Condensed Consolidated Interim Financial Statements (Unaudited)
Condensed Consolidated Interim Financial Statements Unaudited Contents Page Auditors Review Report 2 Condensed Consolidated Interim Statements of Financial Position 3 4 Condensed Consolidated Interim Statements of Income 5 Condensed Consolidated Interim Statements of Comprehensive Income 6 Condensed Consolidated Interim Statements of Changes in Equity 7 11 Condensed Consolidated Interim Statements of Cash Flows 12 13 Notes to the Condensed Consolidated Interim Financial Statements 14 62
Review Report of the Independent Auditors to the Shareholders of Africa Israel Investments Ltd. Introduction We have reviewed the accompanying financial information of Africa Israel Investments Ltd. and its subsidiaries (hereinafter the Group ) including the condensed consolidated interim statement of financial position as at September 30, 2014 and the condensed consolidated interim statements of income, comprehensive income, changes in equity and cash flows for the nine-month and three-month periods then ended. The Board of Directors and Management are responsible for the preparation and presentation of financial information for these interim periods in accordance with IAS 34 Financial Reporting for Interim Periods, and are also responsible for the preparation of financial information for these interim periods in accordance with Section D of the Securities Regulations (Periodic and Immediate Reports), 1970. Our responsibility is to express a conclusion on the financial information for these interim periods based on our review. We did not review the condensed financial information for these interim periods of subsidiaries, the assets of which included in the consolidation constitute about 2% of the total consolidated assets as at September 30, 2014, and the revenues of which included in the consolidation constitute about 2% and about 1% of the total consolidated revenues for the nine-month and three-month periods ended on that date, respectively. In addition, we did not review the condensed financial information for the interim periods of associated companies and jointly-controlled entities accounted for using the equity method of accounting, the investment in which totaled about NIS 217,056 thousand as at September 30, 2014, and the Group s share in their losses, was about NIS 2,487 thousand and about NIS 965 thousand, for the nine-month and three-month periods ended on that date, respectively. The condensed financial information for the interim period of those companies was reviewed by other auditors whose review reports thereon were furnished to us and our conclusion, insofar as it relates to amounts included in respect of those companies, is based on the review reports of the other auditors. Scope of the Review We conducted our review in accordance with Review Standard 1, Review of Financial Information for Interim Periods Performed by the Independent Auditor of the Entity of the Institute of Certified Public Accountants in Israel. A review of financial information for interim periods consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards in Israel and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review and on the review reports of other auditors, nothing has come to our attention that causes us to believe that the above-mentioned financial information was not prepared, in all material respects, in accordance with International Accounting Standard IAS 34. In addition to that mentioned in the previous paragraph, based on our review and on the review reports of other auditors, nothing has come to our attention that causes us to believe that the above-mentioned financial information does not comply, in all material respects, with the disclosure requirements of Section D of the Securities Regulations (Periodic and Immediate Reports), 1970. Sincerely, Somekh Chaikin Certified Public Accountants (Isr.) Breitman Almagor Zohar & Co. Certified Public Accountants (Isr.) 2
November 27, 2014 3
Condensed Consolidated Interim Statements of Financial Position At September 30 At December 31 2014 2013 2013 (Unaudited) (Audited) In Thousands of New Israeli Shekels Current Assets Cash and cash equivalents 1,034,787 1,274,155 1,365,157 Short-term investments 749,088 310,105 287,291 Marketable securities 263,720 254,641 394,531 Trade receivables 1,262,363 1,344,435 1,224,988 Other receivables and debit balances, including financial derivatives 568,635 580,687 667,108 Income taxes receivable 28,766 58,412 39,151 Inventory of buildings held for sale 2,130,935 1,721,888 1,667,527 Other inventories 540,359 562,504 568,939 Assets held for sale 433,711 219,571 233,025 7,012,364 6,326,398 -------------- -------------- 6,447,717 -------------- Non-Current Assets Investments in investee companies accounted for using the equity method of accounting 487,952 507,077 505,773 Loans to investee companies 369,474 363,792 380,666 Property, plant and equipment 1,263,763 1,084,294 1,197,368 Investment property 11,250,815 11,465,391 11,124,395 Investment property under construction 3,224,962 2,878,360 2,880,595 Long-term loans, investments and other debit balances 145,417 78,208 73,661 Inventory of real estate 1,584,482 1,802,237 1,773,634 Intangible assets 174,140 170,943 170,732 Excess of assets over liabilities in respect of employee benefits 1,648 2,302 1,496 Deferred tax assets 83,086 88,908 80,527 18,585,739 18,441,512 -------------- -------------- 18,188,847 -------------- 25,598,10 3 24,767,91 0 24,636,564 4
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof. 5
Condensed Consolidated Interim Statements of Financial Position At September 30 At December 31 2014 2013 2013 (Unaudited) (Audited) In Thousands of New Israeli Shekels Current Liabilities Debentures 361,736 373,791 388,674 Short-term credit from banks and others 3,639,775 4,010,069 3,835,365 Contractors and suppliers 803,517 831,389 727,615 Other payables and credit balances, including financial derivatives 665,744 846,516 847,370 Income taxes payable 72,282 63,273 81,000 Advances from customers 1,089,498 917,036 812,875 Provisions 442,991 421,830 428,159 Liabilities held for sale 322,769 7,398,312 7,463,904 7,121,058 -------------- -------------- -------------- Long-Term Liabilities Debentures 4,010,228 3,437,108 3,592,337 Liabilities to banks 4,586,715 4,908,291 4,905,066 Other liabilities 709,840 565,130 709,165 Excess of losses over investments in investee companies accounted for using the equity method of accounting 3,107 5,732 3,234 Employee benefits 21,285 19,344 20,959 Liabilities for deferred taxes 1,082,398 971,892 961,051 10,413,573 9,907,497 -------------- -------------- 10,191,812 -------------- Equity Share capital 384,866 380,646 380,647 Premium on shares 4,492,044 4,191,238 4,191,341 Capital reserves (2,229,126) (2,142,490) (2,234,652) Retained earnings 1,212,668 1,202,919 1,205,103 Total equity attributable to the Company s owners 3,860,452 3,632,313 3,542,439 Non-controlling interests 3,925,766 3,764,196 3,781,255 Total equity 7,786,218 7,396,509 -------------- -------------- 7,323,694 -------------- 25,598,10 3 24,767,91 0 24,636,564 Lev Leviev Avraham Novogrocki Menashe Sagiv Chairman of the Board of Directors CEO CFO Approval date of the financial statements: November 27, 2014 6
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof. 7
Condensed Consolidated Interim Statements of Income For the Nine Months Ended Three Months Ended Year Ended September 30 September 30 December 31 2014 2013 2014 2013 2013 (Unaudited) (Unaudited) (Audited) In Thousands of New Israeli Shekels Revenues Construction and real estate transactions 2,245,961 2,413,971 614,372 759,824 3,193,070 Rental and operation of properties 649,099 614,575 211,400 208,336 840,704 Industry 1,415,557 1,508,182 454,878 488,108 2,001,010 Other activities 41,823 57,400 13,845 18,480 76,497 Share in income of investee companies accounted for using the equity method of accounting, net 1,470 Increase in fair value of investment property, net 635,352 388,657 590,587 189,577 384,798 Increase in fair value of investment property under construction, net 33,969 216,702 191,538 220,776 Other income 33,205 173,926 12,812 14,391 300,183 5,054,966 -------------- 5,373,413 -------------- 1,897,894 -------------- 1,871,724 -------------- 7,017,038 -------------- Cost and expenses Construction and real estate transactions 2,099,592 2,202,492 566,889 719,001 2,928,392 Update of provision for decline in value of inventory of land and buildings, net 74,801 56,234 44,887 52,152 50,113 Maintenance, supervision and management of real estate and properties 163,120 193,791 37,304 60,652 257,592 Decline in fair value of investment property, net 18,400 Industry 1,320,191 1,392,978 431,047 452,255 1,837,835 Other activities 35,462 52,524 11,425 16,754 69,001 Share in losses of investee companies accounted for using the equity method of accounting, net 10,994 25,121 16,189 24,903 Administrative and general expenses 201,161 185,192 73,175 52,666 257,192 Amortization of intangible assets and other 65,736 86,264 21,340 20,451 98,620 expenses 3,971,057 -------------- 4,194,596 -------------- 1,220,656 -------------- 1,373,931 -------------- 5,523,648 -------------- Operating income 1,083,909 -------------- 1,178,817 -------------- 677,238 -------------- 497,793 -------------- 1,493,390 -------------- Financing expenses (979,760) (1,032,343) (468,155) (273,877) (1,279,040) Financing income 243,234 116,919 31,252 19,431 138,282 Financing expenses, net (736,526) -------------- (915,424) -------------- (436,903) -------------- (254,446) -------------- (1,140,758) -------------- Income before taxes on income 347,383 263,393 240,335 243,347 352,632 Taxes on income (152,445) (160,857) (77,370) (94,572) (202,398) Net income for the period 194,938 102,536 162,965 148,775 150,234 Income (loss) attributable to: The Company s owners 6,506 (77,818) 54,867 43,013 (74,869) Non-controlling interests 188,432 180,354 108,098 105,762 225,103 Net income for the period 194,938 102,536 162,965 148,775 150,234 Income (loss) per share Basic and diluted income (loss) per share (in NIS) 0.03 *(0.48) 0.27 *0.25 *(0.45) * Restated due to issuance of rights see Note 4A(2) below. 8
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof. 9
Condensed Consolidated Interim Statements of Comprehensive Income For the Nine Months Ended Three Months Ended Year Ended September 30 September 30 December 31 2014 2013 2014 2013 2013 (Unaudited) (Unaudited) (Audited) In Thousands of New Israeli Shekels Net income for the period 194,938 102,536 162,965 148,775 150,234 ------------- ------------- ------------- ------------- ------------- Components of other comprehensive income that after the initial recognition in the statement of comprehensive income were or will be transferred to the statement of income Foreign currency translation differences in respect of foreign activities (5,352) (550,070) 156,409 (99,217) (696,344) Foreign currency translation differences in respect of foreign activities recorded in the statement of income 110,554 114,153 Realization of capital reserve in respect of acquisition in stages (14,308) (14,309) Change in fair value of instruments hedging cash flows, net of tax (6,055) 18,101 (7,396) 2,446 22,004 Total other comprehensive income (loss) for the period that after the initial recognition in the statement of comprehensive income was or will be transferred to the statement of income, net of tax (11,407) ------------- (435,723) ------------- 149,013 ------------- (96,771) ------------- (574,496) ------------- Components of other comprehensive loss that will not be transferred to the statement of income Re-measurement of defined benefit plan (2,115) Total other comprehensive loss for the period that will not be transferred to the statement of income, net of tax ------------- ------------- ------------- ------------- (2,115) ------------- Total comprehensive income (loss) for the period 183,531 (333,187) 311,978 52,004 (426,377) Total comprehensive income (loss) attributable to: The Company s owners 12,336 (350,863) 159,919 (26,716) (440,192) Holders of non-controlling interests 171,195 17,676 152,059 78,720 13,815 Total comprehensive income (loss) for the period 183,531 (333,187) 311,978 52,004 (426,377) 10
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof. 11
Condensed Consolidated Interim Statements of Changes in Equity For the nine-month period ended September 30, 2014 (unaudited) Attributable to the owners of the Company Capital reserve from cash flow hedge relating Reserve to for Capital realiza- Revalu- transaction s reserve tion ation with Holders from group reserve holders of of Premium cash held Other for non- non- Share on flow for capital Translation acquisitio controlling Retained controlling Total n capital shares hedges sale reserves adjustments in stages interests earnings Total interests equity In Thousands of New Israeli Shekels Balance at January 1, 2014 (audited) 380,647 4,191,341 (8,343) 24,444 (1,780,978) (469,775) 1,205,103 3,542,439 3,781,255 7,323,694 Total comprehensive income for the period Income for the period 6,506 6,506 188,432 194,938 Other comprehensive income (loss) for the period, net of tax 623 (4,815) 10,022 5,830 (17,237) (11,407) Total comprehensive income for the period 623 (4,815) 10,022 6,506 12,336 171,195 183,531 Transactions with owners recorded directly to equity Issuance of ordinary shares and options for ordinary shares, net 4,219 300,703 304,922 304,922 Sale of shares of subsidiary (619) (619) 22,838 22,219 Share-based payments (net of tax) 298 298 13,872 14,170 Options for shares in subsidiaries that expired 761 761 (761) Dividend paid to holders of noncontrolling interests (57,657) (57,657) Acquisition of non-controlling interests 315 315 (4,976) (4,661) Balance at September 30, 2014 (unaudited) 384,866 4,492,044 (7,720) (4,815) 24,444 (1,770,956) (470,079) 1,212,668 3,860,452 3,925,766 7,786,218 12
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof. 13
Condensed Consolidated Interim Statements of Changes in Equity For the nine-month period ended September 30, 2013 (unaudited) Attributable to the owners of the Company Capital reserve from cash flow hedge relating Reserve to for Capital realiza- Revalu- transaction s reserve tion ation with Holders from group reserve holders of of Premium cash held Other for non- non- Share on flow for capital Translation acquisitio controlling Retained controlling Total n capital shares hedges sale reserves adjustments in stages interests earnings Total interests equity In Thousands of New Israeli Shekels Balance at January 1, 2013 (audited) 377,746 3,976,642 (18,336) 24,444 (1,414,766) 8,595 (465,963) 1,279,728 3,768,090 3,743,783 7,511,873 Total comprehensive income (loss) for the period Income (loss) for the period (77,818) (77,818) 180,354 102,536 Other comprehensive loss for the period, net of tax 8,739 (273,772) (8,012) (273,045) (162,678) (435,723) Total comprehensive income (loss) for the period 8,739 (273,772) (8,012) (77,818) (350,863) 17,676 (333,187) Transactions with owners recorded directly to equity Issuance of ordinary shares and options for ordinary shares, net 2,900 214,596 217,496 217,496 Conversion of loan into equity 11,909 11, 909 Share-based payments (net of tax) 1,009 1,009 16,661 17, 670 Dividend paid to holders of noncontrolling interests (19,456) (19,456) Acquisition of non-controlling interests (630) (583) (2,206) (3,419) (6,377) (9,796) Balance at September 30, 2013 (unaudited) 380,646 4,191,238 (10,227) 24,444 (1,688,538) (468,169) 1,202,919 3,632,313 3,764,196 7,396,509 14
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof. 15
Condensed Consolidated Interim Statements of Changes in Equity For the three-month period ended September 30, 2014 (unaudited) Attributable to the owners of the Company Capital reserve from cash flow hedge relating Reserve to for Capital realiza- transaction s reserve tion with Holders from group holders of of Premium cash held Other non- non- Share on flow for capital Translation controlling Retained controlling Total capital shares hedges sale reserves adjustments interests earnings Total interests equity In Thousands of New Israeli Shekels Balance at July 1, 2014 384,866 4,492,044 (1,220) (6,966) 24,444 (1,880,357) (470,079) 1,156,941 3,699,673 3,804,300 7,503,973 Total comprehensive income for the period Income for the period 54,867 54,867 108,098 162,965 Other comprehensive income for the period, net of tax (6,500) 2,151 109,401 105,052 43,961 149,013 Total comprehensive income for the period (6,500) 2,151 109,401 54,867 159,919 152,059 311,978 Transactions with owners recorded directly to equity Share-based payments (net of tax) 99 99 4,176 4,275 Dividend paid to holders of non-controlling (34,008) (34,008) interests Dividend paid to holders of non-controlling interests 761 761 (761) Balance at September 30, 2014 (unaudited) 384,866 4,492,044 (7,720) (4,815) 24,444 (1,770,956) (470,079) 1,212,668 3,860,452 3,925,766 7,786,218 16
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof. 17
Condensed Consolidated Interim Statements of Changes in Equity For the three-month period ended September 30, 2013 (unaudited) Attributable to the owners of the Company Capital reserve from cash flow hedge relating Reserve to for Capital realiza- transaction s reserve tion with Holders from group holders of of Premium cash held Other non- non- Share on flow for capital Translation controlling Retained controlling Total capital shares hedges sale reserves adjustments interests earnings Total interests equity In Thousands of New Israeli Shekels Balance at July 1, 2013 380,646 4,191,238 (11,307) 24,444 (1,617,729) (468,169) 1,159,670 3,658,793 3,677,157 7,335,950 Total comprehensive income (loss) for the period Income for the period 43,013 43,013 105,762 148,775 Other comprehensive loss for the period, net of tax 1,080 (70,809) (69,729) (27,042) (96,771) Total comprehensive income (loss) for the period 1,080 (70,809) 43,013 (26,716) 78,720 52,004 Transactions with owners recorded directly to equity Conversion of loans into equity 11,909 11, 909 Share-based payments (net of tax) 236 236 5,480 5,716 Dividend paid to holders of non-controlling interests (9,070) (9,070) Balance at September 30, 2013 380,646 4,191,238 (10,227) 24,444 (1,688,538) (468,169) 1,202,919 3,632,313 3,764,196 7,396,509 18
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof. 19
Condensed Consolidated Interim Statements of Changes in Equity Attributable to the owners of the Company Reserve for Capital transaction s reserve Revaluation with from reserve holders of Premium cash Other for non- Non- Share on flow capital Translation acquisition controlling Retained controlling Total capital shares hedges reserves adjustments in stages interests earnings Total interests equity In Thousands of New Israeli Shekels For the year ended December 31, 2013 (audited) Balance at January 1, 2013 377,746 3,976,642 (18,336) 24,444 (1,414,766) 8,595 (465,963) 1,279,728 3,768,090 3,743,783 7,511,873 Total comprehensive income (loss) for the year Income (loss) for the year (74,869) (74,869) 225,103 150,234 Other comprehensive loss for the year, net of tax 10,620 (366,212) (8,012) (1,719) (365,323) (211,288) (576,611) Total comprehensive income (loss) for the year 10,620 (366,212) (8,012) (76,588) (440,192) 13,815 (426,377) Transactions with owners recorded directly to equity Issuance of ordinary shares and options for ordinary shares, net 2,900 214,596 217,496 217,496 Conversion of loan into equity of subsidiary 11,909 11,909 Exercise of options for Company shares 1 103 104 104 Exercise of options for shares of subsidiaries 1,038 1,038 (1,023) 15 Sale of shares of subsidiaries (1,605) (1,605) 18,332 16,727 Share-based payments (net of tax) 925 925 21,845 22,770 Dividend paid to holders of non-controlling interests (21,028) (21,028) Acquisition of non-controlling interests (627) (583) (2,207) (3,417) (6,378) (9,795) Balance at December 31, 2013 380,647 4,191,341 (8,343) 24,444 (1,780,978) (469,775) 1,205,103 3,542,439 3,781,255 7,323,694 20
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof. 21
Condensed Consolidated Interim Statements of Cash Flows For the Nine Months Ended Three Months Ended Year Ended September 30 September 30 December 31 2014 2013 2014 2013 2013 (Unaudited) (Unaudited) (Audited) In Thousands of New Israeli Shekels Cash flows from operating activities Net income for the period 194,938 102,536 162,965 148,775 150,234 Adjustments: Share in losses (income) of investee companies accounted for using the equity method of accounting 10,994 25,121 16,189 (1,470) 24,903 Gain from decline in rate of holdings and sale of investee companies (213) (126,202) (6,417) (126,886) Loss on sale of financial assets in investee companies 37,858 37,858 Depreciation and amortization and decline in value of property, plant and equipment 62,913 61,849 21,429 19,755 81,897 Update of provision for decline in value of inventory of land and buildings 74,801 56,234 44,887 52,152 50,113 Decline in value of investments, net 1,690 4,358 1,690 775 4,612 Change in fair value of investment property, net (635,352) (388,657) (590,587) (189,577) (384,798) Change in fair value of investment property under construction, net (33,969) (216,702) 18,400 (191,538) (220,776) Gain on business combinations (22,820) (22,820) Capital losses (gains) on sale of property, plant and equipment and investment property, net (2,118) 1,524 (1,898) (54) (97,515) Share-based payments 14,170 17,670 4,275 5,716 22,770 Loss (gain) on marketable securities, net (6,020) 10,339 (3,139) 794 4,869 Taxes on income recognized in the statement of income 152,445 160,857 77,370 94,572 202,398 Change in put options to holders of non-controlling interests (439) (439) Financing expenses, net 733,386 895,338 432,581 257,402 1,133,809 Change in inventory of real estate (49,022) (268,388) (166,849) (17,007) (306,553) Change in long-term debt 1,790 (14) 224 Change in inventory of buildings held for sale (95,201) 233,641 (65,264) 106,122 339,221 Change in other inventories 28,535 (328) (4,477) (8,869) (6,829) Change in trade receivables and other receivables and debits (114,858) (197,814) 18,934 (3,385) (103,022) Change in contractors, trade payables and other payables and credits 87,381 (135,341) 75,445 82,063 (191,226) Change in advance deposits from customers 245,447 186,804 77,203 (33,558) 121,031 Change in provisions and employee benefits 2,847 81,838 18,039 12,336 96,033 Income taxes paid, net (13,737) (45,646) (3,798) (15,237) (54,675) Net cash provided by operating activities 659,057 475,420 133,395 313,336 754,433 ------------- ------------- ------------- ------------- ------------- 22
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof. 23
Condensed Consolidated Interim Statements of Cash Flows For the Nine Months Ended Three Months Ended Year Ended September 30 September 30 December 31 2014 2013 2014 2013 2013 (Unaudited) (Unaudited) (Audited) In Thousands of New Israeli Shekels Cash flows from investing activities Initial consolidation of subsidiaries (796,817) (36,316) (796,817) Income tax paid in respect of sale of assets and associated companies (14,802) (9,394) 126 (4,370) (9,394) Investments in associated and other companies (11,678) *(32,918) (2,805) (7,631) (36,394) Repayment (provision) of loans to associated companies, net (14,901) *49,366 (8,994) 287 57,704 Investment in intangible assets (14,497) (10,040) (5,181) (4,221) (18,235) Proceeds from sale of shares of investee companies and return of investment 17,548 25,211 6,610 10,713 25,219 Investment in investment property and investment property under construction (643,945) (427,572) (280,880) (104,033) (552,920) Investment in property, plant and equipment (182,915) (152,923) (59,874) (51,410) (203,944) Proceeds from sale of property, plant and equipment 48,368 4,015 605 681 3,942 Proceeds from sale of investment property, net 148,485 162,933 3,486 20,976 471,920 Investment in long-term deposits and loans (78,478) (3,302) (56,149) (1,284) (12,297) Repayment of long-term deposits and loans 3,169 24,037 1,357 2,785 26,242 Acquisition of marketable securities (7,546) (79,265) (3,313) (23,265) (272,033) Sale of marketable securities 144,893 151,647 36,682 20,094 206,348 Dividends received 29,166 21,595 29,079 5,510 25,235 Interest received 31,250 27,093 7,743 6,574 38,695 Short-term investments, net (466,406) 43,964 (429,503) 31,390 70,852 Net cash used in investing activities (1,012,289) (1,002,370) (761,011) (133,520) (975,877) ------------- ------------- ------------- ------------- ------------- Cash flows from financing activities Interest paid (545,757) (528,913) (142,115) (135,040) (790,236) Dividend paid to holders of non-controlling interests (57,657) (19,456) (34,008) (9,070) (21,028) Acquisition of non-controlling interests (4,661) (8,370) (8,370) Issuance of capital to the owners of the Company less issuance expenses 305,927 217,496 217,496 Issuance of options for debentures 15,520 15,520 Exercise of put option of non-controlling interests (9,555) (9,555) Proceeds from exercise of options for shares of the Company and subsidiaries 119 Proceeds from sale of shares of subsidiary 22,219 16,727 Payment of liabilities to sellers of real estate (29,355) (36,406) (21,871) (19,274) (41,998) Receipt of long-term loans, issuance of debentures and liabilities 2,361,370 2,231,957 1,802,245 659,745 2,611,521 Repayment of long-term loans, debentures and liabilities (2,097,214) (1,237,951) (1,543,692) (445,102) (1,367,452) Short-term credit, net 43,578 (510,818) 180,822 (168,011) (688,274) Net cash provided by (used in) financing activities 13,970 97,984 256,901 (116,752) (81,050) ------------- ------------- ------------- ------------- ------------- Increase (decrease) in cash and cash equivalents (339,262) (428,966) (370,715) 63,064 (302,494) Cash and cash equivalents at beginning of the period 1,365,157 1,746,507 1,370,258 1,220,287 1,746,507 Cash reclassified to assets held for sale (2,189) (340) Effect of exchange rate fluctuations on balances of cash and cash equivalents 11,081 (43,386) 35,584 (9,196) (78,856) Cash and cash equivalents at the end of the period 1,034,787 1,274,155 1,034,787 1,274,155 1,365,157 * Reclassified. 24
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof. 25
Note 1 General A. The Reporting Entity Africa Israel Investments Ltd. (hereinafter the Company ) is an Israeli-resident company that was incorporated in Israel and its registered address is Derech Hahoresh 4, Yehud. The Group s condensed consolidated interim financial statements as at September 30, 2014, include the financial statements of the Company and those of its subsidiaries (hereinafter the Group ) as well as the Group s rights in associated companies and jointly controlled entities. The Group s controlling shareholder is Mr. Lev Leviev, who holds the Company directly and through companies he wholly owns and controls. The Group is engaged in holdings and investments in a variety of sectors in and outside of Israel. The Company s securities are registered for trading on the Tel-Aviv Stock Exchange. B. Impact of the Global Financial Crisis on the Group s Activities Europe In the last few years, a lack of economic stability in a number of European countries is visible, which was reflected by, among other things, a lowering of the credit rating of quite a few central Euro Block countries, and in some of the Euro Block countries even political instability. Taking into account the fact that most of the Group s assets and activities are located in countries outside of the euro block, the impact of the economic and political instability, as stated, will not have a direct impact on the Group s activities. Nonetheless, as noted below, the manner in which the economic instability develops in the future and the strength thereof could have an unfavorable impact on the real economy in the countries in which the Group operates. From the standpoint of the Group s ongoing activities, the Group does not see a clear adverse impact on its revenues from rental properties or a significant decline in the occupancy rates of its rental properties, except for Bulgaria, wherein in recent years there has been an economic slowdown and a sharp drop in demand. As a result, the Group s is suffering from low occupancy rates in the offices project in Warne, Bulgaria and from a low rate of sales in in the residential projects in Sophia, Bulgaria. Russia Further to that stated in Note 42M to the Company s annual financial statements as at December 31, 2013, in connection with the conflict that has broken out between the Ukraine and Russia, relating to the Crimean Peninsula, the said conflict has triggered imposition of sanctions by the United States and other countries against Russia and vice-versa. Based on estimates, the uncertainty with respect to the state/political situation and the increase of the sanctions during the period apparently had an adverse impact on the activities in Russia during the period. For example, it seems as if the sanctions affected, among other things, the scope of the trade between the United States, the European Commonwealth countries and Russia, as well as the extent of the foreign investments in Russia. 26
Note 1 General (Cont.) B. Impact of the Global Financial Crisis on the Group s Activities (Cont.) Russia (Cont.) In addition, in July 2014, there was a large drop in the world oil prices, where fuel is a significant resource in the export and production of revenues in the Russian economy. As at the approval date of the statement of financial position, the credit rating in Russia was lowered by S&P (from BBB to BBB ) and by Moody s (from Baa1 to Baa2 with a negative rating outlook). In light of the devaluation of the Russian ruble, inflationary pressures and instability, in the short run, the Central Bank of Russian raised the short-term interbank interest rate in four steps from 5.5% to 9.5% as at the approval date of the statement of financial position. It is noted that in the first nine months of 2014, there was a devaluation of about 20% in the exchange of the ruble against the U.S. dollar, of which about 17.1% in the third quarter of 2014 (from the date of the statement of financial position and up to shortly before the approval date of the statement of financial position the ruble weakened against the U.S. dollar by an additional rate of about 14%). The devaluation, as stated, would be expected to have an unfavorable impact on the Company s shareholders equity. In the Group s estimation, based on the opinion of its outside, independent advisors, as at the approval date of the statement of financial position, the events described above had not impacted the value of the Group s assets in Russia. Nonetheless, continuation of the above-mentioned events, or an increase in the severity thereof, could have an adverse effect on various facets of the Group s activities in Russian and/or data appearing in the financial statements, among others, as follows: Unfavorable impact on the revenues in all that relating to the activities in Russia due to a decline in the demand in Russia in the commercial sector and in the residential sector; Increase in the Group s costs with respect to the activities in Russia; Decrease in the value of the real estate properties as a result of the decrease in the revenues and/or an increase in the risk premium in the economy and, in turn, an increase in the discount rate taken into account when determining the value; Increase in the financing expenses and/or an adverse impact on the available sources of financing. The Company and its outside consultants are continuing to track the economic developments in Russia, in general, and the real estate market, in particular. It is noted that taking into account the uncertainty prevailing against the background of that event described above, the Board of Directors of AFI Development decided to discontinue the work in the Expolon project (Kosineski) in order to re-examine the project s designation. 27
Note 1 General (Cont.) B. Impact of the Global Financial Crisis on the Group s Activities (Cont.) Russia (Cont.) As at the approval date of the statement of financial position, the economic instability in a number of European countries, the crisis in the relationship between Russia and the Ukraine, and the lowering of the credit rating of Russia, have not had a significant adverse effect on the Group, however in light of the inability to predict their duration or the manner of the future development and strength of the political and economic events, the Company is unable to estimate, at this stage, the future impact of these matters on the Group. As at the date of the statement of financial position, the Company has a deficit in the consolidated working capital, in the amount of about NIS 386 million, which was caused by financing arrangements that came to an end and are in the process of being renewed, where upon the completion thereof there will be a reduction, and even possibly an elimination of the deficit in the working capital. From a financing standpoint, the Group identifies extreme caution on the part of the banks in providing credit to the real estate sector, which is expressed both by means of an impact on their readiness to provide credit to the real estate sector as well as through stricter credit terms and higher costs. As at the date of the statement of financial position, the Company was able to obtain financing from banks as stated in connection with development of projects the construction of which has commenced and it estimates that it will be able to receive financing for the projects scheduled for development up to the end of 2014 in accordance with its work plan, as well as to refinance projects where the related loans are scheduled for repayment in 2014 in accordance with the original repayment schedule. Nonetheless, continuation or worsening of the present crisis could have a significant unfavorable impact on the Group s ability to obtain credit for further projects in its activity countries. The Group is taking action to increase its liquid balances and to decrease its short-term liabilities, by means of a number of steps: Subsequent to the date of the statement of financial position, the subsidiary, Africa Israel Properties, signed a new financing agreement with respect to the properties in Germany, in the amount of about NIS 350 million (see Note 10E, below). Entering into new financing agreements with respect to a number of loans provided in connection with rental properties in Europe, in the amount of an additional about NIS 350 million, which are expected to be repaid within the twelve-month period following the date of that statement of financial position, with respect to which a subsidiary, AFI Europe, has commenced contacts with the lenders and expects that it will sign new agreements prior to the final repayment dates. Extension of the repayment dates of short-term loans taken out to finance construction of rental properties in Israel and Europe and replacement thereof with long-term loans. 28
Subsequent to the date of the statement of financial position, the subsidiary, Africa Israel Properties, signed a new financing agreement for the Cotroceni shopping mall in Romania, in the amount of about 40 million (see Note 4B(3)(I) below). 29
Note 1 General (Cont.) B. Impact of the Global Financial Crisis on the Group s Activities (Cont.) Russia (Cont.) Realization of rental properties in countries wherein the Group carries on activities and/or return of monies through re-financing, and/or sale of investments in investee companies. Floating of debentures and/or expansion of existing series by the Group companies. In light of the economic and political uncertainty in some of the Group s activity countries, the Group is carefully examining its targets in the real estate sector, and is focusing on the following items: Projects that are in various stages of execution and that will be completed in 2014-2016. Examination of the release of new projects in various different countries with emphasis on Russia and Eastern Europe. With respect to these projects, the Group s policy is to re-examine the commencement date of the project and the infrastructures available to the Group to begin construction of the project, taking into account the existence of a number of preconditions, including, assurance of appropriate financing for each project, analysis of the macro-economic environment and the level of demand, prior to starting performance, along with the macro market conditions in the various countries wherein activities are carried on. Concurrently, the Group endeavors to upgrade the lands on which it has not yet commenced construction, by means of obtaining the approvals required for the said construction. The Group examines on an ongoing basis possibilities to continue developing large-scale real estate and infrastructure projects in and outside of Israel, while taking strict care to disperse and allocate the resources to a number of projects, in order to reduce the exposure of any particular project. Continuation of the Group s business initiation and development will be executed through use of the Group s extensive land reserves in and outside of Israel, in the locations wherein the Group carries on activities, while giving due consideration to the lack of economic stability. In general, the Company, as an investments company, usually holds its investments for the long-term. However, where a business opportunity arises or there is an immediate need to increase liquidity (including in order to reduce liabilities), the Company considers possibilities for realizing its investments, taking into account, among other things, utilization of the full potential for improving of the investment, its connection to the core business of the Company Group and other relevant circumstances. In addition, the Company expects to increase its liquid resources by means of sale of assets and investments, raising of equity and debt, and dividends that will be distributed by investee companies. 30
31
Note 1 General (Cont.) B. Impact of the Global Financial Crisis on the Group s Activities (Cont.) Russia (Cont.) Against the background of that stated above, during 2014, the Group took a number of steps, primarily issuance of equity and realization of properties, aimed at improving its liquidity position (regarding this matter see Notes 4A(2), 4A(3), 4B(1)(a) and 4B(1)(b)). As a result, Company Management believes that the Company will be able to pay its liabilities as they come due. Note 2 Basis of Preparation of the Financial Statements A. Declaration of compliance with International Financial Reporting Standards (IFRS) The condensed consolidated interim financial statements were prepared in accordance with IAS 34, Financial Reporting for Interim Periods and do not include all of the information required in complete, annual financial statements. These statements should be read together with the financial statements for the year ended December 31, 2013 (hereinafter the Annual Financial Statements ). In addition, these financial statements were prepared in accordance with the provisions of Section D of the Securities Regulations (Periodic and Immediate Reports) 1970. The condensed, consolidated, interim financial statements were approved for publication by the Company s Board of Directors on November 27, 2014. B. Use of estimates and judgment In preparation of the condensed consolidated interim financial statements in accordance with IFRS, Company management is required to use judgment when making estimates, assessments and assumptions that affect implementation of the policies and the amounts of assets, liabilities, income and expenses. It is clarified that the actual results are likely to be different than these estimates. Management s judgment, at the time of implementing the Group s accounting policies and the main assumptions used in the estimates involving uncertainty, are consistent with those used in the Annual Financial Statements. Note 3 Significant Accounting Policies Except for that detailed in Section A below, the Group s accounting policies in these condensed consolidated interim financial statements are the accounting policies that were applied in the annual financial statements. Set forth below is a description of the substance of the changes in the accounting policies in these condensed consolidated interim financial statements and the impact thereof: 32
Note 3 Significant Accounting Policies A. Initial application of new standards Standard/ interpretation/ Effective date and amendment Main changes transitional provisions Effects (1) Amendment to IAS 32, Financial Instruments: Presentation The Amendment clarifies that an entity has an immediately enforceable legal right to offset the amounts recognized, if such right is not contingent on a future event, and if it is enforceable both during the ordinary course of business as well as in a case of bankruptcy or insolvency of the entity and of all the counterparties. The Amendment was applied retroactively. Application of the Amendment did not have a significant impact on the Company s financial statements. (2) Interpretation of the International Financial Reporting Interpretations Committee IFRIC 21, Levies The Interpretation provides guidelines for the accounting treatment of a liability to pay government impositions that are covered by IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as well as government impositions that are not covered by IAS 37 since the timing of their repayment and the amount thereof are certain. An imposition is defined as an outflow of resources that is imposed on an entity by the government by means of legislation and/or regulation. The Interpretation provides that a liability for payment of an imposition is to be recognized only upon occurrence of the event that creates the obligation to pay, even in cases wherein the entity has no practical possibility of avoiding the said event. The Interpretation was applied retroactively. Application of the Interpretation impacted the accounting treatment of betterment levies in the Group s financial statements, such that the liability to pay a betterment levy is recognized only on the date of sale of the rights. Accordingly, as part of measurement of the fair value of investment property prior to recognition of the liability to payment a betterment levy, the negative cash flows relating to the levy are included. Application of the Interpretation did not have a significant impact on the Company s financial statements. (3) Amendment to IAS 36, Impairment in Value of Assets: Disclosures regarding the Recoverable Amount of Non-Financial Assets The Amendment includes new disclosure requirements for cases where a decline in value is recognized and the recoverable amount is determined as fair value less selling costs. In addition, the Amendment cancels the requirement to provide disclosure for the recoverable amount of significant cash-producing units, if no decline in value was recognized in respect thereof. The Amendment was applied retroactively. Application of the Amendment did not have a significant impact on the Company s financial statements. 33
Note 3 Significant Accounting Policies (Cont.) B. New accounting standards and interpretations not yet adopted (1) International Financial Reporting Standard IFRS 15 Income from Contracts with Customers (hereinafter the Standard ). The Standard replaces the presently existing guidelines regarding recognition of income and presents a new model for recognition of income from contracts with customers. The Standard provides two approaches for recognition of income: at one point in time or over time. The model includes five stages for analysis of transactions in order to determine the timing of recognition of the income and the amount thereof. In addition, the Standard provides new disclosure requirements that are more extensive that those currently in effect. The Standard is to be applied for annual periods commencing on January 1, 2017, with the possibility of early adoption. The Standard includes various alternatives with respect to the transitional rules, such that companies may choose one of the following alternatives when applying the Standard for the first time: full retroactive application, full retroactive application with practical relaxations or application of the Standard commencing from the initial application date, while adjusting the balance of the retained earnings as at this date for transactions that have not yet been completed. The Group has not yet commenced examining the consequences of adoption of the Standard on the financial statements. (2) International Financial Reporting Standard IFRS 9 (2014) Financial Instruments, (hereinafter the Standard ). The Final Version of the Standard, which includes updated provisions for classification and measurement of financial instruments, as well as a new model for measurement of impairment in value of financial assets. These provisions are added to the section addressing hedge accounting general, which was published in 2013. Classification and measurement pursuant to the Standard, there are three main categories for measurement of financial assets: amortized cost, fair value through profit and loss and fair value through other comprehensive income. The basis for the classification with respect to debt instruments is based on the entity s business model for management of financial assets and on the contractual cash-flow characteristics of the financial asset. An investment in equity instruments is to be measured at fair value through profit and loss (unless the company chose, at the time of the initial recognition, to present the changes in the fair value in other comprehensive income). Impairment in value of financial assets the Standard presents a new model for recognition of expected credit losses ( expected credit loss model ). For most of assets, the new model presents a dual measurement approach with respect to impairment: if the credit risk attributable to the financial asset did not increase significantly since the initial recognition, a provision for loss is to be recorded in an amount equal to the expected credit losses due to non-payment events, the occurrence of which is possible during the twelve months following the date of the report. If the credit risk has increased significantly, in most cases the provision for impairment will increase and will be recorded in an amount equal to the expected credit losses over the entire life of the financial asset. 34
Note 3 Significant Accounting Policies (Cont.) B. New accounting standards and interpretations not yet adopted (Cont.) (2) International Financial Reporting Standard IFRS 9 (2014) Financial Instruments, (hereinafter the Standard ) (Cont.) The Standard is to be applied for annual periods commencing on January 1, 2018, with the possibility of early adoption. The Standard is to be applied retroactively, except in a number of circumstances. The Group has not yet commenced examining the impacts of adoption of the Standard on the financial statements. C. Exchange rates and linkage basis (1) Balances in foreign currency, or linked thereto, are included in the financial statements based on the representative rates of exchange published by Bank of Israel and that were in effect at the end of the period of the report. (2) Balances linked to the Consumer Price Index (CPI) are presented in accordance with the last known index at the end of the period of the report (the index for the month preceding the date of the financial report). (3) Set forth below is data with respect to the rate of exchange of the euro, the U.S. dollar and the ruble, and with respect to the Consumer Price Index (CPI): Known Representative rate of exchange of the CPI in Ruble Euro U.S. Dollar Israel NIS NIS NIS In points Date of the financial statements: September 30, 2014 0.093 4.649 3.695 107.62 September 30, 2013 0.110 4.773 3.537 107.62 December 31, 2013 0.105 4.782 3.471 107.51 Rate of change in the period: % % % % Nine months ended September 30, 2014 (11.48) (2.79) 6.45 0.10 Nine months ended September 30, 2013 (10.24) (2.99) (5.25) 2.01 Three months ended September 30, 2014 (8.03) (0.97) 7.48 0.29 Three months ended September 30, 2013 (0.47) 1.14 (2.24) 1.29 Year ended December 31, 2013 (13.10) (2.82) (7.02) 1.91 35
Note 4 Significant Events during the Period of the Report A. Changes in the Company s Equity and Debt Structure 1. In February 2014, the Company increased its authorized capital by an additional 100 million shares of NIS 0.1 par value each. 2. On April 9, 2014, a notification was received on behalf of the Company s controlling shareholder, whereby pursuant to the provisions of the arrangement, the controlling shareholder wishes to execute the fourth investment increment (as defined in the arrangement), in the amount of about NIS 156 million, as part of a rights offering to all the Company s shareholders. On May 1, 2014, the Company published an amended shelf offer report regarding an issuance by means of rights, whereby the Company offered its shareholders up to 45,375,130 of the Company s ordinary registered shares of NIS 0.1 par value each by means of rights and 18,150,052 registered options (hereinafter the Options ) exercisable such that each Option may be exercised for one ordinary share of the Company (subject to adjustments) against a payment in cash of the exercise price, in the amount of NIS 12 (subject to adjustments) for each option. The exercise price of the Options is not linked to any index or currency. The last date for exercise of the said Options was set as March 31, 2015. In the framework of issuance of the rights on May 14, 2014, rights were utilized for acquisition of 42,190,883 Company shares and 16,876,353 Options, and the aggregate consideration (gross) received in respect thereof amount to about NIS 306.3 million, before issuance expenses of NIS 1.4 million. As part of issuance of the rights as stated, the Company s controlling shareholder acquired 21,530,054 Company shares and 8,612,022 Options, in exchange for a payment of about NIS 156 million. Accordingly, the Company s controlling shareholder executed the full investment of the fourth increment (as defined in the arrangement), in the aggregate amount of about NIS 156 million (this amount includes the amount paid by the controlling shareholder in the rights issuance from May 2013 on account of the fourth investment increment). As a result of issuance of the rights, the Company restated the income per share data for the three months ended September 30, 2013 and for the year ended December 31, 2013. 36