PAO Group of Companies PIK
Consolidated Interim Condensed
Financial Statements
as at and for the six-month period ended
30 June 2015
PAO Group of Companies PIK
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
PAO Group of Companies PIK
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
PAO Group of Companies PIK
Consolidated Interim Condensed Financial Statements as at and for the six-month period ended 30 June 2015
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
Profit and total comprehensive income for the period
(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
Profit and total comprehensive income for the period
(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
PAO Group of Companies PIK
Consolidated Interim Condensed Financial Statements as at and for the six-month period ended 30 June 2015
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
PAO Group of Companies PIK
Consolidated Interim Condensed Financial Statements as at and for the six-month period ended 30 June 2015
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
PAO Group of Companies PIK
Consolidated Interim Condensed Financial Statements as at and for the six-month period ended 30 June 2015
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.
PAO Group of Companies PIK
Consolidated Interim Condensed Financial Statements as at and for the six-month period ended 30 June 2015
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.
PAO Group of Companies PIK
Consolidated Interim Condensed Financial Statements as at and for the six-month period ended 30 June 2015
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
Six-month period ended
30 June
Six-month period ended
30 June
Six-month period ended
30 June
Six-month period ended
30 June
Six-month period ended
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).
PAO Group of Companies PIK
Consolidated Interim Condensed Financial Statements as at and for the six-month period ended 30 June 2015
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.
PAO Group of Companies PIK
Consolidated Interim Condensed Financial Statements as at and for the six-month period ended 30 June 2015
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)
PAO Group of Companies PIK
Consolidated Interim Condensed Financial Statements as at and for the six-month period ended 30 June 2015
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.
PAO Group of Companies PIK
Consolidated Interim Condensed Financial Statements as at and for the six-month period ended 30 June 2015
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
PAO Group of Companies PIK
Consolidated Interim Condensed Financial Statements as at and for the six-month period ended 30 June 2015
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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