of accrued
interest annually.
16 Revenue
The revenue is represented as follows:
20 20 2019
(in thousands of USD)
Rental income:
Fixed lease payments 22,652 26,968
Variable lease payments 2,555 3,398
25 , 207 30,366
Revenue from contract with customers:
Common parts exploitation services 6,822 6,592
Marketing services 274 294
7,096 6,886
32,303 37,252
The major amount of the Group's revenue is represented by rental
income from investment properties that falls within the
requirements of IFRS 16 Leases and amounts to USD 25,207 thousand
for the year ended 31 December 20 20 (2019: USD 30,366
thousand).
During the year ended 31 December 2020, 1 3 % of the Group's
rental income was earned from two tenants (8% and 5 %,
respectively) (2019: 8% and 4 %, respectively).
The Group rents out premises in the shopping centres to tenants
in accordance with lease agreements predominantly concluded for a
period of up to 70 months, save for the hypermarkets and large
network retails chains, which enter into long term lease
agreements. In accordance with lease agreements, rental rates are
usually established in USD and are settled in functional currency
using the exchange rates as applicable. However, taking into
account the current market conditions, the Group provides temporary
discounts to some of its tenants, in arriving to the rent payment
for the particular month.
Management believes that these measures will allow the Group to
maintain occupancy rates in the shopping centres at a relatively
high level during the current deteriorated period in Ukrainian
business environment. Management continued to turn gradually the
UAH based lease agreements into USD based lease agreements.
The Group's lease agreements with tenants usually include
non-cancellation clause for the period from 2 to 70 months. The
Group believes that execution of the option to prolong the lease
period upon expiration of non-cancellable period on the terms
different to those agreed during the non-cancellable period, is not
substantiated. Accordingly, upon calculation of rental income for
the period the Group does not take into account rent payments,
which are prescribed by the agreements upon expiration of the
period during which the agreement cannot be cancelled.
All other types of services are derived from contracts with
customers and fall within the scope of IFRS 15. There are no
contract assets and contract liabilities that arise on the above
stated service lines.
Direct operating expenses arising from investment property that
generated rental income during the years ended 31 December are as
follows:
20 20 2019
(in thousands of USD)
Land rent, land and other property taxes
(Note 17) 1,359 1,219
Security services (Note 17) 698 663
Repair, maintenance and building services 528 604
Advertising (Note 17) 505 716
Communal public services 269 379
3,359 3,581
No direct operating expenses arising from investment property
that did not generate rental income during 20 20 and 201 9
occurred.
17 Operating expenses
Operating expenses for the years ended 31 December are as
follows:
(in thousands of USD) 20 20 2019
Management, consulting and legal services 2,615 2, 189
Land rent, land and property taxes (Note
16) 1,359 1,219
Security services (Note 16) 698 663
Tax provision 648 2,445
Advertising (Note 16) 505 716
Office expenses and communication services 476 564
Administrative expenses 177 106
Independent auditors' remuneration 149 323
Tax services charged by independent auditors 62 25
Impairment loss on trade receivables and 22 -
contract assets
Other assurance service charged by independent
auditors 3 40
Other 69 8 704
7,4 12 8,994
18 Finance income and finance costs
Finance income and finance costs for the years ended 31 December
are as follows:
(in thousands of USD) 20 20 2019
Foreign exchange gain - 8,473
Interest income 143 470
Finance income 143 8,943
( 9 , 697
Interest expense ) (10,229)
Interest expense on deferred consideration ( 2 , 516
(note 15) ) (1,950)
Foreign exchange loss (9,674) -
Other finance costs - (140)
Finance costs (21,887) (12,319)
Net finance cost (21,744) (3,376)
19 Income tax expense
(b) Income tax expense
Income taxes for the years ended 31 December are as follows:
(in thousands of USD) 20 20 2019
Current tax expense 8 74 1,373
Deferred tax (benefit)/expense 3, 728 (541)
Total income tax expense 4 , 602 832
Corporate profit tax rate for the entities operating under the
laws of Ukraine is fixed at 18%.
The applicable tax rate for the entities operating under the
laws of the Russian Federation is 20%.
The applicable tax rates are 12.5% for Cyprus companies, 20% for
Estonian companies, and nil tax for companies incorporated in the
Isle of Man and British Virgin Islands.
(bb) Reconciliation of effective tax rate
The difference between the total expected i ncome tax expense
for the years ended 31 December computed by applying the Ukrainian
statutory income tax rate to profit or loss before tax and the
reported tax expense is as follows:
20 20% 2019 %
(in thousands of USD)
Profit before tax 24,782 100% 8,857 100%
Income tax expense at statutory rate
in Ukraine 4,461 18% 1,594 18%
Effect of different tax rates on
taxable profit in other jurisdictions (1,563) (6%) ( 2, 531) (29%)
Non-deductible expenses/non-taxable
income (2,400) (10%) 7,787 88 %
Change in unrecognised deferred tax ( 5,198 (5 9
assets 4,104 17% ) %)
Change in recognised deductible temporary ( 820
differences -- ) (9%)
Effective income tax expense 4,602 19% 832 9%
(cc) Recognised deferred tax assets and liabilities
As at 31 December deferred tax assets and liabilities are
attributable to the following items:
Assets Liabilities Net
20 20 2019 20 20 2019 20 20 2019
(in thousands
of USD)
(32, 490
Investment property 286 45 (31,987) ) (31,701) (32,445)
Property and
equipment 3 - - (8) 3 (8)
Trade and other
receivables 26 104 (12) ( 142 ) 14 (38)
Assets classified
as held for sale - - (275) (329) (275) (329)
Trade and other
payables 12 - (17) - (5) -
Short-term borrowings 2 26 (2) (23) - 3
Other long-term
payables 27 11 - (132) 27 (121)
Tax loss carry-forwards 26,141 22 ,245 - - 26,141 22 ,245
Deferred tax
assets (liabilities) 26,497 22,431 (32,293) (33,124) (5,796) (10,693)
Offset of deferred
tax assets and
liabilities (26,497) (22,431) 26,497 22,431 - -
Net deferred
tax
liabilities - - (5,796) (10,693) (5,796) (10,693)
(dd) Movements in recognised deferred tax assets and liabilities
Movements in recognised deferred tax assets and liabilities
during the year ended 31 December 20 20 are as follows:
(in thousands Balance Change Recognised Recognised Foreign Balance
of USD) as at in tax in profit in OCI currency as at 31
1 January losses or loss translation December
20 20 carried adjustment 20 20
asset (liability) forward asset (liability)
(4 ,
Investment property (32, 445) - 738) - 5,842 (31,701)
Property and
equipment (8) - 10 - 1 3
Trade and other
receivables (38) - 48 - 4 14
Assets classified
as held for
sale (329) - 1 - 53 (275)
Trade and other
payables - - 6 - - 6
Short-term borrowings 3 - (3) - - -
Other long-term
payables (121) - 135 - 13 27
Tax loss carry-forwards 22,245 - 813 6,784 (3,991) 26,141
Deferred tax
assets (liabilities) (10,693) - (3,728) 6,784 1,562 (5,796)
Movements in recognised deferred tax assets and liabilities
during the year ended 31 December 2019 are as follows:
Balance Change in Recognised Recognised Foreign Balance
as at tax losses in profit in OCI currency as at 31
1 January carried or loss translation December
2019 forward adjustment 2019
asset (liability) asset (liability)
(in thousands
of USD)
Investment (4, 619
property (30,272) - 2, 446 - ) (32, 445)
Property and
equipment (5) - (2) - (1) (8)
Trade and other
receivables 61 - (100) - 1 (38)
Assets classified
as held for
sale (281) - - - (48) (329)
Trade and other
payables 509 - (545) - 36 -
Short-term
borrowings 8 - (6) - 1 3
Other long-term
payables 7 - (118) - (10) (121)
( 1,954
Tax loss carry-forwards 23,056 820 ) (3,149) 3,472 22,245
Deferred tax
assets (liabilities) (6,917) 820 (279) ( 3,149) (1,168) (10,693)
Unrecognised deferred tax assets
Deferred tax assets as at 31 December 20 20 have not been
recognised in respect of the following items:
Utilisation of
previously
unrecognised Foreign currency
Balance as at 1 Change in tax-loss temporary translation Balance as at
January 20 20 carry forwards differences adjustment 31 December 20 20
(in thousands of
USD)
Tax loss
carry-forwards 8,925 4,104 - (1,665) 11,364
-
------------------ ------------------ ----------------- ------------------ ------------------
8,925 4,104 - (1,665) 11,364
Deferred tax assets as at 31 December 201 9 have not been
recognised in respect of the following items:
Utilisation of
previously
unrecognised Foreign currency
Balance as at 1 Change in tax loss temporary translation Balance as at 31
January 201 9 carryforwards differences adjustment December 201 9
(in thousands of
USD)
Tax loss
carry-forwards 11,850 1,645 ( 6,843 ) 2,2 7 3 8,925
11,850 1,645 ( 6,843 ) 2,2 7 3 8,925
During the year ended 31 December 2019 certain Group entities
submitted amended CPT declarations that led to increase in tax-loss
carry forwards with tax effect of USD 2,465 thousand.
In accordance with existing Ukrainian legislation tax losses can
be carried forward and utilised indefinitely. Deferred tax assets
have not been recognised in respect of those items since it is not
probable that future taxable profits will be available against
which the Group can utilise the benefits therefrom.
20 Financial risk management
(a) Overview
The Group has exposure to the following risks from its use of
financial instruments:
-- credit risk
-- liquidity risk
-- market risk
This note presents information about the Group's exposure to
each of the above risks, the Group's objectives, policies and
processes for measuring and managing risk. Further quantitative
disclosures are included throughout these consolidated financial
statements.
(ee) Risk management framework
The management has overall responsibility for the establishment
and oversight of the risk management framework.
The Group's risk management policies are established to identify
and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits.
Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group's
activities.
The Group, through its training and management standards and
procedures, aims to develop a disciplined and constructive control
environment in which all employees understand their roles and
obligations.
The Group's Audit Committee oversees how management monitors
compliance with the Group's risk management policies and procedures
and reviews the adequacy of the risk management framework in
relation to the risks faced by the Group.
(ff) Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from the
Group's financial assets at amortised cost.
(ii) Trade and other receivables
The Group's exposure to credit risks is influenced mainly by the
individual characteristics of each customer. However, management
also considers the factors that may influence the credit risk of
the Group's customers, including the default risk of the industry
and country, in which customers operate, as these factors may have
an influence on credit risk.
Management has established a policy under which each customer is
analysed either individually or on collective basis regarding
expected credit losses as at reporting date.
There are no balances with customers, which are to be assessed
individually as at 31 December 2020 (2019: nil).
For other individually insignificant debtors the Group uses an
allowance matrix to measure expected credit loss (ECL). Loss rates
are calculated using a "roll rate" method based on the probability
of a receivable progressing through successive stages of
delinquency to write-off. Roll-rates are calculated based on the
Group's historical losses.
The macro factors have insignificant impact on the historical
loss rates due to short-term nature of the Group's receivables.
The Group does not require collateral in respect of trade and
other receivables.
As at 31 December 20 20 , the following table provides
information about the exposure to credit risk and ECLs for trade
and other receivables:
(in thousands of US Weighted-average Gross carrying Loss allowance Credit impaired
dollars) loss rate amounts (Note 7 )
Current (not past
due) 0% 1, 132 - NO
1-30 days due 0% - - NO
31-60 days due 1% 229 - NO
61-90 days due 0% 1 0 - NO
More than 90 days (8, 320
past due 99% 8, 6 22 ) YES
Total 9, 9 93 (8, 32 0)
As at 31 December 201 9 , the following table provides
information about the exposure to credit risk and ECLs for trade
receivables:
(in thousands of US Weighted-average Gross carrying Loss allowance Credit impaired
dollars) loss rate amounts (Note 7 )
Current (not past
due) 0% 1,613 - NO
1-30 days due 0% 1 - NO
31-60 days due 0% 6 - NO
61-90 days due 0% 1 - NO
More than 90 days
past due 100% 8,253 (8,2 40 ) YES
Total 9,874 (8,240)
Allowance for impairment of financial assets is as follows:
20 20 2019
(in thousands of USD)
Allowance for impairment of trade and other
receivables (Note 7) 8,320 8,240
Allowance for impairment of loans receivable
(Note 6) 11,208 11,218
Allowance for impairment of financial assets
at FVOCI (Note 21(d)) 20,727 20,727
40,255 40,185
The movement in the allowance for impairment in respect of
financial assets during the years ended
31 December was as follows:
2020 2019
(in thousands of USD)
Balance at 1 January 40,185 39,896
Impairment loss recognised - 268
Bad debt write-off/recovery 80 -
Foreign currency translation differences (10) 21
Balance at 31 December 40,255 40,185
(iii) Cash and cash equivalents
Impairment on cash and cash equivalents has been measured on a
12-month expected loss basis and reflects the short maturities of
the exposures, due to which no impairment allowance has been
recognised by the Group. The Group considers that its cash and cash
equivalents have low credit risk based on its assessment of the
reliability of the banks where cash and cash equivalents are
held.
(gg) Capital management
Management defines capital as total equity attributable to
equity holders of the parent. The Group has no formal policy for
capital management but management seeks to maintain a sufficient
capital base for meeting the Group's operational and strategic
needs, and to maintain confidence of market participants. The Group
strives to achieve this with efficient cash management, and
constant monitoring of the Group's investment projects. With these
measures the Group aims for steady profits growth. There were no
changes in the Group's approach to capital management during the
year.
(i) Guarantees
The Group considers that financial guarantee contracts entered
into by the Group to guarantee the indebtedness of related parties
to be insurance arrangements, and accounts for them as such. In
this respect, the Group treats the guarantee contract as a
contingent liability until such time as it becomes probable that
the Group will be required to make a payment under the
guarantee.
(ii) Exposure to credit risk
The carrying amount of financial assets represents the maximum
credit exposure.
In addition to the credit risk, the Group is exposed to the risk
of non-recoverability of VAT receivable, prepayments made and other
assets amounting in total to USD 5, 1 8 5 thousand as at 31
December 20 20 (201 9 : USD 4,439 thousand).
(hh) Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Group's approach to managing liquidity is to
ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or
risking damage to the Group's reputation.
The following are the contractual maturities of financial
liabilities, including interest payments as at
31 December 2020:
Contractual cash flows
-----------------------------------------------------
Carrying 2 months 2 - 12 1 - 2 2 - 5 More than
amount Total or less months years years 5 years
(in thousands
of USD)
Secured bank
loans 46,924 55,868 2,091 21,260 8,856 23,661 -
Unsecured loans
from 3 7 ,10 11 ,
related parties 33,050 0 294 824 2,249 22,733 -
Unsecured loans
from 3 5 , 2 9 ,
third parties 25,844 102 - 2 , 596 2,577 929 -
Trade and other 19,0
payables 42 25,269 3,719 - - - 21,550
35,9
Other liabilities 33 44,416 - 6,380 3,444 34,592 -
19 7 42 , 1 7 , 1 10
160,801 , 755 6,104 060 126 , 915 21,550
The following are the contractual maturities of financial
liabilities, including interest payments as at
31 December 2019:
Contractual cash flows
-----------------------------------------------------
Carrying 2 months 2 - 12 1 - 2 2 - 5 More than
amount Total or less months years years 5 years
(in thousands
of USD)
Secured bank
loans 43,394 54,898 5,827 14,861 7,754 26,456 -
Unsecured loans
from
related parties 35,161 36,126 7,998 28,128 - - -
Unsecured loans
from
third parties 23,844 23, 986 23,743 - - 243 -
Trade and other 2 7 ,
payables 20,565 999 6,4 49 - - 21,550
Other liabilities 32,755 33,727 - 33,584 143 - -
155,719 176,736 44,017 76,573 7,897 26,699 21,550
(ii) Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates and equity prices will
affect the Group's income or the value of its holdings of financial
instruments. The objective of market risk management is to manage
and control market risk exposures within acceptable parameters,
while optimising the return.
(i) urrency risk
Group entities operating under the laws of Ukraine
The Group is exposed to currency risk on sales, purchases and
borrowings that are denominated in a currency other than the
Ukrainian hryvnias (UAH), primarily the U.S. Dollar (USD) and Euro
(EUR).
Interest on borrowings is denominated in the currency of the
borrowing. Generally, borrowings are denominated in USD which does
not always match the cash flows generated by the underlying
operation of the Group, primarily executed in UAH.
Exposure to currency risk
The Group's exposure to foreign currency risk as at 31 December
was as follows based on notional amounts:
20 20 201 9
----------------------
USD EUR USD EUR
(in thousands of USD)
Cash and cash equivalents 3,879 - - 2,454
Secured bank loans (38,656) - (31,589) -
Unsecured loans from related parties (244) - (229) -
Trade and other payables - (407) - (558)
Net ( short )/long position (35,012) (407) (31,818) 1,896
Sensitivity analysis
A 10 percent weakening of the Ukrainian hryvnia against the
following currencies as at 31 December would have decreased net
profit or loss and decreased equity by the amounts shown below.
This analysis assumes that all other variables, in particular
interest rates, remain constant.
20 20 201 9
------------------ ------------------
(in thousands of USD) Profit or Profit or
loss Equity loss Equity
USD (2,872) (2,872) (2,609) (2,609)
EUR (33) (33) 155 155
A 10 percent strengthening of the Ukrainian hryvnia against
these currencies at 31 December would have had the equal but
opposite effect on these currencies to the amounts shown above, on
the basis that all other variables remain constant.
Intra-group borrowings
The Group entities located in Ukraine are exposed to currency
risk on intra-group borrowings, eliminated in these consolidated
financial statements, that are denominated in a currency other than
the Ukrainian hryvnia (UAH), primarily the U.S. Dollar (USD). These
borrowings are treated as part of net investment in a foreign
operation with foreign exchange gains and losses recognised in
other comprehensive income and presented in the translation reserve
in equity.
The exposure to foreign currency risk on these borrowings is USD
322,247 thousand and USD 317,002 thousand as at 31 December 20 20
and 201 9 , respectively. The effect of translation of these loans
payable by Ukrainian subsidiaries resulted in a foreign exchange
loss of USD 49,834 thousand, including tax effect, recognised
directly in other comprehensive income for the year ended 31
December 2020 (2019: foreign exchange gain of USD 46,014
thousand).
A 10 percent weakening of the Ukrainian hryvnia against the USD
would have increase other comprehensive loss for the year ended 31
December 2020 and equity as at 31 December 2020 by USD 26,424
thousand (2019: USD 25,994 thousand). This analysis assumes that
all other variables, in particular interest rates, remain
constant.
A 10 percent strengthening of the Ukrainian hryvnia against
these currencies would have had the equal but opposite effect to
the amounts mentioned above, on the basis that all other variables
remain constant.
Group entities operating under the laws of the Russian
Federation
The Group entities, located in the Republic of Crimea and the
Russian Federation, are exposed to currency risk on purchases and
borrowings that are denominated in a currency other than the
Russian Rouble (RUB) , primarily the Ukrainian hryvnia (UAH) and
U.S. Dollar (USD).
Exposure to currency risk
The exposure to foreign currency risk as at 31 December was as
follows based on notional amounts:
2020 2019
--------------------
(in thousands of USD) USD UAH USD UAH
Trade and other payables (15,323) (410) (14,096) -
Net short position (15,323) (410) (14,096) -
Sensitivity analysis
A 1 0 percent weakening of the Russian Rouble against the
following currencies as at 31 December would have increased net
profit or loss and increased equity by the amounts shown below.
This analysis assumes that all other variables, in particular
interest rates, remain constant.
2020 2019
------------------ --------------------
Profit or Profit or
loss Equity loss Equity
(in thousands of USD)
UAH (33) (33) - -
(1,12 8
USD (1,226) (1,226) ) (1,12 8 )
A 10 percent strengthening of the Russian Rouble against these
currencies at 31 December would have had the equal but opposite
effect on these currencies to the amounts shown above, on the basis
that all other variables remain constant.
(ii) Interest rate risk
Changes in interest rates impact primarily loans and borrowings
by changing either their fair value (fixed rate debt) or their
future cash flows (variable rate debt). Management does not have a
formal policy of determining how much of the Group's exposure
should be to fixed or variable rates. However, at the time of
obtaining new financing management uses its judgment to decide
whether a fixed or variable rate would be more favorable to the
Group over the expected period until maturity.
Refer to Notes 12, 13 and 15 for information about maturity
dates and effective interest rates of fixed rate and variable rate
financial instruments. Re-pricing for fixed rate financial
instruments occurs at maturity of fixed rate financial
instruments.
Profile
The interest rate profile of the Group's interest-bearing
financial instruments as at 31 December was as follows:
2020 2019
(in thousands of USD)
Fixed rate instruments
Loans and borrowings 105,818 102,399
Other liabilities 32,683 30,167
Payables for construction works 15,330 14,096
153,831 146,662
Variable rate instruments
Loans and borrowings - -
- -
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed-rate financial
instruments as fair value through profit or loss or fair value
through other comprehensive income. Therefore, a change in interest
rates at the reporting date would not have an effect in profit or
loss or in equity.
(iii) Fair values
Estimated fair values of the financial assets and liabilities
have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment
is required in interpreting market data to produce the estimated
fair values. Accordingly, the estimates are not necessarily
indicative of the amounts that could be realised in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the
estimated fair values.
The estimated fair values of financial assets and liabilities
are determined using discounted cash flow and other appropriate
valuation methodologies, at year-end, and are not indicative of the
fair value of those instruments at the date these consolidated
financial statements are prepared or distributed. These estimates
do not reflect any premium or discount that could result from
offering for sale at one time the Group's entire holdings of a
particular financial instrument. Fair value estimates are based on
judgments regarding future expected cash flows, current economic
conditions, risk characteristics of various financial instruments
and other factors.
Fair value estimates are based on existing financial instruments
without attempting to estimate the value of anticipated future
business and the value of assets and liabilities not considered
financial instruments. In addition, tax ramifications related to
the realisation of the unrealised gains and losses can have an
effect on fair value estimates and have not been considered.
The following table shows the carrying amounts and fair values
of financial assets and financial liabilities, including their
levels in the fair value hierarchy. It does not include fair value
information for financial assets and financial liabilities not
measured at fair value if the carrying amount is a reasonable
approximation of fair value:
2020 2019
Fair value Fair value
Carrying amount Level 2 Carrying amount Level 2
(in thousands of USD)
Financial liabilities not measured at fair value
Non -current
Secured bank loans 27,293 30,804 26,768 29,120
Unsecured loans from related parties 21,420 20,049 - -
Unsecured loans from third parties 24,745 24,791 186 199
Payables for construction works 15,330 18,082 14,105 15,404
Deferred consideration 31,305 31,376 - -
Other long-term liabilities 157 157 - -
120,250 125, 25 9 41,059 44,723
Current
Secured bank loans (current portion of long-term
bank loans) 19,631 23, 189 16,626 17,073
Unsecured loans from related parties
(including current portion of long-term loans
from related parties) 11,630 11,108 35,161 35,369
Unsecured loans from third parties 1,099 1,141 23,658 23,658
Deferred consideration 1,369 1,381 30,167 30,395
33,729 3 6,819 105,612 106,495
153,979 162,079 146,671 151,218
Management believes that for all other financial assets and
liabilities, not included in the table above, the carrying value
approximates the fair value as at 31 December 2020 and 2019. Such
fair value was estimated by discounting the expected future cash
flows under the market interest rate for similar financial
instruments that prevails as at the reporting date. The estimated
fair value is categorised within Level 2 of the fair value
hierarchy.
21 Commitments and contingencies
(a) Pledged assets
As at 31 December, in connection with loans and borrowings, the
Group pledged the following assets:
2020 2019
(in thousands of USD)
Investment property (Note 5(a)) 160,500 171,150
Bank balances (Note 9) 212 1,135
160,712 172,285
As at 31 December 2020 and 31 December 2019, the Group has also
pledged the following:
-- Rights on future income of Prisma Alfa LLC under all lease
agreements for the period of validity of loan agreement between
Prisma Alfa LLC with Raiffeisen Bank Aval.
-- Investments in the following subsidiaries: PrJSC Ukrpangroup,
Comfort Market Luks LLC and PrJSC Livoberezhzhiainvest.
(jj) Construction commitments
The Group entered into contracts with third parties to construct
two shopping centres in Kyiv and a shopping centre in Odesa for the
amount of USD 53,255 thousand as at 31 December 2020
(2019: USD 61,549 thousand).
(kk) Operating lease commitments
The Group as lessor
The Group entered into lease agreements on its investment
property portfolio that consists of five shopping centres. These
non-cancellable lease agreements usually have remaining terms up to
one hundred fifty months. All agreements include a clause to enable
upward revision of the rent rate on an annual basis according to
prevailing market conditions.
The following table sets out a maturity analysis of lease
receivables, showing the undiscounted lease payments to be received
after the reporting date:
2020 2019
(in thousands of USD)
Less than one year 5,470 6,008
Between one and two years 1,759 1,730
Between two and three years 1,345 1,545
Between three and four years 862 1,107
Between four and five years 801 751
More than five years 509 1,348
10,746 12,489
(ll) Litigations
In the ordinary course of business, the Group is subject to
legal actions and complaints.
(i) Legal case in respect of Assofit Holdings Limited
Since November 2010 the Group has been involved in an
arbitration dispute with Stockman Interhold S.A. (Stockman), which
was the majority shareholder of Assofit Holdings Limited (Assofit),
regarding invalidation of the Call Option Agreement dated 25
February 2010. In accordance with this Call Option Agreement,
Arricano was granted the option to acquire the shareholding of
Stockman being equal to 50.03 per cent in the share capital of
Assofit during the period starting from 15 November 2010 up to 15
March 2011. In November 2010, the Company sought to exercise the
option granted by the Call Option Agreement, however the buy-out
was suspended by legal and arbitration proceedings that were
initiated by Stockman in relation to the validity of the
termination of the agreement relating to the call option under the
Call Option Agreement.
In the seventh award delivered on 5 May 2016, the tribunal of
the London Court of International Arbitration found that Stockman
is in breach of the Call Option Agreement and has taken "steps
deliberately to dissipate and misappropriate Assofit's assets". As
a result, the tribunal has ordered Stockman to transfer, or procure
the transfer of, the Option Shares to Arricano within 30 days of
the award. Upon registration of the transfer, Arricano shall pay to
Stockman the Option Price minus damages, which when netted out
brings the balance to nil. In the event that Stockman does not
transfer, or procure the transfer of the Option Shares, Arricano
may elect instead to claim damages in lieu of the share
transfer.
In its latest award, being the eighth award, made on 17 August
2016, the tribunal of the London Court of International Arbitration
awarded the costs of approximately USD 0.9 million to be paid by
Stockman to Arricano. No receivable was recognised in these
consolidated financial statements, as recoverability of the related
asset was not certain.
In July 2017, the hearing regarding challenges of the fifth, the
sixth and the seventh award by Stockman took place. By judgement
dated 30 November 2017, the High Court of England and Wales
dismissed the claims filed by Stockman challenging the fourth,
fifth and seventh awards, and subsequently, on 5 January 2018,
dismissed Stockman's application to appeal such judgement.
As at the date that these consolidated financial statements are
authorised for issuance, a number of related legal cases are under
the consideration of the District Court of Nicosia.
In September 2014, Assofit Holdings Limited transferred the
shares of Prisma Beta LLC to Financial and Investment Solutions BV,
a company registered in the Netherlands, despite the fact that an
Interim Receiver was appointed in Assofit at that period of time
with the responsibility for collecting and safeguarding Assofit's
assets. Further in September 2014, Joint-Stock Bank Pivdeniy PJSC,
Ukraine, which had an outstanding mortgage loan due from Prisma
Beta LLC of USD 32,000 thousand, exercised its right to recover the
abovementioned loan by means of reposession of ownership rights to
the Sky Mall shopping centre which was pledged to secure this loan
in September 2014. As at the date that these consolidated financial
statements are authorised for issuance, shares of Prisma Beta LLC
and ownership rights for the Sky Mall shopping centre remain
alienated.
As at 31 December 2020 and 2019, the Group holds 49.97% of
nominal voting rights in Assofit without retaining significant
influence. In prior years' consolidated financial statements of the
Group until
31 December 2013, investment in Assofit was recognised in the
statement of financial position as available for-sale financial
asset at its carrying amount of USD 20,727 thousand. Due to loss of
the legal control over the major operating asset being the Sky Mall
shopping centre in September 2014, the investment in Assofit is
fully impaired as at 31 December 2020 and 2019.
On 2 July 2018, the Group filed application for the
rectification of the register of members of Assofit. By this
petition, the Company is asking that the shares of Assofit that are
currently registered in the name of Althor shall be registered to
the name of Arricano Real Estate plc. By decision dated 30 November
2020, the court dismissed the Group's petition. The Group has
already instructed its lawyers to file the appeal.
Management is unaware of any other significant actual, pending
or threatened claims against the Group.
(mm) Taxation contingencies
(i) Ukraine
The Group performs most of its operations in Ukraine and
therefore within the jurisdiction of the Ukrainian tax authorities.
The Ukrainian tax system can be characterised by numerous taxes and
frequently changing legislation which may be applied retroactively,
open to wide interpretation and in some cases are conflicting.
Instances of inconsistent opinions between local, regional, and
national tax authorities and between the Ministry of Finance and
other state authorities are not unusual. Tax declarations are
subject to review and investigation by a number of authorities that
are enacted by law to impose severe fines, penalties and interest
charges. A tax year remains open for review by the tax authorities
during the three subsequent calendar years, however under certain
circumstances a tax year may remain open longer. These facts create
tax risks substantially more significant than typically found in
countries with more developed systems.
Management believes that it has adequately provided for tax
liabilities based on its interpretation of tax legislation and
official pronouncements. However, the interpretations of the
relevant authorities could differ and the effect on these
consolidated financial statements, if the authorities were
successful in enforcing their interpretations, could be
significant.
(ii) Republic of Crimea
As a result of the events described in Note 1(b), Ukrainian
authorities are not currently able to enforce Ukrainian laws on the
territory of the Republic of Crimea. Starting from April 2014, this
territory is subject to the transitional provisions of tax rules
established by the Russian government to ensure gradual
introduction of federal laws into the territory. Although these
transitional provisions were thought to put certain relief on the
entities registered in the Republic of Crimea, interpretations of
these provisions by the tax authorities may be different from the
tax payers' view. Effective from 1 January 2015, the Russian
government declared that the territory of the Republic of Crimea is
subject to general legislation of the Russian Federation.
(iii) Russian Federation
The taxation system in the Russian Federation continues to
evolve and is characterised by frequent changes in legislation,
official pronouncements and court decisions, which are sometimes
contradictory and subject to varying interpretation by different
tax authorities.
Taxes are subject to review and investigation by a number of
authorities, which have the authority to impose severe fines,
penalties and interest charges. A tax year generally remains open
for review by the tax authorities during the three subsequent
calendar years; however, under certain circumstances a tax year may
remain open longer. Recent events within the Russian Federation
suggest that the tax authorities are taking a more assertive and
substance-based position in their interpretation and enforcement of
tax legislation.
In addition, a number of new laws introducing changes to the
Russian tax legislation have been recently adopted. In particular,
starting from 1 January 2015 changes aimed at regulating tax
consequences of transactions with foreign companies and their
activities were introduced, such as concept of beneficial ownership
of income, etc. These changes may potentially impact the Group's
tax position and create additional tax risks going forward. This
legislation is still evolving and the impact of legislative changes
should be considered based on the actual circumstances.
These circumstances may create tax risks in the Russian
Federation that are substantially more significant than in other
countries. Management believes that it has provided adequately for
tax liabilities based on its interpretations of applicable Russian
tax legislation, official pronouncements and court decisions.
However, the interpretations of the tax authorities and courts,
especially due to reform of the supreme courts that are resolving
tax disputes, could differ and the effect on these consolidated
financial statements, if the authorities were successful in
enforcing their interpretations, could be significant.
(iv) Republic of Cyprus
Operations of the Group in Cyprus are mainly limited to
provision of intra-group financing, transactions related to Assofit
legal case (note 21 (d)(i)) and various management activities.
Transactions performed by the Cyprus entities of the Group fall
within the jurisdiction of Cyprus tax authorities. The Cyprus tax
system can be characterized by numerous taxes, legislation may be
applied retrospectively, open to wide interpretation. VAT and
income tax declarations are subject to review and investigation by
authorities that are enacted by law to impose severe fines,
penalties and interest charges. A tax year remains open for review
by the Tax department during the six subsequent calendar years,
however under certain circumstances a tax year may remain open
longer.
Additionally, a new transfer pricing legislation was enacted in
Cyprus from 30 June 2017, which requires entities to conduct
intra-group financing transactions on the arm's length principle (a
principle under which transactions are performed at market rates,
as would have been performed between unrelated entities). The
legislation requires taxpayers to prepare and submit to the tax
authorities Transfer pricing study documents justifying margins
applied to the intra-group financing. The compliance of margins
applied to the arms' length principle could be a subject to
scrutiny on the basis of unjustified tax benefit concept. Given the
fact that the above rule has been in force for a limited period of
time, currently, there is no established practices of its
application by the tax authorities, and there can be no assurance
that the tax authorities' interpretations of the approaches used by
the Group may differ, which could result in accrual of fines and
penalty interest on the Group.
During the prior years, the Group incurred certain foreign legal
expenses, where the VAT accounted for on these expenses was fully
claimed. Management believes that the Group properly claimed the
VAT accounted for on these expenses, on the basis of the plans to
further collect reimbursement of the said expenses, being purely of
legal nature, from respective parties in full.
Management believes that it has adequately provided for tax
liabilities based on its interpretation of tax legislation,
official pronouncements and court decisions.
22 Related party transactions
(b) Control relationships
The Group's largest shareholders are Retail Real Estate OU,
Dragon Capital Investments Limited, Deltamax Group OU, Rauno Teder
and Jüri Põld. The Group's ultimate controlling party is Estonian
individual Rauno Teder.
During the year ended 31 December 2020, Hillar Teder transferred
his equity interest in Retail Real Estate OU to Rauno Teder. As a
result, Rauno Teder, who already had held 15.92% of the issued
voting rights of the Parent Company (7.48% - directly and 8.34%
through Deltamax Group OU), acquired interest of 55.04% in the
Parent Company (though RRE), thus increasing his aggregate interest
to 70.86% of the Parent Company.
(nn) Transactions with management and close family members
Key management remuneration
Key management compensation included in the statement of profit
or loss and other comprehensive income for the year ended 31
December 2020 is represented by salary and bonuses of
USD 493 thousand (2019: USD 854 thousand).
Director's interests
The direct and indirect interest of the members of the Board in
share capital of the Company as at
31 December 2020 and 31 December 2019 and as at the date of
signing of these consolidated financial statements is as
follows:
Name Type of interest Effective shareholding
rate
Jüri Põld Direct shareholding 7.07%
(oo) Transactions and balances with entities under common control
Outstanding balances with entities under common control as at 31
December are as follows:
2020 2019
(in thousands of USD)
Short-term loans receivable 11,208 11,218
Trade receivables 1 18
Other receivables 8,160 8,160
Provision for impairment of trade and other
receivables and loans receivable from related
parties (19,366) (19,376)
3 20
Long-term loans and borrowings 21,420 -
Short-term loans and borrowings 11,630 35,161
Trade and other payables 218 1,039
Advances received 24 29
Other liabilities - 30,167
33 , 292 66,396
None of the balances are secured. The terms and conditions of
significant transactions and balances with entities under common
control are described in Notes 6, 7, 12, 13, 14 and 15.
During the year ended 31 December 2020, the Group signed
amendments to two loan agreements with Retail Real Estate OU, the
parent company, with carrying values as at 31 December 2020
amounting to USD 3,128 thousand and USD 28,293 thousand stipulating
capitalization of accrued interest as at 1 August 2020,
prolongation of maturity date till 1 August 2021 and 1 August 2023
and capitalization or repayment of accrued interest annually,
respectively, and decrease of interest rate from 12.0% to 10.5% for
the loan amounting to USD 28,293 thousand.
Expenses incurred and income earned from transactions with
entities under common control for the years ended 31 December are
as follows:
2020 2019
(in thousands of USD)
Interest expense (3 , 041) (4,757)
Prices for related party transactions are determined on an
ongoing basis.
23 Subsequent events
Subsequent to the reporting date, the Group received a new
tranche of USD 3,192 thousand according to one of the open credit
lines.
Subsequent to reporting date, on 26 March 2021 and on 15 April
2021, the Group signed amendments to the loan agreements with JSC
Tascombank stipulating a decrease in the annual interest rates of
the received facility by 1.75% and 3.25% respectively.
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END
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April 21, 2021 11:30 ET (15:30 GMT)
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