Group OPIN. International Financial Reporting Standards Consolidated Financial Statements and Independent Auditor s Report.

Transcription

1 International Financial Reporting Standards Consolidated Financial Statements and Independent Auditor s Report 2015

2 GROUP OPIN CONTENTS INDEPENDENT AUDITOR S REPORT CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Statement of Financial Position... 1 Consolidated Statement of Profit or Loss and Other Comprehensive Income... 2 Consolidated Statement of Changes in Equity... 4 Consolidated Statement of Cash Flows... 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 Nature of Business Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies Adoption of New and Revised International Financial Reporting Standards and Interpretations Critical Accounting Estimates and Judgements in Applying Accounting Policies Property, Plant and Equipment Investment Property Inventories Prepayments Receivables Loans Issued Short Term Bank Deposits Cash and Cash Equivalents Share Capital Additional Paid-in Capital Income Tax Loans and Borrowings Payables Advances Received from Customers Current Tax Liabilities Provisions for Other Liabilities and Charges Construction Contracts Revenue from Sales of Residential Property and Land Plots and Cost of Sales of Residential Property and Land Plots Revenue from Construction Contracts and Cost of Construction Contracts Selling, General and Administrative Expenses Finance Costs Loss per Share Disposal of Subsidiaries Related Party Transactions Segment Information Capital Commitments and Contingencies Financial Risk and Capital Management Financial Instruments: Presentation by Category and Fair Values Principal Subsidiaries Non-Controlling Interest Events after the Reporting Date... 62

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6 Consolidated Statement of Profit or Loss and Other Comprehensive Income (in thousands of Russian Roubles) Note Revenue Revenue from sales of residential property and land plots Revenue from construction contracts Revenue from other services Revenue from sale of infrastructure Total revenue Cost of sales Cost of sales of residential property and land plots 22 ( ) ( ) Cost of construction contracts 23 (40 913) ( ) Cost of other services (72 514) ( ) Cost of infrastructure sold (42 301) ( ) Inventory write-down 7 (75 608) ( ) Total cost of sales ( ) ( ) Gross profit Selling, administrative and general expenses 24 ( ) ( ) Net loss from change in fair value of investment property 6 ( ) ( ) (Loss)/gain on disposal of investment property 6 ( ) Loss on disposal of subsidiaries 27 ( ) (262) (Impairment of)/recovery of property, plant and equipment 5 (5 850) Provision for impairment of loans issued, prepayments and 8,9,10 accounts receivable (31 145) (85 519) (Provision for)/recovery of litigation and other charges 20 (642) Income from write-off of accounts payable Loss on write-off of prepayments, loans and receivables 8, 10 ( ) (878) Finance income Finance costs 25 ( ) ( ) Foreign exchange translation losses less gains ( ) ( ) Other income Other expenses (42 288) (48 599) Loss before income tax ( ) ( ) Income tax (expense)/credit 15 ( ) Loss for the year ( ) ( ) Loss is attributable to: - Owners of the Company ( ) ( ) - Non-controlling interest (5 910) - Notes on pp. 7 to 62 are an integral part of these consolidated financial statements. 2

7 Consolidated Statement of Profit and Loss and Other Comprehensive Income (Continued) (in thousands of Russian Roubles) Note Other comprehensive loss Items that may be subsequently reclassified to profit or loss Exchange differences on translation to presentation currency ( ) ( ) Other comprehensive loss ( ) ( ) Total comprehensive loss for the year ( ) ( ) Total comprehensive loss is attributable to: - Owners of the Company ( ) ( ) - Non-controlling interest (5 910) - Loss per share from continuing and discontinued operations attributable to the owners of the Company (expressed in Russian Roubles per share): Basic and diluted loss for loss from continuing operations 26 (802,38) (316,33) Basic and diluted loss for loss from discontinued operations Notes on pp. 7 to 62 are an integral part of these consolidated financial statements. 3

8 Consolidated Statement of Changes in Equity (in thousands of Russian Roubles) Share capital Additional paid-in capital Uncovered loss Translation difference Total equity attributable to owners of the Company Non-controlling interest Total equity Balance at 1 January ( ) (71 730) Comprehensive loss Loss for the year - - ( ) - ( ) - ( ) Other comprehensive loss for the year ( ) ( ) - ( ) Total comprehensive loss for the year - - ( ) ( ) ( ) - ( ) Balance at ( ) ( ) Comprehensive loss Loss for the year - - ( ) - ( ) (5 910) ( ) Other comprehensive loss for the year ( ) ( ) - ( ) Total comprehensive loss for the year - - ( ) ( ) ( ) (5 910) ( ) A partial disposal of subsidiaries without loss of control - - ( ) - ( ) Contribution of participant Balance at ( ) ( ) Notes on pp. 7 to 62 are an integral part of these consolidated financial statements. 4

9 Consolidated Statement of Cash Flows (in thousands of Russian Roubles ) Note Cash flows from operating activities Loss before income tax ( ) ( ) Adjustments: Depreciation of property, plant and equipment and amortisation of intangible assets Loss on disposal of subsidiaries Foreign exchange translation losses less gains Loss/(gain) on disposal of investment property (89 854) Inventory write-down Finance income ( ) ( ) Provision for impairment of loans issued, prepayments and accounts receivable 8, 9, Change in provisions for other liabilities and charges 20 (23 362) (66 514) Loss from change in fair value of investment property Impairment of/(recovery of) property, plant and equipment (6 055) Finance costs Income from write-off of accounts payable 17 ( ) (12 379) Loss on write-off of prepayments, loans and receivables 8, Other income and expenses Cash flows from operating activities before working capital changes ( ) (28 587) (Increase)/decrease in inventories ( ) Decrease in receivables Decrease/(increase) in prepayments ( ) Increase in payables Increase/(decrease) in advances received from customers ( ) (Decrease)/increase in current tax liabilities other than on income tax (282) Cash from/(used in) operating activities ( ) Interest paid ( ) ( ) Income tax (paid)/returned (93 828) Net cash from/(used in) operating activities ( ) Notes on pp. 7 to 62 are an integral part of these consolidated financial statements. 5

10 Consolidated Statement of Cash Flows (Continued) (in thousands of Russian Roubles) Note Cash flows from investing activities Loans issued ( ) ( ) Proceeds from loans repayments Proceeds from short-term bank deposits repayments Short-term bank deposits (73 730) (65 143) Interest received Proceeds from sale of subsidiaries 50 - Proceeds from sale of investment property Expenses related to investment property (911) (14 126) Proceeds from sale of property, plant and equipment Cash received on acquisition of subsidiaries Acquisition of property, plant and equipment and other non-current assets (7 840) (5 738) Net cash from investing activities Cash flows from financing activities Decrease in finance lease payables (2 679) (3 363) Proceeds from partial disposal of subsidiaries Contribution of participant Loans and borrowings received Loans and borrowings repaid ( ) ( ) Net cash (used in)/from financing activities ( ) Effect of exchange rate changes on cash and cash equivalents (23 794) (13 375) Net (decrease)/increase in cash and cash equivalents ( ) Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Transaction that did not involve the use of cash and cash equivalents and was excluded from the consolidated statement of cash flows for 2015 is disclosed in Note 10. Notes on pp. 7 to 62 are an integral part of these consolidated financial statements. 6

11 1 Nature of Business These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) for PJSC OPIN (the Company ) and its subsidiaries (together referred to as the Group ) for the year ended The Group's principal business activities include development, fee development and investment operations in the Russian real estate market. The Company was incorporated in Moscow, Russian Federation, on 4 September 2002 as an open joint-stock company (re-registered as a public joint-stock company in July 2015) and operates under the laws of the Russian Federation. The Company is listed on the Moscow exchange. The head office of the Company is located at 13/1 Tverskoy blvd., Moscow, , Russian Federation. At 2015 the major shareholder of OPIN is the company RINSOCO TRADING CO. LIMITED which was a registered holder of 83.85% of common shares of the Company. At 2015 the parent of RINSOCO TRADING CO. LIMITED is Onexim Holdings Limited. The shareholder of Onexim Holdings Limited is the company Onexim Group Limited. The ultimate beneficiary of foreign structures created without legal entity (trusts) which hold 100% of Onexim Group Limited is Mikhail D. Prokhorov. Brief description of principal activities Land bank At 2015, the Group held hectares of land located in Moscow and Tver Regions of the Russian Federation ( 2014: hectares) (Refer to Note 6). In 2015, the Group was engaged in development of the following residential communities and residential complexes in Moscow Region: Cottage and Countryside Communities Pestovo Cottage Community Pestovo Cottage Community is located 22 km from Moscow following Dmitrovskoye Highway. The community is located on the shore of the Pestovo Water Reservoir and consists of 415 single-family houses. As at 2015 this project is at interim stage of completion. The construction of infrastructure is almost completed. The share of sold properties is 89% as at 2015 (31 December 2014: 85%). Martemianovo Cottage Community Martemianovo Cottage Community is located 27 km from Moscow following Kievskoe Highway. In the reporting period the Group offered for sale land plots without cottages as well as cottages under construction in this cottage community. The total area of the land in this cottage community is 128 hectares as at 2015 and As at 2015 this project is almost completed. The share of sold properties is 95% as at 2015 ( 2014: 94%). Pestovo Life Cottage Community Pestovo Life Cottage Community is located 27 km away from Moscow following Dmitrovskoye highway. The project offers for sale 101 land plots without cottages with connection to common utility services. As at 2015 this project is at final stage of completion. The share of sold properties is 95% as at 31 December 2015 ( 2014: 82%). 7

12 1 Nature of Business (Continued) Solnechny Bereg Countryside Community Solnechny Bereg Countryside Community under construction is located in Klinsky district of Moscow region. The project offers for sale 334 land plots without cottages with connection to common utility services under the first phase and 375 similar land plots under the second phase. As at 2015 this project is at interim stage of completion. The share of sold properties is 95% for the first phase and 32% for the second phase as at 2015 ( 2014: 94% and 11%, respectively). Multi-apartment residential complexes Residential complex Vesna This residential complex is located 25 km away from Moscow following Kievskoye Highway near Martemianovo Community. The plan includes 8 condos (16 multi-apartment buildings, apartments of total area of 231 thousand sq. m), an underground parking complex, a shopping centre and other social infrastructure. The first phase of the project includes 4 multi-apartment buildings with studios, 1, 2 and 3- room apartments of total area of 54 thousand sq. m (1 014 apartments) and an underground parking complex. In December 2012 the Group obtained official permission for construction under the first phase. In December 2013 the Group obtained official permission for construction under the second phase. The second phase includes 8 multi-apartment buildings with studios, 1, 2 and 3-room apartments of total area of 121 thousand sq. m (2 229 apartments). Construction of the first phase has been completed, multiapartment buildings and social infrastructure were put into operation (approved by state commission) in September Construction of the first stage of the second phase (4 multi-apartment buildings) is expected to be completed in the first half of As of 2015 advances received from customers of Vesna project comprised RR thousand. The share of sold properties is 99% for the first phase and 40% for the second phase as at 2015 ( 2014: 90% and 18%, respectively). Residential complex Pavlovskiy Kvartal Pavlovskiy Kvartal is a comfort-class low-rise residential complex 14 km away from Moscow following Novorizhskoye highway. It is located close to cottage community Pavlovo and the shopping and entertainment center Pavlovo Podvorye. This project assumes construction of 29 condos (1 440 apartments of total area of sq. m). The permission for construction was obtained in November OPIN participated as a fee developer in this project until November In November 2014 PJSC OPIN acquired the company that owns this project. In 2013 investment contract on planning, construction and commissioning of social infrastructure in this residential complex was signed with the Administration of Istrinsky municipal unit of Moscow region. Implementation of the investment contract is expected in The share of sold properties is 51% for the first phase as at 2015 ( 2014: 39%). Multi-functional residential complex Simonovo The Group began the predevelopment of the project for construction business-class residential complex with built-in non-residential premises of approximate total area of apartments of sq. m. and multifunctional sport and public business complex. Complex will also include a kindergarten and a school, and also an underground parking area. Under the investment contract the Group will be a developer of this project, construction will be done on the land plots that belong to related parties of the Group. Land plots for development are situated in the Danilovskiy district of South administrative region of Moscow. Upon realization of the investment contract the Group will own 95.87% of total area of apartments and land plots under these properties. Currently the Group is involved in predevelopment work on this project. 8

13 1 Nature of Business (Continued) Projects under fee development Residential complex Park Rublevo This premium class residential complex has a unique location within a forest area on a Moscow-river embankment 1 km away from Moscow. The general plan of this project includes 12 condos of 4-8 floor buildings (407 apartments of total area of sq. m) with underground parking area (632 underground car spaces). The permission for construction was obtained in November OPIN participates as a fee developer in this project. This project is developed under OPIN brand s name. The project is under the final stage, finishing works are being performed, including landscaping. Percentage of sold properties comprised 83% as at 2015 ( 2014: 60%). Operating environment of the Group Russian Federation. The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to frequent changes and varying interpretations (Note 30). During 2015 the Russian economy was negatively impacted by low oil prices, ongoing political tension in the region and continuing international sanctions against certain Russian companies and individuals, all of which contributed to the country s economic recession characterised by a decline in gross domestic product. The financial markets continue to be volatile and are characterised by frequent significant price movements and increased trading spreads. Russia's credit rating was downgraded to below investment grade. This operating environment has a significant impact on the Group s operations and financial position. Management is taking necessary measures to ensure sustainability of the Group s operations. However, the future effects of the current economic situation are difficult to predict and management s current expectations and estimates could differ from actual results. Management made provisions for inventory write-down (Note 7) and adjusted fair value of investment properties (Notes 6) by considering the economic situation and outlook at the end of the reporting period. The future economic situation and regulatory environment may differ from management s current expectations. Going concern These consolidated financial statement have been prepared by management of the Group based on the going concern assumption, nevertheless significant uncertainty exists caused by certain terms and circumstances, which indicates certain doubt that the Group will operate as a going-concern and will be able to realize its assets and pay its debt in the normal course of business. In making this judgement of the going-concern assumption, management considered the following circumstances: Total comprehensive loss for 2015 comprised RR thousand (2014: RR thousand). Current liabilities exceed current assets by RR thousand as at 2015 (31 December 2014: by RR thousand). Current liabilities include loans in the amount of RR thousand as at (31 December 2014: RR thousand), in particular loans in breach of financial covenants in the amount of RR thousand ( 2014: thousand). Loans are disclosed in Note 16. 9

14 1 Nature of Business (Continued) In March-April 2016 the Group restructured repayments of loans recorded within current liabilities as at 2015 in the amount of RR thousand by prolongation of them to the period after Events after the reporting date are disclosed in the Note 35. Significant uncertainty arises from the necessity to restructure the loan portfolio of the Group. In case of non-fulfilment of the below-stated measures there is a significant doubt about the Group s ability to operate as a going-concern and to fulfil its obligations: The Group expects to receive the permit for construction for the first stage of the new multifunctional residential complex of business class Simonovo, located in the Danilovsky district of South administrative region of Moscow. Currently project financing for construction of this complex is being negotiated. The Group expects to receive significant cash inflow from sale of properties in this complex after receiving of the permit for construction. In 2016 the Group plans to restructure its loans recorded as short-term liabilities as at 31 December 2015 in the amount of RR thousand. Terms of restructuring depend on a date of receiving above-mentioned permit for construction and assume a pledge of some properties in the new complex. The Group is negotiating prolongation of repayments of other bank loans in the amount of RR thousand recorded within short-term liabilities as at The Group is under negotiations with a debtor of a loan received in the amount of RR thousand recorded within short-term loans issued as at Management of the Group does not exclude that receipt of this loan repayment may take place after The Group has an intention to receive financing from related parties in order to pay another loan in the amount of RR thousand recorded within short-term liabilities as at 31 December The Group is negotiating prolongation of repayment of loans received from the parent company and accounts payable to a related party in the amount of RR thousand recorded within short-term liabilities as at Transactions with related parties are in the Note 27. The Group will continue to generate cash from sale of properties in the residential complexes Vesna and Pavlovskiy Kvartal, and also from sale of land plots and cottages. The Group takes a number of marketing measures to stimulate the sales growth. The controlling shareholder has confirmed to management that the Group will receive financial support in the foreseeable future if the need arises. 2 Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies Basis of consolidated financial statements preparation These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value, and by the revaluation of investment properties and financial instruments categorised at fair value through profit or loss and also owner-occupied property in property, plant and equipment transferred from investment property at fair value at the date of reclassification. 10

15 2 Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies (Continued) Hereafter is a summary of the significant accounting policies applied by the Group in preparing these consolidated financial statements. Statutory accounting principles and procedures in the countries where the Group s subsidiaries are incorporated substantially differ from those generally accepted under IFRS. Accordingly, consolidated financial statements of the Group, which have been prepared based on the local statutory accounting records of Group s entities domiciled in the Russian Federation and Canada, were adjusted to be presented in accordance with IFRS. Presentation currency These consolidated financial statements are presented in Russian Roubles ( RR ). Functional currency The functional currency of each of the Group s consolidated entities is the currency of the primary economic environment in which the entity operates. The prevailing functional currency of the Company and its subsidiaries, and the Group s presentation currency, is the national currency of the Russian Federation, Russian Roubles ( RR ). Foreign currency translation Monetary assets and liabilities are translated into each entity s functional currency at the official exchange rate of the Central Bank of the Russian Federation ( CBRF ). Foreign exchange gains and losses resulting from settlement of transactions and from translation of monetary assets and liabilities into a separate entity s functional currency at year-end official exchange rates of the CBRF are presented separately in the consolidated statement of profit or loss and other comprehensive income. Translation at year-end rates does not apply to non-monetary items that are measured at historical cost. Non-monetary items measured at fair value in foreign currency, including equity investments, are translated using the exchange rates at the date when the fair value was determined. Effects of exchange rate changes on non-monetary items measured at fair value in foreign currency are recorded as part of the fair value gain or loss. The translation into Russian Roubles of the financial statements of the Group's subsidiaries with a functional currency other than Russian Rouble is made as follows: All assets and liabilities, both monetary and non-monetary, are translated at the closing exchange rates at each reporting date; All items included in the consolidated statement of changes in equity, other than net profit, are translated at historical exchange rates; Income and expenses recognized in the consolidated statement of profit or loss and other comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); Resulting exchange differences are recognised in other comprehensive income line and accumulated in the consolidated statement of changes in equity as Translation Difference ; and In the consolidated statement of cash flows, cash balances at the beginning and the end of each year presented are translated at exchange rates in effect at the beginning and at the end of each reporting period, respectively. All cash flows are translated at exchange rates in effect when the cash flows occurred. For those cash flows that occurred evenly over the period, an average exchange rate for the period is applied. Resulting exchange differences are presented separately from cash flows from operating, investing and financing activities as Effect of Currency Exchange Rates. As at 2015 and 2014, exchange rates of RR 72,8827 and RR 56,2584 to USD 1 were used, respectively for translation purposes. The average exchange rates for the years ended 2015 and 2014 were RR 60,9579 and RR 38,4217 to USD 1, respectively. 11

16 2 Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies (Continued) Principles of consolidation Subsidiaries are those investees, including structured entities, that the Group controls because the Group (i) has power to direct the relevant activities of the investees that significantly affect their returns, (ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has the ability to use its power over the investees to affect the amount of the investor s returns. The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether the Group has power over another entity. For a right to be substantive, the holder must have a practical ability to exercise that right when decisions about the direction of the relevant activities of the investee need to be made. The Group may have power over an investee even when it holds less than the majority of the voting power in an investee. In such a case, the Group assesses the size of its voting rights relative to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee. Protective rights of other investors, such as those that relate to fundamental changes of the investee s activities or apply only in exceptional circumstances, do not prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date on which control ceases. The acquisition method of accounting is used to account for the acquisition of subsidiaries. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share of net assets in the event of liquidation on a transaction by transaction basis, either at: (a) fair value, or (b) the non-controlling interest's proportionate share of net assets of the acquiree. Non-controlling interests that are not present ownership interests are measured at fair value. Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and the fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount ( negative goodwill ) is recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all the liabilities and contingent liabilities assumed and reviews the appropriateness of their measurement. The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including the fair value of assets or liabilities from contingent consideration arrangements, but excludes acquisition related costs such as advisory, legal, valuation and similar professional services. Transaction costs related to the acquisition of and incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of the business combination are deducted from the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated; unrealised losses are also eliminated unless the cost cannot be recovered. The Company and all of its subsidiaries use uniform accounting policies consistent with the Group s policies. Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Company. Non-controlling interest forms a separate component of the Group s equity. The Group applies the economic entity model to account for transactions with owners of non-controlling interest in transactions that do not result in a loss of control. Any difference between the purchase consideration and the carrying amount of non-controlling interest acquired is recorded as a capital transaction directly in equity. The Group recognises the difference between sales consideration and the carrying amount of non-controlling interest sold as a capital transaction in the consolidated statement of changes in equity. 12

17 2 Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies (Continued) Contributions made by participants by cash or property are reported as Contribution of participant within additional paid-in capital. Disposal of subsidiaries When the Group ceases to have control over the subsidiary, any retained interest in the entity is remeasured at its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount recognized for the purposes of subsequently accounting for the retained fraction as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This means that amounts previously recognised in other comprehensive income are transferred to profit or loss. Property, plant and equipment Property, plant and equipment other than owner-occupied property transferred from investment properties is carried at historical cost less accumulated depreciation and any accumulated impairment loss. The actual cost of property, plant and equipment includes major expenditures for improvements and replacements that extend the useful life of an asset or increase asset s revenue generating capacity. Repairs and maintenance expenditures that do not meet the foregoing criteria for capitalisation are charged to the consolidated statement of profit or loss and other comprehensive income as incurred. Owner-occupied property transferred from investment properties carried at fair value is transferred to property, plant and equipment at cost that equals its fair value at the date of such transfer and subsequently accounted for at this cost less accumulated depreciation and accumulated impairment losses. Construction in progress includes costs directly related to construction of property, plant and equipment including an appropriate allocation of directly attributable variable overheads that are incurred during construction. Depreciation of these assets, on the same basis as for other property assets, commences when the assets are put into operation. Depreciation on property, plant and equipment is applied to write the asset off over its estimated useful life. Depreciation is applied on a straight-line basis using the following useful lives: Useful life in years Buildings Fittings and fixtures 5-10 Machinery and equipment 5-20 Transport 5 Furniture and office equipment 3-7 The estimated useful life and amortisation methods are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The result arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the consolidated statement of profit and loss and other comprehensive income. Leasehold improvements are amortised over the useful life of the related leased assets. Expenses related to repairs and renewals are charged when incurred and included in operating expenses unless they qualify for capitalisation. Capital advances Capital advances represent amounts paid to vendors for capital construction, acquisition of property, plant and equipment, land plots and investment property. Capital advances are carried at actual cost less any accumulated impairment loss. 13

18 2 Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies (Continued) Investment property Investment property is a property (land or building or part of a building or both) held by the Group to earn rentals or for capital appreciation or both. Investment property also includes land plots with currently undetermined future use which comprises land for which the Group has not determined whether it will use the land as owner-occupied property or treat it as land held for sale in the ordinary course of business. Investment property is originally recorded at cost. Subsequent expenditure relating to investment property is added to the carrying amount of the investment property only when it is probable that future economic benefits associated with the expenditure will flow to the Group, and the cost can be measured reliably. All other subsequent expenditures are recognised as expenses in the period in which they are incurred. The Group has elected to use the fair value model to measure investment property subsequent to initial recognition. As the result investment property is stated at fair value in the Group s consolidated statement of financial position. Gains and losses arising from changes in the fair value of investment property are included in the consolidated statement of profit and loss and other comprehensive income in the year in which they arise. Fair value of investment property is the price at which the property could be exchanged between knowledgeable, independent and willing parties in an arm s length transaction. A willing seller is not a forced seller prepared to sell at any price. The best evidence of fair value is given by current prices in an active market for similar property in the same location and condition. Valuation techniques to measure fair value and main assumptions are disclosed in Note 4, Section Fair Value of Investment Property. Transfers to, or from, investment property are made when, and only when, there is a change in use, mostly evidenced by: for a transfer from investment property to inventories or assets held for sale commencement of development with a view for sale, based on reassessment by management of further use; for a transfer from inventories to investment property commencement of an operating lease with third party; for a transfer from/to investment property to/from owner-occupied property beginning/end of use of property as owner-occupied property. Inventories Inventories are measured at the lowest of two values: the acquisition cost or possible net realisable value. Inventories transferred from investment property carried at fair value are recorded at fair value at the date of transfer and subsequently are measured at the lowest of two values: the acquisition cost or possible net realisable value. When recognising inventories write off in cost of sale the Company measures these inventories considering cost identified on a property-by-property basis for cottages and on the average weighted cost method for flats in low-height buildings, townhouses and multi-apartment buildings. Cost of land plots relating to townhouses and apartments is included in cost of residential property sold upon sale of townhouses and apartments and pro rata a portion of townhouses and apartments sold to the total tenancy in common. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion (development) and costs necessary to make the sale. The cost of finished goods and property under development includes an appropriate share of production overheads based on normal operating capacity. 14

19 2 Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies (Continued) Impairment of tangible and fixed-life intangible assets At each period end, the Group reviews the carrying amounts of its tangible and fixed-life intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Recoverable amount is the highest of net realisable value and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks associated with the asset for which the estimates of future cash flows have not been adjusted. If an asset does not generate a cash flow independent from other assets, for the purpose of testing for impairment, assets are combined into the smallest group for which there is a cash flow independent from other assets or groups of assets; and in relation to such group value in use is determined. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units. Otherwise cash generating units are combined into larger groups of assets for which a reasonable and consistent allocation basis can be identified. If the recoverable amount of an asset (or cash-generating group) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating group) is reduced to its recoverable amount. Impairment loss is recognised in the consolidated statement of profit or loss and other comprehensive income at a time. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating group) is increased to the revised estimate of its recoverable amount, but in a way that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. Recovery of impairment loss is recognised in the consolidated statement of profit and loss and other comprehensive income at a time. Current income tax The current income tax is based on taxable profit for the accounted period. Taxable profit differs from profit reported in the consolidated statement of profit and loss and other comprehensive income because it excludes items of income or expense that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the period end in accordance with the laws of the Russian Federation, Canada and Cyprus. Deferred tax Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for consolidated financial reporting purposes. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax balances are measured at tax rates enacted or declared at the reporting date, which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. 15

20 2 Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies (Continued) Deferred income tax assets and liabilities are offset and recognized in the consolidated statement of profit or loss and other comprehensive income as a net amount when: the Group has a legally enforceable right to offset recorded amounts of current tax assets and current tax liabilities in accordance with law; and the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority. Current and deferred tax are recognized as an expense or income in the consolidated statement of profit and loss and other comprehensive income, except when they relate to items included to other comprehensive income or directly to equity, in which case the tax is also recognised in other comprehensive income or directly in equity, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or in determining the excess of the acquirer s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities over the cost of the business combination. Cash and cash equivalents Cash and cash equivalents include cash on hand, current accounts with banks, and also short-term placements with banks. Cash equivalents include short-term placements with banks with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. For the purpose of evaluation of financial instruments, cash relates to the category Loans issued and receivables. Cash and cash equivalents are measured at amortised cost. Financial instruments key measurement terms Depending on their classification financial instruments are carried at fair value, actual cost, or amortised cost as described below. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is price in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Fair value of financial instruments traded in an active market is measured as the product of the quoted price for the individual asset or liability and the quantity held by the entity. This is the case even if a market s normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange or other institution and those prices represent actual and regularly occurring market transactions on an arm s length basis. Valuation techniques such as discounted cash flow models or models based on recent arm s length transactions or consideration of financial data of the investees are used to fair value certain financial instruments for which external market pricing information is not available. Valuation techniques may require assumptions not supported by observable market data. Disclosures are made in these financial statements if changing any such assumptions to a reasonably possible alternative would result in significantly different profit, income, total assets or total liabilities. Actual cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition and includes transaction costs. Measurement at cost is only applicable to investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. Incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs. 16

21 2 Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies (Continued) Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and unamortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related items in the statement of financial position. The effective interest method is a method of allocating interest income or interest expense over the relevant period so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate. Initial recognition and classification of financial assets Financial assets are recognised in the Group's consolidated statement of financial position, when the Group is a party to the contract in respect of applicable financial instruments, and are initially recognised at fair value plus costs directly attributed to the cost of acquisition or issue of financial asset, except for financial assets at a fair value through profit or loss which are initially recognised at their fair value. Financial assets are classified into the following categories: financial assets at fair value through profit or loss; investments held to maturity; available-for-sale financial assets, loans and receivables. Their classification depends on their substance and purpose for which such financial assets are used and is determined upon initial recognition. All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention ( regular way purchases and sales) are recorded at trade date, which is the date on which the Group commits to deliver a financial asset. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument. Loans issued and receivables Loans issued, trade receivables, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the 17

22 2 Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies (Continued) allowance account. The subsequent return of the amounts already written off are credited against the allowance. Changes in the carrying amount of the allowance account are recognised in the consolidated statement of profit and loss and other comprehensive income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date of impairment does not exceed what the amortised cost would have been had the impairment not been recognised. Derecognition of financial assets The Group derecognises a financial asset when (a) the assets are repaid or contractual rights to the cash flows from such asset expire; or (b) the Group transfers the title to cash flows from financial assets or executes a transfer agreement and (i) also transfers substantially all the risks and rewards associated with ownership of the asset, or (ii) the Group neither transfers nor retains substantially all the risks and rewards of ownership, but loses control over the transferred asset. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale. Financial liabilities Financial liabilities, including borrowings, are initially measured at fair value, netted of direct transaction costs, and subsequently measured at amortised cost using the effective interest method. Disposal of financial liabilities The Group derecognises financial liabilities when, and only when, the Group s obligations are discharged, cancelled or expire. Capitalisation of borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. The commencement date for capitalisation is when (a) the Group incurs expenditures for the qualifying asset; (b) it incurs borrowing costs; and (c) it undertakes activities that are necessary to prepare the asset for its intended use or sale. The Group capitalises borrowing costs that would have been avoided if it had not made capital expenditure on qualifying assets. Borrowing costs capitalised are calculated at the Group s average refinancing rate (the weighted average interest cost is applied to the expenditures on the qualifying assets), except to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. Where this occurs, actual borrowing costs incurred less any investment gain on the temporary investment of those borrowings are capitalised. All other borrowing costs are recognised as an expense in the period in which they are incurred. The Group does not capitalize borrowing costs attributable to qualifying assets that are carried at fair value investment property. 18

23 2 Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies (Continued) Prepayments Prepayments are carried at actual cost less provision for impairment in the consolidated statement of financial position. Prepayments are classified as non-current when the goods or services relating to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as non-current upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has obtained control of the asset and it is probable that future economic benefits associated with the asset will flow to the Group. Other prepayments are written off to profit or loss when the goods or services relating to the prepayments are received. If there is an indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding impairment loss is recognised in profit or loss for the year. Offsetting Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously. Share capital and additional paid-in capital Ordinary shares and non-redeemable preference shares with discretionary dividends are both classified as equity. Share capital contributions made in the form of assets other than cash are stated at their fair value at the date of contribution. Excess of fair value of funds received above par value is reflected as additional capital. External costs directly attributable to the issue of new shares, other than in a business combination, are deducted from equity net of any related income taxes. Dividends Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved. Any dividends declared after the reporting period and before the consolidated financial statements are authorised for issue are disclosed in the Events after the reporting date note. Leases Leases under which the lessee assumes substantially all the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases. Group as a lessor Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. Group as a lessee Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease payable within current accounts payable. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the consolidated statement of profit or loss and other comprehensive loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group s general 19

24 2 Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies (Continued) policy on borrowing costs. Contingent lease payments are recognised as expenses in the periods in which they are incurred. The assets acquired under finance leases are depreciated over their useful life or the shorter lease term if the Group is not reasonably certain that it will obtain ownership by the end of the lease term. Operating lease payments are recognised as expenses on a straight-line basis over the lease term. Contingent lease payments arising under operating leases are recognised as expenses in the period in which they are incurred. Provisions for liabilities and charges Provisions for other liabilities and charges are accrued when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. The amount recognised as a provision for other liabilities and charges is the best estimate of the consideration required to settle the present obligation at the period end, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. Provision for guarantee commitments accrued in the reporting period is recognised within the cost of sales of property and cost under construction contracts. Value added tax Value added tax (VAT) related to sales is payable to tax authorities on the earliest of (a) collection of receivables from customers or (b) delivery of goods or services to customers. Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement of VAT on a net basis. VAT related to sales and purchases is recognised in the statement of financial position on a gross basis and disclosed separately as an asset and liability. Where provision has been made for impairment of receivables, impairment loss is recorded for the gross amount of the debtor, including VAT. Revenue recognition The Group recognises revenue from sale of residential properties when there is a sufficient probability that significant risks and rewards of ownership are transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of property can be estimated reliably, and there is no continuing management involvement with the property, and the amount of revenue can be measured reliably. Revenue from sales of apartments in multi-apartment residential complexes under contract of equity participation is recognized when the state commission put the appropriate buildings into operation and full amount of the contract is paid by the customer. Revenue is recognised net of VAT and discounts. Construction contracts The Group concludes contracts with its clients for construction of houses and communal infrastructure on land plots owned by the Group. A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use. Revenue from construction contracts comprises the initial amount of revenue agreed in the construction contract and variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue; and they are capable of being reliably measured. 20

25 2 Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies (Continued) The Group concludes contracts in which the contractor agrees to a fixed contract price, or a fixed rate per unit of output, which in some cases is subject to cost escalation clauses. Contractual costs comprise costs that relate directly to the specific construction contract; costs that are attributable to contract activity in general and can be allocated to the contract; and other costs as are specifically chargeable to the customer under the terms of the construction contract. When the outcome of a construction contract can be estimated reliably, contract revenue and associated contract costs are recognised as revenue and expenses, respectively, by reference to the stage of completion of the contract activity at the period end, measured as the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs. An expected loss on a construction contract is recognised as an expense immediately. Cottages construction contracts stipulate construction periods, which are agreed with customers. In case a period of construction is violated due to different reasons, a customer has the right to terminate the contract. At the end of each reporting period the Group identifies construction contracts in respect of which noncompliance with construction terms has been identified or expected and estimate probability of termination of such contracts on the basis of historical data on actual terminations. Based on the results of such estimation, the Group suspends recognition of revenue and costs under construction contracts, for which probability of contract termination is high and reverses earlier recognised revenue and costs under such construction contracts in the consolidated statement of profit and loss and other comprehensive income. Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is shown as amounts due from customers for contract work (receivables). For contracts where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is shown as the amounts due to customers for contract work (payables). Amounts received before the related work is performed are included in the consolidated statement of financial position, as advances received from customers. Amounts billed for work performed but not yet paid by the customer are included in the consolidated statement of financial position as receivables under construction contracts. Employee benefits Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the associated services are rendered by the employees of the Group. The Group has no legal or constructive obligation to make pension or similar benefit payments beyond statutory insurance contributions. Contingencies and commitments Contingent liabilities are not recognised in the consolidated financial statements unless it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made. A contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. Profit or loss per share Profit or loss per share are determined by dividing the profit or loss attributable to shareholders of the Company by the weighted average number of participating shares outstanding during the reporting year. Uncertain tax positions The Group's uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for tax positions that are determined by management as more likely than not to result in additional tax liabilities being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted at the end of the reporting period and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management s best estimate of the expenditure required to settle the obligations at the end of reporting period. 21

26 2 Basis of Consolidated Financial Statements Preparation and Significant Principles of Accounting Policies (Continued) Segment information Segment reporting is presented on the basis of management s perspective and relates to the parts of the Group that are defined as operating segments. Operating segments are identified on the basis of managerial reports used by the Group s chief operating decision maker to oversee operations and make decisions on allocating the resources. The Group has identified the General Director as its chief operating decision maker and the managerial reports used by the top management team to oversee operations and make decisions on allocating the resources serve as the basis of information presented. These managerial reports are prepared on the same basis as these consolidated financial statements. Based on current management structure, the Group has identified three major reportable segments: land holdings, cottage and countryside communities, multi-apartment residential complexes. The Group s operations are based in the Russian Federation. Inter-segment transactions: segment revenue, segment expenses and segment performance include transfers between operating segments. Such transfers are accounted for at competitive market prices charged to unaffiliated counteragents for similar services. Those transfers are eliminated on consolidation. Expenses, which cannot be directly attributed to a segment, are not allocated to segments. Amendment of the consolidated financial statements after issue Any restatements to these consolidated financial statements may be made only if approved by the Group management which authorised these consolidated financial statements for issue. Changes in presentation During the 2015 year, the Group has changed its classification of 2014 within the statement of profit or loss. The Group believes that the change provides reliable and more relevant information. In accordance with IAS 8, the change has been made retrospectively and comparatives have been restated accordingly. The effect of reclassifications for presentation purposes was as follows on amounts at 2014: Caption of the Consolidated Statement of Profit or Loss and Other Comprehensive Income (in thousands of Russian Roubles) 2014 (before reclassification) Reclassification 2014 (after reclassification) Other income (12 379) Income from write-off of accounts payable Other expenses (49 477) 878 (48 599) Loss on write-off of prepayments, loans issued and receivables - (878) (878) Total (24 464) - (24 464) 3 Adoption of New and Revised International Financial Reporting Standards and Interpretations The following amended standards became effective for the Group from 1 January 2015, but did not have any material impact on the Group. Amendments to IAS 19 Defined benefit plans: Employee contributions (issued in November 2013 and effective for annual periods beginning 1 July 2014). Annual Improvements to IFRSs 2012 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014). Annual Improvements to IFRSs 2013 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014). 22

27 3 Adoption of new and revised international financial reporting standards and interpretations (Continued) New accounting pronouncements Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2016 or later, and which the Group has not early adopted. IFRS 9 Financial Instruments: Classification and Measurement (amended in July 2014 and effective for annual periods beginning on or after 1 January 2018). Key features of the new standard are: Financial assets are required to be classified into three measurement categories: those to be measured subsequently at amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL). Classification for debt instruments is driven by the entity s business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assets cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition. Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income. IFRS 9 introduces a new model for the recognition of impairment losses the expected credit losses (ECL) model. There is a three stage approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where there has been a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational simplifications for lease and trade receivables. Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging. The Group is currently assessing the impact of the new standard on its consolidated financial statements. IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or after 1 January 2018). The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed. The Group is currently assessing the impact of the new standard on its consolidated financial statements. 23

28 3 Adoption of new and revised international financial reporting standards and interpretations (Continued) IFRS 16 "Leases" (issued in January 2016 and effective for annual periods beginning on or after 1 January 2019). The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The Group is currently assessing the impact of the new standard on its consolidated financial statements. Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12 (issued in January 2016 and effective for annual periods beginning on or after 1 January 2017). The amendment has clarified the requirements on recognition of deferred tax assets for unrealised losses on debt instruments. The entity will have to recognize deferred tax asset for unrealised losses that arise as a result of discounting cash flows of debt instruments at market interest rates, even if it expects to hold the instrument to maturity and no tax will be payable upon collecting the principal amount. The economic benefit embodied in the deferred tax asset arises from the ability of the holder of the debt instrument to achieve future gains (unwinding of the effects of discounting) without paying taxes on those gains. The Group is currently assessing the impact of the amendments on its consolidated financial statements. Disclosure Initiative - Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods beginning on or after 1 January 2017) The amended IAS 7 will require disclosure of a reconciliation of movements in liabilities arising from financing activities. The Group is currently assessing the impact of the amendment on its consolidated financial statements. The following other new pronouncements are not expected to have any material impact on the Group when adopted: IFRS 14, Regulatory deferral accounts (issued in January 2014 and effective for annual periods beginning on or after 1 January 2016). Accounting for Acquisitions of Interests in Joint Operations - Amendments to IFRS 11 (issued on 6 May 2014 and effective for the periods beginning on or after 1 January 2016). Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 (issued on 12 May 2014 and effective for the periods beginning on or after 1 January 2016). Agriculture: Bearer plants - Amendments to IAS 16 and IAS 41 (issued on 30 June 2014 and effective for annual periods beginning 1 January 2016). Equity Method in Separate Financial Statements - Amendments to IAS 27 (issued on 12 August 2014 and effective for annual periods beginning 1 January 2016). Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after 1 January 2016). Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after 1 January 2016). Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January 2016). Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January 2016). Investment Entities: Applying the Consolidation Exception Amendment to IFRS 10, IFRS 12 and IAS 28 (issued in December 2014 and effective for annual periods on or after 1 January 2016). 24

29 3 Adoption of new and revised international financial reporting standards and interpretations (Continued) Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group s consolidated financial statements. 4 Critical Accounting Estimates and Judgements in Applying Accounting Policies The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the carrying amounts of assets and liabilities, income and expenses and the disclosure of contingent assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results ultimately may differ from those estimates. The estimates and underlying assumptions are reviewed by the Group on an ongoing basis. Revisions to accounting estimates are recognised 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. Fair value of investment property The Group recognises investment property at fair values, which are derived from a number of sources, namely market prices, results of independent appraisal and management assessment. These estimates are based on valuation techniques which require judgement in predicting future cash flows and developing other assumptions. Due to absence of an active market for certain of the Group s assets, the estimation of fair value of these assets include assumptions not directly supportable by observed market prices or rates. Current use of investment property corresponds to its best and most effective use. Investment property is revalued annually as at of the reporting year. Investment property is represented mostly by land located in different districts of Moscow region and in regions close to Moscow region Tver and Vladimir. Type of authorized use for most of land plots is for agricultural use, part of land plots is under category of individual housing construction. The Group also holds several properties with land plots as investment property which are represented by kindergartens and an office building in the Group s office communities. Breakdowns of investment property are presented in Note 6. The carrying amounts of the Group s assets carried at fair value (where gains and losses arising from changes in the fair value are recognised in the consolidated statement of profit or loss and other comprehensive income) as of 2015 and 2014 are as follows: (in thousands of Russian Roubles) Investment property (Note 6) Management applies judgement in categorising investment property using the fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a Level 3 measurement. The fair value of investment property as at 2015 and 2014 belongs to Level 3. At 2015 and 2014 there were no reclassifications between levels of measurements as compared to 2014 and Management s assessment of fair value of land plots included in the Group s investment property has been performed by using the sales comparison method, which involves a review of available data on sales offers of comparable properties and making adjustments to prices to reflect differences between the properties offered and the properties owned by the Group. Key assumptions within the valuation model include the adjustments applied for comparability purposes, the time period over which land assets could optimally be realized (sold), future price growth, and the discount rate. 25

30 4 Critical Accounting Estimates and Judgements in Applying Accounting Policies (Continued) There were no changes in valuation technique for Level 3 recurring fair value measurements during the years ended 2015 and For the purpose of fair value of the land plots, being investment property, the Group s management considers these land plots on an aggregate basis and presumes that all the land plots owned by the Group, will not be realized at once. The following major unobservable inputs were used by the independent valuer in the analysis: Input 2015 Source of cash inflows Sale of land Average discount rate 16,31% Expected period of sale of land Land selling price range in 2016, RR per 1,00 square metres (the price range reflects locations of land) derived as a result of offer prices for comparable land plots with adjustments Adjustments to offer prices for comparable land plots in the range of (17%) up to (10)% Selling price growth 5,1%-6,4% growth in Input 2014 Source of cash inflows Sale of land Discount rate range 11,3%-28% Expected period of sale of land Land selling price range in 2015, RR per 1,00 square metres (the price range reflects locations of land) derived as a result of offer prices for comparable land plots with adjustments Adjustments to offer prices for comparable land plots in the range of (15%) up to (10)% Selling price growth 7%-8% growth in , then decreasing to 2%-3% (Odintsovsky District - 8% and 3% growth) In 2015 the marketing strategy for sale of land plots was revised due to changes in overall economic situation and market condition, which was the reason for change in used inputs relating to expected period of sale of land and average selling price. Valuation processes for recurring Level 3 fair value measurements The Group s management engaged an independent appraiser, who holds a recognised and relevant professional qualification and who has recent experience in valuation of property of similar location and category, to assist with estimation of fair value of the investment property. The Group has a special department responsible for managing land bank of the Group. These specialists have a good understanding of operations with land plots and experience in such operations. They are involved in day-to-day management of different operations with land plots (separation of land plots, change of permitted land use, sale and others). They also support the Group with aggregating and providing data for valuation purposes and critically reviews valuation reports of the independent appraiser. Also, the Group retains several qualified specialists within its financial department who observe market trends on capital markets. The valuation process and results of valuation of the Group s investment property portfolio are reviewed and approved by the Financial Director at least annually, in line with the Group s annual reporting dates. The Financial Director reviewed the appraiser s assumptions underlying valuation models, and confirmed that assumptions have been appropriately determined considering the market conditions as of the year end. 26

31 4 Critical Accounting Estimates and Judgements in Applying Accounting Policies (Continued) Notwithstanding the above, the Group s management considers that the valuation of its investment properties is currently subject to an increased decree of judgement and an increased likelihood that actual proceeds on a sale may differ from the carrying value. The Group monitors on periodic basis major factors effecting valuation of its investment property. The main Level 3 inputs used by the Group are derived and evaluated as follows: Adjustments to sale price they represent adjustments to offer prices for negotiating a transaction, correction to location and size of land plots under valuation as compared to comparable land plots, and others. Sales price growth reflects the stage of development of the territory or settlement. This approximation is based on market statistics. Period of sales land plots under valuation are divided into certain lots which can be sold annually. This approximation is based on market statistics. Discount rates these are estimated based on weighted average cost of capital with use of market data. Due to considerable uncertainty related to estimation of future cash flows, management carried out a sensitivity analysis of fair value of the Group s investment property. The estimated impact on the aggregate valuation of reasonable possible changes in the assumptions, with all other variables held constant, is as follows: If the selling price of land increased /decreased by 10%, the carrying value of investment property would have increased/decreased by RR thousand ( 2014: RR thousand). If the length of selling period increased for one year, the carrying value of investment property would have decreased by RR thousand ( 2014: RR thousand). If the discount rate increased/decreased by 1%, the carrying value of investment property would have decreased/increased by RR thousand ( 2014: RR thousand). Assumptions used by the Group's management for determining the fair value of investment property are applicable at a specific date and depend on market conditions. During 2015 the Russian land market was under certain stagnation with the signs of demand from agricultural players due to international sanctions and respective import replacement. Access to finance was being improves during 2015 (due to decrease in the key rate of the Bank of Russia down to 11%). However, the credit organizations still refrain from active work with the land market due to unfavourable economic situation and consequently significant uncertainty on the market. In 2016 active land market may be restored assuming macroeconomic normalization and development of agricultural industry. Assessment of net realisable value of inventories Estimates of net realisable value of inventories are based on the most reliable evidence available at the time the estimates are made. These estimates take into consideration fluctuations of prices and inventory cost, among other things, relating to events occurring subsequent to the period end to the extent that such events confirm conditions existing at the end of the period. In assessing net realisable value of the land plots and cottage communities included in the Group s inventory balance, management used selling prices as per current price lists as adjusted for expected discounts granted to customers. Based on the assessment of inventories as of 2015 and 2014, management of the Group believes that all necessary adjustments have been made to state inventories at their net realisable value where it is lower than cost in the Group s consolidated statement of financial position. If selling prices increased or decreased by 10% as of 2015, the carrying value of inventories would be increased by RR thousand or decreased by RR thousand ( 2014: increased by RR thousand or decreased by RR thousand), accordingly. 27

32 4 Critical Accounting Estimates and Judgements in Applying Accounting Policies (Continued) Assessment of impairment of other inventories (infrastructure) The Group assesses at each reporting date whether cost of items of infrastructure being under construction or completed by construction is recoverable. This is done by assessing if these costs are covered by signed construction contract for infrastructure or by a sale contract to be potentially signed in future or by adding value to sellable residential properties and land plots in a respective cottage community or residential complex. The Group incurs certain costs in connection with development of infrastructure that should be allocated to multiple property items under construction. Based on current plans on development these costs are either capitalized within carrying value of inventories by allocating to infrastructure items under construction or written off in the period when a decision is made to stop further development. Recognition of revenue from sales of apartments in multi-apartment complexes The Group determines the time of recognition of revenue from sales of apartments in multi-apartment residential complexes based on their analysis of the time of transfer of key risks and rewards to the customer. For sale of apartments in multi-apartment residential complexes such transfer usually occurs when the state commission put appropriate buildings into operation. It is applicable to sales of apartments under contracts of equity participation. The Group assesses the risk of termination of contracts of sales of apartments (contracts of equity participation) after putting houses into operation as minimal provided that the contracts are fully paid by customers. Claims provisions The consolidated statement of financial position as at 2015 and 2014 includes claims provision amounting to RR thousand which are recorded within provisions for other liabilities and charges. This provision reflects the best estimation of management in respect of potential losses related to the risk of cancellation of construction contracts with customers. The final expected outcome of construction contracts depends on a number of factors. If the level of claims to the Group increases in the future, the effective liabilities may be considerably higher. Deferred income tax Deferred tax assets are reviewed at each period end and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. The estimation of that probability includes judgements based on the expected performance of the Group. Various factors are considered to assess the probability of the future utilization of deferred tax assets, including past operating results, operational plan, expiration of tax losses carried forward, and tax planning strategies. If actual results differ from these estimates or if these estimates must be adjusted in future periods, the financial position, results of operations and cash flows may be negatively affected. In the event that the assessment of future utilization of deferred tax assets must be reduced, this reduction will be recognised in the consolidated statement of profit and loss and other comprehensive income. The Group recognises deferred taxation on fair value changes to investment property assets at the Russian statutory rate. Tax that is ultimately payable upon realisation of the assets can be affected by the specific tax regulations applicable to the disposal transaction and may vary depending upon a number of factors. The Group may also realise the value of an asset through the generation of income from holding the asset which may lead to a differing taxation treatment. Tax ultimately payable upon realization of the asset may therefore differ from the amounts reflected in the consolidated financial statements. The Group records deferred tax asset on change in fair value of investment property based on tax carrying value of investments in these holding companies. 28

33 5 Property, Plant and Equipment (in thousands of Russian Roubles) Buildings Fittings and fixtures Transport, machinery and equipment Furniture and office equipment Construction in progress Total Cost Balance at 1 January Additions Acquisition of subsidiaries Disposals - - (768) (886) - (1 654) Balance at Additions Disposals - (475) (2 961) (4 757) (90) (8 283) Transfer to residential property under development held for sale (19) - (19) Balance at Accumulated depreciation and impairment Balance at 1 January Accrued for the year Reversal of impairment of fixed assets (6 055) (6 055) Disposals - - (572) (881) - (1 453) Balance at Accrued for the year Impairment Disposals - (202) (2 801) (4 757) - (7 760) Transfer to residential property under development held for sale (19) - (19) Balance at Carrying amount At At As of 2015 and 2014, no property, plant and equipment were pledged as collateral under loans and borrowings received by the Group. In 2015 and 2014, the Group did not capitalise interest on loans within construction in progress. 29

34 6 Investment Property The Group s investment property is represented mainly by land plots with indefinite future use located in different regions of the Russian Federation. The basis of fair valuation of investment property and valuation assumptions are summarised in Note 4. (in thousands of Russian Roubles) Land plots Land plots with buildings Total Balance at 1 January Additions Transfer from inventories Disposals ( ) - ( ) Changes in fair value as a result of revaluation ( ) (16 478) ( ) Balance at Additions Disposals ( ) - ( ) Disposal of subsidiaries (3 660) - (3 660) Changes in fair value as a result of revaluation ( ) ( ) Balance at The carrying amounts of land by region are as follows: Area, ha Carrying value (in thousands of Russian Roubles) Area, ha Carrying value (in thousands of Russian Roubles) Type of authorized use Mytishinsky District, Moscow Region A/c, IHC Dmitrovsky District, Moscow Region A/c Klinsky District, Moscow Region A/c, SPT,STL Naro-Fominsky District, Moscow Region LHC Odintsovsky District, Moscow Region A/c, LHC Kashinsky District Tver Region A/c Kalyazinsky District, Tver Region A/c, IHC Kesovogorsky District, Tver Region A/c Suzdalsky District, Vladimir Region A/c Yuriev-Polsky, Vladimir Region A/c Total A/c for agricultural use; SPT specially protected territories; STL settlement land; IHC individual housing construction; LHC low-height housing construction. 30

35 6 Investment Property (Continued) At 2015, investment property with a carrying value of RR thousand ( 2014: RR thousand) was pledged as collateral for received bank loans (Note 16). During 2015, the Group incurred operating expenses of RR thousand (2014: RR thousand) with regard to investment property. These expenses mainly include land tax. During 2015 the Group sold 220 ha in Mytishinsky District, 31 ha in Dmitrovsky District, ha in Klinsky District, ha in Kashinsky District, ha in Kalyazinsky District and ha in Vladimir region for the total amount of RR thousand. In 2015 the Group transferred 19 ha in Mytishinky District to local communities. Total loss from these transactions amounted to thousand. This loss is reflected in the consolidated statement of profit or loss and other comprehensive income within loss on disposal of investment property. During 2014, the Group sold 166 ha in Dmitrovsky District, 41 ha in Mytishinsky District and 17 ha in Klinsky District in amount of RR thousand. During 2014 the Group transferred 16 ha in Dmitrovsky District and 16 ha in Kashinsky District to local communities. Total gain from these transactions amounted to RR thousand and was reflected in gain on disposal of investment property in the consolidated statement of profit or loss and other comprehensive income. In 2014 the Group transferred 137 ha in Naro-Fominsky District from inventories to investment property due to change in intentions regarding this land plot. The fair value of this land plot is RR thousand at the date of transfer. 7 Inventories (in thousands of Russian Roubles) Inventories with period of realization above one year Land under development held for sale (a) Residential property under development held for sale (b) Infrastructure (c) Total inventories with period of realization above one year Inventories with period of realization within the year Land under development held for sale (a) Residential property under development held for sale (b) Finished products (d) Other inventories Total inventories with period of realization within the year Total inventories Inventories recorded at cost and net realisable value are as follows: (in thousands of Russian Roubles) At cost At net realisable value Total

36 7 Inventories (Continued) (a) Land under development held for sale Land under development held for sale includes land in the Group's cottage communities (Note 1) and comprises the following main groups: land plots with houses which the Group builds under construction contracts; land plots offered by the Group for sale without construction contracts; and land plots which the Group plans to use for future development of residential projects. (b) Residential property under development held for sale Residential property under development held for sale, includes apartments in multi-apartment residential complexes, cottages, apartments in low-height buildings, townhouses and other residential properties under construction and development forming a part of the Group's multi-apartment residential complexes and cottage communities (Note 1). Residential property under development held for sale includes property in respect of which the Group has concluded construction contracts with a completion degree of more than 70% and property which the Group builds for sale without construction contracts. (c) Infrastructure Infrastructure includes infrastructure facilities of multi-apartment residential complexes and cottage communities to be subsequently sold or transferred to commercial organisations or non-commercial partnerships. (d) Finished goods Finished goods include apartments in multi-apartment residential complexes, cottages, apartments in lowheight buildings and townhouses whose construction was completed as at the reporting date. During 2015, the Group capitalised borrowing costs of RR thousand (2014: RR thousand) within inventories. In 2015, the Group recognised a decrease in the value of inventories of RR thousand (2014: RR thousand). Net realisable inventory provision amounted to RR thousand as at 2015 ( 2014: RR thousand). At 2015, inventories with a carrying value of RR thousand ( 2014: RR thousand) were pledged as collateral for received borrowings (Note 16). 8 Prepayments (in thousands of Russian Roubles) Prepayments in non-current assets Prepayments in current assets Less: provision for impairment of prepayments in current assets (25 609) (25 497) Total prepayments In 2015 the Group did not capitalize borrowing costs within prepayments. In 2014 the Group capitalised borrowing costs within prepayments in the amount of RR thousand. These prepayments are related to development of properties. 32

37 8 Prepayments (Continued) As at 2014 prepayments within non-current assets represented the amount paid to a related party for land plots under the investment contract for the construction of multi-functional residential complex "Simonovo". In 2015 this prepaid amount was returned due to change in terms in investment contract. As at 2014 prepayments of RR thousand were given to a related party which hold ownership over the project of residential complex Park Rublevo. As at 2015 the contract under which these prepayments were made has been terminated and therefore these amounts have been transferred to other accounts receivable in current assets (Note 9). As at 2015 prepayments in the amount of RR thousand have been written off as uncollectible. These prepayments were made to subsidiaries disposed in 2015 (Note 27). These written-off amounts were recorded in the consolidated statement of profit or loss and other comprehensive income within loss on write-off of prepayments, loans and receivables. Movements in the provision for impairment of prepayments for 2015 and 2014 are as follows: (in thousands of Russian Roubles) Balance at 1 January Accrual of provision for impairment Recovery of provision for impairment - (68) Bad debts written off (5 579) (41 241) Balance at Receivables (in thousands of Russian Roubles) Financial assets within receivables Non-current assets Accounts receivable Current assets Receivables under construction contracts (Note 21) Trade receivables Other receivables Less: Provision for impairment of receivables ( ) (92 969) Total financial assets within receivables Non-financial assets within receivables Non-current assets Value added tax recoverable Current assets Value added tax recoverable Other taxes prepaid Deferred expenses Total non-financial assets within receivables Total receivables

38 9 Receivables (Continued) Movements in the provision for impairment of receivables for 2015 and 2014 are as follows: (in thousands of Russian Roubles) Balance at 1 January Accrual of provision for impairment of receivables Recovery of provision for impairment (4 450) - Uncollectible amounts written off during the year (2) (4 663) Balance at Non-current receivables represent part of receivables of customers for land plots from investment property in the amount of RR thousand at 2015 ( 2014: RR thousand). At 2015 current receivables from customers for land plots are RR thousand (31 December 2014: RR thousand). As at 2014 value added tax recoverable in non-current assets represents mostly value added tax on infrastructure in residential complex Pavlovskiy Kvartal. As at 2015 this amount has been reclassified into value added tax in current assets as completion of construction and put in operation of these objects are expected in Other receivables in current assets include amount receivable from the related party which holds ownership over project Park Rublevo in the amount of RR thousand, which was transferred from prepayments due to termination of the contract (Note 8). Besides, as at 2015 current accounts receivable include amount receivable from a related party holding ownership over project Park Rublevo for payment of its promissory note, in the amount of RR thousand, which was transferred into current receivable after promissory note presentation as amount which is due from the third party within twelve months after the reporting date (Note 10). The analysis of receivables by credit quality is as follows: (in thousands of Russian Roubles) Neither past due nor impaired Total neither past due nor impaired Past due but not impaired - less than 180 days overdue from 181 to 360 days overdue over 360 days overdue Total past due but not impaired Past due and impaired - less than 180 days overdue from 181 to 360 days overdue over 360 days overdue Total past due and impaired Provision for impairment of receivables ( ) (92 969) Total financial assets within receivables

39 9 Receivables (Continued) At 2015 accounts receivable in the amount of RR thousand ( 2014: RR thousand) were neither overdue nor impaired, and historically there have been no defaults observed for the counterparties included in this category. These debtors do not have an external individual credit rating. At 2015, the Group had three counterparties ( 2014: two counterparties), with aggregate receivables of RR thousand ( 2014: RR thousand) or 87% of the total trade receivables, receivables under construction contracts and other receivables ( 2014: 74%). According to the management opinion, at 2015 the estimated fair value of financial assets within receivables is RR thousand ( 2014: RR thousand). The analysis of financial risks with regard to financial assets within receivables is provided in Note 31. Information about transactions with related parties is provided in Note Loans Issued (in thousands of Russian Roubles) Interest rate Currency Non-current assets Loans issued (unrated) 13,5% Current assets Loans issued (unrated) 3,0-14% Russian Roubles US dollars, Russian Roubles Total loans issued within current and noncurrent assets The analysis of loans issued by credit quality is as follows: (in thousands of Russian Roubles) Neither past due nor impaired Total neither past due nor impaired Loans individually determined to be impaired (gross) to 360 days overdue Total individually impaired loans (gross) Less impairment provisions (11 938) (11 938) Total loans issued As at 2015 loans issued in the amount of RR thousand ( 2014: RR thousand) were neither overdue nor impaired. There were no guarantees or collateral given over the loans issued as at 2015 and As at 2014 loans with carrying amount of RR thousand were issued to the company which holds ownership over project of residential complex Park Rublevo (Note 28). As at 31 December 2015 a promissory note issued by this company to support loans received has been presented for settlement and partially offset against accounts payable to this related party. This noncash transaction in the amount of RR thousand was excluded from the consolidated statement of cash 35

40 10 Loans Issued (Continued) flows. The amount of RR thousand payable for settlement of the promissory note was reclassified into current accounts receivable as an amount due from a third party within twelve months from the reporting date (Note 9). As at % of loans were issued to a company, registered in a country being the EU member. As at 2015 loans issued in the amount of RR thousand have been written off as uncollectible. These loans were issued to subsidiaries disposed in 2015 (Note 27). These written-off loans were recorded in the consolidated statement of profit or loss and other comprehensive income within loss on write-off of prepayments, loans issued and receivables. The Group had credit related commitments in respect of loans issued in the amount of RR thousand at 2015 ( 2014: RR thousand). According to the Group's management opinion, as at 2015 the estimated fair value of loans issued approximates their carrying value. According to the management opinion, as at 2014 the estimated fair value of loans issued is RR thousand. 11 Short Term Bank Deposits Short term bank deposits were placed at 11% in the amount of RR thousand (2014: at 10% in the amount of RR thousand) with a maturity of more than three months but remaining period to maturity of less than one year. Such deposits cannot be withdrawn, in case of necessity, until the maturity date. The analysis of short term bank deposits by credit quality is provided in the table below (based on the ratings of Fitch Ratings): (in thousands of Russian Roubles) Interest rate Currency Neither past due nor impaired - rating BB % Russian Roubles Total short term bank deposits Cash and Cash Equivalents (in thousands of Russian Roubles) Current accounts with banks Short-term deposits with banks with a maturity of less than three months Cash in hand Total cash and cash equivalents As at 2015, short-term rouble-denominated deposits with banks were placed at 6,7% p.a. with a maturity not later than 15 February 2016 ( 2014: rouble-denominated deposits at 11,97%- 12% p.a. no later than 12 January 2015). 36

41 12 Cash and Cash Equivalents (Continued) The analysis of cash equivalents by credit quality is provided in the table below (ratings are conditionally given to classifications by rating agency Fitch Ratings): (in thousands of Russian Roubles) Current accounts with banks Short-term deposits with banks with a maturity of less than three months Current accounts with banks Short-term deposits with banks with a maturity of less than three months Neither past due nor impaired - rating ВВВ rating BBB rating BB rating BB rating B rating B rating B Unrated Total cash equivalents According to the Group's management the estimated fair value of cash and cash equivalents approximates their carrying value. Information about transactions with related parties is provided in Note Share Capital (in thousands of Russian Roubles) Number of outstanding shares (in thousands) Ordinary shares At At Total The total authorised number of ordinary shares is thousand shares (2014: thousand shares) with a par value of RR per share (2014: RR 1000 per share). All issued ordinary shares are fully paid. Each ordinary share carries one vote. Dividends were not declared and paid during the year of 2015 and Additional Paid-in Capital (in thousands of Russian Roubles) Balance at 1 January Contribution from participant Balance at In 2015 a related party holding a non-controlling interest in some of the Group subsidiaries (Note 34) contributed RR thousand as a participant. 37

42 15 Income Tax (in thousands of Russian Roubles) Current income tax Deferred income tax ( ) Adjustment of income tax for the previous periods (23 952) ( ) Total income tax expense/(credit) ( ) The Group's income and expenses were subject to income tax on the basis of the following rates: (in thousands of Russian Roubles) Russian Federation 20,0% 20,0% Cyprus 12,5% 12,5% Canada 26,5% 26,5% The Group calculates income tax for the current period based on tax accounts maintained and prepared under the Russian tax regulations which may differ from IFRS. The Group is subject to certain permanent tax differences with regard to certain income and expense items due to the fact that certain income and expenses are not deductible. Deferred tax reflects the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Temporary differences as at 2015 and 2014 relate mostly to different methods of income and expense recognition, as well as to recorded values of certain assets. The relationship between the income tax expense and the Group's accounting profit for the years ended 2015 and 2014 is provided below: (in thousands of Russian Roubles) Loss before tax ( ) ( ) At the Russian statutory income tax rate of 20% ( ) ( ) Effect of the difference in tax rates in countries other than the Russian Federation Tax effect of non-deductible expenses / (non-taxable income): interest on borrowings other ( ) Change of provision for unrealized tax asset The non-deductible cost of land Differences arising from the sale of shares in the authorized capital to third parties and intercompany sales ( ) Unrecognized tax loss carry forwards Reduction of tax loss as a result of adjustments to the current income tax expense Adjustment of income tax for the previous periods (23 952) ( ) Income tax expense/(credit) ( ) 38

43 15 Income Tax (Continued) Tax consequences of change of temporary differences between carrying amount of assets and liabilities in purpose of preparation of the consolidated financial statements and their basis for calculation of income tax are presented below: (in thousands of Russian Roubles) 2014 Recognised in profit or loss Disposal of subsidiaries Other 2015 Deferred tax assets Property, plant and equipment (1 229) Investment property ( ) Tax loss carry forwards ( ) (11 360) Inventories (93 953) Loans issued (8 327) Receivables Payables, advances received from customers ( ) (63) Total deferred tax assets ( ) (7 436) Deferred tax liabilities Inventories - (6 767) - - (6 767) Intangible assets (3 255) (1 639) Inventories - (84 633) - - (84 633) Loans issued - (36 508) - - (36 508) Receivables (55 652) (65) - - Payables, loans and borrowings (8 414) (2 323) Total deferred tax liabilities (67 321) (64 484) (65) - ( ) Total deferred tax assets less total deferred tax liabilities ( ) (7 501)

44 15 Income Tax (Continued) Reflected in the consolidated statement of financial position: (in thousands of Russian Roubles) 2014 Recognised in profit or loss Disposal of subsidiaries Other 2015 Deferred tax asset ( ) (8 202) Deferred tax liability ( ) ( ) Total deferred tax assets less total deferred tax liabilities ( ) (7 501) (in thousands of Russian Roubles) 1 January 2014 Recognised in profit or loss Acquisition of subsidiaries Other 2014 Deferred tax assets Property, plant and equipment (41 397) (2 057) Intangible assets 982 (1 344) Investment property ( ) Tax loss carry forwards Inventories Loans issued (8 948) Payables, advances received from customers (33 947) Total deferred tax assets ( ) Deferred tax liabilities Inventories ( ) Intangible assets - (3 255) - - (3 255) Receivables (35 120) ( ) (55 652) Payables, loans and borrowings (5 472) (2 942) - - (8 414) Total deferred tax liabilities ( ) (67 321) Total deferred tax assets less total deferred tax liabilities Reflected in the consolidated statement of financial position: (in thousands of Russian Roubles) 1 January 2014 Recognised in profit or loss Acquisition of subsidiaries Other 2014 Deferred tax asset ( ) Deferred tax liability ( ) ( ) Total deferred tax assets less total deferred tax liabilities The Group has recognised deferred tax assets in respect of unused tax loss carry forwards of RR thousand ( 2014: RR thousand). The tax loss carry forwards expire as follows: (in thousands of Russian Roubles) Tax loss carry-forwards expiring by the end of: After Total tax loss carry forwards

45 15 Income Tax (Continued) Losses carried forward in the amount of RR thousand were recognized as at 2015, unrecognized losses amounted to RR thousand as at 2015 ( 2014: RR thousand and thousand), accordingly. The unrecognized tax losses forwards expire as follows: (in thousands of Russian Roubles) Unrecognized tax loss carry-forwards expiring by the end of: After Total unrecognized tax loss carry forwards The Group has not recorded deferred tax liabilities in respect of temporary differences of RR thousand ( 2014: RR thousand) on investments in subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future. 16 Loans and Borrowings (in thousands of Russian Roubles) Bank loans Promissory notes issued Loans and borrowings within non-current liabilities Bank loans Borrowings Promissory notes issued Loans and borrowings within current liabilities Total loans and borrowings The analysis of financial risks of loans and borrowings is provided in Note 31. The analysis of the fair value of loans and borrowings is provided in Note 32. In 2015, fixed interest rates for rouble-denominated bank loans varied between 11% and 20% (2014: between 11% and 20%). In 2015, fixed interest rates for foreign currency-denominated bank loans varied between 9% and 10.6% (2014: between 10.25% and 11%). In 2015 and 2014 the Group did not have any loans and borrowings with a floating interest rate. In 2015, fixed interest rate for foreign currency-denominated non-bank borrowings comprised 10% (2014: 12%-15%). In 2015 fixed interest rate for rouble-denominated non-bank borrowings varied between 9% and 10% (2014: 9%). Nominal interest rate on rouble-denominated promissory notes issued was 10% (2014: 10%). Effective interest rates on foreign currency-denominated promissory notes issued varied from 7.73% up to 11.23% (2014: from 10% up to 11.5%). 41

46 16 Loans and Borrowings (Continued) At 2015, the Group was in breach of few of financial covenants under its short-term bank loans with a carrying amount of RR thousand, namely: covenants on ratio of the total loan debt amount to the net asset value and ratio of the net asset value to the total assets. Also, the Group has reclassified long-term loan in the amount of RR thousand into short-term loans (short-term portion of this loan amounted to RR thousand as at 2015) due to breach of one of financial covenants under the loan agreement, namely: covenant on ratio of the net assets value to the total loan debt. At 2015, investment property with a carrying value of RR thousand ( 2014: RR thousand) was pledged as collateral for received loans and borrowings (Note 6). At 2015, inventories with a carrying value of RR thousand ( 2014: RR thousand) were pledged as collateral for received loans and borrowings (Note 7). Group s subsidiaries act as guarantors on loans received by the Company and the Group s subsidiary from PJSC ACB Rosbank, JSC Moscow Credit Bank, PJSC ACB Rossisky Capital and PJSC Bank Saint- Petersburg as at As at 2014 the Group s subsidiaries act as guarantors on loans received by the Company and the Group s subsidiary from PJSC ACB Rosbank, JSC Moscow Credit Bank, PJSC ACB Rossisky Capital, PJSC Bank Saint-Petersburg and JSC Sberbank of Russia. As at 2014 the Group s related parties act as pledgers on the loan received by the Company from JSC Moscow Credit Bank (Note 28). As at 2015 these pledge obligations have been cancelled. At 2015, the total amount of undrawn credit facilities was RR thousand ( 2014: RR thousand). Information about transactions with related parties is provided in Note Payables (in thousands of Russian Roubles) Financial liabilities within payables Non-current liabilities Payables Current liabilities Accrued liabilities Trade payables to suppliers and service providers Other short-term payables Lease payable Total financial liabilities within payables Non-financial liabilities within payables (current liabilities) Advances received Payables on settlements with employees Loss under construction contracts (Note 21) Total non-financial liabilities within payables Total payables

47 17 Payables (Continued) As at 2014 accounts payable in non-current liabilities represented long-term portion of the Group s liabilities to return cash received under a contract which was subsequently terminated. As at 31 December 2015 these liabilities are stated in other current accounts payables as falling due within twelve months after the reporting date. As at 2014 accrued liabilities were represented by accrual of possible reimbursement to third parties. As at 2015 these liabilities in the amount of RR thousand were written off to income from write off of accounts payable in the consolidated statement of income or loss and other comprehensive income due to expiration of period for claims for this possible reimbursement from third parties. Income from write off of accounts payable is represented mostly by this amount. The analysis of financial risks with regard to payables is provided in Note 31. According to the Group's management opinion, at 2015 the estimated fair value of financial liabilities within payables approximates their carrying value. According to the Group's management opinion, at 2014 the estimated fair value of financial liabilities within payables is RR thousand. 18 Advances Received from Customers (in thousands of Russian Roubles) Advances received for residential property under development held for sale Advances received from sale of investment property Advances received under construction contracts (Note 21) Total advances received from customers Current Tax Liabilities (in thousands of Russian Roubles) Current income tax liabilities Other taxes payable Total current tax liabilities Provisions for Other Liabilities and Charges (in thousands of Russian Roubles) Litigation Guarantee commitments Other charges Balance at 1 January (Recovery)/creation of provisions recognized in profit and loss (32 214) (42 298) (66 514) Utilisation of provision (1 706) (20 746) - (22 452) Balance at Creation/(recovery) of provisions recognized in profit and loss 642 (24 004) - (23 362) Utilisation of provision (642) (4 600) - (5 242) Balance at Total 43

48 20 Provisions for Other Liabilities and Charges (Continued) Litigation As at 2015 and 2014, the Group did not comply with the deadlines for completion of some of its development projects. Historically, a number of claims have been lodged against the Group on the part of its customers as a result of such delays. The provision represents the Group's evaluation of liabilities under construction contracts and was calculated with due consideration of the historical risk level and the current level of notices of claim. Guarantee commitments The Group has guarantee commitments on elimination of construction defects in sold cottages, townhouses and apartments. A provision of RR thousand was recognised in the consolidated financial statements as at of 2015 with regard to the expected number of claims on guarantees which was determined on the basis of the expected level of costs for elimination of construction defects (2014: RR thousand). It is expected that the balance as of 2015 will be fully used or reversed by the end of The change in provision for guarantee commitments in the amount of RR thousand (2014: RR thousand) was recognized within cost of sales in the consolidated statement of profit or loss and other comprehensive income. 21 Construction Contracts (in thousands of Russian Roubles) Cumulative incurred construction costs plus recognised profit less recognised losses as of the reporting date Less: progress billings ( ) ( ) Total Receivables under construction contracts (Note 9) Advances received under construction (Note 18) (56 504) (23 569) Loss recognised within other payables (Note 17) (253) (1 184) Total The Group concludes contracts for construction of cottages and objects of infrastructure. A part of contracts for construction of cottages and most of contracts for construction of objects of infrastructure are classified as contracts for which revenues and cost of sales are recognized at percentage of completion (Note 2). In 2015 the Group transferred part of infrastructure properties in the first stage of the countryside community Solnechniy bereg to non-commercial partnership of the countryside community in the amount of RR thousand. In 2014 the Group transferred part of infrastructure properties to non-commercial partnerships in cottage community Pestovo in the amount of RR thousand. 44

49 22 Revenue from Sales of Residential Property and Land Plots and Cost of Sales of Residential Property and Land Plots (in thousands of Russian Roubles) Revenue from sales of residential property and land plots Cottages and land plots Apartment Townhouses Total revenue from sales of residential property and land plots (in thousands of Russian Roubles) Cost of sales of residential property and land plots Subcontractors services Cost of land plots Capitalized interest expenses Indirect expenses Total cost of sales of residential property and land plots The recovery of provision for guarantee commitments in the amount of RR thousand was recognized within cost of sales including charge of provision in the amount of RR thousand (2014: RR thousand including recovery of RR thousand). Information about transactions with related parties is provided in Note Revenue from Construction Contracts and Cost of Construction Contracts (in thousands of Russian Roubles) Revenue from cottage construction Revenue recognition by completion percentage Revenue adjustment for cancellable and potentially cancellable contracts and as a result of reviewed assumptions on completion percentage and general costs Revenue from infrastructure construction Revenue recognition by completion percentage Total revenue from construction contracts (in thousands of Russian Roubles) Cost of cottage construction Cost recognition by completion percentage (546) Cost adjustment for cancellable contracts and as a result of reviewed assumptions on completion percentage and general costs (931) Cost of infrastructure construction Cost recognition by completion percentage Recognition of identified loss Total cost of construction contracts

50 24 Selling, General and Administrative Expenses (in thousands of Russian Roubles) Payroll Advertising Land tax and property tax Rent Insurance contributions to the pension fund Repairs and maintenance Public utilities Depreciation of property, plant and equipment and intangible assets Insurance contributions to other non-budget funds Security expenses Consulting services Brokerage fees Insurance Other expenses Total selling, general and administrative expenses Finance Costs (in thousands of Russian Roubles) Interest on bank loans Interest on other borrowings Less: interest capitalised within inventories (Note 7), property, plant and equipment (Note 5) and prepayments on construction (Note 8) ( ) ( ) Total finance costs Information about transactions with related parties is provided in Note Loss per Share Basic loss per share is calculated by dividing the loss attributable to owners of the Company by the weighted average number of ordinary shares in issue during the year, excluding treasury shares. The Company has no dilutive potential ordinary shares; therefore, the diluted loss per share equals the basic loss per share. Loss per share from continuing operations are calculated as follows: Basic and dilutive loss per share Weighted average number of shares outstanding during the period Loss for the period attributable to shareholders of the parent company (RR 000) Loss per share (RR) For the year ended ( ) (802,38) For the year ended ( ) (316,33) 46

51 27 Disposal of Subsidiaries In 2015 the Group sold its 100% share in several subsidiaries and withdrew from the shareholders of another subsidiary. Assets of these subsidiaries amounted to RR thousand as at the date of disposal and were represented mainly by loans issued. Liabilities of these subsidiaries in the amount of RR thousand were represented mainly by loans payable and accounts payable. Loss from the disposal of these subsidiaries comprised RR thousand. In July 2014 the Group sold its 100% share in one of the subsidiaries. This subsidiary owned land plots classified as investment property and, by substance, this transaction represented the Group s sale of investment property. The assets of this subsidiary at the date of disposal comprised RR thousand, its liabilities RR 70 thousand. In August 2014 the Group withdrew from the shareholders of another subsidiary. The assets of this subsidiary at the date of its disposal comprised RR 268 thousand, its liabilities RR 5 thousand. Loss from the disposal of the subsidiary is RR 262 thousand. 28 Related Party Transactions Parties are generally considered to be related if the parties are under common control, or one party has the ability to control the other party or can exercise significant influence over the other party in making business decisions or exercise joint control. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. The related parties of the Group with which the Group had transactions during the reporting period are classified into the following quality categories: (a) enterprises that directly or indirectly through one or more intermediaries control, or are controlled by, or are under common control with, the Group; (b) enterprises that are under significant influence by the companies that control the Group; (c) key management personnel, that is persons having authority and responsibility for planning, directing and controlling the activities of the Group, including directors and officers of the Group. The Group's balances with related parties as at 2015 and 2014 are as follows: (in thousands of Russian Roubles) Balances with parent company, related parties under common control and significant influence Balances with related parties under common control and significant influence Within current assets and liabilities: Cash and cash equivalents Prepayments Loans issued Receivables Loans and borrowings ( ) ( ) Payables ( ) (82 697) Within non-current assets and liabilities: Loans issued Prepayments Loans and borrowings - ( ) Payables - ( ) As at 2014 the Group s related parties under common control acted as pledgers on the loan received by the Company from PJSC Moscow Credit Bank (Note 16). As at 2015 these pledge liabilities have been cancelled. In 2015 the Group received loans from related parties under common control and other related parties in the amount of RR thousand at 9-10% p.a. (2014: RR thousand at 9%). 47

52 28 Related Party Transactions (Continued) In 2015 the Group received US dollars-denominated loans from the parent company in the amount of US dollars thousand (RR thousand at the exchange rate at the date of receipt). In 2015 the Group extended loans to related parties under common control in the amount of RR thousand at 10% (2014: RR thousand at 10% p.a.). Related party transactions in 2015 and 2014 are set out below: (in thousands Russian Roubles) Transactions with related parties under common control and significant influence Key management personnel transactions Transactions with related parties under common control and significant influence Key management personnel transactions Revenue from rendering other services Selling, administrative and general expenses (57 630) (49 644) (61 201) (68 916) Cost of other services (12 032) - (19 699) - Gain on disposal of investment property Interest income Interest on other borrowings ( ) - ( ) - Key management personnel compensation (in thousands Russian Roubles) Payroll Termination payments Insurance contributions to the pension fund Insurance Total key management personnel compensation Segment Information Products and services from which reportable segments derive their revenues The Group has identified the General Director as its chief operating decision maker and management reports used by him to oversee operations and make decisions on resource allocation serve as a basis for information presented. The Group has determined operating segments based on the information that is reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. For management purposes the Group is organised into business units based on their products and services, and has the following reportable operating segments: land plots (except for land plots classified as inventories); cottage and countryside communities (including land plots classified within inventories); multi-apartment residential complex; others. Other operations mainly include consulting services rendered by the Group and contracts for construction of other properties. 48

53 29 Segment Information (Continued) Information regarding the Group s reportable segments is presented below. Segment revenue and results The following is an analysis of the Group s revenue and results from continuing operations by reportable segment: 2015 (in thousands of Russian Roubles) Land plots Cottage and countryside communities Multiapartment residential complex Other Eliminations Total on the Group Revenue External sales Inter-segment sales (45) - Total revenue (45) Operating expenses (61 233) ( ) ( ) (62 503) - ( ) Inventory write-down ( ) - - (75 608) Impairment of property, plant and equipment - (5 850) (5 850) (Loss)/gain on change in fair value of investment property ( ) ( ) Loss on investment property disposal ( ) ( ) Claims provision - (642) (642) Provision for impairment of accounts receivables - (5 963) (5 963) (Loss)/profit before tax and financing activities by segments ( ) ( ) (45) ( ) Finance costs ( ) Foreign exchange translation losses less gains ( ) Unallocated expenses, net ( ) Income tax ( ) Loss for the year ( ) 49

54 29 Segment Information (Continued) 2014 (in thousands of Russian Roubles) Land plots Cottage and countryside communities Multiapartment residential complex Other Eliminations Total for the Group Revenue External sales Inter-segment sales (8 952) - Total revenue (8 952) Operating expenses (71 494) ( ) ( ) ( ) - ( ) Inventory write-down - ( ) (35 500) (2 812) - ( ) Recovery of impairment of property, plant and equipment Loss on change in fair value of investment property ( ) - - (13 807) - ( ) Gain on investment property disposal Claims provision Provision for impairment of accounts receivables - (18 710) (18 710) (Loss)/ profit before tax and financing activities by segments ( ) (8 952) ( ) Finance costs ( ) Foreign exchange translation losses less gains ( ) Unallocated expenses, net ( ) Income tax Loss for the year ( ) Unallocated (expenses)/income, net (in thousands of Russian Roubles) Selling, general and administrative expenses ( ) ( ) Finance income Loss on disposal of subsidiaries ( ) (262) Gain/(loss) on purchase/sale of currency (3 289) Write off of payables Other income Recovery of provisions for other charges Provision for impairment of prepayments, accounts receivable and loans issued (25 182) (66 809) Penalties paid (9 887) (4 253) Charitable contributions - (6 211) Write off of non-reimbursable VAT - (9 974) Loss on termination of contracts (28 453) - Loss on write-off of prepayments, loans issued and receivables ( ) (878) Other expenses (4 590) (24 872) Total unallocated expenses, net ( ) ( ) 50

55 29 Segment Information (Continued) Cost of realized properties, general and administrative expenses that can be allocated to a segment are included in operating expenses within segment information. The accounting policies of reportable segments are the same as the Group s accounting policies described in Note 2. Profit/(loss) before tax in segment table represents the profit earned or the loss incurred by each segment without allocation of certain general and administrative costs, other unallocated income/(expenses), interest expense, gain/loss on foreign currency operations and income tax. This measure is reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. Segment assets and liabilities (in thousands of Russian Roubles) Segment assets Land plots Cottage and countryside communities Multi-apartment residential complex Other Total segment assets Unallocated assets Total assets Segment liabilities Land plots Cottage and countryside communities Multi-apartment residential complex Other Total segment liabilities Unallocated liabilities Total liabilities Segment assets are those operating assets that are employed by a segment in its operating activities and that are either directly attributable to the segment or can be allocated to the segment on a reasonable basis. Unallocated assets include cash and its equivalents, loans issued, bank deposits, prepayments on taxes and part of deferred tax assets unallocated on segments. Segment liabilities are those operating liabilities that result from the operating activities of a segment and that are either directly attributable to the segment or can be allocated to the segment on a reasonable basis. Unallocated liabilities include current tax liabilities, part of payables, loans and borrowings payable, unallocated on segments. 51

56 29 Segment Information (Continued) Other segment information (in thousands of Russian Roubles) Additions to non-current assets Land plots Cottage and countryside communities Multi-apartment residential complex Other Unallocated capital expenditures Total additions to non-current assets Segment depreciation Cottage and countryside communities Multi-apartment residential complex Other Unallocated depreciation Total segment depreciation Capital Commitments and Contingencies Commitments on investment contracts In 2015 the Group signed a number of investment contracts with individual customers. Under these contracts the Group assumes contract obligations to complete the buildings within normal operating cycle of development. As at 2015 the Group s commitments under these contracts amounted to approximately RR thousand ( 2014: RR thousand). These commitments include costs to construct multi-apartment buildings. Operating leases The Group did not have any significant future rental payments under non-cancellable operation leases in effect as at 2015 and Commitments on cultivation of agricultural land There are certain risks of forced termination of the right to agricultural land in case of its significant degradation, or in case the land has not been used for agricultural purposes during three years. In both cases there is a significant interval between establishing the fact of degradation (non-use) of land and termination of rights, during which violations can be eliminated. In addition, termination of rights requires compliance with certain procedures. The Group has set control procedures to decrease the risk of forced termination of rights to its agricultural land. Part of the land is leased to third party agricultural producers, the rest is cultivated by the Group more or less. Financial guarantee provided in relation to related party s borrowings In 2013 the Group provided a financial guarantee with regard to a bank borrowing of a related party which holds ownership over the project of residential complex Park Rublevo. As at 2014 this guarantee was in force. In 2015 this guarantee was cancelled due to repayment of the loan by the borrower and subsequent termination of the loan agreement. 52

57 30 Capital Commitments and Contingencies (Continued) Taxation contingencies Russian tax legislation which was enacted or substantively enacted at the end of the reporting period is subject to varying interpretations when being applied to the transactions and activities of the Group. Consequently, tax positions taken by management and the formal documentation supporting the tax positions may be successfully challenged by relevant authorities. Russian tax administration is gradually strengthening, including the fact that there is a higher risk of review of tax transactions without a clear business purpose or with tax incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. In certain cases a tax review may cover earlier periods. The Russian transfer pricing legislation is to a large extent aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD). This legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), provided that the transaction price is not arm's length. Management has implemented internal controls to be in compliance with this transfer pricing legislation. Tax liabilities arising from transactions between companies are determined using actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group. The Group includes several companies incorporated outside of Russia. Tax liabilities of the Group are determined on the assumption that these companies are not subject to Russian profits tax because they do not have a permanent establishment in Russia. This interpretation of relevant legislation may be challenged but the impact of any such challenge cannot be reliably estimated currently by the Group's management. In 2014, the Controlled Foreign Company (CFC) legislation introduced Russian taxation of profits of foreign companies and non-corporate structures (including trusts) controlled by Russian tax residents (controlling parties). Starting from 2015, CFC income is subject to a 20% tax rate. However, the Group believes that based on the substance and the materiality of its foreign operations, these provisions of the CFC law will not have a material impact on its tax positions. At 2015 in addition to the above transfer pricing matters and potential additional tax charges from non-resident Group companies the Group has other possible tax obligations from exposure to tax risks other than significant, which the management cannot reliably estimate due to inaccuracies in interpretation of tax legislation and insufficient court practice. These possible tax obligations relate primarily to income tax and arise mostly from transactions with shares and sale of land plots. Management intends to vigorously defend their position and interpretations that were used for determining recognised taxes in these consolidated financial statements if they are challenged by the tax authorities. As Russian tax legislation does not provide definitive guidance in certain areas, the Group adopts, from time to time, interpretations of such uncertain areas that reduce the overall tax rate of the Group. While management currently estimates that the tax positions and interpretations that it has taken can probably be sustained, there is a possible risk that outflow of resources will be required should such tax positions and interpretations be challenged by the relevant authorities. The impact of such developments cannot be reliably estimated, however it may be significant in terms of the entity's financial position and/or business activities of Group in general. 53

58 30 Capital Commitments and Contingencies (Continued) Pension and retirement plans In accordance with Russian law all of the Group's employees are eligible to receive state pension benefits. At 2015 and 2014, the Group was not liable for any supplementary pensions, post-retirement health-care, insurance benefits or retirement indemnities to its current or former employees. 31 Financial Risk and Capital Management Risk management is essential for the Group. The main risks inherent to the Group s operations include credit risk, liquidity risk, interest rate risk, foreign exchange risk and other price risks. A description of the Group's risk management policies in relation to these risks is provided below. Credit risk The Group is exposed to credit risk which is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group does not hedge its credit risks. The Group structures the levels of credit risk which it undertakes by placing limits on the amount of risk accepted in relation to one counterparty/customer, or groups of counterparties/customers. Prior to entering into material contracts, the Group undertakes due diligence procedures, which includes checking the financial condition and creditworthiness of the counterparty, its experience, expertise and reputation in the subject area of co-operation. The Group also obtains a legal opinion from its in-house or independent legal counsel regarding the validity and enforceability of contracts and other material documentation in connection with the subject transaction. The Group's counterparties/customers mainly include contractors, buyers of property and banks and other financial institutions. The Group has developed additional procedures to mitigate credit risk on each category. Contractors: The Group seeks additional credit risk mitigation instruments, including safety deposits, work completion guarantees issued by reliable banks, and attracts professional advisors for providing quality control and technical supervision. Property buyers: As a rule prepayment is required from each potential buyer. Banks and other financial institutions: the Group undertakes due diligence procedure with regard to banks and other financial institutions, which are service providers for the Group, to ensure their creditworthiness. The Investment Committee establishes limits for aggregate credit exposure to banks and other financial institutions. Such limits are subject to quarterly review. The Group maintains accounts with several banks to ensure the flexibility of its risk management policy implementation. 54

59 31 Financial Risk and Capital Management (Continued) The Group s maximum exposure to credit risk is generally reflected in the carrying amounts of financial assets. The maximum level of credit risk as of the reporting date was as follows: (in thousands of Russian Roubles) Non-current assets Receivables (Note 9) Loans issued (Note 10) Current assets Financial assets within receivables (Note 9) Loans issued (Note 10) Short term bank deposits (Note 11) Cash and cash equivalents (Note 12) Total maximum exposure to credit risk At 2015, the Group had three counterparties ( 2014: two counterparties), with aggregate receivables of RR thousand ( 2014: RR thousand) or 87% of the total trade receivables, receivables under construction contracts and other receivables ( 2014: 74%). The Group has deposits with two banks (2014: four banks) which creates a certain level of credit risk concentration. The Group monitors credit risk concentration by placing deposits with reliable credit institutions internationally rated not below BB. Market risk The Group is exposed to market risks arising from open positions on a) currency and b) interest-bearing assets and liabilities. Management sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements. The impact of market risk presented below is based on a change in one factor with all other variables held constant. This can hardly occur in practice, and changes in several factors can correlate, e.g., a change in interest rates and currency rates. Currency risk Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. The Group is exposed to currency risk with regard to revenue, purchases and borrowings denominated in currencies other than functional currencies of the Group's subsidiaries. The majority of these transactions are denominated in US dollars. The Group's management monitors currency rate fluctuations on a permanent basis and takes necessary measures to mitigate this risk. In the context of the weakening of RR/USD exchange rate, the Group maintains part of its cash in foreign currencies, namely US dollars. In addition, initially, prices for the Group's products are set in notional units linked to the US dollar exchange rate stated by Central Bank of Russian Federation. In such a way the Group implicitly has opportunity to decrease currency risks. 55

60 31 Financial Risk and Capital Management (Continued) Financial instruments by currency: (in thousands of Russian Roubles) USD RR EUR Total at 2015 Financial assets Financial assets within receivables (Note 9) Loans issued (Note 10) Short term bank deposits (Note 11) Cash and cash equivalents (Note 12) Total financial assets Financial liabilities Loans and borrowings (Note 16) Financial liabilities within payables (Note 17) Total financial liabilities Net financial position at 2015 ( ) ( ) ( ) (in thousands of Russian Roubles) USD RUB EUR Total at 2014 Financial assets Financial assets within receivables (Note 9) Loans issued (Note 10) Short term bank deposits (Note 11) Cash and cash equivalents (Note 12) Total financial assets Financial liabilities Loans and borrowings (Note 16) Financial liabilities within payables (Note 17) Total financial liabilities Net financial position at 2014 ( ) ( ) 847 ( ) US dollar strengthening/weakening against Russian Rouble by 50% at 2015 would have increased/decreased the profit for 2015 by RR thousand (2014: RR thousand). This analysis assumes that all other variables, in particular interest rates, remain constant. 56

61 31 Financial Risk and Capital Management (Continued) Interest rate risk Interest rate risk arises from the possibility that changes in interest rates for financial instruments will affect the value of financial instruments with fixed interest rates or future cash flows related to financial instruments with floating interest rates. The Group s Treasury function performs analysis of current interest rates on an annual basis and prepares forecasts for the next year. Depending on the forecast, the management makes decisions whether it would be more beneficial to obtain financing on a fixed-rate or variable-rate basis. In case of changes in the current market fixed or variable rates the management may consider refinancing of a particular debt on more favourable terms. As at 2015 and 2014 the Group's financial assets and liabilities had only fixed interest rates. Sensitivity analysis of fixed interest rates is not presented as the Group does not have any fair valued assets or liabilities with fixed interest rates. Therefore, changes in interest rates do not affect the Group's profit or loss. Liquidity risk Liquidity risk is the risk that the Group will not be able to settle all liabilities as they fall due. The Group s liquidity position is carefully monitored and managed. The Group has established budgeting and cash flow planning procedures to ensure it has adequate cash available to meet its payment obligations in due course. The Group's management monitors these risks by means of maturity analysis, determining the Group s strategy for the next financial period. Current liquidity is managed by the Treasury Department, which deals in financial markets for current liquidity support and cash flow management. The Group recognises the capital intensive nature and low liquidity of real estate. Therefore, the Group uses its best efforts to fund a significant portion of future cash needs through long-term loans and borrowings and to maintain a high proportion of equity financing. The Group also tries to partially finance the development of its residential projects by receiving advance payments under construction contracts. The maturity analysis of the Group's financial liabilities as of 2015 and 2014 is detailed as follows. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. (in thousands of Russian Roubles) Weighted average interest rate On demand Less than 1 month From 1 to 3 months From 3 months to 1 year From 1 to 5 years Contractual amount at 2015 Financial liabilities Financial liabilities within payables Loans and borrowings 10, Total financial liabilities

62 31 Financial Risk and Capital Management (Continued) (in thousands of Russian Roubles) Weighted average interest rate On demand Less than 1 month From 1 to 3 months From 3 months to 1 year From 1 to 5 years Contractual amount at 2014 Financial liabilities Financial liabilities within payables Loans and borrowings 10, Total financial liabilities In 2013 the Company provided a financial guarantee with regard to a bank borrowing of a related party. The bank borrowing assumes the credit line of up to RR million at 12.2% p.a. with final maturity in September This amount is the maximum level of credit risk of the financial guarantee. Management applies judgement in estimation of probability of the Company s future outflows due to execution of this financial guarantee. The management assesses that probability of future outflows is remote. The estimation is based on assessment of the borrower s ability to execute its borrowing obligations and the nature and fair value of additional security provided to the bank by the borrower. The Group's management takes actions to settle short-term debt liabilities (Note 1). Management of Capital The Group identifies its capital as share and additional paid-in capital and retained earnings. The Group manages its capital mainly to ensure that it will be able to continue as a going concern while maximising the return to its equity holders and other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. To maintain and regulate the capital structure, the Group may return capital to its equity holders, issue new shares or sell assets to reduce the debt. The amount of capital that the Group managed as at 2015 was RR thousand ( 2014: RR thousand). Main sources of finance of the Group are issuing additional shares for shareholders, offering shares in capital markets and attracting borrowed funds from lending and non-banking institutions. The Group's management reviews the capital structure on a semi-annual basis. As part of this policy, the Group's management evaluates the cost of capital and risks associated with each capital item. For the analysis of capital the ratio of net borrowed funds to equity is calculated, so net borrowed funds are divided by equity. This calculation is based on IFRS amounts. (in thousands of Russian Roubles) Long-term and short-term loans and borrowings (Note 16) Loans issued (Note 10) ( ) ( ) Short term bank deposits (Note 11) (76 508) (68 581) Cash and cash equivalents (Note 12) (69 074) ( ) Net borrowed funds Equity Net debt to equity ratio 229,38% 84,89% 58

63 32 Financial Instruments: Presentation by Category and Fair Values Carrying amounts of financial assets and liabilities as of 2015 and 2014 are as follows: Financial Assets (in thousands of Russian Roubles) Loans issued and receivables Non-current assets Receivables (Note 9) Loans issued (Note 10) Current assets Financial assets within receivables (Note 9) Loans issued (Note 10) Short term bank deposits (Note 11) Cash and cash equivalents (Note 12) Total financial assets Financial Liabilities (in thousands of Russian Roubles) Financial liabilities carried at amortised cost Non-current liabilities Loans and borrowings (Note 16) Financial liabilities within payables (Note 17) Current liabilities Loans and borrowings (Note 16) Financial liabilities within payables (Note 17) Total financial liabilities According to the Group's management opinion, at 2015 the estimated fair value of financial assets is RR thousand ( 2014: RR thousand). In management s assessment the fair value of financial liabilities at 2014 amounts to RR thousand ( 2014: RR thousand). 59

64 33 Principal Subsidiaries The principal subsidiaries of the Group as of 2015 and 2014 are as follows: Operating entity Principal activity % held by the Group as of 2015 % held by the Group as of 2014 Country of incorporation and place of business Pestovo LLC Pestovo project 100% 100% Russia Stroy Group LLC Pavlovo-2 project 100% 100% Russia Martemianovo LLC Residential complex Vesna project 100% 100% Russia CP Martemianovo LLC Martemianovo project 100% 100% Russia OPIN Engineering LLC Solnechny Bereg project 100% 100% Russia Troitskoye Podvorye LLC Pestovo Life project 100% 100% Russia Pavlovskiy Kvartal LLC Pavlvskiy Kvartal project 100% 100% Russia Proekt Stroy LLC Simonovo project 100% 100% Russia IR Development Technical supervision 100% 100% Russia Onigomati Investment Limited Financial operations 100% 100% Cyprus Eko-Center LLC Istok LLC Agrosistema LLC (at 31 December 2015 joined with OPIN Engineering LLC) Timonino LLC Roza vetrov LLC Agroindustry LLC Russkaya zemlya LLC Holding of land in Odintsovsky district, Moscow area Holding of land in Mytischinsky district, Moscow area Holding of land in Mytischinsky district, Moscow area Holding of land in Naro-Fominsky district, Moscow area Holding of land in Klinsky district, Moscow area Holding of land in Dmitrovsky district, Moscow area Holding of land in Klinsky district, Moscow area 100% 100% Russia - 100% Russia n.a 100% Russia 100% 100% Russia 99,000002% 100% Russia 99,000002% 100% Russia 99,000002% 100% Russia Volzhskie prostory LLC Holding of land in Tver region 99,000002% 100% Russia Farafonovka LLC Holding of land in Tver region 99,000002% 100% Russia Solnechny Bereg LLC Militta LLC Zelenaya dolina LLC Holding of land in Klinsky district, Moscow area Holding of land in Dmitrovsky district, Moscow area Holding of land in Dmitrovsky district, Moscow area 99,000002% 100% Russia 99,000002% 100% Russia 99,000002% 100% Russia Valda LLC Martemianovo project 100% 100% Russia Start Master Resource LLC Holding of land in Tver region 99,000002% 100% Russia Geoalliance LLC Holding of land in Tver region 99,000002% 100% Russia Agro triumph LLC Holding of land in Tver region - 100% Russia 60

65 33 Principal Subsidiaries (Continued) Operating entity Principal activity % held by the Group as of 2015 % held by the Group as of Country of incorporation and place of business Razdolie LLC Holding of land in Tver region 99,000002% 100% Russia Orion LLC Holding of land in Mitishinsky district, Moscow area 99,000002% 100% Russia Timiryazevsky prostory LLC Holding of land in Tver region 99,000002% 100% Russia Spektrum LLC Veres LLC Agroprom LLC Hloris LLC Agrodolina LLC Agro Rezerve LLC RozInvest LLC Vektor LLC VektorstroyProf LLC Holding of land in Dmitrovsky district, Moscow area Holding of land in Dmitrovsky district, Moscow area Holding of land in Dmitrovsky district, Moscow area Holding of land in Dmitrovsky district, Moscow area Holding of land in Klinsky district, Moscow area Holding of land in Klinsky district, Moscow area Holding of land in Klinsky district, Moscow area Holding of land in Klinsky district, Moscow area Holding of land in Klinsky district, Moscow area 99,000002% 100% Russia 99,000002% 100% Russia 99,000002% 100% Russia 99,000002% 100% Russia 99,000002% 100% Russia - 100% Russia - 100% Russia 99,000002% 100% Russia 99,000002% 100% Russia Zemlya-Invest LLC Holding of land in Tver region 99,000002% 100% Russia Ostara LLC Prospect LLC Holding of land in Klinsky district, Moscow area Holding of land in Mitishinsky, Dmitrovsky, Klinsky districts, Moscow area 99,000002% 100% Russia 99,000002% 100% Russia Tanais LLC Holding of land in Vladimir region - 100% Russia Agroservice LLC Yaht Club Pestovsky LLC Orion LLC Holding of land in Klinsky district, Moscow area Holding of land in Mitishinsky district, Moscow area Holding of land in Dmitrovsky district, Moscow area 99,000002% 100% Russia 100% 100% Russia 99,000002% 100% Russia Invest Service LLC Holding of land in Tver region - 100% Russia 61

66 34 Non-Controlling Interest In 2015 the Group sold its 0,999998% share in subsidiaries, holding ownership over part of land plots from the Group s land bank, to a related party, which was done by accepting this related party as a participant and contribution by this party to share capital. Voting rights of non-controlling interest are equal to the share itself. In 2015 no dividends were paid to the non-controlling interest. The Group did not have any non-controlling interest in The following table provides information about each subsidiary that has non-controlling interest: Company Gain/(loss) is attributable to non-controlling interest Accumulated noncontrolling interest in a subsidiary Roza vetrov LLC Agroindustry LLC Russkaya zemlya LLC Volzhskie prostory LLC Farafonovka LLC Solnechny Bereg LLC Militta LLC (870) Zelenaya dolina LLC (177) Start Master Resource LLC (247) Geoalliance LLC (14) 140 Razdolie LLC (16) 276 Orion LLC (Dmitrovsky district) (295) Urozhay LLC (102) 687 Timiryazevsky prostory LLC (17) 208 Veres LLC (418) Agroprom LLC (592) Hloris LLC (152) Vektor LLC (1 184) VektorstroyProf LLC (888) Zemlya-Invest LLC (33) 894 Ostara LLC (62) Prospect LLC (382) Agroservice LLC (232) Spektrum LLC (984) Agrodolina LLC (337) Agroteh LLC - (5) Orion LLC (Mitishinsky district) (290) Events after the Reporting Date In March 2016 the Group signed an agreement with one of bank-lenders. Amount of payments falling due in 2016 has been significantly reduced and accordingly, part of payments has been prolonged until June In March and April 2016 two agreements have been signed with another bank-lender. According to these agreements part of payments have been transferred from 2016 to later periods. Meanwhile, interest rate under these loans has been increased by 0.5%. Also, in April 2016 the Group signed an agreement with another bank-lender. According to this agreement part of payments falling due in 2016 and 2017 have been significantly reduced and accordingly, overall maturity has been increased for one year until March Meanwhile, part of interest accrued in 2016 will be paid in 2017 and

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