Public Joint Stock Company State transport leasing company

Transcription

1 Public Joint Stock Company State transport leasing company Interim Consolidated Condensed Financial Statements as at and for the Six-Month Period Ended

2 Contents Independent Auditors Report on Review of Interim Consolidated Condensed Financial Information... 3 Interim Consolidated Condensed Statement of Financial Position... 5 Interim Consolidated Condensed Statement of Profit or Loss and Other Comprehensive Income... 6 Interim Consolidated Condensed Statement of Cash Flows... 7 Interim Consolidated Condensed Statement of Changes in Equity Principal activities Basis of preparation Significant accounting policies Transition to IFRS Net investment in leases Assets leased out under operating leases Receivables on cancelled lease agreements and other receivables Loans received Finance lease liabilities Bonds issued Share capital Fair value of financial instruments Related parties Events subsequent to the reporting date... 32

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6 Interim Consolidated Condensed Statement of Profit or Loss and Other Comprehensive Income for the Six- Month Period Ended Interim Consolidated Condensed Statement of Profit or Loss and Other Comprehensive Income Note Six-Month Period Ended Unaudited Six-Month Period Ended 30 June 2017 Unaudited Finance lease interest income Other interest income Operating lease income Interest expense (10 903) (8 629) Operating lease expenses (1 072) (1 015) Depreciation of assets leased out under operating leases (5 310) (2 705) Charge of provision for expected credit losses on interest bearing assets (371) (14) Administrative expenses (1 081) (895) Other operating income Other operating expenses and charge of provisions (298) (1 884) Net foreign exchange translation gain (loss) (443) 387 Impairment losses on non interest-earning assets 7 (485) (1 249) Loss from disposal of inventories and their writing down to net realizable value (500) (279) Profit (loss) before taxation 615 (2 457) Income tax benefit (expense) (173) 755 Profit (loss) for the period 442 (1 702) Other comprehensive income (loss), net of income tax Items that are or may be reclassified subsequently to profit or loss: Currency translation difference 203 (15) Total items that are or may be reclassified subsequently to profit or loss 203 (15) Other comprehensive income (loss), net of income tax 203 (15) Total comprehensive income (loss) for the period 645 (1 717) 6

7 Interim Consolidated Condensed Statement of Cash Flows for the Six-Month Period Ended Interim Consolidated Condensed Statement of Cash Flows Note Six-Month Period Ended 30 June 2018 Unaudited Six-Month Period Ended 30 June 2017 Unaudited CASH FLOWS FROM OPERATING ACTIVITIES Cash received from lessees (except for interest received) Interest received from lessees Proceeds (including VAT) from disposal of repossessed equipment Cash paid to suppliers of equipment for leasing purposes (91 662) (39 008) Cash paid for insurance of leased equipment (200) (76) Interest received Interest paid (11 953) (8 534) Government grants related to compensation of interest expenses Receipts on taxes other than income tax Net proceeds from derivative financial instruments (38) 983 Administrative and other expenses paid (1 367) (984) Net other operating expenses paid and expenses on operating lease paid (967) (1 098) Net cash flows used in operating activities before tax (67 773) (23 713) Income tax paid (4) - Net cash flows used in operating activities (67 777) (23 713) CASH FLOWS FROM INVESTING ACTIVITIES Placement of deposits (318) - Granting of loans (1 623) - Repayment of loans granted 27 - Proceeds from disposal of investment property - 96 Net cash flows (used in) from investing activities (1 914) 96 CASH FLOWS FROM FINANCING ACTIVITIES Loans received Loans and finance lease liabilities paid (40 235) (40 096) Bonds issued Bonds repaid (11 155) (3 902) Shares issued Net cash flows from financing activities Effect of changes in exchange rates on cash and cash equivalents 137 (215) Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period

8 Interim Consolidated Condensed Statement of Changes in Equity for the Six-Month Period Ended Interim Consolidated Condensed Statement of Changes in Equity Share capital (Accumulated losses)/ Retained earnings Currency translation difference Total equity Balance as at 1 January (119) Total comprehensive loss (Unaudited) Loss for the period (Unaudited) - (1 702) - (1 702) Other comprehensive loss (Unaudited) Items that are or may be reclassified subsequently to profit or loss: Currency translation difference (Unaudited) - - (15) (15) Total items that are or may be reclassified subsequently to profit or loss - - (15) (15) Total other comprehensive loss (Unaudited) - - (15) (15) Total comprehensive loss (Unaudited) - (1 702) (15) (1 717) Issue of shares Balance as at 30 June 2017 (Unaudited) (1 057) (134) Balance as at 31 December (3 190) (186) Effect from transition to IFRS 9 as at 1 January 2018 (Note 4) (Unaudited) - (141) - (141) Recalculated Balance as at 1 January (3 331) (186) Total comprehensive income (Unaudited) Profit for the period (Unaudited) Other comprehensive income (Unaudited) Items that are or may be reclassified subsequently to profit or loss: Currency translation difference (Unaudited) Total items that are or may be reclassified subsequently to profit or loss Total other comprehensive income (Unaudited) Total comprehensive income (Unaudited) Dividends declared (Unaudited) - (108) - (108) Balance as at (Unaudited) (2 997)

9 1. Principal activities Public Joint Stock Company State transport leasing company (the Company) was incorporated in the Russian Federation as a Closed Joint Stock Company Leasing Company of Civilian Aviation on 12 November The Company s principal business activity is provision of finance and operating leases to companies within the Russian Federation and CIS. The Company s registered office is located at , Russia, Yamalo-Nenetsky avtonomny okrug, Salehard, Respubliki St., 73, office 100. As at and 31 December 2017 the sole shareholder of the Company is the Russian Federation. On 9 May 2012 the Company established a 100% subsidiary GTLK Europe DAC (former GTLK Europe Limited) in the Republic of Ireland to facilitate aviation and naval leasing. GTLK Europe DAC in its turn organized a number of subsidiaries which are used for aviation and naval leasing transactions structuring. All these entities are 100% directly owned by GTLK Europe DAC. Company registration number Country of incorporation Date of incorporation GTLK Limited Ireland 24 January 2013 GTLK AFL Limited Bermuda 11 July 2013 GTLK BO1 Limited Bermuda 11 July 2013 GTLK BO2 Limited Bermuda 11 July 2013 STLC Europe One Leasing Limited Ireland 10 July 2013 STLC Europe Two Leasing Limited Ireland 10 October 2013 GTLK BO3 Limited Bermuda 24 July 2013 GTLK Malta Limited C62196 Malta 10 October 2013 GTLK BO4 Limited Bermuda 13 February 2014 GTLK BO5 Limited Bermuda 14 February 2014 GTLK BO6 Limited Bermuda 29 April 2014 GTLK Lietuva 01 UAB Lithuania 21 February 2014 STLC Europe Three Leasing Limited Ireland 10 November 2015 STLC Europe Four Leasing Limited Ireland 18 November 2015 STLC Europe Five Leasing Limited Ireland 10 February 2016 STLC Europe Six Leasing Limited Ireland 3 November 2016 GTLK Malta Two Limited C76031 Malta 13 June 2016 GTLK Malta Three Limited C76721 Malta 3 August 2016 STLC Europe Seven Leasing Limited Ireland 22 February 2017 STLC Europe Eight Leasing Limited Ireland 22 February 2017 STLC Europe Nine Leasing Limited Ireland 30 June 2017 STLC Europe Ten Leasing Limited Ireland 13 July 2017 STLC Europe Eleven Leasing Limited Ireland 14 November 2017 GTLK Malta Four Limited C82877 Malta 6 October 2017 GTLK Malta Five Limited C83767 Malta 30 November 2017 STLC Europe Sixteen Leasing Limited Ireland 22 December

10 Company registration number Country of incorporation Date of incorporation STLC Europe Twelve Leasing Limited Ireland 3 January 2018 STLC Europe Thirteen Leasing Limited Ireland 17 January 2018 GTLK Europe Capital DAC Ireland 17 January 2018 STLC Europe Fourteen Leasing Limited Ireland 7 February 2018 STLC Europe Fifteen Leasing Limited Ireland 9 February 2018 STLC Europe Seventeen Leasing Limited Ireland 13 March 2018 STLC Europe Eighteen Leasing Limited Ireland 13 March 2018 STLC Europe Nineteen Leasing Limited Ireland 13 March 2018 STLC Europe Twenty Leasing Limited Ireland 13 March 2018 STLC Europe Twenty One Leasing Limited Ireland 13 March 2018 STLC Europe Twenty Two Leasing Limited Ireland 13 March 2018 STLC Europe Twenty Three Leasing Limited Ireland 13 March 2018 STLC Europe Twenty Four Leasing Limited Ireland 13 March 2018 STLC Europe Twenty Five Leasing Limited Ireland 13 March 2018 STLC Europe Twenty Six Leasing Limited Ireland 13 March 2018 In 2015 tax registration of Limited Liability Company GTLK Finance, a 100% subsidiary of the Company, was conducted. This entity has been established for structuring of transactions with Rouble denominated public debt instruments of the Company traded on Moscow Exchange and for management of outstanding public debt level. In 2016 tax registration of Limited Liability Company GTLK Invest was conducted. The Company and Limited Liability Company GTLK Finance jointly own 100% of the share capital of the company. In December, 2016 the Group acquired a 95% share in Limited Liability Company Rozana and the 100% share in Limited Liability Company Morskoy port Lavna (hereinafter Rozana LLC and Lavna LLC, respectively). The aforementioned companies hold permission and construction documentation in respect of the project of a trading seaport, and leasehold of certain land plots in the Murmansk region. This transaction is not a business combination and is classified as acquisition of an investment property asset. The operation on acquisition of these two companies has no significant impact on the equity of the Group. Public Joint Stock Company State transport leasing company, Limited Liability Company GTLK Finance, Limited Liability Company GTLK Invest, Limited Liability Company Rozana, Limited Liability Company Lavna and GTLK Europe DAC together with its subsidiaries form the STLC Group (the Group). The Group operates in an industry where significant seasonal or cyclical variations in operating income are not experienced during the financial year. Russian 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 emerging-market characteristics. Legal, tax and regulatory frameworks continue to be developed, but are subject to varying interpretations and frequent changes that, together with other legal and fiscal impediments, contribute to the challenges faced by entities operating in the Russian Federation. The conflict in Ukraine and related events has 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 10

11 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. 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 longer term effects of recently implemented sanctions, as well as the threat of additional future sanctions, are difficult to determine. The interim consolidated condensed financial statements reflect management s assessment of the impact of the Russian business environment on the operations and financial position of the Group. The future business environment may differ from management s assessment. 2. Basis of preparation Statement of Compliance The accompanying interim consolidated condensed financial statements are prepared in accordance with IAS 34 Interim Financial Reporting. The interim consolidated condensed financial statements are prepared on a condensed basis and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2017, as these interim consolidated condensed financial statements provide an update of previously reported financial information. Use of estimates and judgments The preparation of interim consolidated condensed financial statements in conformity with International Financial Reporting Standards (IFRS) requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Although these estimates are based on management s best knowledge of current events and actions, actual results ultimately may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Changes in accounting policies and presentation IFRS 9 Financial instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. It replaces IAS 39 Financial Instruments: Recognition and Measurement. In October 2017, the IASB issued Prepayment Features with Negative Compensation (Amendments to IFRS 9). The amendments are effective for annual periods beginning on or after 1 January 2019, with early adoption permitted. The Group has adopted IFRS 9 Financial Instruments issued in July 2014 with a date of initial application of 1 January 2018 and early adopted amendments to IFRS 9 on the same date. The requirements of IFRS 9 represent a significant change from IAS 39 Financial Instruments: Recognition and Measurement. The new standard brings fundamental changes to the accounting for financial assets and to certain aspects of the accounting for financial liabilities. As permitted by IFRS 9, the Group has elected to continue to apply the hedge accounting requirements of IAS

12 The key changes to the Group s accounting policies resulting from its adoption of IFRS 9 are summarised below. Classification of financial assets and financial liabilities IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). IFRS 9 classification is generally based on the business model in which a financial asset is managed and its contractual cash flows. The standard eliminates the existing IAS 39 categories of held-to-maturity, loans and receivables and available-for-sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the whole hybrid instrument is assessed for classification. IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. However, although under IAS 39 all fair value changes of liabilities designated under the fair value option were recognised in profit or loss, under IFRS 9 fair value changes are generally presented as follows: the amount of change in the fair value that is attributable to changes in the credit risk of the liability is presented in other comprehensive income; and the remaining amount of change in the fair value is presented in profit or loss. Impairment of financial assets IFRS 9 replaces the incurred loss model in IAS 39 with an expected credit loss model. The new impairment model also applies to certain loan commitments and financial guarantee contracts but not to equity investments. Under IFRS 9, credit losses are recognised earlier than under IAS 39. The Group recognises loss allowances for expected credit losses (ECL) on the following financial instruments that are not measured at FVTPL: net investments in leases; receivables on cancelled lease agreements and other receivables; loans granted; other financial assets that are debt instruments; financial guarantee contracts issued. The Group measures loss allowances at an amount equal to lifetime ECL, except for the following, for which they are measured as 12-month ECL: financial instruments from the time of initial recognition; not credit-impaired financial instruments, not overdue or delayed for more than 30 days (and not more than 180 days for budgetary institutions), for which the credit risk has not increased significantly since their initial recognition (Note 4). 12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. Significant increase in credit risk When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group s historical experience and expert credit assessment and including forwardlooking information. 12

13 The objective of the assessment is to identify whether a significant increase in credit risk has occurred for an exposure by comparing: the remaining lifetime probability of default (PD) as at the reporting date; with the remaining lifetime PD for this point in time that was estimated at the time of initial recognition of the exposure (adjusted where relevant for changes in prepayment expectations). Credit risk grades The Group allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of default and applying experienced credit judgement. Credit risk grades are defined using qualitative and quantitative factors that are indicative of risk of default. These factors vary depending on the nature of the exposure and the type of borrower. Credit risk grades are defined and calibrated such that the risk of default occurring increases exponentially as the credit risk deteriorates so, for example, the difference in risk of default between credit risk grades 1 and 2 is smaller than the difference between credit risk grades 2 and 3. Each exposure is allocated to a credit risk grade at initial recognition based on available information about the borrower. Exposures are subject to ongoing monitoring, which may result in an exposure being moved to a different credit risk grade. The monitoring typically involves use of the following data: information obtained during periodic review of customer files e.g. audited financial statements, management accounts, budgets and projections; information about payments, including the status of overdue amount; data from credit reference agencies, press articles, changes in external credit ratings; actual and expected significant changes in the political, regulatory and technological environment of the borrower or in its business activities. Generating the term structure of PD Credit risk grades are a primary input into the determination of the term structure of PD for exposures. The Group collects performance and default information about its credit risk exposures analysed by jurisdiction or region and by type of product and borrower as well as by credit risk grading. The Group employs statistical models to analyse the data collected and generate estimates of the remaining lifetime PD of exposures and how these are expected to change as a result of the passage of time. This analysis includes the identification and calibration of relationships between changes in default rates and changes in key macro-economic factors as well as in-depth analysis of the impact of certain other factors on the risk of default. The Group uses expert judgment in assessment of forward-looking information. This assessment is based also on external information. The Group then uses these forecasts to adjust its estimates of PDs. Determining whether credit risk has increased significantly The criteria for determining whether credit risk has increased significantly vary by portfolio and include quantitative changes in PDs and qualitative factors, including a backstop based on delinquency. In measuring increases in credit risk, remaining lifetime ECLs are adjusted for changes in maturity. Using its expert credit judgement and, where possible, relevant historical experience, the Group may determine that an exposure has undergone a significant increase in credit risk based on particular qualitative indicators that it considers are indicative of such and whose effect may not otherwise be fully reflected in its quantitative analysis on a timely basis. As a backstop, the Group considers that a significant increase in credit risk occurs no later than when an asset is more than 30 days past due (180 days for budgetary institutions, whose financial security is carried 13

14 out by corresponding budget). Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received. The Group monitors the effectiveness of the criteria used to identify significant increases in credit risk by regular reviews to confirm that: the criteria are capable of identifying significant increases in credit risk before an exposure is in default; the criteria do not align with the point in time when an asset becomes 30 days past due; the average time between the identification of a significant increase in credit risk and default appears reasonable; exposures are not generally transferred directly from 12-month ECL measurement (stage 1) to credit-impaired (stage 3); there is no unwarranted volatility in loss allowance from transfers between 12-month ECL (stage 1) and lifetime ECL measurements (stage 2). Modified financial assets The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, customer retention and other factors not related to a current or potential credit deterioration of the customer. An existing loan whose terms have been modified may be derecognised and the renegotiated loan recognised as a new loan with modified terms. When the terms of a financial asset are modified and the modification does not result in derecognition, the determination of whether the asset s credit risk has increased significantly reflects comparison of: its remaining lifetime PD at the reporting date based on the modified terms; with the remaining lifetime PD estimated based on data at initial recognition and the original contractual terms. The Group renegotiates loans to customers in financial difficulties (referred to as forbearance activities ) to maximise collection opportunities and minimise the risk of default. Under the Group s forbearance policy, loan forbearance is granted on a selective basis if the debtor is currently in default on its debt or if there is a high risk of default, there is evidence that the debtor made all reasonable efforts to pay under the original contractual terms and the debtor is expected to be able to meet the revised terms. The revised terms usually include extending the maturity, changing the timing of interest payments and amending the terms of loan covenants. For financial assets modified as part of the Group s forbearance policy, the estimate of PD reflects whether the modification has improved or restored the Group s ability to collect interest and principal and the Group s previous experience of similar forbearance action. As part of this process, the Group evaluates the borrower s payment performance against the modified contractual terms and considers various behavioural indicators. Generally, forbearance is a qualitative indicator of a significant increase in credit risk and an expectation of forbearance may constitute evidence that an exposure is credit-impaired/ in default. A customer needs to demonstrate consistently good payment behavior over a period of time before the exposure is no longer considered to be credit-impaired/ in default or the PD is considered to have decreased such that the loss allowance reverts to being measured at an amount equal to 12-month ECL. Definition of default The Group considers a financial asset to be in default when: 14

15 the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as withdrawal of a leased asset; or the borrower is past due more than 90 days on any material credit obligation to the Group (and more than 270 days for budgetary institutions, whose financial security is carried out by corresponding budget). In assessing whether a borrower is in default, the Group considers indicators that are: overdue status and non-payment on another obligation of the same issuer to the Group; based on data developed internally and obtained from external sources. Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to reflect changes in circumstances. Incorporating of forward-looking information The Group incorporates forward-looking information into both its assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and its measurement of ECL. The Group uses expert judgment in assessment of forward-looking information. This assessment is based also on external information. Measurement of ECL The key inputs into the measurement of ECL are the term structure of the following variables: probability of default (PD); loss given default (LGD); exposure at default (EAD). These parameters are generally derived from internally developed statistical models and other historical data. They are adjusted to reflect forward-looking information as described above. PD estimates are estimates at a certain date, which are calculated based on statistical rating models, and assessed using rating tools tailored to the various categories of counterparties and exposures. These statistical models are based on internally compiled data comprising both quantitative and qualitative factors. Where it is available, market data may also be used to derive the PD for large corporate counterparties. If a counterparty or exposure migrates between rating classes, then this will lead to a change in the estimate of the associated PD. PDs are estimated considering the contractual maturities of exposures and estimated prepayment rates. The Group estimates LGD parameters based on the history of recovery rates of claims against defaulted counterparties. The LGD models consider the structure, collateral, seniority of the claim, counterparty industry and recovery costs of any collateral that is integral to the financial asset. For loans secured by retail property, LTV ratios are a key parameter in determining LGD. LGD estimates are recalibrated for different economic scenarios and, for real estate lending, to reflect possible changes in property prices. They are calculated on a discounted cash flow basis using the effective interest rate as the discounting factor. EAD represents the expected exposure in the event of a default. The Group derives the EAD from the current exposure to the counterparty and potential changes to the current amount allowed under the contract including amortisation. The EAD of a financial asset is its gross carrying amount. As described above, and subject to using a maximum of a 12-month PD for financial assets for which credit risk has not significantly increased, the Group measures ECL considering the risk of default over the maximum contractual period (including any borrower s extension options) over which it is exposed to credit risk, even if, for risk management purposes, the Group considers a longer period. Transition 15

16 Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except as described below. Comparative periods have not been restated. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves as at 1 January Accordingly, the information presented for the six-month period ended 30 June 2017 and as at 31 December 2017 does not reflect the requirements of IFRS 9 and therefore is not comparable to the information presented as at and for the six-month period ended under IFRS 9. The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application: The determination of the business model within which a financial asset is held. The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL. For more information and details on the changes and implications resulting from the adoption of IFRS 9, see Note 4. Segment reporting The Group s operations constitute a single industry segment, leasing. 3. Significant accounting policies The accounting policies applied in these interim consolidated condensed financial statements are consistent with those applied in the consolidated financial statements for the year ended 31 December 2017, except as explained below, related to the Group s adoption of IFRS 9 (Note 2), which is applicable from 1 January Explanation of how the Group applies changes in accounting policy is presented below. Interest Effective interest rate Interest income and expense are recognised in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to: the gross carrying amount of the financial asset; or the amortised cost of the financial liability. When calculating the effective interest rate for financial instruments other than credit-impaired assets, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not expected credit losses. For credit-impaired financial assets, a credit-adjusted effective interest rate is calculated using estimated future cash flows including expected credit losses. The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability. Amortised cost and gross carrying amount The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount 16

17 and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance (or impairment allowance before 1 January 2018). The gross carrying amount of a financial asset measured at amortised cost is the amortised cost of a financial asset before adjusting for any expected credit loss allowance. Calculation of interest income and expense In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortised cost of the liability. However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis. For financial assets that were credit-impaired on initial recognition, interest income is calculated by applying the credit-adjusted effective interest rate to the amortised cost of the asset. The calculation of interest income does not revert to a gross basis, even if the credit risk of the asset improves. Business model assessment The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes: the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular whether management s strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets; how the performance of the portfolio is evaluated and reported to the Group s management; the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; how managers of the business are compensated e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group s stated objective for managing the financial assets is achieved and how cash flows are realised. Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets. Assessment whether contractual cash flows are solely payments of principal and interest For the purposes of this assessment, principal is defined as the fair value of the financial asset on initial recognition. Interest is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin. In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Group considers: 17

18 rates. contingent events that would change the amount and timing of cash flows; leverage features; prepayment and extension terms; terms that limit the Group s claim to cash flows from specified assets); features that modify consideration of the time value of money e.g. periodical reset of interest Reclassification Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model for managing financial assets. The Group should reclassify financial assets if the Group changes its business model for managing those financial assets. Such changes are expected to be very infrequent. Such changes are determined by the Group s senior management as a result of external or internal changes and must be significant to the Group s operations and demonstrable to external parties. Accordingly, a change in the Group s business model will occur only when the Group either begins or ceases to perform an activity that is significant to its operations; for example, when the Group has acquired, disposed of or terminated a business line. Financial liabilities are not reclassified subsequent to their initial recognition. Reclassification of comparative information During 2017 the Group has revised the classification of recognition of grants in respect of interest payments. Comparative data have been reclassified to reflect changes in the presentation of interim consolidated condensed financial statements. The effect of the above changes on data presentation for six-month period ended 30 June 2017 is given below: Before reclassification Reclassification After Reclassification Interest expense (8 960) 331 (8 629) Other operating income 619 (331) Transition to IFRS 9 Classification of financial assets and financial liabilities on the date of initial application of IFRS 9 The following table shows the original measurement categories in accordance with IAS 39 and the new measurement categories under IFRS 9 for the Group s financial assets and financial liabilities as at 1 January Original classification under IAS 39 New classification under IFRS 9 Original carrying amount under IAS 39 New carrying amount under IFRS 9 Financial assets Cash and cash equivalents Loans and receivables Amortised cost Derivative financial assets FVTPL FVTPL (mandatory)

19 Original classification under IAS 39 New classification under IFRS 9 Original carrying amount under IAS 39 New carrying amount under IFRS 9 Receivables on cancelled lease agreements and other receivables Amortised cost Amortised cost Total financial assets Financial liabilities Loans received Amortised cost Amortised cost Bonds issued Amortised cost Amortised cost Total financial liabilities The Group s accounting policies on the classification of financial instruments under IFRS 9 are set out in Note 2. The application of these policies resulted in the reclassifications set out in the table above. The following table reconciles the carrying amounts under IAS 39 to the carrying amounts under IFRS 9 on transition to IFRS 9 on 1 January IAS 39 carrying amount 31 December 2017 Reclassification Remeasurement IFRS 9 carrying amount 1 January 2018 Financial assets Amortised cost Cash and cash equivalents: Opening balance Closing balance Receivables on cancelled lease agreements and other receivables: Opening balance Remeasurement - - (176) (176) Closing balance (176) Net investment in leases: Opening balance Closing balance Total amortised cost (176) FVTPL Financial derivative Total FVTPL Аs the result of adoption of IFRS 9 there were no changes in classification and measurement of financial liabilities. The following table shows the information on measurement categories of financial assets in accordance with IAS 39 and IFRS 9, and the effect of the changes in the measurement category on the loss allowance at the date of initial application of IFRS 9, i.e. as at 1 January

20 31 December 2017 (IAS 39) Impairment allowance and provisions Reclassification Remeasurement 1 January 2018 (IFRS 9) Financial assets at amortised cost under IFRS 9 (includes cash and cash equivalents) Total measured at amortised cost Credit quality analysis The following table sets out information about the credit quality of financial assets measured at amortised cost as at. Unless specially indicated, for financial assets, the amounts in the table represent gross carrying amounts. Unaudited Lifetime ECL not creditimpaired Lifetime ECL creditimpaired Purchased or originated credit impaired 12-month ECL Total Cash and cash equivalents Loss allowance Carrying amount Deposits in banks Loss allowance Carrying amount Loans granted at amortised cost Loss allowance (30) (30) Carrying amount Net investment in leases Loss allowance (1 083) (195) (213) - (1 491) Carrying amount Receivables on cancelled lease agreements and other receivables Loss allowance (181) (86) (8 609) - (8 876) Gross carrying amount

21 5. Net investment in leases Unaudited 31 December 2017 Gross investments in leases Unearned income ( ) ( ) Net investment in leases gross of impairment allowance Impairment allowance (1 491) (1 150) Net investment in leases The Group holds title to the leased assets during the lease term. Titles to the assets under finance lease agreements pass to the lessees at the end of the lease term. Risks related to the leased property such as damage and theft are insured. The beneficiary under the insurance policy on the vast majority of the lease agreements is the Group. Net investment in leases are secured by assets for which leases were obtained, such as railroad rolling stock, aircraft, cars, other vehicles and equipment. The Group provides two types of finance lease products to its customers: commercial leases and noncommercial leases. There are no differences in internal procedures of risk assessment and decision making between these two types of leases. Unified risk management policy is applied to all the financial leases regardless of their type. Non-commercial leases Non-commercial lease programmes are programmes/projects implemented by the Company in the course of its ordinary business activity, which are specifically aimed to promote the governmental policy in transportation and transport infrastructure development, including replacement of the existing fleet of transportation companies by the higher-efficiency innovative, domestically manufactured equipment. Non-commercial lease programmes funding is sourced from the capital contributions received from the federal budget and the moneys borrowed, both in accordance with terms and conditions of the relevant programmes. Funding of the programmes is subject to Use of capital contributions and proceeds from investments funded by capital contributions, as regards PJSC STLC equity indemnification, an internal regulation of the Company approved by the Board of Directors on 28 September 2016 (board minutes 76/2016). Implementation of the programmes is also subject to any regulatory acts of the Government of the Russian Federation and the Ministry of Transport. The following types of clients which are companies involved in the transport infrastructure of the Russian Federation are eligible for participation in the programmes: Aviation transportation enterprises; Airports/airfields operators and other enterprises for airline passenger services, aircraft and cargo services; Enterprises that operate domestically produced sea/river vessels and combined type vessels; Passenger and cargo transportation enterprises; Logistics hub operator and/or developer enterprises; Railroad transportation enterprises that operate innovative types of rolling stock; Road construction enterprises and utility enterprises; road and transport infrastructure operators; Passenger transport enterprises, including taxi services; Government authorities of the Russian Federation, its federal entities or municipal entities. 21

22 Non-commercial lease programmes are operated in a number of industries for which: certain measures of governmental support are deemed to be necessary, including those driven by an increased social importance of an industry; no highly developed market for raising the production capacities exists as at the current moment; risk levels are high, with the return levels being low, which in turns makes an industry less attractive for private investments (i.e. private leasing companies and banks); implementation of innovative technologies is a necessity; substitution of imported goods and domestic vendors specific support are required. Leased assets should be new and produced or assembled in the Russian Federation. The lease terms under non-commercial leases vary from 3 to 15 years. Commercial leases Commercial leases are a standard lease program under which leases are issued on market terms. The commercial leases program has no specific requirements to lessees except that they must meet requirements on their financial position and creditworthiness. There are no specific requirements related to the type of leased assets. These types of lease agreements are funded with borrowings from third parties. The lease term under commercial leases normally varies from 3 to 20 years. The outstanding contractual maturities of the net investment in leases as at are as follows (unaudited): Gross investment in leases Repayment of unearned income Net investment in leases gross of impairment allowance Impairment allowance Net investment in leases Less than one month including overdue (1 747) (52) From one to three months (3 131) (11) From three to six months (4 663) (16) From six months to one year (8 951) (48) From one year to five years (59 405) (571) More than five years (53 605) (793) Total ( ) (1 491) Net investments in leases split by contractual maturities as at 31 December 2017 are as follows: Gross investment in leases Repayment of unearned income Net investment in leases gross of impairment allowance Impairment allowance Net investment in leases Less than one month including overdue (1 437) 905 (80) 825 From one to three months (2 535) (15) From three to six months (3 923) (22) From six months to one year (7 701) (36) From one year to five years (50 360) (354) More than five years (44 014) (643) Total ( ) (1 150)

23 Other information about net investment in leases As at net investment in leases with ten largest lessees amount comprise 66.6% of lease portfolio of the Group gross of impairment allowance, or RUB million (31 December 2017: 65.8%, or RUB million). As at the amount of gross investment in leases on contracts that have been signed but have not commenced is RUB million (31 December 2017: RUB million). Impairment of net investment in leases Movement in allowance for impairment is as follows: Six-Month Period Ended Unaudited Six-Month Period Ended 30 June 2017 Unaudited Balance at the beginning of the period Net impairment charge for the period month ECL Lifetime ECL not credit-impaired 93 - Lifetime ECL credit-impaired 4 - Balance at the end of the period Assets leased out under operating leases Assets leased out under operating leases are primarily represented by aircraft and railroad rolling stock. As at, these types of assets represented 94.2% (31 December 2017: 92.8%) and 5.8% (31 December 2017: 7.2%) of total amount of assets leased out under operating leases accordingly. The industry breakdown of net investment in leases and net book values of assets leased out under operating leases as at is as follows: Net investment in leases (gross of impairment allowance) Assets leased out under operating leases Total % Unaudited Aircraft industry and airport services Railroad transport Naval transportation and port facilities Cargo and passenger motor transport Road construction Trading activities Machinery construction Other industries Total

24 The industry breakdown of net investment in leases and net book values of assets leased out under operating leases as at 31 December 2017 is as follows: Net investment in leases (gross of impairment allowance) Assets leased out under operating leases Total % Aircraft industry and airport services Railroad transport Naval transportation and port facilities Cargo and passenger motor transport Road construction Trading activities Machinery construction Other industries Total Receivables on cancelled lease agreements and other receivables Unaudited 31 December 2017 Receivables on cancelled lease agreements Receivables on operating lease agreements Prepaid expenses Advances paid to suppliers (other than payments for leasing assets and property and equipment ) Other than income tax taxes receivables 2 3 Lease premium Other receivables Impairment allowance (8 876) (8 294) Total trade and other receivables Movement in the allowance for impairment is as follows: 12- month ECL Six-Month Period Ended Unaudited Lifetime ECL not creditimpaired Six-Month Period Ended 30 June 2017 Unaudited Lifetime ECL creditimpaired Total Total Balance at the beginning of the period Net (recovery) charge (49) (607) Write-offs - - (79) (79) (1 549) Balance at the end of the period