Condensed interim financial information for the half-year ended 30 June 2013

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1 Condensed interim financial information for the half-year ended 30 June Contents Page Board of Directors and other officers 1 Independent Auditor s Review Report 2 Condensed interim statement of financial position 3 Condensed interim statement of comprehensive income 4 Condensed interim statement of changes in equity 5 Condensed interim statement of cash flows 6 Notes to the condensed interim financial information 7 19

2 Board of Directors and other officers Board of Directors Pavel Novosyolov Costas Hadjicosti Petros Economides Natalia Kuznetsova Olga Plaksina Company Secretary Abacus Secretarial Limited Elenion Building 2 nd floor 5 Themistocles Dervis Street CY-1066 Nicosia Cyprus Registered office Arianthi Court, 2nd Floor 50 Agias Zonis Street CY-3090 Limassol Cyprus (1)

5 Condensed interim statement of comprehensive income for the half-year ended 30 June In US Dollars Note Half-year ended 30 June Half-year ended 30 June Net (losses)/gains from financial assets and financial liabilities at fair value through profit or loss 3 ( ) Net (losses)/gains from trading in foreign currencies ( ) Net losses from trading in commodity futures ( ) ( ) Dividend income Trading fees and commission expense 11 ( ) ( ) Net (loss)/income from trading operations ( ) Interest income Fees and commission income Other operating income Interest expense 14 ( ) ( ) Administrative and other operating expenses 15 ( ) ( ) Net foreign exchange translation gains (Loss)/profit for the half-year before tax ( ) Tax 16 ( ) ( ) (Loss)/profit and total comprehensive (loss)/income for the half-year ( ) The notes on pages 7 to 19 are an integral part of this condensed interim financial information. (4)

6 Condensed interim statement of changes in equity for the half-year ended 30 June In US Dollars Share capital Share premium Retained earnings Total equity 1 January Profit and total comprehensive income for the half-year ended 30 June Transactions with owners: Dividends declared ( ) ( ) Balance at 30 June Profit and total comprehensive income for the half-year ended 31 December Balance at 31 December / 1 January Loss and total comprehensive loss for the half-year ended 30 June - - ( ) ( ) Balance at 30 June The notes on pages 7 to 19 are an integral part of this condensed interim financial information. (5)

7 Condensed interim statement of cash flows for the half-year ended 30 June In US Dollars Note Half-year ended 30 June Half-year ended 30 June Cash flows from operating activities (Loss)/profit before tax ( ) Adjustments for: Depreciation of property, plant and equipment Dividend income 3 ( ) ( ) Interest income on loans 12 ( ) ( ) Interest expense on borrowings Minimum guaranteed profitability - (856) Interest received Dividends received ( ) Changes in working capital: Trade receivables ( ) Financial assets at fair value through profit or loss ( ) Pledged assets ( ) Financial liabilities at fair value through profit or loss ( ) Trade and other payables ( ) Repurchase agreements ( ) Other assets ( ) Cash (used in)/generated from operations ( ) Tax paid - (4.126) Net cash (used in)/generated from operations ( ) Cash flows from investing activities Purchases of property, plant and equipment 7 (149) (1.721) Net cash used in investing activities (149) (1.721) Cash flows from financing activities Receipts from borrowings Repayments of borrowings - ( ) Dividends paid to Company s shareholder - ( ) Interest paid - ( ) Net cash used in financing activities - ( ) Net (decrease)/increase in cash and cash equivalents ( ) Cash and cash equivalents at beginning of half-year Cash and cash equivalents at end of half-year The notes on pages 7 to 19 are an integral part of this condensed interim financial information. (6)

8 Selected notes to the condensed interim financial information for the six months ended 30 June 1 General information Country of incorporation The Company is incorporated and domiciled in Cyprus as a private limited liability company in accordance with the provisions of the Companies Law, Cap The Company is a 100% subsidiary of Reserve Invest Holding (Cyprus) Limited, a Cyprus incorporated company. The Company s registered office is at Arianthi Court 2 nd Floor, 50 Agias Zonis Street, CY-3090 Limassol, Cyprus. The Company s principal place of business is at Maximos Plaza, Block 3, 3 rd floor, 6 Griva Digheni Avenue, office 3301, CY-3035 Limassol, Cyprus. Principal activities The principal activities of the Company, which are unchanged from last year, comprise investing/trading in debt and equity securities (including, but not limited to, any form of dividend and interest earning shares, bonds, deposits, loans and financial instruments), brokerage activities, investment management and investment advisory services to IFD Kapital Group, Reserve Invest Holding (Cyprus) Limited Group and other investors for the purpose of providing access to securities markets. The Company is regulated by the Cyprus Securities and Exchange Commission (CySec) under authorisation number CIF028/04 issued on 4 May 2004 by which it is licensed to operate as a Cypriot Investment Firm and to provide the investment and non-core services in relation to the transferable securities and shares in collective investment undertakings. Also the Company is trading in money market instruments, futures, forward rate agreements, interest rate, currency and equity swaps and options. Basis of preparation This condensed interim financial information for the half-year ended 30 June has been prepared in accordance with IAS 34, Interim financial reporting. The condensed interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December, which have been prepared in accordance with IFRSs as adopted by the European Union. (7)

9 2 Summary of significant accounting policies The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December except as described below. (i) Adopted by the European Union Amendments Amendment to IAS 1 Financial Statements Presentation on Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after 1 July ). Amendments to IAS 19 Employee Benefits (effective for annual periods beginning on or after 1 January ). Amendments to IFRS 7 Financial Instruments: Disclosures on Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after 1 January ). (ii) Not adopted by the European Union Amendments Annual Improvements 2011 (effective for annual periods beginning on or after 1 January ). Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation of the current period. 3 Financial assets at fair value through profit or loss The financial assets at fair value through profit or loss are analysed as follows: In US Dollars 30 June 31 December Lukoil ADRs Lukoil shares Other corporate shares Eurobonds Exchange traded commodity futures Other corporate shares represent securities by various issuers which are traded in active markets. (8)

10 3 Financial assets at fair value through profit or loss (continued) Eurobonds are bonds denominated in US$ issued by international governments and corporations and are freely tradable internationally. These bonds have maturity dates ranging from 2017 to 2023 and coupon rates of approximately 1,0% - 6,5%. In the condensed interim statement of cash flows, financial assets at fair value through profit or loss are presented within the section of operating activities as part of changes in working capital. In the condensed interim statement of comprehensive income, changes in fair values of financial assets at fair value through profit or loss are recorded in net (losses)/gains from financial assets and financial liabilities at fair value though profit or loss. The net (losses)/gains on financial assets and financial liabilities at fair value through profit or loss are as follows: In US Dollars 1 January 1 January to 30 June (Losses)/gains recognised in relation to shares, ADRs and bonds at fair value through profit or loss ( ) (Losses)/gains recognised in relation to derivatives at fair value through profit or loss ( ) Total net (losses)/gains ( ) In addition, during the half-year period ended 30 June there was dividend income of US$ (half-year ended 30 June : US$ ) from financial assets at fair value through profit or loss, which is shown separately on the face of the condensed interim statement of comprehensive income. 4 Pledged assets Assets are pledged as collateral under repurchase agreements. In US Dollars 30 June Asset 31 December Related liability 30 June 31 December Lukoil ADRs The liabilities under repurchase agreements are presented net of cash margin calls. Pledged assets, as well as, their related liability are payable/repayable within one year from the balance sheet date. (9)

11 5 Trade receivables In US Dollars 30 June 31 December Trade receivables third parties Trade receivables are all current and represent receivables in respect of trading in shares, bonds and derivatives. The fair value of receivables does not differ significantly from its carrying amount. 6 Loans receivable In US Dollars 30 June 31 December Subordinated loan receivable from related party (Note 20 (c)) principal accrued interest The effective interest rates on non-current loans receivable were as follows: 30 June 31 December Subordinated loan 4,2952% 5,213% 7 Property, plant and equipment In US Dollars Total Net book value at 1 January Additions Depreciation charge (Note 15) (27.895) Net book value at 30 June Additions Depreciation charge (27.274) Net book value at 31 December /1 January Additions 149 Depreciation charge (Note 15) (27.418) Net book value at 30 June (10)

12 8 Other assets In US Dollars 30 June 31 December Dividend receivable from related parties (Note 20 (d)) Dividend receivable from third parties Collateral accounts Accounts with brokers Client commissions due from third parties Provision for amounts due from clients (59.717) (59.717) Client commissions due from related parties (Note 20 (d)) Other amount due to related party (Note 20 (d)) Other debtors Reverse repurchase agreements The fair value of assets received as collateral under reverse repurchase agreements with third parties at 30 June amounted to US$nil (31 December : US$ ). 9 Financial liabilities at fair value through profit or loss In US Dollars 30 June 31 December Held for trading: - Listed bonds sold short Derivatives: Written OTC options Commodity derivatives Total financial liabilities at fair value through profit or loss The notional amounts of the derivative contracts open at the reporting date are disclosed in the table below: In US Dollars 30 June 31 December Notional Notional Assets Liabilities Assets amount amount Liabilities Written OTC options FORTS forex futures Commodity futures Total (11)

13 10 Trade and other payables In US Dollars 30 June 31 December Current: Trade payable Other amounts due to related parties (Note 20 (d)) Other creditors and accrued expenses Trading fees and commission expense In US Dollars 1 January 1 January Global custody services Regulatory fees and payments Brokerage and commission fees Risk management services (Note 20 (b)) Other trading expenses Interest income In US Dollars 1 January 1 January Interest income on loans with related parties (Note 20 (c)) Interest income on overnight bank accounts from related parties (Note 20 (b)) Interest income on overnight bank accounts from third parties Interest on collateral accounts and accounts with brokers Interest income on reverse repurchase agreements Net interest expense on bonds (55.411) (82.689) (12)

14 13 Fees and commission income In US Dollars 1 January 1 January Brokerage fees Asset management fees Interest expense In US Dollars 1 January 1 January Interest on repurchase agreements Interest expense on borrowings Administrative and other operating expenses In US Dollars 1 January 1 January Staff costs Bank charges Legal, consultancy and professional fees Non-recoverable VAT Tax advisory services rendered by statutory auditor Statutory audit fee Other assurance services rendered by statutory auditor Rent and common expenses Telephone, faxes and communication costs Depreciation of property, plant and equipment (Note 7) Directors fees (Note 20(e)) Office supplies and maintenance expenses Car expenses Travel and accommodation expenses IT expenses (8.258) Fees for guarantees issued Other sundry expenses (13)

15 16 Tax In US Dollars 1 January 1 January Current tax: Withholding tax suffered on dividend income Cyprus income tax prior year underprovision Dividend The Board of Directors did not declare any dividends for the half-year period which ended on 30 June. On 30 March the Board of Directors resolved to pay an interim dividend to the parent company of US$13,012 per share amounting to US$ Fiduciary activities The Company provides asset management, brokerage, investment management and advisory services to third parties. Those assets that are held in a fiduciary capacity are not included in this condensed interim financial information. At the balance sheet date the Company had cash balances amounting to US$ (31 December : US$ ). During the half-year ended 30 June the Company earned income from brokerage activities of US$7.366 (half-year ended 30 June : US$5.716) and US$nil (half-year ended 30 June : US$117) from asset management services. 19 Contingent liabilities and operating risks (a) Legal proceedings. From time to time and in the normal course of business, claims against the Company are received from customers. Management is of the opinion that no material non-accrued losses will be incurred and accordingly no provision has been made in this condensed interim financial information. (b) Tax legislation. There are transactions and calculations for which the ultimate tax determination may be uncertain based on the current Tax Legislation. The Company recognises liabilities for anticipated tax issues based on estimates whether additional taxes will be due as a result of different interpretations of the Tax Legislation. Where the final tax outcome, based on the results of tax audits, of the matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The Company is currently under tax assessment by the Income Tax Office of the Inland Revenue Department of Cyprus for the years 2010 and At this stage, management is not in a position to quantify any tax exposure that could arise. Hence no provision has been made in the financial statements. (14)

16 19 Contingent liabilities and operating risks (continued) (c) Off balance sheet risk. In the normal course of business, the Company enters into agreements to manage funds of clients in accordance with the criteria established by the client. As a common practice, according to those agreements, the Company has no potential liability in respect of any losses and damage suffered by the clients as the result of common risks of investing and owning of the securities, except if resulting from gross negligence or willful default of the Company. (d) Operating environment of the Republic of Cyprus The Cyprus economy has been adversely affected over the last few years by the international credit crisis and the instability in the financial markets. During there was a considerable tightening of financing availability from Cypriot financial institutions, mainly resulting from financial instability in relation to the Greek sovereign debt crisis, including the impairment of Greek Government Bonds, and its impact on the Cyprus economy. In addition, following its credit downgrades, the ability of the Republic of Cyprus to borrow from international markets has been significantly affected. The Cyprus government entered into negotiations with the European Commission, the European Central Bank and the International Monetary Fund, in order to obtain financial support. Cyprus and the Eurogroup (together with the International Monetary Fund) reached an agreement on 25 March on the key elements necessary for a future macro-economic adjustment programme which includes the provision of financial assistance to the Republic of Cyprus of up to 10 billion. The programme aims to address the exceptional economic challenges that Cyprus is facing and to restore the viability of the financial sector, with the view of restoring sustainable economic growth and sound public finances over the coming years. The Eurogroup decision on Cyprus includes plans for the restructuring of the financial sector and safeguards deposits below in accordance with EU legislation. More specifically, the uninsured depositors of Laiki are entitled to receive 18% of the equity of bank of Cyprus. This should be managed by the liquidator and its proceeds will be shared between the uninsured depositors. The Bank of Cyprus uninsured depositors have received in total 81% of the Bank of Cyprus new shares through a conversion of 47,5% of their deposits (amounts over ). The holders of equity and other mezzanine instruments have received approximately 1% of the Bank of Cyprus new equity instruments. These instruments have not been admitted for trading in the Stock exchange as yet. In addition the corporate tax rate will increase from 10% to 12,5%. These measures are not expected to have any adverse impact on the Company s operations. Further, the Company did not hold any material bank deposits, at 26 March, in the above two Cypriot banks and as such no loss will arise from these measures. (15)

17 20 Related party transactions The Company is controlled by Reserve Invest Holding (Cyprus) Limited, a company also incorporated in Cyprus. A majority stake in Reserve Invest Holding (Cyprus) Limited is beneficially owned by Mr. Alekperov and Mr. Fedun (the ultimate beneficiaries ) a nd is managed by a professional asset management company, which is not owned by the ultimate beneficiaries. Only recommendations given by Mr. Fedun with respect to his voting rights in Reserve Invest Holding (Cyprus) Limited may be consi dered by the professional asset management company. The holding company, Reserve Invest Holding (Cyprus) Limited and its subsidiaries conduct mutual business and have common management with IFD Kapital Group, a group registered in the Russian Federation. Transactions are entered into in the normal course of business with directors and other related parties including companies related to Lukoil and IFD Kapital Group. Lukoil is treated as a related party for the Company as certain members of the Lukoil Board of Directors and Management Board are also members of the Board of Directors of IFD Kapital Group. For the purposes of this condensed financial information, parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operating decisions as defined by IAS24 Related Party Disclosures. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. During the half-year periods ended 30 June and 30 June, a number of transactions were entered into with related parties in the normal course of the business. Certain of these transactions, particularly where a broad market does not exist, were consummated at terms agreed to between the parties. Balances and transactions with Reserve Invest Holding (Cyprus) Limited and its subsidiaries, IFD Kapital Group and other related parties are as follows: (a) Trading transactions In US Dollars 1 January 1 January Purchases of financial assets: - shares: Parent company Fellow subsidiary Other common control group companies (16)

18 20 Related parties (continued) (a) Trading transactions (continued) In US Dollars 1 January 1 January Sales of financial assets: - shares: Parent company Fellow subsidiary Other common control group companies (b) Other transactions In US Dollars 1 January 1 January Fellow subsidiary companies Interest income on subordinated loan (Note 12) Overnight interest income (Note 12) Other common control group companies Commission and brokerage expenses (2.994) (25.288) Risk management fees (Note 11) - (50.000) (2.994) (75.288) Other related parties Dividend income (17)

19 20 Related parties (continued) (c) Loans receivable from related parties In US Dollars 30 June 31 December Loan receivable from fellow subsidiary company (Note 6) The loan receivable from fellow subsidiary company comprises a subordinated loan of US$ (31 December : US$ ) and accrued interest thereto of US$ (31 December : US$ ) to OJSC Petrocommercebank (a related bank). This loan is denominated in US Dollars. It bears interest of 3 month LIBOR +4%. The interest on loan is repayable quarterly. During the initial repayment date of 9 November 2016 was prolonged to 9 November (d) Other balances with related parties In US Dollars 30 June 31 December Cash at bank: Fellow subsidiary company Amounts receivable (Note 8): Parent company: - financing Other related parties: - client commission due dividend receivable Amounts payable: Fellow subsidiary company: - financing (Note 10) Dividend receivable from other related parties represents the amounts due on Lukoil shares and ADRs held at custodians at the record date net of withholding tax. The amount is denominated in Russian Roubles and revalued at the closing rate at the reporting date. It does not include dividend receivable on Lukoil shares and ADRs held by counterparties under repurchase agreements and options transactions as at the record date. (18)

20 20 Related parties (continued) (e) Directors remuneration The total remuneration of the Directors (which was the only key management compensation) was as follows: In US Dollars 1 January 1 January - Directors fees (Note 15) Salaries (gross) and other benefits Events after the balance sheet date There were no material post balance sheet events, which have a bearing on the understanding of this condensed interim financial information. Independent Auditor s Report on review of interim financial information on page 2. (19)

Reserve Invest (Cyprus) Limited. Report and financial statements 31 December Contents. Page

Reserve Invest (Cyprus) Limited. Report and financial statements 31 December Contents. Page Report and financial statements 31 December 2013 Contents Page Board of Directors and other officers 1 Report of the Board of Directors 2 4 Independent Auditor s Report 5 6 Statement of financial position