ANNUAL REPORT
2013
Table of Contents
1.
Letter to the Shareholders
2. Management Report
2.1. Corporate Overview & Financial Performance
2.2. Property Holdings
2.3.
2.4.
Financial and Risk Management
2014 and beyond
3. Regional Economic Developments
4. Real Estate Market Developments
4.1.
4.2.
4.3.
Ukraine
Romania
Bulgaria
5. Property Assets
5.1.
5.2.
5.3.
5.4.
5.5.
Aisi Brovary – Terminal Brovary Logistic Park
Aisi Bela – Bela Logistic Center
Kiyanovskiy Lane – Land for Residential Complex
Tsymlyanskiy Lane – Land for Residential Complex
Balabino-Land for Retail/Entertainment Development
6. Board of Directors and Other Officers
7. Report of the Board of Directors
8. Chairman’s Statement
9. Declaration by the members of the Board of Directors and the
person responsible for the preparation of the consolidated Financial
Statements of the Company
10. Independent Auditors’ Report
11. Consolidated Statement of Comprehensive Income
12. Consolidated Statement of Financial Position
13. Consolidated Statement of Changes in Equity
14. Consolidated Statement of Cash Flows
15. Notes to the Consolidated Financial Statements
4
6
6
8
9
10
11
14
14
15
17
18
18
18
19
20
20
21
22
26
27
28
30
31
32
33
34
ANNUAL REPORT 2013|2
SECURE PROPERTY DEVELOPMENT & INVESTMENT PLC
Key Facts
31 Dec 2012
31 Dec 2013
Difference
Total Assets Under Management ($million):
Number of Assets:
Bank Debt($million):
58
5
72
24%
5
-
16.4
15
-9%
Operational Gearing
54%
29%
-46%
Rental Income ($million):
2.1
2.8
33%
EBITDA*($million):
-1.2
0.3
-
Net Equity**($ million):
33.9
52.2
54%
Issued Shares:
11,111,975
28,171,833
154%
NAV per share($):
3.05
1.85
-
*Before revaluation of assets.
**Attributable to the shareholders.
This report may contain forward-looking statements about the Company. Such statements are predictive in nature and depend upon or refer to future
events or conditions and may include such words as ‘‘expects’’, ‘‘plans’’, ‘‘anticipates’’, ‘‘believes’’, ‘‘estimates’’ or other similar expressions. In addition,
any statement regarding future performances, strategies, prospects, actions or plans is also a forward-looking statement. Forward-looking statements
are subject to known and unknown risks and uncertainties and other factors that may cause actual results, events, activities and achievements to differ
materially from those expressed or implied by such statements. Such factors include general economic, political and market conditions, interest and
foreign exchange rates, regulatory or judicial proceedings, technological change and catastrophic events. You should consider these and other factors
carefully before making any investment decisions and before relying on forward-looking statements.
ANNUAL REPORT 2013|3
1. Letter to the Shareholders
Dear Shareholders,
23 June 2014
What a difference a year makes. In early 2012, there were real concerns that Europe was going head-on
into a wall, with many predicting the collapse of the Euro and the Union. However, by late 2013, a
combination of a number of events, including the German elections providing political stability in Europe’s
largest economy, Greece producing its first primary surplus in years, Cyprus weathering a banking crisis
(which saw Cypriot banks go bust and individual depositors losing money for the first time in the EU history)
and the US starting to taper-off its package of economic stimulus without major consequences, had led to
renewed confidence that the European economy is back on track. There are, of course, some that do not
believe enough has been done or that the risks have been fully mitigated.
At the same time, Eastern Europe has been growing faster than average, with Romania leading the pack in
terms of both GDP growth rates and political stability, while a lot of non-European capital is circling around
Southern European countries and Greece is looking for investment opportunities. All in all, 2013 largely saw
progress being made in the right direction, with the overall environment substantially ameliorating, but
fears remain that the fire is not totally extinct and that there are outstanding factors that might cause it to
flare up again very quickly. The events of early February 2014 and the ongoing situation in Ukraine, which
is still at a critical juncture, not only give rise to serious concern for the future political stability of the
country and its economy, but also serve as a timely reminder of how quickly things can change.
For our Company, while we continued to make good operational progress, in terms of implementing our
strategy of growth by acquisitions, 2013 was a year in limbo and no acquisitions were completed during the
year under review. The market’s concerns about lingering risks were reflected in the inability of most
financial institutions in the region to extend new or refinance old loans combined with a priority for most of
the regulatory bodies to assess the banking sector’s capital adequacy that caused a very illiquid
environment which delayed progress. Against this backdrop, we put a lot of focus on both raising further
capital for investment and sourcing opportunities to invest in undervalued assets. While we were successful
in raising $17 million early in the year, it took more time to start deploying these funds than we would have
historically expected. However, the efforts made and many leads generated by the management team laid
the foundations for the Company to make an acquisition in Romania in early 2014 - SECURE’s first outside
Ukraine.
In terms of asset management, the Company made good progress at its key income producing asset,
Terminal Brovary, with occupancy consistently above 95% for the warehouse space and 85% including the
office elements. Close to the end of the year, we rented the small amount of remaining warehouse space
reaching 100% warehouse occupancy. 2013 is the first year with such high occupancy at Brovary, and our
efforts resulted in a 33% increase in rental income in comparison to the previous year.
In March 2013 we finalised negotiations with the European Bank for Reconstruction and Development
(“EBRD”) on rescheduling the amortisation plan of the Brovary construction loan. Unfortunately, this
coincided with the Cyprus banking crisis which resulted in the loan’s ‘B’ Lender soon becoming bankrupt
and being unable to complete the transaction, despite the fact that SPDI and EBRD had put in effect the
new loan as of Q2 2013. In December 2013 we received the written agreement of the ‘B’ Lender on the
restructuring and we are now in the process of finalising legal documents that would eliminate a balance
sheet risk factor by formalising the loan agreement.
ANNUAL REPORT 2013|4
In parallel, the Company navigated the Cypriot banking crisis well, having previously ensured that all its
available cash was kept in non-Cypriot banks before the system collapsed. Consequently, and despite
post-collapse cash transfer restrictions creating challenges, our cash reserve was safe and we ended the
year with more than $13 million in cash or cash equivalent.
As mentioned above, a key focus of our asset management team was sourcing acquisitions and a number
of interesting opportunities were identified, mostly in Romania. By the end of the year the Company had
agreed terms to acquire three assets, two of which were very close to signature.
In March 2014, we were very pleased to sign the Sale and Purchase Agreement for the acquisition of
Innovations Logistics Park, a fully-let 17,000 sq.m. gross leasable area logistics park in Bucharest. Its
anchor tenant is Nestle which leases more than 60% of the gross leasable area, with the remainder let to
locally managed Romanian businesses. Innovations produces €1.3 million of income per annum and the
acquisition is expected to increase the Company’s annual net operating income by over 60%.
The acquisition strengthens SECURE’s focus on the logistics industry, increases our regional logistics
exposure and diversifies our portfolio outside Ukraine for the first time in its history. It is the first small
step towards our ultimate goal of creating a leading regional company.
The 2013 annual accounts scarcely remind us of the troubles the Company was in just two years ago when
the current management team took over. Operational revenues have increased in the region of 620% since
that time, reaching $3.6 million for the year under review compared to $2.1 million in 2012 and $0.5 million
in 2011. SPDI is now well placed for continued growth in line with shareholders’ mandate.
Having worked through a bankruptcy in 2010, a loan default in 2011 and managing to stabilise the
Company both financially and operationally against the backdrop of the economic and financial sector
issues between 2010 - 2013 as well as the overall Euro crisis we are optimistic that 2014 will be seen as the
real turning point in the Company’s evolution. With a strategy focused on growth and diversification, a
committed group of shareholders and a driven management team, SPDI has every right to expect that. We
can assure both our longstanding investors, who have stuck with us through the difficult times and kept
faith in the Company’s potential, as well as the new investors, who share our dream and vision, that we will
do everything it takes to build on the positive steps already taken and drive hard to reach our ultimate
objective.
Best regards,
Lambros G. Anagnostopoulos
Chief Executive Officer
ANNUAL REPORT 2013|5
2. Management Report
2.1. Corporate Overview & Financial Performance
In 2013 the Company’s management focused on three areas: First, the generation of
various acquisition opportunities which in the end created a strong pipeline of suitable
targets. We entered negotiations for a number of these during the period, moved into
thorough due diligence on others and, by the year end, were able to bring three to a
position where they are ready for closing subject to debt and equity capital availability,
of which one closed in the first quarter of 2014, as detailed earlier.
Our second aim was to raise capital and, we were able to raise almost $17 million during
the year, increasing the equity in the Company’s balance sheet by 17%. However, the
focus of international investors on opportunities arising from the distressed environment
in South Europe (mainly Spain and secondarily Greece) proved a stumbling block in
raising further capital for South East Europe. Availability of debt capital proved more
difficult, due to local banks proving very inflexible and slow in their decision making
processes (with the debacle in Cyprus exasperating this situation further).
Third, on the operational front, besides maintaining a high level of service and
occupancy in Terminal Brovary, the management continued its path of addressing
various issues on the ground, most notably the various legal cases brought against the
Company by its ex-administrator in Ukraine who has teamed up with our ex-lawyers. In
terms of financial operations, we were successful in preventing the Company from being
affected by the Cypriot banking crisis and the foreign exchange (“FX”) restrictions in
Cyprus and Ukraine. We also concluded negotiations with EBRD on the restructuring of
the Terminal Brovary construction loan, the terms of which while not yet officially
signed, have been agreed by both parties since Q1 2013.
In parallel with the areas of focus, the Company maintained its overall lean and strict
operations management, decreasing the annual operating and administrative costs to
~$3 million and increasing the Company’s net annual rental income by 33% to $2.8
million.
As part of its active cash management, the Company transferred 98% of its total cash
balance out of the Cyprus Popular Bank (“CPB”) just weeks before it went bust,
eliminating almost entirely the effects of the collapse of the Cypriot economy on the
Company. At the time we had more than $15 million in cash and, as a result of our
premeditative action, the situation in Cyprus resulted in only a $135,000 loss for the
Company, for which we expect to receive Bank of Cyprus shares during 2014 by way of
compensation.
The temporary capital transfer restrictions imposed by the Cypriot authorities did not
affect the Company’s day-to-day operations. The Company is monitoring the situation
closely and will act accordingly.
The political instability in Ukraine continues and until this is resolved it is no longer
possible to predict the outcome or its impact on Ukraine’s economy.
As Terminal Brovary is on the Kiev outskirts, the premises run no significant risk from
the riots. Our tenants are mostly western logistics and retail companies, whose
operations may be affected economically, but the end effect depends on the evolution of
the events.
In view of degrading FX conditions in early February, Ukraine has instigated certain
restrictions on FX transactions in response to the outflow of capital and the devaluation
of Hryvnia (in excess of 40% since the beginning of the crisis) due to shortage of FX
financial reserves and the political uncertainty in the country. In addition, starting from 1
January 2014, the new convention between Ukraine and Cyprus was taken into force
Summary
Cyprus
Financial
Rescue
Ukrainian
Political and
Financial
Developments
ANNUAL REPORT 2013|6
and all payables from Ukrainian Companies to their Cypriot counterparts are now
subject to 2% withholding tax.
With the risk of devaluation of the Ukrainian currency being always very high, most of
our tenancy agreements were pegged by design on the US$. As such no immediate
impact is expected with our net cash availability, being estimated at a monthly average
of $ 130,000.
In an effort to further streamline its operations, the Company has proceeded in
essentially terminating all the non-Terminal Brovary related intragroup loans between
Cyprus and Ukraine, thus considerably reducing its capital flows between the holding
Company and its subsidiaries. Furthermore, such flows are now part of an overall plan to
decrease the Ukrainian operation’s dependency on equity support. The termination of
these loans will have a substantial positive impact on the tax payable by the Company.
Optimizing
Corporate
Structure
In the same manner, the Company has progressed with decreasing the number of its
subsidiaries in Ukraine, a long and bureaucratic process that will be finalized within
2014, thus resulting in lower administrative costs and increased time efficiency.
In its push to further improve Corporate Governance, SECURE Property attracted Ned
Goodman as a senior advisor to its Board. Ned Goodman, being a well respected and
experienced international investor with a strong track record in both the real estate
sector and the South East Europe markets, substantially strengthened the collective
experience of our board. He is the founder of the Dundee Group of Companies in
Canada and President and CEO of the Dundee Corporation, an independent publicly
traded Canadian asset management company.
Corporate
Governance
The Audit Committee’s constitution sets out the Board’s responsibility for overseeing the
financial reporting and internal controls of the Company and its subsidiaries and
maintaining a relationship with the external auditor of the group. It also monitors
potential conflicts of interests of directors and senior managers. The Committee met on
a number of occasions during the year, and in particular engaged with the auditors
during the audit process and engaged with management in the discharge of their role.
Audit
Committee
The Remuneration Committee has a responsibility to determine the policy for the
remuneration of the Directors and Executive Management of the company. The role
includes not only basic cash remuneration, but also bonuses, benefits in kind and
non-cash remuneration. The principal activity of the Committee during the year was to
consider reducing cash outflow
in relation to Directors’
remuneration. The discussions resulted in the successful implementation of the policy to
substitute cash remuneration in part for share based remuneration. The Remuneration
Committee met on a number of occasions during the year and engaged with
management on remuneration issues.
from the Company
Remuneration
Committee
The Board is ultimately responsible for the Group’s financial reporting, internal control
and risk management systems. The Finance Department prepares detailed budgets and
cash flow projections, which are approved annually by the Board and updated regularly
throughout the year. Ongoing financial control is the responsibility of the management.
A control structure is in place with defined delegated authorities and signatory rights for
both management decisions and cash payments throughout the Group.
Internal
Audit and
Control
ANNUAL REPORT 2013|7
The Company’s performance in 2013 showed clearly the hard work done in the period
after the internalization of management. Compared to 2012, gross rental income
increased by 70% to $3.6 million, while operating expenses decreased to $3 million
from $3.6 million of 2012. This resulted in an EBITDA of $0.3 million.
Financial
performance
2.2. Property Holdings
The Company's portfolio, currently entirely focused on Ukraine, consists of one income
producing property and four development projects at different stages in the
development process.
Property
Assets
Terminal Brovary Logistic Park consists of a 49,180 sq.m. Class A warehouse and
associated office space, situated on the junction of the main Kiev – Moscow highway and
the Borispil road. The facility has been in operation since Q1 2010 and as at the end of
the reporting period was 90% leased (warehouse space was 100% leased).
Bela Logistic Centre is a 22.4 ha plot in Odessa situated on the main highway to Kiev.
Following the issuance of permits in 2008, below ground construction for the
development of a 103,000 sq.m. GBA logistic center commenced. Construction was put
on hold in 2009 due to the global economic crisis.
Kiyanovskiy Lane consists of four adjacent plots of land, totaling 0.55 ha earmarked
for a residential development, which are well located, overlooking the scenic Dnipro
River, St. Michael’s Spires and historic Podil neighborhood. During 2013, management
held discussions with a number of interested parties with regard to a possible
development of this asset should the market developments allow for such action.
Tsymlyanskiy Lane is a 0.36 ha plot of land located in the historic Podil District of Kiev
earmarked for the development of a residential complex.
Balabino project is a 26.38 ha plot of land situated on the south entrance of
Zaporozhye, a city in the south of Ukraine with a population of 800,000 people. Balabino
is zoned for retail and entertainment development.
In 2013, the Company appointed CBRE Ukraine as its valuer. 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”) Valuation – Professional Standards (2013)
(the “Red Book”) and is also compliant with the International Valuation Standards (IVS).
Property Asset
Valuations
At the year-end, the Company’s property assets were valued at $53.6 million, an
increase of 2.3% from the December 2012 valuation. This increase can be attributed
mostly to constantly high Terminal Brovary occupancy, as well as to growth in the
average unit rental revenue. Such valuation need to take into account the impact of the
current political developments in Ukraine, once the situation stabilizes.
ANNUAL REPORT 2013|8
$25.292 $526.520 $2.121.072 $3.608.668 Dec-10Dec-11Dec-12Dec-13Income from Operations
The Net Equity attributable to the shareholders as at 31 December 2013 stood at $52.2
million representing a ~520% increase over the June 2011 ($8.5 million) figure, when
the new management took over. This figure includes also the total capital raised in 2013.
Net Equity
The NAV per share as at 31 December 2013 stood at $1.85; lower than a year before,
due to the new shares issued as a result of the capital increase, while the discount of the
Market Value against the NAV decreased to 42%.
Net Asset
Value
2.3. Financial and Risk Management
The Group’s overall bank debt exposure at the reporting date consisted of a single $15
million net construction loan to Terminal Brovary from EBRD. The loan was originally
restructured in June 2011 and is again under a restructuring process expected to be
completed in Q3 2014 as the Company has agreed with EBRD to match cash inflows
from the asset with the debt amortization plan.
Leverage
In October 2013, the Company proceeded with capitalizing the convertible loan
amounting to $1.7 million granted by certain shareholders a year earlier in order to
provide additional working capital to the Company. The lenders have agreed to convert
these liabilities due to them into new ordinary shares.
Overall, the Group's gearing ratio (debt/equity) at the end of 2013 stands at 29%.
ANNUAL REPORT 2013|9
23%63%67%42%0%10%20%30%40%50%60%70%80%June 2011December 2011December 2012December 2013Discount of Market Share Price over NAV
Throughout 2013 the Company continued to preserve liquidity and optimize its cash
flow in a worsening credit environment. By maintaining a tight cash flow schedule, the
Company has been able to manage its liabilities while making progress towards
implementing its growth strategy.
Liquidity
Management-
Cash Flow
Risk
Most importantly, during the year the Company mitigated the effects of both the Cyprus
financial crisis, by holding the bulk of its financial assets outside the Cypriot banking
system and the gradual devaluation of the Ukrainian hryvnia, by minimizing the cash
available in Ukraine and transferring all excess cash out of the country, thus protecting
the shareholder’s value.
2.4. 2014 and beyond
Going into 2014, the political and economic developments in Ukraine overshadow all
other performance factors for the Company. While management is doing whatever is
needed to avoid any negative consequences, the need to expedite our regional
expansion (and through it mitigate the Ukrainian risk) is now more pertinent than ever.
On the other hand, the EU situation is ameliorating and the EU economy is looking at a
brighter year, helping the property markets and our growth efforts.
Real Estate
Market
As such, our focus in 2014 is to grow the Company’s balance sheet with assets in other
countries in the South East Europe region (with priority being placed in Romania and
Bulgaria), while safeguarding our position and income in Ukraine.
The Company
ANNUAL REPORT 2013|10
3. Regional Economic Developments 1
Although Gross Domestic Product continued to decrease in Q3 2013, it is expected to
rebound in Q4 2013 closing at -1% for the whole year. However economic activity is
expected to be seriously hampered in 2014, due to the unfolding political events and the
uncertainty regarding the financing of the current account deficit of Ukraine.
Ukraine
Over the period from January 2013 to September 2013, the Current Account balance
reduced by 7% year-on-year to $10.2 billion, because of weak exports, foreign exchange
movements that negatively affected competitiveness and the increase in consumer lending.
This trend stopped temporarily in September-October 2013, when imports increased by
2.8% year-on-year, predominantly as a result of higher gas imports. Headline inflation
dropped by 0.4% year-on-year in August 2013, after reaching a plateau in June. The
deflation reflected the continued decline in food prices, which constitute approximately half
of the CPI basket, as well as lower domestic demand and the reluctance to implement the
IMF’s measures (a hike of over 30% in gas prices and a forced devaluation of the Hryvnia).
As far as interest rates are concerned, the National Bank of Ukraine (NBU) has kept the rate
at around 6%; a decision primarily driven by the close-to-zero inflationary levels, the
deposit growth in the banking sector, as well as the diminishing cost of funds. However,
real interest rates in the market are on the rise as the devaluation of the Hryvnia has picked
up later in the year.
On the political front, in November 2013, during the Eastern Partnership Summit in Vilnius,
Ukraine failed to sign the Association Agreement with the EU and instead opted for a closer
relationship with Russia, which caused political turmoil.
1 Sources: Eurobank Research, NBG Research, National Statistical Services, National Central Banks, Eurostat,
European Central Bank, International Monetary Fund, Raiffeisen Research, Bloomberg, World Bank
ANNUAL REPORT 2013|11
7,588,599,51010,5USD/UAH exchange rate Source: Bloomberg2010201120122013e2014fGDP (USD bn)136,2163,4173,5181,0173,8Population (mn)45,845,645,645,545,5GDP (constant prices y-o-y %)4,25,20,2-1,0-4,0CPI (average, y-o-y %)9,48,00,6-0,25,0ILO Unemployment rate (%)8,17,97,58,010,0Net FDI (USD bn)5,77,06,65,06,0FDI % GDP4,24,33,82,83,1Macroeconomic data and forecastsSources : IMF, Raiffeisen Research, National Sources, Eurobank EFG
Romania’s preliminary GDP results recorded an unexpected 3.5% year-on-year increase in
2013, from a sluggish 0.7% in 2012, while in Q4 2013 readings showed a 5.2%
year-on-year increase (vs 4.1% in Q3 2013).
Romania
The Current Account Deficit fell by 0.9% of GDP during the first 11 months of 2013, mainly
because the trade deficit narrowed by 2.9% year-on-year to 2.2% of GDP. Exports soared
by 9% as a result of the broadening of Romania’s export base, particularly in the
automotive sector (40% of total exports) and in the export of agricultural products
following the recovery from the 2012 drought. Ιmports remained close to 2012 levels.
The National Bank of Romania continued its cycle of monetary easing by cutting its rate to
3.5%, with the aggregate cuts since July 2013 totaling 175 bps. It has also reduced the
minimum reserve requirement ratios on Romanian Leu and FX-denominated debt to 12%
and 18% respectively from 15% and 20%, thus allowing for banks to build up their
reserves.
The significant improvement in inflation and its outlook was the main reason that allowed
the Central Bank to implement its easing strategy reaching a 16-month low of 1.9% for the
first time ever.
In September 2013, Fitch affirmed the BBB- rating with a stable outlook for Romania,
reflecting the public finance consolidation, the reduction of external imbalances and the
improving GDP, amongst a number of other factors. Meanwhile, Romania has raised $2
billion in middle January 2014 from the international markets at a ~5% implying yield on
the 10 year maturity, which indicates Romania’s improved external position and its positive
prospects.
ANNUAL REPORT 2013|12
-3,0-2,0-1,00,01,02,03,04,05,02010201120122013e2014fReal GDP Growth (% yoy)RomaniaAustriaCzech RepublicPolandHungarySources: Eurostat, World Bank0102030405060708090Romania Gross External Debt (% GDP)Source: European Central Bank
GDP grew by 1.5% year-on-year in Q3 2013 from a slight decline of -0.2% in Q2 2013,
while GDP for the full year was at 0.5%. 2014 is expected to be a better year in terms of
economic growth and GDP may quadruple to 2% as exports increase.
Bulgaria
The Current Account Balance reached an unprecedented surplus of 3.1% of GDP during the
first eight months of 2013, mostly due to the contraction of the trade deficit to 3.3% of
GDP, making Bulgaria the best external sector performer in the region. In August 2013,
electricity prices experienced a second cut by an average of 4.3% as a result of high public
discontent (which followed the one earlier in the year). This, in combination with lower food
prices, made headline inflation reach 1.6% year-on-year from 4.2% the previous year.
Credit activity continued to be subdued but, deposits grew by 8.9% throughout the year.
The stabilization of the Non-Performing Loans’ ratio at around 18% may signify a complete
turnaround and indicate improving credit conditions going forward.
ANNUAL REPORT 2013|13
2010201120122013e2014fGDP (EUR bn)124,4131,4131,8143,3152,4Population (mn)21,521,421,321,321,3GDP (constant prices y-o-y %)-1,12,20,73,52,5CPI (average, y-o-y %)6,15,83,34,63,3Unemployment rate (%)7,37,47,06,86,8Net FDI (EUR bn)2,21,91,62,03,0FDI % GDP1,81,41,21,42,0Sources : IMF, Raiffeisen Research, National Sources, Eurobank EFGMacroeconomic data and forecasts80859095100105110Bulgaria Gross External Debt (% GDP)Source: European Central Bank2010201120122013e2014fGDP (EUR bn)36,138,539,740,542,0Population (mn)7,57,37,37,37,2GDP (constant prices y-o-y %)0,41,80,80,52,0CPI (average, y-o-y %)2,44,23,02,03,4Unemployment rate (%)10,211,212,312,512,0Net FDI (EUR bn)1,01,21,21,41,6FDI % GDP2,73,13,13,53,9Macroeconomic data and forecastsSources : IMF, Raiffeisen Research, National Sources, Eurobank EFG
4. Real Estate Market Developments 2
4.1. Ukraine
Despite a high level of interest in income producing assets from high net worth individuals,
the deterioration of the political situation in Ukraine in late 2013 led to many deals being
put on hold.
In 2013, the Greater Kiev area saw a 25% year-on-year increase in the supply of logistics
space (+135,500 sq.m. of GLA), with another 149,100 sq.m. being in the pipeline for 2014.
The take-up soared by 32% year-on-year in 2013 and is just 1.5% lower than the historic
peak of 2008. As a result rental rates are largely stable.
General
Logistics
Market
New office supply decreased by 17% year-on-year in 2013 in Kiev, (+131,100 sq.m. of
GLA), while 180,000 sq.m. are scheduled for delivery in 2014. With take-up more than
doubling (+162,300 sq.m. in 2013 compared to 2012) and being comparable to the 2008
levels, the net effect was also stable rental rates. Take up is mostly supported by FMCG,
pharmaceuticals, IT, energy, financial and agricultural related companies.
Office
Market
In 2013, total retail stock soared by 13% year-on-year and by 51% compared to 2008 and
stood at 1,314,910 sq.m. In 2012 and 2013, premium fashion brands such as Dolce &
Gabbana, Versace and Tom Ford opened their first boutiques in Ukraine. This is going to
impact positively on the logistics sector over the long term, if not stopped by the political
uncertainty. Average monthly rents in Kiev generally remained stable at $70-90/sq.m.,
while for prime properties rental rates reached $160-200/sq.m.
Retail
Market
2 Sources : Jones Lang LaSalle, DTZ Research, CBRE Research, The Advisers/Knight Frank, Forton International, MBL
Research
ANNUAL REPORT 2013|14
05101520250100.000200.000300.000400.000500.000Key market indicators in the Greater Kiev areaAnnual supplyvacancy rateprime rentsqmUSD/sqm/month;%Source: DTZ Researh0%2%4%6%8%10%12%14%16%18%20%050.000100.000150.000200.000250.0002007200820092010201120122013Key Office Market Indicators in KievNey SupplyTake upVacancy RateSource:DTZ Research
4.2. Romania
The total investment volume is expected to surpass EUR350 million in 2013 from less than
EUR300 million in 2012. At the same time, research by BNP Paribas Real Estate showed
increased interest in European second-tier markets. Romania is included in a list of 10
countries that offer strong growth potential.
Gross industrial take-up activity hit a record level of 145,000 sq.m. in H1 2013. 2013 closed
with a total leasing activity of over 250,000 sq.m. recording an increase of 82%
year-on-year. The strong leasing activity, as well as the awaken appetite from investors
caused a drop of 50bps in cap rates to 10% towards the end of the year, while the headline
rental rates remained stable.
General
Logistics
Market
Q3 2013 was the best quarter for total leasing activity for the past two years and
represented an increase of 25% or 84,500 sq.m. from the Q2 2013 total. Overall, the total
leasing activity recorded in 2013 was the highest in Bucharest office market over the past
six years, with approximately 300,000 sq.m. transacted and 30% of the transactions
stemming from the IT&C sector. Headline rents have remained stable at the region of
EUR18/sq.m., while cap rates have gone down to 8% for CBD prime properties.
Office
Market
ANNUAL REPORT 2013|15
0500.0001.000.0001.500.0002.000.0002.500.0000200.000400.000600.000800.0001.000.0001.200.000Major indicators of retail property market in Kiev (sqm)Annual SupplyCumulative SupplySource: DTZ Research0246810124546474849505152535455200720082009201020112012Q1 '13Q2 '13Annual RentsYields (min)PrimeIndustrial Rents and Yields%€/sqm/yearSource: Jones Lang LaSalle
The modern retail stock in Romania stood at 2.8 million sq.m. in 2013 with more than half
located in shopping centers. This figure is expected to surpass 2.9 million sq.m. in 2014.
Two strong trends have been observed; firstly the increasing sales of online retailers, which
are opening more and more physical stores, and secondly the strong demand for prime
assets that has pushed the vacancy rates to below 5%.
Retail
Market
Source: The Advisers/Knight
Frank
With no more than 2,800 units being delivered in 2013 the modern stock remains
insufficient to cover long term demand. Bucharest remained the East Europe city with the
lowest levels of post 1989 residential property stock. Should credit conditions and the
capacity of the local lenders (mostly owned by Greek and Austria banks) allow, the market
is poised to pick up quickly. To this day, the most important driver of demand continues to
be the “Prima Casa” government program, with more than 90,000 loans granted from 2009
to 2013, for approximately EUR4 bn. However, the program’s terms recently changed so as
to cover loans only in local currency (RON) which may affect the market temporarily.
Residential
Market
Source: CBRE
ANNUAL REPORT 2013|16
050.000100.000150.000200.000250.000300.000350.000400.000450.000025.00050.00075.000100.000125.000150.000175.000200.000225.000250.000275.000300.000200820092010201120122013Yearly Evolution of total stock and total leasing activity (sqm)Take upRenewalsNew SupplySource: The Advisers/Kinight Frank, CBRE0%2%4%6%8%10%12%14%16%0200.000400.000600.000800.0001.000.0001.200.000200720082009201020112012H1' 13Prime retail stock and vacancy rateTotal StockVacancy Rate0%5%10%15%20%25%30%35%40%01234567Under EUR 800EUR 800-1.000EUR 1.000-1.200Over EUR 1.200Avg. No. of units sold% of modern stockAverage sold units per price segment (Q2 '13)
4.3. Bulgaria
The level of construction permits issued was approximately 4% down in 2013 compared to
2012, while new construction starts remained at the same levels as the year before.
General
Total modern stock increased by 9.6% year-on-year to 796,000 sq.m. with shortages
being observed in quality logistics space, as well as in light industrial space. Take up
activity in Sofia remained relatively stable at 78,000 sq.m.
Logistics
Market
2013 saw only 34,000 sq.m. of class A and B office buildings being delivered. As a
consequence the Sofia office stock increased only slightly at 1.65 million sq.m. while the
pipeline has shrunk by 40% year-on-year at 163,000 sq.m. Total office absorption for the
whole of 2013 soared by 12.2% year-on-year reaching 108,300 sq.m., supported by the
outsourced IT sector that counted up for 52% of take-up. Yields remained stable at 9.5%.
Office
Market
The shopping center stock in Bulgaria experienced a 24% year-on-year increase, due to
the opening of Strand Burgas, the fifth consecutive shopping center opened during the last
18 months. At the same time, the vacancy rate in Sofia significantly decreased from 16.5%
in Q3 2013 to 12% in Q4 2013. One of the main reasons was the increase in occupancy
rate to 95% of the Paradise center, the first lifestyle center in Sofia with more than
200,000 sq.m. built-up area.
Retail
Market
ANNUAL REPORT 2013|17
012345Source: CBREeur/ sq m/ monthAsking Rental Rates (Bulk Warehouse Space)SofiaVarnaPlovdiv10%12%14%16%18%20%22%10111213141516171819Q1 '12Q2 '12Q3 '12Q4 '12Q1 '13Q2 '13Class A Office rental levels and vacancy rateClass A rentsVacancy rateSource:MBL /CBRE8%9%10%11%020040060080020092010201120122013Shopping center stock versus new openings ('000 sqm) and prime yields Pre-ExistingNew OpeningsPrime YiledsSource: Forton
5. Property Assets
5.1. Aisi Brovary – Terminal Brovary Logistic Park
The Brovary Logistic Park consists of a 49,180 sq.m. GLA Class A warehouse and
associated office space. The building has large facades to Brovary ring road, at the
intersection of Brovary (Е-95/М-01 highway), and Borispil ring road. It is located 10 km
from Kiev city border and 5 km from Borispol international airport.
Project
description
The building is divided into six independent sections (each at least 6,400 sq.m.), with
internal clear ceiling of 12m height and industrial flooring constructed with an anti – dust
overlay quartz finish. The terminal accommodates 90 parking spaces for cars and trucks,
as well as 24 hour security and municipal provided sewage, water and garbage collection.
As of the end of 2013, the building is 90% leased, reflecting a 100% lease of its warehouse
capacity. The majority of the leases, which have been entered into with large,
multinational corporate tenants, have a duration of three to five year.
Current
status
5.2. Aisi Bela – Bela Logistic Center
The site consists of a 22.4 ha plot of land with zoning allowance to construct industrial
properties of up to 103,000 sq.m. GBA, is situated on the main Kiev – Odessa highway,
20km from Odessa port and in an area of high demand for logistics and distribution
warehousing.
Project
description
ANNUAL REPORT 2013|18
Following the completion of planning and issuance of permits in 2008, construction
commenced with column foundation and peripheral walls for 100,000 sq.m. being
completed in 2009. Development was then put on hold, due to lack of funding and
deteriorating market conditions.
Current
status
5.3. Kiyanovskiy Lane – Land for Residential Complex
The project consists of 0.55 ha of land located at Kiyanovskiy Lane, near Kiev city centre.
It is destined for the development of business to luxury residences with beautiful protected
views overlooking the scenic Dnipro River, St. Michaels’s Spires and historic Podil.
Project
description
ANNUAL REPORT 2013|19
The concept design of the project is under review with the proposed development to
include residential apartments (GBA of circa 21,000 sq.m.) and 100 parking spaces across
two levels of basement.
Current
status
During 2013 discussions were held with potential developers in order to prepare the
ground for development when the market conditions improve and the political landscape
stabilizes.
5.4.
Tsymlyanskiy Lane – Land for Residential Complex
The 0.36 ha plot is located in the historic and rapidly developing Podil District in Kiev. The
Company owns 55% of the plot, with one local co-invetsor owning the remaining 45%.
Project
description
In 2009, all necessary documents were submitted to relevant authorities for approval and
issuance of a construction permit. The plan was to develop circa 10,000 sq.m. GBA of 40
high end residential units and office spaces on lower floors, as well as 41 parking spaces in
three underground levels. Since then, the project has been frozen.
Current
status
5.5. Balabino-Land for Retail/Entertainment Development
from
The site, consisting of 26.38 ha land is situated on the south entrance of Zaporozhye city,
3 km away
the
Kharkov-Simferopol Highway (which connects eastern Ukraine and Crimea and runs
through the two largest residential districts of the city) as well as another major artery
accessing the city centre.
the administrative border of Zaporozhye. It borders
Project
description
The site is zoned for retail and entertainment and various development options are being
evaluated as per the market’s needs.
Current
status
ANNUAL REPORT 2013|20
6. Board of Directors and Other Officers
Board of Directors
Antonios Achilleoudis
Lambros Anagnostopoulos
Ian Domaille
Paul Ensor
Franz Hoerhager
Registered Address
16, Kyriakou Matsi Avenue
Eagle House, 10th floor, PC 1082,
Agioi Omologites, Nicosia, Cyprus
Principal Places of Business
Antonios Kaffas
Alvaro Portela
Robert Sinclair
Harin Thaker
Prytys'ko-Mykilska 5
Kiev 04070,
Ukraine
16, Kyriakou Matsi Avenue
Eagle House, 10th floor, PC 1082,
Agioi Omologites, Nicosia, Cyprus
49-51 Sfintii Voievozi Street,
1st floor, apartment no 6
Interior 006, district 1, Bucharest
Romania PC 010965
Company Secretary
Chanteclair Secretarial Ltd
16, Kyriakou Matsi Avenue
Eagle House, 10th floor, PC 1082,
Agioi Omologites, Nicosia, Cyprus
Nominated Adviser and Broker
S. P. Angel Corporate Finance LLP
Prince Frederick House
35-39 Maddox Street
London W1S 2PP
Registrars
Computershare Investor Services PLC
The Pavillions
Bridgewater Road
Bristol BS99 7NH, UK
Cymain Registrars Limited
P.O. Box 25719
1311 Nicosia
Cyprus
Collaborating Banks
European Bank for Reconstruction and Development
One Exchange Square
London EC2A 2JN
United Kingdom
PJSC Fidobank
10 Krasnoarmeyskaya Street
Kiev 01601
Ukraine
Bank of Cyprus (ex-Cyprus Popular Bank Public Co.
Ltd)
P.O. Box 22032
1598 Nicosia, Cyprus
ALPHA BANK Bulgaria
99, Tsarigradsko Shosse Blvd.
1113 Sofia, Bulgaria
UNIVERSAL Bank
54/19, Avtozavodska str., 04114
Kiev, Ukraine
Eurobank EFG Cyprus Ltd
41 Makarios Avenue, 5th floor,
1065 Nicosia, CYPRUS
Solicitors
AVELLUM PARTNERS
Leonardo Business Center
19-21 Bohdana Khmelnytskoho Str.11th floor
01030, Kyiv, Ukraine
Law Firm Pantelakis - Skaltsas
19 Lycavittou Str , Athens 10672
Greece
DRAKOPOULOS LAW FIRM
7 David Praporgescu, District 2, 020965
Bucharest, Romania
Auditors
Baker Tilly Klitou and Partners Limited
Corner C Hatzopoulou & 30 Griva Digheni Avenue
1066 Nicosia, Cyprus
Reed Smith LLP
The Broadgate Tower
20 Primrose Street
London EC2A 2RS, United Kingdom
Georgiades & Pelides LLC
Kyriakou Matsi Avenue
Eagle House, 10th floor, PC 1082,
Agioi Omologites, Nicosia, Cyprus
ANNUAL REPORT 2013|21
7. Report of the Board of Directors
The Board of Directors presents its report and the audited consolidated financial statements of SPDI SECURE PROPERTY
DEVELOPMENT & INVESTMENT PLC (“SECURE PROPERTY DEVELOPMENT & INVESTMENT PLC” or the “Company”) and its
subsidiaries (the “Group”) for the year ended 31 December 2013.
Principal activities
The principal activities of the Group, which are unchanged from last year, are directly or indirectly to invest in and/or manage
real estate properties as well as real estate development projects in Central, East and South East Europe (the "Region").
These include the acquisition, development, operation and selling of property assets, in major population centers in the
Region.
Review of current position, future developments and significant risks
Throughout the year management has worked towards identifying growth opportunities for assets acquisitions in South East
Europe. To this end, various assets have been identified as potential portfolio additions but due to the difficult banking
environment such transactions have taken longer to materialize. The first of these transactions was effected in H1-2014. At
the same time, considerable effort has been put in the restructuring of the EBRD Terminal Brovary loan, where the Cyprus
financial crisis resulted in a considerable delay, even though EBRD and the Company have in principal agreed. The Board of
Directors expects that with the proceeds of the capital increase received at the beginning of 2013 the implementation of the
Company’s strategic plan for growth will enable the Group to further enhance its financial results.
The most significant risks faced by the Group and the steps taken to manage these risks are described in notes 4 and 26 of
the consolidated financial statements.
Results and Dividends
The Group's results for the year are set out on page 30. The net loss for the year is carried forward. The Board of Directors
does not recommend a payment of a dividend.
Share Capital
Authorized share capital
There were no changes in the authorized share capital of the Company during the year ended 31 December 2013.
Pursuant to the capital reorganization in August 2011 the Company's authorized share capital amounts to 989.869.935 (new)
ordinary shares of €0,01 nominal value, 4.142.727 deferred shares of €0,99 nominal value and 1 (old) ordinary share of
€0,92 nominal value.
As of the 31st of December, 2013 a reduction of the Authorized Share Capital was approved on the amount of 4.142.727
deferred shares with no rights and 1 (old) ordinary share of nominal value of €0,92. Both deferred shares and (Old) ordinary
share of €0,92 are to be cancelled.
Issued share capital
As of 31 December 2012 the total amount of outstanding ordinary shares was 11.111.975 shares.
Within the reporting year the Company has effected:
a) on the 1st of February, 2013, a share capital increase of US$16.845.000, issuing 14.389.926 ordinary shares of €0,01
nominal value each, at a premium of €12.271.241,
b) on the 27th of February 2013, a share capital increase of US$200.000, issuing 178.916 ordinary shares of €0,01
nominal value each, at a premium of €151.819,
c) on the 18th of October 2013 a share capital increase of US$1.974.252, issuing 2.491.016 ordinary shares of €0,01
nominal value each, at a premium of €1.433.847,
As of the 31st of December, 2013 the total amount of outstanding ordinary shares is 28.171.833. At that date a reduction of
the Issued Share Capital was approved on the amount of 4.142.727 deferred shares with no rights and 1 (old) ordinary share
of nominal value of €0,92. Both deferred shares and (Old) ordinary share of €0,92 are to be cancelled.
ANNUAL REPORT 2013|22
Board of Directors
The members of the Company's Board of Directors as at 31 December 2013 and at the date of this report are presented on
page 21.
In accordance with the Company's Articles of Association, during the Annual General Meeting held on 30th December 2013,
Mr. Paul Ensor and Mr. Antonios Achilleoudis being eligible, retired by rotation, offered themselves for re-election and were
re-elected. Mr. Ian Domaille, who was appointed as a director on 8 August 2011, resigned, offered himself for re-election and
was re-elected.
There were no changes in the assignment of responsibilities of the Board of Directors.
Board Committees
The Board has constituted two committees, the audit committee and the remuneration committee. The membership of both
committees remains unchanged since 2011.
Remuneration Policy
The remuneration policy for the Board (non-executive members) and the senior management of the Company which
includes a monetary portion, as well as equity like instruments to further incentivize the recipients and further align their
interests with those of the shareholders, remains unchanged. Such equity like instruments and the respective granting terms
have been approved by the Annual General Meeting of December 30th 2013.
As far as the Board's remuneration is concerned, the Remuneration Committee presented on December 30th 2013 a new
remuneration scheme, under which the annual remuneration for non-executive Directors is to be paid in shares locked up for
the lesser of two years from the date of issue or the date following which the 30 day average traded value exceeds GBP
70.000.
Options currently held by Board Members
Following the share capital restructuring of the Company, the existing option schemes are as follows:
Director's Option scheme, allotted on 25/7/2007
Under the said scheme each of the directors serving at the time, who is still a Director of the Company is entitled to
subscribe for 2.631 ordinary shares exercisable as set out below:
Exercisable till 1 August 2017
Exercisable till 1 August 2017
Director Franz M. Hoerhager Option scheme, 12/10/2007
Exercise Price
US$
57
83
Number of
Shares
1.754
877
Under the said scheme, director Franz M. Hoerhager is entitled to subscribe for 1.829 ordinary shares exercisable as set out
below:
Exercisable till 1 August 2017
Exercisable till 1 August 2017
Exercise Price
GBP
40
50
Number of
Shares
1.219
610
The above option schemes were approved by the shareholders of the Company in General Meeting on 31st March 2008. As at
31 December 2011 the Company has reversed the reserved equity for the share options in the statement of financial position
as at 31 December 2011 in the amount of US$68.390 as the options are well out of the money.
ANNUAL REPORT 2013|23
Director and Management Holdings in the Company
As at the end of the reporting period the following Directors and Management hold shares of the Company:
Name
Antonios Achilleoudis
Lambros Anagnostopoulos
Ian Domaille
Paul Ensor
Franz Hoerhager
Antonios Kaffas
Alvaro Portela
Robert Sinclair
Harin Thaker
Constantinos Bitros
Warrants issued and exercised
Position
Non-Executive Director
Executive Director and CEO
Non-Executive Director
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Financial Officer
Amount of Shares held
36.842
25.500
32.509
45.381
33.860
27.439
11.228
23.860
11.228
9.000
All Class B Warrants are yet to be exercised. The exercise period has been extended to 31 December 2016, pursuant to a
decision at the Annual General Meeting of December 30th 2013.
Other share capital related matters
Pursuant to decisions taken by the Annual General Meeting of December 30th 2013, the Board is authorized and empowered
to:
-
-
-
-
-
issue up to 82.940.142 ordinary shares of €0,01 each at an issue price as the Board may from time to time
determine (with such price being at a discount to the net asset value per share in the Company which is in issue
immediately prior to the issue of the shares) so as to facilitate the profitable growth of the Company.
issue Class A Warrants, to subscribe for up to 10% of the ordinary shares at the time of issuance of the Class A
Warrants, upon such terms and conditions as may be determined by the Board (with such price being at a discount
to the net asset value per share in the Company which is in issue immediately prior to the issue of the Class A
Warrants). Such Class A Warrants may be offered to various third party entities a) for participating in the capital
raising of the Company, b) for their contribution in creating value for the Company and c) for their assistance with
the fundraising.
issue up to 550.000 ordinary shares at a nominal price of €0,01 each (the “Management Shares”) to be given to the
directors, management and employees of the Company according to the recommendation of the Remuneration
Committee. The Management Shares shall be given as a reward for the continued commitment of the recipients to
the Company and their dedication and hard work in assisting the Company’s turnaround since August 2011.
issue on an annual basis and in accordance with the provisions of the Employee Stock Option Plan the applicable
amount of ordinary shares of €0,01 (the “Share Options”) each to be given to the directors, the management, the
employees and the advisors of the Company as well as any third party that offers services to the Company. At no
point in time will the total number of Share Options outstanding be more than 10% of the share capital of the
Company issued at that time. The strike price of the Share Options awarded each year will be at such a discount to
the 3 months Volume Weighted Average share Price (“3m VWAP”) prior to awarding such Share Options so as not
to distance the interest of the recipient from those of the Company.
issue the Class C Warrants under the terms and conditions attached thereto or as otherwise may be determined by
the Board having due regard to any change of circumstances which may warrant a change to any of the terms of
the Class C Warrants and to issue Class C Warrants to a maximum of 2,5% of the ordinary shares of the Company
at the time of exercise, to the CEO and the CFO of the Company, as the Board shall in its absolute discretion
determine. The Class C Warrants would be exercisable after the exercise of the existing Class B Warrants of the
Company and would be tied to the growth of the Company's Total Asset Value (“TAV”). More specifically the Class
C Warrants allocated will provide for a two months exercise window from the moment the TAV of the Company
reaches $150m and then, new 2,5% warrants will be issued exercisable within 2 months from the moment TAV
reaches $250m and so forth until the Company's TAV reaches $650m. The Class C Warrants will be linked through
an exercise clause to the share price and the Company's performance and consequently their two months
exercisability period will be triggered only a) when the share price (3m VWAP) has increased 10% from the time
they were allocated and b) the Company's previous half year EBITDA has been positive. In case that neither (a) or
(b) is reached, then the two months exercisability of the Class C Warrants and the issue of the new batch of such
Class C Warrants will be deferred until both conditions are met.
ANNUAL REPORT 2013|24
Events after the end of the reporting period
Any significant events that occurred after the end of the reporting period are described in note 27 to the financial statements.
Independent auditors
The independent Auditors, Baker Tilly Klitou and Partners Limited, have expressed their willingness to continue in office.
The Audit Committee will be proposing to the Board the appointment of the Auditor for 2014, authorizing the CEO and the
CFO to negotiate their remuneration so as to present a relevant proposal to the Annual General Meeting of the Shareholders
of the Company.
By order of the Board of Directors,
Bitros Constantinos
CFO
ANNUAL REPORT 2013|25
8. Chairman’s Statement
During 2013 the Company continued to pursue its strategy of consolidating existing assets in Ukraine,
while acquiring new ones elsewhere. While progress was made on both fronts, the management was
frustrated by delays arising from what remains a very cautious and inefficient business environment in
the region. The small loss the Company recorded in 2013 came largely due to the later than expected
acquisitions of income generating buildings in Romania, which if accomplished earlier would have
increased bottom line result considerably. These problems came on top of others, notably the banking
crisis in Cyprus early in the year, and the political problems in Ukraine that flared up as the year closed.
It is thus very much to the credit of the management team that the impact of these macroeconomic
headwinds was contained: operating expenses remained close to budget, rental income for Terminal
Brovary, which rose by 70% to USD 3,6m was also on budget, allowing the Company to end the year
with a strong balance sheet and a great deal of acquisitions preparatory work behind it. There is every
indication that 2014 may be as challenging as 2013 as Ukraine has entered a period of crisis but the
Secure Property Management and Board who are very experienced in dealing with economic and
political turbulence have already taken the steps to diversify and grow the Company.
Paul Ensor
Chairman
ANNUAL REPORT 2013|26
9. Declaration by the members of the Board of Directors and the person responsible
for the preparation of the consolidated Financial Statements of the Company
We, the Members of the Board of Directors and the person responsible for the preparation of the consolidated financial
statements of SECURE PROPERTY DEVELOPMENT AND INVESTMENT PLC for the year ended 31 December 2013, based
on our opinion, which is a result of diligent and scrupulous work, declare that the elements written in the consolidated
financial statements are true and complete.
Board of Directors members:
Antonios Achilleoudis
Lambros Anagnostopoulos
Ian Domaille
Paul Ensor
Franz M. Hoerhager
Antonios Kaffas
Alvaro Portela
Robert Sinclair
Harin Thaker
Person responsible for the preparation of the consolidated financial statements for the year ended 31 December 2013:
Constantinos Bitros
ANNUAL REPORT 2013|27
10. Independent Auditor’s Report
To the Members of
SPDI Secure Property Development & Investment PLC
Baker Tilly Klitou and Partners Ltd
Corner C Hatzopoulou &
30 Griva Digheni Avenue
CY-1066 Nicosia
P.O. Box 27783, CY-2433 Nicosia
Cyprus
T: +357 22 458500
F: +357 22 751648
info@bakertillyklitou.com
www.bakertillyklitou.com
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of SPDI Secure Property Development &
Investment Plc (the “Company”) and its subsidiaries (together with the Company, the "Group"), which comprise the
consolidated statement of financial position as at 31 December 2013, and the consolidated statements of
comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Board of Directors’ responsibility for the consolidated financial statements
The Board of Directors is responsible for the preparation of consolidated financial statements that give a true and fair
view in accordance with International Financial Reporting Standards as adopted by the European Union and the
requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply
with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of
consolidated financial statements that give a true and fair view in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group
as at 31 December 2013, and of its financial performance and its cash flows for the year then ended in accordance
with International Financial Reporting Standards as adopted by the European Union and the requirements of the
Cyprus Companies Law, Cap113.
Associated offices:
Cyprus: Nicosia T: +357 22 458500, Cyprus: Limassol T: +357 25 591515, Cyprus: Larnaca T: +357 24 663299
Romania: Bucharest T: +40 21 3156100, Bulgaria: Sofia T: +359 2 9580980, Moldova: Chisinau T: +373 22 233003
Registered in Cyprus (Reg. No. 156870). List of directors can be found at the Company’s Registered Office.
28
Emphasis of matters
We draw attention to Notes 3, 4 and 13 to the consolidated financial statements, which describe the following
matters:
Valuation of investment properties
The valuation of the investment properties as indicated in Notes 3 and 13 to the consolidated financial statements
were prepared by the independent Chartered Surveyors, CBRE Ukraine (CBRE) based on various assumptions and
limiting conditions. However, in the event that any of these assumptions do not materialize or the limiting conditions
are realized then the valuations of CBRE should be revised accordingly.
As stated in Note 3, a number of the land leases are held for relatively short terms and place an obligation upon the
lessee to complete development by a prescribed date. It is important to note that the rights to complete a
development may be lost or at least delayed if the lessee fails to complete a permitted development within the
timescale set out by the ground lease. In addition, in the event that a development has not commenced upon the
expiry of a lease then the City Authorities are entitled to decline the granting of a new lease on the basis that the
land is not used in accordance with the designation. Furthermore, where all necessary permissions and consents for
the development are not in place, this may provide the City Authorities with grounds for rescinding or non-renewal of
the ground lease. However the management believes that the possibility of such action is remote and was made only
under limited circumstances in the past.
Management believes that rescinding or non-renewal of the ground lease is remote if a project is on the final stage
of development or on the operating cycle. In undertaking the valuations reported herein, CBRE have made the
assumption that no such circumstances will arise to permit the City Authorities to rescind the land lease or not to
grant a renewal.
Our opinion is not qualified in respect of these matters.
Report on other legal requirements
Pursuant to the requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of
2009 and 2013, we report the following:
We have obtained all the information and explanations we considered necessary for the purposes of our audit.
In our opinion, proper books of account have been kept by the Company, so far as appears from the
examination of these books.
The consolidated financial statements are in agreement with the books of account.
In our opinion and to the best of our information and according to the explanations given to us, the consolidated
financial statements give the information required by the Companies Law, Cap. 113, in the manner so required.
In our opinion, the information given in the report of the Board of Directors is consistent with the consolidated
financial statements.
Other matter
This report, including the opinion, has been prepared for and only for the Company's members as a body in
accordance with Section 34 of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009
and 2013 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other
purpose or to any other person to whose knowledge this report may come to.
Christodoulos Loulloupis
Certified Public Accountant and Registered Auditor
for and on behalf of
Baker Tilly Klitou and Partners Limited
Certified Public Accountants and Registered Auditors
Nicosia, 23 June 2014
Associated offices:
Cyprus: Nicosia T: +357 22 458500, Cyprus: Limassol T: +357 25 591515, Cyprus: Larnaca T: +357 24 663299
Romania: Bucharest T: +40 21 3156100, Bulgaria: Sofia T: +359 2 9580980, Moldova: Chisinau T: +373 22 233003
Registered in Cyprus (Reg. No. 156870). List of directors can be found at the Company’s Registered Office.
29
11. Consolidated Statement of Comprehensive Income
For the year ended 31 December 2013
Operational income
Valuation gains/(losses) from investment property
Administration expenses
Investment property operating expenses
Other income, net
Operating profit
Finance costs, net
(Loss) / Profit before tax
Income tax expense
(Loss) / Profit for the year
Other comprehensive (loss)/income
Note
2013
US$
2012
US$
7
7
8
9
10
3.608.668
843.433
4.452.101
2.121.072
3.452.294
5.573.366
(3.288.004)
(3.242.494)
(721.446)
658.438
(554.281)
524.112
1.101.089
2.300.703
11
(1.105.648)
(2.155.308)
(4.559)
145.395
12
(166.972)
(83.845)
(171.531)
61.550
Exchange difference on translation of foreign operations
17
(80.292)
6.727
Total comprehensive (loss)/income for the year
(251.823)
68.277
(Loss)/ Profit attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
(185.148)
13.617
(171.531)
131.735
(70.185)
61.550
(276.293)
24.470
(251.823)
112.880
(44.603)
68.277
Earnings/(losses) per share ($ cent per share):
Basic (loss)/earnings for the year attributable to ordinary equity
owners of the parent
Diluted (loss)/earnings for the year attributable to ordinary
equity owners of the parent
6
(0,01)
(0,01)
0,01
0,01
The notes on pages 34 to 66 form an integral part of these consolidated financial statements
ANNUAL REPORT 2013|30
12. Consolidated Statement of Financial Position
For the year ended 31 December 2013
ASSETS
Non-current assets
Investment properties
Investment property under construction
Prepayments made for investments
Property, plant and equipment
Current assets
Prepayments and other current assets
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Issued share capital
Share premium
Foreign currency translation reserve
Accumulated losses
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Non-current liabilities
Interest bearing borrowings
Finance lease liabilities
Trade and other payables
Deposits from tenants
Current liabilities
Interest bearing borrowings
Trade and other payables
Taxes payable
Provisions
Finance lease liabilities
Total liabilities
Total equity and liabilities
Note
13b
13a
13c
14
15
16
17
18
19
23
20
21
19
20
22
22
23
2013
US$
2012
US$
39.600.000
9.000.000
5.000.000
142.658
39.230.000
8.353.161
5.000.000
96.331
53.742.658 52.679.492
4.958.887
13.333.497
18.292.384
5.448.173
256.447
5.704.620
72.035.042 58.384.112
5.762.809
123.141.051
(1.340.671)
(75.355.408)
52.207.781
5.531.191
104.779.503
(1.249.526)
(75.170.260)
33.890.908
1.063.265
1.038.795
53.271.046 34.929.703
-
534.264
662.599
435.250
1.632.113
1.777.680
565.973
664.899
427.918
3.436.470
15.276.622
1.075.268
584.102
164.144
31.747
16.563.976
2.561.736
529.827
334.552
27.848
17.131.883 20.017.939
18.763.996 23.454.409
72.035.042 58.384.112
Net Asset Value (NAV) $ per share:
Basic NAV attributable to equity holders of the parent
Diluted NAV attributable to equity holders of the parent
6
1,85
1,62
3,05
2,67
On 23 June 2014 the Board of Directors of SECURE PROPERTY DEVELOPMENT & INVESTMENT PLC
authorized these financial statements for issue.
Lambros Anagnostopoulos
Director & Chief Executive Officer
Paul Ensor
Director & Chairman of the Board
Constantinos Bitros
Chief Financial Officer
The notes on pages 34 to 66 form an integral part of these consolidated financial statements
ANNUAL REPORT 2013|31
13. Consolidated Statement of Changes in Equity
For the year ended 31 December 2013
Share capital
Share premium
Attributable to equity holders of the Parent
Foreign currency
Accumulated losses,
translation reserve
net of non-controlling
interest
Total
Non- controlling
interests
Total
US$
US$
US$
US$
US$
US$
US$
Balance – 31 December 2011/
1 January 2012
5.507.276
102.447.925
(75.301.995)
(1.230.671)
31.422.535
1.083.398
32.505.933
Profit /(Loss) for the year
Issue of share capital
Foreign currency translation
reserve
-
-
131.735
23.915
2.331.578
-
-
-
-
-
-
131.735
2.355.493
(70.185)
61.550
-
2.355.493
(18.855)
(18.855)
25.582
6.727
Balance – 31 December 2012/
1 January 2013
(Loss) / Profit for the year
Issue of share capital, net (Note
16)
Transaction costs attributable to
the increase share capital
Foreign currency translation
reserve
5.531.191
104.779.503
(75.170.260)
(1.249.526)
33.890.908
1.038.795
34.929.703
-
-
(185.148)
231.618
18.798.086
(436.538)
-
-
-
-
-
-
(185.148)
13.617
(171.531)
19.029.704
-
19.029.704
(436.538)
(436.538)
(91.145)
(91.145)
10.853
(80.292)
Balance - 31 December 2013
5.762.809
123.141.051
(75.355.408)
(1.340.671)
52.207.781
1.063.265
53.271.046
Companies which do not distribute 70% of their profits after tax, as defined by the relevant tax law, within two years after the end of the relevant tax year, will be deemed to have distributed as dividends 70% of
these profits. Special contribution for defence at 20% will be payable on such deemed dividends to the extent that the shareholders (companies and individuals) are Cyprus tax residents. The amount of deemed
distribution is reduced by any actual dividends paid out of the profits of the relevant year at any time. This special contribution for defence is payable on account of the shareholders.
The notes on pages 34 to 66 form an integral part of these consolidated financial statements
ANNUAL REPORT 2013|32
14. Consolidated Statement of Cash Flows
For the year ended 31 December 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) before tax and non-controlling interests
Adjustments for:
Profit/(loss) on revaluation of investment property
Other non-cash movements
Prepayments and other current assets impairment loss/(reversal)
Trade and other payables written off
Depreciation of property, plant and equipment
Interest income
Interest expense
Provisions
Effect of foreign exchange difference
Cash flows used in operations before working capital changes
Change in prepayments and other current assets
Change in trade and other payables
Change in other taxes and duties
Increase in deposits from tenants
Income tax paid
Net cash flows used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures on investment property
Decrease in payables for construction
Change in VAT recoverable
Increase/(Decrease) in financial lease liabilities
Changes in property, plant and equipment
Interest received
Net cash flows from / (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital / shareholders advances
Proceeds from/(Repayment of) borrowings
Interest and financial charges paid
Note
2013
US$
2012
US$
(4.559)
145.395
7
10
10
11
11
23
11
14
20
22
21
13
20
23
11
16
19
(843.433)
52.618
(13.304)
(354.299)
16.154
(132.827)
1.358.435
(170.408)
(268.211)
(359.834)
(116.583)
(702.841)
(6.144)
7.332
(106.553)
(3.452.294)
151.978
(53.264)
(614.667)
11.590
(1.496)
1.767.095
-
7.370
(2.038.293)
(597.968)
(465.657)
(139.766)
364.111
(247.180)
(924.789)
(1.284.623)
(1.086.460)
(3.124.753)
(173.406)
(431.628)
619.173
(27.810)
(62.481)
132.827
(112.393)
(463.592)
418.724
(86.084)
(86.133)
1.496
56.675
(327.982)
17.045.000
(1.473.363)
(1.164.851)
2.353.864
1.729.295
(1.128.532)
Net cash flows from / (used in) financing activities
14.406.786
2.954.627
Effect of foreign exchange rates on cash
(101.787)
(85)
Net increase/(decrease) in cash at banks
Cash:
At beginning of the year
At end of the year
15
13.077.051
(498.193)
256.447
13.333.498
754.640
256.447
The notes on pages 34 to 66 form an integral part of these consolidated financial statements
ANNUAL REPORT 2013|33
15. Notes to the Consolidated Financial Statements
For the year ended 31 December 2013
1. General Information
Country of incorporation
SECURE PROPERTY DEVELOPMENT & INVESTMENT PLC (the ''Company'') was incorporated in Cyprus on 23 June 2005
and is a public limited liability company, listed on the London Stock Exchange (AIM): ISIN CY0102102213. Its registered
office is at Kyriakou Matsi 16, Eagle House, 10th floor, Agioi Omologites, 1082 Nicosia, Cyprus.
Principal activities
The principal activities of the Group, which are unchanged from last year, are directly or indirectly to invest in and/or
manage real estate properties as well as real estate development projects in Central, East and South East Europe (the
"Region"). These include the acquisition, development, operation and selling of property assets, in major population
centers in the Region.
The Group maintains offices in Kiev, Ukraine and Nicosia, Cyprus, while it has an affiliate in Bucharest, Romania.
As at the reporting date, the Group has 13 Full Time Equivalent (FTEs) employed persons, including the CEO and the CFO
(December 2012 13, December 2011 19).
2. Adoption of new and revised Standards and Interpretations
During the current year the Group adopted all the new and revised International Financial Reporting Standards (IFRS)
that are relevant to its operations and are effective for accounting periods beginning on 1 January 2013. This adoption
did not have a material effect on the accounting policies of the Group.
At the date of approval of these consolidated financial statements the following accounting standards were issued by the
International Accounting Standards Board but were not yet effective:
(i) Standards and Interpretations adopted by the EU
New standards
IFRS 10 ''Consolidated Financial Statements'' (effective for annual periods beginning on or after 1 January 2014).
IFRS 11 ''Joint Arrangements'' (effective for annual periods beginning on or after 1 January 2014).
IFRS 12 ''Disclosure of Interests in Other Entities'' (effective for annual periods beginning on or after 1 January
2014).
Amendments
IFRS Interpretations Committee
IAS 27 (Revised): ''Consolidated and Separate Financial Statements'' (effective for annual periods beginning on or
after 1 January 2014).
IAS 28 (Revised): ''Investments in Associates'' (effective for annual periods beginning on or after 1 January 2014).
Amendment to IAS32 ''Offsetting Financial Assets and Financial Liabilities'' (effective for annual periods beginning
on or after 1 January 2014).
Amendment to IAS 36 ''Recoverable Amount - Disclosures for Non-Financial Assets'' (effective for annual periods
beginning on or after 1 January 2014).
Amendment to IAS 39 ''Financial Instruments: Recognition and Measurement'', Novation of Derivatives and
Continuation of Hedge Accounting (effective for annual periods beginning on or after 1 January 2014).
Transition Guidance for IFRS 10, 11 & 12 (effective for annual periods beginning on or after 1 January 2014).
Investment Entities amendments to IFRS 10, IFRS 12, and IAS 27 (effective for annual periods beginning on or
after 1 January 2014).
(ii) Standards and Interpretations not adopted by the EU
New standards
IFRS 9 ''Financial Instruments'' issued in November 2009 and amended in October 2010 introduces new
requirements for the classification and measurement of financial assets and financial liabilities and for
derecognition. (effective for annual periods beginning on or after 1 January 2013).
ANNUAL REPORT 2013|34
2. Adoption of new and revised Standards and Interpretations (continued)
Amendments
Amendments to IAS 19 - ''Defined Benefit Plans: Employee Contributions'' (effective for annual periods beginning
on or after 1 July 2014).
Amendment to IAS 36 ''Recoverable Amount - Disclosures for Non-Financial Assets'' (effective for annual periods
beginning on or after 1 January 2014).
Amendment to IAS 39 ''Financial Instruments: Recognition and Measurement'', Novation of Derivatives and
Continuation of Hedge Accounting (effective for annual periods beginning on or after 1 January 2014).
IFRS 9 ''Financial Instruments'' (issued 12 November 2009) and subsequent amendments (amendments to IFRS 9
and IFRS 7 issued 16 December 2011) (effective for annual periods beginning on or after 1 January 2015).
Annual Improvements to IFRSs 2010–2012 Cycle (issued on 12 December 2013) (effective for annual periods
beginning on or after 1 July 2014)
Annual Improvements to IFRSs 2011–2013 Cycle (issued on 12 December 2013) (effective for annual periods
beginning on or after 1 July 2014)
New IFRICs
IFRIC 21 ''Levies'' (effective the latest as from the commencement date of its first annual period beginning on or
after 1 January 2014).
The Board of Directors expects that the adoption of these standards or interpretations in future periods will not have a
material effect on the consolidated financial statements of the Group.
3. Significant accounting policies
3.1 Statement of compliance
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 have been prepared under the historical cost convention as modified by the
revaluation of investment property and investment property under construction to fair value.
3.2 Basis of preparation
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.
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, the Ukrainian
Hryvnia, is the functional currency for all the Group’s entities, except for the parent company and its subsidiaries SC Secure
Capital Ltd and SL Secure Logistics Ltd for which the United States Dollar is the functional currency.
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.
3.3 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities (including special
purpose entities) controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to
govern the financial and operating policies of an entity so as to obtain benefits from its activities. The Group may from time
to time include other companies that are registered in Cyprus servicing as special purpose vehicles for acquiring new
projects. Such SPVs are considered dormant unless an acquisition is materialized.
Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of
comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total
comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even
if this results in the non-controlling interests having a deficit balance.
ANNUAL REPORT 2013|35
3. Significant accounting policies (continued)
3.3 Basis of consolidation (continued)
The financial statements of all the Group companies are prepared using uniform accounting policies. When necessary,
adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used
by other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.
3.3.1 Changes in the Group's ownership interests in existing subsidiaries
Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the
subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the
non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference
between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or
received is recognized directly in equity and attributed to owners of the Company.
When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the
aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous
carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When
assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been
recognized in other comprehensive income and accumulated in equity, the amounts previously recognized in other
comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the
relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified by applicable
IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as
the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and
Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled
entity.
The Group’s consolidated financial statements comprise the financial statements of the parent company, SECURE
PROPERTY DEVELOPMENT & INVESTMENT PLC and the financial statements of the following subsidiaries:
Name
Country of
Related Asset
Holding %
SC SECURE Capital Limited
SL SECURE Logistics Limited
LLC Aisi Brovary
LLC Terminal Brovary
LLC Aisi Ukraine
LLC Trade Center
LLC Almaz-press-Ukrayina
LLC Aisi Bela
LLC Merelium Investments
LLC Interterminal
LLC Aisi Outdoor
LLC Aisi Vida
LLC Aisi Val
LLC Aisi Ilvo
LLC Aisi Consta
LLC Aisi Roslav
LLC Aisi Donetsk
LLC Retail Development Balabino
incorporati
on
Cyprus
Cyprus
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Brovary Logistics Park
Brovary Logistics Park
Brovary Logistics Park
Kiyanovskiy Residence
Kiyanovskiy Residence
Tsymlianskiy Residence
Bela Logistic Park
Zaporozyia Retail Center
Zaporozyia Retail Center
Retail
as at
31.12.2013
100
100
100
100
100
100
55
100
100
100
100
100
100
100
100
100
100
100
as at
31.12.2012
100
100
100
100
100
100
55
100
100
100
100
100
100
100
100
100
100
100
ANNUAL REPORT 2013|36
3. Significant accounting policies (continued)
3.3 Basis of consolidation (continued)
As of the reporting date the subsidiaries LLC Merelium Investments, LLC Aisi Outdoor, LLC Aisi Vida, LLC Aisi Val, LLC Aisi
Consta, LLC Aisi Roslav and LLC Aisi Donetsk were under the merging process to LLC Aisi Ilvo. The reorganization (merger)
process is expected to be finished in 2014.
3.3.2 Foreign currency translation
The management believes that the US Dollar reporting better reflects the economic substance of the underlying events and
circumstances relevant to the Group itself. Consequently the Group’s management has determined that the Group’s
functional currency is the US Dollar.
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, or where this is not
practicable the average rate has been used;
All resulting exchange differences are recognized 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:
Currency
US$
2013
7,993
2012
7,9911
2013
7,993
2012
7,993
Average
31 December
The Group’s financial statements consolidate the financial statements of the Company and all its subsidiary undertakings for
the year ended 31 December 2013.
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. Investments in subsidiaries are accounted for under the acquisition
method.
3.4 Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets
transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests
issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognized in the
statement of comprehensive income as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value at the
acquisition date, except that:
deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognized
and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
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 are measured in accordance with that Standard; and
liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based
payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree
are measured in accordance with IFRS 2 Share-based Payment at the acquisition date.
ANNUAL REPORT 2013|37
3. Significant accounting policies (continued)
3.4 Business combinations (continued)
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the
entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests'
proportionate share of the recognized amounts of the acquiree's identifiable net assets. The choice of measurement basis is
made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when
applicable, on the basis specified in another IFRS.
When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a
contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and
included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent
consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments
against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during
the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that
existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement
period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as
equity is not re-measured at subsequent reporting dates and its subsequent settlement is accounted for within equity.
Contingent consideration that is classified as an asset or a liability is re-measured at subsequent reporting dates in
accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the
corresponding gain or loss being recognized in the statement of comprehensive income.
When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is
re-measured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss,
if any, is recognized in the statement of comprehensive income. Amounts arising from interests in the acquiree prior to the
acquisition date that have previously been recognized in other comprehensive income are reclassified to the statement of
comprehensive income where such treatment would be appropriate if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination
occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional
amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognized, to reflect
new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have
affected the amounts recognized at that date.
Business combinations that took place prior to 1 January 2010 were accounted for in accordance with the previous version of
IFRS 3.
3.5 Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see
3.5 above) less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to each of the Group's cash-generating units (or groups of
cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when
there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its
carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit
and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss
for goodwill is recognized directly in profit or loss in the consolidated statement of comprehensive income. An impairment
loss recognized for goodwill is not reversed in subsequent periods.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the
profit or loss on disposal.
3.6 Non-current assets held for sale
When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that
subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will
retain a non-controlling interest in its former subsidiary after the sale.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying
amount and fair value less costs to sell.
3.7 Operating segments analysis
The Group has one material reportable segment on the basis that in all material aspects all of its revenue is to be generated
from investment properties located in Ukraine; accordingly no segment analysis is presented.
ANNUAL REPORT 2013|38
3. Significant accounting policies (continued)
3.8 Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated
customer returns, rebates and other similar allowances. It is recognized to the extent that it is probable that the economic
benefits associated with the transaction will flow to the Group and the revenue can be measured reliably. Revenue earned by
the Group is recognized on the following bases:
3.8.1 Income from investing activities
Income from investing activities includes profit received from disposal of investments in the Company’s subsidiaries and
associates and income accrued on advances for investments outstanding as at the year end.
3.8.2 Dividend income
Dividend income from investments is recognized when the shareholders’ right to receive payment has been established
(provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured
reliably).
3.8.3 Interest income
Interest income is recognized on a time-proportion (accrual) basis, using the effective interest rate method.
3.8.4 Rental income
Rental income arising from operating leases on investment property is recognized on an accrual basis in accordance with the
substance of the relevant agreements.
3.9 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying
assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in the statement of comprehensive income in the period in which they are incurred
as interest costs which are calculated using the effective interest rate method, net result from transactions with securities,
foreign exchange gains and losses, and bank charges and commission.
3.10 Other property expenses
Irrecoverable running costs directly attributable to specific properties within the Group's portfolio are charged to the
statement of comprehensive income. Costs incurred in the improvement of the assets which, in the opinion of the directors,
are not of a capital nature are written off to the statement of comprehensive income as incurred.
3.11 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
3.11.1 Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the
consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in
other years and items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the end of the reporting period.
3.11.2 Deferred tax
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.
Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilized.
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.
ANNUAL REPORT 2013|39
3. Significant accounting policies (continued)
3.11 Taxation (continued)
3.11.3 Current and deferred tax for the year
Current and deferred tax are recognized in the statement of comprehensive income, except when they relate to items that
are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also
recognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from
the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
All the subsidiaries of the Group are incorporated in Ukraine, except for SC Secure Capital Limited, SL Secure 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 defense 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 asset. However, in the event that a decision is taken in the
future to dispose of any asset 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.
3.12 Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment
losses.
Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet
determined, are carried at cost, less any recognized impairment loss. Cost includes professional fees and, for qualifying
assets, borrowing costs capitalized in accordance with the Group's accounting policy. Depreciation of these assets, on the
same basis as other property assets, commences when the assets are ready for their intended use.
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 are as follows:
Type
Leasehold
Citylights
Software and hardware
Motor vehicles
Furniture, fixtures and office equipment
No depreciation is provided on land.
%
20
20
33,33
25
20
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 reporting 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.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected
to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property,
plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and
is recognized in the statement of comprehensive income.
ANNUAL REPORT 2013|40
3. Significant accounting policies (continued)
3.13 Share-based compensation
The Group had in the past and intends in the future to operate a number of equity-settled, share-based compensation plans,
under which the Company receives services from Directors and/or employees as consideration for equity instruments
(options) of the Group. The fair value of the Director and employee cost related to services received in exchange for the
grant of the options is recognized 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 transaction costs are credited to share capital and share premium when the options
are exercised.
3.14 Leased assets
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognized 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
consolidated 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 profit or loss, unless they are directly attributable to qualifying assets, in which case
they are capitalized in accordance with the Group's general policy on borrowing costs (see above).
Lease payments are analyzed 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.
3.15 Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it
is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified,
corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group
of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment loss
annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized
immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is
treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior
years. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a
revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
ANNUAL REPORT 2013|41
3. Significant accounting policies (continued)
3.16 Investment properties
Investment property, principally comprising freehold and leasehold land and investment properties held for future
development, is held for long term rental yields and/or for capital appreciation and is not occupied by the Group. Investment
property and investment property under construction are 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 and are
included in other operating income.
A number of the land leases are held for relatively short terms and place an obligation upon the lessee to complete
development by a prescribed date. It is important to note that the rights to complete a development may be lost or at least
delayed if the lessee fails to complete a permitted development within the timescale set out by the ground lease.
In addition, in the event that a development has not commenced upon the expiry of a lease then the City Authorities are
entitled to decline the granting of a new lease on the basis that the land is not used in accordance with the designation.
Furthermore, where all necessary permissions and consents for the development are not in place, this may provide the City
Authorities with grounds for rescinding or non-renewal of the ground lease. However the management believes that the
possibility of such action is remote and was made only under limited circumstances in the past.
Management believes that rescinding or non-renewal of the ground lease is remote if a project is on the final stage of
development or on the operating cycle. In undertaking the valuations reported herein, CBRE have made the assumption
that no such circumstances will arise to permit the City Authorities to rescind the land lease or not to grant a renewal.
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.
The property is classified in accordance with 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.
3.16.1 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.
ANNUAL REPORT 2013|42
3. Significant accounting policies (continued)
3.16 Investment properties (continued)
3.16.2 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
liabilities/assets recognized separately in the statement of financial position are 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.
3.16.3 Basis of valuation
The fair values reflect market conditions at the financial position date. These valuations are prepared annually by chartered
surveyors (hereafter “appraisers”). In 2013, the Company appointed CBRE Ukraine as its valuer. 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”) Valuation – Professional Standards
(2012) (the “Red Book”) and is also compliant with the International Valuation Standards (IVS).
“Market Value”, is defined as: “The estimated amount for which a property should exchange on the date of valuation
between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had
each acted knowledgeably, prudently and without compulsion”.
In expressing opinions on Market Value, in certain cases the appraisers have estimated net annual rentals/income from sale.
These are assessed on the assumption that they are the best rent/sale prices at which a new letting/sale of an interest in
property would have been completed at the date of valuation assuming: a willing landlord/buyer; 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/sale; 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/sale, the same as on the valuation date; that no account is taken of any additional bid by a prospective
tenant/buyer with a special interest; that the principal deal conditions assumed to apply are the same as in the market at the
time of valuation; that both parties to the transaction had acted knowledgeably, prudently and without compulsion.
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. 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 assignable, 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 transferable.
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 based on such agreements.
In those instances where the properties are held in part ownership, the valuations assume that these interests are saleable
in the open market without any restriction from the co-owner and that there are no encumbrances within the share
agreements which would impact the sale ability of the properties concerned.
The valuation is exclusive of VAT and no allowances have been made for any expenses of realization or for taxation which
might arise in the event of a disposal of any property.
In some instances the appraisers constructed a Discounted Cash Flow (DCF) model. DCF analysis is a financial modeling
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. The forecast is based on the assessment of
market prices for comparable premises, build rates, cost levels etc. from the point of view of a probable developer.
ANNUAL REPORT 2013|43
3. Significant accounting policies (continued)
3.16 Investment properties (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. In this case, it is a development property and thus
estimates of capital outlays, development costs, and anticipated sales income are used to produce net cash flows that are
then discounted over the projected development and marketing periods. The Net Present Value (NPV) of such cash flows
could represent what someone might be willing to pay for the site and is therefore an indicator of market value. All the
payments are projected in nominal US Dollar amounts and thus incorporate relevant inflation measures.
Valuation Approach
In addition to the above general valuation methodology, the appraisers have taken into account in arriving at Market Value
the following:
Pre Development
In those instances where the nature of the ‘Project’ has been defined, it was assumed that the subject property will be
developed in accordance with this blueprint. 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.
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 during the anticipated development period. The standard letting fees
were assumed within the valuations. In arriving at their estimates of gross development value (“GDV”), the appraisers have
capitalized 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 capitalized into perpetuity.
The capitalization rates adopted in arriving at the opinions of GDV reflect the appraisers’ opinions of the rates at which the
properties could be sold as at the date of valuation.
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.
3.17 Non-current liabilities
Non-current liabilities represent amounts that are due in more than twelve months from the reporting date.
3.18 Project/Special Purpose Vehicle Related Transaction Expenses
Expenses incurred by the Group for acquiring a subsidiary or associated company and are directly attributable to such
acquisition are recognized in the statement of comprehensive income.
3.19 Provisions
Provisions are recognized when the Group has a present obligation (legal or tax) as a result of a past event, it is probable
that the Group will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
As at the reporting date the Group has settled all its construction liabilities.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at
the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision
is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those
cash flows (where the effect of the time value of money is material).
ANNUAL REPORT 2013|44
3. Significant accounting policies (continued)
3.19 Provisions (continued)
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a
receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the
receivable can be measured reliably.
3.20 Financial liabilities and equity instruments
3.20.1 Classification as debt or equity
Debt and equity instruments issued by a Group entity are classified as either financial liabilities or as equity in accordance
with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
3.20.2 Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue costs. Ordinary
shares are classified as equity. The difference between the fair value of the consideration received by the Company and the
nominal value of the share capital being issued is taken to the share premium account.
Repurchase of the Company's own equity instruments is recognized and deducted directly in equity. No gain or loss is
recognized in the statement of comprehensive income on the purchase, sale, issue or cancellation of the Company's own
equity instruments.
3.20.3 Financial liabilities
Financial liabilities are classified as either financial liabilities “at FVTPL” or “other financial liabilities”.
3.20.3.1 Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at
FVTPL.
A financial liability is classified as held for trading if:
it has been acquired principally for the purpose of repurchasing it in the near term; or
on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has
a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:
such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise
arise; or
the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its
performance is evaluated on a fair value basis, in accordance with the Group's documented risk management or
investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition
and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognized in profit
or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability and is included
in the “other gains and losses” line item in the consolidated statement of comprehensive income.
3.20.3.2 Other financial liabilities
Other financial liabilities (including borrowings) are subsequently measured at amortized cost using the effective interest
method.
The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction
costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter
period, to the net carrying amount on initial recognition.
3.20.3.3 De-recognition of financial liabilities
The Group derecognizes financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they
expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and
payable is recognized in profit or loss.
ANNUAL REPORT 2013|45
3. Significant accounting policies (continued)
3.21 Value added tax
VAT is levied at the following rates:
20% on Ukrainian 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 Ukraine.
18% 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 reflecting principal market assumptions as to projects
realization. Initial loss on discounting VAT credit, non-current was recognized as part of finance costs.
3.21.1 Withholding Tax
With effect from 1 January 2014, a new agreement for the avoidance of double taxation (DTA) between Cyprus and Ukraine
came into force. Under the new agreement withholding tax of 2% applies on interest received by a Cyprus company from
Ukraine.
3.22 Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial
position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention
to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with
master netting agreements, and the related assets and liabilities are presented gross in the consolidated statement of
financial position.
The Group presents basic and diluted earnings per share (EPS) and net asset value per share (NAV) for its ordinary shares.
3.23 Earnings and Net Assets value per share
Basic EPS amounts are calculated by dividing net profit/loss for the year, attributable to ordinary equity holders of the
Company by the weighted average number of ordinary shares outstanding during the year. Basic NAV amounts are
calculated by dividing net asset value as at year end, attributable to ordinary equity holders of the Company by the number
of ordinary shares outstanding at the end of the year.
Diluted EPS is calculated by dividing net profit/loss 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. Diluted NAV is
calculated by dividing net asset value as at year end, attributable to ordinary equity holders of the parent with the number of
ordinary shares outstanding at year end plus the number of ordinary shares that would be issued on conversion of all the
potentially dilutive ordinary shares into ordinary shares.
4. Financial risk management
4.1 Financial risk factors
The Group is exposed to country risk, real estate holding and development associated risks, market price risk, interest rate
risk, credit risk, liquidity risk, currency risk, other market price risk, operational risk, compliance risk, litigation risk,
reputation 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. Financial Risk Management is also
described in note 26 of the financial statements.
4.1.1 Operating Country Risks
The Group is exposed to country risk, stemming from the political and economic environment of every country in which it
operates.
4.1.1.1 Ukraine
In recent years, the Ukrainian economy has been characterized by a number of features that contribute to economic
instability, including a relatively weak banking system providing limited liquidity to Ukrainian enterprises, significant capital
outflows and low wages for a large portion of the Ukrainian population.
ANNUAL REPORT 2013|46
4. Financial risk management (continued)
4.1 Financial risk factors (continued)
The implementation of reforms has been impeded by lack of political consensus, controversies over privatization, the
restructuring of the energy sector, the removal of exemptions and privileges for certain state-owned enterprises or for
certain industry sectors, the limited extent of cooperation with international financial institutions and non-stable taxing
environment.
Although Ukraine had made significant progress in increasing its gross domestic product, decreasing inflation, stabilizing its
currency, increasing real wages and improving its trade balance, these gains were not sustainable over the longer term and
may be reversed by the current political uncertainty which plunges the country into a state of potential war and separatism.
Ukraine's future government will have to rely to a significant extent on official or multilateral borrowings to avoid
bankruptcy, finance its budget deficit, fund its payment obligations under domestic and international borrowings and
support foreign exchange reserves. These borrowings will be conditioned on Ukraine’s ability to achieve a stable political
environment to implement strategic, institutional and structural reforms but seems to be mainly depending on how long
and how severe the current geopolitical conflict will last; Further negative developments on these fronts may result in
Ukraine not finding adequate financing which could have a material adverse effect on the Ukrainian economy as a whole,
and thus, on the Group’s business prospects.
Current Ukraine's relations with Russia may adversely affect supplies of energy resources from Russia to Ukraine and
Ukraine's revenues derived from transit charges for Russian oil and gas towards Europe. It already has negative effects on
certain sectors of the Ukrainian economy which could under certain conditions affect the Group's business.
The Ukrainian legal system has also been developing to support a 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 organized 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 are changing and compared to more developed market economies are in a non-mature level thus creating often
an unclear tax environment of unusual complexity. This particularly may affect negatively the ability of the Group to
recuperate VAT paid and/or to utilize operating losses as a carry forward tax shield.
Ukraine’s current political and economic situation is subject to rapid change and the information set out in these financial
statements may become outdated relatively quickly.
Since November 2013 Ukraine has been going through a political crisis. On February 22nd, 2014, Ukraine’s Parliament voted
for the return to the 2004 Constitution and the dismissal of the President, who fled the country. New presidential elections
are scheduled for May 2014 and a transitional Government has been appointed. On March 16, 2014 the residents of Crimea
peninsula voted overwhelmingly for their region to secede to Russia in a referendum not globally accepted as legal and a
week later Crimea was annexed by Russia.
During the last three months the Ukrainian Hryvnia lost value against the major foreign currencies. Significant external
financing is required to maintain its stability. The National Bank of Ukraine, among other measures, imposed certain
temporary restrictions to the Banks on processing client payments and on purchasing foreign currencies on the
inter-banking market. In February 2014, Ukraine’s sovereign rating has been further downgraded to CCC. The final
resolution and impact of the political crisis are difficult to predict and the ongoing crisis may further adversely affect
Ukrainian economy. Subsequent to 31 December 2013 the Group has been operating in the normal course of business and
the management of the Group believes that it has undertaken all necessary measures to maintain the economic stability of
the Group under these circumstances.
ANNUAL REPORT 2013|47
4. Financial risk management (continued)
4.1 Financial risk factors (continued)
4.1.1.2 Cyprus
During the past 10 years Cyprus has become an established financial center taking advantage of favorable double tax
treaties with various countries around the world, most importantly with Eastern European countries where the Company
operates. Due to the world financial crisis erupting in 2008 and the ensuing debt crisis which had a liquidity effect of the
Cypriot banking system as in all of the south and east European countries, following the restructuring of the Greek public
debt certain of the Cypriot banks have taken a blow to their solvency (write off of €4,5bn of Greek debt) and have
requested the support of the ECB through the ELA mechanism.
Thus, the indebtedness of the Cypriot Republic and its two main banks Bank of Cyprus and Cyprus Popular Bank (Laiki)
created the basis for the country to be part of a financial rescue plan under the supervision of the IMF, the ECB and the
European Union in early 2013.
At the same time, the recent discovery of potentially significant natural gas and oil deposits within the boundaries of the
Cypriot exclusive economic zone perplexes the geographic and political relationships and developments as Cyprus is in the
crossroad of 3 continents.
Any failure to effect and implement an economic restructuring plan may have a significant negative effect on the financials
of the Cypriot economy that could lead to a default and the abandonment of the Euro currency. Such result would have a
destabilizing effect on the operations of the Company at the corporate level.
4.1.2 Risks associated with property holding
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, taking also into account the UAH rapid
devaluation;
the amount of rent and the terms on which lease renewals and new leases are agreed being less favorable than
current leases;
cyclical fluctuations in the property market generally;
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 take
possession;
the ability to pay for adequate maintenance, insurance and other operating costs, including taxes, which could
increase over time; and
political uncertainty, acts of terrorism and acts of nature, such as earthquakes and floods that may damage the
properties.
4.1.3 Property Market price risk
Market price risk is the risk that the value of the Company’s portfolio investments will fluctuate as a result of changes in
market prices. The Group's assets are susceptible to market price risk arising from uncertainties about future prices of the
investments. The Group's market price risk is managed through diversification of the investment portfolio, continuous
elaboration of the market conditions and active asset management. To quantify the value of its assets and/or indicate the
possibility of impairment losses, the Company commissioned internationally acclaimed valuers.
The prevailing global economic conditions throughout 2008-2010 and the ensuing Euro zone Sovereign Debt crisis have had
a considerable effect on the market prices of the current portfolio investments of the Group. Valuations reported as at
31/12/2013 do not take into account recent political developments in Ukraine as such is difficult to evaluate. Given the
nature of the Group’s assets the most immediate effect would be the prolongation of the period needed to market and
effectively sell an asset under such duress conditions.
The BoD is monitoring the situation to ensure that asset value is preserved while at the same time through diversification
according to the strategic plan of the Company, Ukrainian operations will become part of a larger structure.
ANNUAL REPORT 2013|48
4. Financial risk management (continued)
4.1 Financial risk factors (continued)
4.1.4 Interest rate risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates.
The Group's income and operating cash flows are substantially independent of changes in market interest rates as the
Group has no significant interest-bearing assets apart from its cash balances that are mainly kept for liquidity purposes.
The Group is exposed to interest rate risk in relation to its borrowings. Borrowings issued at variable rates expose the Group
to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. All of the
Group's borrowings are issued at a variable interest rate. Management monitors the interest rate fluctuations on a
continuous basis and acts accordingly.
4.1.5 Credit risk
Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash
inflows from financial assets at hand at the end of the reporting period. Cash balances are held with high credit quality
financial institutions and the Group has policies to limit the amount of credit exposure to any financial institution. Moreover,
the Group has moved outside Cyprus its liquidity that is not required for operational purposes.
As part of its active cash management, the Company had transferred most (98%) of its cash out of the Cypriot home bank
(Cyprus Popular Bank, CPB) just weeks before CPB went bankrupt, eliminating almost entirely the effects of the collapse of
the Cypriot economy. In fact the Cypriot banking crisis, which hit at a time the Company had more than US$15million in the
Company’s coffers, resulted in only a US$135.000 loss for the Company to be countered by receiving Bank of Cyprus shares
within 2014.The temporary capital transfer restrictions imposed by the Cypriot authorities did not affect its day-to-day
operations. The Company is monitoring the situation closely and acts accordingly.
Management has been in continuous discussions with banking institutions monitoring their ability to extend financing as per
the Group’s needs. The sovereign debt crisis has affected the pan-European banking system during 2011 and 2012
imposing financing uncertainties for new development projects. The financial crisis in the European Union periphery has
strained any remaining liquidity and the financial institutions in the region (including those that have Italian, Greek or
Austrian parent) have entered into deleveraging programs.
4.1.6 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 recognized assets and liabilities are denominated in a
currency that is not the Group's functional currency. Most of the Group’s transactions, including the rental proceeds are
denominated in the functional currency (USD). For the rest of the foreign exchange exposure Management monitors the
exchange rate fluctuations on a continuous basis and acts accordingly, by limiting net exposures to 1-3 months.
As a precaution against probable depreciation of local currencies, and especially of the UAH, the majority of the Group’s
liquid assets are held in USD denominated deposit accounts while most of the inflows of the company are pegged to the US
dollar. However, the current political uncertainty in Ukraine, and the currency devaluation may result in effecting the
Group’s income streams indirectly through affecting the financial condition of the tenants of the Group’s properties.
Management is monitoring the situation closely and acts accordingly.
4.1.7 Capital risk management
The Group manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to
shareholders through the optimization of the debt and equity balance. The Group’s core strategy is described in note 26 of
the financial statements.
4.1.8 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.
Although the Group is trying to limit such risk, the uncertain environment in which it operates in various countries increases
the complexities handled by Management. The Group's exposures are discussed under note 26.
4.1.9 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 and is discussed in note 25.
ANNUAL REPORT 2013|49
4. Financial risk management (continued)
4.2. 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.
4.3 Fair value estimation
The fair values of the Group's financial assets and liabilities approximate their carrying amounts at the end of the reporting
period. Valuations reported as at 31/12/2013 do not take into account recent political developments in Ukraine as such is
difficult to evaluate. Given the nature of the Group’s assets the most immediate effect would be the prolongation of the
period needed to market and effectively sell an asset under such duress conditions.
5. Critical accounting estimates and judgments
The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates
and requires Management to exercise its judgment 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. These estimates are based on Management's best knowledge of current events and actions and other
factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results
though may ultimately differ from those estimates.
As 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:
Provision for impairment of receivables
The Group reviews its trade and other receivables for evidence of their recoverability. Such evidence includes the
counter party's payment record, and overall financial position as well as the state's ability to pay its dues (VAT
receivable). If indications of non-recoverability exist, the recoverable amount is estimated and a respective
provision for impairment of receivables is made. The amount of the provision is charged through profit or loss. The
review of credit risk is continuous and the methodology and assumptions used for estimating the provision are
reviewed regularly and adjusted accordingly. As at the reporting date the management did not consider necessary
to make a provision for impairment of receivables.
Fair value of investment property
The fair value of investment property is determined by using various valuation techniques. The Group selects
highly reputed international companies with local presence to effect such valuations. Such valuers use their
judgment to select a variety of methods and make assumptions that are mainly based on market conditions
existing at each financial reporting date. The fair value of the investment property has been estimated based on
the fair value of their individual assets as at 31/12/2013 (note 4.3).
Income taxes
Significant judgment 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 recognizes 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.
Impairment of tangible assets
Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by
which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an
asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped
at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
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 realized through a
share deal rather than through an asset deal. Should any subsidiary be disposed of, the gains generated from the
disposal will be exempt from any tax.
ANNUAL REPORT 2013|50
6. Earnings and net assets per share attributable to equity holders of the parent
a. Weighted average number of ordinary shares
Issued ordinary shares capital
Weighted average number of ordinary shares (Basic)
Diluted weighted average number of ordinary shares
b.
Basic diluted and adjusted earnings per share
Earnings per share
(Loss) / Profit after tax attributable to owners of the parent
Basic
Diluted
c.
Net assets per share
Net assets per share
Net assets attributable to equity holders of the parent
Number of ordinary shares
Diluted weighted number of ordinary shares
Basic
Diluted
7. Revenues
2013
28.171.833
24.790.668
28.765.486
2012
11.111.975
10.157.531
11.724.013
31/12/2013
31/12/2012
US$
US$
(185.148)
(0,01)
(0,01)
131.735
0,01
0,01
31/12/2013
31/12/2012
US$
52.207.781
28.171.833
32.196.381
1,85
1,62
US$
33.890.908
11.111.975
12.699.400
3,05
2,67
Operational income in the amount of US$3.608.668 for the year ended 31/12/2013 and US$2.121.072 for the year ended
31/12/2012 represents rental income as well as service and utilities charges generated during the reporting periods by
the rental agreements concluded with tenants of the Terminal Brovary Logistic Park. Net Warehouse space vacancy rate
of the Terminal has gone down to 0% as at 31/12/2013 (note 13).
Rental income
Service charges and utilities income
Net finance result
2013
US$
2.838.744
769.924
3.608.668
2012
US$
1.699.253
421.819
2.121.072
Valuation gains/losses from investment property for the reporting period are presented below (note 13):
Project Name
Brovary Logistic Park
Bela Logistic Center
Kiyanovskiy Lane
Tsymlyanskiy Lane
Balabino
Total
Valuation gains/(losses)
2013
US$
(88.406)
646.839
(35.000)
40.000
280.000
843.433
Valuation gains/(losses)
2012
US$
4.134.923
211.354
(576.709)
(139.033)
(178.241)
3.452.294
ANNUAL REPORT 2013|51
8. Administration Expenses
Salaries and Wages
Directors’ remuneration
Legal fees
Advisory fees
Public group expenses
Administration expenses
Audit and Accounting expenses
Taxes and duties
Depreciation
Total Administration Expenses
2013
US$
1.011.105
223.882
698.473
647.534
221.659
202.842
147.376
118.979
16.154
3.288.004
2012
US$
1.379.640
194.202
467.641
425.605
182.765
371.103
162.878
47.070
11.590
3.242.494
Salaries and wages include the remuneration:
a) of the CEO, the CFO, the Group Commercial Director and the Managing Director Ukraine
b) of personnel employed in Ukraine
Directors’ remuneration represents the remuneration of all non-executive Directors and committee members.
Public group expenses include among others fees paid to the AIM: LSE stock exchange and the Nominated Advisor of the
Company as well as marketing and other expenses related to the listing of the Company.
9. Investment property operating expenses
Property management, utilities and other costs
2013
US$
2012
US$
721.446
554.281
Property management, utilities and other costs include fees paid to DTZ Consulting Limited Liability Company as per the
Maintenance and Property Management Agreement signed on 20 December 2011 the Company. It also includes utility
expenses, insurance premiums, as well as various other expenses required for the proper operation of the Terminal
Brovary logistics complex, increased from last year due to higher occupancy.
10. Other income/ (expenses), net
Accounts payable written off
Provision on prepayments and other current assets impairment – reverse
Penalties
Other income, net
Impairment loss of VAT recoverable
Total
2013
US$
524.707
13.304
(83.939)
204.366
-
658.438
2012
US$
614.667
26.079
(39.070)
(1.700)
(75.864)
524.112
Accounts payable written off represents the total amount of creditors’ payables written off as a result of negotiations and
settlement during the reorganization of the Group that started in August 2011.
Provision for prepayments and other current assets impairment - reverse represents difference between allowances for
prepayments and other current assets estimated previously by the Management and the amounts which have been finally
settled.
Impairment loss for VAT recoverable in 2013 represents the non- recoverable VAT in Terminal Brovary LLC.
Penalties incurred by the Group were mainly caused as a result of delayed payments of its liabilities due to negotiations.
Other income net in 2013 includes a provisional income of US$200.000 for advisory services; one off agency related
expenses for the letting of Terminal Brovary and previous year expense write offs.
ANNUAL REPORT 2013|52
11. Finance (costs), net
Bank interest expenses (note 19)
Finance charges and commissions
Loan restructuring cost
Foreign exchange (losses) /gains
Bank interest income
Net finance result
2013
US$
(1.367.807)
(138.879)
-
268.211
132.827
(1.105.648)
2012
US$
(1.180.387)
(433.282)
(535.765)
(7.370)
1.496
(2.155.308)
Bank interest represents interest paid on the borrowings of the Group as described in note 19.1.
Finance charges and commissions include mainly financial fees paid to the banks and financial lease interest.
12. Tax
Taxes
2013
US$
2012
US$
166.972
83.845
The income tax rate for the Company’s Ukrainian subsidiaries is 19% for the year ended 31/12/2013 and for the Company
and its Cypriot subsidiaries is 12.5% for the year ended 31/12/2013.
The tax on the Group's results differs from the theoretical amount that would arise using the applicable tax rates as follows:
Profit / (loss) before tax
Tax calculated on applicable rates
Allowances for tax losses carry forward
Expenses not recognized for tax purposes
Income/ (loss) on revaluation not subject to tax
Tax allowances not subject to tax
10% additional tax
Tax effect on tax losses b/f
Defense Tax
Total Tax
2013
US$
2012
US$
(4.559)
145.395
(570)
-
388.027
105.429
(360.622)
13.323
(41.264)
22.649
166.972
14.540
-
344.238
345.229
(620.180)
18
-
-
83.845
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 realized 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.
13. Investment Property (all)
Investment Property consists of the following assets:
Terminal Brovary Logistic Park consists of a 49.180 sq.m. Class A warehouse and associated office space,
situated on the junction of the main Kiev – Moscow highway and the Borispil road. The facility is in operation
since Q1 2010 and as at the end of the reporting period was 100% leased.
Bela Logistic Center is a 22,4Ha plot in Odessa situated on the main highway to Kiev. Following the issuance
of permits in 2008, below ground construction for the development of a 103.000 sq.m. m GBA logistic center
commenced. Construction was put on hold in 2009 following adverse macro-economic developments at the
time.
Kiyanovskiy Lane consists of four adjacent plots of land, totaling 0,55 Ha earmarked for a residential
development, overlooking the scenic Dnipro River, St. Michael’s Spires and historic Podil neighborhood.
Tsymlyanskiy Lane is a 0,36 Ha plot of land located in the historic Podil District of Kiev and is destined for the
development of a residential complex. The Company is in the process of renewing the land lease permits.
Balabino project is a 26,38 ha plot of land situated on the south entrance of Zaporozhye, a city in the south of
Ukraine with a population of 800.000 people. Balabino is zoned for retail and entertainment development.
ANNUAL REPORT 2013|53
Related
Companies
Carrying amount as at
31/12/2013
US$
25.200.000
Carrying
amount as at
31/12/2012
US$
25.115.000
13. Investment Property (all) (continued)
Asset Name
Description
/ Location
Terminal
Brovary
Logistic Park
Brovary,
Kiev Oblast
Principal
activities/
Operations
Warehouse
Bela Logistic
Center
Odessa
Podil,
Kiev City
Center
Podil,
Kiev City
Center
Zaporozhye
Kiyanovskiy
Lane
Tsymlyanskiy
Lane
Balabino
TOTAL
Land and
Development
Works
Land for
residential
development
Land for
residential
development
Land for retail
development
TERMINAL
BROVARY
AISI BROVARY
SL SECURE
LOGISTICS LTD
AISI BELA
AISI UKRAINE
TORGOVIY CENTR
ALMAZ PRES
UKRAINE
INTERTERMINAL
MERELIUM
INVESTMENTS
9.000.000
8.353.161
7.400.000
7.435.000
2.400.000
2.360.000
4.600.000
4.320.000
48.600.000
47.583.161
Carrying amounts of the properties represent fair value estimates as of 31 December 2013 as provided by CBRE Ukraine,
an external valuer.
a. Investment Property Under Construction
At 1 January
Capital expenditures on investment property
Revaluation on investment property
Translation difference
At 31 December
2013
US$
2012
US$
8.353.161
8.100.000
-
646.839
-
45.050
211.354
(3.243)
9.000.000
8.353.161
As at 31 December 2013 investment property under construction represents the carrying value of Bela Logistic Center
project, which has reached the +10% construction in late 2008 but it is stopped since then. The Company’s external
valuer has appraised the property's value at US$9.000.000.
b. Investment Property
At 1 January
Capital expenditure on investment property
Revaluation gain/(loss) on investment property
Translation difference
At 31 December
2013
US$
2012
US$
39.230.000
35.937.000
173.406
196.594
-
67.343
3.240.843
(15.186)
39.600.000
39.230.000
Terminal Brovary, Kiyanovskiy Lane, Tsymlyanskiy Lane and Balabino village are included in the Investment Property
category.
c. Advances for Investments
Advances for investments
Impairment provision (cumulative as of the reporting period)
Total
31/12/2013
31/12/2012
US$
11.840.547
(6.840.547)
5.000.000
US$
11.840.547
(6.840.547)
5.000.000
ANNUAL REPORT 2013|54
13. Investment Property (all) (continued)
The Group has made an advance payment of ~US$12mil. (representing principal plus interest) for the acquisition of a
project in Podol (Kiev) in 2007. As of the end of the reporting period the Management considers that such acquisition will
not take place and as the seller has already defaulted on his credit to the Group, the Group has commenced legal
proceedings for a) collecting the original US $12mil. payment b) the transfer of the collateral (land plot of 42 ha in Kiev
Oblast) in the Group’s name. As a result the Group has reduced the amount of the receivable to the value of the collateral
as valued by CBRE.
In respect of the Fair Value of Investment Properties the following table represents an analysis based on the various
valuation methods. The different levels have been defined as follows:
-
-
-
Level 1 relates to quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 relates to inputs other than quoted prices included within level 1 that are observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 2 fair values of
investment properties have been derived using the market value approach by comparing the subject asset with
similar assets for which price information is available. Under this approach the first step is to consider the prices
for transactions of similar assets that have occurred recently in the market. The most significant input into this
valuation approach is price per square meter.
Level 3 relates to inputs for the asset or liability that are not based on observable market data (that is,
unobservable inputs). Level 3 valuations have been performed by the external valuer using the income
approach (discounted cash flow) due to the lack of similar sales in the local market (unobservable inputs).
To derive Fair Values the group has adopted a combination of income and market approach with a weigh of 70/30%
respectively. As a result of low market activity the expert valuer appointed by the Group, CBRE, has come to the
conclusion that results obtained by means of market approach are less representative of Fair Value compared to the
income approach.
Fair value measurements at 31
December 2013 using
Recurring fair value measurements
Balabino- Zaporozhye
Tsymlyanskiy – Podil Kiev City Center
Bela Logistics Center- Odessa
Terminal Brovary Logistics Park- Brovary
Kiev Oblast
Kiyanovskiy Lane – Podil Kiev City Center
(Level 1)
(Level 2)
(Level 3)
4.600.000
9.000.000
2.400.000
25.200.000
7.400.000
The following transfers were made in the year from level 2 to level 3 and via versa:
1) Investment property Tsymlyanskiy situated in Podil Kiev City Center in 2012 was valued under the market
approach (level 2) while in 2013 under the income approach (level 3).
2) Investment property Bela Logistics Center situated in Odessa in 2012 was valued under the cost replacement
approach (level 3) while in 2013 under the market approach (level 2).
3) Investment property Kiyanovskiy Lane situated in Podil Kiev City Center was valued under the market approach
(level 2) while in 2013 under the income approach (level 3).
The table below shows yearly adjustments for Level 3 investment property valuations:
Level 3 Fair value measurements
at 31 December 2013
Opening balance
Transfers to / from level 2
Additions
disposals
Profit / loss on revaluation
Closing balance
Terminal Brovary
Logistics Park-
Brovary Kiev
Oblast
25.115.000
Bela
Logistics
Center-
Odessa
8.353.161
Kiyanovskiy Lane
– Podil Kiev City
Center
Tsymlyanskiy
– Podil Kiev
City Center
(8.353.161)
7.435.000
2.360.000
85.000
25.200.000
0
(35.000)
7.400.000
40.000
2.400.000
ANNUAL REPORT 2013|55
13. Investment Property (all) (continued)
Information about Level 3 Fair Values is presented below:
Terminal Brovary
Logistics Park-
Brovary Kiev Oblast
Fair value at
31 December
2013
25.200.000
Valuation
technique
Unobservable
inputs
Relationship of unobservable
inputs to fair value
Income
approach
Future rental
income and costs
for 15 years
The higher the estimated price of
rental income the higher the fair
value
Kiyanovskiy Lane –
Podil Kiev City
Center
7.400.000
Income
approach
Future rental
income and costs
for 15 years
The higher the price of
sales/rental income the higher
the fair value
Tsymlyanskiy –
Podil Kiev City
Center
2.400.000
Income
approach
Future rental
income and costs
for 15 years
The higher the price of
sales/rental income the higher
the fair value
14. Prepayments and other current assets
Prepayments and other current assets
VAT and other tax receivable
Deferred expenses
Impairment of prepayments and other current assets
Total
31/12/2013
31/12/2012
US$
781.182
3.637.251
540.454
-
4.958.887
US$
709.249
4.256.424
495.804
(13.304)
5.448.173
Prepayments and other current assets mainly include prepayments made for services.
VAT and other tax receivable represent the current portion of the Terminal Brovary VAT receivable, to be offset from VAT
over rental income during the next few years.
Deferred expenses include legal, advisory, consulting and marketing expenses related to the ongoing share capital increase
as mandated by the Annual General Meeting of the Company on 26/11/2012 and due diligence expenses related to the
possible acquisition of investment properties.
15. Cash and cash equivalents
Cash and cash equivalents represent liquidity held at banks.
Cash with banks in USD
Cash with banks in EUR
Cash with banks in UAH
Cash equivalents
Total
31/12/2013
31/12/2012
US$
8.326.109
4.656.989
203.101
147.298
13.333.497
US$
27.386
9.086
219.975
-
256.447
Cash equivalents represent the aggregate amount withheld by the Cypriot Authorities in view of the extraordinary decree
for withholding all amounts above €100.000 held with Laiki-Marfin Bank as a result of the financial rescue plan of Cyprus
agreed between the IMF, the EU and the ECB. As per the provisions of the agreement the Company expects to receive
shares in the Bank of Cyprus in lieu of this amount.
ANNUAL REPORT 2013|56
16. Share capital
Number of Shares
(as at)
Authorized
Ordinary shares of
€0,01 each
Ordinary shares of €1
each
Ordinary Shares of
€0,92 each
Deferred Shares of
€0,99 each
Total
Issued and fully
paid
Ordinary shares of
€0,01 each
Ordinary shares of €1
each
Ordinary Shares of
€0,92 each
Deferred Shares of
€0,99 each
Total
31/12/2012
01/02/2013
27/02/2013
18/10/2013
31/12/2013
Increase of
Share Capital
Increase of
Share Capital
Increase of
Share Capital
989.869.935
-
1
4.142.727
994.012.663
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
989.869.935
-
1
4.142.727
994.012.663
11.111.975
14.389.926
178.916
2.491.016
28.171.833
-
1
-
-
-
-
-
-
-
1
4.142.727
15.254.703
-
14.389.926
-
178.916
-
2.491.016
4.142.727
32.314.561
Value (as at)
31/12/2012
01/02/2013
27/02/2013
18/10/2013
31/12/2013
Increase of
Share Capital
Increase of
Share Capital
Increase of
Share Capital
Authorized (€)
Ordinary shares of
€0,01 each
Ordinary shares of
€1 each
Ordinary Shares of
€0,92 each
Deferred Shares of
€0,99 each
Total
Issued and fully
paid ($)
Ordinary shares of
€0,01 each
Ordinary shares of
€1 each
Ordinary Shares of
€0,92 each
Deferred Shares of
€0,99 each
Total
9.898.699
-
0.92
4.101.300
14.000.000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9.898.699
-
0.92
4.101.300
14.000.000
5.531.191
195.320
2.407
33.891
5.762.809
-
-
-
-
-
5.531.191
-
195.320
-
-
-
2.407
-
-
-
-
-
33.891
-
5.762.809
ANNUAL REPORT 2013|57
16. Share capital (continued)
16.1 Authorized share capital
As at the end of 2013 the authorized share capital of the Company was 989.869.935 Ordinary Shares of €0,01 nominal
value each, 1 Ordinary Share of €0,92 nominal value and 4.142.727 Deferred Shares of €0,99 nominal value each.
16.2 Issued Share Capital
As at the end of 2012 the issued share capital of the Company was 11.111.975 Ordinary Shares of €0,01 nominal value
each, 1 Ordinary Share of €0,92 nominal value and 4.142.727 Deferred Shares of €0,99 nominal value each.
Further to the resolutions approved at the AGM of 30 December 2013 the Board has allotted 17.059.858 new ordinary
shares arising from:
1. 14.568.842 ordinary shares of €0,01 each have been allotted for equity contribution amounting to
US$17.045.000.
2. 2.310.190 ordinary shares of €0,01 each have been allotted to the debt holders of a convertible loan amounting
to US$1.700.000 (note 24) for converting the loan granted to the Company during 2012.
3. 180.826 ordinary shares of €0,01 each have been allotted to the Directors of the Company who thus converted
all their receivables by the Company until 2012 amounting to GBP 171.783,33. (note 24) into equity.
As at the end of the reporting period the issued share capital of the Company is 28.171.833 Ordinary Shares of €0,01
nominal value each.
16.3 Director's Option scheme
Under the said scheme each of the directors serving at the time, which is still a Director of the Company is entitled to
subscribe for 2.631 Ordinary Shares exercisable as set out below:
Exercisable till 1 August 2017
Exercisable till 1 August 2017
Director Franz M. Hoerhager Option scheme, 12/10/2007
Exercise Price
US$
57
83
Number of
Shares
1.754
877
Under the said scheme, director Franz M. Hoerhager is entitled to subscribe for 1.829 ordinary shares exercisable as set
out below:
Exercisable till 1 August 2017
Exercisable till 1 August 2017
Exercise Price
GBP
40
50
Number of
Shares
1.219
610
The above option schemes were approved by the shareholders of the Company in General Meeting on 31 March 2008.
As of the reporting date the Company has reversed the reserved equity (from past periods) for the share options in the
statement of financial position as at 31 December 2011 in the amount of US$68.390 as the options are well out of the
money.
16.4 Warrants issued
On 8 August 2011 the Company has issued an amount of Class B Warrants for an aggregate equivalent to 12,5% of the
issued share capital of the Company at the exercise date. Each Class B Warrant entitles the holder to receive one
Ordinary Share. The Class B Warrants may be exercised at any time until 31st December 2016, pursuant to a decision by
the AGM of 30/12/2013. The exercise price of the Class B Warrants will be the nominal value per Ordinary Share as at the
date of exercise. The Class B Warrant Instruments have anti-dilution protection so that, in the event of further share
issuances by the Company, the number of Ordinary Shares to which the holder of a Class B Warrant is entitled will be
adjusted so that he receives the same percentage of the issued share capital of the Company (as nearly as practicable),
as would have been the case had the issuances not occurred. This anti-dilution protection will lapse on the earlier of (i)
the expiration of the Class B Warrants; and (ii) capital increase(s) undertaken by the Company generating cumulative
gross proceeds in excess of US$100.000.000. As of the reporting date, the aggregate amount of class B warrant is
4.024.548.
ANNUAL REPORT 2013|58
16. Share capital (continued)
16.5 Capital Structure as at the end of the reporting period
As at the reporting date the Company's share capital is as follows:
Number of
(as at) 31/12/2013
(as at) 31/12/2012
Ordinary shares of €0,01
Listed in AIM
Class B Warrants
Total number of Shares
Non-Dilutive Basis
Total number of Shares
Full Dilutive Basis
Options
17. Foreign Currency Translation Reserve
28.171.833
4.024.548
11.111.975
1.587.425
28.171.833
11.111.975
32.196.381
4.460
12.699.400
4.460
Exchange differences related to the translation from the functional currency of the Group’s subsidiaries are accounted by
entries made directly to the foreign currency translation reserve. The foreign exchange translation reserve represents
unrealized profits or losses related to the appreciation or depreciation of the local currencies against the USD in the
countries where the Company’s subsidiaries own property assets.
18. Non-Controlling Interests
Non-controlling interests represent the equity value of 45% shareholding in LLC Almaz-press-Ukraine, which is being held
by ERI Trading & Investments Co. Limited.
19. Borrowings
Principal EBRD loan
Principal due to related parties (note 24)
Other Borrowing
Restructuring fees and interest payable to EBRD
Interests accrued on bank loans
Interests due to related parties (note 24)
Total
Current portion
Non - current portion
Total
19.1 EBRD
31/12/2013
US$
14.231.049
-
-
785.098
32.098
228.377
15.276.622
31/12/2012
US$
15.529.412
1.700.000
175.000
785.098
74.466
77.680
18.341.656
31/12/2012
US$
15.276.622
-
15.276.622
31/12/2012
US$
16.563.976
1.777.680
18.341.656
In March 2013 the Company finalized negotiations with the EBRD on rescheduling the amortization plan of the Brovary
construction loan. Unfortunately, at that time the Cyprus crisis hit, and the B Lender (Laiki Bank) soon became bankrupt
and unable to approve such restructuring, despite the fact that SPDI has been observing the capital repayments under
the new agreement with EBRD’s consent ever since. In December 2013 the Company received notice that the B Lender
agreed to the restructuring officially. According to the signed term sheet with EBRD the repayment of the loan is being
extended to 2022, with a balloon payment of US$3.633.333. The exact terms of the loan restructuring will be announced
upon signing of the related documents.
Under the current agreement the collaterals accompanying the existing loan facility are as follows:
1. LLC Terminal Brovary pledged all movable property with the carrying value more than US$25.000.
2. LLC Terminal Brovary pledged its Investment property, Brovary Logistics Centre that was finished construction
in 2010 (note 13), and all property rights on the center.
3. SECURE PROPERTY DEVELOPMENT & INVESTMENT PLC pledged 100% corporate rights in SL SECURE Logistics
Ltd, a Cyprus Holding Company for the Shareholder of LLC Terminal Brovary, LLC Aisi Brovary.
4. SL SECURE Logistics Ltd pledged 99% corporate rights in LLC Aisi Brovary.
ANNUAL REPORT 2013|59
19. Borrowings (continued)
5. LLC Aisi Brovary pledged 100% corporate rights in LLC Terminal Brovary.
6. LLC Terminal Brovary pledged all current and reserved accounts opened by LLC Terminal Brovary in Fido Bank,
Ukraine.
7. LLC Aisi Brovary entered into a call and put option agreement expiring on 30th of May 2014 with EBRD, SECURE
PROPERTY DEVELOPMENT & INVESTMENT PLC and LLC Terminal Brovary pursuant to which following an Event
of Default (as described in the Agreement) EBRD has the right (Call option) to purchase at the Call Price from
LLC Aisi Brovary, 20% of the Participatory Interest of LLC Terminal Brovary on the relevant Settlement Date. To
this date and even though the loan is in default, EBRD has not served any notice of exercising the call option and
as the discussion for the restructuring of the loan facility has been finalized, management estimates that such
possibility has low probability to materialize before signing the restructuring. Furthermore, management is in
discussions with EBRD for the cancellation of the option, as a result of the loan restructuring itself. Should such
call option be exercised EBRD would have the a put option right, exercisable in its sole discretion, to sell to LLC
Aisi Brovary all but not less than all of the Participatory Interest, received under the call option, in the Charter
Capital of LLC Terminal Brovary held by EBRD on the relevant Settlement Date at the Put Price.
8. LLC Terminal Brovary has granted EBRD a second ranking mortgage in relation to its own and LLC Aisi Brovary's
obligations under the call and put option agreement.
The issued corporate guarantee dated 12 January 2009 guaranteeing all liabilities and fulfilment of conditions under
existing the loan agreement remain in force. The maturity of the guarantee is equal to the maturity of the loan.
The existing credit agreement with EBRD includes among others the following 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 SECURE PROPERTY DEVELOPMENT & INVESTMENT PLC
Guarantee.
2. 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).
3. At all times Brovary Logistics shall maintain a balance in the Debt Service Reserve Amount (DSRA) account equal
to not less than the sum of all payments of principal and interest on the Loan which will be due and payable
during the next six months on and after the Project Completion Date provided, however, that (A) LLC Terminal
Brovary shall deposit not less than 50% of the DSRA before the end of the Grace Period and (B) the DSRA shall
be fully funded on or before 18th December 2012.
4. LLC Terminal Brovary shall achieve a "CNRI"(Contract Net Rental Income is the aggregate of monthly lease
payments, net of value added tax, contracted by the Borrower pursuant to the Lease Agreements as of the
relevant testing date and converted into Dollars at the official exchange rate established by the National Bank of
Ukraine as of such testing date) according to the following schedule:
(a)
on 31st December 2013, on 30th June 2014 and on 31st December 2014, the CNRI of more than
US$200.000.
on 30th June 2015, the CNRI of more than US$220.000.
on 31st December 2015, the CNRI of more than US$230.000.
from 30th June 2016, the CNRI of more than US$250.000.
(b)
(c)
(d)
5. LLC Terminal Brovary shall achieve a "DSCR"(Debt Service Coverage Ratio is the sum of net income minus
operating expenses plus amortization, divided with the sum of paid principal & interest and converted into
Dollars at the official exchange rate established by the National Bank of Ukraine as of such testing date)
according to the following schedule:
i. on 31st December 2014, the DSCR of more than US$1,10.
ii. on 30th June 2015 and on 31st December 2015, the DSCR of more than US$1,15.
iii.
from 30th June 2016, the DSCR of more than US$1,2.
Part of the above mentioned requirements are expected to be amended under the restructuring agreement.
19.2 Other Borrowings
The amount represents short term borrowing to repay part of the UVK settlement amount (note 20). The loan was
contracted in December 2012 and fully repaid by end of January 2013.
ANNUAL REPORT 2013|60
20. Trade and other payables
Payables to related parties (note 24)
Guarantee reserve on construction works, current
Payables for construction, non-current
Payables for construction, current
Payables for services
Provision for reimbursements
Deferred income from tenants
Accruals
Total
Current portion
Non - current portion
Total
31/12/2013
US$
31/12/2012
US$
793.280
1.057.983
-
405.447
-
167.091
-
257.151
114.898
743.018
414.819
24.826
351.611
300.000
250.080
84.298
1.737.867
3.226.635
31/12/2013
US$
31/12/2012
US$
1.075.268
662.599
1.737.867
2.561.736
664.899
3.226.635
The fair values of trade and other payables due within one year approximate to their carrying amounts as presented
above.
Payables for construction represent amounts payable to the contractor of Bella Logistic Center in Odessa. The settlement
was reached in late 2011 on the basis of maintaining the construction contract in an inactive state (to be reactivated at
the option of the Group), while upon reactivation of the contract or termination of it (because of the sale of the asset) the
Group would have to pay an additional UAH5.400.000 payable upon such event occurring. Since it is uncertain when the
latter amount is to be paid it has been discounted at the current discount rates in Ukraine and is presented as a
non-current liability.
Payables for services represent amounts payable to various service providers including auditors, legal advisors,
consultants and third party accountants.
Deferred income from tenants represents advances from tenants which will be used as future rental income & utilities
charges.
21. Deposits from Tenants
Deposits from tenants
Total
31/12/2013
31/12/2012
US$
US$
435.250
435.250
427.918
427.918
Deposits from tenants appearing under non-current liabilities include the amounts received from the tenants of LLC
Terminal Brovary as advances guarantees and are to be reimbursed to these clients at the expiration of the leases
agreements.
22. Taxes payable
Corporate income tax
Other taxes
Provision
Total Tax Liability
31/12/2013
US$
31/12/2012
US$
580.058
4.044
164.144
748.246
519.639
10.188
334.552
864.379
Income tax represents taxes payable in Cyprus for 2009-2011. Other taxes represent taxes payable in Ukraine.
Provision represents a Management estimate on potential tax payable for Bella LLC (note 25).
ANNUAL REPORT 2013|61
23. Finance lease liabilities
Less than one year
Between two and five years
More than five years
Less than one year
Between two and five years
More than five years
Minimum lease
payments
2013
US$
104.404
443.054
1.777.789
2.325.247
Minimum lease
payments
2012
US$
104.404
488.178
1.837.069
2.429.651
Interest
2013
US$
94.458
293.852
1.522.296
1.910.606
Interest
2012
US$
100.862
336.804
1.573.801
2.011.467
Principal
2013
US$
9.946
149.202
255.493
414.641
Principal
2012
US$
3.542
151.374
263.268
418.184
The Group rents land plots classified as finance lease. Lease obligations are denominated in UAH. The fair value of lease
obligations approximate to their carrying amounts as presented above. Following the appropriate discounting finance
lease liabilities are carried at US$566.011 under current and non-current portion. The Group's obligations under finance
leases are secured by the lessor's title to the leased assets.
24. Related Party Transactions
The following transactions were carried out with related parties:
24.1 Expenses
Board of Directors & Committees
Management Remuneration
Back office - SECURE Management Ltd
Narrowpeak Consultants Ltd
Aisi Realty Capital LLC-Reimbursable expenses
Total
2013
US$
2012
US$
223.882
451.824
189.361
160.697
-
194.203
651.165
287.893
51.227
100.000
1.025.764
1.284.488
Board of Directors expense represents the annual remuneration for 2013 of all the non-executive members of the board
pursuant to the decision of the Remuneration Committee. US$63.825 have been paid in cash and the remaining amount
is carried as a payable as of the reporting date, to be paid in shares in 2014.
Management remuneration represents the annual remuneration for 2013 of the CEO and the CFO pursuant to the
decision of the Remuneration Committee. Management remuneration for 2012 included also remuneration of the
Managing Director of Ukraine until his resignation in April 2012 as well as the payables for the early termination of his
employment agreement.
Back office expenses represent expenses incurred by the Group for part time expert personnel of SECURE Management
Ltd, a real estate Project and Asset Management Company, seconded to the Company to cover various non-permanent
positions, variations of the work flow in finance and administration functions and/or specialized advisory and consultancy
needs.
Interest expense represents the interest from the loan granted on 21st September 2012 from Narrowpeak Consultants Ltd
and other parties, in order to facilitate the Group’s cash flow. The loan to the Company is of up to US$2.500.000 bearing
interest at 12% per annum and was repayable on 31st December 2014. Within the reporting period the loan amount
totaling to US$1.700.000 was converted into equity and the lenders received 2.310.190 shares (note 16).
ANNUAL REPORT 2013|62
24. Related Party Transactions (continued)
24.2 Payables to related parties
Board of Directors & Committees
Grafton Properties
Secure Management Ltd
Management Remuneration
Total
24.2.1 Board of Directors
31/12/2013
US$
31/12/2012
US$
159.514
150.000
-
483.766
793.280
291.050
150.000
30.000
586.933
1.057.983
The amount payable represents remuneration payable to non-Executive Directors as well as to the Remuneration and
Audit Committee members for 2013.
24.2.2 Loan payable to Grafton Properties
Under the Settlement Agreement of July 2011, the Company undertook the obligation to repay to certain lenders who
had contributed certain funds for the operating needs of the Company between 2009-2011, by lending to AISI Realty
Capital LLC the total amount of US$450.000. As of the reporting date the liability towards Grafton Properties,
representing the Lenders, was US$150.000, which is contingent to the Company raising US$50m of capital in the
markets.
24.2.3 Payable to Secure Management
Payable to Secure Management represent payable for expert personnel of SECURE Management Ltd (note 24.1). As of
the end of the reporting period the balance was zero.
24.2.4 Management Remuneration
Management Remuneration represents deferred amounts payable to the CEO and CFO of the Company at the end of the
reporting period, based on their remuneration scheme as approved by the Company.
24.3 Borrowings from related parties
Narrowpeak Consultants Ltd
Total
31/12/2013
US$
228.377
228.377
31/12/2012
US$
1.777.680
1.777.680
On 21st September 2012, and in order to facilitate the Group’s cash flow, Narrowpeak Consultants Ltd and other parties,
have provided a loan to the Company of up to US$2.500.000 bearing interest at 12% per annum which was repayable by
31 December 2014. Within the reporting period the loan amount totaling to US$1.700.000 was converted into equity and
the lenders received 2.310.190 shares (note 16). The amount payable at the end of the reporting period represents the
interest payable from the convertible loan which will be settled within 2014.
24.4 Write offs of payables to related parties
Besik Sikharulidze
Total
30/12/ 2013
US$
31/12/2012
US$
-
-
48.200
48.200
Besik Sikharulidze write off represents director’s fee write off pursuant to the Termination Agreement signed and his
resignation effected in August 2012.
24.5 Loans from SC Secure Capital Ltd to the Company’s subsidiaries
SC Secure Capital Ltd, the finance subsidiary of the Company has proceeded to provide capital in the form of loans to the
Ukrainian subsidiaries of the Company so as to support the acquisition of assets, development expenses of the projects,
as well as various operational costs.
ANNUAL REPORT 2013|63
24. Related Party Transactions (continued)
24.5 Loans from SC Secure Capital Ltd to the Company’s subsidiaries (continued)
Borrower
Repayment
Date
Limit -US$
Principal as of
31/12/2013 US$
Principal as of
31/12/2012 US$
LLC “TERMINAL BROVARY”
LLC “AISI BROVARY”
LLC “AISI UKRAINE”
LLC “ALMAZ PRES UKRAINE”
LLC “АISI OUTDOOR"
LLC “AISI VIDA”
LLC “AISI VAL”
LLC “AISI ROSLAV”
LLC “АІSI KONSTA”
LLC “AISI ILVO”
LLC "AISI DONETSK”
LLC “TORGOVI CENTR"
Total
19/12/2014
09/10/2014
18/10/2014
21/3/2014
21/8/2014
15/10/2014
15/10/2014
15/10/2014
15/10/2014
15/10/2014
19/11/2014
18/10/2014
35.000.000
33.482.771
35.000.000
-
40.000.000
14.903
28.000.000
170.000
10.000.000
-
5.000.000
-
10.000.000
-
7.000.000
-
10.000.000
-
8.000.000
-
10.000.000
-
40.000.000
-
10.000.000
33.667.674
33.282.634
4.275.000
9.867.859
170.000
2.160.000
310.000
210.000
310.000
610.000
610.000
930.000
120.000
52.855.493
During the reporting period the Company has proceeded in share capital increases effected on certain of its Ukrainian
subsidiaries which in turn returned the funds back to SC SECURE Capital Limited (ex AISI Capital) in the form of loan
repayment (loans have been provided throughout 2007-2012 period). The total loan amount was US$25 million including
principal and interest payment. This repayment is expected to have a substantial positive material impact on the tax
position of the Company going forward.
25. Contingent liabilities
The Group is involved in various legal proceedings in the ordinary course of its business.
25.1 Tax litigation
The Group performed during the reporting period most of its operations in the Ukraine and therefore within the
jurisdiction of the Ukrainian tax authorities. The Ukrainian tax system can be characterized by numerous taxes and
frequently changing legislation, which may be applied retroactively, open to wide interpretation and in some cases, is
conflicting. Instances of inconsistent opinions between local, regional, and national tax authorities and between the
National Bank of Ukraine and the Ministry of Finance are not unusual. Tax declarations are subject to review and
investigation by a number of authorities, which are enacted by law to impose severe fines and penalties and interest
charges.
Any tax year remains open for review by the tax authorities during the three subsequent calendar years; however, under
certain circumstances a tax year may remain open for longer. These facts create tax risks which are substantially more
significant than those typically found in countries with more developed tax systems. Management believes that it has
adequately provided for tax liabilities, based on its interpretation of tax legislation, official pronouncements and court
decisions. However, the interpretations of the relevant authorities could differ and the effect on these consolidated
financial statements, if the authorities were successful in enforcing their interpretations, could be significant.
At the same time the Group’s entities are involved in court proceedings with tax authorities; Management believes that
the estimates provided within the financial statements present a reasonable estimate of the outcome of these court
cases.
25.2 Construction related litigation
As of the reporting period there are no material claims from constructors other than those appearing and provided for in
the financial statements.
25.3 Other Litigation
Following the restructuring of the Group, a former employee of the Company (the previous acting Director for a number
of the Ukrainian subsidiaries) has taken the Group to the Ukrainian courts and the some of the legal cases are still
on-going. Management does not believe that the result of any legal proceedings will have a material effect on the Group’s
financial position or the results of its operations other than the one already provided for, within the financial statements.
25.4 Other Contingent Liabilities
The Group had no other contingent liabilities as at 31 December 2013.
ANNUAL REPORT 2013|64
26. Financial Risk Management
26.1 Capital Risk Management
The Group manages its capital to ensure that it will be able to implement its stated growth strategy in order to maximize
the return to stakeholders through the optimization of the debt-equity structure and value enhancing actions in respect of
its portfolio of investments. The capital structure of the Group consists of borrowings (note 19), cash and cash
equivalents, prepayments and other current assets (note 14) and equity attributable to ordinary shareholders (issued
capital, reserves and retained earnings).
The Group is not subject to any externally imposed capital requirements.
Management reviews the capital structure on an on-going basis. As part of the review Management considers the
differential capital costs in the debt and equity markets, the timing at which each investment project requires funding and
the operating requirements so as to proactively provide for capital either in the form of equity (issuance of shares to the
Group’s shareholders) or in the form of debt. Management balances the capital structure of the Group with a view of
maximizing the shareholder’s Return on Equity (ROE) while adhering to the operational requirements of the property
assets and exercising prudent judgment as to the extent of gearing.
26.2 Significant Accounting Policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis on
which income and expenses are recognized, in respect of each class of financial asset, financial liabilities and equity
instruments are disclosed in note 3 of the financial statements.
26.3 Categories of Financial Instruments
Financial Assets
Cash at Bank
Total
Financial Liabilities
Interest bearing borrowings
Trade and other payables
Deposits from tenants
Finance lease liabilities
Taxes payable
Total
Note
15
Note
19
20
21
23
22
31/12/2013
US$
13.333.497
13.333.497
31/12/2012
US$
256.447
256.447
31/12/2013
US$
15.276.622
1.737.867
435.250
566.011
748.246
31/12/2012
US$
18.341.656
3.226.635
427.918
593.821
864.379
18.763.996
23.454.409
The Group’s Treasury function provides services to its various corporate entities, coordinates access to local and
international financial markets, monitors and manages the financial risks relating to the operations of the Group, mainly
the investing and development functions. Its primary goal is to secure the Group’s liquidity and to minimize the effect of
the financial asset price variability on the cash flow of the Group. These risks cover market risks including foreign
exchange risks and interest rate risk as well as credit risk and liquidity risk.
26.4 Categories of Financial Instruments
The above mentioned risk exposures may be hedged using derivative instruments whenever appropriate. The use of
financial derivatives is governed by the Group’s approved policies which indicate that the use of derivatives is for hedging
purposes only. The Group does not enter into speculative derivative trading positions. The same policies provide for the
investment of excess liquidity. As at 31 December 2013, the Group had not entered into any derivative contracts.
Throughout the reporting period, the priority on cash use and management was on maintaining a liquidity to allow for the
future development of the Group's strategy while settling the remaining of the past liabilities (eliminating thus the
relevant legal and financial risks).
26.5 Economic Market Risk management
The Group operates in the Region. The Group’s activities expose it primarily to financial risks of changes in currency
exchange rates and interest rates. The exposures and the management of the associated risks are described below.
There has been no change to the Group’s manner in which it measures and manages risks.
Foreign Exchange Risk
Currency risk arises when commercial transactions and recognized financial assets and liabilities are denominated in a
currency that is not the Group's functional currency. Most of the Group’s financial assets are denominated in the
functional currency. Management is monitoring the net exposures and enacts policies to contain them so that the net
effect of devaluation is minimized.
Interest Rate Risk
The Group's income and operating cash flows are substantially independent of changes in market interest rates as the
Group has no significant interest-bearing assets. On December 31st, 2013, cash and cash equivalent financial assets
amounted to US$13.333.497 (2012: US$256.447).
ANNUAL REPORT 2013|65
26. Financial Risk Management (continued)
26.5 Economic Market Risk management (continued)
The Group is exposed to interest rate risk in relation to part of its borrowings amounting to US$15.276.622 (2012:
US$18.341.656) as they are issued at variable rates tied to the Libor. Management monitors the interest rate fluctuations
on a continuous basis and evaluates hedging options to align the Group’s strategy with the interest rate view and the
defined risk appetite. Although no hedging has been applied for the reporting period, such may take place in the future if
deemed necessary in order to protect the cash flow of a property asset through different interest rate cycles.
The Group’s exposures to financial risk are discussed also in note 4.
26.6 Credit Risk Management
The Group has no significant credit risk exposure. The credit risk emanating from the liquid funds is limited because the
Group’s counterparties are banks with high credit-ratings assigned by international credit rating agencies. The Credit risk
of receivables is reduced as the majority of the receivables represent VAT to be offset through VAT income in the future.
26.7 Liquidity Risk Management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which applies a framework for the
Group’s short, medium and long term funding and liquidity management requirements. The Treasury function of the
Group manages liquidity risk by preparing and monitoring forecasted cash flow plans and budgets while maintaining
adequate reserves. The following table details the Group’s contractual maturity of its financial liabilities. The tables below
have been drawn up based on the undiscounted contractual maturities including interest that will be accrued.
31 December 2013
Financial assets
Cash at Bank
Financial liabilities
Interest bearing borrowings
Trade and other payables
Deposits from tenants
Finance lease liabilities
Taxes payable
31 December 2012
Financial assets
Cash at Bank
Financial liabilities
Interest bearing borrowings
Trade and other payables
Deposits from tenants
Finance lease liabilities
Taxes payable
Carrying
amount
US$
Total
US$
Less than
one year
US$
From one to
two years
US$
More than
two years
US$
13.333.497
13.333.497 13.333.497
15.276.622
1.737.867
435.250
566.011
748.246
Carrying
amount
US$
15.276.622 15.276.622
1.075.268
1.737.867
435.250
2.325.247
748.246
-
104.404
748.246
262.546
104.404
-
Total
US$
Less than
one year
US$
From one to
two years
US$
-
-
-
-
-
662.599
172.704
2.116.439
-
More than
two years
US$
256.447
256.447
256.447
-
-
18.341.656
3.226.635
427.918
593.821
864.379
18.341.656 16.563.976
2.561.736
-
104.404
864.379
3.226.635
427.918
2.429.651
864.379
-
-
-
104.404
-
1.777.680
664.899
427.918
2.220.843
-
27. Events after the end of the reporting period
A. Innovations Acquisition
On May 23, 2014 the Company announced that it has acquired the Innovations Logistics Park in Bucharest, Romania,
from Myrian Nes Ltd and Theandrion Estates Ltd. The acquisition is the Group’s first outside of Ukraine and marks the
commencement of SECURE’s stated strategy of both growing and diversifying its portfolio across the economies of South
Eastern Europe. Innovations is a fully-let 17,000 sq.m. gross leasable area logistics park located in Clinceni in Bucharest,
which benefits from being on the Bucharest ring road, and currently produces €1,3 million of income per annum. The
anchor tenant is Nestle which leases more than 60% of the gross leasable area with the remainder let to locally managed
Romanian businesses. This acquisition is expected to increase the Company’s annual net operating income by over
60%. The acquisition will strengthen SPDI’s focus on the logistics industry and increases its regional logistics portfolio,
which also includes the fully let Terminal Brovary asset in Kiev, to 67.000 sq.m.
B. Reduction of Capital
On March 20, 2014 following the AGM approval the authorized share capital of the Company was reduced to
€9.898.699,35 divided into 989.869.935 ordinary shares of €0,01 each and such reduction was effected by the
cancellation of 1 ordinary share of €0,92 and 4.142.727 deferred shares of €0,99 each for the purpose of writing off
losses of the Company.
ANNUAL REPORT 2013|66