pao group of companies pik consolidated interim condensed ... · pao group of companies pik...

PAO Group of Companies PIK

Consolidated Interim Condensed

Financial Statements

as at and for the six-month period ended

30 June 2015


Contents

Consolidated Interim Condensed Financial Statements

Consolidated Interim Condensed Statement of Financial Position 3

Consolidated Interim Condensed Statement of Profit or Loss and Other

Comprehensive Income 4

Consolidated Interim Condensed Statement of Changes in Equity 5

Consolidated Interim Condensed Statement of Cash Flows 6

Notes to the Consolidated Interim Condensed Financial Statements 7-15

Auditors’ Report on Review of Consolidated Interim Condensed Financial

Information 16


Consolidated Interim Condensed Financial Statements as at and for the six-month period ended 30 June 2015

The consolidated interim condensed statement of profit or loss and other comprehensive income is to be read in

conjunction with the notes to, and forming part of, the consolidated interim condensed financial statements set

out on pages 7 to 15.

4

mln RUB Note

30 June 2015

(unaudited)

30 June 2014

(unaudited)

Revenue 4 22,053 28,634

Cost of sales (13,357) (21,201)

Gross profit

Loss from disposal of subsidiaries and development rights, net (12) -

Distribution expenses (481) (439)

Administrative expenses (1,244) (1,326)

Impairment losses, net 8 (205) (2,365)

Other expenses, net (293) (230)

Finance income 6 1,057 373

Finance costs 6 (2,362) (1,607)

Share of income of equity accounted investees, net of income tax 24 -

Profit before income tax

Income tax expense 7 (1,100) (375)

Profit and total comprehensive income for the period

Attributable to:

Owners of the Company 4,010 1,306

Non-controlling interest 70 158

Basic and diluted earnings per share 6.07 1.98

5,180

7,433

Consolidated Interim Condensed Statement of Profit or Loss and Other

Comprehensive Income

Six-month period ended

1,839

8,696

Profit and total comprehensive income for the period 4,080 1,464

4,080 1,464



The consolidated interim condensed statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the consolidated interim condensed financial statements

set out on pages 7 to 15.

5

Consolidated Interim Condensed Statement of Changes in Equity

mln RUB Share capital

Additional paid-in-

capital Retained earnings Subtotal

Balance as at 1 January 2014 41,295 (8,470) (12,750) 20,075 548 20,623


(unaudited) - - 1,306 1,306 158 1,464

Contributions by and distributions to owners

(unaudited) - - - - (5) (5)

Balance as at 30 June 2014 (unaudited) 41,295 (8,470) (11,444) 21,381 701 22,082

Balance as at 1 January 2015 41,295 (8,470) (12,058) 20,767 546 21,313


(unaudited) - - 4,010 4,010 70 4,080

Disposal of subsidiaries (unaudited) - - - - 3 3

Balance as at 30 June 2015 (unaudited) 41,295 (8,470) (8,048) 24,777 619 25,396

Attributable to equity holders of the Company

Non-controlling

interest Total equity



The consolidated interim condensed statement of cash flows is to be read in conjunction with the notes to, and

forming part of, the consolidated interim condensed financial statements set out on pages 7 to 15.

6 6

6

6

Consolidated Interim Condensed Statement of Cash Flows

mln RUB

30 June

2015

(unaudited)

30 June

2014

(unaudited)

OPERATING ACTIVITIES

Profit for the period 4,080 1,464

Adjustments for:

Depreciation and amortisation 353 360

Impairment losses including those in cost of sales, net 286 2,492

Foreign exchange losses, net 525 72

Loss on disposal of property, plant and equipment - 36

Impairment losses on financial assets, net 323 53

Write-off of accounts payable (165) -

Loss from disposal of subsidiaries and development rights 12 -

Share of income of equity accounted investees (24) 7

Interest expense 1,490 1,465

Change in non-controlling interest in limited liability companies (1) 17

Interest income (891) (352)

Income tax expense 1,100 375

Cash from operating activities before changes in working capital and

provisions 7,088 5,989

(Increase)/ decrease in inventories (1,139) 3,690

(Increase)/ decrease in trade and other receivables (28) 2,367

Increase/(decrease) in trade and other payables 4,572 (6,096)

Decrease in provision for cost to complete (1,102) (303)

Cash flows from operations before income taxes and interest paid 9,391 5,647

Income taxes paid (1,112) (1,274)

Interest paid (1,468) (1,830)

Net cash from operating activities 6,811 2,543

INVESTING ACTIVITIES

Proceeds from disposal of property, plant and equipment 47 4

Interest received 875 352

Acquisition of property, plant and equipment (119) (318)

Acquisition and prepayments of development rights and other intangible (3,063) (428)

Proceeds from equity accounted investees - 2

Acquisition of other investments (28) -

Proceeds from disposal of subsidiaries 19 -

Proceeds from repayment of loans given - 6

Net cash used in investing activities (2,269) (382)

FINANCING ACTIVITIES

Proceeds from borrowings - 24,646

Repayment of borrowings (464) (28,192)

Net cash used in financing activities (464) (3,546)

Net increase/(decrease) in cash and cash equivalents

Effect of exchange rate fluctuations on cash and cash equivalents (525) -

Cash and cash equivalents at the beginning of the period 14,239 11,089

Cash and cash equivalents at the end of the period 17,792 9,704

Six-months period ended

(1,385) 4,078



7

Notes to the Consolidated Interim Condensed Financial Statements

1 Background

(a) Organisation and operations

PAO Group of Companies PIK (the “Company”) and its subsidiaries (together referred to as the “Group”) comprise closed and open joint stock companies and limited liability companies incorporated under requirements of the Civil Law of the Russian Federation and entities registered in Cyprus, Netherlands and in the British Virgin Islands. The Company was established as a privately owned enterprise in 1994. Since 1 June 2007 the Company’s shares are traded on the London Stock Exchange (in the form of global depositary receipts and Moscow Exchange (MOEX) in Russia.

In July 2015, the Company changed its legal form from OAO to PAO (Public Joint Stock Company) following the requirements of the amended Russian Civil Code.

The Company’s registered office is 19 Barrikadnaya Str., Moscow, 123242, Russian Federation.

The primary activities of the Group are investing in development projects for construction of residential buildings and sales of real estate properties; construction services; production of construction materials, including concrete panels, window frames and other construction elements. During 2015 and 2014 the Group primarily operated in Moscow, Moscow region and other regions of Russia.

(b) Business environment

The Group’s operations are primarily located in the Russian Federation. Consequently, the Group

is exposed to the economic and financial markets of the Russian Federation which display

characteristics of an emerging market. The legal, tax and regulatory frameworks continue

development, but are subject to varying interpretations and frequent changes which together with

other legal and fiscal impediments contribute to the challenges faced by entities operating in the

Russian Federation.

The recent conflict in Ukraine and related events have increased the perceived risks of doing

business in the Russian Federation. The imposition of economic sanctions on Russian individuals

and legal entities by the European Union, the United States of America, Japan, Canada, Australia

and others, as well as retaliatory sanctions imposed by the Russian government, has resulted in

increased economic uncertainty including more volatile equity markets, a depreciation of the

Russian Rouble, a reduction in both local and foreign direct investment inflows and a significant

tightening in the availability of credit facilities. In particular, some Russian entities may be

experiencing difficulties in accessing international equity and debt markets and may become

increasingly dependent on Russian state banks to finance their operations. The long term effects

of recently implemented sanctions, as well as the threat of additional future sanctions, are difficult

to determine.

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

2 Basis for preparation

(a) Statement of compliance

These consolidated interim condensed financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements as at and for the year ended 31 December 2014. These consolidated interim condensed financial



8

statements do not include all the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards (“IFRSs”).

(b) Use of estimates and judgments

The preparation of consolidated interim condensed financial statements requires Management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these consolidated interim condensed financial statements, the significant judgments made by Management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2014.

3 Significant accounting policies

The accounting policies applied by the Group in these consolidated interim condensed financial statements are the same as those applied by the Group in its consolidated financial statements for the year ended 31 December 2014, except that the Group has adopted those new and amended standards and interpretations that are mandatory for financial annual periods beginning on 1 January 2015.

Standards

Effective for annual periods

beginning on or after

IAS 16 (Amended) "Property, Plant and Equipment" July 1, 2014

IAS 19 (Amended) "Employee Benefits" July 1, 2014

IAS 24 (Amended) "Related Party Disclosures" July 1, 2014

IAS 38 (Amended) "Intangible Assets" July 1, 2014

IAS 40 (Amended) "Investment Property" July 1, 2014

IFRS 1 (Amended) "First-time Adoption of International Financial Reporting

Standards" July 1, 2014

IFRS 2 (Amended) "Share-based Payment" July 1, 2014

IFRS 3 (Amended) "Business Combinations" July 1, 2014

IFRS 8 (Amended) "Operating Segments" July 1, 2014

IFRS 13 (Amended) "Fair Value Measurement" July 1, 2014

The amended standards and interpretations did not have significant effect on the Group’s consolidated interim condensed financial statements.

New accounting pronouncements

A number of new standards, amendments to standards and interpretations were not yet effective for the six months ended 30 June 2015, and have not been applied in these consolidated interim condensed financial statements.



9

Standards

Effective for annual periods

beginning on or after

IAS 1 (Amended) "Presentation of Financial Statements" January 1, 2016

IAS 16 (Amended) "Property, Plant and Equipment" January 1, 2016

IAS 19 (Amended) "Employee Benefits " January 1, 2016

IAS 27 (Amended) "Separate Financial Statements" January 1, 2016

IAS 28 (Amended) "Investments in Associates and Joint Ventures" January 1, 2016

IAS 34 (Amended) "Interim Financial Reporting" January 1, 2016

IAS 38 (Amended) "Intangible Assets" January 1, 2016

IAS 41 (Amended) "Agriculture" January 1, 2016

IFRS 5 (Amended) "Non-current Assets Held for Sale and Discontinued

Operations" January 1, 2018

IFRS 7 (Amended) "Financial Instruments: Disclosures" January 1, 2016

IFRS 9 "Financial Instruments" January 1, 2018

IFRS 10 (Amended) "Consolidated Financial Statements" January 1, 2016

IFRS 11 (Amended) "Joint Arrangements" January 1, 2016

IFRS 12 (Amended) "Disclosure of Interests in Other Entities" January 1, 2016

IFRS 14 (Amended) "Regulatory Deferral Accounts" January 1, 2016

IFRS 15 "Revenue from Contracts with Customers" January 1, 2018

The adoption of the pronouncement listed above is not expected to have a significant impact on the Group’s consolidated financial statements in future periods except for the standard described below.

IFRS 15 Revenue from Contracts with Customers will be effective for annual periods

beginning on or after 1 January 2018. The new standard was issued in May 2014. IFRS 15

specifies how and when an IFRS reporter will recognize revenue as well as requiring such

entities to provide users of financial statements with more informative relevant disclosures.

The standard provides a single, principles based five-step model to be applied to all contracts

with customers. The Group recognises that the new standard introduces many changes to the

accounting for revenue and potentially may have a significant impact on Group’s

consolidated financial statements. The impact of these changes will be analysed during the

course of standard adoption. The Group does not intend to adopt this standard early.



10

4 Operating segments

mln RUB 2015

(unaudited)

2014

(unaudited)

2015

(unaudited)

2014

(unaudited)

2015

(unaudited)

2014

(unaudited)

2015

(unaudited)

2014

(unaudited)

2015

(unaudited)

2014

(unaudited)

External revenues 18,623 24,922 1,211 1,207 860 1,205 1,359 1,300 22,053 28,634

Inter-segment revenue 79 23 5,241 6,616 416 634 184 215 5,920 7,488

Total revenue for reportable segments 18,702 24,945 6,452 7,823 1,276 1,839 1,543 1,515 27,973 36,122

Reportable segment gross profit 8,102 6,737 88 189 84 160 422 347 8,696 7,433

Gross profit margin 44% 27% 7% 16% 10% 13% 31% 27% 39% 26%

Total


30 June


30 June


30 June


30 June


30 June

Real estate development Construction segment Industrial segment Other

During the six month period ended 30 June 2015 the gross profit of real estate segment includes the positive effect of change in estimates in respect of construction budgets of certain development projects in the total amount of RUB 714 million (2014: negative effect of RUB 2,280 million).



11

(i) Geographical information

Real estate development, Construction segment, Industrial segment and Other segments’ operations are located in Russia and operate in three principal geographical areas: Moscow, the Moscow Region and Other Regions.

In presenting information on the basis of geography, external revenues of the Real estate development are based on the geographical location of development sites.

30 June 2015 30 June 2014

mln RUB

(unaudited)

mln RUB

(unaudited)

Moscow 8,050 13,518

Moscow Region 8,926 9,208

Other regions 1,647 2,196

18,623 24,922

Real estate development

(ii) Reconciliations of reportable segment revenues and profit or loss

30 June 2015 30 June 2014

mln RUB

(unaudited)

mln RUB

(unaudited)

Reconciliation of Revenue

Total revenue for reportable segments 27,973 36,122

Elimination of Inter-segment revenue (5,920) (7,488)

Group revenue 22,053 28,634

Gross profit reconciliation

Reportable segment profit 8,696 7,433

Group gross profit 8,696 7,433

Unallocated amounts

Loss from disposal of subsidiaries and development rights, net (12) -

Distribution expenses (481) (439)

Administrative expenses (1,244) (1,326)

Impairment losses, net (205) (2,365)

Other income and expenses, net (293) (230)

Finance income 1,057 373

Finance costs (2,362) (1,607)

Share of loss of equity accounted investees, net of income tax 24 -

Consolidated profit before income tax 5,180 1,839

5 Seasonality of operations

Higher revenues in the construction industry in Russia are usually experienced in the second half of each year when construction works are completed and formally accepted by state commissions.



12

6 Finance income and costs

Finance income

mln RUB30 June 2015 30 June 2014

mln RUB

(unaudited)

mln RUB

(unaudited)

Interest income 891 352

Write-off of accounts payable 165 -

Other finance income - 21

Change in non-controlling interest in limited

liability companies 1 -

1,057 373

Finance costs

30 June 2015 30 June 2014

mln RUB

mln RUB

(unaudited)

mln RUB

(unaudited)

Interest expense 1,490 1,465

Foreign exchange losses 525 72

Impairment losses on financial assets 323 53

Other finance costs 24 -

Change in non-controlling interest in limited

liability companies - 17

2,362 1,607

7 Income tax expense

Income tax expense is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year applied to pre-tax income of the interim period.

30 June 2015 30 June 2014

mln RUB

(unaudited)

mln RUB

(unaudited)

Current tax expense

Current year (1,234) (1,112)

Overprovided in prior years - (1)

Tax provision recognised (38) -

(1,272) (1,113)

Deferred tax benefit

Origination and reversal of temporary differences 172 738

172 738

(1,100) (375)



13

8 Impairment losses on non-financial assets

During the six month period ended 30 June 2014, the Group performed a comprehensive review

of the upcoming development portfolio and concluded some projects to be no longer feasible for

development. As a result the Group recognized impairment losses of RUB 2,365 million in

respect of intangible assets, work in progress and advances paid for construction work.

The impairment losses of RUB 205 million relate to projects that are anticipated to be realized at

a price below their cost.

9 Intangible assets

In May 2015 the Group won a tender for multipurpose development on the land plot with an

area of 34 hectares located in the North of Moscow. The initial investment in land plot was

included in balance of development rights as at 30 June 2015.

10 Loans and borrowings

30 June 2015 31 December

mln RUB

(unaudited)

2014

mln RUB

Non-current

Secured bank loans 18,463 -

Current

Secured bank loans 5,582 24,487

24,045 24,487

As at 30 June 2015, the bank loans were secured with:

property, plant and equipment with a carrying value of RUB 2,397 million (2014: RUB

2,445 million);

inventory with a carrying value of RUB 7,540 million (2014: RUB 9,254 million);

development rights with a carrying value of RUB 10,024 million (2014: RUB 9,969

million);

shares of certain subsidiaries which comprise a substantial part of the Group.

In June 2015, the Group prolonged the existing credit facility of RUB 24,300 million for two

years with subsequent extension option.

11 Contingencies

Except as described below, the contingencies of the Group related to insurance and warranties did not change significantly from the contingencies reported in the consolidated financial statements as at and for the year ended 31 December 2014.

Litigation contingencies

The Group is involved as a defendant in legal proceedings relating to supply and services

contracts in the total amount of RUB 232 million (2014: RUB 143 million). Management

believes, based on a legal advice, that the actions can be successfully defended and therefore no

losses will be incurred. The legal claims are expected to be settled in the course of the next

reporting period.



14

Taxation contingencies

As at 30 June 2015 other contingent liabilities related to taxation amounted to approximately

RUB 295 million (2014: RUB 583 million). This amount mainly includes contingent profit tax

and VAT liabilities resulting from tax treatment of some income and expenses applied by the

Group that may be challenged by the tax authorities.

12 Related party transactions

(a) Control relationships

As at 30 June 2015 and 2014 there were no immediate or ultimate parent companies and ultimate controlling party of the Group.

As at 30 June 2015, entities affiliated with Sergey Gordeev, Group CEO, owned 29.9% of the Company’s ordinary shares.

(b) Management remuneration

Key management received remuneration of RUB 210 million during the six-month period ended 30 June 2015 (six months 2014: RUB 307 million) including contributions to the state pension fund.

(c) Transactions with associates

During the six month period ended June 2014 the Group sold residential properties to two of its

associates (ZPFN) for RUB 174 million. The unrealized gain, attributable to the Group’s share,

of RUB 7 million resulting from the sale was eliminated against the balance of equity accounted

investees.

During the reporting period one of the Group's associates sold residential properties to third

parties in the amount of RUB 15 million. The unrealized gain of RUB 17 million was released.

There were no sales of residential properties to associates during the reporting period.

13 Events subsequent to the reporting date

On 20 August 2015 the Group placed a coupon bond amounting to RUB 15,000 million with a

maturity of 10 year. The coupon rate for the first three years of circulation is 14.25%, which

amounts to 71.05 roubles per one bond of each issue. Coupon frequency is once every six

months.

Proceeds from bond issue will be used to finance the Company’s operating activities.

14 Supplementary information: non-IFRS measures

Net debt:

30 June

2015

31 December

2014

mln RUB

(unaudited)

mln RUB

Loans and borrowings, current 5,582 24,487

Plus: Loans and borrowings, non-current 18,463 -

Less: Cash and cash equivalents (17,792) (14,239)

Net debt 6,253 10,248



15

Earnings before interest, taxes, depreciation and amortisation (EBITDA):

30 June 2015 30 June 2014

mln RUB

(unaudited)

mln RUB

(unaudited)

Profit for the period 4,080 1,464

Plus: Depreciation and amortisation 353 360

Plus: Interest expense 1,490 1,465

Less: Interest income (891) (352)

Plus: Income tax expense 1,100 375

EBITDA 6,132 3,312

Impairment losses, net 205 2,365

Impairment losses on financial assets, net 323 53

Write-off of accounts payable (165) -

Foreign exchange losses, net 525 72

Losses on disposal of property, plant and equipment - 36

Loss from disposal of development rights and subsidiaries 12 -

Penalties and fines, including reversals 26 76

Adjusted EBITDA 7,058 5,914

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