Annual Results

27th Jul 2009 10:00



27 July 2009

Aisi Realty Public Limited  ("Aisi" or "the Company")

Financial Results for the year ended 31 December 2008

Aisi, a property investment company focusing on development projects and related investments in Ukraine, announces its audited results for the year ended 31 December 2008.  

Financial Summary

Investment portfolio valued by DTZ at $64.8 million as at 31 December 2008 (31 December 2007: $49 million)

Net Asset Value was $82.5 million (31 December 2007: $116.1 million)

Net Asset Value per share of $0.43 (31 December 2007: $0.70)

Ungeared balance sheet with no debt as at 31 December 2008

Operational Summary

New Strategy

Implemented new investment strategy focusing on two key developments in response to current challenging market conditions

Development of Bela Logistics Park, Odessa, to be phased. Bank loan facility of $65 million, currently undrawn, to be restructured accordingly 

Commenting on the results, Beso Sikharulidze, executive director of Aisi, said: "This has been a challenging period for Aisi as the global credit crunch disrupted the good operational progress we made during the year. However, we have refocused our growth strategy, remain debt-free and intend to complete our first commercial project in the fourth quarter of this year, which should start generating cash in Q1 2010. As a result, we remain well-placed to take advantage of the long-term drivers in the Ukrainian real estate market once the economic uncertainty dissipates and market fundamentals regain momentum."

A copy of the financial statement may also be found on the Company's website: www.aisicap.com 

Enquiries:

Aisi Realty
Beso Sikharulidze	0038 044 459 3000
Paul Ensor	0759 521 9011
Seymour Pierce
Nandita Saghal, Christopher Wren	020 7107 8000
Corfin Communications
Neil Thapar, Martin Sutton, Claire Norbury	020 7977 0020

  Overview

The Board of Aisi today reports its full year results for the twelve months ended 31 December 2008. These results reflect the impact of the global credit crunch and an exceptionally challenging economic environment, which disrupted the operational progress made by the Company during 2008. 

Despite the adverse macro-environment, which has widely affected real estate markets, the Company is pleased to report that it remains debt-free. Significant progress was also made on its flagship Brovary Logistics Center development, which is due for completion and occupancy in Q4 2009.

As of 31 December 2008, the investment portfolio was valued by DTZ Kiev B.V., the independent chartered surveyors, at $64.8 million compared with $89.9 million as at 30 June 2008, and $49 million at 31 December 2007.

As operating conditions are expected to remain difficult throughout 2009, the Company also revised its investment strategy from aggressive growth to consolidation of existing assets. In particular, Aisi is focusing on:

Tight management of cash flow and working capital

Generation of cash from completed projects

Recovery of advances from the pipeline projects and asset sales

Operational Review

During the period, the global markets experienced unprecedented disruption from which Ukraine was not isolated. In particular, the combination of a steep contraction in industrial production, and a shutdown in bank financing for commercial and residential developments, have all but halted Ukrainian real estate markets both in terms of construction and transactions. As a result, Aisi suffered from delays in drawing upon the project funding it had previously arranged with lenders, including from the EBRD, for its investments and operations. Despite this, the Company was still able to progress some of its key developments. 

Key projects

The most imminent cash flow-generating asset for the Company is Brovary Logistics Center, a 49,180 sq.m. warehouse on the outskirts of Kiev. During the year, the Company took 100% ownership in the development by acquiring the remaining 10% stake it did not own. The project is now 75% complete and due for finalization and occupancy in the fourth quarter of 2009.

 

Delays in access to the first tranche of a $34.4 million debt facility approved by the EBRD in January 2009 have hampered progress with this project. The EBRD will release $13.25 million funds for the project, contingent on Aisi raising additional equity of approximately $4.25 million. Aisi is finalizing the equity raising that will enable the completion of Brovary Logistics Center in Q4 2009. In addition, the Company is also currently working closely with potential syndicate banks and joint venture partners to procure additional funding. 

The second project under construction, Bela Logistics Park, outside of Odessa, is to continue but will be phased - in line with the Company's revised investment strategy as announced on 21 May 2009. Discussions are underway aimed at converting the existing $65 million debt facility already approved but not disbursed by Marfin Bank into a phased facility. The 100,000 sq.m. warehousing facility will comprise of three buildings and is therefore suitable for a phased completion.

Construction of two residential projects in Kiev has been put on hold until a clearer picture of market demand emerges. 

Outlook 

The actions taken by Aisi to refocus its investment strategy to address the current market conditions have enabled the Company to withstand the widely-reported breakdown in the region's capital markets without damaging its long-term prospects.  

The release of funding by the EBRD and the completion of the raise of equity described above will enable the completion of the Company's flagship Brovary Logistics Center development and provide working capital for other projects.

The Ukrainian economy has also shown signs of stabilization with a recent uptick in monthly industrial production while the trade deficit is trending down. After some delay, the International Monetary Fund released the second tranche of its $16.4 billion loan to the country. Recapitalization of the banks by the Government has also allowed them to resume financing for construction. These developments have led to the stabilization in the Hryvnia, the local currency. 

As a result, the Company remains well-placed to benefit from the attractive long-term fundamentals of the Ukrainian real estate market and is confident of delivering value to shareholders once economic conditions improve. 

  CONSOLIDATED INCOME STATEMENT 

Year ended 31 December 2008

		2008	2007
	Note	US$	US$
Revenue
Fair value gains on investment property	8,9	25,665,532	7,700,602
Miscellaneous income		340,281	106,320
		26,005,813	7,806,922
Income from investing activities, net	6	1,166,406	1,905,564
Expenses
Administration expenses	4	(6,928,048)	(4,576,062)
Finance costs, net	5	(36,778,178)	(158,521)
Other (costs)/ income, net		(2,534,582)	2,984
(Loss) / Profit before tax		(19,068,589)	4,980,887
Tax		5,377,127	(2,299,572)
Net (loss) / profit for the year		(13,691,462)	2,681,315
Attributable to:
Equity holders of the parent		(15,482,825)	2,555,372
Minority interest		1,791,363	125,943
		(13,691,462)	2,681,315
(Loss) / Earnings per share attributable to equity holders of the parent (cent)	7	(8.6)	2.1

  CONSOLIDATED BALANCE SHEET

31 December 2008

		2008	2007
	Note	US$	US$
ASSETS
Nonߛcurrent assets
Property, plant and equipment		207,703	295,376
Investment property under construction	8	41,867,000	6,722,135
Investment property	9	22,894,000	32,830,000
Intangible assets		-	1,999,388
Advances for investments		15,426,229	13,096,473
Prepayments under development contracts		2,511,292	9,280,211
		82,906,224	64,223,583
Current assets
Accounts receivable		6,372,133	829,952
Cash and cash equivalents		35,733	43,708,552
		6,407,866	44,538,504
Total assets		89,314,090	108,762,087

  CONSOLIDATED BALANCE SHEET (continued)

31 December 2008

EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital		2,283,299	1,881,092
Share premium		92,683,930	92,683,930
(Accumulated losses) / Retained earnings		(10,381,955)	5,100,870
Other reserves		46,710	-
Translation reserve		(2,091,777)	-
		82,540,207	99,665,892
Minority interest		1,635,510	754,053
Total equity		84,175,717	100,419,945
Nonߛcurrent liabilities
Obligations under finance leases		52,747	94,455
Deferred tax liabilities		-	6,423,314
Accounts payable	10	1,018,414	-
		1,071,161	6,517,769
Current liabilities
Accounts payable	10	3,211,194	1,708,039
Obligations under finance leases		33,236	23,695
Current tax liabilities		822,782	92,639
		4,067,212	1,824,373
Total liabilities		5,138,373	8,342,142
Total equity and liabilities		89,314,090	108,762,087

  CONSOLIDATED CASH FLOW STATEMENT 

Year ended 31 December 2008

			2008	2007
		Note	US$	US$
Operating activities
Profit/(loss) before tax			(19,068,589)	4,980,887
Adjustments for:
	Depreciation of property, plant and equipment		98,105	85,526
	Intangible assets impairment loss		1,282,736	-
	Advances for investments impairment loss		1,909,818	-
	Foreign exchange losses	5	36,259,708	-
	Fair value gain on investment property		(25,665,532)	(7,700,602)
	Other finance expenses	5	36,025
	Interest income	5,6	(1,466,371)
Operating loss before working capital changes			(6,614,100)	(2,634,189)
	Decrease in receivables		(4,096,713)	(19,714)
	Decrease in advances to related parties		-	120,000
	(Increase)/Decrease in prepayments and other current assets		11,736	(587,851)
	Increase/(Decrease) in trade and other payables	10	106,265	(1,578,629)
	Increase in payables due to related parties	11	568,469	137,822
	Decrease in financial lease liabilities		(29,960)	-
Cash flows used in operating activities			(10,054,303)	(4,562,561)
Investing activities
	(Increase)/Decrease in prepayments under development contracts		6,768,919	(9,280,211)
	Increase in advances for investments		(4,239,574)	(13,096,473)
	Increase in payables to constructors	10	1,846,835	-
	Additions to investment property	8,9	(31,063,334)	(6,674,584)
	Additions to property, plant and equipment		(118,538)	(256,181)
	Additions to intangible assets		-	(1,999,388)
	Acquisition of / Changes in minority interest		(109,000)	(2,239,152)
Cash flows used in investing activities			(26,914,692)	(33,545,989)
Financing activities
	Proceeds from issue of share capital		402,207	81,443,629
	Interest received	5	299,964	-
Net cash from financing activities			702,171	81,443,629
Effect of foreign exchange rates on cash and cash equivalents			(7,405,995)	-
Net increase in cash and cash equivalents			(43,672,819)	43,335,079
Cash and cash equivalents:
At beginning of the year			43,708,552	373,473
At end of the year			35,733	43,708,552

  SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Year ended 31 December 2008

For full notes to the financial results, please see the Annual Report and Accounts, available for download from the Company's website: www.aisicap.com 

1. Incorporation and principal activities 

Country of incorporation 

The Company was incorporated in Cyprus on 23 June 2005 as a private company with limited liability under the Companies Law, Cap. 113. On 19 March 2006 it was converted into a Public Limited Liability Company, by filing a statement in lieu of prospectus. On 1 August 2007 the Company placed 50.2 million shares which were admitted to trading on the London Stock Exchange (AIM). Its registered office is at Totalserve House, 17 Gr. Xenopoulou Street, 3106 Limassol, Cyprus.

Principal activity 

The consolidated financial statements of the Company as at and for the year ended 31 December 2008 comprise the Company and its subsidiaries (together referred to as the "Group").

The principal activity of the Group, which is unchanged from last year, is the investment in Ukraine, especially in Kiev and around the major population centres of Ukraine.

As at 31 December 2008 the Group employed 17 people (31 December 2007:17).

2. Summary of significant accounting policies 

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented in these consolidated financial statements unless otherwise stated.

Basis of preparation 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law, Cap.113. The consolidated financial statements are presented in United States Dollars (US$). The consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of investment property and investment property under construction to fair value.

The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates and requires management to exercise its judgement in the process of applying the Group's accounting policies. It also requires the use of assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.

Going concern

These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the repayment of liabilities in the normal course of business. The recoverability of Group's assets, as well as the future operations of the Group, may be significantly affected by the current and future economic environment. The Group incurred a loss before tax of US$ 19,068,589 during the year ended 31 December 2008. Even though at 31 December 2008, the Group's total assets exceed its total liabilities by US$ 84,175,717, the validity of the going concern basis is dependant on the Group's ability to obtain the necessary funding through new issue of shares or bank facilities in order to complete the development of properties so as to generate income. The actions taken by management to obtain the necessary funding have not yet been finalized. The future viability of the Group depends on these actions. The consolidated financial statements do not include any adjustments should the Group be unable to continue as going concern.

Finance costs 

Finance costs comprise interest payable on borrowings calculated using the effective interest rate method, net result from transactions with securities, foreign exchange gains and losses, and bank charges and commission.

Foreign currency translation 

Functional and presentation currency

Items included in the Group's financial statements are measured applying the currency of the primary economic environment in which the entities operate (''the functional currency''). The national currency of Ukraine, Ukrainian Hryvnia, is the functional currency for all the Group's entities, except for the Company and its subsidiary Aisi Capital Ltd for which United States Dollar is the functional currency. The financial statements are presented in United States Dollars (US$).

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at yearߛend exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement as part of finance costs. 

3. Critical accounting estimates and judgements 

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Income taxes 

Significant judgement is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Fair value of investment property 

The fair value of investment property is determined by using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date. The fair value of the investment property has been estimated based on the fair value of their individual assets.

Impairment of intangible assets 

Intangible assets are initially recorded at acquisition cost and are amortized on a straight line basis over their useful economic life. Intangible assets that are acquired through a business combination are initially recorded at fair value at the date of acquisition. Intangible assets with indefinite useful life are reviewed for impairment at least once per year. The impairment test is performed using the discounted cash flows expected to be generated through the use of the intangible assets, using a discount rate that reflects the current market estimations and the risks associated with the asset. When it is impractical to estimate the recoverable amount of an asset, the Group estimates the recoverable amount of the cash generating unit in which the asset belongs to.

Provision for deferred taxes

Deferred tax is not provided in respect of the revaluation of the investment property and investment property under construction as the Group is able to control the timing of the reversal of this temporary difference and the management has intention not to reverse the temporary difference in the foreseeable future. The properties are held by subsidiary companies in Ukraine. The management estimates that the assets will be realised through a share deal rather than through an asset deal. Should any subsidiary be disposed of, the gains generated from the disposal will be exempted from any tax.

  4. Administration expenses 

	2008		2007
	US$		US$
Management fee	2,516,029		1,751,944
Audit, Accounting and Administration fees	604,485		465,336
Consulting fees	577,274		495,848
Legal fees	545,406		159,743
Salaries and Wages	505,753		215,199
Travelling expenses	421,530		505,168
Office expenses	331,113		349,844
Public group expenses	326,212		191,247
Directors remuneration	310,670		139,841
Operating lease expenses	212,303		204,792
Taxes and duties	187,818		66,922
Marketing fees	116,142		2,938
Transaction costs	99,207		96,645
Depreciation	98,105		85,526
Litigation recovery	-		(230,000)
Other expenses	76,001		75,069
	6,928,048		4,576,062

5. Finance costs, net 

	2008		2007
	US$		US$
Foreign exchange losses, net	36,259,708		158,521
Finance charges and commissions	782,409		-
Bank interest income	(299,964)		-
Other finance expenses	36,025
	36,778,178		158,521

6. Income from investing activities, net 

	2008		2007
	US$		US$
Profit from sale of investments in subsidiaries	-		1,210,492
Interest income	1,166,406		695,072
	1,166,406		1,905,564

The profit from sale of investment in subsidiary in 2007 arose from the sale of LLC Aisi Taurus. 

Interest income -related to interest accrued on outstanding advances under investments.

  7. Earnings and net assets per share attributable to equity holders of the parent

Weighted average number of ordinary shares

	2008		2007
	Number		Number
Issued ordinary share capital at 1 January	166,191,829		26,293,717
Ordinary shares additionally issued	26,003,146		139,898,112
Issued ordinary shares capital at 31 December	192,194,975		166,191,829
Weighted average number of ordinary shares	179,513,989		119,813,838
Diluted weighted number of ordinary shares	179,513,989		119,813,838

Basic, diluted and adjusted earnings per share

	2008		2008		2007		2007
	Profit		Earnings		Profit		Earnings
	after tax		per share		after tax		per share
	US$		US$		US$		US$
Basic	(15,482,825)		(0.09)		2,555,372		0.02
Diluted	(15,482,825)		(0.09)		2,555,372		0.02
Market value of investment property under construction	-		-		9,427,865		0.08
Deferred tax on revaluation of investment properties	-		-		6,423,313		0.05
Minority interest, net	-		-		600,165		0.00
Adjusted	(15,482,825)		(0.09)		19,006,715		0.16

The adjustments above have been made only for purposes of calculation of the earnings of 2007 per share. They reflect recognition of deferred tax liability on investment property revaluation and recognition of investment property under construction at fair value as at 31 December 2007.

Net assets per share

	2008		2008		2008		2007		2007		2007
	Net assets		Number		Net assets		Net assets		Number		Net assets
			of shares		per share				of shares		per share
Basic	82,540,207		192,194,975		0.43		99,665,892		166,191,829		0.60
Diluted	82,540,207		192,194,975		0.43		99,665,892		166,191,829		0.60
Deferred tax on revaluation of investment properties	-		-		-		6,423,313		166,191,829		0.04
Market value of investment property under construction	-		-		-		9,427,865		166,191,829		0.06
Minority interest, net	-		-		-		600,165		166,191,829		0.00
Adjusted	82,540,207		192,194,975		0.43		116,117,235		166,191,829		0.70

8. Investment property under construction 

	2008		2007
	US$		US$
At 1 January	6,722,135		-
Transfer from investment properties	10,800,000		6,124,000
Investment property related costs	30,186,227		598,135
Revaluation gains on investment property	14,200,904		-
Translation difference	(20,042,266)		-
At 31 December	41,867,000		6,722,135

Up to 31 December 2007 investment property under development was carried at cost plus any development costs after initial recognition and was stated as Property under construction in the financial statements. IAS 16 requirements were applied to the Investment property under development during the period of development. As such, no fair value gains were recognised in the income statement of 2007 on these properties. 

The Group has decided to take advantage of the permission allowed in IAS 40 "Investment property" to apply the amendments to investment property under construction in the financial statements of 2008. Therefore, the fair value gains on investment property of US$ 25,665,532 appearing in the income statement of 2008 include fair value gains of US$ 14,200,904 on investment properties under construction valued at fair value for the first time in 2008.

9. Investment property 

	2008		2007
	US$		US$
At 1 January	32,830,000		25,176,948
Additions	-		6,000,001
Disposals	-		(2,413,334)
Transfer to property under construction	(10,800,000)		(6,124,000)
Investment property related costs	877,107		2,489,783
Revaluation gains on investment property	11,464,628		7,700,602
Translation difference	(11,477,735)		-
At 31 December	22,894,000		32,830,000

On acquisitions dates and as at December 31, 2008, the property was valued by DTZ Kiev B.V ("DTZ"), an external valuer. The valuer's opinion of the Market Value of each property has been primarily derived using an estimate of the future potential net income generated by use of the properties because their specialised nature means that there is no market based evidence available. 

Project related prepayments include advances for contractors and consultants on works preceding development of properties.

In October 2007 the Group obtained the construction permit for Brovary Logistics Center and in April 2008 the Group obtained the construction permit for Bela Logistics Park that were reclassified according to IAS 40 from Investment Property to Investment Property under construction respectively in 2007 and 2008.

10. Accounts payable 

	2008		2007
	US$		US$
Payables to related companies (Note 11)	1,288,126		746,645
Guarantee reserve on construction works, non-current	1,018,414		-
Guarantee reserve on construction works, current part	210,488		-
Payables for construction	617,933		-
Audit and accounting fees due	214,649		252,840
VAT and other taxes payable	92,151		167,775
Accruals	57,064		240,571
Other payables	730,783		300,208
	4,229,608		1,708,039

The fair values of trade and other payables due within one year approximate to their carrying amounts as presented above.

The Group has created reserves on construction works performed by general contractors. The reserves equal to 10% of the amount of each accepted act of works and is due for payment by the end of the definite term as per agreement between the respective subsidiary of the Group and the general contractor.

11. Related party transactions 

The following transactions were carried out with related parties:

Management fees 

	2008		2007
	US$		US$
Aisi Realty Capital LLC	2,516,029		1,751,944
	2,516,029		1,751,944

The management fee is calculated at the rate of 2,5% on the committed capital. Two principals of Aisi Realty Capital LLC are non-executive directors of Aisi Realty Public Limited.

Payables to related parties (Note 10)

		2008		2007
Name	Nature of transactions	US$		US$
Aisi Realty Capital LLC	Trade	1,253,607		233,400
Howard Kelham		34,519		-
Former shareholders of the acquired companies		-		513,245
		1,288,126		746,645

12. Contingencies 

As at 31 December 2008 the Group was not a party to any litigation.

A number of the land leases are held for relatively short term and place an obligation upon the lessee to commence development prior to expiration date of the lease agreement. In the event that a development has not commenced upon the expiry of a lease, the City Authorities are entitled not to extend the lease agreement on the basis that the land is not used in accordance with its designation. Furthermore, in order to extend the lease agreement all necessary permissions and consents for development have to be presented to the authorities. However the management believes that the possibility of such action is remote and was taken only under limited circumstances in the past. In undertaking the valuations reported herein, DTZ Kiev have made the assumption that no such circumstances will arise to permit the City to rescind the land lease or not to grant a renewal.

ENDFR CKOKQFBKKKOB

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