TIDMMLD
RNS Number : 9876M
Mirland Development Corporation PLC
13 May 2015
13 May 2015
MIRLAND DEVELOPMENT CORPORATION PLC
("MirLand" / the "Company")
UNAUDITED INTERIM CONSOLIDATED REPORT FOR THE
THREE MONTHS ENDED 31 MARCH 2015
MirLand, one of the leading international residential and
commercial property developers in Russia, announces its results for
the three months ended 31 March 2015.
Financial Highlights:
-- Total revenues up 42% to US$39.1 million (31 March 2014:
US$27.6 million) due to an increase in income from the sale of
residential units;
-- Net operating income ("NOI") from investment properties
(Company's share) down to US$6.0 million (31 March 2014: US$10.5
million), mainly due to movement in the Russian real estate
market;
-- Gross profit remains positive at US$6.4 million (31 March 2014: US$10.2 million);
-- EBITDA remains positive at US$3.1 million (31 March 2014: US$6.2 million);
-- Loss of US$12.0 million (31 March 2014: net income of US$10.9
million) due to the ongoing impact of adverse conditions in the
Russian economy, which resulted in the negative fair value
adjustment of investment properties of approximately US$17 million
following a decrease in projected NOI. In addition, the Company
recorded net foreign exchange losses of US$6.4 million. This was
partly offset by a positive fair value adjustment of investment
properties of US$16.6 million following an appreciation of the US
Dollar against the Rouble of approximately 4%, resulting in the
nominal appreciation of commercial assets at the same rate;
-- Total assets amounted to US$719.2 million, of which 88% are
property and land assets (31 December 2014: US$756.6 million);
-- Total equity of US$123.7 million (31 December 2014: US$141.4
million), equating to 17% of total assets;
-- Net leverage stands at 60.0% of total assets (31 December 2014: 57%);
-- The Company is continuing its discussions with the trustees
of the Series A-F bondholders to agree a restructuring of its debt
and will update the market in due course.
Operational Highlights
Residential:
Triumph Park, St. Petersburg
Sales rates continue to remain high with prices of later phases
increasing ahead of inflation:
-- Phase II: Handover of final apartments to owners on track to
complete in the first half of 2015;
-- Phase III: Sales momentum continuing with an additional 31
sales since 1 January 2015. In total 898 apartments out of 1,346
have been pre-sold, totalling circa 67% of the scheme and
representing sales of approximately US$64 million;
-- Phase IV: Construction of 1,244 units began in Q3 2014,
followed by the commencement of sales in Q1 2015. Approximately 175
units were pre-sold off plan during the initial three months of
sales.
Western Residence, Perkhushkovo, Moscow
-- Sales of a further six houses at our Western Residence
development in Perkhushkovo, Moscow, have completed since 1 January
2015, taking the total number of units sold to 47 of the 77 houses
in the scheme.
Retail:
-- Satisfactory performance achieved despite pressures on rents
and occupancy rates during the first quarter, with quarterly NOI of
US$3.5 million from the Vernissage Mall and Triumph Mall compared
to US$6.5 million last year;
-- Occupancy rates remain high at circa 98%;
-- An agreement to sell land for the construction of a 15,000
sqm extension of the Vernissage Mall, which will house an
international DIY retailer, was signed during the period. The store
is expected to be open and trading within a year and the Board
expects the introduction of the retailer to increase the
attractiveness of the Mall as a retail destination.
Offices:
-- Occupancy rates slightly decreased at the MirLand Business
Centre, and stand at 82% - in line with the market trend. NOI has
reduced to US$2.5 million in the first quarter of 2015.
Nigel Wright, Chairman, commented:
"The Company continued to face significant challenges during the
first quarter due to testing macro-economic conditions in the
Russian market beyond our control. Against the extremely difficult
backdrop, our core business has proved resilient. The significant
increase in total revenues, mainly due to the continuing success of
our St. Petersburg residential project as buyers seek refuge from a
falling Rouble in bricks and mortar, is particularly pleasing to
note. We did, however, suffer a significant fall in net operating
income during the period, largely as a result of our strategy to
seek to maintain high occupancy rates at our income producing
properties through offering rental concessions to key occupiers. We
believe that offering such support to tenants caught in the pincer
of falling Rouble incomes and high US dollar denominated rents will
pay dividends in the long term.
"In the meantime, negotiations with our existing bondholders
continue in a positive vein and we are hopeful of achieving a
satisfactory outcome for all parties. We will keep the market fully
updated on developments in this regard.
"There have been some moderately encouraging signs in both the
Russian economy and the real estate markets recently. A stronger
oil price and improved exchange rate, combined with some evidence
of increased levels of real estate investment by both domestic and
foreign investors, can only be helpful. However, overall net
capital outflows continue, albeit at a reduced rate. It is too
early to predict the sustainability of these indicators.
"I do not underestimate the continuing challenges faced by the
Company but feel we are taking all available steps to mitigate
identified risk factors and maintain our cash resources.
"Longer term, we remain positive about both our business and
Russia as a whole and I am hopeful that MirLand will be well placed
to capitalise on any upturn when it arrives due to the prudent
measures we have taken to date."
For further information, please contact:
MirLand Development Corporation
plc +7 495 787 4962
Roman Rozental, CEO +7 499 130 31
roman@mirland-development.com 09
Yevgeny Steklov, CFO +7 903 628 24
yevgeny@mirland-development.com 50
FTI Consulting
Dido Laurimore /Ellie Sweeney
/Tom Gough
dido.laurimore@fticonsulting.com
ellie.sweeney@fticonsulting.com +44 20 3727
tom.gough@fticonsulting.com 1000
Investec Bank plc
Jeremy Ellis / David Anderson +44 20 7597 4000
FINANCING
The challenging economic environment has continued to have a
substantial impact on the valuation of the Company's real estate
portfolio. This saw the value marked down by approximately 36%
during 2014 and an additional 4% during the first quarter of 2015,
resulting in net leverage increasing further to 60.0% of total
assets at 31 March 2015 from 56.9% at 31 December 2014. Total net
borrowings amounted to US$432.3 million (31 December 2014: US$430.1
million).
As reported at the time of the Full Year results in March 2015,
the Company is in negotiation with the trustees of the Series A-F
bondholders to agree a restructuring of its debt which addresses
the challenges posed by the current instability in the Russian
economy for the benefit of all the Company's creditors and
shareholders.
Discussions are continuing and, during this period, the Company
has agreed not to undertake certain transactions which would
involve incurring any material obligations without giving the
Trustees the agreed prior notice (the "Interim Period").
Furthermore, the Company's controlling shareholders, Jerusalem
Economy Ltd., Industrial Buildings Corporation Ltd. and Darban
Investments Ltd., as well as Dunchoille Holdings Ltd. (a subsidiary
wholly owned by the Company), have undertaken that, during the
interim period, no disposal will be made of any of the Company's
debentures held by them, unless they give the Trustees prior
written notice specifying the particulars of the transaction.
The Company will update the market further on this in due
course.
OPERATIONAL UPDATE
Good progress continues to be achieved in the pre-sale, build
and delivery of Triumph Park in St. Petersburg, the Company's
BREEAM certified sustainable residential project. Following the
successful conclusion of Phase II with all flats sold, the Company
is now handing over the final flats to the buyers, which is
expected to be completed by the end of June 2015. Sales have
continued to be strong in Phase III of the scheme, with 898 (67% of
the scheme) apartments now pre-sold. The Company is continuing to
achieve sale prices in these later phases ahead of the rate of
inflation, underpinning the strong levels of profitability for the
project.
The construction of Phase IV of the project, representing a
further 1,244 units, commenced in Q3 2014, and 175 units were
pre-sold during the first three months of sales.
The Western Residence residential development scheme at
Perkhushkovo, Moscow, has also maintained momentum with six further
houses sold since the beginning of the year. This now takes the
number sold to 47 of a total of 77 houses in the scheme.
Our Vernissage Mall and Triumph Mall assets remain over 97% let,
with footfall high at both. An agreement to sell the land for the
construction of a 15,000 sqm extension to of the Vernissage Mall,
which will house an international DIY retailer, was signed during
the period. It is expected to be trading within a year and the
retailer should increase the attractiveness of the Mall. The
Company estimates on the basis of available information, correct as
of the date of this report, that the sale of the property and said
lease of the additional land (instead of developing the unit by the
Company as originally planned) which is subject to, amongst other
things, bank financing approval and the purchaser receiving the
rights to a lien on the property. This is expected to generate a
free cash flow of approximately 180 million Roubles (approximately
US$3.4 million) prior to the repayment of the loan principal to the
financing bank which may need to be carried out, depending on its
requirements.
Occupancy at the MirLand Business Centre remains high at circa
82% of the total lettable area, which is in line with the market
average.
On account of the challenging economic environment, the Company
has been providing certain discounts and limitation agreements on
the exchange rate to its retail and office tenants, which led to a
substantial decrease in its NOI in the first quarter of 2015.
MARKET UPDATE
The Rouble has gained 15% since the beginning of the second
quarter after losing about half of its value in 2014. Oil prices
have been one of the drivers for the Rouble's recovery. The Central
Bank expects the volatility of the Rouble to reduce by the summer,
returning to levels seen in the Autumn of 2014, before the
regulator switched the currency to a free float regime in
November.
The price of Urals oil reduced to an average of US$54.82/bbl in
March 2015, down US$2.80/bbl from February 2015.
The interest rate in Russia has averaged 6.66% from 2003 until
2015, reaching an all-time high of 17% in December 2014, and
declining gradually since to 12.5% (as at 30 April 2015).
Net capital outflow during the period was US$32.5bn (US$48.6
billion 1Q2014), the Central Bank forecast for 2015 is currently
US$118bn.
By the end of 2014 the most relevant economic forecast was from
the Russian Central Bank which is predicting oil prices to increase
to US$60/bbl, and GDP to contract by 4.5% in 2015, with recovery
starting around 2017. This compares with a recorded GDP growth in
1Q2015 of 0.4%.
Most analysts believe the current inflation spike of 16.9% y/y
to be transitory due to the effects of exchange rate depreciation
and an expectation that the import ban will be removed in the short
term. Year-to-date inflation was 7.5% by the end of 1Q2015.
The unemployment rate increased to 5.9% in March 2015 from 5.3%
in December 2014 (a record low of 4.8% was seen in August
2014).
Real Estate market
Prime yields in 1Q 2015 were 11% for offices, 11% for prime
retail, and 13% for warehouses, the same as in the previous
quarter.
The total volume of investments in 1Q2015 in commercial real
estate was US$0.7bn. US$322 million and US$385 million were
invested by domestic and foreign companies, respectively. The share
of foreign companies' investments exceeded 50%. Despite the
volatile global and domestic economic environment, the forecast for
investments is US$2.5bn by the end of [2015]. As usual, Moscow
attracted the majority of the investments at US$632 million (89%).
Only US$55 million (8%) was invested in commercial real estate in
St. Petersburg.
Offices
The total volume of investments in the office segment was US$470
million in 1Q 2015 (66% of total investments), including US$447
million invested in Moscow and US$22 million invested in St.
Petersburg.
The average rental rates for class A premises are now US$611 and
US$287 (triple net) for class B. Since 4Q2014 the average rental
rates have decreased by 20% in Class A and 40% in Class B to (31
March 2015).
The average vacancy rate has increased to 17.5%: 30.9% in Class
A (2015F - 35.7%), and 13.5% Class B (2015F - 14.7%). The vacancy
rate is growing largely due to existing premises rather than new
supply being delivered to the market.
Retail
1Q2015 saw low volumes invested in retail - with just US$96
million invested (14% of total investments).
Six new shopping centres with a total GLA of 348,700 sqm were
opened in the regions, compared to 11 new shopping centres in 2014
with a total GLA of 410,383 sqm and three in Moscow.
In prime Moscow shopping malls the average vacancy rate remains
below 2%. Footfall in Moscow shopping malls remains at the same
level as in 1Q 2014 and is considered to be stable.
The prime rental rate indicator decreased from US$3,500 to
US$3,200.
Residential
The mortgage lending market is decreasing: circa153.5bn RUB of
mortgages were granted in January and February 2015, which is 23%
lower than the same period last year.
The average lending rate at the beginning of March 2015 was
14.7% (2.1% higher than in December 2014), the highest since 2010
according to the Agency for Housing Mortgage Lending. The increase
has already led to a slowing of residential construction by 10%
over the first two months of this year.
1Q 2015 delivery of new residential projects to the market
totalled in circa890k sqm., 6% less than in 4Q 2014. Most of the
delivery to the market remains in the mass-market segment (c860k
sqm). 1Q 2015 demand amounted to 800k sqm, which is 51% lower than
4Q 2014 and 39% less than 1Q 2014. Against this supply and demand
dynamics, housing prices slightly increased by 1.8% in economy and
business classes during 1Q2015 compared with the beginning of the
year.
Industrial
Total investment volume in the segment was US$120 million in 1Q
2015. New construction in Moscow accounted for 260,000 sqm of
industrial space.
The vacancy rate increased from 7% to 9.5% in Class A, and from
5% to 6% in Class B. 90% of the vacant space marketed with Rouble
lease rates. The average lease length is less than five years.
Nigel Wright Roman Rozental
Chairman Chief Executive
12 May 2015 12 May 2015
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
31 March 31 December
----------------
2015 2014 2014
------- ------- -----------
Unaudited Audited
---------------- -----------
U.S. dollars in thousands
-----------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 28,311 62,556 40,646
Restricted cash 11,159 - -
Trade receivables 2,540 1,549 1,502
Accounts receivables 6,302 8,213 6,530
VAT receivable 4,262 4,575 4,438
Inventories of buildings for
sale 144,809 179,420 169,297
------- ------- -----------
197,383 256,313 222,413
------- ------- -----------
NON-CURRENT ASSETS:
Investment properties 361,300 488,524 383,800
Investment properties under
construction 38,300 50,999 30,800
Inventories of buildings for
sale 90,656 97,759 88,917
VAT receivable 316 360 314
Fixed assets, net 1,179 1,387 1,231
Other long term receivables 18,736 7,189 18,558
Prepaid expenses 510 537 517
Deferred taxes 10,815 5,393 10,056
------- ------- -----------
521,812 652,148 534,193
------- ------- -----------
TOTAL ASSETS 719,195 908,461 756,606
======= ======= ===========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
31 March 31 December
-------------------
2015 2014 2014
--------- -------- -----------
Unaudited Audited
------------------- -----------
U.S. dollars in thousands
--------------------------------
EQUITY AND LIABILITIES
CURRENT LIABILITIES:
Long-term loans from banks
which classified for short-term 212,659 - 181,588
Credit from banks and others - 19,717 -
Current maturities of long-term
credit from banks 15,906 64,922 15,445
Current maturities of debentures 60,007 - 57,298
Credit from banks for financing
of inventory of buildings
for sale 9,437 11,309 3,300
Long-term Debentures which
classified for short-term 173,787 - 178,316
Trade payables 6,715 9,881 8,262
Deposits from tenants 2,248 3,675 2,762
Advances from buyers 72,072 71,927 88,471
Other accounts payable 2,930 7,587 2,847
--------- -------- -----------
555,761 189,018 538,289
--------- -------- -----------
NON-CURRENT LIABILITIES:
Loans from banks and others - 173,767 34,847
Debentures - 205,314 -
Other non-current liabilities 11,959 17,327 12,562
Deferred taxes 27,761 - 29,461
--------- -------- -----------
39,720 396,408 76,870
--------- -------- -----------
TOTAL LIABILITIES 595,481 585,426 615,159
--------- -------- -----------
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT:
Issued capital 1,036 1,036 1,036
Share premium 359,803 359,803 359,803
Capital reserve for share-based
payment transactions 12,545 12,427 12,530
Capital reserve for transactions
with controlling shareholders 8,556 8,556 8,556
Foreign currency translation
reserve (179,137) (78,633) (174,197)
Accumulated deficit (102,430) (10,283) (89,757)
--------- -------- -----------
TOTAL EQUITY ATTRIBUTABLE
TO EQUITY HOLDERS OF THE PARENT 100,373 292,906 117,971
Non-controlling interest 23,341 30,129 23,476
--------- -------- -----------
Total equity 123,714 323,035 141,447
--------- -------- -----------
TOTAL EQUITY AND LIABILITIES 719,195 908,461 756,606
========= ======== ===========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONSOLIDATED INCOME STATEMENTS
Three months
ended Year ended
31 March 31 December
------------------
2015 2014 2014
-------- -------- ------------
Unaudited Audited
------------------ ------------
U.S. dollars in thousands
(except earnings (loss)
per share data)
--------------------------------
Rental income from investment
properties 8,623 11,716 52,525
Revenues from sale of residential
units 29,843 15,504 29,796
Revenues from management fees 677 357 3,938
-------- -------- ------------
Total revenues 39,143 27,577 86,259
-------- -------- ------------
Cost of sales and maintenance
of residential units 27,938 13,630 28,974
Cost of maintenance and management 3,726 3,717 18,228
-------- -------- ------------
Gross profit before provision
for impairment 7,479 10,230 39,057
Impairment of inventory 1,086 - -
-------- -------- ------------
Gross profit 6,393 10,230 39,057
-------- -------- ------------
General and administrative
expenses 3,009 3,299 13,043
Marketing expenses 1,747 1,610 4,053
Fair value adjustments of
investment properties and
investment properties under
construction (438) 31,749 84,802
Other expense, net 21 1,696 1,992
Group's share in earnings
of companies accounted for
using the equity method and
gain from obtaining control
in company previously accounted
for using the equity method - 4,009 4,009
-------- -------- ------------
Operating income (loss) 1,220 39,383 108,780
Finance income 550 276 1,521
Finance expenses (8,632) (8,281) (36,942)
Net foreign exchange differences (6,384) (23,719) (149,361)
-------- -------- ------------
Profit (loss) before taxes
on income (13,246) 7,659 (76,002)
Tax benefit (1,269) (3,188) (13,125)
-------- -------- ------------
Net income (loss) (11,977) 10,847 (62,877)
======== ======== ============
Attributable to:
Equity holders of the parent (12,673) 8,161 (71,313)
Non-controlling interests 696 2,686 8,436
-------- -------- ------------
(11,977) 10,847 (62,877)
======== ======== ============
Basic and diluted net earnings
(loss) per share (US Dollars)
attributable to equity holders
of the parent (0.1) 0.08 (0.69)
======== ======== ============
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months
ended Year ended
31 March 31 December
------------------
2015 2014 2014
-------- -------- ------------
Unaudited Audited
------------------ ------------
U.S. dollars in thousands
--------------------------------
Net profit (11,977) 10,847 (62,877)
-------- -------- ------------
Other comprehensive income
(loss) (net of tax effect):
Other comprehensive income
to be reclassified to profit
or loss in subsequent periods:
Transfer of currency translation
reserve to income statement
for obtaining control in companies
previously accounted for using
the equity method - 6,624 6,624
Exchange differences on translation
of foreign operations (5,771) (22,886) (130,853)
Group's share of net other
comprehensive loss of companies
accounted for the equity method - (3,298) (3,298)
Total other comprehensive
loss (5,771) (19,560) (127,527)
-------- -------- ------------
Total comprehensive loss (17,748) (8,713) (190,404)
======== ======== ============
Attributable to:
Equity holders of the parent (17,613) (8,949) (183,987)
Non-controlling interest (135) 236 (6,417)
-------- -------- ------------
(17,748) (8,713) (190,404)
======== ======== ============
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Capital Total
reserve equity
for
Capital transactions Foreign attributable
reserve to equity Non-
for with currency
Issued Share share-based controlling translation Accumulated holders of controlling Total
capital premium payments shareholders reserve deficit the parent interest equity
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- --------
Unaudited
U.S. dollars in thousands
At 1 January
2015 1,036 359,803 12,530 8,556 (174,197) (89,757) 117,971 23,476 141,447
Net profit
(loss) for
the year - - - - - (12,673) (12,673) 696 (11,977)
Other
comprehensive
loss - - - - (4,940) - (4,940) (831) (5,771)
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- --------
Total
comprehensive
income (loss) - - - - (4,940) (12,673) (14,957) (135) (17,748)
Share-based
payments - - 15 - - - 15 - 15
------------ ----------- --------
At 31 March 31,
2015 1,036 359,803 12,545 8,556 (179,137) (102,430) (179,137) 23,341 123,714
======= ======= =========== ============ =========== =========== ============ =========== ========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Capital Total
reserve equity
for
Capital transactions Foreign attributable
reserve to equity Non-
for with currency
Issued Share share-based controlling translation Accumulated holders of controlling Total
capital premium payments shareholders reserve deficit the parent interest equity
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- --------
Unaudited
U.S. dollars in thousands
At 1 January
2014 (audited) 1,036 359,803 12,396 8,556 (61,523) (18,444) 301,824 29,893 331,717
Net profit for
the year - - - - - 8,161 8,161 2,686 10,847
Other
comprehensive
loss - - - - (17,110) - (17,110) (2,450) (19,560)
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- --------
Total
comprehensive
income
(loss) (17,110) 8,161 (8,949) 236 8,713
Share-based
payments - - 31 - - - 31 - 31
------------ ----------- --------
At 31 March
2014 1,036 359,803 12,427 8,556 (78,633) (10,283) 292,906 30,129 323,035
======= ======= =========== ============ =========== =========== ============ =========== ========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Capital Total
reserve equity
for
Capital transactions Foreign attributable
reserve to equity Non-
for with currency
Issued Share share-based controlling translation Accumulated holders of controlling Total
capital premium payments shareholders reserve deficit the parent interest equity
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- ---------
U.S. dollars in thousands
At 1 January
2014 1,036 359,803 12,396 8,556 (61,523) (18,444) 301,824 29,893 331,717
Net profit
(loss) for
the year - - - - - (71,313) (71,313) 8,436 (62,877)
Other
comprehensive
loss - - - - (112,674) - (112,674) (14,853) (127,527)
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- ---------
Total
comprehensive
income (loss) - - - - (112,674) (71,313) (183,987) (6,417) (190,404)
Share-based
payments - - 134 - - - 134 - 134
------------ ----------- ---------
At 31 December
2014 1,036 359,803 12,530 8,556 (174,197) (89,757) 117,971 23,476 141,447
======= ======= =========== ============ =========== =========== ============ =========== =========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months
ended Year ended
31 March 31 December
------------------
2015 2014 2014
-------- -------- ------------
Unaudited Audited
------------------ ------------
U.S. dollars in thousands
--------------------------------
Cash flows from operating
activities:
Net profit (11,977) 10,847 (62,877)
-------- -------- ------------
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Adjustments to the profit
or loss items:
Deferred taxes, net (1,598) (4,037) (14,824)
Depreciation and amortization 35 44 201
Finance expenses, net 14,466 31,724 184,782
Share-based payment 15 31 134
Fair value adjustment of investment
properties and investment
properties under construction 438 (31,749) (84,802)
Group's share in earnings
of companies accounted for
using the equity method and
gain from obtaining control
in company previously accounted
for using the equity method - (4,009) (4,009)
13,356 7,996 81,482
-------- -------- ------------
Working Capital adjustments:
Decrease (increase) in trade
receivables (597) 1,456 1,879
Decrease in VAT receivable
and others (623) (999) (3,022)
Increase (decrease) in inventories
of buildings for sale 14,536 (11,157) (78,763)
Increase in trade payables 606 760 6,957
Decrease (increase) in other
accounts payable (12,498) 1,834 62,724
-------- -------- ------------
1,424 (8,106) (10,225)
-------- -------- ------------
Interest paid (5,057) (6,173) (36,730)
Interest received 98 88 231
Taxes paid (244) (310) (2,046)
(5,203) (6,395) (38,545)
-------- -------- ------------
Net cash flows from used in
operating activities (2,400) (11,650) (30,165)
-------- -------- ------------
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months
ended Year ended
31 March 31 December
-----------------
2015 2014 2014
------- -------- ------------
Unaudited Audited
----------------- ------------
U.S. dollars in thousands
-------------------------------
Cash flows from investing
activities:
Additions to investment properties - - (3,529)
Additions to investment properties
under construction (916) (1,327) (3,418)
Purchase of fixed assets - (36) (625)
Loans granted to related parties - (140) (10,684)
Cash from obtaining control
in companies previously accounted
for using the equity method
(a) - (18,640) (21,140)
-
Net cash flows used in investing
activities (916) (20,143) (39,396)
------- -------- ------------
Cash flows from financing
activities:
Issuance of debenture, net - - 39,152
Repayment of debentures - - (32,211)
Receipt of loans from banks
and others, net from origination
costs 8,908 41,931 155,630
Repayment of loans from banks
and others (6,884) (12,609) (109,667)
------- -------- ------------
Net cash flows generated from
financing activities 2,024 29,322 52,904
------- -------- ------------
Exchange differences on balances
of cash and cash equivalents 116 (1,127) (8,851)
Decrease in cash and cash
equivalents (1,176) (3,598) (25,508)
Cash and cash equivalents
at the beginning of the period 40,646 66,154 66,154
------- -------- ------------
Cash and cash equivalents
and restricted cash at the
end of the period 39,470 62,556 40,646
======= ======== ============
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months
ended Year ended
31 March 31 December
---------------
2015 2014 2014
----- -------- ------------
Unaudited Audited
--------------- ------------
U.S. dollars in thousands
-----------------------------
(a) Cash generated from obtaining
control in companies accounted
for the equity method:
The subsidiaries' assets
and liabilities at date
of sale:
Working capital (excluding
cash and cash equivalents) - 146 136
Investment properties - (93,673) (109,800)
Other receivables - (49) (49)
Fixed assets, net - (313) (313)
Deferred taxes - (20) 16,107
Loans from banks - 21,419 21,419
Other non-current liabilities - 12,700 12,700
Indemnification asset - (5,737) (5,737)
Payables on account of obtaining
control in company preciously
accounted for using equity
method - 2,500 -
Foreign currency translation
reserve - 6,624 6,624
Profit (loss) from obtaining
control in companies previously
accounted for using the
equity method - 702 702
Investment in associates - 33,727 33,727
Loans granted to associates - 3,334 3,344
- (18,640) (21,140)
===== ======== ============
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:- GENERAL
a. These interim consolidated financial statements have been
prepared in a condensed format as of 31 March 2015 and for the
three-month period then ended ("interim condensed consolidated
financial statements"). These financial statements should be read
in connection with the Company's annual financial statements and
accompanying notes as of 31 December 2014 and for the year then
ended ("annual financial statements").
b. 1. During 2014, mainly in the second half of the year, the
Russian economy was subject to sanctions imposed on it by the west
and in the last quarter of 2014, the Russian economy experienced a
serious deterioration which resulted, Inter Alia, in the weakening
of Russian Ruble in relation to the U.S. dollar by about 79% up to
date. In the second half of 2014 and principally in December of
that year, due to the decline in oil prices, the aggravation of the
sanctions imposed by the West due to Geopolitical instability in
the East Ukraine and the devaluation of the Russian Ruble, the
Central Bank of Russia raised the interbank interest rate from 5.5%
in January 2014 to 17% as of March 31, 2015. International rating
agencies (S&P Moody's and Fitch Ratings) gradually lowered
Russia's credit rating to BB+/Baa3 with a negative outlook. After
the balance sheet date through the date of signing the financial
statements, the Ruble dropped another 9% in its value in relation
to the U.S dollar. During February, March and April 2015 the
Central Bank of Russia lowered the interbank interest to 12.5%.
After the balance sheet date and up to date the Russia Ruble
appreciated by approximately 13% against the US Dollar.
2. On December 18, 2014, the trustees of the holders of the
Company's debentures (series A-F) called for a meeting for
obtaining reports from the Company's representatives regarding the
developments in the Company's business affairs and for discussing
and deciding on actions to be taken to protect the rights of the
creditors.
On the same date and following the announcement of the trustees
of the holders of the Company's debentures, the Company announced
that in view of the fluctuations in the Russian markets, the
scheduled meeting of the holders of debentures and their appeals to
the Company, the Company's Board decided to defer the principal and
interest payments to the holders of debentures (series A-B) which
were due on December 31, 2014.
In addition on the same date, the rating agencies (S&P
Maalot and Midroog) announced the lowering of the Company's rating
to ilCC and B1 with negative outlooks, respectively, this among
others, following the Company's announcement of deferring the
debenture payments of December 2014.
In the meeting of holders of debentures held on December 22,
2014, the Company announced that it requires time until the general
situation in Russia and the Company's specific business affairs
become clear. In early January 2015, the Company announced the
results of the voting of the holders of debentures (series A-F)
which resolved to temporarily defer the maturity dates of the
principal and interest payments to the holders of debentures
(series A-B) to February 1, 2015 (as well as authorizing the
trustee to extend this date by an overall 60-day period) subject to
depositing $ 11 million in an escrow account in favor of the
Company (reflecting the payment that was due in December 2014) and
provided that the Company initiate an immediate, consecutive and
intensive dialog with the trustees of the debentures (who have been
authorized to negotiate with the Company for reaching an
arrangement) and the Company will sign a Stand Still letter and
subject to the signing of the stand still letter by controlling
shareholders of the Company, Jerusalem Economic Corporation Ltd.,
and Industrial Buildings Ltd., as long as the amount of the deposit
is held in trust account, they will not sell the bonds (series A
and B) held Biden to a third party.
On January 22, 2015, the Company signed a "standstill
commitment" towards the trustees and the holders of the debentures
in which it undertook, among others, to the following principals
according to the specified in the "standstill commitment": not to
make any material payments to its financial creditors in respect of
any debt, whether in or outside of Israel beyond the amortization
schedule settled with them, but due notice trustees, not to make
any payments to the controlling shareholders in the Company, not to
dispose of any material assets, not to distribute any dividends
only with a prior notice to the trustees and also other commitments
as detailed in the "standstill commitment"
During the first 4 months of 2015, the trustee of the series A-B
decided to defer the maturity dates of the principal and interest
payments to June 7, 2015.
On February 2, 2015, S&P announced another lowering of the
Company's rating to D- with a negative outlook since the Company
failed to meet its liabilities to the holders of debentures (series
A and B) in the 30-day period following the original maturity date
and given its intention to refinance the debt on the all the
debenture series.
On February 10, 2015, the Company's Board decided to announce
the deferral of payments to holders of all the series of debentures
until negotiations with them are concluded.
During the first 4 months of 2015, the trustee of the debentures
(series C) decided to defer the maturity dates of the interest
payments to June 7, 2015.
In addition, the trustee of the debentures (series E) decided to
defer the maturity dates of the interest payments to May 31,
2015.
On March 30, 2015 the Company published the arrangement
principals which were agreed with the trustees and include, inter
alia, increase of interest to all the series, certain liabilities
of the parent Companies and issuance of shares and options to the
holders of debentures.
The Company continues negotiations with the trustees of the
holders of the debentures in order to achieve a comprehensive
arrangement.
As a result, the Company classified the outstanding debentures
in an amount of $ 173.8 million as current liabilities in its
financial statements as of March 31, 2015.
3. In the context of financing agreements with lending banks in
Russia, certain financial covenants were determined with which the
Company is not in compliance as of March 31, 2015 which include,
among others, a certain LTV ratio, minimum occupancy rates and debt
coverage and interest ratios. As a result, the Company classified
in its financial statements as of March 31, 2015 loans from banks,
in which the Company breaches its covenants, in an amount of $
212.7 million as current liabilities.
4. The Group has a working capital deficiency of approximately $
358.4 million as of March 31, 2015, a loss of approximately $ 12
million, total comprehensive loss of approximate $ 17.7 million for
the quarter then ended and negative cash flows from operating
activities of approximately $ 2.4 million for the quarter then
ended.
The Company continues to monitor the economic developments in
Russia which are external to the Group and beyond its control and
is continuing taking steps to minimize its exposure to the
situation. In view of all of the aforementioned, there is a
material uncertainty which may cast significant doubt as to the
Group's ability to continue to operate as a going concern. The
financial statements do not include any adjustments to the carrying
amounts of assets and liabilities and their classification which
might be required if the Company is unable to continue to operate
as a going concern.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. Basis of preparation of the interim financial statements:
The interim condensed consolidated financial statements have
been prepared in accordance with the International Financial
Reporting Standard IAS 34 ("Interim Financial Reporting").
b. New standards, interpretations and amendments adopted by the Company:
The significant accounting policies and methods of computation
followed in the preparation of the interim condensed consolidated
financial statements are identical to those followed in the
preparation of the latest annual financial statements.
NOTE 3:- FINANCIAL INSTRUMENTS
Set out below is a comparison of the carrying amounts and fair
values of financial instruments as of March 31, 2015:
Carrying Fair
amount Value
--------- ------
U.S. dollars in
thousands
-----------------
Financial liabilities:
Debentures (series A) 4,022 2,236
Debentures (series B) 18,264 6,560
Debentures (series C) 33,702 11,791
Debentures (series D) 41,338 15,205
Debentures (series E) 99,329 33,801
Debentures (series F) 37,139 12,904
233,794 82,497
========= ======
The fair value of the bonds is measured based on quoted market
prices, according to Level 1 of the fair value hierarchy.
There is no material change in the fair value of bank loans in
compare to the value presented in the annual financial
statements.
NOTE 4:- SEGMENTS
Commercial Residential Total
---------- ----------- --------
Unaudited
---------------------------------
Three months ended
31 March 2015: U.S. dollars in thousands
---------------------------------
Segment revenues 9,300 29,843 39,143
========== =========== ========
Segment results 4,577 (1,214) 3,633
========== ===========
Unallocated income (2,143)
Finance costs, net (14,466)
Profit before taxes
on income (13,246)
========
Commercial Residential Total
---------- ----------- --------
Unaudited
---------------------------------
Three months ended
31 March 2014: U.S. dollars in thousands
---------------------------------
Segment revenues 12,073 15,504 27,577
========== =========== ========
Segment results 38,859 212 39,071
========== ===========
Unallocated income 312
Finance costs,
net (31,724)
Profit before taxes
on income 7,659
========
Commercial Residential Total
---------- ----------- ---------
U.S. dollars in thousands
----------------------------------
Year ended 31 December
2014:
Segment revenues 56,463 29,796 86,259
========== =========== =========
Segment results 121,905 (4,944) 116,961
========== =========== ---------
Unallocated expenses (8,181)
Finance expenses,
net (184,782)
Income before taxes
on income (76,002)
=========
NOTE 5: - SUBSEQUENT EVENTS
1. On the 7(th) of April 2015, it was decided by the Trustee of
the bondholders (Series C) upon a technical deferral of the date of
the payment of principal and interest on the securities which was
scheduled for 14.04.2015, such that the determinant date will fall
on 15.04.2015, this is without introducing any changes to the set
date of payment on 30.04.15.
2. On the 12(th) of April 2015, it was decided by the Trustee of
the bondholders (Series A and B) upon a technical deferral of the
date of the payment of principal and interest on the securities
which was scheduled for 30.04.2015, such that the determinant date
will fall on 20.04.2015 and the date of payment will fall on
06.05.2015.
3. On the 14(th) of April 2015, it was decided by the Trustee of
the bondholders (Series C) upon a deferral of principal and
interest to 07.06.2015.
4. At the Bondholders' (Series A and B) meeting held on 15(th)
April 2015, it was decided upon a deferral of the principal and
interest payments to 07.06.2015.
5. On the 16(th) of April 2015, the Trustee of the bondholders
(Series F) announced the deferral of the principal and interest
payments to 31.05.2015.
6. In April, 2015, a sub-subsidiary of the Company (Global 1
LLC) ("Sub-subsidiary") which holds the rights of the Yaroslavl
Project (Vernissage Mall Project) contracted into a series of
agreements that obligate the Sub-subsidiary to sell an area of land
of about 20,800 square metres to an International chain that is
involved in the "Do-It-Yourself industry" ("The Chain") for
consideration of approximately 400 Million Rubles, including VAT
(approximately US Dollar 7.7 million). The chain has taken upon
itself the construction obligations of the shop (Big Box) on the
land through an undertaking to open the shop on a date no later
than 30 June 2016. Additionally, the sub-subsidiary will lease to
the chain additional land of about 6,070 square metres for a period
of 49 years and will allow the chain access to other areas of the
land for the purpose of building the shop. The sub-subsidiary will
be responsible for removing all encumbrances and liens on the land
before the rights are transferred to the chain, and similarly to
establish the necessary infrastructure for running the shop.
The company estimates on the basis of available information,
correct to date, that the sale of the property and said lease of
the additional land (instead of building the shop by the company as
planned) which is subject, among other things, to bank financing
approval and them receiving the rights to a lien on the property.
This is expected to generate a free cash flow of approximately 180
million Rubles (approximately US Dollar 3.4 million) prior to the
loan principal repayment to the financing bank that may need to be
carried out according to its requirements.
7. On the 12(th) of May 2015, the Trustee of the bondholders
(Series C and D) announced the deferral of the principal and
interest payments to 30.06.2015. For additional details see the
Immediate Reports of the company from 12 May 2015 (Reference No.
2015-01-017544 and 2015-01-017550).
- - - - - - - - - - - - - - - - - - -
This information is provided by RNS
The company news service from the London Stock Exchange
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