TIDMAISI
RNS Number : 9402O
Aisi Realty Public Limited
07 July 2010
7 July 2010
Aisi Realty Public Limited
("Aisi" or "the Company")
Financial results for the year ended 31 December 2009
Aisi, a property investment company focusing on development projects and related
investments in Ukraine, announces its audited results for the year ended 31
December 2009.
A copy of the financial statements may also be found on the Company's website:
www.aisicap.com
Enquiries:
+----------------------------------+----------------------------------+
| | |
| AISI Realty Public Ltd | |
+----------------------------------+----------------------------------+
| Beso Sikharulidze | + 38 044 459 3000 |
+----------------------------------+----------------------------------+
| | |
+----------------------------------+----------------------------------+
| Seymour Pierce Limited | |
+----------------------------------+----------------------------------+
| Nandita Sahgal / David Foreman | +44 (0)20 7107 8000 |
+----------------------------------+----------------------------------+
Directors' Report
The Board of Directors presents its report and audited consolidated financial
statements of Aisi Realty Public Limited (the Company) and its subsidiaries (the
Group) for the year ended 31 December 2009.
Principal activity
The principal activity of the Group, which is unchanged from last year, is the
investment in real estate in major population centres in Ukraine, with a
particular focus on the capital city, Kiev.
Review of current position, future development and significant risks
Whilst we have only one bank debt and numerous uncharged assets, the Group's
financial position as presented in the financial statements is not considered
satisfactory by the Directors, and they have been working on a number of
strategic opportunities to make the Group's operations profitable.
In November and December of 2009, the Group received two disbursements totalling
US$16m of the first tranche of the EBRD syndicated loan facility of up to
US$34.4m which allowed the Group to complete the Brovary Warehouse, albeit with
severe winter weather related delays. This is the only bank debt of the Group.
We have not been able to complete our pre-lease agreement with UVK as signed and
announced in July 2009 on mutually acceptable terms. We have therefore placed
the property into the leasing market and are pleased to report that we have
commenced negotiations (some being at an advanced stage) with a number of
international logistics operators, and expect a positive conclusion in the near
future, which should provide improved visibility on the ongoing cash generation
of the property.
The Board of Directors has discussed and agreed on the potential structure of
the management internalisation which will be proposed to shareholders at a
General Meeting in the coming few weeks.
Considering the current market conditions, the Board of Directors has decided to
focus the strategy of the Group away from speculative development to investing
in income generating assets. The focus will now be on warehouses and big box
retail, with well established international tenants with long term leases. We
have built a strong pipeline of potential new investments. All other non-core
assets will be used to generate additional equity for implementing a new
strategy. This change of investment strategy will also be put for shareholder
vote at the upcoming General Meeting.
While the Group is expecting cash inflows from the Brovary property to commence
in the near term it is working on addressing its immediate liquidity issue
through other means of finance as well as recovering advances made for pipeline
projects. In addition we are talking to a number of potential joint venture
financial partners.
Results and Dividends
The Group's results for the year are set out on page 12. The Board of Directors
does not recommend the payment of a dividend.
Share Capital
There were no changes in the share capital of the Company during the year.
Share Option for Directors
On 25 July 2007, the Company adopted a share option scheme for each of the
Directors as at that date. Under the Option scheme, which was approved by the
members on 31 March 2008, each director is entitled to subscribe for 263,158
Ordinary shares exercisable as set out below:
+-------------------------------------------------+------------+-+----------+
| | Exercise | | Amount |
| | Price | | of |
| | US$ | | Shares |
| | | | |
+-------------------------------------------------+------------+-+----------+
| Exercisable from admission of the Company to | 0.57 | | 175,439 |
| AIM till 1 August 2017 | | | |
+-------------------------------------------------+------------+-+----------+
| Exercisable from 1st anniversary to AIM till 1 | 0.83 | | 87,719 |
| August 2017 | | | |
+-------------------------------------------------+------------+-+----------+
On 12 October 2007, the Company adopted a share option scheme for its Director
Franz M. Hoerhager which entitles him to subscribe for 182.917 Ordinary shares
exercisable as set out below:
+-------------------------------------------------+-----------+-+----------+
| | Exercise | | Amount |
| | Price | | of |
| | US$ | | Shares |
| | | | |
+-------------------------------------------------+-----------+-+----------+
| Exercisable immediately after the Appointment | 0.40 | | 121,929 |
| till 1 August 2017 | | | |
+-------------------------------------------------+-----------+-+----------+
| Exercisable from 1st anniversary to AIM till 1 | 0.50 | | 60,988 |
| August 2017 | | | |
+-------------------------------------------------+-----------+-+----------+
If a director resigns from the Board any unvested options lapse, unless the
Directors resolve otherwise.
The above options were approved, verified and adopted in every respect by the
members of the Company in
General Meeting on 31 March 2008.
The Company recognized respective equity reserve for share options in the
statement of financial position as at 31 December 2009 in the amount of US$
68,390.
Founding Shareholder Warrants
The Board of Directors approved the issue of warrants to the Founding
Shareholders of the Company, entitling them to subscribe at par value per
ordinary share, for such a number of ordinary shares which when multiplied by
US$0.57 equals 100% of the difference between the market value of the Company's
interest in its Investment Portfolio at the date of Admission to AIM (1 August
2007) and six months following admission to AIM (1 February 2008), net of direct
project cash costs, and net gain proceeds from the sale of Tarasovskaya project,
that was made in May 2007.
Additional 26,003,146 ordinary shares were issued on 27 June 2008 in relation to
the exercise of these warrants at par value of Euro 0.01 per share.
Tudor BVI Global Portfolio Ltd Warrants
The Company granted to a shareholder, Tudor BVI Global Portfolio Ltd, warrants
to subscribe for 10,937,500 Ordinary shares at the exercise price of US$0.64 per
share.
The exercise date is within 30 days following the first anniversary of admission
to AIM (1 August 2008).
The above warrants were approved, verified and adopted in every respect by the
members of the Company in General Meeting on 31 March 2008.
The above warrants have expired since they were not exercised by 30 September
2008.
Board of Directors
The members of the Company's Board of Directors as at 31 December 2009 and at
the date of this report are presented on the page 3. On 7 November 2009 Mr.
David Dorival Flitterman and on 24 December 2009 Mrs Elena Maksimova resigned
from the Board of Directors. All Directors are non executive except for Mr.
Besik Sikharulidze who is a member of the Board of Aisi Realty Capital, the
Investment Manager for the Group.
In accordance with the Company's Articles of Association Mr. Franz M. Hoerhager
retires by rotation and being eligible offers himself for re-election.
All Directors have entered into service agreements and have received options as
per Note 11 of the financial statements.
There were no significant changes in the assignment of responsibilities and
remuneration of the Board of Directors.
Events after the reporting period
Significant events that occurred after the end of the year are described in Note
31 to the financial statements.
Independent Auditors
The independent auditors, Baker Tilly Klitou and Partners Limited, have
expressed their willingness to continue in office and a resolution giving
authority to the Board of Directors to fix their remuneration will be proposed
at the Annual General Meeting.
By order of the Board of Directors
Paul Robert Ensor
Chairman
Limassol 6 July 2010
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2009
+-------------------------------------------------------+-------+---------------+----------+----------+-+
| | | | | |
+-------------------------------------------------------+-------+--------------------------+----------+-+
| | | 2009 | 2008 | |
+-------------------------------------------------------+-------+--------------------------+----------+-+
| | Note | US$ | US$ | |
+-------------------------------------------------------+-------+--------------------------+----------+-+
| | | | | |
+-------------------------------------------------------+-------+--------------------------+----------+-+
| Revenue from operations | | | | |
+-------------------------------------------------------+-------+--------------------------+----------+-+
| Fair value (losses)/gains on investment property |15,16 | (17,470,085) | 25,665,532 |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Other income, net | | (523) | 340,281 |
+-------------------------------------------------------+-------+---------------+-----------------------+
| | | (17,470,608) | 26,005,813 |
+-------------------------------------------------------+-------+---------------+-----------------------+
| | | | |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Income from investing activities | 7 | - | 1,166,406 |
+-------------------------------------------------------+-------+---------------+-----------------------+
| | | | |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Expenses | | | |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Administration expenses | 5 | (5,946,723) | (6,928,048) |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Finance costs, net | 6 | (4,872,270) | (36,778,178) |
+-------------------------------------------------------+-------+---------------+-----------------------+
| | | | |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Other expenses, net | 8 | (10,882,650) | (2,534,582) |
+-------------------------------------------------------+-------+---------------+-----------------------+
| | | | |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Loss before tax | | (39,172,251) | (19,068,589) |
+-------------------------------------------------------+-------+---------------+-----------------------+
| | | | |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Tax | 9 | (10) | 5,377,127 |
+-------------------------------------------------------+-------+---------------+-----------------------+
| | | | |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Net loss for the year | | (39,172,261) | (13,691,462) |
+-------------------------------------------------------+-------+---------------+-----------------------+
| | | | |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Other comprehensive income | | - | - |
+-------------------------------------------------------+-------+---------------+-----------------------+
| | | | |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Total comprehensive income for the year | | (39,172,261) | (13,691,462) |
+-------------------------------------------------------+-------+---------------+-----------------------+
| | | | |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Loss and total comprehensive income attributable to: | | | |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Equity holders of the parent | | (38,901,144) | (15,482,825) |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Non controlling interest | | (271,117) | 1,791,363 |
+-------------------------------------------------------+-------+---------------+-----------------------+
| | | (39,172,261) | (13,691,462) |
+-------------------------------------------------------+-------+---------------+-----------------------+
| | | | |
+-------------------------------------------------------+-------+---------------+-----------------------+
| Losses per share attributable to equity holders of | 13 | | |
| the parent (cent) | | (20.2) | (8.6) |
+-------------------------------------------------------+-------+---------------+-----------------------+
| | | | | | |
+-------------------------------------------------------+-------+---------------+----------+----------+-+
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 2009
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
| | | 2009 | 2008 |
+----------------------------------------------+------+------------+------------+
| |Note | US$ | US$ |
+----------------------------------------------+------+------------+------------+
| ASSETS | | | |
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
| Non-current assets | | | |
+----------------------------------------------+------+------------+------------+
| Property, plant and equipment | 14 | 72,764 | 207,703 |
+----------------------------------------------+------+------------+------------+
| Investment property under construction | 15 | 35,319,000 | 41,867,000 |
+----------------------------------------------+------+------------+------------+
| Investment property | 16 | 22,873,000 | 22,894,000 |
+----------------------------------------------+------+------------+------------+
| Advances for investments | 18 | 9,297,945 | 15,426,229 |
+----------------------------------------------+------+------------+------------+
| Prepayments under development contracts | | - | 2,511,292 |
+----------------------------------------------+------+------------+------------+
| VAT non-current | 23 | 3,213,709 | - |
+----------------------------------------------+------+------------+------------+
| | | 70,776,418 | 82,906,224 |
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
| Current assets | | | |
+----------------------------------------------+------+------------+------------+
| Accounts receivable | 19 | 1,776,063 | 6,372,133 |
+----------------------------------------------+------+------------+------------+
| Cash and cash equivalents | 20 | 5,020,657 | 35,733 |
+----------------------------------------------+------+------------+------------+
| | | 6,796,720 | 6,407,866 |
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
| Total assets | | 77,573,138 | 89,314,090 |
+----------------------------------------------+------+------------+------------+
| | | | |
+----------------------------------------------+------+------------+------------+
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)
31 December 2009
+----------------------------------------------+-----+--------------+--------------+
| | | | |
+----------------------------------------------+-----+--------------+--------------+
| EQUITY AND LIABILITIES | | 2009 | 2008 |
+----------------------------------------------+-----+--------------+--------------+
| | | US$ | US$ |
+----------------------------------------------+-----+--------------+--------------+
| Equity and reserves attributable to owners | | | |
| of the parent | | | |
+----------------------------------------------+-----+--------------+--------------+
| Share capital | 10 | 2,283,299 | 2,283,299 |
+----------------------------------------------+-----+--------------+--------------+
| Share premium | 10 | 92,683,930 | 92,683,930 |
+----------------------------------------------+-----+--------------+--------------+
| Accumulated losses | |(49,283,099) | (10,381,955) |
+----------------------------------------------+-----+--------------+--------------+
| Advances for issue of shares | 10 | 4,987,972 | - |
+----------------------------------------------+-----+--------------+--------------+
| Other reserves | 11 | 68,390 | 46,710 |
+----------------------------------------------+-----+--------------+--------------+
| Translation reserve | | (1,069,992) | (2,091,777) |
+----------------------------------------------+-----+--------------+--------------+
| | | 49,670,500 | 82,540,207 |
+----------------------------------------------+-----+--------------+--------------+
| | | | |
+----------------------------------------------+-----+--------------+--------------+
| Non-controlling interest | | 1,315,986 | 1,635,510 |
+----------------------------------------------+-----+--------------+--------------+
| | | | |
+----------------------------------------------+-----+--------------+--------------+
| Total equity | | 50,986,486 | 84,175,717 |
+----------------------------------------------+-----+--------------+--------------+
| | | | |
+----------------------------------------------+-----+--------------+--------------+
| Non-current liabilities | | | |
+----------------------------------------------+-----+--------------+--------------+
| Long - term borrowings | 21 | 15,529,412 | - |
+----------------------------------------------+-----+--------------+--------------+
| Obligations under finance leases | 22 | 589,249 | 52,747 |
+----------------------------------------------+-----+--------------+--------------+
| Accounts payable | 25 | 766,365 | 1,018,414 |
+----------------------------------------------+-----+--------------+--------------+
| | | 16,885,026 | 1,071,161 |
+----------------------------------------------+-----+--------------+--------------+
| | | | |
+----------------------------------------------+-----+--------------+--------------+
| Current liabilities | | | |
+----------------------------------------------+-----+--------------+--------------+
| Short - term borrowings | 21 | 508,555 | - |
+----------------------------------------------+-----+--------------+--------------+
| Accounts payable | 25 | 8,534,465 | 3,211,194 |
+----------------------------------------------+-----+--------------+--------------+
| Obligations under finance leases | 22 | 73,675 | 33,236 |
+----------------------------------------------+-----+--------------+--------------+
| Current tax liabilities | 26 | 510,240 | 822,782 |
+----------------------------------------------+-----+--------------+--------------+
| Provision on contingent liabilities | 28 | 74,691 | - |
+----------------------------------------------+-----+--------------+--------------+
| | | 9,701,626 | 4,067,212 |
+----------------------------------------------+-----+--------------+--------------+
| | | | |
+----------------------------------------------+-----+--------------+--------------+
| Total liabilities | | 26,586,652 | 5,138,373 |
+----------------------------------------------+-----+--------------+--------------+
| | | | |
+----------------------------------------------+-----+--------------+--------------+
| Total equity and liabilities | | 77,573,138 | 89,314,090 |
+----------------------------------------------+-----+--------------+--------------+
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2009
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| | Attributable to equity holders of the Parent | | |
+-----------------------+-------------------------------------------------------------------------------------------+-----------------+--------------+
| | Share | Share | Accumulated | Other | Advances | Translation | Total | Non-controlling | Total |
| | capital | premium | loss | reserves | for | reserve | | interest | |
| | | | | (Note | issue of | | | | |
| | | | | 11) | shares | | | | |
| | | | | | (Note | | | | |
| | | | | | 10) | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| | US$ | US$ | US$ | US$ | US$ | US$ | US$ | US$ | US$ |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| Balance as at 1 | 1,881,092 | 92,683,930 | 5,100,870 | - | - | - | 99,665,892 | 754,053 | 100,419,945 |
| January 2008 | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| Total comprehensive | - | - | (15,482,825) | - | - | - | (15,482,825) | 1,791,363 | (13,691,462) |
| income for the year | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| Issue of share | 402,207 | | | | | | 402,207 | | 402,207 |
| capital | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| Acquisition of | - | - | - | - | - | - | - | (109,000) | (109,000) |
| non-controlling | | | | | | | | | |
| interest | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| Directors' options | - | - | - | 46,710 | | - | 46,710 | - | 46,710 |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| Translation to | - | - | - | | - | (2,091,777) | (2,091,777) | (800,906) | (2,892,683) |
| presentation currency | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| Balance as at 31 | 2,283,299 | 92,683,930 | (10,381,955) | 46,710 | - | (2,091,777) | 82,540,207 | 1,635,510 | 84,175,717 |
| December 2008 | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| Total comprehensive | - | - | | - | - | - | (38,901,144) | (271,117) | (39,172,261) |
| income for the year | | | (38,901,144) | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| Advances from | - | - | - | | 4,987,972 | - | 4,987,972 | - | 4,987,972 |
| shareholders | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| Translation to | - | - | - | - | - | 1,021,785 | 1,021,785 | (48,407) | 973,378 |
| presentation currency | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| Directors' options | - | - | - | 21,680 | - | - | 21,680 | - | 21,680 |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
| Balance as at 31 | 2,283,299 | 92,683,930 | (49,283,099) | 68,390 | 4,987,972 | (1,069,992) | 49,670,500 | 1,315,986 | 50,986,486 |
| December 2009 | | | | | | | | | |
+-----------------------+-----------+------------+--------------+----------+-----------+-------------+--------------+-----------------+--------------+
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2009
+----+----------------------------------------+-------+--------------+--------------+
| | | 2009 | 2008 |
+---------------------------------------------+-------+--------------+--------------+
| | Note | US$ | US$ |
+---------------------------------------------+-------+--------------+--------------+
| Operating activities | | | |
+---------------------------------------------+-------+--------------+--------------+
| Profit/(loss) before tax | | (39,172,251) | (19,068,589) |
+---------------------------------------------+-------+--------------+--------------+
| Adjustments for: | | | |
+---------------------------------------------+-------+--------------+--------------+
| | Depreciation of property, plant and | 14 | 60,881 | 98,105 |
| | equipment | | | |
+----+----------------------------------------+-------+--------------+--------------+
| | Intangible assets impairment loss | 8 | - | 1,282,736 |
+----+----------------------------------------+-------+--------------+--------------+
| | Advances for investments impairment | 8 | 6,128,205 | 1,909,818 |
| | loss | | | |
+----+----------------------------------------+-------+--------------+--------------+
| | Foreign exchange losses | 6 | 2,301,804 | 36,259,708 |
+----+----------------------------------------+-------+--------------+--------------+
| | Loss/(gain) on revaluation of |15,16 | 17,470,085 | (25,665,532) |
| | investment property | | | |
+----+----------------------------------------+-------+--------------+--------------+
| | Loss from discounting VAT | 6 | 2,398,890 | - |
+----+----------------------------------------+-------+--------------+--------------+
| | Receivables impairment loss | 8 | 1,253,167 | - |
+----+----------------------------------------+-------+--------------+--------------+
| | Property, plant and equipment | 8 | 95,772 | - |
| | impairment loss | | | |
+----+----------------------------------------+-------+--------------+--------------+
| | Other expenses | | 141,218 | 36,025 |
+----+----------------------------------------+-------+--------------+--------------+
| | Interest income | 6,7 | (15,553) | (1,466,371) |
+----+----------------------------------------+-------+--------------+--------------+
| | Interest expense | 6 | 7,209 | - |
+----+----------------------------------------+-------+--------------+--------------+
| | | | | - |
+----+----------------------------------------+-------+--------------+--------------+
| Operating loss before working capital | | (9,330,573) | (6,614,100) |
| changes | | | |
+---------------------------------------------+-------+--------------+--------------+
| | (Increase)/Decrease in trade accounts | | - | 19,715 |
| | receivables | | | |
+----+----------------------------------------+-------+--------------+--------------+
| | Increase in advances to related | 19 | (1,252) | - |
| | parties | | | |
+----+----------------------------------------+-------+--------------+--------------+
| | (Increase)/Decrease in prepayments and | 19 | (314,523) | 11,736 |
| | other current assets | | | |
+----+----------------------------------------+-------+--------------+--------------+
| | Increase in trade and other payables | 25 | 2,515,095 | 106,265 |
+----+----------------------------------------+-------+--------------+--------------+
| | Increase in payables due to related | 27 | 2,752,894 | 568,469 |
| | parties | | | |
+----+----------------------------------------+-------+--------------+--------------+
| Cash flows used in operating activities | | (4,378,359) | (5,907,915) |
+---------------------------------------------+-------+--------------+--------------+
| Investing activities | | | |
+---------------------------------------------+-------+--------------+--------------+
| | Decrease in prepayments under | | 2,511,292 | 6,768,919 |
| | development contracts | | | |
+----+----------------------------------------+-------+--------------+--------------+
| | Decrease/(Increase) in advances for | 18 | 68,244 | (4,239,574) |
| | investments | | | |
+----+----------------------------------------+-------+--------------+--------------+
| | (Decrease)/Increase in payables to | 25 | (196,767) | 1,846,835 |
| | constructors | | | |
+----+----------------------------------------+-------+--------------+--------------+
| | Additions to investment property |15,16 | (13,106,851) | (31,063,334) |
+----+----------------------------------------+-------+--------------+--------------+
| | Changes of property, plant and | 14 | (20,883) | (118,538) |
| | equipment | | | |
+----+----------------------------------------+-------+--------------+--------------+
| | Increase in VAT receivable | | (2,055,671) | (4,116,428) |
+----+----------------------------------------+-------+--------------+--------------+
| | Increase/(Decrease) in financial lease | | 576,941 | (29,960) |
| | liabilities | | | |
+----+----------------------------------------+-------+--------------+--------------+
| | Interest received | 6 | 15,553 | 299,964 |
+----+----------------------------------------+-------+--------------+--------------+
| | Acquisition of / Changes in minority | | - | (109,000) |
| | interest | | | |
+----+----------------------------------------+-------+--------------+--------------+
| Cash flows used in investing activities | | (12,208,142) | (30,761,116) |
+---------------------------------------------+-------+--------------+--------------+
| Financing activities | | | |
+---------------------------------------------+-------+--------------+--------------+
| | Proceeds from shareholders advances / | 13 | 4,987,972 | 402,207 |
| | proceed from issue of share capital | | | |
+----+----------------------------------------+-------+--------------+--------------+
| | Proceeds from bank loan | 21 | 16,000,000 | - |
+----+----------------------------------------+-------+--------------+--------------+
| | Proceeds from other borrowings | 21 | 4,321 | - |
+----+----------------------------------------+-------+--------------+--------------+
| Net cash from financing activities | | 20,992,293 | 402,207 |
+---------------------------------------------+-------+--------------+--------------+
| | | | |
+---------------------------------------------+-------+--------------+--------------+
| Effect of foreign exchange rates on cash | | 579,132 | (7,405,995) |
| and cash equivalents | | | |
+---------------------------------------------+-------+--------------+--------------+
| | | | |
+---------------------------------------------+-------+--------------+--------------+
| Net increase in cash and cash equivalents | | 4,984,924 | (43,672,819) |
+---------------------------------------------+-------+--------------+--------------+
| Cash and cash equivalents: | | | |
+---------------------------------------------+-------+--------------+--------------+
| At beginning of the year | | 35,733 | 43,708,552 |
+---------------------------------------------+-------+--------------+--------------+
| At end of the year | | 5,020,657 | 35,733 |
+----+----------------------------------------+-------+--------------+--------------+
1. Incorporation and principal activities
Country of incorporation
The Company was incorporated in Cyprus on 23 June 2005 as a private company with
limited liability under the Companies Law, Cap. 113. On 19 March 2006 it was
converted into a Public Limited Liability Company, by filing a statement in lieu
of prospectus. On 1 August 2007 the Company placed 50.2 million shares which
were admitted to trading on the London Stock Exchange (AIM). Its registered
office is at Totalserve House, 17 Gr. Xenopoulou Street, 3106 Limassol, Cyprus.
Principal activity
The consolidated financial statements of the Company as at and for the year
ended 31 December 2009 comprise the Company and its subsidiaries (together
referred to as the "Group").
The principal activity of the Group, which is unchanged from last year, is the
investment in real estate, especially in Kiev and around the major population
centres of Ukraine.
As at 31 December 2009 the Group employed 29 people (31 December 2008:17)
Ukrainian business environment
Country Risks
In recent years, the Ukrainian economy has been characterised by a number of
features that contribute to economic instability, including a relatively weak
banking system providing limited liquidity to Ukrainian enterprises, significant
capital outflow, and low wages for a large portion of the Ukrainian population.
The implementation of reforms has been partially impeded by lack of political
consensus, controversies over privatisation (including privatisation of land in
the agricultural sector), the restructuring of the energy sector, the removal of
exemptions and privileges for certain state-owned enterprises or for certain
industry sectors, and the limited extent of cooperation with international
financial institutions.
Although Ukraine has made significant gains in increasing its gross domestic
product, decreasing inflation, stabilising its currency, increasing real wages
and improving its trade balance these reforms may not be sustainable over the
longer term and may be reversed unless Ukraine undertakes certain important
structural reforms in the near future while continuing to exercise monetary
policies that have contributed to reduced inflation levels.
Ukraine's internal debt market remains illiquid and underdeveloped as compared
to markets in most western countries.
Unless the international capital markets or syndicated loan markets are
available to Ukraine, the Government will have to continue to rely to a
significant extent on official or multilateral borrowings to finance part of the
budget deficit, fund its payment obligations under domestic and international
borrowings and support foreign exchange reserves. These borrowings may be
conditioned on Ukraine's satisfaction of certain requirements, which may
include, among other things, implementation of strategic, institutional and
structural reforms; reduction of overdue tax arrears; absence of increase of
budgetary arrears; improvement of sovereign debt credit ratings; and reduction
of overdue indebtedness for electricity and gas.
1. Incorporation and principal activities (continued)
If Ukraine is unable to resort to the international capital markets or
syndicated loan markets in the event of the current international crisis or due
to adverse domestic developments, a failure by official creditors and of
multilateral organisations such as the IMF, the European Bank for Reconstruction
and Development, the World Bank and the EU to grant adequate financing could put
pressure on Ukraine's budget and foreign exchange reserves and have a material
adverse effect on Ukrainian economy as a whole, and thus, on the Company's
business, results of operations, financial condition and prospects.
Any major adverse changes in Ukraine's relations with Russia, in particular any
such changes adversely affecting supplies of energy resources from Russia to
Ukraine and/or Ukraine's revenues derived from transit charges for Russian oil
and gas, would likely have negative effects on certain sectors of the Ukrainian
economy and thus on our business, results of operations, financial condition and
prospects.
The Ukrainian legal system has also been developing to support this market-based
economy. Ukraine's legal system is, however, in transition and is, therefore,
subject to greater risks and uncertainties than a more mature legal system. In
particular, risks associated with the Ukrainian legal system include, but are
not limited to: (i) inconsistencies between and among the Constitution of
Ukraine and various laws, presidential decrees, governmental, ministerial and
local orders, decisions, resolutions and other acts; (ii) provisions in the laws
and regulations that are ambiguously worded or lack specificity and thereby
raise difficulties when implemented or interpreted; (iii) difficulty in
predicting the outcome of judicial application of Ukrainian legislation; and
(iv) the fact that not all Ukrainian resolutions, orders and decrees and other
similar acts are readily available to the public or available in understandably
organised form. Furthermore, several fundamental Ukrainian laws either have
only relatively recently become effective or are still pending hearing or
adoption by the Parliament. The recent origin of much of Ukrainian legislation,
the lack of consensus about the scope, content and pace of economic and
political reform and the rapid evolution of the Ukrainian legal system in ways
that may not always coincide with market developments place the enforceability
and underlying constitutionality of laws in doubt, and result in ambiguities,
inconsistencies and anomalies. In addition, Ukrainian legislation often
contemplates implementing regulations. Often such implementing regulations have
either not yet been promulgated, leaving substantial gaps in the regulatory
infrastructure, or have been promulgated with substantial deviation from the
principal rules and conditions imposed by the respective legislation, which
results in a lack of clarity and growing conflicts between companies and
regulatory authorities.
Tax laws have not been in force for significant periods of time, compared to
more developed market economies, and often result in unclear or non-existent
implementing regulations. Moreover, tax laws in Ukraine are subject to frequent
changes and amendments, which can result in either a friendlier environment or
unusual complexities for the Company and its business generally.
Emerging economies such as Ukraine's are subject to rapid change and the
information set out in these financial statements may become outdated relatively
quickly.
1. Incorporation and principal activities (continued)
Real estate risks
General considerations relating to property investment
Several factors may affect the economic performance and value of the Group's
properties, including:
· risks associated with construction activity at the properties, including
delays, the imposition of liens and defects in workmanship;
· the ability to collect rent from tenants, on a timely basis or at all;
· the amount of rent and the terms on which lease renewals and new leases
are agreed being less favourable than current leases;
· cyclical fluctuations in the property market generally and changes in the
national, regional and local economic and political climate;
· local conditions such as an oversupply of similar properties or a
reduction in demand for the properties;
· the attractiveness of the property to tenants or residential purchasers;
· decreases in capital valuations of property;
· changes in availability and costs of financing, which may affect the sale
or refinancing of properties;
· covenants, conditions, restrictions and easements relating to the
properties;
· changes in governmental legislation and regulations, including but not
limited to designated use, allocation, environmental usage, taxation and
insurance;
· the risk of bad or unmarketable title due to failure to register or
perfect our interests or the existence of prior claims, encumbrances or charges
of which we may be unaware at the time of purchase;
· the possibility of occupants in the properties, whether squatters or
those with legitimate claims to possession;
· our ability to pay for adequate maintenance, insurance and other operating
costs, including taxes, which could increase over time; and
· terrorism and acts of nature, such as earthquakes and floods that may
damage the properties.
The occurrence of any of the above risks may adversely affect the Group, results
of operations, financial condition and prospects.
1. Incorporation and principal activities (continued)
Construction, development and investment risks
The Group is subject to the general risks associated with construction and
development projects. Development and construction activities may involve the
following risks:
· the Group may be unable to proceed with the development of properties
because it may not be able to obtain financing upon favourable terms or at all;
· the Group may incur construction costs for a development project which
exceed the original estimates due to increased material, labour or other costs,
which could make completion of the project uneconomical because the Group may
not be able to increase prices to compensate for the increase in construction
costs;
· the Group may be unable to obtain, or face delays in obtaining, required
zoning, land-use, building, occupancy and other governmental permits and
authorisations, which could result in increased costs and could require to
abandon the activities entirely with respect to a project;
· the Group faces challenges by the Ukrainian authorities in connection
with re-zoning or designated use allocation it has obtained or may obtain in the
future for land previously categorised as agricultural land;
· the Group may be unable to complete construction and leasing of a
property on schedule, resulting in increased debt service expense, construction
or renovation costs and potential fines, and/or termination of existing
investment agreements, resulting in claims by third parties for damages, or
termination of the respective land leases;
· the Group's plans to demolish existing structures for redevelopment on
certain properties could expose us to significant costs and liabilities and loss
of rights to the underlying land on which such buildings were constructed;
· the Group may lease developed properties at below anticipated rental
rates; and
· occupancy rates and rents at newly completed properties may fluctuate
depending on a number of factors, including market and economic conditions,
which may result in the Group's investments not being profitable.
Any negative change in one or more of the factors listed above may adversely
affect the Group's results of operations, financial condition and prospects.
2. Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to all years presented in these consolidated financial
statements unless otherwise stated.
Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European
Union (EU) and the requirements of the Cyprus Companies Law, Cap.113. The
consolidated financial statements are presented in United States Dollars (US$).
The consolidated financial statements have been prepared under the historical
cost convention as modified by the revaluation of investment property and
investment property under construction to fair value.
The preparation of financial statements in conformity with IFRSs requires the
use of certain critical accounting estimates and requires management to exercise
its judgement in the process of applying the Group's accounting policies. It
also requires the use of assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Although these estimates are based on management's
best knowledge of current events and actions, actual results may ultimately
differ from those estimates.
Going concern
These consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the repayment of
liabilities in the normal course of business. The recoverability of Group's
assets, as well as the future operations of the Group, may be significantly
affected by the current and future economic environment. The Group incurred a
loss before tax of US$ 39,172,251during the year ended 31 December 2009. Even
though at 31 December 2009, the Group's total assets exceed its total
liabilities by US$ 50,986,486, the validity of the going concern basis is
dependant on the Group's ability to obtain the necessary funding through new
issue of shares or bank facilities in order to complete the development and
commissioning of properties so as to generate income. The consolidated financial
statements do not include any adjustments should the Group be unable to continue
as going concern.
As at 31 December 2009 the Group was in breach of certain covenants relating to
the bank loan of US$15.529.412, presented in non-current liabilities. As a
result of these breaches, the liability is repayable on demand. International
Accounting Standard "IAS1- Presentation of Financial Statements", requires that
liabilities payable on demand be presented as part of current liabilities. Had
the Group presented the above liability as current, non-current liabilities
would have decreased by US$15.529.412 and current liabilities would have
increased by the same amount as at 31 December 2009. Should the bank request
immediate repayment of the loan, this would cast significant uncertainty on the
ability of the Group to continue as a going concern.
2. Summary of significant accounting policies (continued)
Adoption of new and revised IFRSs
During the current year the Group adopted all the new and revised Standards and
Interpretations issued by the International Accounting Standards Board (the
IASB) and the International Financial Reporting Interpretations Committee (the
IFRIC) of the IASB, which are relevant to its operations and are effective for
accounting periods commencing on 1 January 2009.
Standards, Amendments and Interpretations effective in the current period, but
not relevant
+---------------------+--------------------------+-----------------------+
| · IFRS 1 | First-time Adoption of | Effective for annual |
| | IFRS | periods beginning on |
| | (Allowing first-time | or after 1 January |
| | adopters to use a deemed | 2009 |
| | cost of either fair | |
| | value or carrying amount | |
| | under previous | |
| | accounting practice to | |
| | measure the initial cost | |
| | of investments) | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IFRS 2 | Share Based Payments | Effective for annual |
| | (Clarification of the | periods beginning on |
| | term "vesting | or after 1 January |
| | conditions" and | 2009 |
| | provision of the | |
| | accounting treatment for | |
| | non-vesting conditions | |
| | and cancellations) | |
| | | |
+---------------------+--------------------------+-----------------------+
| | Amendment to confirm | Effective for annual |
| | that, in addition to | periods |
| | business combinations as | beginning on or after |
| | defined by IFRS 3(2008) | 1 July |
| | Business Combinations, | 2009 |
| | contributions of a | |
| | business on formation of | |
| | a joint venture and | |
| | common control | |
| | transactions are | |
| | excluded from the scope | |
| | of IFRS 2 Share-based | |
| | Payment. | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IFRS 5 | Non-current Assets Held | Effective for annual |
| | for Sale and | periods beginning on |
| | Discontinued operations | or after 1 July 2009 |
| | (Assets and liabilities | |
| | of a subsidiary should | |
| | be classified held for | |
| | sale if the parent is | |
| | committed to a plan | |
| | involving loss of | |
| | control of the | |
| | subsidiary, regardless | |
| | of whether the entity | |
| | will retain a | |
| | non-controlling interest | |
| | after the sale) | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IFRS 7 | Financial instruments: | Effective for annual |
| | Disclosures | periods beginning on |
| | (Financial instruments | or after 1 January |
| | required to be measured | 2009 |
| | at fair value to be | |
| | disclosed by source of | |
| | inputs in determining | |
| | value) | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IAS 19 | Employee benefits | Effective for annual |
| | (Replacement of the term | periods beginning on |
| | "fall due", guidance on | or after 1 January |
| | contingent liabilities, | 2009 |
| | etc.) | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IAS 20 | Accounting for | Effective for annual |
| | Government Grants and | periods beginning on |
| | Disclosure of Government | or after 1 January |
| | Assistance | 2009 |
| | (Concerns government | |
| | loans with a | |
| | below-market rate of | |
| | interest) | |
| | | |
+---------------------+--------------------------+-----------------------+
2. Summary of significant accounting policies (continued)
+---------------------+--------------------------+-----------------------+
| · IAS 27 | Consolidated and | Effective for annual |
| | Separate Financial | periods beginning on |
| | Statements | or after 1 July 2009. |
| | (When a parent entity | |
| | accounts for a | |
| | subsidiary at fair value | |
| | in its separate | |
| | financial statements, | |
| | this treatment continues | |
| | when the subsidiary is | |
| | subsequently classified | |
| | as held for sale) | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IAS 29 | Reporting in | Effective for annual |
| | Hyperinflationary | periods beginning on |
| | Economies | or after 1 January |
| | (Amendment to | 2009 |
| | description of | |
| | measurement basis in | |
| | financial statements) | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IAS 31 | Interests in joint | Effective for annual |
| | ventures. | periods beginning on |
| | (If joint venture is | or after 1 January |
| | accounted for at fair | 2009 |
| | value, the only | |
| | disclosure requirements | |
| | of IAS 31 are those | |
| | relating to the | |
| | commitments of the | |
| | venture and the joint | |
| | venture, as well as | |
| | summary financial | |
| | information about the | |
| | assets, liabilities | |
| | income and expenses) | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IAS 38 | Intangible Assets. | Effective for annual |
| | (Expenditure on | periods beginning on |
| | advertising and | or after 1 January |
| | promotional activities | 2009 |
| | is recognised as an | |
| | expense when the entity | |
| | either has the right to | |
| | access the goods or has | |
| | received the services. | |
| | Advertising and | |
| | promotional activities | |
| | include mail order | |
| | catalogues) | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IAS 39 | Financial instruments: | Effective for annual |
| | Recognition and | periods beginning on |
| | Measurement | or after 1 January |
| | (Reclassification of | 2009 |
| | derivatives into or out | |
| | of the classification of | |
| | at fair value through | |
| | statement of | |
| | comprehensive income) | |
| | | |
+---------------------+--------------------------+-----------------------+
| | (Entities should no | Effective for annual |
| | longer use hedge | periods beginning on |
| | accounting for | or after 1 July 2009. |
| | transactions between | Earlier application |
| | segments in their | permitted |
| | separate financial | |
| | statements). | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IAS 41 | Agriculture. | Effective for annual |
| | (Permission to applying | periods beginning on |
| | pre-tax or post-tax rate | or after 1 January |
| | under valuation | 2009 |
| | methodology used to | |
| | determine fair value) | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IFRIC 9 | Reassessment of Embedded | Effective for annual |
| | Derivatives. | periods beginning on |
| | (Amendment to confirm | or after 1 July 2009. |
| | that, in addition to | To be applied |
| | business combinations as | prospectively |
| | defined by IFRS 3(2008), | |
| | derivatives acquired in | |
| | the formation of a joint | |
| | venture and in common | |
| | control transactions are | |
| | outside the scope of | |
| | IFRIC 9) | |
+---------------------+--------------------------+-----------------------+
2. Summary of significant accounting policies (continued)
+---------------------+--------------------------+-----------------------+
| · IFRIC | Agreements for the | Effective for annual |
| 15 | Construction of Real | periods beginning on |
| | Estate. | or after 1 January |
| | (Standardization of | 2009 |
| | accounting practice | |
| | across jurisdictions for | |
| | the recognition of | |
| | revenue by real estate | |
| | developers for sales of | |
| | units, such as | |
| | apartments or houses, | |
| | 'off plan' - that is, | |
| | before construction is | |
| | complete) | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IFRIC | Hedges of a Net | Effective for annual |
| 16 | Investment in a Foreign | periods |
| | Operation | beginning on or after |
| | (Hedging instruments may | 1 July 2009. |
| | be held by any entity or | |
| | entities within the | |
| | group. This includes a | |
| | foreign operation that | |
| | itself is being hedged). | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IFRIC | Distributions of | Effective for annual |
| 17 | Non-cash Assets to | periods beginning on |
| | Owners. | or after 1 July 2009 |
| | | |
+---------------------+--------------------------+-----------------------+
| · IFRIC | Transfers of Assets from | Effective for annual |
| 18 | Customers. | periods beginning on |
| | | or after 1 July 2009 |
| | | |
+---------------------+--------------------------+-----------------------+
Standards, Amendments and Interpretations that are not yet effective and have
not been early adopted by the Company
+---------------------+--------------------------+-----------------------+
| · IAS 17 | Leases | Effective for annual |
| | (Leases of land should | periods beginning on |
| | be classified as either | or after 1 January |
| | finance or operating | 2010. |
| | using the general | |
| | principles of IAS 17) | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IAS 38 | Intangible Assets | Effective for annual |
| | (Amendments to | periods beginning on |
| | paragraphs 40 and 41 of | or after 1 January |
| | IAS 38 to clarify the | 2010. |
| | description of valuation | |
| | techniques commonly used | |
| | by entities when | |
| | measuring the fair value | |
| | of intangible assets | |
| | acquired in a business | |
| | combination that are not | |
| | traded in active | |
| | markets) | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IFRS 8 | Operating segments | Effective for annual |
| | (Disclosure of | periods beginning on |
| | information about | or after 1 January |
| | segment assets) | 2010. |
| | | |
+---------------------+--------------------------+-----------------------+
| · IAS 7 | Presentation of | Effective for annual |
| | Financial Statements | periods beginning on |
| | (Classification of | or after 1 January |
| | expenditures on | 2010. |
| | unrecognised assets: | |
| | only expenditures that | |
| | result in a recognised | |
| | asset in the statement | |
| | of financial position | |
| | can be classified as | |
| | investing activities) | |
| | | |
+---------------------+--------------------------+-----------------------+
. Summary of significant accounting policies (continued)
Standards, Amendments and Interpretations that are not yet effective and not
relevant for the Company's operations
+---------------------+--------------------------+-----------------------+
| · IFRS 5 | Non-current Assets Held | Effective for annual |
| | for Sale and | periods beginning on |
| | Discontinued operations. | or after 1 January |
| | (Disclosures required in | 2010. |
| | respect of noncurrent | |
| | assets (or disposal | |
| | groups) classified as | |
| | held for sale or | |
| | discontinued operations) | |
| | | |
+---------------------+--------------------------+-----------------------+
| · IAS 1 | Presentation of | Effective for annual |
| | Financial Statements | periods beginning on |
| | (Current/non-current | or after 1 January |
| | classification of | 2010. |
| | convertible instruments) | |
+---------------------+--------------------------+-----------------------+
| · IAS 18 | Revenue | No dates for put in |
| | (Determining whether an | action was |
| | entity is acting as a | determined, as the |
| | principal or as an | amendment was made to |
| | agent) | non-mandatory |
| | | guidance |
| | | |
+---------------------+--------------------------+-----------------------+
| · IAS 36 | Impairment of Assets | Effective for annual |
| | (Unit of accounting for | periods beginning on |
| | goodwill impairment | or after 1 January |
| | test) | 2010. |
+---------------------+--------------------------+-----------------------+
| · IAS 39 | Financial instruments: | Effective for annual |
| | Recognition and | periods beginning on |
| | Measurement | or after 1 January |
| | (Clarification as to | 2010. |
| | measurement and | |
| | recognition of | |
| | prepayment options, | |
| | forward contracts and | |
| | hedged cash flow) | |
| | | |
+---------------------+--------------------------+-----------------------+
| | | |
+---------------------+--------------------------+-----------------------+
2. Summary of significant accounting policies (continued)
Basis of consolidation
The Group consolidated financial statements comprise the financial statements of
the parent company, Aisi Realty Public Ltd and the financial statements of the
following subsidiaries:
+-----------------------+-----------------------+------------+------------+
| Name | Country of | Holding % |
| | incorporation | |
+ + +-------------------------+
| | | as at 31.12.2008 | as at 31.12.2009 |
+-----------------------+-----------------------+-----------------------+-----------------------+
| Aisi Capital Limited | Cyprus | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| Aisi Logistics | Cyprus | - | 100 |
| Limited | | | |
+-----------------------+-----------------------+------------+------------+
| LLC Aisi Ukraine | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC Aisi Brovary | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC | Ukraine | 55 | 55 |
| Almaz-pres-Ukrayina | | | |
+-----------------------+-----------------------+------------+------------+
| LLC Aisi Bela | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC Aisi Outdoor | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC Aisi Vida | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC Aisi Val | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC Aisi Ilvo | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC Aisi Consta | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC Aisi Roslav | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC Aisi Donetsk | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC Trade Center | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC Terminal Brovary | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC Krius | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC Ukr-Contract | Ukraine | 100 | 100 |
+-----------------------+-----------------------+------------+------------+
| LLC Retail | Ukraine | - | 100 |
| Development Balabino | | | |
+-----------------------+-----------------------+------------+------------+
The financial statements of all the Group companies are prepared using uniform
accounting policies. All inter-company transactions and balances between Group
companies have been eliminated during consolidation.
All entities of the Group, except from Aisi Realty Public Limited, Aisi Capital
Ltd and Aisi Logistics Ltd maintain their accounting records in Ukrainian
Hryvnia. Aisi Realty Public Limited, Aisi Capital Ltd and Aisi Logistics Ltd
maintain their accounting records in US Dollars.
The management believes that the US Dollar reporting will better reflect the
economic substance of the underlying events and circumstances relevant to the
Group. Based on that the Group's management has determined that the functional
currency is the US Dollar.
Ukrainian statutory accounting principles and procedures differ from those
generally accepted under IFRS. Accordingly, the consolidated financial
information, which has been prepared from the Ukrainian statutory accounting
records for the entities of the Group domiciled in Ukraine, reflects adjustments
necessary for
such consolidated financial information to be presented in accordance with IFRS.
2. Summary of significant accounting policies (continued)
As management records the consolidated financial information of the entities
domiciled in Ukraine in Hryvnia, in translating financial information of the
entities domiciled in Ukraine into US Dollars for incorporation in the
consolidated financial information, the Group follows a translation policy in
accordance with International Accounting Standard No. 21, "The Effects of
Changes in Foreign Exchange Rates", and the following procedures are performed:
· All assets and liabilities are translated at closing rate;
· Income and expense items are translated using exchange rates at the
dates of the transactions;
· All resulting exchange differences are recognised as a separate
component of equity.
· When a foreign operation is disposed of through sale, liquidation,
repayment of share capital or abandonment of all, or part of that entity, the
exchange differences deferred in equity are reclassified to the consolidated
statement of comprehensive income as part of the gain or loss on sale.
The relevant exchange rates of the Central Bank of Ukraine used in translating
the financial information of the entities domiciled in Ukraine into US Dollars
are as follows:
+------------+------------+-----------+------------+---------+
| | Average | 31 December |
+------------+------------------------+----------------------+
| Currency | 2009 | 2008 | 2009 | 2008 |
+------------+------------+-----------+------------+---------+
| US$ | 7,7916 | 5,2693 | 7,9850 | 7,7000 |
+------------+------------+-----------+------------+---------+
The Group's financial statements consolidate the financial statements of the
Group and all its subsidiary undertakings for the year ended 31 December 2009.
Subsidiaries are those enterprises controlled by the Group. Control exists when
the Group has the power, directly or indirectly, to govern the financial and
operating policies of an enterprise so as to obtain benefits from its
activities. The financial information of subsidiaries is included in the
consolidated financial information from the date that control effectively
commences until the date that control effectively ceases. In the Group's
financial information, investments in subsidiaries are accounted for under the
acquisition method.
Where necessary, adjustments are made to the consolidated financial information
of subsidiaries to bring the accounting policies used in line with those used by
the Group.
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method.
The cost of the acquisition is measured at the aggregate of the fair values, at
the date of exchange, of assets given, liabilities incurred or assumed, and
equity instruments issued by the Group in exchange for control of the acquiree,
plus any costs directly attributable to the business combination. The acquiree's
identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3 are recognised at their fair values at
the acquisition date, except for non-current assets (or disposal groups) that
are classified as held for sale in accordance with IFRS 5 Non-Current Assets
Held for Sale and Discontinued Operations, which are recognised and measured at
fair value less costs to sell.
2. Summary of significant accounting policies (continued)
Goodwill arising on acquisition is recognised as an asset and initially measured
at cost, being the excess of the cost of the business combination over the
Group's interest in the net fair value of the identifiable assets, liabilities
and contingent liabilities recognised. If, after reassessment, the Group's
interest in the net fair value of the acquiree's identifiable assets,
liabilities and contingent liabilities exceeds the cost of the business
combination, the excess is recognised immediately in the statement of
comprehensive income.
The interest of minority shareholders in the
acquiree is initially measured at the non-controlling interest's proportion of
the net fair value of the assets, liabilities and contingent liabilities
recognised.
Finance costs
Finance costs comprise interest payable on borrowings calculated using the
effective interest rate method, net result from transactions with securities,
foreign exchange gains and losses, and bank charges and commission.
Foreign currency translation
Functional and presentation currency
Items included in the Group's financial statements are measured applying the
currency of the primary economic environment in which the entities operate
("the functional currency"). The national currency of Ukraine, Ukrainian
Hryvnia, is the functional currency for all the Group's entities, except for the
parent company and its subsidiaries Aisi Capital Ltd and Aisi Logistics Ltd for
which the United States Dollar is the functional currency. The financial
statements are presented in United States Dollars (US$).
Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the statement of
comprehensive income as part of finance costs.
Income from investing activities
Income from investing activities includes profit received from disposal of
investments in the Company's subsidiaries and associates, income accrued on
advances for investments outstanding as at the year end, and bank interest.
Tax
Income tax expense represents the sum of the tax currently payable and deferred
tax.
Current tax liabilities and assets for the current and prior periods are
measured at the amount expected to be paid to or recovered from the taxation
authorities, using the tax rates and laws that have been enacted, or
substantively enacted, by the statement of financial position date.
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements. Currently enacted tax rates are
used in the determination of deferred tax.
2. Summary of significant accounting policies (continued)
Deferred tax assets are recognised to the extent that it is probable that future
taxable profit will be available against which the temporary differences can be
utilised.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when the deferred taxes relate to the same fiscal authority.
All the subsidiaries of the Group are incorporated in Ukraine, except for Aisi
Capital Limited, Aisi Logistics Limited and the parent company, which are
incorporated in Cyprus. The Group's management and control is exercised in
Cyprus. There is no withholding tax or special defence contribution on the
dividend income to be received from the Ukrainian subsidiaries as provided for
by the current tax treaty.
The Group's management does not intend to dispose of any project.However, in the
event that a decision is taken in the future to dispose of any project it is the
Group's intention to dispose of shares in subsidiaries rather than assets. The
corporate income tax exposure on disposal of development companies in Ukraine is
mitigated by the fact that the sale would represent a disposal of the securities
by a non-resident shareholder and therefore would be exempt from tax. The Group
is therefore in a position to control the reversal of any temporary differences
and as such, no deferred tax liability has been provided for in the financial
statements.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated
depreciation and any accumulated impairment losses.
Depreciation is calculated on the straight-line method so as to write off the
cost of each asset to its residual value over its estimated useful life.
The annual depreciation rates used are as follows:
+-----------------------------------------------------+---------+
| | |
+-----------------------------------------------------+---------+
| | % |
+-----------------------------------------------------+---------+
| Leasehold | 20.00 |
+-----------------------------------------------------+---------+
| Citylights | 20.00 |
+-----------------------------------------------------+---------+
| Motor vehicles | 25.00 |
+-----------------------------------------------------+---------+
| Furniture, fixtures and office equipment | 20.00 |
+-----------------------------------------------------+---------+
| Software and hardware | 33.33 |
+-----------------------------------------------------+---------+
Assets held under finance leases are depreciated over their expected useful
lives on the same basis as owned assets or, where shorter, the term of the
relevant lease.
The assets residual values and useful lives are reviewed, and adjusted if
appropriate, at each statement of financial position date.
Where the carrying amount of an asset is greater than its estimated recoverable
amount, the asset is written down immediately to its recoverable amount.
Expenditure for repairs and maintenance of property, plant and equipment is
charged to the statement of comprehensive income of the year in which it is
incurred. The cost of major renovations and other subsequent expenditure are
included in the carrying amount of the asset when it is probable that future
economic benefits in excess of the originally assessed standard of performance
of the existing asset will flow to the Group. Major renovations are depreciated
over the remaining useful life of the related asset.
Gains and losses on disposal of property, plant and equipment are determined by
comparing proceeds with carrying amount and are included in the statement of
comprehensive income.
2. Summary of significant accounting policies (continued)
Operating segments analysis
The Group has one material reportable segment on the basis that in all material
aspects all of its revenue is expected to be generated from investment
properties located in Ukraine; accordingly no segment analysis is presented.
Interest and other borrowing expense
Starting from 1 January 2009 the Group capitalizes interest and other borrowing
expense attributable to project development instead of expensing it as in
previous periods. This applies in relation to all borrowings contracted by the
Group in the periods started from 1 January 2009.
Share-based compensation
The Group operates a number of equity-settled, share-based compensation plans,
under which the Company receives services from employees as consideration for
equity instruments (options) of the Group. The fair value of the employee
services received in exchange for the grant of the options is recognised as an
expense. The total amount to be expensed is determined by reference to the fair
value of the options granted, excluding the impact of any non-market service and
performance vesting conditions. The total amount expensed is recognized over the
vesting period, which is the period over which all of the specified vesting
conditions are to be satisfied. At each financial position date, the Group
revises its estimates on the number of options that are expected to vest based
on the non-marketing vesting conditions. It recognizes the impact of the
revision to original estimates, if any, in the statement of comprehensive
income, with a corresponding adjustment to equity. The proceeds received net of
any directly attributable transactioncosts are credited to share capital and
share premium when the options are exercised.
Other property expenses
Irrecoverable running costs directly attributable to specific properties within
the Group's portfolio are charged to the statement of comprehensive income as
other administration expenses. Costs incurred in the improvement of the
portfolio which, in the opinion of the directors, are not of a capital nature
are written off to the statement of comprehensive income as incurred.
Investment property
Investment property, principally comprising freehold and leasehold land and
investment properties held for future development, is held for long-term rental
yields or capital appreciation or both and is not occupied by the Group.
Investment property is carried at fair value, representing open market value
determined annually by external valuers. Changes in fair values are recorded in
the statement of comprehensive income.
Land held under operating lease is classified and accounted for as investment
property when the rest of the definition is met. The operating lease is
accounted for as if it were a finance lease.
Investment property under development or construction initially is measured at
cost, including related transaction costs.
Up to 31 December 2007 investment property under development was carried at cost
plus any development costs after initial recognition and was stated as Property
under construction in the financial statements. IAS 16 requirements were applied
to the Investment property under development during the period of development.
As such, no fair value gains were recognised in the statement of comprehensive
income of 2007 on these properties.
2. Summary of significant accounting policies (continued)
The Group has decided to take advantage of the permission allowed in IAS 40
"Investment Property" to apply the amendments to investment property under
construction in the financial statements of 2008. Therefore, the fair value
gains on investment property appearing in the income statement of 2008 include
fair value gains on investment properties under construction valued at fair
value for the first time in 2008.
The property is classified in accordance to the intention of the management for
its future use. Intention to use is determined by the Board of Directors after
reviewing market conditions, profitability of the projects, ability to finance
the project and obtaining required construction permits.
The time point, when the intention of the management is finalized is the date of
start of construction. At the moment of start of construction, freehold land,
leasehold land and investment properties held for a future redevelopment are
reclassified into investment property under development or inventory in
accordance to the final decision of management.
Initial measurement and recognition
Investment property is measured initially at cost, including related transaction
costs. Investment properties are derecognized when either they have been
disposed of or when the investment property is permanently withdrawn from use
and no future economic benefit is expected from its disposal. Any gains or
losses on the retirement or disposal of an investment property are recognized in
the consolidated statement of comprehensive income in the period of retirement
or disposal.
Transfers are made to investment property when, and only when, there is a change
in use, evidenced by the end of owner occupation, or the commencement of an
operating lease to third party. Transfers are made from investment property
when, and only when, there is a change in use, evidenced by commencement of
owner occupation or commencement of development with a view to sale.
If an investment property becomes owner-occupied, it is reclassified as
property, plant and equipment, and its fair value at the date of
reclassification becomes its cost for accounting purposes. Property that is
being constructed or developed for future use as investment property is
classified as investment property under construction until construction or
development is complete. At that time, it is reclassified and subsequently
accounted for as investment property.
Subsequent measurement
Subsequent to initial recognition, investment property is stated at fair value.
Gains or losses arising from changes in the fair value of investment property
are included in the statement of comprehensive income in the period in which
they arise.
If a valuation obtained for an investment property held under a lease is net of
all payments expected to be made, any related liability/assets recognised
separately in the statement of financial position is added back/reduced to
arrive at the carrying value of the investment property for accounting purposes.
Subsequent expenditure is charged to the assets' carrying amount only when it is
probable that future economic benefits associated with the item will flow to the
Group and the cost of the item can be measured reliably. All other repairs and
maintenance costs are charged to the statement of comprehensive income during
the financial period in which they are incurred.
Basis of valuation
The fair values reflect market conditions at the financial position date. These
valuations are reviewed periodically by DTZ Kiev B.V. (hereafter "appraisers"),
chartered surveyors.
2. Summary of significant accounting policies (continued)
The valuations have been carried out by the appraisers on the basis of Market
Value in accordance with the appropriate sections of the current Practice
Statements contained within the Royal Institution of Chartered Surveyors
("RICS") Appraisal and Valuation Standards, 5th Edition (the "Red Book"). This
is an internationally accepted basis of valuation.
In arriving at opinions of Market Value, the appraisers have also arrived at
opinions of current estimated net annual rent. These are assessed on the
assumption that they are the best rent at which a new letting of an interest in
property would have been completed at the date of valuation assuming:
· a willing landlord;
· that prior to the date of valuation there had been a reasonable period
(having regard to the nature of the property and the state of the market) for
the proper marketing of the interest, for the agreement of the price and terms
and for the completion of the letting;
· that the state of the market, levels of value and other circumstances
were, on any earlier assumed date of entering into an agreement for lease, the
same as on the valuation date;
· that no account is taken of any additional bid by a prospective tenant
with a special interest;
· that where relevant the length of term and principal conditions assumed to
apply to the letting and other tenants terms are the same as those set out in
the rent review clause contained in the occupational lease which we confirm are
not exceptionally onerous or beneficial for letting of the type and class of the
subject property and;
· that both parties to the transaction had acted knowledgeably, prudently
and without compulsion.
Assumptions and Sources of Information
The valuation of the Property was prepared on the basis of a number of "Special
Assumptions". In this respect, a Special Assumption is referred to in the Red
Book as an Assumption that either:
Requires the valuation to be based on facts that differ materially from those
that exists at the date of valuation; or
Is one that a prospective purchaser (excluding a purchaser with a special
interest) could not reasonably be expected to make at the date of valuation,
having regard to prevailing market circumstances.
With regard to this Valuation Report, the appraisers are of the opinion that the
Special Assumptions set out below are valid, realistic and relevant.
Adopted development commencement dates and construction periods in respect of
each property have been made in isolation of the remaining properties also
subject to development. As a result, the valuations reported do not reflect the
effect of numerous properties being developed simultaneously or being released
to the market at the same time.
An assumption that was made details all matters likely to affect value within
their collective knowledge such as prospective lettings, outstanding
requirements under legislation and planning decisions have been made available
and that the information is up to date.
2. Summary of significant accounting policies (continued)
In those instances where full ownership rights for the existing improvements are
held but the granting of a ground lease is awaited we have assumed that there
will be no unforeseeable additional costs or delays in comparison to those
generally experienced and that such rights are in due course obtained.
In those instances where investment contracts are held for the developments of
properties, the valuations are on the basis that a ground lease and an ownership
certificate will be obtained by the developer upon completion of the development
and this is in line with normal market practice in Ukraine.
A number of properties are held by way of ground leasehold interests granted by
the City Authorities. The ground rental payments of such interests may be
reviewed on an annual basis, in either an upwards or downwards direction, by
reference to an established formula. Within the terms of the lease, there is a
right to extend the term of the lease upon expiry in line with the existing
terms and conditions thereof. It should be noted, however, that very few
leasehold interests have yet to reach termination and, hence, the effective
ability to renew on such a basis is relatively untested. In arriving at opinions
of Market Value, the appraisers assumed that the respective ground leases are
capable of extension in accordance with the terms of each lease. In addition,
given that such interests are not capable of assignment, it was assumed that
each leasehold interest is held by way of a special purpose vehicle ("SPV"), and
that the shares in the respective SPVs are capable of assignment.
With regard to each of the properties considered, in those instances where
project documentation has been agreed with the respective local authorities,
opinions of the appraisers of value have been arrived at on the basis of these
agreed agreements.
In those instances where the properties are held in part ownership, the
valuations assume that these interests are capable of sale in the open market
without any restriction from the co-owner and that there are no encumbrances
within the share agreements which would impact upon the saleability of the
properties concerned.
The valuation is exclusive of VAT and no allowances have been made for any
expenses of realisation or for taxation which might arise in the event of a
disposal of any property. The valuation is, however, net of purchaser's
acquisition costs.
In terms of the Assumptions and Special Assumptions, it was confirmed that
Assumptions are correct as far as they are aware. In the event that any of the
Assumptions prove to be incorrect, the valuations contained in this valuation
report should be reviewed and modified as necessary.
Valuation Model
Valuers constructed a Discounted Cash Flow (DCF) model. DCF analysis is a
financial modelling technique based on explicit assumptions regarding the
prospective income and expenses of a property or business. The analysis is a
forecast of receipts and disbursements during the period concerned. In the same
manner as in an investment analysis, the present value of expected future cash
flows is estimated using the discount rate. The forecast is based on the
assessments of market sales prices for comparable premises, build rates, sales
costs levels etc from the point of view of a probable developer.
In order to achieve a degree of concurrence among the results of different
valuers' estimates certain basic criteria are applied, such as that the analysis
is made in the current (nominal) monetary value, the minimum analysis period
adequate to replicate how hypothetical operators in the market would act when
being party to a transaction, with the payments should be scheduled in such a
way that they reflect actual cash flows as accurately as possible.
2. Summary of significant accounting policies (continued)
To these projected cash flows, an appropriate, market-derived discount rate is
applied to establish an indication of the present value of the income stream
associated with the property or business. In this case, it is a development
property and thus estimates of capital outlays, development costs, and
anticipated sales income are applied to arrive at a series of net cash flows
that are then discounted over the projected development and marketing periods.
The Net Present Value (NPV) could represent what someone might be willing to pay
for the site and is therefore an indicator of market value.
In the event that development commencement and delivery dates are not met then,
this may adversely affect the NPV. The DCF valuation has been made incorporating
some very general assumptions in relation to site preparation, build costs,
phasing and timing. Once further investigations into ground conditions, fell
design, build costs and allowable phasing are established, these findings will
likely lead to a difference in assessed value. All the payments are projected in
nominal US dollar amounts and thus no inflation of local currency is considered.
Valuation Approach
In addition to the above general valuation methodology, the appraisers would
point out the following bases of valuation that have been taken into account in
arriving at Market Value:
Pre Development
In those instances where the nature of the 'Project' has been agreed with the
City Authorities, it was assumed that the subject property will be developed in
accordance with this blueprint, unless the appraisers have considered it
prudent to adopt their own assumed concept.
The final outcome of the development of the property is determined by the Board
of Directors decision, which is based on existing market conditions,
profitability of the project, ability to finance the project and obtaining
required construction permits.
Development
In terms of construction costs, the budgeted costs have been taken into account
in considering opinions of value. However, the appraisers have also had regard
to current construction rates passing in the market which a prospective
purchaser may deem appropriate to adopt in constructing each individual scheme.
Although in some instances the appraisers have adopted the budgeted costs
provided, in some cases the appraisers' own opinions of costs were used.
Where there are outstanding payments to be made in respect of the acquisition of
rights or costs of permitting, the appraisers have adopted those figures for
calculation. In addition, with regard to outstanding costs for the provision of
utilities together with the undertaking any road or transport works those figure
was also accounted for.
Post Development
Rental values have been assessed as at the date of valuation but having regard
to the existing occupational markets taking into account the likely supply and
demand dynamics anticipated during the anticipated development periods
concerned.
The assumption was made that upon completion, the properties will be let in line
with market practices in terms of lease lengths, indexation of rents and
recoverability of costs. The length of lease will vary depending upon the
property type but, generally, these tend to be for periods of between three and
five years.
2. Summary of significant accounting policies (continued)
In terms of indexation, the appraisers have not explicitly reflected the
indexation of rents in arriving at their opinions of value. The standard
letting fees were assumed within the valuations.
Upon completion of construction the appraisers have adopted their opinion of an
appropriate holding period prior to the sale of the property. This period
represents their considered view of the period a developer would hold the
property in order to reach a target occupancy level and to be able to
demonstrate a stable income flow to potential investors.
In arriving at their estimates of gross development value ("GDV"), the
appraisers have capitalised their opinion of net operating income, having
deducted any anticipated non-recoverable expenses, such as land payments, and
permanent void allowance, which has then been capitalised into perpetuity.
The capitalisation rates adopted in arriving at the opinions of GDV reflect the
appraisers' opinions of the rates at which the properties could be sold for on
the assumption that they are completed as at the date of valuation. The adopted
capitalisation rates reflect the appraisers' opinions of where they consider
rates to be at present, although as a result of a lack of transparency in the
market, and a relatively limited number of concluded transactions, this is a
subjective exercise to a certain extent.
In terms of residential developments, the sales prices per sq. m. again reflect
current market conditions and represent those levels the appraisers consider to
be achievable at present. It was assumed that there are no irrecoverable
operating expenses and that all costs will be recovered from the
occupiers/owners by way of a service charge.
The valuations take into account the requirement to pay ground rental payments
and these are assumed not to be recoverable from the occupiers. In terms of
ground rent payments, the appraisers have assessed these on the basis of
information available, and if not available they have calculated these payments
based on current legislation defining the basis of these assessments. Property
tax is not presently payable in Ukraine.
Intangible assets
Intangible assets, comprising of advertising rights are measured initially at
purchase cost. Based on the normal market practice on prolongation of these
rights the Group considers these intangible assets as assets with indefinite
useful lives.
Subsequently to initial measurement the intangible assets are tested annually
for impairment in accordance with IAS 36, Property, plant and equipment by
comparing their recoverable amount with their carrying amount.
Leasing operations
The Group as lessee
Assets held under finance leases are recognised as assets of the Group at their
fair value at the inception of the lease or, if lower, at the present value of
the minimum lease payments. The corresponding liability to the lessor is
included in the statement of financial position as a finance lease obligation.
Lease payments are apportioned between finance charges and reduction of the
lease obligation so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged to the statement of
comprehensive income, unless they are directly attributable to qualifying
assets, in which case they are capitalised in accordance with the Group's
general policy on borrowing costs.
Lease payments are analysed between capital and interest components so that the
interest element of the payment is charged to the statement of comprehensive
income over the period of the lease and represents a constant proportion of the
balance of capital repayments outstanding. The capital part reduces the amount
payable to the lessor.
2. Summary of significant accounting policies (continued)
Financial instruments
Financial assets and financial liabilities are recognised on the Group's
statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
Trade and other receivables
Trade and other receivables are measured at initial recognition at fair value,
and are subsequently measured at amortised cost using the effective interest
rate method. Appropriate allowances for estimated irrecoverable amounts are
recognised in the statement of comprehensive income when there is objective
evidence that the asset is impaired. The allowance recognised is measured as the
difference between the asset's carrying amount and the present value of
estimated future cash flows discounted at the effective interest rate computed
at initial recognition.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise
cash at bank and in hand.
Trade and other payables
Trade and other payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
Impairment of assets
Intangible assets that have an indefinite useful life are not subject to
amortisation and are tested annually for impairment. Assets that are subject to
depreciation or amortisation are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset's fair value less costs to sell and value in use. For
the purposes of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows (cash-generating units).
Value added tax
VAT is levied at the following rates:
· 20% on Ukrainian domestic salesand imports of goods, works and services
and 0% on export of goods and provision of works or services to be used outside
Ukraine.
· 15% on Cyprus domestic sales and imports of goods, works and services and
0% on export of goods and provision of works or services to be used outside
Cyprus.
A taxpayer's VAT liability equals the total amount of VAT collected within a
reporting period, and arises on the earlier of the date of shipping goods to a
customer or the date of receiving payment from the customer. A VAT credit is the
amount that a taxpayer is entitled to offset against his VAT liability in a
reporting period. Rights to VAT credit arise on the earlier of the date of
payment to the supplier or the date goods are received. The part of VAT credit
expected to be recovered in the long-term prospective is classified as
non-current being discounted for discount reflecting principal market
assumptions as to projectsrealization. Initial loss on discounting VAT credit,
non-current was recognized as part of finance costs.
2. Summary of significant accounting policies (continued)
Earnings and Net Assets Value per share
The Group presents basic and diluted earnings per share (EPS) and net assets
value per share (NAV) for its ordinary shares. Basic EPS and NAV amounts are
calculated by dividing net profit for the year, and net assets value as of year
end, attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the year. Diluted EPS is
calculated by dividing net profit for the year, attributable to ordinary equity
holders of the parent, by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of ordinary shares
that would be issued on conversion of all the potentially dilutive ordinary
shares into ordinary shares.
Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares are shown in equity as a deduction, net
of tax, from the proceeds in share premium.
Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation, and a reliable estimate of
the amount can be made. Where the Group expects a provision to be reimbursed,
for example under an insurance contract, the reimbursement is recognised as a
separate asset but only when the reimbursement is virtually certain.
Non-current liabilities
Non-current liabilities represent amounts that are due more than twelve months
from the balance sheet date.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost; any difference
between the proceeds (net of transaction costs) and the redemption value is
recognised as finance cost over the period of the borrowings using the effective
interest method. Fees paid on the establishment of loan facilities are
recognised as transaction costs of the loan to the extent that it is probable
that some or all of the facility will be drawn down. In this case, the fee is
deferred until the draw-down occurs. To the extent there is no evidence that it
is probable that some or all of the facility will be drawn down, the fee is
capitalised as a prepayment for liquidity services and amortised over the period
of the facility to which it relates.
Comparative information
Where necessary, comparative figures have been adjusted to conform to changes in
presentation in the current period.
3. Financial risk management
Financial risk factors
The Group is exposed to liquidity risk, currency risk, operational risk,
compliance risk, litigation risk, reputation risk, price risk, interest risk,
share ownership risk, capital risk management and other risks arising from the
financial instruments it holds. The risk management policies employed by the
Group to manage these risks are discussed below:
(1) Liquidity risk
Liquidity risk is the risk that arises when the maturity of assets and
liabilities does not match. An unmatched position potentially enhances
profitability, but can also increase the risk of losses. The Group has
procedures with the object of minimising such losses such as maintaining
sufficient cash and other highly liquid current assets and by having available
an adequate amount of committed credit facilities. The following table details
the Group's remaining contractual maturity for its non-derivative financial
assets and financial liabilities with agreed repayment periods. The distribution
of financial liabilities over period according to the maturity has been based on
the expected undiscounted cash flow of financial liabilities and has included
both principal and interest cash flows for the respective liabilities. As the
interest rate is floating, the undiscounted amount of loans payable was derived
from interest rate curve at the end of reporting periods.
+-----------------+--------------+--------------+-------------+-------------+--------------+
| 31 December | |
| 2009 | |
+-----------------+------------------------------------------------------------------------+
| | Carrying | Total | Less | From one | More |
| | amount | | than one | to two | than |
| | | | year | years | two |
| | | | | | years |
+-----------------+--------------+--------------+-------------+-------------+--------------+
| Financial | | | | | |
| assets | | | | | |
+-----------------+--------------+--------------+-------------+-------------+--------------+
| Accounts | 1,559,667 | 1,559,667 | 1,559,667 | - | - |
| receivable | | | | | |
+-----------------+--------------+--------------+-------------+-------------+--------------+
| Cash and cash | 5,020,657 | 5,020,657 | 5,020,657 | - | - |
| equivalents | | | | | |
+-----------------+--------------+--------------+-------------+-------------+--------------+
| Financial | | | | | |
| liabilities | | | | | |
+-----------------+--------------+--------------+-------------+-------------+--------------+
| Finance lease | (662,924) | (2,596,020) | (132,977) | (109,220) | (2,353,823) |
| liabilities | | | | | |
+-----------------+--------------+--------------+-------------+-------------+--------------+
| Loans payable | (16,037,967) | (26,609,767) | (1,594,909) | (3,002,353) | (22,012,505) |
+-----------------+--------------+--------------+-------------+-------------+--------------+
| Accounts | (9,300,830) | (9,300,830) | (8,534,465) | (766,365) | - |
| payable | | | | | |
+-----------------+--------------+--------------+-------------+-------------+--------------+
+-----------------+-------------+-------------+-------------+-------------+----------+
| 31 December | |
| 2008 | |
+-----------------+------------------------------------------------------------------+
| | Carrying | Total | Less | From one | More |
| | amount | | than one | to two | than |
| | | | year | years | two |
| | | | | | years |
+-----------------+-------------+-------------+-------------+-------------+----------+
| Financial | | | | | |
| assets | | | | | |
+-----------------+-------------+-------------+-------------+-------------+----------+
| Accounts | 1,650,874 | 1,650,874 | 1,650,874 | - | - |
| receivable | | | | | |
+-----------------+-------------+-------------+-------------+-------------+----------+
| Cash and cash | 35,733 | 35,733 | 35,733 | - | - |
| equivalents | | | | | |
+-----------------+-------------+-------------+-------------+-------------+----------+
| Financial | | | | | |
| liabilities | | | | | |
+-----------------+-------------+-------------+-------------+-------------+----------+
| Finance lease | (85,983) | (101,669) | (42,184) | (33,150) | (26,335) |
| liabilities | | | | | |
+-----------------+-------------+-------------+-------------+-------------+----------+
| Accounts | (4,229,608) | (4,229,608) | (3,211,194) | (1,018,414) | - |
| payable | | | | | |
+-----------------+-------------+-------------+-------------+-------------+----------+
3. Financial risk management (continued)
Forecast for liquidity reserve as at 31 December 2009,based on the existing
project portfolio of the Group, is as follows:
+----------------------------+----------------+
| | 2010-2011 |
+----------------------------+----------------+
| Opening balance for the | 5,020,657 |
| period | |
+----------------------------+----------------+
| | |
+----------------------------+----------------+
| Operating proceeds | 5,311,440 |
+----------------------------+----------------+
| Investment proceeds | 4,000,000 |
+----------------------------+----------------+
| Investment outflows | (3,270,000) |
+----------------------------+----------------+
| Operating and | (4,141,000) |
| administrative outflows | |
+----------------------------+----------------+
| Financing outflows | (4,584,500) |
+----------------------------+----------------+
| Closing balance for the | 2,336,597 |
| period | |
+----------------------------+----------------+
The Group management monitors liquidity position on a daily basis. Assuming the
Group does not pay the UVK fine (see Note 25 for details), the agreement with
UVK is terminated or renegotiated, Brovary Logistics Centre starts generating
income from the 1st July 2010, there is no significant increase of LIBOR that
influences future interests payments of interests on EBRD loan (see Note 21 for
loan details) and the Group manages to recover some doubtful advances made for
investments in land property in prior years, the Group will be able to sustain
the proper level of liquidity.
(2) Currency risk
Currency risk is the risk that the value of financial instruments will fluctuate
due to changes in foreign exchange rates. Currency risk arises when future
commercial transactions and recognised assets and liabilities are denominated in
a currency that is not the Group's measurement currency. The Group is exposed to
foreign exchange risk arising from various currency exposures primarily with
respect to the Ukrainian Hryvnia. The Group's management monitors the exchange
rate fluctuations on a continuous basis and acts accordingly.
A summary of the Group's exposure to foreign currency risk at the reported dates
are presented below
+-----------------+-------------+-----------+-----------+--------------+--------------+
| | | | Currency | | |
+-----------------+-------------+-----------+-----------+--------------+--------------+
| As at 31 | UAH | EUR | GBP | USD | Total |
| December 2009 | | | | | |
+-----------------+-------------+-----------+-----------+--------------+--------------+
| US$ equivalent | | | | | |
+-----------------+-------------+-----------+-----------+--------------+--------------+
| Trade and other | 1,559,667 | - | | - | 1,559,667 |
| receivables | | | | | |
+-----------------+-------------+-----------+-----------+--------------+--------------+
| Cash and cash | 561,680 | 866 | | 4,458,111 | 5,020,657 |
| equivalents | | | | | |
+-----------------+-------------+-----------+-----------+--------------+--------------+
| Loans payable | (4,321) | - | | (16,000,000) | (16,004,321) |
+-----------------+-------------+-----------+-----------+--------------+--------------+
| Interest on | - | - | | (33,646) | (33,646) |
| loans payable | | | | | |
+-----------------+-------------+-----------+-----------+--------------+--------------+
| Trade and other | (3,793,859) | (231,483) | (601,772) | (4,673,716) | (9,300,830) |
| payables | | | | | |
+-----------------+-------------+-----------+-----------+--------------+--------------+
| | (1,676,833) | (230,617) | (601,772) | (16,249,251) | (18,758,473) |
+-----------------+-------------+-----------+-----------+--------------+--------------+
3. Financial risk management (continued)
+-----------------+-------------+-----------+-----------+-------------+-------------+
| | | | Currency | | |
+-----------------+-------------+-----------+-----------+-------------+-------------+
| As at 31 | UAH | EUR | GBP | USD | Total |
| December 2008 | | | | | |
+-----------------+-------------+-----------+-----------+-------------+-------------+
| US$ equivalent | | | | | |
+-----------------+-------------+-----------+-----------+-------------+-------------+
| Trade and other | 161,642 | - | - | 1,489,232 | 1,650,874 |
| receivables | | | | | |
+-----------------+-------------+-----------+-----------+-------------+-------------+
| Cash and cash | 3,411 | 9,009 | - | 23,313 | 35,733 |
| equivalents | | | | | |
+-----------------+-------------+-----------+-----------+-------------+-------------+
| Trade and other | (2,024,761) | (199,191) | (301,038) | (1,704,618) | (4,229,608) |
| payables | | | | | |
+-----------------+-------------+-----------+-----------+-------------+-------------+
| | (1,859,708) | (190,182) | (301,038) | (192,073) | (2,543,001) |
+-----------------+-------------+-----------+-----------+-------------+-------------+
The sensitivity analysis prepared by management for foreign currency risk
illustrates how changes in the fair value or future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange rates.
The Group results are substantially sensitive to movement in UAH/US dollar
exchange rate because significant part of its financial instruments is
denominated in US Dollars. If at 31 December 2009 the Ukrainian Hryvnia had
weakened/strengthen by 10% against the US dollar with all other variables held
constant, the Company's results would (decrease)/increase by US$ (1,152,774)/
1,152,774 respectively. Meanwhile balances of Trade and other receivables, Cash
and cash equivalents and Trade and other payables, that are considerably
sensitive to UAH/US dollar exchange rate because the most part of these
financial instruments are denominated in UAH, would increase/ (decrease) by US$
167,683/ (167,683) in total due to such a change of UAH/ US dollar exchange
rate.
Balances of other financial assets and liabilities are not substantially
sensitive to movement in UAH/US dollar exchange rate because these financial
instruments are denominated in other currencies.
(3) Operational risk
Operational risk is the risk that derives from the deficiencies relating to the
Group's information technology and control systems as well as the risk of human
error and natural disasters. The Group's systems are evaluated, maintained and
upgraded continuously.
(4) Compliance risk
Compliance risk is the risk of financial loss, including fines and other
penalties, which arises from non-compliance with laws and regulations of the
state. The risk is limited by the monitoring controls applied by the Group.
(5) Litigation risk
Litigation risk is the risk of financial loss, interruption of the Group's
operations or any other undesirable situation that arises from the possibility
of non-execution or violation of legal contracts and consequentially of
lawsuits. The risk is restricted through the contracts used by the Group to
execute its operations.
(6) Reputation risk
The risk of loss of reputation arising from the negative publicity relating to
the Group. The Group's operations (whether true or false) may result in a
reduction of its clientele, reduction in revenue and legal cases against the
Group. The Group applies procedures to minimize this risk.
3. Financial risk management (continued)
(7) Price risk
The Group is exposed to property rentals and capitalisation yield risk.
As at 31 December 2009, if the rental price had changed by 5% or the
capitalization yield had increased/decreased by 1%, with all other variables
held constant, the fair value of the commercial projects would have been as
follows:
Commercial property
+----------------+-------------+-------------+-------------+-------------+-------------+
| Project | Rental price | Capitalisation | Carrying |
| | | yield | value as at |
| | | | 31 December |
| | | | 2009 |
+----------------+---------------------------+---------------------------+-------------+
| | -5% | 5% | -1% | 1% | |
+----------------+-------------+-------------+-------------+-------------+-------------+
| Brovary | 22,150,000 | 24,830,000 | 25,540,000 | 21,750,000 | 23,490,000 |
| Logistics | | | | | |
| Center | | | | | |
+----------------+-------------+-------------+-------------+-------------+-------------+
| Bela Logistics | 9,445,000 | 14,205,000 | 14,882,000 | 9,162,000 | 11,829,000 |
| park | | | | | |
+----------------+-------------+-------------+-------------+-------------+-------------+
Provided that rental price of commercial property decrease by 5%, that may lead
to decrease of carrying value of investment property under construction at 31
December 2009 by 10.54% or US$ 3,724,000. Theincrease of rental price by 5% may
lead to increase of carrying value of investment property under construction at
31 December 2009 by 10.52% or US$ 3,716,000.
The decrease of capitalisation yield by 1% may result in increase of carrying
value of investment property under construction at 31 December 2009 by 14.45% or
US$ 5,103,000. The increase of capitalisation yield by 1% may result into
decrease of carrying value of investment property under construction by 12.48%
or US$ 4,407,000.
As at 31 December 2009, if the sales price had changed by 5%, with all other
variables held constant, the fair value of the residential projects would have
been as follows:
Residential property
+--------------------------+-------------+-------------+--------------+
| Project | Sales price | Carrying |
| | | value as at |
| | | 31 December |
| | | 2009 |
+--------------------------+---------------------------+--------------+
| | -5% | 5% | |
+--------------------------+-------------+-------------+--------------+
| Tsymliansky Lane | 2,692,000 | 3,615,000 | 3,154,000 |
+--------------------------+-------------+-------------+--------------+
| Kyanivsky Lane | 17,828,000 | 21,609,000 | 19,719,000 |
+--------------------------+-------------+-------------+--------------+
Provided that sales price of residential property had decreased by 5%, it may
lead to decrease of carrying value of investment property at 31 December 2009 by
10.29% or US$ 2,353,000. The increase of sales price of residential property by
5% may lead to increase of carrying value of investment property at 31 December
2009 by 10.28% or US$ 2,351,000.
3. Financial risk management (continued)
(8) Interest risk management
As the Group has the floating interest rate on the loan received from European
Bank for Reconstruction and Development (further "EBRD") it is exposed to LIBOR
interest risk.
The Group monitors the market interest rate to timely initiate changes of fixed
part of interest.
The sensitivity analysis for LIBOR changes applying to the interest calculation
on the Loan principal outstanding as at the 31 December 2009 is presented below
+--------------+------------+-----------+-----------+
| | Actual | +100 bps | +200 bps |
| | as at | | |
| |31.12.2009 | | |
+--------------+------------+-----------+-----------+
| Libor (3 | 0,25% | 1,25% | 2,25% |
| months) | | | |
+--------------+------------+-----------+-----------+
| Yearly | 1,120,101 |1,280,101 |1,440,101 |
| interests | | | |
| accrued | | | |
+--------------+------------+-----------+-----------+
(9) Share ownership risk
The risk of share ownership arises from the investment in shares/participation
of the Group and is a combination of credit, price and operational risk as well
as the risk of compliance and loss of reputation. The Group applies procedures
of analysis, measurement and evaluation of this risk in order to minimize it.
(10) Capital risk management
The Group manages its capital to ensure that it will be able to continue as a
going concern while maximising the return to shareholders through the
optimisation of the debt and equity balance. While the Group's overall strategy
remains unchanged from last year, the Board of Directors has decided not to
proceed with the acquisitions currently under Preliminary Agreements. The Group
is working on recovering advances granted under Preliminary and Mortgage
Agreements.
(11) Other risks
The principal activities of the Group are carried out in Ukraine. As stated in
the Directors' Report such markets (emerging markets) are subject to various
significant risks, including but not limited to political, market, economic, and
legal risks. In addition it is widely believed that in such emerging markets,
the complexity of approval process exists in many levels of the processes.
(12) Fair value estimation
The fair values of the Group's financial assets and liabilities approximate
their carrying amounts at the financial position date.
4. Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the
next financial year are discussed below:
· Income taxes
Significant judgement is required in determining the provision for income taxes.
There are transactions and calculations for which the ultimate tax determination
is uncertain during the ordinary course of business. The Group recognises
liabilities for anticipated tax audit issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these matters is
different from the amounts that were initially recorded, such differences will
impact the income tax and deferred tax provisions in the period in which such
determination is made.
· Fair value of investment property
The fair value of investment property is determined by using valuation
techniques. The Group uses its judgement to select a variety of methods and make
assumptions that are mainly based on market conditions existing at each balance
sheet date. The fair value of the investment property has been estimated based
on the fair value of their individual assets.
· Impairment of intangible assets
Intangible assets are initially recorded at acquisition cost and are amortized
on a straight line basis over their useful economic life. Intangible assets that
are acquired through a business combination are initially recorded at fair value
at the date of acquisition. Intangible assets with indefinite useful life are
reviewed for impairment at least once per year. The impairment test is performed
using the discounted cash flows expected to be generated through the use of the
intangible assets, using a discount rate that reflects the current market
estimations and the risks associated with the asset. When it is impractical to
estimate the recoverable amount of an asset, the Group estimates the recoverable
amount of the cash generating unit in which the asset belongs to.
· Provision for deferred taxes
Deferred tax is not provided in respect of the revaluation of the investment
property and investment property under construction as the Group is able to
control the timing of the reversal of this temporary difference and the
management has intention not to reverse the temporary difference in the
foreseeable future. The properties are held by subsidiary companies in Ukraine.
The management estimates that the assets will be realised through a share deal
rather than through an asset deal. Should any subsidiary be disposed of, the
gains generated from the disposal will be exempted from any tax.
5. Administration expenses
+-------------------------------------------------+-----------+--+-----------+
| | 2009 | | 2008 |
| | | | |
+-------------------------------------------------+-----------+--+-----------+
| | US$ | | US$ |
+-------------------------------------------------+-----------+--+-----------+
| Management fee | 2,782,900 | | 2,516,029 |
+-------------------------------------------------+-----------+--+-----------+
| Legal fees | 797,283 | | 599,730 |
+-------------------------------------------------+-----------+--+-----------+
| Salaries and Wages | 570,850 | | 505,753 |
+-------------------------------------------------+-----------+--+-----------+
| Audit | 312,666 | | 255,552 |
+-------------------------------------------------+-----------+--+-----------+
| Directors remuneration | 230,917 | | 310,670 |
+-------------------------------------------------+-----------+--+-----------+
| Security | 212,320 | | 139,622 |
+-------------------------------------------------+-----------+--+-----------+
| Consulting fees | 163,935 | | 597,996 |
+-------------------------------------------------+-----------+--+-----------+
| Public group expenses | 154,459 | | 164,027 |
+-------------------------------------------------+-----------+--+-----------+
| Office rent | 140,929 | | 243,829 |
+-------------------------------------------------+-----------+--+-----------+
| Travelling expenses | 95,339 | | 421,530 |
+-------------------------------------------------+-----------+--+-----------+
| Taxes and duties | 89,975 | | 163,379 |
+-------------------------------------------------+-----------+--+-----------+
| Other office expenses | 85,551 | | 162,165 |
+-------------------------------------------------+-----------+--+-----------+
| Accounting fees | 79,545 | | 160,295 |
+-------------------------------------------------+-----------+--+-----------+
| Apartment rent | 69,449 | | 103,838 |
+-------------------------------------------------+-----------+--+-----------+
| Depreciation | 60,881 | | 98,105 |
+-------------------------------------------------+-----------+--+-----------+
| Administration fees | 38,252 | | 194,178 |
+-------------------------------------------------+-----------+--+-----------+
| Marketing fees | - | | 116,142 |
+-------------------------------------------------+-----------+--+-----------+
| Transaction costs | - | | 99,207 |
+-------------------------------------------------+-----------+--+-----------+
| Other expenses | 61,472 | | 76,001 |
+-------------------------------------------------+-----------+--+-----------+
| | 5,946,723 | | 6,928,048 |
+-------------------------------------------------+-----------+--+-----------+
6. Finance costs, net
+-------------------------------------------------+-----------+--+------------+
| | 2009 | | 2008 |
+-------------------------------------------------+-----------+--+------------+
| | US$ | | US$ |
+-------------------------------------------------+-----------+--+------------+
| Loss from discounting VAT recoverable, non - | 2,398,890 | | - |
| current | | | |
+-------------------------------------------------+-----------+--+------------+
| Foreign exchange losses, net | 2,301,804 | | 36,259,708 |
+-------------------------------------------------+-----------+--+------------+
| Finance charges and commissions | 166,121 | | 782,409 |
+-------------------------------------------------+-----------+--+------------+
| Bank interest expenses | 20,849 | | - |
+-------------------------------------------------+-----------+--+------------+
| Bank interest income | (15,553) | | (299,964) |
+-------------------------------------------------+-----------+--+------------+
| Other finance expenses | 159 | | 36,025 |
+-------------------------------------------------+-----------+--+------------+
| | 4,872,270 | | 36,778,178 |
+-------------------------------------------------+-----------+--+------------+
7. Income from investing activities
+-------------------------------------------------+----------+--+-----------+
| | 2009 | | 2008 |
+-------------------------------------------------+----------+--+-----------+
| | US$ | | US$ |
+-------------------------------------------------+----------+--+-----------+
| Interest income | - | | 1,166,406 |
+-------------------------------------------------+----------+--+-----------+
| | - | | 1,166,406 |
+-------------------------------------------------+----------+--+-----------+
Interest income -related to interest accrued on outstanding advances under
investments. No interest has been accrued in 2009 since the recoverability of
the advances is doubtful.
8. Other expenses, net
+-------------------------------------------------+------------+--+-----------+
| | 2009 | | 2008 |
+-------------------------------------------------+------------+--+-----------+
| | US$ | | US$ |
+-------------------------------------------------+------------+--+-----------+
| Advances for investments - impairment loss | 6,128,205 | | 1,909,818 |
+-------------------------------------------------+------------+--+-----------+
| Penalties | 3,133,253 | | - |
+-------------------------------------------------+------------+--+-----------+
| Receivables - impairment loss | 1,253,167 | | - |
+-------------------------------------------------+------------+--+-----------+
| Property, plant and equipment impairment loss | 95,772 | | - |
+-------------------------------------------------+------------+--+-----------+
| Intangible assets - impairment loss | - | | 1,282,736 |
+-------------------------------------------------+------------+--+-----------+
| Other expenses, net | 272,253 | | (657,972) |
+-------------------------------------------------+------------+--+-----------+
| | 10,882,650 | | 2,534,582 |
+-------------------------------------------------+------------+--+-----------+
The Group incurred penalties due to late delivery of Brovary Logistics Park to
UVK. See Note 25 for further details.
The Group decided to provide for impairment against the advances for
investments, intangible assets, receivables and property, plant and equipment as
at 31 December 2009. See the Note 19, 17, 18 and 14 respectively.
9. Tax
+-------------------------------------------------+----------+--+-------------+
| | 2009 | | 2008 |
+-------------------------------------------------+----------+--+-------------+
| | US$ | | US$ |
+-------------------------------------------------+----------+--+-------------+
| Income tax - current year | - | | 749,472 |
+-------------------------------------------------+----------+--+-------------+
| Defence contribution | 10 | | 29,385 |
+-------------------------------------------------+----------+--+-------------+
| Deferred tax - charge/ (credit) (Note 24 ) | - | | (6,155,984) |
+-------------------------------------------------+----------+--+-------------+
| Charge for the year | 10 | | (5,377,127) |
+-------------------------------------------------+----------+--+-------------+
The income tax rate for the Company's Ukrainian subsidiaries is 25% for the year
ended 31 December 2009 (31 December 2008: 25%). The corporate tax that is
applied to the qualifying income of the parent company and its Cypriot
subsidiaries is 10% for the year ended 31 December 2009 (31 December 2008: 10%)
The tax on the Group's results before tax differs from the theoretical amount
that would arise using the applicable tax rates as follows:
+-------------------------------------------------+--------------+--+-------------+
| | 2009 | | 2008 |
+-------------------------------------------------+--------------+--+-------------+
| | US$ | | US$ |
+-------------------------------------------------+--------------+--+-------------+
| (Loss)/Profit before tax | (39,172,251) | | 4,980,887 |
| | | | |
+-------------------------------------------------+--------------+--+-------------+
| Tax calculated at the applicable tax rates | (8,605,412) | | (5,268,580) |
+-------------------------------------------------+--------------+--+-------------+
| Allowance for tax losses carry forward | 502,438 | | 9,243,600 |
+-------------------------------------------------+--------------+--+-------------+
| Reversal of deferred tax related to investment | - | | (6,155,984) |
| property | | | |
+-------------------------------------------------+--------------+--+-------------+
| Defence contribution current year | 10 | | 29,385 |
+-------------------------------------------------+--------------+--+-------------+
| Income/(loss) on revaluation not subject to tax | 4,367,521 | | (6,416,383) |
+-------------------------------------------------+--------------+--+-------------+
| Expenses not recognized for tax purposes | 3,717,101 | | 2,284,299 |
+-------------------------------------------------+--------------+--+-------------+
| Other movements in deferred tax | 18,352 | | 906,536 |
+-------------------------------------------------+--------------+--+-------------+
| Tax charge | 10 | | (5,377,127) |
+-------------------------------------------------+--------------+--+-------------+
9. Tax (continued)
As from 1 January 2008, deferred tax is not provided in respect of the
revaluation of the investment property and investment property under
construction as the Group is able to control the timing of the reversal of this
temporary difference and the management has intention not to reverse the
temporary difference in the foreseeable future, the properties are held by
subsidiary companies in Ukraine. The management estimates that the assets will
be realised through a share deal rather than through an asset deal. Should any
subsidiary be disposed of, the gains generated from the disposal will be
exempted from any tax.
The respective reversal of previously accrued Deferred Tax Liabilities has been
made in 2008.
10. Share capital
+------------+--------------+-----------+------------+--------------+-----------+-------------+
| | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 |
+------------+--------------+-----------+------------+--------------+-----------+-------------+
| | Number | Share | Share | Number | Share | Share |
| | of | Capital | Premium | of | Capital | Premium |
| | shares | US$ | US$ | shares | US$ | US$ |
+------------+--------------+-----------+------------+--------------+-----------+-------------+
| Authorised | | | | | | |
+------------+--------------+-----------+------------+--------------+-----------+-------------+
| Ordinary | 875,000,000 | | | 875,000,000 | | |
| shares | | | | | | |
| of | | | | | | |
| CYGBP0.01 | | | | | | |
| each | | | | | | |
| converted | | | | | | |
| into | | | | | | |
| EUR0.01 | | | | | | |
| each | | | | | | |
+------------+--------------+-----------+------------+--------------+-----------+-------------+
| | | | | | | |
+------------+--------------+-----------+------------+--------------+-----------+-------------+
| Issued and | | | | | | |
| fully paid | | | | | | |
+------------+--------------+-----------+------------+--------------+-----------+-------------+
| At 1 | 192,194,975 | 2,283,299 | 92,683,930 | 166,191,829 | 1,881,092 | 92,683,930 |
| January | | | | | | |
+------------+--------------+-----------+------------+--------------+-----------+-------------+
| Issue of | - | - | - | 26,003,146 | 402,207 | - |
| shares | | | | | | |
+------------+--------------+-----------+------------+--------------+-----------+-------------+
| At 31 | 192,194,975 | 2,283,299 | 92,683,930 | 192,194,975 | 2,283,299 | 92,683,930 |
| December | | | | | | |
+------------+--------------+-----------+------------+--------------+-----------+-------------+
In August 2009 the Company received advances in the total amount of US$
4,987,972 for issue of new shares. This amount is net of: a) capital raising
fees of US$ 208,716 paid to fund raising lead-managers and consultants; b)
liabilities to directors in the amount of US$223,121 to be set off against
shares due to them. The total number of shares approved by the parent company's
Board of Directors for issue is 222,077,817 and the Company Secretary is
currently taking steps for the issue of the shares.
11. Stock based compensation for directors
Share Option for Directors
On 25 July 2007, the parent company adopted a share option scheme for each of
the Directors as at that date. Under the Option scheme, which was approved by
the members on 31 March 2008, each director is entitled to subscribe for 263,158
Ordinary shares exercisable as set out below:
+-------------------------------------------------+------------+-+----------+
| | Exercise | | Amount |
| | Price | | of |
| | US$ | | Shares |
| | | | |
+-------------------------------------------------+------------+-+----------+
| Exercisable from admission of the Company to | 0.57 | | 175,439 |
| AIM till 1 August 2017 | | | |
+-------------------------------------------------+------------+-+----------+
| Exercisable from 1st anniversary to AIM till 1 | 0.83 | | 87,719 |
| August 2017 | | | |
+-------------------------------------------------+------------+-+----------+
11. Stock based compensation for directors (continued)
On 12 October 2007, the parent company adopted a share option scheme for its
Director Franz M. Hoerhager which entitles him to subscribe for 182.917 Ordinary
shares exercisable as set out below:
+-------------------------------------------------+-----------+-+----------+
| | Exercise | | Amount |
| | Price | | of |
| | US$ | | Shares |
| | | | |
+-------------------------------------------------+-----------+-+----------+
| Exercisable immediately after the Appointment | 0.40 | | 121,929 |
| till 1 August 2017 | | | |
+-------------------------------------------------+-----------+-+----------+
| Exercisable from 1st anniversary to AIM till 1 | 0.50 | | 60,988 |
| August 2017 | | | |
+-------------------------------------------------+-----------+-+----------+
If a director resigns from the Board any unvested options lapse, unless the
Directors resolve otherwise.
The above options were approved, verified and adopted in every respect by the
members of the Company in
General Meeting on 31 March 2008.
The Company recognized respective equity reserve for share options in the
statement of financial position as at 31 December 2009 in the amount of US$
68,390.
12. Shareholder Warrants
Founding Shareholder Warrants
The Board of Directors approved the issue of warrants to the Founding
Shareholders of the parent company, entitling them to subscribe at par value per
ordinary share, for such a number of ordinary shares which when multiplied by
US$0.57 equals 100% of the difference between the market value of the parent
company's interest in its Investment Portfolio at the date of Admission to AIM
(1 August 2007) and six months following admission to AIM (1 February 2008), net
of direct project cash costs, and net gain proceeds from the sale of
Tarasovskaya project, that was made in May, 2007.
Additional 26,003,146 ordinary shares were issued on 27 June 2008 in relation to
the exercise of these warrants at par value of Euro 0.01 per share.
Tudor BVI Global Portfolio Ltd Warrants
The parent company granted to a shareholder, Tudor BVI Global Portfolio Ltd,
warrants to subscribe for 10,937,500 Ordinary shares at the exercise price of
US$0.64 per share.
The exercise date is within 30 days following the first anniversary of admission
to AIM (1 August 2008).
The above warrants were approved, verified and adopted in every respect by the
members of the parent company in General Meeting on 31 March 2008.
The above warrants have expired since they were not exercised by 30 September
2008.
13. Earnings and net assets per share attributable to equity holders of the
parent
Weighted average number of ordinary shares
+-----------------------------------------------+-------------+----------+-------------+
| | 2009 | | 2008 |
+-----------------------------------------------+-------------+----------+-------------+
| | Number | | Number |
+-----------------------------------------------+-------------+----------+-------------+
| Issued ordinary shares at 1 January | 192,194,975 | | 166,191,829 |
+-----------------------------------------------+-------------+----------+-------------+
| Ordinary shares additionally issued | - | | 26,003,146 |
+-----------------------------------------------+-------------+----------+-------------+
| Issued ordinary shares at 31 December | 192,194,975 | | 192,194,975 |
+-----------------------------------------------+-------------+----------+-------------+
| Issued and prepaid ordinary shares at 31 | 192,194,975 | | 192,194,975 |
| December | | | |
+-----------------------------------------------+-------------+----------+-------------+
| Weighted average number of ordinary shares | 192,194,975 | | 179,513,989 |
+-----------------------------------------------+-------------+----------+-------------+
| Diluted weighted number of ordinary shares | 192,194,975 | | 179,513,989 |
+-----------------------------------------------+-------------+----------+-------------+
Basic, diluted and adjusted earnings per share
+-------------------------+--------------+----------+----------+----------+--------------+----------+----------+
| | 2009 | | 2009 | | 2008 | | 2008 |
+-------------------------+--------------+----------+----------+----------+--------------+----------+----------+
| | Loss | | Earnings | | Loss | | Earnings |
| | | | | | | | |
+-------------------------+--------------+----------+----------+----------+--------------+----------+----------+
| | after | | per | | after | | per |
| | tax | | share | | tax | | share |
+-------------------------+--------------+----------+----------+----------+--------------+----------+----------+
| | US$ | | US$ | | US$ | | US$ |
+-------------------------+--------------+----------+----------+----------+--------------+----------+----------+
| Basic | (38,901,144) | | (0.20) | | (15,482,825) | | (0.09) |
+-------------------------+--------------+----------+----------+----------+--------------+----------+----------+
| Diluted | (38,901,144) | | (0.20) | | (15,482,825) | | (0.09) |
+-------------------------+--------------+----------+----------+----------+--------------+----------+----------+
Net assets per share
+---------+------------+----------+-------------+----------+--------+----------+------------+----------+-------------+----------+--------+
| | 2009 | | 2009 | | 2009 | | 2008 | | 2008 | | 2008 |
+---------+------------+----------+-------------+----------+--------+----------+------------+----------+-------------+----------+--------+
| | Net | | Number | | Net | | Net | | Number | | Net |
| | assets | | | | assets | | assets | | | | assets |
+---------+------------+----------+-------------+----------+--------+----------+------------+----------+-------------+----------+--------+
| | | | of | | per | | | | of | | per |
| | | | shares | | share | | | | shares | | share |
+---------+------------+----------+-------------+----------+--------+----------+------------+----------+-------------+----------+--------+
| Basic | 49,670,500 | | 192,194,975 | | 0.26 | | 82,540,207 | | 192,194,975 | | 0.43 |
+---------+------------+----------+-------------+----------+--------+----------+------------+----------+-------------+----------+--------+
| Diluted | 49,670,500 | | 192,194,975 | | 0.26 | | 82,540,207 | | 192,194,975 | | 0.43 |
+---------+------------+----------+-------------+----------+--------+----------+------------+----------+-------------+----------+--------+
14. Property, plant and equipment
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| |Furniture, | Software | Motor |Leasehold |Citylights | Total |
| | fixtures | and | vehicles | | | |
| | and | hardware | | | | |
| | equipment | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| | US$ | US$ | US$ | US$ | US$ | US$ |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| Cost: | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| At 1 January 2009 | 75,040 | 32,405 | 107,007 | 27,556 | 98,185 | 340,193 |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| Additions | 73 | 6,066 | 4,707 | - | 17,891 | 28,737 |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| Disposals | (4,406) | - | - | - | (3,448) | (7,854) |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| Translation | (11,511) | (1,610) | (3,933) | (983) | 923 | (17,114) |
| difference | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| At 31 December | 59,196 | 36,861 | 107,781 | 26,573 | 113,551 | 343,962 |
| 2009 | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| Accumulated | | | | | | |
| depreciation: | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| At 1 January 2009 | (21,870) | (16,929) | (47,215) | (9,185) | (37,291) | (132,490) |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| Charge for the | (9,750) | (11,513) | (15,768) | (4,539) | (19,311) | (60,881) |
| year | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| Translation | 720 | 1,038 | 10,793 | 438 | 2,638 | 15,627 |
| difference | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| At 31 December | (30,900) | (27,404) | (52,190) | (13,286) | (53,964) | (177,744) |
| 2009 | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| Impairment | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| At 31 December | - | - | - | - | - | - |
| 2008 | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| At 31 December | (354) | (1,358) | (32,155) | - | (59,587) | (93,454) |
| 2009 | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| Net book amount: | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| At 31 December | 53,170 | 15,476 | 59,792 | 18,371 | 60,894 | 207,703 |
| 2008 | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
| At 31 December | 27,942 | 8,099 | 23,436 | 13,287 | - | 72,764 |
| 2009 | | | | | | |
+-------------------+------------+-----------+-----------+-----------+------------+------------+
15. Investment property under construction
+-------------------------------------------------+--------------+--+--------------+
| | 2009 | | 2008 |
+-------------------------------------------------+--------------+--+--------------+
| | US$ | | US$ |
+-------------------------------------------------+--------------+--+--------------+
| At 1 January | 41,867,000 | | 6,722,135 |
+-------------------------------------------------+--------------+--+--------------+
| Transfer from investment properties | - | | 10,800,000 |
+-------------------------------------------------+--------------+--+--------------+
| Investment property related costs | 12,716,603 | | 30,186,227 |
+-------------------------------------------------+--------------+--+--------------+
| Revaluation (losses)/gains on investment | (17,895,730) | | 14,200,904 |
| property | | | |
+-------------------------------------------------+--------------+--+--------------+
| Translation losses | (1,368,873) | | (20,042,266) |
+-------------------------------------------------+--------------+--+--------------+
| At 31 December | 35,319,000 | | 41,867,000 |
+-------------------------------------------------+--------------+--+--------------+
Up to 31 December 2007 investment property under development was carried at cost
plus any development costs after initial recognition and was stated as Property
under construction in the financial statements. IAS 16 requirements were applied
to the Investment property under development during the period of development.
As such, no fair value gains were recognised in the statement of comprehensive
income of 2007 on these properties.
The Group has decided to take advantage of the permission allowed in IAS 40
"Investment property" to apply the amendments to investment property under
construction in the financial statements of 2008. Therefore, the fair value
gains on investment property of US$ 25,665,532 appearing in the statement of
comprehensive income of 2008 include fair value gains of US$ 14,200,904 on
investment properties under construction valued at fair value for the first time
in 2008.
15. Investment property under construction (continued)
For the purposes of these financial statements the assessed fair value of
Investment property under construction is:
- Reduced by the carrying amount of discounted carrying amount of VAT
recoverable balance in the amount of US$ 2,148,000 included by the appraisers in
market value calculation
- Increased by the carrying amount of penalty liabilities to UVK in the
amount of US$ 1,500,000 (see Note 16) accounted for by the appraisers in market
value estimation
- Increased by the discounted carrying amount of liabilities on construction
contracts in the amount of US$ 1,377,000 given by the appraisers in arriving to
market value estimation
- Increased by the discounted amount of liabilities on land lease payments
in the amount of US$ 320,000 accounted for by the appraisers in market value
estimation
The investment property capitalised costs include, among other items, the
following capitalised items:
- Interests and fees on EBRD loan (see Note 13) in the amount of US$ 241,600
- Land held under operating lease but accounted for as if it were a finance
lease being recognised the asset in the amount of US$ 302,648 at 31 December
2009
- Prepayments made by the Company for construction works in the amount of
US$ 5,099,171 at 31 December 2009
16. Investment property
+-------------------------------------------------+------------+--+--------------+
| | 2009 | | 2008 |
+-------------------------------------------------+------------+--+--------------+
| | US$ | | US$ |
+-------------------------------------------------+------------+--+--------------+
| At 1 January | 22,894,000 | | 32,830,000 |
+-------------------------------------------------+------------+--+--------------+
| Transfer to property under construction | - | | (10,800,000) |
+-------------------------------------------------+------------+--+--------------+
| Investment property related costs | 390,248 | | 877,107 |
+-------------------------------------------------+------------+--+--------------+
| Revaluation gains on investment property | 425,645 | | 11,464,628 |
+-------------------------------------------------+------------+--+--------------+
| Translation difference | (836,893) | | (11,477,735) |
+-------------------------------------------------+------------+--+--------------+
| At 31 December | 22,873,000 | | 22,894,000 |
+-------------------------------------------------+------------+--+--------------+
On acquisitions dates and as at 31 December 2009, the property was valued by DTZ
Kiev B.V ("DTZ"), an external valuer. The valuer's opinion of the Market Value
of each property has been primarily derived using an estimate of the future
potential net income generated by use of the properties because their
specialised nature means that there is no market based evidence available.
Project related prepayments include advances for contractors and consultants on
works preceding development of properties.
In October 2007 the Group obtained the construction permit for Brovary Logistics
Center and in April 2008 the Group obtained the construction permit for Bela
Logistics Park that were reclassified according to IAS 40 from Investment
Property to Investment Property under construction in 2008.
For the purposes of these financial statements the assessed fair value of
Investment property is:
- Increased by the discounted amount of liabilities on land lease payments
in the amount of US$ 75,000 accounted for by the appraisers in market value
estimation
The investment property capitalised costs include, among other items, the
following capitalised items:
- Land held under operating lease but accounted for as if it was a finance
lease being recognised the asset in the amount of US$ 139,439 at 31 December
2009
- Prepayments made by the Company for construction works in the amount of
US$ 5,762 at 31 December 2009
17. Intangible assets
+---------------------------------------------------------+-------------+----------+
| | Advertising | |
| | rights | |
+---------------------------------------------------------+-------------+----------+
| | US$ | |
+---------------------------------------------------------+-------------+----------+
| Cost: | | |
+---------------------------------------------------------+-------------+----------+
| At 1 January 2009 | 1,999,388 | |
+---------------------------------------------------------+-------------+----------+
| Translation difference | (765,396) | |
+---------------------------------------------------------+-------------+----------+
| Impairment provision | (1,233,992) | |
+---------------------------------------------------------+-------------+----------+
| | | |
+---------------------------------------------------------+-------------+----------+
| | | |
+---------------------------------------------------------+-------------+----------+
| Net book value: | | |
+---------------------------------------------------------+-------------+----------+
| At 1 January 2009 | - | |
+---------------------------------------------------------+-------------+----------+
| At 31 December 2009 | - | |
+---------------------------------------------------------+-------------+----------+
The test of impairment performed by the management as at 31 December 2009 has
shown significant deterioration of the value of advertising rights resulted from
the business combination of one of the Company's subsidiaries Aisi Outdoor.
These results mainly reflect changes of market conditions, and decrease of
demand for advertising services. Following the prudence concept for financial
statements preparation the management has decided to make 100% impairment
provision for these assets.
18. Advances for investments
+-------------------------------------------------+-------------+--+-------------+
| | 2009 | | 2008 |
+-------------------------------------------------+-------------+--+-------------+
| | US$ | | US$ |
+-------------------------------------------------+-------------+--+-------------+
| Advances for investments | 17,267,803 | | 17,336,047 |
+-------------------------------------------------+-------------+--+-------------+
| Impairment provision | (7,969,858) | | (1,909,818) |
+-------------------------------------------------+-------------+--+-------------+
| | 9,297,945 | | 15,426,229 |
+-------------------------------------------------+-------------+--+-------------+
As at 31 December 2009 the Group has decided to provide for impairment provision
against the advances for investments in the amount of US$ 7,969,858. These
advances were granted to several companies and an individual in respect of land
plots.
19. Accounts receivable
+-------------------------------------------------+-----------+--+-----------+
| | 2009 | | 2008 |
+-------------------------------------------------+-----------+--+-----------+
| | US$ | | US$ |
+-------------------------------------------------+-----------+--+-----------+
| Interests receivable | 1,337,825 | | 1,457,204 |
+-------------------------------------------------+-----------+--+-----------+
| VAT and other tax receivable | 216,396 | | 4,721,259 |
+-------------------------------------------------+-----------+--+-----------+
| Prepayments and other current assets | 508,193 | | 193,670 |
+-------------------------------------------------+-----------+--+-----------+
| Receivables from related parties (Note 27) | 1,252 | | - |
+-------------------------------------------------+-----------+--+-----------+
| Impairment of prepayments and other receivables | (287,603) | | - |
+-------------------------------------------------+-----------+--+-----------+
| | 1,776,063 | | 6,372,133 |
+-------------------------------------------------+-----------+--+-----------+
As at 31 December 2009 the Group has accrued interest on the outstanding balance
of advances made in the previous periods for investments in property (see Note
18)
20. Cash and cash equivalents
+-------------------------------------------------+------------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------------+------------+--+----------+
| | US$ | | US$ |
+-------------------------------------------------+------------+--+----------+
| Denominated in: | | | |
+-------------------------------------------------+------------+--+----------+
| USD | 4,458,111 | | 23,313 |
+-------------------------------------------------+------------+--+----------+
| UAH | 561,680 | | 3,412 |
+-------------------------------------------------+------------+--+----------+
| EUR | 866 | | 9,008 |
+-------------------------------------------------+------------+--+----------+
| | 5,020,657 | | 35,733 |
+-------------------------------------------------+------------+--+----------+
The Group has current accounts and reserve account opened in USD to satisfy EBRD
requirements under the loan agreement (see Note 21 for details). The balance of
the accounts was the following
+-------------------------------------------------+------------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------------+------------+--+----------+
| | US$ | | US$ |
+-------------------------------------------------+------------+--+----------+
| Current accounts | 4,419,998 | | 35,733 |
+-------------------------------------------------+------------+--+----------+
| Reserve account | 600,659 | | - |
+-------------------------------------------------+------------+--+----------+
| | 5,020,657 | | 35,733 |
+-------------------------------------------------+------------+--+----------+
At 31 December 2009 the balance of the reserve account was less than required
under the loan agreement with EBRD. In January 2010 the balance was increased by
US$ 260,000 to satisfy the covenants.
21. Loans and borrowings due
+-------------------------------------------------+------------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------------+------------+--+----------+
| | US$ | | US$ |
+-------------------------------------------------+------------+--+----------+
| Principal | 16,000,000 | | - |
+-------------------------------------------------+------------+--+----------+
| Principal due to related parties (Note 27 ) | 4,321 | | - |
+-------------------------------------------------+------------+--+----------+
| Interests | 33,646 | | - |
+-------------------------------------------------+------------+--+----------+
| | 16,037,967 | | - |
+-------------------------------------------------+------------+--+----------+
At 31 December 2009, the bank loan is a credit facility from EBRD. The Group
signed the loan agreement with EBRD on 12 January 2009. The limit of the credit
facility is US$ 34,400,000. The first tranche in the amount of US$ 16,000,000
has been received by the Group in two disbursements by the end of 2009. The loan
bears interest at 3 months LIBOR plus 6.75%, and is repayable in 34 equal
instalments of US$ 470,588 starting from 18 December 2010. The purpose of
financing is completion of Brovary Logistics Centre project and refinancing of
LLC Terminal Brovary expenses incurred in prior periods in relation to the
project.
Availability of the second tranche in the amount of US$ 18,400,000 depends on a
number of criteria LLC Terminal Brovary should satisfy.
As at 31 December 2009 Group pledged as collateral to secure the bank loan the
following :
1. LLC Terminal Brovary pledged all its rights under the general contractor
agreement
2. LLC Terminal Brovary pledged all movable property with the carrying value
more than US$ 25,000
3. LLC Terminal Brovary pledged its Investment property under construction,
Brovary Logistics Centre that was on the construction stage (see Note16), and
all property rights on the centre
4. Aisi Realty Public Ltd pledged 100% corporate rights in Aisi Logistics Ltd,
a Cyprus Holding Company for the Shareholder of LLC Terminal Brovary, LLC Aisi
Brovary
5. Aisi Logistics Ltd pledged 99% corporate rights in LLC Aisi Brovary
6. LLC Aisi Brovary pledged 100% corporate rights in LLC Terminal Brovary
7. LLC Terminal Brovary pledged all current and reserved accounts opened by
LLC Terminal Brovary in Erste Bank, Ukraine
21. Loans (continued)
Also the Group issued the corporate guarantee dated 12 January 2009 to guarantee
all liabilities and fulfilment of conditions under the loan agreement signed
with EBRD. The maturity of the guarantee is equal to the maturity of the loan.
The credit agreement with EBRD includes amongst others the following applicable
as at 31 December 2009 requirements for LLC Terminal Brovary and the Group as a
whole:
1. Consolidated total liabilities to audited equity of the Company, adjusted
for deferred tax and independent valuation, should not exceed 60% over the life
of Aisi Realty Public Guarantee.
2. Prior to Brovary Logistics Centre project completion minimum target net
worth (Equity less accumulated Goodwill) of Aisi Realty Public Ltd should not be
less than US$ 98,000,000.
3. Prior to Brovary Logistics Centre project completion minimum audited equity
of the Company should not be less than US$ 100,000,000
4. At all times minimum value of unencumbered assets and cash of the Company
should not be less than US$ 30,000,000 (based on the Group consolidated
results).
5. During the first 12 months after the first disbursement of the first
tranche subject to EBRD's sole discretion LLC Terminal Brovary should maintain
Debt to Equity (Loan to Cost) ratio as 30:70
6. At all times prior to Brovary Logistics centre project completion LLC
Terminal Brovary should maintain the Debt Service Reserve Account balance not
less than a nine-month debt service payment (see Note 12 for additional details)
As at 31 December 2009, certain of these requirements were not in compliance.
That gives EBRD the right to demand immediate repayment of the loan. However,
the Group's management believes that EBRD will not execute its right to demand
immediate repayment of the loan.
22. Obligations under finance leases
+---------------+-----------+-----------+-----------+----------+----------+-----------+
| | Minimum | Interest | Principal | Minimum | Interest | Principal |
| | lease | | | lease | | |
| | payments | | | payments | | |
+---------------+-----------+-----------+-----------+----------+----------+-----------+
| | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 |
+---------------+-----------+-----------+-----------+----------+----------+-----------+
| | US$ | US$ | US$ | US$ | US$ | US$ |
+---------------+-----------+-----------+-----------+----------+----------+-----------+
| Less than one | 132,977 | 76,089 | 56,888 | 42,184 | 8,948 | 33,236 |
| year | | | | | | |
+---------------+-----------+-----------+-----------+----------+----------+-----------+
| Between two | 393,385 | 326,595 | 66,790 | 59,485 | 6,738 | 52,747 |
| and five | | | | | | |
| years | | | | | | |
+---------------+-----------+-----------+-----------+----------+----------+-----------+
| More than | 2,069,658 | 1,686,353 | 383,305 | - | - | - |
| five years | | | | | | |
+---------------+-----------+-----------+-----------+----------+----------+-----------+
| | 2,596,020 | 2,089,037 | 506,983 | 101,669 | 15,686 | 85,983 |
+---------------+-----------+-----------+-----------+----------+----------+-----------+
The Group has the cars obtained under finance lease agreements and rent land
plots.
Lease obligations related to the cars are denominated in EUR and USD. Other
obligations are denominated in UAH.
At 31 December 2009 the current finance lease liabilities consist of interest
balance due in the amount of US$ 16,787 and principal due in the amount of US$
56,888.
At 31 December 2009 the non-current finance lease liabilities consist of
interest balance due in the amount of US$ 139,154 and principal due in the
amount of US$ 450,095.
The fair values of lease obligations approximate to their carrying amounts as
presented above.
The Group's obligations under finance leases are secured by the lessor's title
to the leased assets.
23. VAT non-current
+-------------------------------------------------+------------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------------+------------+--+----------+
| | US$ | | US$ |
+-------------------------------------------------+------------+--+----------+
| | | | |
+-------------------------------------------------+------------+--+----------+
| VAT, non-current | 4,161,644 | | - |
+-------------------------------------------------+------------+--+----------+
| Impairment | (947,935) | | - |
+-------------------------------------------------+------------+--+----------+
| | 3,213,709 | | - |
+-------------------------------------------------+------------+--+----------+
Based on the results of the impairment test made, the Company decided to provide
VAT not supported by the tax bills for the period of more than one year, which
is required by law to be recovered, for 100% impairment provision.
24. Deferred tax
The movement on the deferred tax account is as follows:
Deferred tax liability
+--------------------------------------------------+-------------+--+-------------+
| | Fair | | Total |
| | value | | |
| | gains on | | |
| | investment | | |
| | property | | |
+--------------------------------------------------+-------------+--+-------------+
| | US$ | | US$ |
+--------------------------------------------------+-------------+--+-------------+
| | | | |
+--------------------------------------------------+-------------+--+-------------+
| At 1 January 2008 | 6,423,314 | | 6,423,314 |
+--------------------------------------------------+-------------+--+-------------+
| Charged / (credited) to: | | | |
+--------------------------------------------------+-------------+--+-------------+
| Statement of comprehensive income (Note 9) | (6,155,984) | | (6,155,984) |
+--------------------------------------------------+-------------+--+-------------+
| Translation difference | (267,330) | | (267,330) |
+--------------------------------------------------+-------------+--+-------------+
| At 31 December 2008/ 1 January 2009 | - | | - |
+--------------------------------------------------+-------------+--+-------------+
| Charged / (credited) to: | | | |
+--------------------------------------------------+-------------+--+-------------+
| Statement of comprehensive income (Note 9) | - | | - |
+--------------------------------------------------+-------------+--+-------------+
| Translation difference | - | | - |
+--------------------------------------------------+-------------+--+-------------+
| | | | |
+--------------------------------------------------+-------------+--+-------------+
| At 31 December 2009 | - | | - |
+--------------------------------------------------+-------------+--+-------------+
25. Accounts payable
+-------------------------------------------------+-----------+--+-----------+
| | 2009 | | 2008 |
+-------------------------------------------------+-----------+--+-----------+
| | US$ | | US$ |
+-------------------------------------------------+-----------+--+-----------+
| Payables to related companies (Note 27) | 4,058,625 | | 1,288,126 |
+-------------------------------------------------+-----------+--+-----------+
| Fines payable | 1,500,000 | | - |
+-------------------------------------------------+-----------+--+-----------+
| Payables for services | 1,080,724 | | 672,638 |
+-------------------------------------------------+-----------+--+-----------+
| Guarantee reserve on construction works, | 766,365 | | 1,018,414 |
| non-current | | | |
+-------------------------------------------------+-----------+--+-----------+
| Guarantee reserve on construction works, | 766,365 | | 210,488 |
| current part | | | |
+-------------------------------------------------+-----------+--+-----------+
| Accruals | 636,933 | | 195,785 |
+-------------------------------------------------+-----------+--+-----------+
| Payables to directors | 356,217 | | 134,073 |
+-------------------------------------------------+-----------+--+-----------+
| Payables for construction | 117,338 | | 617,933 |
+-------------------------------------------------+-----------+--+-----------+
| VAT and other taxes payable | 18,263 | | 92,151 |
+-------------------------------------------------+-----------+--+-----------+
| | 9,300,830 | | 4,229,608 |
+-------------------------------------------------+-----------+--+-----------+
25. Accounts payable (continued)
The fair values of trade and other payables due within one year approximate to
their carrying amounts as
presented above.
The Group has created reserves on construction works performed by general
contractors. The reserves equal to 5%-6.5% of the amount of each accepted act of
works and is due for payment by the end of the definite term as per agreement
between the respective subsidiary of the Group and the general contractor.
Fines payable are due to UVK, the possible tenant of Brovary Logistics Centre.
The Group's subsidiary LLC Aisi Bela pledged the owned land plots to secure
those payables. The size of pledged land plots is 22,39 hectars. The carrying
amount of this investment property as of 31 December 2009 is US$ 11,829,000.
At 31 December 2009 there is the valid corporate guarantee issued by the Company
to guarantee the fines stated on the balance.
26. Current tax liabilities
+-------------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------------+----------+--+----------+
| | US$ | | US$ |
+-------------------------------------------------+----------+--+----------+
| Income tax | 510,230 | | 822,782 |
+-------------------------------------------------+----------+--+----------+
| Special contribution for defence | 10 | | - |
+-------------------------------------------------+----------+--+----------+
| | 510,240 | | 822,782 |
+-------------------------------------------------+----------+--+----------+
27. Related party transactions
The following transactions were carried out with related parties:
Management fees (Note 5)
+-------------------------------------------------+-----------+--+-----------+
| | 2009 | | 2008 |
+-------------------------------------------------+-----------+--+-----------+
| | US$ | | US$ |
+-------------------------------------------------+-----------+--+-----------+
| Aisi Realty Capital LLC | 2,782,900 | | 2,516,029 |
+-------------------------------------------------+-----------+--+-----------+
| | 2,782,900 | | 2,516,029 |
+-------------------------------------------------+-----------+--+-----------+
The management fee is calculated at the rate of 2,5% on the committed capital.
One principal of Aisi Realty Capital LLC is executive director of Aisi Realty
Public Limited.
Payables to related parties (Note 25)
+---------------------------+----------------------+-----------+--+-----------+
| | | 2009 | | 2008 |
+---------------------------+----------------------+-----------+--+-----------+
| | | US$ | | US$ |
+---------------------------+----------------------+-----------+--+-----------+
| Aisi Realty Capital LLC | | 4,041,020 | | 1,253,607 |
+---------------------------+----------------------+-----------+--+-----------+
| Howard Kelham | | - | | 34,519 |
+---------------------------+----------------------+-----------+--+-----------+
| Andro Namicheishvili | | 17,605 | | - |
+---------------------------+----------------------+-----------+--+-----------+
| | | 4,058,625 | | 1,288,126 |
+---------------------------+----------------------+-----------+--+-----------+
Borrowings from related parties (Note 21)
+---------------------------+----------------------+----------+--+----------+
| | | 2009 | | 2008 |
+---------------------------+----------------------+----------+--+----------+
| | | US$ | | US$ |
+---------------------------+----------------------+----------+--+----------+
| Beso Sikharulidze | | 4,321 | | - |
+---------------------------+----------------------+----------+--+----------+
| | | 4,321 | | - |
+---------------------------+----------------------+----------+--+----------+
27. Related party transactions (continued)
Receivables from related parties (Note 19)
+---------------------------+----------------------+----------+--+----------+
| | | 2009 | | 2008 |
+---------------------------+----------------------+----------+--+----------+
| | | US$ | | US$ |
+---------------------------+----------------------+----------+--+----------+
| Andro Namicheishvili | | 1,252 | | - |
+---------------------------+----------------------+----------+--+----------+
| | | 1,252 | | - |
+---------------------------+----------------------+----------+--+----------+
28. Contingencies
As at 31 December 2009 the Group was a party to a number of litigations with
former employees and former and existing counterparties. The Group decided to
make a provision in the amount of US$ 74,691 based on the status of litigations
at 31 December 2009. Cumulative cash outflow for the Group from the litigations
that possibly have a negative conclusion amount to US$ 40,554.
A number of the land leases are held for relatively short term and place an
obligation upon the lessee to commence development prior to expiration date of
the lease agreement. In the event that a development has not commenced upon the
expiry of a lease, the City Authorities are entitled not to extend the lease
agreement on the basis that the land is not used in accordance with its
designation.
The Group possesses a number of land lease agreement with the City Authorities
on the land plots under warehouse and residential projects. The City Authorities
has the right to revise the lease land rates in line with the market.
Furthermore, in order to extend the lease agreement all necessary permissions
and consents for development have to be presented to the authorities. However
the management believes that the possibility of such action is remote and was
taken only under limited circumstances in the past. In undertaking the
valuations reported herein, DTZ Kiev have made the assumption that no such
circumstances will arise to permit the City to rescind the land lease or not to
grant a renewal.
29. Commitments
Operating lease commitments
The future aggregate minimum lease payments under non-cancellable operating
leases are as follows:
+-------------------------------------------------+----------+--+-----------+
| | 2009 | | 2008 |
+-------------------------------------------------+----------+--+-----------+
| | US$ | | US$ |
+-------------------------------------------------+----------+--+-----------+
| Within one year | 103,304 | | 81,953 |
+-------------------------------------------------+----------+--+-----------+
| Between one and five years | 42,019 | | 220,424 |
+-------------------------------------------------+----------+--+-----------+
| After five years | - | | 1,894,586 |
+-------------------------------------------------+----------+--+-----------+
| | 145,323 | | 2,196,963 |
+-------------------------------------------------+----------+--+-----------+
Capital commitments
The Group has entered into construction agreements with the constructors of
investment property that was recognized as investment property under
construction as at 31 December 2009. These agreements resulted in capital
commitments amounting to US$ 52,985,041 as at 31 December 2009. This amount
reflects amongst others commitments under agreements that the Group is going to
terminate in the nearest future as they duplicate works made under other
contracts.
30. Business combinations
Duringthe year 2008 the Group acquired an additional 4% of LLC
Almaz-pres-Ukrayina (Tsymliansky project) for US$ 109,000 that in all material
aspects reflects the 4% share of net assets of that company on the acquisition
date.
In January 2009 Aisi Realty PLC founded a 100% subsidiary Aisi Logistics
Limited, incorporated in Cyprus, to carry out and facilitate financing to the
Group's projects in logistics. In April 2009 Aisi Logistics Limited became 100%
owner of LLC Aisi Brovary, which was earlier controlled by Aisi Realty Public
Ltd.
In November 2009 LLC Aisi Ukraine founded a 100% subsidiary LLC Retail
Development Balabino, incorporated in Ukraine for controlling land plot securing
several advances made for investments. The land plot is expected to be
transferred to the Group by receipt of the positive outcome of the respective
litigations initiated by the Group.
31. Events after the reporting period
The appraisal of the Group's portfolio of investment properties as at 31
December 2009 was performed by DTZ and was completed in February 2010. The fair
value of the investment properties reflects market conditions at the financial
position date. That properties appraisal was performed using "Red Book"
standards, and was also based on conservative and realistic assumptions agreed
by appraisers and management. One of the key assumptions is vacancy ratio and
rental rate.
In July 2009 the Group's subsidiary, LLC Terminal Brovary renewed a pre-lease
agreement with UVK, a leading Ukrainian logistics operator. The agreement covers
a 10-year lease term commencing January 2010 for the entire warehousing space at
rental values of US$ 6.00 per sq.m. (excl. VAT) per month that was in line with
market rates. LLC Terminal Brovary did not complete the project on the specified
date, 1 November 2009.
LLC Terminal Brovary successfully commissioned the Brovary Logistics Centre on
31 May 2010. As a result of late completion, in addition to US$3.0 mln fines to
UVK (US$1.5 mln paid in 2009), LLC Terminal Brovary is obliged to lease the
property for one Hryvnia (UAH1) within the term calculated according to the
following formula: the quantity of days of the transfer delay from 1 November
2009 until the date of signing of the Act of Transfer and Acceptance of the
Logistic Complex multiplied by 2.
The Group's management is not willing to continue cooperation with UVK under the
above stated conditions and believes it will be possible to negotiate terms with
UVK or contract new tenants on more favourite terms in the nearest future. In
June 2010 the Group filed a claim against UVK to render the pre-lease agreement
signed in 2008 invalid and to terminate the fines and penalties agreement and
the respective mortgage agreement. In its turn UVK filed a claim against
Terminal Brovary LLC for additional US$ 2,124,000 fines under the pre-lease
agreement signed in July 2009. The legal department of the Group is of the
opinion that these fines will not be paid.
During the year 2010, LLC Terminal Brovary amended the agreements with the
general contractor Altis-Holding. As a result of that the contracted amount has
been decreased by US$ 1,329,885, the size of guarantee fund has been decreased
by US$ 12,813. New agreements with several contractors have been signed as well.
Principal works contracted under new agreements are road and electricity supply
network construction, the total amount of which is US$ 966,648.
In June 2010 the Group by mutual agreement terminated the contract with Marfin
Popular Bank for the construction and post-construction loan for Aisi Bela
Logistics Park.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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