54 — 102 DeloPorts
Financial Annual Report Statements 2016
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About Key Business Strategic Governance DeloPorts Figures Model Report Report
ANNUAL REPORT
2016
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About Key Business Strategic Governance Financial Annual Report DeloPortsDeloPorts Figures Model Report ReportReport Statements 2016 ABOUT
TOTAL NUTEP Change DELOPORTS +10.2% in relation TURNOVER to 2015 CONTAINER TERMINAL DELOPORTS IS A MAJOR RUSSIAN TRANSPORTATION HOLDING THAT CONSOLIDATES THE STEVEDORING ASSETS OF DELO GROUP IN THE SOUTHEASTERN CARGO AREA MLN IN NOVOROSSIYSK OF NOVOROSSIYSK PORT. THESE INCLUDE NUTEP CONTAINER TERMINAL, KSK T IN 2016 (#2 IN 2015) GRAIN TERMINAL AND DELO SERVICE COMPANY. 6.0 #1 CONSOLIDATED KSK Page 8 More about the business model REVENUES +0.4% GRAIN TERMINAL RUB IN RUSSIA COMPANY STRUCTURE BLN IN 2016 (#3 IN 2015) NUTEP DELO KSK 7.8 #2 container terminal service company grain terminal CONSOLIDATED EBITDA +17.8% 100% 100% 75% 25% RUB Leading producer and supplier of foods and BLN agriculture products 5.8
CONTENTS 04–09 10–43 44–53 54–102
ABOUT STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS DELOPORTS 10 Key Events of 2016 22 Operational Review 46 Governance System KEY 12 Chairman's Statement 28 Financial Review 48 Board of Directors FIGURES
14 Chief Executive Officer's Review 32 Investment Projects 52 Investor Relations BUSINESS MODEL 16 Strategic Priorities 34 Principal Risks
18 Market Review: Containers 36 Social Responsibility 20 Market Review: Grain Export
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About Key Business Strategic Governance Financial Annual Report DeloDeloPortsPorts Figures Model Report RReporteport Statements 2016 KEY FIGURES
REVENUES, RUB BLN EBITDA, RUB BLN EBITDA MARGIN, % CAPEX, RUB BLN +0.4% +17.8% +11p.p. +90.8% 2016 2016 2016 2016 7.80 5.75 73.8% 1.07
2015 2015 2015 2015 7.77 4.88 62.8% 0.56
2014 2014 2014 2014 7.57 3.83 50.6% 0.37
OPERATING CASH FLOW, ADJUSTED NET PROFIT*, NET DEBT, NET DEBT/EBITDA RUB BLN RUB BLN RUB BLN +6.3% +23.8% -7.1% -0.2x 2016 2016 2016 2016 4.73 4.07 4.33 0.8x
2015 2015 2015 2015 4.45 3.29 4.66 1.0x
2014 2014 2014 2014 3.34 2.42 6.35 1.7x
* Adjusted for exchange differences arising from the revaluation of foreign-currency items
FITCH STANDARD & POOR'S DeloPorts is a private company PAGE 28 For more about DeloPorts’ solely owned by financial results Sergey Shishkarev.
BB-OUTLOOK ‘STABLE’ BB-OUTLOOK ‘STABLE’
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About Key Business Strategic Governance Financial Annual Report DeloPorts Figures Model Report Report Statements 2016 BUSINESS MODEL
SEA Competitive advantages
OPERATIONS Handling Receiving, storing Bunkering DELOPORTS' SUCCESS RELIES ON containers, and loading grain and tugboat ITS WELL BALANCED BUSINESS general and and handling MODEL, WHICH COMPETITIVE services* ADVANTAGES ENABLE IMPLEMENTATION Ro-Ro cargo Ro-Ro cargo OF EFFECTIVE INVESTMENT PROJECTS AND ENSURE STABILITY
CARGO TURNOVER IN VOLATILE MARKET CONDITIONS IN 2016 233,000 TEU 3.3 MLN T 31,000 T Capacity Capacity Capacity — 350,000 TEU — 3.5 MLN T — UP TO 200,000 T OPTIMAL BALANCE OF IMPORT AND EXPORT CARGO AND FOCUS ON DESCRIPTION NUTEP KSK Delo Service Company HIGH-MARGIN CARGO OF KEY ASSETS container terminal grain terminal — 4 berths — 5 berths — 13 years on the bunkering market DEFINED TERMINAL PAGE 32 — Storage capacity of 10,560 TEUs — 116,000 t of silo capacity DEVELOPMENT PLAN More about investment — 1,400 reefer power points projects
STRONG MANAGEMENT PAGE 44 Tugboat project. Delivery of 4 own TEAM More about INVESTMENT Construction Terminal development programme of a deepwater berth tugboats* governance PROJECTS Capacity expansion system Capacity expansion to 5.0 mln t PAGE 27, 32 TRACK RECORD OF to 700,000 TEUs * More about the new service SUCCESSFUL INVESTMENT PROJECTS
LAND Direct access to the M4 Don highway TOTAL CARGO TURNOVER BREAKDOWN OF DELOPORTS Own rail yard SHARE T PAGE 22 CARGO TURNOVER OF REVENUES Ro-Ro More about ‘000 t RUB bln MLN operating results Containers Grain and general cargo 0.43 6.0 EXPORTS 1,038 3,322 40 4,400 6% 3.39 REVENUES IN 2016 43% RUB PAGE 28 IMPORTS 1,400 228 3.97 More about 1,628 51% 7.8 BLN financial results 8 9 4 — 5 6 — 7 8 — 9 10 — 43 44 — 53 54 — 102 DeloPorts
About Key Business Strategic Governance Financial Annual Report DeloPorts Figures Model Report Report Statements 2016
STRATEGIC REPORT
DELOPORTS’ STRATEGIC PRIORITIES ARE TO STRENGTHEN ITS COMPETITIVE ADVANTAGES IN KEY SEGMENTS, ENHANCE SERVICE QUALITY AND PRESERVE ITS IMPECCABLE REPUTATION ON THE MARKET
KEY EVENTS OF 2016
A management holding company Standard & Poor’s upgrades Construction of connection is completed Agreement for the delivery KSK sets a new record for DeloPorts and Rosmorport sign is created as part of the final DeloPorts' long-term credit rating and construction of a deepwater berth at of four tugboats is signed. Transition monthly grain transhipment a memorandum of understanding phase of restructuring of from 'B+' to 'BB-' with a 'stable' NUTEP begins of the bunkering business to a light-asset coordinating joint efforts under Delo Group outlook model investment projects
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WE HAVE WORKED SUCCESSFULLY TOWARDS REACHING OUR OBJECTIVES AND INTEND TO BUILD ON THIS FURTHER BY LOOKING AT NEW OPPORTUNITIES
Every year marks a new stage of development We continuously demonstrate our commitment for DeloPorts, and 2016 was no exception. We to our principles by taking part in charitable delivered stronger operational and financial and social programmes in Krasnodar Region, results, launched additional services and promoting sport for children and youth in Russia, conducted a key organisational restructuring. and supporting the country’s national handball CHAIRMAN’S As a result, we strengthened our positions in the teams. In 2016, the Russian women’s handball sector and underscored our reputation as team excelled at the Olympic Games in Brazil, a partner and employer of choice. winning the gold medals, and we are proud to have been supporting them. STATEMENT I am pleased to report that the DeloPorts management team fulfilled all of the goals set by Looking ahead, we will concentrate on carrying the Board of Directors to expand Delo Group’s out our large-scale investment projects. They will stevedoring business. create additional competitive advantages for the Group and reinforce DeloPorts’ positions in key In 2016, the DeloPorts Board and management segments of the Russian transportation market. focused on implementing the investment programme to increase throughput capacity, I have every faith in our team and am confident a new project to launch tugboat services for that the professionalism and contribution of every vessels calling the Tsemess bay and issues related employee will enable us to progress even further to the Group restructuring together with creation towards our strategic objectives in 2017. of the management company.
In striving to make operations even more efficient, we are also working to introduce work health and safety standards and procedures that are guided by best practices. We invest in training for employees, offering guaranteed social benefits and career opportunities.
SERGEY We work to maintain the investment community’s SHISHKAREV confidence in our business case, and we are Sergey committed to ensuring a high level of openness Owner and President Shishkarev of Delo Group and transparency through information disclosure.
Chairman of DeloPorts Board of Directors
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AT DELOPORTS, WE SEE ANY CHANGE AS AN OPPORTUNITY TO IMPROVE AND REINFORCE OUR POSITIONS IN KEY MARKET SEGMENTS
In 2016, as the Russian economy stabilised and were assigned, demonstrating that our business regained some ground after the slump of the model can withstand market volatility. previous two years, DeloPorts confirmed its ability to proactively adapt to changes, delivering solid One key event for DeloPorts in 2016 was the results. Container handling rose, grain throughput completion of the development of the connection CHIEF increased and the Company introduced a raft of at NUTEP and the beginning of the construction initiatives to streamline internal processes at its works for the deepwater berth. In addition, with terminals, all of which strengthened its market a view to expand the service range, DeloPorts positions and was reflected in the financial results. approved and began a project to develop tugboat EXECUTIVE services. A contract was signed to buy four new Over the year, DeloPorts boosted its overall tugboats from international shipbuilding group cargo throughput to 6.0 million tonnes, up Damen with delivery in 2017-2018. OFFICER’S 10.2% compared with 2015, driving its share of Novorossiysk port’s annual dry cargo throughput We place tremendous value on the trust of our from 15.0% to 15.6%. NUTEP increased its partners and clients. In 2016, we managed to REVIEW container throughput to 233,000 TEUs, up 15.3% preserve and reinforce it, confirming that we are year-on-year, while KSK handled 3.3 million tonnes on the right strategic development path. of grain, up 18.2% year-on-year.
For 2016, DeloPorts reported consolidated revenues of RUB 7.8 billion, unchanged from 2015. However, thanks to a shift of revenues within the holding in favour of higher-margin transhipment, EBITDA climbed to RUB 5.8 billion, up 17.8% year- on-year, driving the EBITDA margin from 62.8% in 2015 to 73.8%. As of 31 December 2016, net debt stood at RUB 4.3 billion, down 7.1% year-on-year.
We are pleased to report that our achievements IGOR received positive recognition. In November 2016, YAKOVENKO international rating agency Standard & Poor’s upgraded its long-term credit rating for DeloPorts Chief Executive Officer from ‘B+’ to ‘BB-’, the outlook ‘stable’. We have Igor DeloPorts fulfilled our undertakings when the first ratings Yakovenko
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STRATEGIC PRIORITIES
Priority Achievements in 2016 Plans for 2017 KEY Growth PERFORMANCE INDICATORS Leading positions in grain and Complete first stage of berth construction • Complete main works for new berth container segments (connection) construction DeloPorts uses a motivation system based • Focus on strategic cargoes Start second stage of berth construction • Conclude contracts for the purchase of on financial and economic key performance equipment for berth 38 indicators (KPIs) to assess the efficiency of top • Increase terminal throughput Start construction works at KSK management, including the CEOs of subsidiaries. Moved to 2017 • Obtain project documentation approval and begin construction • Maximise effective use works at KSK Each year, the Management Board of the of existing territories management company sets KPI targets for DeloPorts senior managers, subject to approval by the Board of Directors.
The KPIs for 2016 included budget items like Customer focus cargo turnover and EBITDA, as well as investment programme implementation. Excellent service quality with a focus Provide containers to customers during • Offer new tugboat services for ships calling on the customer inspections to minimise lost time during customs DeloPorts terminals A performance review is used to award annual inspections bonuses after the operational results of the Develop specialised services and improve current • Expand container storage facilities terminals and DeloPorts have been summarised service quality to optimise logistics at assets and Launch automatic sampler on conveyor belts at KSK in the consolidated management and financial reduce customer costs • Collect and record customer satisfaction data about reports. The Board of Directors approves the container carriers and freight forwarders decision to pay top managers’ annual bonuses Offer NUTEP customers the option to send for the reporting period, as well as discretionary requests to conduct pre-inspection operations, • Finish current equipment repairs amounts, depending on their respective KPIs. bypassing the agent/carrier representative, thereby reducing lost time for customers In practice, the service was not in demand
Corporate governance
Corporate governance Prepare internal policies and develop internal Corporate • Ensure timely disclosure of DeloPorts’ material best practice Governance Code operating and financial information, as well as significant corporate events Implement best practices to improve DeloPorts’ Create management company and finalise Group reorganisation investment story and transparency of to optimise structure, improve asset management efficiency, management decisions and standardise project management
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MARKET REVIEW: CONTAINERS In 2016, Russia’s economy recovered after the decline of the past two years. The Association of 15.7% Commercial Sea Ports estimates that the country’s overall turnover of dry goods rose by 7.6% AZOV-BLACK SEA BASIN’S year-on-year. Rouble appreciation helped to increase consumer purchasing power, which in turn SHARE OF RUSSIAN drove import growth. Meanwhile, at the current rouble exchange rate, Russian manufacturers CONTAINER MARKET retain a sufficient competitive advantage to support exports. + 1.4% 72% RUSSIAN CONTAINER CONTAINER TERMINAL MARKET RECOVERY CAPACITY UTILISATION IN NOVOROSSIYSK
Containerisation per capita Russia’s container market by basin Russia’s share of loaded containers Throughput capacity use at container and loaded container export volumes terminals in Novorossiysk
TEUs per 1,000 inhabitants '000 TEUs Actual container throughput '000 TEUs Azov-Black 628 850 145 604 76.4 Sea basin 15.3% 15.7% 73.7 Share of loaded 68.4 containers, % 613 584 1,215 1,198 72% 111 Far East 1,048 69% 106 basin 30.8% 30.0% 919 934 Loaded container 95 export volumes, 158 NCSP 157 ’000 TEUs
222 NLE 224 45 Northwest 2,122 2,171 basin 53.8% 54.3% 26 233 NUTEP 203 #2 #1
Russia Brazil Turkey US Europe World 2015 2016 2014 2015 2016 2015 2016 Capacity
Source: Association of Commercial Sea Ports, Russian State Source: Association of Commercial Sea Ports Source: Association of Commercial Sea Ports, Company data Source: Association of Commercial Sea Ports, Company data Statistics Service, Company data
In 2016, per capita containerisation in Russia remained In 2016, container throughput increased by 4.0% in the Azov-Black While the Russian economy’s stabilisation helped to stimulate In 2016, the capacity utilisation rate at Novorossiysk’s three low at 26 TEUs per 1,000 inhabitants, which is significantly Sea basin, which exceeds the national average by 2.6 percentage import growth in 2016, the increase was driven primarily by loaded container terminals increased to around 72%, the highest in below the global average. This suggests that there is points, indicating that it is recovering and growing faster than in the container exports (up 12.3%). This is due to ongoing economic Russia. The average terminal capacity utilisation was 40% in still substantial potential for greater future container other basins. This is partly thanks to improved relations with Turkey stagnation and the delayed effect of rouble depreciation the Northwest basin, 55% in the Far East basin and 55% in throughput. Container throughput growth traditionally and the partial lifting of sanctions against Turkish imports. Overall, in 2014–15. The share of loaded containers in overall cargo Eastern Europe. outpaces economic growth in emerging markets. the Azov-Black Sea basin’s share of Russia’s container market throughput increased by 2.7 percentage points to 76.4%, helping to increased by 0.4 percentage points in the year. improve transportation efficiency, as shippers can save money by reducing empty container turnover. This increases the value added per container for all stakeholders in the logistics chain.
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MARKET REVIEW: GRAIN EXPORT
IN 2016, RUSSIA SET AN ABSOLUTE RECORD IN GRAIN PRODUCTION, HARVESTING 121 MILLION TONNES, UP 15.2% YEAR-ON-YEAR AND AN INCREASE OF 11.5% FROM THE PREVIOUS RECORD OF 2008
MLN 121 T RECORDДОЛЯ АЗОВО-ЧЕРНОМОРСКОГО GRAIN HARVEST БАССЕЙНА НА КОНТЕЙНЕРНОМ РЫНКЕ РОССИИ В 2016 ГОДУ
Grain acreage and harvested area Russian grain production and exports Grain balance Deepwater terminal exports in Azov-Black Sea basin mln ha mln t mln t 120.7 1.0 75.7 mln t 14.5 46.2 46.6 47.1 — Grain production — Total export volumes Acreage Import 97.8% — Grain exports through the Azov-Black Sea basin 1.8 Tuapse 94.5% 94.8% Harvested area 120.7 2.7 Taman
105.3 104.8 33.9 On average, the grain terminals in the Azov-Black Sea Internal basin tranship 90% 3.2 NZT consumption of Russian grain exports, 76.9 roughly half of which is from deepwater 64.8 2014 2015 2016 Export terminals. Production 3.3 KSK Grain crop yield 31.2 hwt/ha 26.2 91% 91% 89% 24.1 23.7 15.7 Shallow terminals 3.5 NKKhP 30.1 30.7 33.9 20,0 Opening 2016 Closing 14.5 Deepwater terminals balance balance 2014 2015 2016 2014 2015 2016 2016 2016
Source: Russian State Statistics Service Source: Russian State Statistics Service, Association of Commercial Sea Ports Source: Russian State Statistics Service Source: Association of Commercial Sea Ports, Company data
The high production figure was due to increased acreage One constraining factor in the second half of the year was a drop At the start of 2017, grain reserves totalled 76.9 million tonnes, (up 1.0% year-on-year) and grain yields (up 10.5% year-on- in global wheat prices, which reached a 10-year low in August up 12.1 million tonnes year-on-year. The increase was due to year), as well as to a higher harvested area (up 4.2% year-on- 2016 and made a slight recovery in the fourth quarter. Regardless, lower export prices and rouble appreciation, which caused lower year). Export volumes for the year were also record-setting a domestic grain surplus prompts Russian farmers to export grain shipments overseas. This indicates that there is additional at 33.9 million tonnes, amid unprecedented production whatever part of the harvest that they could not sell on the local potential for grain exports in 2017 and creates opportunities for +15.2% volumes and existence of specialised export terminals. market. further transhipment volume growth. RUSSIAN GRAIN PRODUCTION GROWTH
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About Key Business Strategic Governance Financial Annual Report DeloPorts Figures Model Report Report Statements 2016 OPERATIONAL 15.6% REVIEW DELOPORTS SHARE OF DRY CARGO TRANSHIPMENTS IN NOVOROSSIYSK IN 2016
MLN T 6.0 (+10.2%) OVERALL TERMINAL TURNOVER IN 2016
THE SHARE OF EXPORTS IN DELOPORTS’ TURNOVER INCREASED FROM 70% IN 2015 TO 73% IN 2016
NUTEP KSK TOS BREAKDOWN OF DELOPORTS’ TURNOVER IN 2016 In 2016, NUTEP container terminal In 2016, grain transhipment volumes In 2016, bunker fuel sales decreased СТРУКТУРА ГРУЗООБОРОТА В 2016 ГОДУ handled 233,470 TEUs (+15.3% year- at KSK increased by 18.2% year-on-year by 68.7% year-on-year to 30,775 t ‘000 t on-year) to 3.3 mln t Export Import Total
73% 27% Container throughput Transhipment volumes Bunker fuel sales ’000 TEUs mln t ‘000 t Capacity 4,400 1,628 6,028
350 3,5 200
Export structure Import structure
3.3 147 Ro-Ro and other 40 265 233 2.8 2.8 203 98 1% 228 31 14% 2014 2015 2016 2014 2015 2016 2014 2015 2016 Containers 1,038 24% 1,400 In 2016, the ratio of export/import for container 86% shipments was 43%/57% +15.3% +18.2% -68.7% Grain 3,322 Grain transhipments are 75% GROWTH OF CONTAINER GROWTH OF GRAIN EXPORTS, DECLINE OF FUEL SALES, fully export-oriented TURNOVER, YEAR-ON-YEAR YEAR-ON-YEAR YEAR-ON-YEAR
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CONTAINERS
NUTEP’s container turnover Breakdown of NUTEP’s turnover NUTEP’s YURY ’000 TEUs by client container turnover trends MATVIENKO Throughput — Greater share of the Novoros- siysk market amid a focus on ’000 TEUs 2015 2016 350 CEO capacity and improvements in logistics 6% 6% 6% NUTEP container for NUTEP clients Admiral CMA-CGM Yang Ming terminal 30 — Higher share of loaded 13% 10% 265 containers 233 Evergreen Cosco 25 203 +15%
48% 16% 20 2014 2015 2016 Maersk Others NUTEP’s What drove NUTEP’s exceptional 15 Container turnover, growth in 2016? mln t 10 - I am pleased to note that NUTEP has 2.4 2.0 +22% 2.4 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec become the leader in terms of container throughput in Novorossiysk, rising from second place to first in 2016. We try to stay one step ahead of competition, constantly NUTEP’s main achievements in 2016 Plans for 2017 working to improve the quality of our services and terminal infrastructure. • Growth in loaded containers for export (up NUTEP’s market share in • From March 2016, NUTEP began providing • Expand container storage facilities (up 1,100 10,232 TEUs or 119,000 tonnes) due to the 2016 / 2015 container lashing/unlashing services for carrier TEUs)
In 2016, we began transhipping start of polypropylene transhipments from Novorossiysk ships, thereby expanding its service offering polypropylene, a new cargo for us. Some Uzbekistan 38.1% / 34.6% • Main works for the new deepwater berth Install piles and topcoat large container lines already take part in the • From April 2016, in response to market construction, purchasing equipment processing of containers with polypropylene • An increase in the number of block trains from Azov-Black Sea basin demand, the terminal began providing empty and the delivery of new lots of empty 69 in 2015 to 191 in 2016, due to cooperation 37.2% / 33.5% containers to customers during pre-inspections • Switch to electronic workflow for customer Simplify the procedure to accept and tranship containers. with intermodal operator Ruscon to assemble to minimise lost time during customs invoices and certificates to optimise the dangerous goods by and shuttle regular block trains Russia inspections (RUB 1.5 million revenue growth at process, costs and resources of the commercial switching to electronic In November 2016, we started working with 5.8% / 5.1% minimal cost) service, as well as to meet carrier needs and workflow Turkish Arkas and we are pleased with our • Increased capacity of pre-inspection sites for follow best practice among industry leaders new partnership. simultaneous storage of cargo from 300 to 450 containers • Collect and record customer satisfaction data How is the new berth construction (carriers, freight forwarders), offering direct progressing? What was completed • Growth of cargo in containers and on Ro-Ro electronic access to the terminal management in 2016? ferries, beginning from the fourth quarter of via the website 2016, due to the partial lifting of the ban on - Construction continues as planned imports of Turkish fruits and vegetables +15%CONTAINER TURNOVER GROWTH, • Reducing non-productive demurrage of vessels and is progressing well. Implementing YEAR-ON-YEAR at berth (expedite procedures for arrival- Tests have already begun such a large-scale project requires • Finishing construction of the connection to the PAGE 32 departure clearance, commissioning works and and are showing positive a consistent approach. In 2016, we finished new deepwater berth as part of the investment More about beginning offloading/loading works). results building the connection and began project investment projects construction of the deepwater berth. At the end of the year, we also signed a cooperation agreement with Rosmorport +7 p.p. which will facilitate implementation of the GROWTH IN SHARE OF LOADED project. CONTAINERS FOR EXPORT IN 2016
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GRAIN ADDITIONAL SERVICES
KSK’s grain transhipment volumes Fuel sales volumes ALEXEY mln t ’000 tonnes OLEG
AMAEV Throughput — Record harvest 200 Capacity NECHAEV 3.5 capacity CEO — Russian grain export growth CEO KSK grain terminal Delo Service Company — Work with customers
2.8 2.8 +18% 3.3 147
98 -69% 31 2014 2015 2016 2014 2015 2016 In October, the terminal What were the main factors that helped KSK’s largest clients in 2016 were Cargill and set a record for Why did you decide to sell your bunkering the terminal to deliver steady growth Mirogroup Resources, which accounted for more monthly grain TOS’ main achievements in 2016 fleet? transhipment volumes in transhipment volumes, with a rising than 80% of the terminal turnover. of 422,506 tonnes share of Russian grain exports by sea? • Decision to switch to a more efficient operating Falling operating margins forced us to restructure model using rented ships due to the low bunkering our bunkering business. Selling TOS’ bunkering - Aside from the favourable grain export KSK’s main achievements in 2016 margins in the first half of 2016 and sale of the fleet significantly reduced our fixed costs, which market, at KSK, we believe that our main bunkering fleet allowed us to work more efficiently in a low- In addition, it gave TOS the capital needed to make task is maintaining the quality of services margin market. We replaced our fleet by renting • Increased volumes of grain arriving by rail KSK’s market share in advance payments for the in full compliance with our contracts and transport (up 34%); around two thirds of 2016 / 2015 • Significant reduction in fixed costs and a ships for specific deliveries, which allows us to fix of tugboats. customers’ requirements. To maintain high grain for transhipment currently arrives at the Deepwater grain shipments stabilisation on the bunker market in the second the margin on each shipment. standards of the global grain market, our terminal by road, while the other third arrives 22.9% / 20.2% half of 2016 allowed TOS to deliver positive terminal has state-of-the-art equipment for by rail financial results at the year-end Do you plan to remain on Novorossiysk’s receiving, storing, and shipping grain for bunkering market? Russia water transport. KSK’s capacity utilisation • Gas power station construction completed as 10.1% / 8.8% • Development and approval of tugboat project is approaching 100%, and Russian grain’s part of the Group’s electricity cost reduction - For sure. TOS has been a part of Novorossiysk’s export potential is expected to increase in the project • Signed agreement for the construction and market for many years. We have always occupied coming years. All things considered, we have delivery of four tugboats selected for optimal a certain niche, giving priority to such factors as decided to expand the terminal’s annual • Signed cooperation agreement with fit with the working requirements and future the ability to promptly deliver a consigned cargo capacity to 5.0 million tonnes of grain p.a. Rosmorport as part of the investment project development of DeloPorts’ berths; three tugs are of any specification – even small consignments – to ensure navigation safety and to increase slated for delivery to Novorossiysk in the fourth and the ability to meet customers’ quality needs. What are the plans for the capacity annual turnover at KSK’s grain terminal by 1.5 quarter of 2017 and the fourth in 2018 The new model made it easier for us to do this. expansion project? million tonnes Plans for 2017 Why tugboats? How do they fit into DeloPorts’ - Over 2017-18, we plan to construct • Preparation of documentation for terminal business? additional silos to store 100 thousand capacity upgrade • Use rented ships to provide bunkering tonnes of grain, as well as to reconstruct Plans for 2017 services - First, tugboats are a profitable standalone the road and rail unloading facilities. This By 2019, we plan to lengthen investment. Second, together with bunkering the current berth to will increase our daily unloading capacity to • Approve project documentation and begin • Obtain licence to provide tugboat services services, this positions Delo Service Company as simultaneously handle two 600 trucks and 150 railcars. construction works ships, with deadweight of up to a one-window support service provider at the 100 thousand tonnes each, and • Hire and train employees to provide tugboat berths of DeloPorts’ terminals. Third, there are allocate a separate mooring • Complete repairs of current equipment (silo services many overlaps in the management competence We have signed an berth for receiving small- agreement with Damen, thermometry) for tugboat and bunkering services – the same tonnage vessels capable of a major group of delivering grain to Novorossiysk • Rename company to Delo Service Company management staff was charged with the new shipbuilding and ship • Acquire additional locomotive for shunting from ports in the Azov and Don project. The operational synergy is self-evident. repair yards worldwide. basins. While such shipments operations at the terminal’s rail yard are not currently directed to our port, the demand for such services exists.
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FINANCIAL REVIEW
ELENA SURKOVA
Deputy CEO, Economics and Finance DeloPorts
IN 2016, DELOPORTS MAINTAINED THE TREND OF STABLE IMPROVEMENT IN ITS KEY FINANCIAL INDICATORS RUB MLN KEY FINANCIAL INDICATORS 7,799 +17.8% DELOPORTS’ CONSOLIDATED CHANGE IN DELOPORTS' EBITDA RUB mln Change Change in absolute in relative REVENUES IN 2016, Y-O-Y 2015 2016 terms terms (%)
In 2016, DeloPorts’ consolidated revenues changed little from On a cash basis, CAPEX increased by 90.8%, from RUB 562 million Consolidated revenues 7,771 7,799 28 0.4 the previous year, totalling RUB 7,799 million. EBITDA in 2015 to RUB 1,072 million in 2016, due to ongoing work on increased by 17.8% to RUB 5,753 million and the EBITDA DeloPorts’ investment projects. Consolidated EBITDA 4,882 5,753 871 17.8 margin by 11 percentage points. Operating cash flow rose to RUB 4,733 million (up 6.3%), making it possible to finance the In 2016, DeloPorts’ bonds were included in the Bank of Russia’s growing investment programme and simultaneously reduce Lombard list and Standard & Poor’s upgraded its corporate EBITDA margin 62.8 73.8 11pp debt. Net debt/EBITDA decreased by 0.2x over the year. rating on DeloPorts to ‘BB-’, the outlook ‘stable’.
Adjusted net profit* 3,290 4,073 783 23.8
Net debt 4,659 4,327 (332) (7.1) CORPORATE RATING DELOPORTS
Net debt/EBITDA, x 1.0 0.8 (0.2) CAPEX** (562) (1,072) 510 90.8 BB- BB- S&P | OUTLOOK ‘STABLE’ FITCH | OUTLOOK ‘STABLE’ * Adjusted for exchange differences arising from the revaluation of foreign-currency items ** Cash method
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FINANCIAL REVIEW
REVENUES AND EBITDA Operating cash flow RUB mln RUB mln 4,733 — revenues — EBITDA 4,453 2015 Change 2016 2016/2015 4,733 3,341 +28 RUB MLN Total revenues 7,771 +0.4% 7,799 OPERATING CASH FLOW +871 Total EBITDA 4,882 +17.8% 5,753
NUTEP 2,803 +592 3,395 2014 2015 2016 As the container market recovered in 2016, the NUTEP container +21.1% In 2016, the cost of sales fell by 29.1% year-on-year to terminal’s transhipment volumes rose by 15.3% to 233,479 TEUs. RUB 2,091 million, mainly due to lower purchases and Operating cash flow rose from RUB 4,453 million in 2015 NUTEP’s revenues reached RUB 3,395 million, up 21.1% year-on-year. cost of bunker fuel. Excluding this effect, the cost of to RUB 4,733 million in 2016. +571 A key driver of this was the higher share of loaded containers for 2,490 sales changed little, increasing by 0.6%. +29.8% Net debt/EBITDA 1,919 export, which increased from 16% in 2015 to 23% in 2016. x 1.7 Sales, general and administrative costs decreased by KSK 3.0%, primarily due to the high base of 2015, when 1.0 0.8 In 2016, the KSK terminal’s grain transhipment volumes rose by 18.2% a provision of RUB 32 million was created for one of to 3,322 thousand tonnes. KSK’s revenues totalled RUB 3,972 million, up 3,593 KSK’s counterparties. Excluding the doubtful debt +379 10.5% year-on-year. This growth came amid efforts to improve the pace provision, DeloPorts’ overall expenses rose by 4.0%. 2014 2015 2016 +10.5% 3,972 of terminal utilisation, as well as favourable grain export market This was due to an increase in management conditions. remuneration of RUB 17 million, which was partly Net debt compensated by centralising the investment project RUB mln In addition to the greater volumes, NUTEP and KSK’s revenues 3,046 management function, optimising headcount, and to +368 were also influenced by the higher average dollar exchange rate savings on salaries and insurance premiums totalling +12.1% in 2016. The exchange rate effect totalled RUB 657 million. RUB 14 million. 4,327 3,414 4,659 TOS Over 2016, the Russian rouble appreciated by 16.8%. In 2016, the TOS bunkering company’s revenues fell by 68.6% This led to a positive revaluation of the Company’s 6,348 to RUB 432 million due to lower oil products prices over 2015–16, liabilities denominated in US dollars and a foreign 1,375 Total debt on foreign-currency bank loans decreased as well as to the shift in margin on the bunkering market in favour exchange gain of RUB 388 million. Unadjusted for this by US $24 million, in line with the repayment schedule. of vertically integrated companies. (943) factor and the foreign exchange loss in 2015, (68.6%) Net debt/EBITDA fell from 1.0x to 0.8x as a result 432 DeloPorts’ net profit nearly doubled, and adjusted for of higher EBITDA and lower net debt. Holding companies (2) exchange rate differences from financing activities, (13) (17.8%) (15) net profit increased by 23.8%, from RUB 3,290 million in 2015 to RUB 4,073 million in 2016. Debt repayment schedule EBITDA MARGIN (65) RUB mln (71) 5,052 The increased share in revenues of the Group’s higher-margin (136) stevedoring services drove DeloPorts’ EBITDA margin up 73.8% DeloPorts by 11 percentage points to 73.8% in 2016. 62.8% Delo Service 1,493 Company* 976 KSK 11.0 pp 156 NUTEP 2015 2016 2017 2018 2019 2020–2026 30 * From March 2017, TOS bunkering company has been renamed to Delo Service Company 31 4 — 5 6 — 7 8 — 9 10 — 43 44 — 53 54 — 102 DeloPorts
About Key Business Strategic Governance Financial Annual Report DeloPorts Figures Model Report Report Statements 2016
INVESTMENT BY CONSISTENTLY IMPLEMENTING ITS INVESTMENT PROGRAMME, DELOPORTS AIMS TO ENSURE THAT ITS PROJECTS TERMINALS OCCUPY LEADING POSITIONS BY CREATING FUNDAMENTAL COMPETITIVE ADVANTAGES STRONGER POSITIONS IN KEY SEGMENTS
In 2014, DeloPorts completed its main investment projects, which increased the stevedore holding’s capacity to 9 million tonnes. 4.19 Key investment project CAPEX The same year, it approved a new investment programme to develop its terminals and expand total RUB bln 3.26 capacity to 14 million tonnes by building new berths and adding the capability to process ships with greater tonnage. KSK development Berth 38 programme construction
Container Grain 1.23 1.25 transhipment exports 0.79 +350,000 TEUs +1.5 MLN T 0.39 Efforts to expand the throughput capacity of KSK’s grain terminal modernisation programme 2015 2016 2017E 2018E 2019E 2020E NUTEP container terminal from 350 thousand envisions an increase in throughput capacity The plans for 2017 include TEUs to 700 thousand TEUs include building of 1.5 million tonnes by building a new berth, conducting the project a deepwater berth and modernising terminal dredging, expanding the grain storage capacity, documentation reviews infrastructure. By 2019, mother vessels with and rebuilding the truck and railcar unloading necessary to begin building Projected growth of total capacity and current investment plan implementation new facilities at the grain a capacity of up to 10 thousand TEUs are facilities. KSK plans to lengthen the existing mln t terminal expected to be able to dock at the new berth, berth so that ships with a deadweight of up to Grain while the storage facilities will double to 100 thousand tonnes can dock and allocate Container 21 thousand TEUs. In 2016, NUTEP finished a separate mooring berth for receiving small- 13.5 14.0 Ro-Ro and general cargo 12.5 construction of the connection to the new berth tonnage vessels. 5.0 and began the main works of building the berth 9.0 4.0 5.0 itself. In 2016, RUB 0.2 billion was invested in the KSK 3.5 development project out of RUB 3.3 billion overall. 6.5 6.5 7.0 In 2016, RUB 0.6 billion was invested out of an 3.5 estimated project total of RUB 7.8 billion. 2.0 2014 2015 2016 2017E 2018E 2019E 2020E
Approve EXPANDING THE RANGE investment OF HIGH VALUE-ADDED SERVICES programme
Prepare project Approve project Conduct the project New silos and Finish construction In 2016, the DeloPorts management approved a project to develop tugboat services rendered to the KSK documentation for documentation documentation infrastructure works, launch ships calling KSK and NUTEP terminals. From March 2017, TOS development for construction reviews necessary facilities, of berth 40a, bunkering company has programme of new facilities to begin building building of new dredging works been renamed to Delo Tugboat services new facilities at the berth 40a Service Company grain terminal In November 2016, TOS and Dutch company Damen Three ships are slated for delivery to Novorossiysk in signed an agreement for the construction and the fourth quarter of 2017 and the fourth in 2018. NUTEP Build deepwater Finish building Perform main Finish construction Modernisation delivery of four tugboats. They were selected based (build deepwater berth: begin connection, berth construction works. Launch of the storage on optimal fit with the working requirements and The total investment in the project is EUR 21 million. berth 38) building the begin berth works, purchase of deepwater area connection, driving construction equipment berth future development of DeloPorts’ berths. pilings, and deploying equipment
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PRINCIPAL OPERATING Cargo-specific export This risk is mitigated by Russia’s growing export potential. The Company’s balanced restrictions operating model proved consistent during times of sharp fluctuations in container turnover RISKS Sharp fluctuations in turnover in 2015 and when grain duty was introduced in 2015-16.
DeloPorts’ risk management policy entails Deterioration of regional rail lines The Company sees positive developments in the implementation of the federal developing and implementing systems to neutralise RISK MANAGEMENT AT DELOPORTS IS CONDUCTED AT and roads programme “Development of Russia’s Transportation System (2010-2020)”, approved potential negative consequences of risks associated ALL MANAGEMENT LEVELS. THE RISK MANAGEMENT by the Russian Government Decree No. 848 dated 05.12.2001. The “Integrated with various aspects of the Company’s business. FUNCTION IS SHARED BY THE BOARD OF DIRECTORS Development of the Novorossiysk Transport Hub” Project (sub-programme AND BUSINESS UNITS “Development of Export Transportation Services”) entails building Park B (development Key risk groups that can significantly influence of rail infrastructure) and building the Tsemdolina-Portovaya road (development of DeloPorts’ business are outlined below. auto infrastructure). The Company expects the projects included in the programme to materially reduce this risk.
Inclement weather Expand terminal capacity by increasing the number of ships that can be serviced, loading Risk group and Management strategy Long-term restrictions on loading and speed and the size of ships that can be received. probability unloading at DeloPorts terminals — Low Employ wave-guide structures and heightened security measures at terminals. Insure — Medium against weather-related accidents.
COUNTRY FINANCIAL Political or economic change DeloPorts views the political and economic situation in Russia as stable and predictable. The Interest-rate DeloPorts’ subsidiaries are exposed to the risk of changes in floating interest rates in the country risk of natural disasters and possible closure of transport routes is minimal. The Company fluctuations on foreign-currency loans denominated in US dollars. The LIBOR rate is expected to Change in DeloPorts’ financial does not foresee the risk of imposition of a state of emergency, strikes, and natural disasters Increased cost of funding gradually rise in the medium term. DeloPorts is reducing the share of foreign-currency situation due to a deterioration of in the near future. loans and increasing the share of loans with fixed interest rates. the national economy, introduction of political and economic sanctions Negative changes that could have an overall negative impact on DeloPorts’ business and Foreign-exchange rate A significant portion of the loans drawn by DeloPorts and its subsidiaries are against Russia, military conflicts, economics are not expected. fluctuations denominated in US dollars, which is the subsidiaries’ operating currency. The Company imposition of a state of emergency, is increasing the share of loans denominated in Russian roubles. To reduce foreign- strikes, natural disasters exchange risks, the Company and its subsidiaries are also placing cash reserves in dollar-denominated deposits, which partly neutralises the adverse effect of liability revaluations. The Company continuously monitors the foreign-exchange market and takes into account possible exchange rate fluctuations in short- and medium-term STRATEGIC planning. Investment programme The Company uses a multi-tiered monitoring and approval system for investment projects Credit risk Higher costs of investment projects with approved analysis and business planning requirements. Contractors are held and delays in bringing new equipment financially responsible for delays. Contracts are typically signed on a turnkey basis. Customer credit risks The Company’s subsidiaries render services on deferred payment terms in the container and facilities online and bunkering segment, which causes associated customer non-payment risks. Credit risk management policies and procedures have been developed and are used, including establishing and monitoring counterparty credit limits based on their financial situation, using guarantee instruments, and switching to pre-payment for services in the event of arrears. Launching additional reloading The Company’s capacity development strategy looks years in advance, ensuring capacity in regions of operations competitive advantages. Counterparty bank To minimise credit risks, the Company employs a centralised treasury function, Increased competition and risk of credit risks analyses the financial stability of counterparty banks, and prefers to work with banks reorientation of cargo flows to other Constant monitoring of ongoing or potential projects. that have a proven reputation on the market. terminals
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SOCIAL RESPONSIBILITY
DELOPORTS’ TERMINALS PLAY A VITAL ROLE IN THE LOGISTICS CHAIN, CONNECTING VARIOUS MODES OF TRANSPORTATION AND PROMOTING THE DEVELOPMENT OF EXTERNAL AND INTERNAL TRADING RELATIONSHIPS. AS THE COUNTRY’S ‘SOUTHERN GATEWAY’, DELOPORTS OFFERS OPTIMAL SOLUTIONS FOR A WIDE RANGE DELOPORTS ACKNOWLEDGES ITS RESPONSIBILITY TO NOT OF STAKEHOLDERS, INCLUDING ITS CUSTOMERS AND EMPLOYEES ONLY CONDUCT BUSINESS SUCCESSFULLY, BUT ALSO DEVELOP THE REGIONS WHERE IT OPERATES. BY INVESTING IN THE DEVELOPMENT OF KRASNODAR REGION, WHERE ITS STEVEDORING ASSETS ARE LOCATED, DEVELOPING TERMINAL AND PORT INFRASTRUCTURE, AND CREATING JOBS, THE COMPANY IS STRENGTHENING ITS POSITIONS IN THE INDUSTRY AND TAKING PART IN THE REGION’S DEVELOPMENT, HELPING TO SOLVE PRESSING ISSUES
ENVIRONMENTAL PROTECTION
As one of Russia’s largest stevedoring holdings, The main principles of DeloPorts’ Resource consumption Air emissions DeloPorts is aware of its responsibility to environmental policy DeloPorts places a priority on minimising its Industrial emissions are regularly monitored society and future generations, and strives to environmental footprint. In 2016, it reduced its for atmospheric pollution, both from their As confirmed by strictly comply with all regulations to minimise • maintain full compliance with environmental electricity usage by 0.4% year-on-year, despite sources on the terminals, and on the borders production data, pollutant its environmental footprint and improve protection laws and regulations the turnover growth, and its water usage by of environmental protection zones (residential emission levels are within environmental protection. For the management 6.5% due to efforts to monitor and record buildings). Measures to reduce emissions regulated and permitted limits. team, one priority is to systematically reduce • ensure that the environment is safe for the resource consumption data. of pollutants during periods of unfavourable environmental impact from operations using all lives and health of people weather conditions have been developed, reasonable means. Water treatment approved and are in use. • ensure that all employees follow environmental Water treatment facilities have been installed rules and regulations at the terminals to collect and treat surface wastewater. Floating debris is monitored and DELOPORTS PLACES RUB • regularly monitor environmental impact for cleared regularly from the Black Sea in the A PRIORITY ON MINIMISING MLN better protection terminals’ area of responsibility. ITS ENVIRONMENTAL FOOTPRINT
• systematically reduce the environmental Waste management Health, safety impact of technological processes Industrial and consumer waste is generated 23.4 and environment expenses DELOPORTS’ SPENDING IN during operations. They are classified in RUB mln 2016 ON ENVIRONMENTAL • conduct environmental risk assessment when accordance with current legislation and Health and safety PROTECTION EFFORTS developing project documentation transferred for recycling and disposal to licenced organisations only. Environmental protection
2016 8.1 23.4
2015 7.5 24.3
2014 7.5 33.9
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RUB PROTECTING THE LIVES AND HEALTH OF MLN EMPLOYEES AND ENSURING MAXIMUM SAFE WORKING CONDITIONS ARE 8.1 OVERRIDING PRIORITIES IN DELOPORTS’ HEALTH AND SAFETY POLICY TOTAL EXPENSES ON PROJECTS TO MAKE HEALTH AND SAFETY MEASURES MORE EFFECTIVE IN 2016
HEALTH AND SAFETY
NUTEP AND KSK HAVE CONDUCTED OCCUPATIONAL AND WORKPLACE SAFETY TRAINING FOR THEIR STAFF IN 2016. Key HSE principles Workplace Safety Prevention Standard: Enterprise Occupational of occupational injuries The following principles are applied to ensure Safety Management System workplace safety: The management takes responsibility for DeloPorts’ main tool for implementing its introducing modern safety precautions to Thanks to the efforts to implement occupational • employees’ lives and health are prioritised workplace safety policy is the “Workplace Safety prevent occupational injuries. In the reporting and workplace safety measures, not a single fatal over operational results Standard: Enterprise Occupational Safety period, in accordance with the requirements accident has occurred in the history of operations Management System”, which coordinates and of the new “Working at Heights: Safety Rules”, at DeloPorts’ terminals. In 2016, the number of • the management is engaged in ensuring directs the activities of the administration, unions KSK purchased and installed stationary safety occupational injuries decreased to one. a safe working environment and work force in preparing, adopting and systems for working at height along two implementing organisational, technical, health and overpasses at the railway unloading facility. • employees are strongly motivated to follow preventive measures. safe work practices DeloPorts’ industrial safety policy aims to Number of occupational injuries The Company conducts special workplace prevent incidents and accidents. Each enterprise 7 assessments, including identifying harmful and In 2016, DeloPorts has a department responsible for monitoring dangerous factors in the production process conducted a special and analysing safety levels, as well as assessment of working and evaluating their impact on health, as well as compliance with relevant rules and regulations. 3 conditions in an effort to 2 verifying that protective clothing, footwear and improve workplace safety. 1 other personal protective equipment is issued, stored and used correctly. 2013 2014 2015 2016
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PERSONNEL DELOPORTS PLACES A PRIORITY IN ITS PERSONNEL MANAGEMENT ON CREATING DELOPORTS’ MAIN AND DEVELOPING A PROFESSIONAL, COHESIVE TEAM IN WHICH EACH EMPLOYEE PERSONNEL PRINCIPLES AIMS TO SUCCESSFULLY IMPLEMENT THE HOLDING’S STRATEGY, RESPECTS THE GROUP’S HISTORY AND TRADITIONS, TAKES PERSONAL RESPONSIBILITY AND HAS AN Safe working conditions and Strict compliance with labour and OPPORTUNITY TO GROW competitive salaries workplace safety laws
All DeloPorts enterprises employ a management All enterprises have labour unions that work to system that ensures balanced remuneration. protect employees’ labour rights. DeloPorts’ headcount in 2012-16 It includes a base salary and bonus that are number of employees The fall in headcount from 2015 was due mainly to bunkering determined based on the employee’s position, staff reductions in connection with the fleet sale the enterprise’s performance, and the employee’s personal contribution. 944 942 As at 31 December 2016, DeloPorts’ overall 880 887 796 headcount was 887 employees (down 6% year- Investment in education and on-year), of whom 54% worked at NUTEP, 40% professional development at KSK and 6% at either Delo Service Company Average monthly employee salary, or on DeloPorts’ administrative team. The fall RUB ’000 TO DEVELOP ITS EMPLOYEES’ POTENTIAL, DELOPORTS in headcount from 2015 was due mainly to APPLIES THE PRINCIPLES OF CONTINUITY AND bunkering staff reductions in connection with the 51.1 54.4 MANAGEABILITY IN ITS PERSONNEL DEVELOPMENT fleet sale. The gender breakdown of DeloPorts’ 44.6 PROCESS 2012 2013 2014 2015 2016 employees is 69% male and 31% female.
PERSONNEL STRUCTURE 2014 2015 2016 In October 2016, Delo Group and DeloPorts By segment By age By category Building workforce capacity became an accredited employer in the Professional Development programme Talented young specialists are sought out to of the Association of Chartered Certified create an effective team. For more than 10 years, Guaranteed social support Accountants. Accreditation confirms that NUTEP and Delo Servcie Company have worked for each employee training and professional development systems closely with Admiral Ushakov Maritime State The established labour agreements at DeloPorts of Delo Group’s finance function comply with University, offering students the opportunity enterprises provide social support for employees international best practice. to take on internships, as well as providing in the form of financial aid, additional paid time additional professional training to improve staff off, additional guarantees and severance pay to In 2016, 105 employees of DeloPorts companies 54% 32% 57% qualifications and training. The container terminal certain categories of employees when terminating took part in project management, workplace NUTEP under 35 years Workers also partners with Belgorod State Technical the employment agreement. safety and financial management training, and 40% 56% 35% University, Novorossiysk College of Construction attended professional development courses. KSK from 35 to 55 years Specialists and Economics, and Novorossiysk College of To ensure that employees have access to high- Training costs for the year totalled more than 7% 3% 12% Radioelectronic Instrumentation. quality medical services, all DeloPorts enterprises RUB 1.5 million. Delo Service Company over 55 years Functional unit managers have provided voluntary medical insurance since 3% 2012. Employees also have access to free sports DeloPorts 1% Top managers facilities and can participate in events aimed at supporting a healthy lifestyle. Corporate sports are an active part of the culture at all Group enterprises, including football and volleyball teams and tournaments. MORE THAN RUB THE EMPLOYEES OF ALL DELO GROUP BUSINESSES SHARE CERTAIN TRAITS: MLN THEY ARE HIGHLY QUALIFIED, INNOVATIVE AND STRIVE TO IMPROVE. THE GROUP SUPPORTS THE PERSONAL DEVELOPMENT OF EACH EMPLOYEE AND VIEWS ANY PARTNERSHIP AS AN OPPORTUNITY FOR PROFESSIONAL AND 1.5 PERSONAL GROWTH TRAINING COSTS FOR THE YEAR
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CHARITY IS ONE WAY THAT THE COMPANY DEMONSTRATES COMMITMENT TO ITS VALUES AND PRINCIPLES OF COOPERATION
CHARITY
In its charitable activity, DeloPorts prioritises helping children with special needs, supporting sports, and developing initiatives to promote DELOPORTS’ PRIORITIES a healthy lifestyle, as well as efforts to assist IN CHARITABLE WORK regional medical institutions, company employees and their family members by providing funds for costly medical procedures. The Company’s management makes Supporting sports Helping children Supporting regional medical decisions on providing charitable aid based and promoting healthy lifestyles with special needs institutions on procedures approved by the Board of Directors. DeloPorts continues to support youth sports In 2016, DeloPorts made regular donations to In 2016, DeloPorts helped to purchase equipment organisations and professional clubs to develop purchase special equipment for the Romashka and new technology for the following institutions in sports in the region and promote physical exercise Rehabilitation Centre, which it sponsors, the Novorossiysk: Children’s Regional Clinical Hospital, among children and young people. In 2016, regional branch of the Russian Children’s Fund, City Hospital No. 1, and Infectious Disease Hospital CHARITY AND SOCIAL SUPPORT DeloPorts helped to purchase equipment for the and the social rehabilitation centre for minors in No. 3. PROJECTS IN KRASNODAR Olympian boxing club, and the Pobeda and Vodnik Novorossiysk. Two schools in Novorossiysk also REGION ARE PART OF DELOPORTS’ children’s sports schools in Novorossiysk. Since received targeted aid to help purchase necessary CORPORATE CULTURE 2016, DeloPorts has also supported the Kuban materials. In December 2016, volunteers from Additional support handball club. the holding and management company took part in the “Father Frost’s Mail” New Year campaign Additionally, in 2016, DeloPorts provided charitable together with the Pomogi.Org charity foundation. support to the Russian Cadet Corps, the “Step Forward” dance rehabilitation project and Novorossiysk State Theatre.
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GOVERNANCE REPORT
CORPORATE GOVERNANCE PRINCIPLES DELOPORTS STRIVES TO MAINTAIN HIGH STANDARDS OF CORPORATE GOVERNANCE BY INTRODUCING BEST PRACTICES TO IMPROVE Ensuring informational and financial The Board of Directors provides strategic PAGE 48 Compliance with ethical business ITS INVESTMENT APPEAL AND MANAGEMENT transparency at the Company by promptly guidance and maintains effective control over For more about practices TRANSPARENCY providing stakeholders accurate, complete DeloPorts’ management the Board of Directors of DeloPorts information in an accessible format
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GOVERNANCE DELOPORTS’ CORPORATE GOVERNANCE SYSTEM SYSTEM INCLUDES MANAGEMENT BODIES WITH WELL ESTABLISHED DECISION-MAKING MECHANISMS AND INTERNAL COMMUNICATIONS
THE OVERALL STRUCTURE MANAGEMENT STRUCTURE ANTON OF DELOPORTS CORPORATE CHERTKOV GOVERNANCE Head of Legal, Delo Sergey 100% Delo Management Company Management Company Shishkarev Member of the Board, General Shareholder Meeting Management Board DeloPorts Andrey Bubnov Highest management body through which (Managing Director, Chairman of the Management Board) shareholders exercise their right to participate in Sergey Shishkarev Anton Chertkov management Vladimir Bychkov Timur Butov Igor Yakovenko Vyacheslav Ter-Khachaturov How does DeloPorts implement Board of Directors corporate governance best practices? Management body that exercises overall PAGE 48 The Company promptly discloses management of the Company’s operations, 0.01% 99.99% For more about information based on the principles of determines DeloPorts strategy, monitors the the Board of Directors completeness and accessibility. In 2016, the activities of the chief executive officer, and of DeloPorts Corporate Governance Code and Regulation implements other key functions DeloPorts on the Board of Directors were introduced. Board of Directors CEO Board Committees Sergey Shishkarev Igor Yakovenko What activities were carried out as ( Chairman ) part of the restructuring of DeloPorts Consultative and advisory bodies within the Board Deputy CEO, management in 2016? of Directors created for preliminary consideration Andrey Bubnov Economics and Finance of important issues within the competence of the Vladimir Bychkov Elena Surkova The main changes involved consolidating Board of Directors Igor Yakovenko Technical Director control and ownership of DeloPorts’ assets Anton Chertkov Roman Antipov in Russia. In April 2016, Delo Management Chief Executive Officer Company was created to optimise the Trans- structure and apply consistent project Executive manager responsible for the company’s Terminal 100% management standards. day-to-day operations, as well as for implementing Holding the strategy outlined by the Board of Directors and ATOKOSA DeloPorts’ stakeholders LTD Cargill 100% 50% 50% 100% 75-1% 25+1%
Delo NUTEP KSK Service Company*
CEO CEO CEO Yury Alexey Oleg Matvienko Amaev Nechaev
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About Key Business Strategic Governance Financial Annual Report DeloPorts Figures Model Report Report Statements 2016
BOARD OF DIRECTORS
Board members have impeccable professional BOARD COMMITTEES and personal reputations, and possess the knowledge, skills and experience necessary to DELOPORTS’ BOARD OF DIRECTORS HAS THREE COMMITTEES CHARGED make the decisions required to effectively perform WITH IMPROVING THE EFFECTIVENESS AND QUALITY OF THE BOARD the functions of the Board of Directors within its 27 OF DIRECTORS’ WORK competence. MEETINGS OF THE BOARD WERE HELD IN 2016, IN PERSON AND The Board comprises five members who are IN FULL ATTENDANCE The committees consist of existing members of The committees conduct a preliminary review of elected by the General Shareholder Meeting for the Board of Directors, as well as other committee and make recommendations regarding issues To this end, committee a one-year term and who may be re-elected an members who are appointed by the committee that are submitted for discussion by the Board members maintain an unlimited number of times. chairman and have impeccable reputation, higher of Directors. This guarantees the reliability and ongoing dialogue with the education, experience in the committee’s area of completeness of the information provided to the management, the external auditor, and other advisors Board meetings are conducted in accordance with activity, and who possess the requisite knowledge Board of Directors for decision making. LEGAL BASE on issues related to their the Work Plan of the Board of Directors and also and skills corresponding to the committee’s functions. as necessary, but at least once a quarter unless In its operations, DeloPorts follows functions. otherwise provided for by DeloPorts’ Regulation Russian law, as well as: on the Board of Directors. • the Company’s Charter Audit Strategic Planning Personnel and Remuneration Committee Committee Committee MAIN • Regulation on the Board of Directors RESPONSIBILITIES Committee Chairman • Sergey Shishkarev • Sergey Shishkarev • General Shareholder Meeting resolutions Defining a development strategy aimed at • Andrey Bubnov • Andrey Bubnov • Andrey Bubnov increasing the Company’s capitalisation and • internal documents approved by the General investment appeal Shareholder Meeting regarding the Board of • Elena Surkova • Vladimir Bychkov • Igor Yakovenko Directors’ activities • Valentina Ermakova • Igor Yakovenko Defining asset management • Corporate Governance Code For more information, see Assist the Board of Directors in principles WWW.DELOPORTS.RU evaluating the effectiveness of Assist the Board of Directors in effectively DeloPorts’ personnel policy, hiring and Assist the Board of Directors in effectively performing its duties to monitor remuneration systems for Company Providing an effective system for performing its duties to monitor DeloPorts’ strategic development employees, as well as evaluate the monitoring the Company’s financial and DELOPORTS’ BOARD OF DIRECTORS ACTS IN THE DeloPorts’ financial and business activity performance of executive bodies and economic performance INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, Develop and present recommendations other key management personnel of AND REPORTS TO THE GENERAL SHAREHOLDER MEETING Ensure that the Board of Directors to the Board of Directors on matters DeloPorts directly participates in monitoring the related to determining DeloPorts’ Company’s activities, as well as oversee operational priorities and the Assist in building a transparent and monitor the process of preparing development strategy implemented by remuneration system for members and disclosing reliable financial and other the Company’s executive bodies, including of the Company’s Board of Directors, information about DeloPorts issues related to the development of management bodies and other key measures to improve the long-term managers, as well as strengthen the effectiveness of DeloPorts’ operations, Company’s professional staff as well as increasing the value of assets, profitability and the Company’s investment appeal
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DELOPORTS BOARD OF DIRECTORS
Chairman of the Board of Directors Member of the Board Member of the Board Member of the Board Member of the Board
SERGEY ANDREY VLADIMIR IGOR ANTON SHISHKAREV BUBNOV BYCHKOV YAKOVENKO CHERTKOV
Born 1968 1980 1968 1974 1978
Education Mr. Shishkarev is a graduate of the Mr. Bubnov is a graduate of the Moscow Mr. Bychkov is a graduate of the Finance Mr. Yakovenko is a graduate of the Mr. Chertkov is a graduate of Moscow Military Red Banner Institute of the State Institute of International Relations. Academy under the Government of the Federal Security Service’s Golitsyn Border State University. Ministry of Defence and the Russian Russian Federation and the Executive Institute and the Finance Academy Academy of Public Administration under MBA program of the Higher School of under the Government of the Russian the President of the Russian Federation. Business of Moscow State University. Federation.
Experience Since July 2014, Mr. Shishkarev has Mr. Bubnov joined Delo Group in 2013 Mr. Bychkov was appointed as President Mr. Yakovenko was appointed Since November 2015, Mr. Chertkov has been President of Delo Group, a holding as Chief Financial Officer. In 2016, he of Ruscon in July 2010 and has been as CEO of DeloPorts in May 2015. been Head of Legal for Delo Group. In company in the transportation services was appointed Managing Director of working for Delo Group since 2000. 2014, he held the positions of advisor to sector that he established in 1993 and the Group. He has been with Delo Group since the shareholder of the Group and general headed until 1999. He began his career as an expeditor and 2005, rising through the ranks from director of the holding company. Before joining Delo, Mr. Bubnov worked his way up to General Manager of lead specialist to General Manager From 1999 to 2012, Mr. Shishkarev participated in a project for Rosneft to Delo Centre. In summer 2010, he became of Novorossiysk Petrotranshipment From 2012 to 2014, Mr. Chertkov was served in the State Duma of the Russian help restructure its subsidiary Russian a partner in Ruscon, the container and Complex, which was part of Delo Group’s Head of the Legal Department and Board Federation, where he held the posts of Regional Development Bank. logistics segment of Delo Group. oil products segment until 2013. From Secretary of Freight One. Deputy Chairman of the State Duma 2013 to 2015, he headed the terminal Committee on International Affairs, From 2011 to 2012, Mr. Bubnov held Mr. Bychkov is a member of the Expert network of Gazpromneft Marine Bunker From 2011 to 2012, he was Vice President Deputy Chairman of the State Duma the position of Deputy CEO for Finance Advisory Council on Customs Policy in Novorossiysk. for Legal and Corporate Affairs at Russian Committee on Energy, Transport and and Economy at NCSP, a large port under the Federal Customs Service of the Platinum Group, where he helped establish Communications, and Chairman of the holding company, where he helped Russian Federation. Prior to that, from 2002 to 2005, a vertically integrated holding structure. State Duma Committee for Transport. develop a new corporate strategy Mr. Yakovenko worked at Lukoil In 2008-2011, he held various executive and was responsible for the finance Chernomorye, where he was positions in Basic Element Group. Since September 2013, Mr. Shishkarev function and relations with the in charge of corporate development. has been First Deputy Chairman of the international investor community. In 2006-2007, he was Uralkali’s Head of Marine Board under the Government of Legal, Strategic Projects, where he helped the Russian Federation and Chairman of From 2003 to 2011, Mr. Bubnov held with the company’s IPO on the London the Marine Board Presidium. various positions in the London and Stock Exchange in 2007. Moscow offices of Morgan Stanley, Since April 2015, Mr. Shishkarev is the most recently as Head of Fixed Income From 2003 to 2006, Mr. Chertkov worked President of Handball Federation of Capital Markets in Moscow. as Country Legal Counsel/Director of Legal Russia. for Russia and the CIS at Coca-Cola HBC, where he began working in 2001 after leaving Ernst & Young.
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About Key Business Strategic Governance Financial Annual Report DeloPorts Figures Model Report Report Statements 2016
INVESTOR TO IMPROVE THE INVESTMENT APPEAL OF THE GROUP’S STEVEDORING BUSINESS, DELOPORTS WORKS TO INTERACT MORE EFFECTIVELY WITH REPRESENTATIVES OF THE BANKING AND INVESTMENT COMMUNITY, RELATIONS TAKING INTO ACCOUNT THEIR REQUESTS AND APPLYING BEST PRACTICES
BUILDING AND MAINTAINING A TRUST-BASED RELATIONSHIP WITH THE INVESTMENT COMMUNITY IS THE FOUNDATION OF DELOPORTS’ INVESTOR RELATIONS FUNCTION AND IS BASED ON PROMPT DISCLOSURE OF MATERIAL INFORMATION ABOUT OPERATING AND FINANCIAL ACTIVITIES, AS WELL AS SIGNIFICANT CORPORATE EVENTS BONDS CREDIT RATINGS
DeloPorts’ rouble bonds have traded on the Interaction with ratings agencies is an integral part of Moscow Exchange since November 2015 and are improving the Company’s investment appeal. INFORMATION DISCLOSURE included in the Bank of Russia’s Lombard list, in accordance with the resolution of the Board of DeloPorts has been issued credit ratings from Mandatory information disclosure takes place In addition to mandatory information, DeloPorts Directors of the Bank of Russia dated 26 May 2016. two international ratings agencies, Fitch and simultaneously on two websites: discloses information that could influence Inclusion in the Lombard list allows bondholders to Standard & Poor’s. investors’ decisions. The volume of disclosed DeloPorts bases its use them as collateral for REPO operations with the • on the Company’s corporate website, information is expanding to account for the information disclosure Russian Central Bank. practices www.deloports.ru/pages/investors/ recommendations and requests of the investment FITCH information/, where information and community. — on Federal Law In the reporting period, coupon payments on documents can be found, grouped as follows: No. 14-FZ dated DeloPorts bonds were made in full in compliance 04.04.2017 “Issuance Documents”, “Internal Documents”, DeloPorts’ annual report is published electronically 08.02.1998 “On Limited with the payment schedule. Liability Companies”; “Announcements of Significant Facts”, on the Company’s website and can be provided in “Quarterly Reports of Issuers”, as well as other hard copy on request. — Federal Law No. Registration number information that may influence the price of 39-FZ dated 22.04.1996 4-01-36485-R “On the Securities DeloPorts securities; In 2016, in the XIX annual competition of annual Market”, “Regulations on reports organised by the Moscow Exchange and Information Disclosure Number of bonds issued • and on the website www.e-disclosure.ru/portal/ the RTsB media group, DeloPorts annual report by Securities Issuers” 3,000,000 BB-OUTLOOK: STABLE company.aspx?id=35359. for 2015 won the award for “Best Business Model (approved by the Bank of Russia on 30.12.2014 Presentation in a Non-public Company’s Report”. Par value No. 454-P); STANDARD & POOR'S Information disclosure on the abovementioned Participants’ annual reports were evaluated by RUB 1,000 websites is made in full compliance with Russian leading financial industry experts, representatives — other regulatory and 07.11.2016 law and is based on the principles of timeliness, of the investment community, ratings and legal acts. Coupon reliability, completeness and accessibility of the communications agencies, and members of 13.8% information being posted. professional associations and public organisations. The competition is used as a platform to present Maturity annual reports and helps to increase the 2025 with a three-year call in 2018 transparency of companies doing business in Russia, as well as to form a stronger corporate Credit rating OUTLOOK: STABLE culture. BB- BB- (FITCH)
In the second half of 2016, DeloPorts registered a In November 2016, Standard & Poor’s upgraded its programme of exchange-traded bonds of series 001P issuer credit rating for DeloPorts from ‘B+’ to ‘BB-’, with assigned identification number 4-36485-R-001P- the outlook ‘stable’. 02E. The programme’s maximum total nominal volume is RUB 50 billion, or the equivalent of this For more information about the Company: amount in foreign currency. The bonds in the [email protected] programme are being placed by public subscription for a term of up to 10 years. The term of the For legal and corporate governance inquiries: exchange-traded bond programme is unlimited. [email protected]
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About Key Business Strategic Governance Financial Annual Report DeloPorts Figures Model Report Report Statements 2016 FINANCIAL STATEMENTS
Auditor's Report 56 Consolidated Statement of Financial Position 62 Consolidated Statement of Comprehensive Income 63 Consolidated Statement of Changes in Equity 64 Consolidated Statement of Cash Flows 66 Notes to the Consolidated Financial Statements as at 31 December 2016 67
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OUR AUDIT APPROACH INDEPENDENT Overview Overall group materiality: Russian roubles (RUB) 210 million representing 5% of average AUDITOR’S profit before income tax for 2016-2015. MATERIALITY We conducted a full-scope audit of the financial information of two Group subsidiaries: LLC NUTEP and JSC KSK, consolidated in the consolidated financial statements; REPORT Our audit also involved performing audit procedures on individual significant items of the financial information of LLC DeloPorts, LLC TOS, DCP HOLDINGS LTD (Cyprus), ATOKOSA LIMITED (Cyprus), LLC TransTerminal-Holding; AUDIT SCOPE Our audit scope addressed 100% of the Group’s revenues and 92% of the absolute TO THE PARTICIPANTS AND MEMBERS OF THE BOARD value of its profit before income tax. OF DIRECTORS OF LLC DELOPORTS:
Key audit matters:
KEY AUDIT • Revenue recognition; OUR OPINION • Goodwill impairment test; In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated MATTERS financial position of Limited Liability Company DeloPorts (the “Company”) and its subsidiaries (together, the • Compliance with covenants. “Group”) as at 31 December 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).
We designed our audit by determining materiality and assessing the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect What we have audited of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including among other matters The Group’s consolidated financial statements comprise: consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. • the consolidated statement of financial position as at 31 December 2016;
• the consolidated statement of comprehensive income for the year then ended; Materiality • the consolidated statement of changes in equity for the year then ended; The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable • the consolidated statement of cash flows for the year then ended; assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the • the notes to the consolidated financial statements, which include significant accounting policies and other economic decisions of users taken on the basis of the consolidated financial statements. explanatory information. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the consolidated financial BASIS FOR OPINION statements as a whole.
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Overall group materiality Statements section of our report. RR 210 mln We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. How we determined it
5% of average profit before income tax for 2016 and 2015.
Independence Rationale for the materiality benchmark applied We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements of the Auditor’s We chose using profit before income tax as the materiality benchmark because, in our view, it is the benchmark against Professional Ethics Code and Auditor’s Independence Rules that are relevant to our audit of the consolidated which the performance of the Group is most commonly measured by users of consolidated financial statements. We used financial statements in the Russian Federation. We have fulfilled our other ethical responsibilities in accordance an average profit before income tax for 2016 and 2015 to smooth effect on profit of foreign exchange differences. We set with these requirements and the IESBA Code. 5% threshold, which is consistent with quantitative materiality thresholds used for profit-oriented companies in this sector.
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Key audit matters Key audit matter How our audit addressed the key audit matter Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate Key assumptions applied to estimation of the value in use are: We concluded that the assumptions were consistent and met our opinion on these matters. average annual growth rates in the amounts of transhipment for expectations. five years, long-term growth rate after five years, discount rate. As a result of our review of the impairment test model, we identified that the value in use of CGU is significantly higher than Key audit matter How our audit addressed the key audit matter the carrying value of goodwill. The amount of such excess is material even with a significant increase of the discount rate.
We reviewed the goodwill disclosure in Note 8 for completeness Revenue recognition and correctness. We did not identify any significant errors or omissions of data in the information disclosed. Revenue is disclosed in Note 17 to the consolidated financial We performed procedures designed to understand and assess the statements. Group’s management controls in the area of revenue recognition. As a result of the procedures performed we concluded that at the reporting date goodwill does not require any significant adjustments for The scope of our audit covers 100% of the Group’s revenue. the purpose of presentation in the consolidated financial statements. Revenues in the amount of RUB 7,799 million are recognised We confirmed 84% of the total amount of revenues through in the consolidated statement of comprehensive income. The confirmation letters received by us directly from customers. The Group provides services on cargo transhipment, storage, other remaining part of revenues was audited using tests of randomly stevedoring and bunkering services. selected individual transactions, applying non-statistical audit Compliance with covenants sampling, by reconciliation of journal entries and supporting Rates are fixed for each type of services and specified in documents. agreements with customers. Borrowed funds are disclosed in Note 15 to the consolidated financial We reviewed the loan agreements and prospectus for bonds issue We reviewed individual transactions recorded immediately before statements. Compliance with covenants is disclosed in Note 25 to the in terms of any covenants included therein, the breach of which may The time of revenue recognition depends on the type of service and after the end of the reporting period, in terms of cut off in their consolidated financial statements. result in the requirement of early repayment of borrowings. and is not related to application of professional judgement by the recognition. Group’s management. We reviewed compliance with financial covenants by recalculating As a result of the work performed, no material misstatements in The consolidated statement of financial position as at the reporting date and comparing the results to thresholds set by the loan agreements A significant amount of transactions and potential manual revenue recognition were identified. includes liabilities on borrowings in the amount of RUB 6,501 million, and prospectus. interference create an opportunity for intentional manipulations including long-term liabilities of RUB 4,931 million and short-term and unintentional errors. liabilities of RUB 1,570 million. In respect of non-financial covenants, we performed reconciliation to business activities. The International Standards on Auditing (ISA) provide for These figures include loans due to banks of RUB 3,459 million and amounts rebuttable presumption that there is a significant risk of fraud in due on bonds, inclusive accrued coupon income, of RUB 3,042 million. As a result of our procedures, we did not identify any cases of breach revenue recognition in every audit engagement. Under the terms and conditions of loan agreements and prospectus for of covenants included in the loan agreements and prospectus, the breach of which may result in the requirement of early repayment of We included this issue in key audit matters because revenue is one of bonds issue, the Group should comply with certain financial and non- borrowings. the most significant and relevant values for the users of the Group’s financial covenants, the breach of which may result in the requirement consolidated financial statements, and because it involves a significant of early repayment of borrowings. We reviewed the disclosure of compliance with covenants included in amount of audit procedures and time for their performance. The Group’s management reviewed compliance with such covenants loan agreements in Note 25 to the consolidated financial statements during the reporting period and as at the reporting date and concluded in terms of its completeness and correctness. We did not identify any that no breach of covenants occurred. significant errors or omissions of data in the information disclosed.
Goodwill impairment test We included this issue in the key audit matters, as the amounts due under loans and bonds is material and because the potential need of early settlement of liabilities may result in a significant cash outflow and, Goodwill is disclosed in Note 8 to the consolidated financial statements. Management tested the goodwill for impairment and provided the as a result, in liquidity issues. test results to us. The testing was carried out applying the value-in-use model based on discounted cash flows for the CGU in question. In the consolidated statement of financial position as at the reporting date, goodwill in the amount of RUB 190 million is We reviewed whether the approach applied by management to definition How we tailored our group audit scope recorded. of CGU within which the impairment test was performed is consistent with requirements imposed by IAS 36, Impairment of Assets. We tested We tailored the scope of our audit in order to perform sufficient work to be able to give an opinion on the consolidated The goodwill arose from acquisition of subsidiaries JSC KSK in the mathematical accuracy of goodwill allocation to the Group companies. financial statements as a whole, taking into account the geographic and management structure of the Group, the 2007 and LLC NUTEP in 2011. Accordingly, the goodwill is allocated accounting processes and controls and the industry in which the Group operates. between two cash-generating units (CGU): grain terminal (RUB 67 For all CGUs we performed the following procedures in respect of million) and container terminal (RUB 123 million). assumptions applied by management in their projections: We conducted a full-scope audit of the financial information of the following Group companies, which we identified as material components: Goodwill impairment test is carried out on an annual basis. • we compared discount rates to the weighted average cost of capital for the Group, recalculated by us on the basis of • LLC NUTEP; As a result of the test, management believes that there was no macroeconomic figures, impairment of goodwill as at the reporting date. • JSC KSK. • we compared the average annual growth rates in the amounts We included this issue in the key audit matters, because the value in of transhipment for CGUs to the effective growth rates for the All the work in respect of material components was performed by the engagement team of AO PwC Audit. use of each CGU was estimated based on professional judgements recent years, and assumptions made by the Group’s management in respect of For LLC DeloPorts, LLC TOS, DCP HOLDINGS LTD (Cyprus), ATOKOSA LIMITED (Cyprus), LLC TransTerminal-Holding, we future performance of the Group and discount rate applicable to its • we reviewed the long-term growth rates after the end of the five- performed audit procedures on individual significant items of the financial information of these companies. In particular, future cash flows. year period in terms of their reasonableness – the management for LLC TOS we performed substantive testing in respect of revenues for the year. applies a conservative approach setting the long-term growth rates at 0%. The audit team visited facilities of LLC NUTEP, JSC KSK and LLC TOS located in Novorossiysk, Krasnodar Region.
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• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on OTHER INFORMATION the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty Management is responsible for the other information. The other information comprises information contained in the exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated Management Annual Report for 2016 and the Issuer’s Report for the 1 quarter of 2017, other than the consolidated financial financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the statements and our auditor’s report thereon. The other information is expected to be made available to us after the date of audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the the auditor’s report. Group to cease to continue as a going concern.
Our opinion on the consolidated financial statements does not cover the other information and we do not and will not • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the express any form of assurance conclusion thereon. disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. If, based on the review of the other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may RESPONSIBILITIES OF MANAGEMENT AND THOSE reasonably be thought to bear on our independence, and where applicable, related safeguards.
CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED From the matters communicated with those charged with governance, we determine those matters that were of most FINANCIAL STATEMENTS significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report Management is responsible for the preparation and fair presentation of the consolidated financial statements in because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of such communication. consolidated financial statements that are free from material misstatement, whether due to fraud or error. The certified auditor responsible for the audit resulting in this independent auditor’s report is Vyacheslav Vladimirovich In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to Solovyev. continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process. AO PricewaterhouseCoopers Audit
7 April 2017 Moscow, Russian Federation AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL V.V. Solovyev, Director (licence No. 01-000269), STATEMENTS AO PricewaterhouseCoopers Audit
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism Audited entity: Independent auditor: throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to AO PricewaterhouseCoopers Audit fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is Limited Liability Company DeloPorts sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement State registration certificate No. 008.890 resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional Certificate of inclusion in the Unified State Register issued by Moscow Registration Chamber on 28 February 1992 omissions, misrepresentations, or the override of internal control. of Legal Entities issued on 15 April 2015 under No. 1157746350090. Certificate of inclusion in the Unified State Register of Legal Entities issued • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are on 22 August 2002 under No. 1027700148431. appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the 21 Sukhumskoye Shosse, Novorossiysk, Krasnodar Region, the Russian Federation, 353915 Group’s internal control. Member of Self-regulated organization of auditors “Russian Union of Auditors” (Association) • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. ORNZ 11603050547 in the register of auditors and audit organisations
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CONSOLIDATED STATEMENT CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF COMPREHENSIVE INCOME
In thousands of Russian Roubles Note 31 December 2016 31 December 2015 In thousands of Russian Roubles Note 2016 2015 ASSETS Revenue 17 7,798,982 7,771,017 Non-current assets Cost of sales 18 (2,091,170) (2,947,462) Property, plant and equipment 7 6,087,533 5,742,620 Gross profit 5,707,812 4,823,555 Goodwill 8 190,066 190,066 Mooring rights and other intangible assets 9 3,728,506 3,834,182 Selling, general and administrative expenses 19 (457,062) (471,258) Investment in associate 10 3,827 6,491 Deferred income tax asset 24 67,173 11,640 Other operating income and expenses, net 20 58,720 (20,765) Prepayments for non-current assets 7 593,349 433,988 Net foreign exchange (loss)/gain from operating activities (17,709) 24,389 Other non-current assets 13,447 — Operating profit 5,291,761 4,355,921 Total non-current assets 10,683,901 10,218,987 Share of result of associate 10 (2,664) 3,639 Current assets Finance income 21 429,448 137,115 Inventories 11 98,997 113,163 Finance costs 22 (613,146) (372,642) Trade and other receivables 12 333,023 417,809 Net foreign exchange gain/(loss) from financing activities 388,463 (1,221,169) Current income tax prepayments 57,581 104,819 Profit before income tax 5,493,862 2,902,864 Non-current assets held for sale — 35,587 Short-term loans issued 6 2,761,169 835,117 Income tax expense 24 (1,109,938) (589,488) Deposits (with maturity over 90 days) 13 395,613 571,996 Cash and cash equivalents 13 1,777,915 3,738,184 PROFIT FOR THE YEAR 4,383,924 2,313,376 Total current assets 5,424,298 5,816,675
TOTAL ASSETS 16,108,199 16,035,662 Other comprehensive (loss)/income
EQUITY Items that may be reclassified subsequently to profit or loss Chartered capital 14 100,000 100,000 Exchange differences on translation to presentation currency (72,962) 96,237 Additional capital 14 15,590 15,590 Other comprehensive (loss)/income (72,962) 96,237 Translation reserve 161,685 234,647 Retained earnings 7,017,313 4,444,490 TOTAL COMPREHENSIVE INCOME 4,310,962 2,409,613 Equity attributable to the Company’s owners 7,294,588 4,794,727 Non-controlling interest 26 710,774 726,113 Profit is attributable to: TOTAL EQUITY 8,005,362 5,520,840 • Owners of the Company 3,772,823 1,786,610 • Non-controlling interest 611,101 526,766 LIABILITIES Profit for the year 4,383,924 2,313,376 Non-current liabilities Long-term borrowings 15 4,931,303 6,312,857 Total comprehensive income is attributable to: Deferred income 8,867 9,167 • Owners of the Company 3,699,861 1,882,879 Deferred income tax liability 24 1,122,637 1,035,735 • Non-controlling interest 611,101 526,734 Total non-current liabilities 6,062,807 7,357,759 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 4,310,962 2,409,613
Current liabilities Short-term borrowings 15 1,569,661 2,656,397 Trade and other payables 16 418,800 432,158 Current income tax payable 43,133 68,508 Other financial liabilities 8,436 —
Total current liabilities 2,040,030 3,157,063 TOTAL LIABILITIES 8,102,837 10,514,822 TOTAL LIABILITIES AND EQUITY 16,108,199 16,035,662
Approved for issue and signed on 7 April 2017: I.A. Yakovenko General director
The accompanying notes on pages 67–102 are an integral part of these consolidated financial statements. The accompanying notes on pages 67–102 are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the Company Attributable to owners of the Company
In thousands of Russian Roubles Chartered capital Additional capital Reorganisation reserve Translation reserve Retained earnings Total Non-controlling interest Total Balance at 1 January 2015 — — 19,790 138,378 2,737,990 2,896,158 199,379 3,095,537 Profit for the year — — — — 1,786,610 1,786,610 526,766 2,313,376 Other comprehensive income/(loss) — — — 96,269 — 96,269 (32) 96,237 Total comprehensive income for 2015 — — — 96,269 1,786,610 1,882,879 526,734 2,409,613 Establishment of the Company, Note 14 100,000 — — — (99,900) 100 — 100 Contribution to additional capital, Note 14 — 15,590 — — — 15,590 — 15,590 Group reorganisation* — — (19,790) — 19,790 — — — Total transactions with equity holders for 2015 100,000 15,590 (19,790) — (80,110) 15,690 — 15,690 Balance at 31 December 2015 100,000 15,590 — 234,647 4,444,490 4,794,727 726,113 5,520,840 Profit for the year — — — — 3,772,823 3,772,823 611,101 4,383,924 Other comprehensive loss — — — (72,962) — (72,962) — (72,962) Total comprehensive (loss)/income for 2016 — — — (72,962) 3,772,823 3,699,861 611,101 4,310,962 Dividends declared, Note 6 — — — — (1,200,000) (1,200,000) (626,440) (1,826,440) BALANCE AT 31 DECEMBER 2016 100,000 15,590 — 161,685 7,017,313 7,294,588 710,774 8,005,362
* After completion of reorganisation of the Group reorganisation reserve in the amount of 19,790 thousand RR was transferred back to retained earnings.
The accompanying notes on pages 67–102 are an integral part of these consolidated financial statements. The accompanying notes on pages 67–102 are an integral part of these consolidated financial statements.
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About Key Business Strategic Governance Financial Annual Report DeloPorts Figures Model Report Report Statements 2016
CONSOLIDATED STATEMENT In thousands of Russian Roubles Note 2016 2015
OF CASH FLOWS Cash flows from financing activities Proceeds from borrowings 15 866,434 3,927,272 Repayment of borrowings 15 (2,487,364) (3,642,267) In thousands of Russian Roubles Note 2016 2015 Interest paid 22 (635,285) (400,359) Capital contributions 14 — 12,100 Cash flows from operating activities Proceeds from government grants 10,264 9,891 Profit for the year 4,383,924 2,313,376 Commissions paid (34,429) (13,044) Dividends paid to the owners of the Company 6 (1,200,000) — Adjustments for: Dividends paid to non-controlling interests (632,314) — Depreciation of property, plant and equipment 7 412,292 397,383 Net cash used in financing activities (4,112,694) (106,407) Net change in cash and cash equivalents (1,568,675) 2,604,290 Amortisation of intangible assets 9 107,626 107,539 Cash and cash equivalents at the beginning of the year 13 3,738,184 764,470 Impairment of trade and other receivables 310 32,000 Effect of exchange rate changes on cash and cash equivalents (391,594) 369,424 Write down of non-current assets held for sale 7,352 — Cash and cash equivalents at the end of the year 13 1,777,915 3,738,184 (Profit) / loss on disposal of property, plant and equipment 20 (72,249) 6,851 Finance income 21 (429,448) (137,115) Finance costs 22 613,146 372,642 Foreign exchange (gain)/loss on financing activities 5 (388,463) 1,221,169 NOTES Income tax expense 24 1,109,938 589,488 TO THE CONSOLIDATED FINANCIAL STATEMENTS Share of result of associate 10 2,664 (3,639) Operating cash flows before working capital changes 5,747,092 4,899,694 AS AT 31 DECEMBER 2016
Decrease in trade and other receivables 84,792 38,331
Decrease in inventories 14,166 30,304 1. General Information
Decrease in trade and other payables (56,568) (80,818) These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) for the year ended 31 Operating cash flows including working capital changes 5,789,482 4,887,511 December 2016 for OOO DeloPorts (hereinafter, the “Company”) and its subsidiaries (hereinafter, jointly referred to as the “Group” or “DeloPorts Group”).
The principal activities of the Group include stevedoring services and bunkering operations in the Russian Federation. The Group’s operating facilities are primarily Income taxes paid (1,056,705) (434,009) based in Novorossiysk, Krasnodar Region. Net cash from operating activities 4,732,777 4,453,502 The Company was established on 15 April 2015 and became the Group’s new parent company as a result of reorganisation (for details, please see the section “Reorganisation of the Group and establishment of the Company”). Cash flows from investing activities Purchase of property, plant and equipment 7 (1,072,409) (562,217) The Company is registered at 21 Sukhumskoye shosse, Novorossiysk, Russian Federation, 353902.
Proceeds from sale of property, plant and equipment 380,022 3,970 As at 31 December 2016, the Group’s immediate parent company was Limited liability company Management company Delo. As at 31 December 2015, the Interest from deposits 21 149,915 95,833 Group’s immediate parent company was Utterlan Limited. As at 31 December 2016, the Group’s ultimate controlling party was S.N. Shishkarev.
Interest received 6 165,091 367 Loans granted 6 (4,538,135) (709,543) Reorganisation of the Group and establishment of the Company
Short-term deposits with maturity from 90 to 365 days (408,179) (571,996) OOO DeloPorts was incorporated on 15 April 2015 as a subsidiary of DELOPORTS LIMITED (Cyprus) for the purpose of centralised asset management. In 2015, investments in all subsidiaries owned by DELOPORTS LIMITED were transferred to OOO DeloPorts as a contribution to its chartered capital. Thus OOO DeloPorts Proceeds from repayment of loans granted 2,564,891 — became the Group’s new parent company. Repayment of deposits with maturity from 90 to 365 days 571,996 — The issued chartered capital and additional capital reflects the capital of company OOO DeloPorts (see Note 14). The equity items (such as retained earnings, Acquisition of intangible assets 9 (1,950) (5,309) translation reserve) for the periods preceeding the contribution of investments are those from the consolidated financial statements of the previous group Dividends received from associate 10 — 6,090 holding company. The resulting difference was recognised as a separate component of equity – “reorganisation reserve” as at 1 January 2015. Reorganisation is accounted retrospectively by restating the comparative periods. Net cash used in investing activities (2,188,758) (1,742,805)
Percentage of control as at 31 December, %
Country of Group company name registration Activity 2016 2015 OOO NUTEP Russia Container terminal 100 100
OOO TransTerminal Holding Russia Holding company 100 100
ATOKOSA LIMITED Cyprus Holding company 100 100
AO KSK Russia Grain terminal 75 75
DCP HOLDINGS LIMITED Cyprus Holding company 75 75
The accompanying notes on pages 67–102 are an integral part of these consolidated financial statements. OOO TOS Russia Bunkering company 100 100 66 67 4 — 5 6 — 7 8 — 9 10 — 43 44 — 53 54 — 102 DeloPorts
About Key Business Strategic Governance Financial Annual Report DeloPorts Figures Model Report Report Statements 2016
right when decisions about the direction of the relevant activities of the investee need to be made. The Group may 2. Summary of Significant Accounting Policies 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 Basis of preparation. These consolidated financial statements have been prepared in accordance with those that relate to fundamental changes of the investee’s activities or apply only in exceptional circumstances, do International Financial Reporting Standards (”IFRS”) for the year ended 31 December 2016. not prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is These consolidated financial statements have been prepared applying the IFRSs issued and effective as at 31 transferred to the Group (acquisition date) and are deconsolidated from the date on which control ceases. December 2016; the Group has not applied early any standards or amendments which are not yet effective The acquisition method of accounting is used to account for the acquisition of subsidiaries. Identifiable assets (further information presented in the Note 4). The principal accounting policies applied in the preparation of these acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair consolidated financial statements are set out below. These policies have been consistently applied to all years values at the acquisition date, irrespective of the extent of any non-controlling interest. presented in these consolidated financial statements, unless otherwise noted.
The Group measures non-controlling interest that represents present ownership interest in entitles that provide The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting holder with the right to a proportionate share of net assets in the event of liquidation, on a transaction by estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting transaction basis, either at: the non-controlling interest’s proportionate share of net assets of the acquiree or at the policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and fair value. Non-controlling interests that are not present ownership interests are measured at fair value. estimates are significant to the consolidated financial statements are disclosed in Note 3.
Goodwill is measured as the excess of the aggregate of the consideration transferred for the acquiree, the amount Foreign currency translation. The functional currency of each of the Group’s entities is the Russian Rouble (“RR”), of non-controlling interest in the acquiree and fair value of an interest in the acquiree held immediately before the except for the Company Atokosa Limited, where the functional currency is US Dollar, which reflects the economic acquisition date over the fair value of net assets of the acquiree. Any negative amount (“negative goodwill, bargain substance of the underlying events and circumstances. Items, included in the financial statements of each of purchase”) is recognised in profit or loss, after management reassesses whether it identified all the assets acquired the Group’s entities are measured using the currency of the primary economic environment in which the entity and all liabilities and contingent liabilities assumed and reviews appropriateness of their measurement. operates (the “functional currency”).
The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity These consolidated financial statements are presented in Russian Roubles (”RR”), which is the Group’s presentation instruments issued and liabilities incurred or assumed, including fair value of assets or liabilities from contingent currency. The Group prepares the consolidated financial statements both in United States Dollars and Russian consideration arrangements but excludes acquisition related costs such as advisory, legal, valuation and similar Roubles. The Group prepares consolidated financial statements in United States Dollars on a voluntary basis for professional services. Transaction costs related to the acquisition and incurred for issuing equity instruments are a variety of financial statement users. deducted from equity; transaction costs incurred for issuing debt as part of the business combination are deducted Monetary assets and liabilities are translated into each entity’s functional currency at the official exchange rate of from the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed. the Central Bank of the Russian Federation (“CBRF”) at the respective end of the reporting period. Foreign exchange Intercompany transactions, balances and unrealised gains on transactions between Group companies are gains and losses resulting from the settlement of the transactions and from the translation of monetary assets and eliminated; unrealised losses are also eliminated unless the cost cannot be recovered. The Company and all of its liabilities into each entity’s functional currency at year end official exchange rates of the CBRF are recognised in subsidiaries use uniform accounting policies consistent with the Group’s policies. profit or loss. 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 a foreign currency, including equity investments, are translated Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests using the exchange rates at the date when the fair value was determined. Effects of exchange rate changes on non which are not owned, directly or indirectly, by the Company. Non-controlling interest forms a separate component monetary items measured at fair value in a foreign currency are recorded as part of the fair value gain or loss. of the Group’s equity. Foreign currency exchange gains and losses are shown net in the separate line of the consolidated statement of comprehensive income. Reorganisation of the group. The transfer of a businesses under control of DeloPorts Limited into the newly established entity OOO DeloPorts is accounted for as a capital reorganization of the group. The financial The results and financial position of each group entity which has a functional currency different from the statements of the Company are presented as a continuation of the underlying business and is accounted for presentation currency are translated into the presentation currency as follows: using the carrying amounts of assets and liabilities of the transferred business from the consolidated financial statements of the predecessor Group’s holding company. i) assets and liabilities for each statement of financial position are translated at the closing rate at the end of the respective reporting period; The issued chartered capital and additional capital reflects is the capital of company newly established company. The equity items (such as retained earnings, cumulative translation reserves) for the periods preceding the ii) income and expenses are translated at average exchange rates (unless this average is not a reasonable contribution of investments are those from the consolidated financial statements of the predecessor . The approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income resulting difference is recognised as a separate component of equity – “reorganisation reserve” as at 1 January and expenses are translated at the dates of the transactions); 2015. iii) components of equity are translated at the historic rate; The comparatives are restated to reflect the comparative data of the underlying business. iv) all resulting exchange differences are recognised in other comprehensive income. Purchases and sales of non-controlling interests. The Group treats transactions with non-controlling interests, When control over a foreign operation with a functional currency other than the functional or presentation currency that do not result in loss of control as transactions with equity holders in their capacity as equity owners of the of the Group is lost, the exchange differences recognised previously in other comprehensive income are reclassified Group. Any difference between the fair value of the purchase consideration and the carrying amount of non- to profit or loss for the year as part of the gain or loss on disposal. On partial disposal of a subsidiary without loss controlling interest acquired is recorded as a capital transaction directly in equity. The Group recognises the of control, the related portion of accumulated currency translation differences is reclassified to non-controlling difference between the fair value of sales consideration and carrying amount of non-controlling interest sold as interest within equity. a capital transaction in the consolidated statement of changes in equity.
At 31 December 2016, the exchange rate used for translating foreign currency balances was USD 1 = RR 60,6569 Associates. Associates are all entities over which the Group has significant influence (directly or indirectly) but (31 December 2015: USD 1 = RR 72,8827) and Euro 1 = RR 63,8111 (31 December 2015: Euro 1 = RR 79,6972). The not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments average exchange rate used for translating income and expense accounts (except for foreign exchange income and in associates are accounted for using the equity method of accounting. The Group’s investment in associates expenses which were translated on the transaction basis) for the year ended 31 December 2016, was USD 1 = RR includes goodwill identified on acquisition. Under the equity method, the investment is initially recognised at cost, 66,9973, Euro 1 = RR 74,3004 (for the year ended 31 December 2015: USD 1 = RR 61,6062 and Euro 1 = RR 67,8784). and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. Consolidated financial statements. 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 The Group’s share of its associates’ post acquisition profits or losses is recognised in the profit or loss and its their returns, (ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has the share of post acquisition other comprehensive income is recognised in other comprehensive income with a ability to use its power over the investees to affect the amount of the investor’s returns. The existence and effect of corresponding adjustment to the carrying amount of the investment. When the Group’s share of losses in an substantive rights, including substantive potential voting rights, are considered when assessing whether the Group associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group has power over another entity. For a right to be substantive, the holder must have a practical ability to exercise that does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
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About Key Business Strategic Governance Financial Annual Report DeloPorts Figures Model Report Report Statements 2016
Loans and receivables are unquoted non derivative financial assets with fixed or determinable payments other 2. Summary of Significant Accounting Policies than those that the Group intends to sell in the near term.
(continued) The Group has only the financial assets classified as ”loans and receivables” (comprising: trade receivables, other receivables, loans granted, deposits, cash & cash equivalents) and the financial assets at fair value through profit or loss (comprising: derivative forward contracts). The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired by reference to the requirements of IAS39 “Financial Instruments: Recognition and The financial assets classified as ”loans and receivables” are measured after initial recognition at amortised costs Measurement”. Significant adverse changes in the technological, market, economic and legal environment in which using the effective interest rate method less any impairment. the associate operates is objective evidence that the equity interest in the associate may be impaired. In addition, a significant or prolonged decline in the fair value of the associate below its cost is also objective evidence of The financial assets classified as “at fair value through profit or loss” are measured after initial recognition at fair impairment. If there is an indication that an investment in associate may be impaired, the Group calculates the value with the gains/losses recognised in profit or loss. amount of impairment as the difference between the recoverable amount of the associate and its carrying value Classification of financial liabilities. Financial liabilities fall in the measurement of category of other financial and recognizes the amount of impairment loss in the profit or loss. Impairment losses are presented in the profit liabilities. Other financial liabilities are carried at amortised cost. or loss, adjacent to the share of the associates’ results accounted for using the equity method.
Initial recognition of financial instruments. Financial instruments other than measured at fair value through Profits and losses resulting from upstream and downstream transactions between the Group and its associates profit or loss are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best are recognised in the Group’s consolidated financial statements only to the extent of unrelated investor’s interests evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of between fair value and transaction price which can be evidenced by other observable current market transactions the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency in the same instrument or by a valuation technique whose inputs include only data from observable markets. with the policies adopted by the Group.
All purchases and sales of financial assets that require delivery within the time frame established by regulation or Dilution gains and losses arising in investments in associates are recognised in the profit or loss. market convention (“regular way” purchases and sales) are recorded at trade date, which is the date on which the Disposals of subsidiaries and associates. When the Group ceases to have control or significant influence, any Group commits to deliver a financial asset. All other purchases are recognised when the entity becomes a party to retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change the contractual provisions of the instrument. in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of Derecognition of financial assets. The Group derecognises financial assets when (a) the assets are redeemed or subsequently accounting for the retained interest as an associate or financial asset. In addition, any amounts the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the rights to the cash previously recognised in other comprehensive income in respect of that subsidiary, are accounted for as if the flows from the financial assets or entered into a qualifying pass through arrangement whilst (i) also transferring Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining in other comprehensive income are recycled to profit or loss. substantially all the risks and rewards of ownership but not retaining control. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where unrelated third party without needing to impose additional restrictions on the sale. appropriate.
Property, plant and equipment. Property, plant and equipment are stated at cost, less accumulated depreciation Financial instruments. Depending on their classification financial instruments are carried at fair value or amortised and provision for impairment, where required. Historic cost includes expenditure that is directly attributable cost as described below. to the acquisition or construction of these items. Costs of minor repairs and maintenance are expensed when Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction incurred. Cost of replacing major parts or components of property, plant and equipment items are capitalised and between market participants at the measurement date. The best evidence of fair value is the price in an active the replaced part is retired. market. An active market is one in which transactions for the asset or liability take place with sufficient frequency At each end of each reporting period management assesses whether there is any indication of impairment of and volume to provide pricing information on an ongoing basis. property, plant and equipment. If any such indication exists, management estimates the recoverable amount, Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any which is determined as the higher of an asset’s fair value less costs to sell and its value in use. The carrying principal repayments, plus accrued interest, and for financial assets less any write down for incurred impairment amount is reduced to the recoverable amount and the impairment loss is recognised in profit or loss for the losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any year. An impairment loss recognised for an asset in prior years is reversed where appropriate if there has been premium or discount to maturity amount using the effective interest method. Accrued interest income and a change in the estimates used to determine the asset’s value in use or fair value less costs to sell. accrued interest expense, including both accrued coupon and amortised discount or premium (including fees Gains and losses on disposals are determined by comparing proceeds with carrying amount and are recognised in deferred at origination, if any), are not presented separately and are included in the carrying values of related profit or loss for the year within other operating income or expenses. items in the consolidated statement of financial position.
Depreciation. Land is not depreciated. 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 Depreciation on other items of property, plant and equipment is calculated using the straight line method to interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit allocate their cost to their residual values over their estimated useful lives: 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 Useful lives in years 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 Buildings 4 to 50 years 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. Constructions 5 to 50 years
Classification of financial assets. Financial assets have the following categories: (a) loans and receivables; Machinery and equipment 2 to 24 years (b) available for sale financial assets; (c) financial assets held to maturity and (d) financial assets at fair value through profit or loss. Financial assets at fair value through profit or loss have two sub categories: (i) assets Vehicles and other 3 to 15 years designated as such upon initial recognition, and (ii) those classified as held for trading.
Financial assets that would meet the definition of loans and receivables may be reclassified out of the fair value Assets under construction are not depreciated until they are completed and brought into use, at which time they are through profit or loss category if the Group has the intention and ability to hold these financial assets for the reclassified in the relevant class of property, plant and equipment and depreciated accordingly. foreseeable future or until maturity.
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About Key Business Strategic Governance Financial Annual Report DeloPorts Figures Model Report Report Statements 2016
forwards will be utilised. Deferred tax assets and liabilities are netted only within the individual companies of the 2. Summary of Significant Accounting Policies Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be (continued) utilised.
Inventories. Inventories are recorded at the lower of cost and net realisable value. Cost of inventory is The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the determined on the weighted average basis. Spare parts are classified as inventories when not intended to be asset less the estimated costs of disposal, if the asset were already of the age and in the condition expected at the used for capital construction and capital repairs. Net realisable value is the estimated selling price in the ordinary end of its useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the course of business, less the estimated cost of completion and selling expenses. end of each reporting period. Trade and other receivables. Trade and other receivables are recognised initially at fair value and are Operating leases. Where the Group is a lessee in a lease which does not transfer substantially all the risks and subsequently carried at amortised cost using the effective interest method. rewards incidental to ownership from the lessor to the Group, the total lease payments are charged to profit or loss for the year on a straight line basis over the lease term. Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit or loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the The lease term is the non cancellable period for which the lessee has contracted to lease the asset together with financial asset and which have an impact on the amount or timing of the estimated future cash flows of the any further terms for which the lessee has the option to continue to lease the asset, with or without further financial asset or group of financial assets that can be reliably estimated. payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option. If the Group determines that no objective evidence exists that impairment was incurred for an individually Goodwill. Goodwill is carried at cost less accumulated impairment losses, if any. The Group tests goodwill for assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar impairment at least annually and whenever there are indications that goodwill may be impaired. Goodwill is credit risk characteristics, and collectively assesses them for impairment. The primary factors that the Group allocated to the cash generating units, or groups of cash generating units, that are expected to benefit from the considers in determining whether a financial asset is impaired are its overdue status and realisability of related synergies of the business combination. Such units or groups of units represent the lowest level at which the Group collateral, if any. The following other principal criteria are also used to determine whether there is objective monitors goodwill and are not larger than an operating segment. evidence that an impairment loss has occurred:
Gains or losses on disposal of an operation within a cash generating unit to which goodwill has been allocated • the counterparty experiences a significant financial difficulty as evidenced by its financial information that the Group include the carrying amount of goodwill associated with the disposed operation, generally measured on the basis obtains; of the relative values of the disposed operation and the portion of the cash generating unit which is retained. • the counterparty considers bankruptcy or a financial reorganisation; Mooring rights and other intangible assets. Intangible assets acquired separately are reported at cost less accumulated amortisation and impairment losses. Amortisation is charged on a straight line basis over the • there is adverse change in the payment status of the counterparty as a result of changes in the national or local estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each economic conditions that impact the counterparty; or annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Amortisation of mooring rights and other intangible assets is charged to profit or loss. • the value of collateral, if any, significantly decreases as a result of deteriorating market conditions.
Mooring rights and other intangible assets acquired in a business combination are identified and recognised If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because separately from goodwill where they satisfy the definition of an intangible asset and their fair value can be of financial difficulties of the counterparty, impairment is measured using the original effective interest rate before measured reliably. The cost of such intangible assets is the fair value at the acquisition date (for details refer to the modification of terms. corresponding paragraph in Note 9). Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount Subsequent to initial recognition, mooring rights and other intangible assets acquired in a business combination to the present value of expected cash flows (which exclude future credit losses that have not been incurred) are reported at cost less accumulated amortisation and impairment losses. discounted at the original effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less Useful lives of mooring rights and other intangible assets are as follows: costs for obtaining and selling the collateral, whether or not foreclosure is probable. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after Useful lives in years the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss for the year. Mooring rights 41 years Uncollectible assets are written off against the related impairment loss provision after all the necessary Other intangibles 4 years procedures to recover the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to impairment loss account within the profit or loss for the year. Income taxes. Income taxes have been provided for in the consolidated financial statements in accordance with legislation enacted or substantively enacted by the end of the reporting period. The income tax charge comprises Prepayments. Prepayments are carried at cost less provision for impairment. A prepayment is classified as current tax and deferred tax and is recognised in profit or loss for the year, except if it is recognised in other non-current when the goods or services relating to the prepayment are expected to be obtained after one year, comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or when the prepayment relates to an asset which will itself be classified as non-current upon initial recognition. or a different period, in other comprehensive income or directly in equity. Prepayments for the non-current assets include VAT. 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 Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable economic benefits associated with the asset will flow to the Group. Other prepayments are written off to profit or profits or losses for the current and prior periods. Taxable profits or losses are based on estimates if consolidated loss when the goods or services relating to the prepayments are received. If there is an indication that the assets, financial statements are authorised prior to filing relevant tax returns. Taxes other than on income are recorded goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written within operating expenses. down accordingly and a corresponding impairment loss is recognised in profit or loss for the year.
Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and Cash and cash equivalents. Cash and cash equivalents include cash in hand, deposits held at call with banks, temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for and other short-term highly liquid investments with original maturities of three months or less. Cash and cash financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded equivalents are carried at amortised cost using the effective interest method. for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Non-current assets classified as held for sale. Non-current assets (which may include both non-current and current assets) are classified in the consolidated statement of financial position as ‘non-current assets held Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of the reporting for sale’ if their carrying amount will be recovered principally through a sale transaction within twelve months period, which are expected to apply to the period when the temporary differences will reverse or the tax loss carry
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About Key Business Strategic Governance Financial Annual Report DeloPorts Figures Model Report Report Statements 2016
2. Summary of Significant Accounting Policies fuel). Revenues are measured at the fair value of the consideration received or receivable and represents amounts receivable for goods supplied, stated net of discounts, returns and value added taxes. The Group recognises (continued) revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Group’s activities, as described below. Sales of load handling services are recognised in the accounting period in which the services are rendered. after the reporting period. Assets are reclassified when all of the following conditions are met: (a) the assets are Sales of storage and other related stevedoring services are recognised in the accounting period in which the available for immediate sale in their present condition; (b) the Group’s management approved and initiated an services are rendered based on the stage of completion determined by reference to services performed to date as active programme to locate a buyer; (c) the assets are actively marketed for sale at a reasonable price; (d) the sale a percentage of total services to be provided. Revenues from sales of oil fuel (oil bunkering) are recognised at the is expected within one year; and (e) it is unlikely that significant changes to the plan to sell will be made or that the point of transfer of risks and rewards of ownership of the goods, normally when fuel is tanked to the customer’s plan will be withdrawn. vessel.
Non-current assets classified as held for sale in the current period’s consolidated statement of financial position Employee benefits. Wages, salaries, contributions to the Russian Federation state pension and social insurance are not reclassified or represented in the comparative consolidated statement of financial position to reflect the funds, paid annual leave and sick leave, bonuses, and non monetary benefits (such as health services and classification at the end of the current period. kindergarten services) 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 Non-current assets are assets that include amounts expected to be recovered or collected more than twelve to or on behalf of its employees. months after the reporting period. If reclassification is required, both the current and non-current portions of an asset are reclassified. Held for sale non-current assets are measured at the lower of their carrying amount and fair Segment reporting. Segments are reported in a manner consistent with the internal reporting provided to the value less costs to sell. Held for sale property, plant and equipment, are not depreciated or amortised. Group’s chief operating decision maker. Operating segments whose revenue, result or assets are ten percent or more of all the segments are reported separately. Chartered capital and additional capital. The nominal value of equity stakes are classified as chartered capital. Any excess of the fair value of consideration received over the par value of the equity is recognized as additional capital. 3. Critical Accounting Estimates, and Judgements Dividends. Dividends are recorded as a liability and deducted from equity in the period in which they are declared in Applying Accounting Policies 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 period note. The Group makes estimates and assumptions that affect the amounts recognised in the consolidated financial Value added tax. Output value added tax related to sales is payable to tax authorities on the earlier of (a) statements and the carrying amounts of assets and liabilities within the next financial year. Estimates and collection of receivables from customers or (b) delivery of goods or services to customers. Input VAT is generally judgements are continually evaluated and are based on management’s experience and other factors, including recoverable against output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement of VAT expectations of future events that are believed to be reasonable under the circumstances. Management also on a net basis. VAT related to sales and purchases is recognised in the consolidated statement of financial position makes certain judgements, apart from those involving estimations, in the process of applying the accounting on a gross basis and disclosed separately as an asset and liability. Where provision has been made for impairment policies. Judgements that have the most significant effect on the amounts recognised in the consolidated financial of receivables, impairment loss is recorded for the gross amount of the debtor, including VAT. statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include: Borrowings. Borrowings are recognised initially at fair value, net of transaction costs incurred and are subsequently carried at amortised cost using the effective interest method. Tax legislation. Russian tax, currency and customs legislation is subject to varying interpretations. Refer to Note 25.
Capitalisation of borrowing costs. Borrowing costs directly attributable to the acquisition, construction or Exercise of control. In the end of the year 2013, the Group disposed 25%+1 shares of its subsidiary DCP production of assets that necessarily take a substantial time to get ready for intended use or sale (qualifying HOLDINGS LIMITED to a third party and entered into a shareholders’ agreement with this third party which assets) are capitalised as part of the costs of those assets. regulates the affairs between the shareholders. The shareholders agreement includes, among others, various matters in relation to the mode of operation of DCP HOLDINGS LIMITED where certain decisions can be taken only The commencement date for capitalisation is when (a) the Group incurs expenditures for the qualifying asset; (b) it after unanimous approval from both shareholders of this company (”reserved matters”). The Group has exercised incurs borrowing costs; and (c) it undertakes activities that are necessary to prepare the asset for its intended use its judgement and considers that the reserved matters are effectively to protect the rights of the non-controlling or sale. Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their interest and that the Group still retains the power to govern the financial and operating policies of DCP HOLDINGS use or sale. LIMITED so as to obtain benefits from its activities. As a result the Group continues to account for DCP HOLDINGS LIMITED as a subsidiary in the consolidated financial statements. The Group capitalises borrowing costs that could have been avoided if it had not made capital expenditure on qualifying assets. Borrowing costs capitalised are calculated at the Group’s average funding cost, except to the Useful lives of property, plant and equipment. The estimation of the useful lives of items of property, plant extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. Where this occurs, and equipment is a matter of judgment based on the experience with similar assets. The future economic benefits actual borrowing costs incurred less any investment income on the temporary investment of those borrowings are embodied in the assets are consumed principally through use. However, other factors, such as technical or capitalised. commercial obsolescence and wear and tear, often result in the diminution of the economic benefits embodied in the assets. Management assesses the remaining useful lives in accordance with the current technical conditions Government grants. Grants from the government are recognised at their fair value where there is a reasonable of the assets and estimated period during which the assets are expected to earn benefits for the Group. The assurance that the grant will be received and the Group will comply with all attached conditions. Government following primary factors are considered: (a) expected usage of the assets; (b) expected physical wear and tear, grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred which depends on operational factors and maintenance programme; and (c) technical or commercial obsolescence income and are credited to profit or loss on a straight line basis over the expected lives of the related assets. arising from changes in market conditions. Government grants relating to finance expense are credited to profit or loss as finance income. Were the estimated useful lives 10% lower than management’s estimates, the impact on depreciation for the year Trade and other payables. Trade payables are accrued when the counterparty performs its obligations under the ended 31 December 2016 would have been an increase by 41,229 thousand RR (2015: 39,738 thousand RR). contract and are carried at amortised cost using the effective interest method. Impairment of goodwill. The Group determines whether goodwill is impaired on an annual basis. This requires Provisions for liabilities and charges. Provisions for liabilities and charges are non financial liabilities of determination of the recoverable amount of the cash generating units to which the goodwill is allocated. uncertain timing or amount. They are accrued when the Group has a present legal or constructive obligation as Management considers that there is no impairment of goodwill as at 31 December 2016. The carrying amount of a result of past events, it is probable that an outflow of resources embodying economic benefits will be required goodwill as at 31 December 2016 was 190,066 thousand RR (2015: 190,066 thousand RR) (please see Note 8). to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Rent of mooring area is treated as an operating lease as the economic life of the area is viewed longer than the Revenue recognition. Revenues are recognised when goods are shipped or services rendered for concluded lease term and there is no transfer of title at the end of lease term. contracts, when the price is fixed or determinable and collectability reasonably assured. The Group provides load handling (mainly, grain and containers), storage and other related stevedoring services and oil bunkering (sale of
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About Key Business Strategic Governance Financial Annual Report DeloPorts Figures Model Report Report Statements 2016
Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or 3. Critical Accounting Estimates, and Judgements Joint Venture (issued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the IASB). These amendments address an inconsistency between the requirements in IFRS 10 and in Applying Accounting Policies (continued) those in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that do not constitute a business. Recognition of deferrred tax asset in respect of unused tax losses carry forward. According to the Group The Group is currently assessing the impact of this interpretation on its consolidated financial statements. estimates, unused tax losses carry forward can be used against taxable profits in future. Thus, the Group has recognised deferred tax assets in respect of unused tax losses carry forward in amount of 65,930 thousand RR Amendments to IFRS 15, Revenue from Contracts with Customers (issued on 12 April 2016 and effective (2015: 166,649 thousand RR) (Note 24). In 2017–2020, the amount of tax losses generated in prior periods that can for annual periods beginning on or after 1 January 2018). The amendments do not change the underlying be used to reduce the tax base of the current reporting period are limited to 50% of the tax base of that reporting principles of the Standard but clarify how those principles should be applied. The amendments clarify how to period determined by the taxpayer without taking that loss into account. Since 2021, accumulated tax losses can identify a performance obligation (the promise to transfer a good or a service to a customer) in a contract; how be recognised in full amounts. The law eliminates the time limit on carrying tax losses forward that was previously to determine whether a company is a principal (the provider of a good or service) or an agent (responsible for equal to 10 years (thus, losses received in 2007 and further are carried forward until exhaustion). arranging for the good or service to be provided); and how to determine whether the revenue from granting a licence should be recognised at a point in time or over time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard. 4. New Accounting Pronouncements The Group is currently assessing the impact of the amendment on its consolidated financial statements.
IFRS 16 ”Leases“ (issued in January 2016 and effective for annual periods beginning on or after 1 January Standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s 2019). The new standard sets out the principles for the recognition, measurement, presentation and disclosure consolidated financial statements are disclosed below. The Group intends to adopt these standards, if applicable, of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease once they become effective. 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 IFRS 9 “Financial Instruments: Classification and Measurement” (issued in July 2014 and effective for accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more annual periods beginning on or after 1 January 2018). 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 Key features of the new standard are: 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 • Financial assets are required to be classified into three measurement categories: those to be measured standard on its consolidated financial statements. 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). Amendments to IAS 12, Recognition of Deferred Tax Assets for Unrealised Losses (issued in January 2016 and effective for annual periods beginning on or after 1 January 2017). The amendment has clarified the • Classification for debt instruments is driven by the entity’s business model for managing the financial assets requirements on recognition of deferred tax assets for unrealised losses on debt instruments. The entity will and whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt have to recognise deferred tax asset for unrealised losses that arise as a result of discounting cash flows of instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt debt instruments at market interest rates, even if it expects to hold the instrument to maturity and no tax will instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect be payable upon collecting the principal amount. The economic benefit embodied in the deferred tax asset assets’ cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows arises from the ability of the holder of the debt instrument to achieve future gains (unwinding of the effects of that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer discounting) without paying taxes on those gains. The Group is currently assessing the impact of the amendments separated from financial assets but will be included in assessing the SPPI condition. on its consolidated financial statements. • Investments in equity instruments are always measured at fair value. However, management can make an Annual Improvements to IFRSs 2014 2016 cycle (issued on 8 December 2016 and effective for annual irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not periods beginning on or after 1 January 2017 for amendments to IFRS 12, and on or after 1 January 2018 held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss. for amendments to IFRS 1 and IAS 28). The improvements impact three standards. The amendments clarify • Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward the scope of the disclosure requirements in IFRS 12 by specifying that the disclosure requirements in IFRS 12, unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own other than those relating to summarised financial information for subsidiaries, joint ventures and associates, credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income. apply to an entity’s interests in other entities that are classified as held for sale or discontinued operations in accordance with IFRS 5. IFRS 1 was amended and some of the short-term exemptions from IFRSs in respect of • IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) disclosures about financial instruments, employee benefits and investment entities were removed, after those model. There is a ‘three stage’ approach which is based on the change in credit quality of financial assets since short-term exemptions have served their intended purpose. The amendments to IAS 28 clarify that an entity has initial recognition. In practice, the new rules mean that entities will have to record an immediate loss equal to an investment by investment choice for measuring investees at fair value in accordance with IAS 28 by a venture the 12 month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade capital organisation, or a mutual fund, unit trust or similar entities including investment linked insurance receivables). Where there has been a significant increase in credit risk, impairment is measured using lifetime funds. Additionally, an entity that is not an investment entity may have an associate or joint venture that is an ECL rather than 12 month ECL. The model includes operational simplifications for lease and trade receivables. investment entity. IAS 28 permits such an entity to retain the fair value measurements used by that investment entity associate or joint venture when applying the equity method. The amendments clarify that this choice is also • Hedge accounting requirements were amended to align accounting more closely with risk management. available on an investment by investment basis. The Group is currently assessing the impact of the amendments The standard provides entities with an accounting policy choice between applying the hedge accounting on its consolidated financial statements. requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging. IFRIC 22, Foreign Currency Transactions and Advance Consideration (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018). The interpretation addresses how to determine the date The Group is currently assessing the impact of these interpretations on its consolidated financial statements. of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part thereof) on the derecognition of a non monetary asset or non monetary liability arising IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods from an advance consideration in a foreign currency. Under IAS 21, the date of the transaction for the purpose of beginning on or after 1 January 2018). The new standard introduces the core principle that revenue must be determining the exchange rate to use on initial recognition of the related asset, expense or income (or part thereof) recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled is the date on which an entity initially recognises the non monetary asset or non monetary liability arising from the goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the price must generally be allocated to the separate elements. When the consideration varies for any reason, revenue date of the transaction for each payment or receipt of advance consideration. IFRIC 22 only applies in circumstances is recognised if there is no significant risk of reversal. Costs incurred to secure contracts with customers have in which an entity recognises a non monetary asset or non monetary liability arising from an advance consideration. to be capitalised and amortised over the period when the benefits of the contract are consumed. The Group is IFRIC 22 does not provide application guidance on the definition of monetary and non monetary items. An advance currently assessing the impact of these changes on its consolidated financial statements. payment or receipt of consideration generally gives rise to the recognition of a non monetary asset or non monetary
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4. New Accounting Pronouncements
(continued) The CODM evaluates the performance of each segment based on several operational and financial metrics, including earnings before interest, tax, depreciation and amortisation (EBITDA). liability, however, it may also give rise to a monetary asset or liability. An entity may need to apply judgment in EBITDA is calculated as profit for the year adjusted for finance income, finance costs and other operating income and determining whether an item is monetary or non monetary. The Group is currently assessing the impact of the expenses net, depreciation and amortisation, share in the profit of associates, net foreign exchange gains/ losses from amendments on its consolidated financial statements. financing activities and income tax (see note 23). The segment profit or loss, segment assets and segment liabilities are Disclosure Initiative Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods measured applying the same policies as are used in the preparation of these consolidated financial statements. beginning on or after 1 January 2017). The amended IAS 7 will require disclosure of a reconciliation of Non-current assets referring to all three operating segments are located in Novorossiysk. Krasnodar region. All segment movements in liabilities arising from financing activities. The Group is currently assessing the impact of the revenue is generated in Novorossiysk, Krasnodar region. amendment on its consolidated financial statements.
The table below represents revenue by segment and type of services: The following new standards and interpretations became effective for the Group from 1 January 2016, but did not have significant influence on its consolidated financial statements:
Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation In thousands of Russian Roubles 2016 2016, % 2015 2015, % (issued on 12 May 2014 and effective for the periods beginning on or after 1 January 2016). In this Container segment 3,394,873 43.5 2,802,919 36.1 amendment, the IASB has clarified that the use of revenue based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activitwy that includes the use of an asset generally Container cargo handling 1,843,905 1,378,498 reflects factors other than the consumption of the economic benefits embodied in the asset. The Group states Storage services 655,848 571,718 there will be no changes in its consolidated financial statements as a result of these amendments. Inspection services 394,616 357,187 Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after 1 January 2016). The amendments impact 4 standards. IFRS 5 was amended to clarify that General cargo handling 196,864 285,086 change in the manner of disposal (reclassification from ”held for sale” to ”held for distribution” or vice versa) does Ro-Ro handling 31,371 61,069 not constitute a change to a plan of sale or distribution, and does not have to be accounted for as such. IAS 34 will require a cross reference from the interim financial statements to the location of ”information disclosed elsewhere Other port services 272,269 149,361 in the interim financial report”. The Group states there will be no changes in its consolidated financial statements Grain segment 3,972,097 51.0 3,592,608 46.2 as a result of these amendments. Grain handling 3,843,769 3,458,217 Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January 2016). The Standard was amended to clarify the concept of materiality and explains that an entity need General cargo handling 10,310 17,633 not provide a specific disclosure required by an IFRS if the information resulting from that disclosure is not material, Ro-Ro handling 38,910 47,021 even if the IFRS contains a list of specific requirements or describes them as minimum requirements. The Standard also provides new guidance on subtotals in financial statements, in particular, such subtotals (a) should be comprised Other port services 79,108 69,737 of line items made up of amounts recognised and measured in accordance with IFRS; (b) be presented and labelled in Bunkering segment 432,012 5.5 1,375,490 17.7 a manner that makes the line items that constitute the subtotal clear and understandable; (c) be consistent from period to period; and (d) not be displayed with more prominence than the subtotals and totals required by IFRS standards. The TOTAL 7,798,982 100 7,771,017 100 Group states there will be no changes in its consolidated financial statements as a result of these amendments. Operating segments (Container, Grain, Bunkering) are reportable segments. Other new or amended standards and interpretations are either irrelevant for Group or are not expected to have any impact. OOO NUTEP revenue mainly consists of load handling, storage and inspections of containers. Also, OOO NUTEP has revenue from handling of general cargo and Ro-Ro cargo. OOO NUTEP applies a range of tariffs each relevant for a certain service offered by the terminal or type of container handled, including but not limited to empty vs loaded containers, 20 ft vs 40 ft containers, regular vs reefer containers, interterminal movements, inspections, removal of 5. Segment Information hatches, container locks, passes, etc. Operating segments are business units that are engaged in business activities that may earn revenues or incur General cargoes are primarily represented by palleted perishable goods such as fruits and vegetables delivered to OOO expenses, the operating of which results are regularly reviewed by the chief operating decision maker (CODM) and for NUTEP by ferries. They are towed out from ferries by terminal tugs and then discharged into auto trucks. which discrete financial information is available. The CODM is the person or group of persons responsible for allocating resources and assessing the performance of the entity. The CODM’s functions are performed by the members of the Ro-Ro handling operations are represented by self automated trucks and lorries and are described in a separate parent company’s Board of Directors. paragraph below.
For managerial purposes, the Group is organised into three operating divisions container, grain and bunkering. The Revenue from storage services is dependent on the number of days that a container stays on the terminal territory. The Group also includes certain companies that cannot be allocated to a specific division. Such entities include investment terminal typically offers several days of free storage, and subsequently, applies a progressive tariff, incentivizing cargo and management companies in the holding segment. owners to expediently remove containers from the site.
Inspections are a function of customs service – Novorossiysk customs decide which containers to check and what level of inspection is required. The terminal is responsible for facilitating inspections – delivery of container to inspection site Container segment is represented by a technologically advanced container terminal and discharge. Other revenue includes a combination of port services, which combined share does not exceed 8% of the OOO NUTEP. OOO NUTEP also has a ferry auto complex for Ro-Ro cargo total OOO NUTEP’s revenue. handling. AO KSK revenue comes from grain loading operations. The terminal may charge its clients a different rate for different Grain segment is represented by a new grain terminal, AO KSK, which also handles general type of grain and volumes of grain loading. Freight forwarding is charged separately since clients of AO KSK retain an and Ro-Ro cargo. option to use their own agent and freight forwarder. Bunkering segment is represented by company OOO TOS, which provides bunkering services in Ro-Ro handling revenue is represented by handling of self automated cars, trucks and lorries on OOO NUTEP (Container the port of Novorossiysk. segment). For AO KSK (Grain segment) Ro-Ro handling operations have been represented solely by handling of cars.
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5. Segment Information (continued)
OOO TOS revenue comes from bunkering operations mainly in the port of Novorossiysk. The company bunkers the Grain export duties were introduced in 2015. The mechanism of calculation of export duties has changed several times. Export duties were at their vessels calling Novorossiysk either during loading, or at sea, with fuel oil and/or diesel. OOO TOS purchases fuel from minimum level in the first half of 2016 and were abolished in the second half of 2016. The change in export duty rate affects the volume of grain Russian refineries. Fuel oil accounts for 91% of total purchase and sales volume in terms of quantity. shipments. This risk is outside of the Group’s control. As a result of agricultural season of 2015–2016, deepsea grain shipments of AO KSK increased compared to 2014–2015 season partially due to the abolishment of export duties. Operational risks OOO TOS’s volumes decreased during 2015–2016. This was the result of the overall drop in the profitability of bunkering services driven by lower oil The volume of containerized cargo in Russia began to increase in 2016 compared to 2015 especially in Azov Black Sea prices, as well as the market redistribution in favor of the vertically integrated oil companies. The OOO TOS’s operations in the current environment basin where the biggest growth was shown by OOO NUTEP. Nevertheless OOO NUTEP’s activities were influenced by the are aimed at ensuring operating profitability and reduction in fixed costs rather than protection of its market share. Thus, it was decided to sell two deterioration of relations between Russia and Turkey and the imposition of sanctions on the import of Turkish goods, bunkering vessels and continue bunkering activity using rented vessels that reduced fixed costs and increased EBITDA starting from the 4th quarter of which led to a reduction of general cargo handling and RoRo handling for ferries in 2016 compared to 2015. Political 2016 onwards. risk is outside of the Group’s control. DeloPorts Group does not consider the risk of fluctuations in the container market driven by political events as critical because it is expected that lost volumes could be replaced by import from other Segment information for the reportable segments for the year ended 31 December 2016 is set out below: regions.
Reconciliation adjustments
Total for operating Inter-segment In thousands of Russian Roubles Container Grain Bunkering segments Holdings eliminations Total for the Group External revenue 3,394,873 3,972,097 432,012 7,798,982 — — 7,798,982 Revenues from other segments 2,349 6,071 — 8,420 26,651 (35,071) — Total revenue 3,397,222 3,978,168 432,012 7,807,402 26,651 (35,071) 7,798,982 Cost of sales (1,093,773) (580,659) (424,558) (2,098,990) (19,466) 27,286 (2,091,170) Selling, general and administrative expenses (154,231) (142,272) (24,730) (321,233) (137,567) 1,738 (457,062) Foreign exchange loss from operating activities — (14,233) (3,476) (17,709) — — (17,709) Other operating income/(expenses), net (10,668) (38,373) 108,724 59,683 (655) (308) 58,720 Operating profit/(loss) 2,138,550 3,202,631 87,972 5,429,153 (131,037) (6,355) 5,291,761 Finance income/(expenses), net (173,056) (2,876) (1,080) (177,012) (6,686) — (183,698) Share of loss of associates — — (2,664) (2,664) — — (2,664) Foreign exchange (losses)/gains from financing activities 673,480 (143,119) 72 530,433 (141,970) — 388,463
Profit/(loss) before income tax 2,638,974 3,056,636 84,300 5,779,910 (279,693) (6,355) 5,493,862 Income tax (expense) /credit (530,471) (612,485) (17,278) (1,160,234) 51,375 (1,079) (1,109,938) Profit/(loss) for the year 2,108,503 2,444,151 67,022 4,619,676 (228,318) (7,434) 4,383,924 EBITDA, Note 23 2,490,422 3,413,838 (15,213) 5,889,047 (129,867) (6,221) 5,752,959 Additions to property, plant and equipment, Note 7 721,476 307,770 13,454 1,042,700 1,139 (6,781) 1,037,058 As at 31 December 2016
Total reportable segment assets 8,658,717 3,971,527 356,737 12,986,981 3,552,527 (431,309) 16,108,199 Total reportable segment liabilities (4,335,266) (1,128,430) (10,115) (5,473,811) (3,060,335) 431,309 (8,102,837)
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5. Segment Information (continued)
Segment operating expenses included in cost of sales and selling, general and administrative expenses for the year ended 31 December 2016 were as follows:
Reconciliation adjustments
Total for operating Inter-segment In thousands of Russian Roubles Container Grain Bunkering segments Holdings eliminations Total for the Group
Cost of oil products — — 336,242 336,242 — — 336,242 Wages and salaries, including social charges 374,271 317,809 50,034 742,114 96,609 (17,253) 821,470 Depreciation of property, plant and equipment 233,618 172,794 5,539 411,951 515 (174) 412,292 Operating lease rentals 202,274 23,243 — 225,517 — — 225,517 Amortization of intangible assets 107,586 40 — 107,626 — — 107,626 Purchased services (including audit and consulting services) 116,518 32,989 32,440 181,947 23,809 (8,074) 197,682 Repairs and maintenance of property, plant and equipment 39,188 13,326 730 53,244 — — 53,244 Taxes other than on profit 47,759 43,906 2,646 94,311 — — 94,311 Fuel, electricity and gas 51,524 36,492 4,573 92,589 — — 92,589 Other expenses 75,266 82,332 17,084 174,682 36,100 (3,523) 207,259 Total expenses 1,248,004 722,931 449,288 2,420,223 157,033 (29,024) 2,548,232
Segment information for the reportable segments for the year ended 31 December 2015 is set out below: Reconciliation adjustments
Total for operating Inter-segment In thousands of Russian Roubles Container Grain Bunkering segments Holdings eliminations Total for the Group
External revenue 2,802,919 3,592,608 1,375,490 7,771,017 — — 7,771,017 Revenues from other segments 2,487 4,494 — 6,981 9,450 (16,431) — Total revenue 2,805,406 3,597,102 1,375,490 7,777,998 9,450 (16,431) 7,771,017 Cost of sales (1,030,521) (554,849) (1,368,373) (2,953,743) (700) 6,981 (2,947,462) Selling, general and administrative expenses (180,939) (192,043) (28,323) (401,305) (79,403) 9,450 (471,258) Foreign exchange gain/(loss) from operating activities 2,225 24,899 (2,735) 24,389 — — 24,389 Other operating income/(expenses), net (12,026) (6,806) (805) (19,637) (1,128) — (20,765) Operating profit/(loss) 1,584,145 2,868,303 (24,746) 4,427,702 (71,781) — 4,355,921 Finance (expenses)/income, net (204,848) (19,439) (5,687) (229,974) (5,553) — (235,527) Share of profit of associates — — 3,639 3,639 — — 3,639 Foreign exchange (losses)/gains from financing activities (1,035,801) (211,695) 4,813 (1,242,683) 21,514 — (1,221,169) (Loss)/profit before income tax 343,496 2,637,169 (21,981) 2,958,684 (55,820) — 2,902,864 Income tax (expense) /credit (70,885) (530,107) 4,974 (596,018) 6,530 — (589,488) Profit/(loss) for the year 272,611 2,107,062 (17,007) 2,362,666 (49,290) — 2,313,376 EBITDA, Note 23 1,918,892 3,046,022 (12,736) 4,952,178 (70,570) — 4,881,608 Additions to property, plant and equipment, Note 7 309,139 127,900 157 437,196 907 — 438,103 As at 31 December 2015 Total reportable segment assets 8,846,256 4,627,228 355,315 13,828,799 3,186,117 (979,254) 16,035,662 Total reportable segment liabilities (6,552,201) (1,722,776) (75,715) (8,350,692) (3,143,384) 979,254 (10,514,822)
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5. Segment Information (continued)
Segment operating expenses included in cost of sales and selling, general and administrative expenses for the year Reconciliation ended 31 December 2015 were as follows: adjustments
Inter-segment In thousands of Russian Roubles Container Grain Bunkering Total for operating segments Holdings eliminations Total for the Group Cost of oil products — — 1,202,997 1,202,997 — — 1,202,997 Wages and salaries, including social charges 386,368 302,580 60,451 749,399 49,642 — 799,041 Depreciation of property, plant and equipment 215,222 170,873 11,205 397,300 83 — 397,383 Operating lease rentals 174,989 20,714 — 195,703 — — 195,703 Amortization of intangible assets 107,499 40 — 107,539 — — 107,539 Purchased services (including audit and consulting services) 99,470 45,496 94,091 239,057 20,680 (16,431) 243,306 Repairs and maintenance of property, plant and equipment 47,219 31,198 1,079 79,496 3 — 79,499 Taxes other than on profit 47,946 46,956 5,061 99,963 — — 99,963 Fuel, electricity and gas 49,924 27,906 9,066 86,896 — — 86,896 Other expenses 82,823 101,129 12,746 196,698 9,695 — 206,393 Total expenses 1,211,460 746,892 1,396,696 3,355,048 80,103 (16,431) 3,418,720
6. Balances and Transactions with Related Parties At 31 December 2015, the outstanding balances with related parties were as follows:
The Group had the following categories of related parties as at 31 December 2016 and for the year then ended: Entities under Other In thousands of Russian Roubles common control Associates related parties 1. Entities under common control; Prepayments for non-current assets 33,112 — — 2. Associates; Trade and other receivables 119,641 — 833
3. Key management personnel; Loans issued 835,117 — — Trade and other payables (1) (1,744) (16,594) 4. Other related parties. Other related parties include a noncontrolling shareholder which is able to exercise significant influence on the Group’s significant subsidiary and companies on which the parent company of the Group is able to exercise significant influence.
At 31 December 2016, the outstanding balances with related parties were as follows: The income and expense items with related parties for the year ended 31 December 2015 were as follows:
Entities under Entities under Other Parent common Other In thousands of Russian Roubles common control Associates related parties In thousands of Russian Roubles company control Associates related parties Revenue 893,831 279 1,151,370 Trade and other receivables — 66,163 — 1,098 Cost of sales (1,416) (15,128) — Loans issued* 2,311,278 448,578 1,313 — Selling, general and administrative expense (12,675) — — Trade and other payables — (19,836) (73) (89,821) Interest income 20,138 — —
* Information about interest rates and currency of loans issued is disclosed in Note 27. Interest expense (8,284) — —
Borrowings. At 31 December 2014, the Group had borrowing from the former parent company which was repaid The income and expense items with related parties for the year ended 31 December 2016 were as follows: during the six months ended 30 June 2015. Interest expense on these borrowings was 8,284 thousand RR in 2015. At 31 December 2016, the Group has no borrowings from related parties. Entities under Interest capitalised. During the years ended 31 December 2016 and 2015, no borrowing costs in relation to loans Parent common Other payable to related parties were capitalised into assets under construction. In thousands of Russian Roubles company control Associates related parties Revenue — 873,351 — 1,879,135 Construction in progress additions. In 2016, construction in progress additions from entities under common control of the Group amounted to 92,108 thousand RR (2015: 14,497 thousand RR). Cost of sales — (14,315) (5,063) — Selling, general and administrative expense — (12,346) — — Management remuneration. Total compensation to 10 (2015: 10) representatives of key management personnel, included in employment costs in the consolidated statement of comprehensive income for salaries and other short-term Interest income 143,465 135,841 13 — benefits, amounted to 124,043 thousand RR for 2016 (2015: 92,924 thousand RR).
Dividends. In 2016, the Group distributed dividends to shareholders in amount of 1,826,440 thousand RR (2015: no dividends were distributed).
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7. Property, Plant and Equipment
The changes in carrying amounts of property, plant and equipment were as follows:
Machinery Construction In thousands of Russian Roubles Land Buildings Constructions and equipment Other in progress Total Cost at 1 January 2015 68,381 253,521 3,784,006 2,393,646 72,111 220,092 6,791,757 Accumulated depreciation — (60,691) (438,604) (545,989) (38,511) — (1,083,795) Carrying amount at 1 January 2015 68,381 192,830 3,345,402 1,847,657 33,600 220,092 5,707,962 Additions — — 2,736 6,646 13,288 415,433 438,103 Transfers — 34,469 264,722 15,407 5,172 (319,770) — Disposals — (545) (327) (2,970) (2,220) — (6,062) Depreciation charge, Note 18, 19 — (18,013) (163,741) (195,591) (20,038) — (397,383) Carrying amount at 31 December 2015 68,381 208,741 3,448,792 1,671,149 29,802 315,755 5,742,620 Cost at 31 December 2015 68,381 283,849 4,051,075 2,409,049 76,208 315,755 7,204,317 Accumulated depreciation — (75,108) (602,283) (737,900) (46,406) — (1,461,697) Carrying amount at 31 December 2015 68,381 208,741 3,448,792 1,671,149 29,802 315,755 5,742,620 Additions — — — 5,433 10,449 1,021,176 1,037,058 Transfers — 71,840 168,311 30,175 578 (270,904) — Disposals (25) (37,450) (3,091) (265,051) (2,470) — (308,087) Depreciation charge, Note 18, 19 — (15,972) (188,755) (204,122) (3,443) — (412,292) Reclassification to assets held for sale — — — 28,234 — — 28,234 Carrying amount at 31 December 2016 68,356 227,159 3,425,257 1,265,818 34,916 1,066,027 6,087,533 Cost at 31 December 2016 68,356 307,133 4,215,134 2,157,301 84,680 1,066,027 7,898,631 Accumulated depreciation — (79,974) (789,877) (891,483) (49,764) — (1,811,098) Carrying amount at 31 December 2016 68,356 227,159 3,425,257 1,265,818 34,916 1,066,027 6,087,533
As at 31 December 2016, property, plant and equipment carried at 592,390 thousand RR (31 December 2015: 2,215,292 In thousands of Russian Roubles 31 December 2016 31 December 2015 thousand RR) have been pledged to third parties as collateral for borrowings. At 31 December 2016, the Group pledged property plant and equipment that related to Container terminal. At 31 December 2015, the Group pledged property Grain terminal CGU 66,671 66,671 plant and equipment that related to both Container and Grain terminals. Container terminal CGU 123,395 123,395
Borrowing costs and associated foreign exchange losses of 90,262 thousand RR were capitalised in 2016 at the rate of Total carrying amount of goodwill 190,066 190,066 capitalisation of 13.1% (2015: borrowing costs of 64,791 thousand RR at the rate of capitalisation of 13.8% for Company’s rouble borrowings).
Depreciation expense of 412,292 thousand RR (2015: 397,383 thousand RR) has been charged to cost of sales amounting The recoverable amount of each CGU was determined based on value in use calculations. Cash flow models were to 404,973 thousand RR (2015: 388,033 thousand RR) and in selling, general and administrative expenses amounting to prepared in US Dollars. These calculations use cash flow projections based on financial budgets approved by 7,319 thousand RR (2015: 9,350 thousand RR). management covering a 5 year period. Cash flows beyond the 5 year period are extrapolated using the estimated growth rates stated below. The growth rates do not exceed the long-term average growth rate for the business sector In order to reduce the fixed costs and provide operating profitability of the bunkering segment, OOO TOS sold bunkering of the economy in which the CGU operates. A reasonable change in key assumptions would not cause an impairment of vessels in 2016 with a net profit of 87,077 thousand RR. goodwill. Key assumptions are determined on the basis of market analysis which is performed regularly.
Prepayments for non-current assets consist mainly of advances issued for construction of OOO NUTEP’s Berth 38, Assumptions used for value in use calculations to which the recoverable amount is most sensitive were: installation of AO KSK’s gas powered electricity generation and construction of tugboats for OOO TOS. • Growth rate beyond 5 years is 0% both for grain CGU “KSK” and container CGU “NUTEP” taking into account US Dollar cash flows;
8. Goodwill • Discount rate, calculated in US Dollars, is 12% for KSK and 11% for NUTEP;
• Average annual volume growth rate for grain cargo for 2017–2021 is 0–3% for KSK Goodwill related to grain and container terminals was formed as a result of acquisition of mentioned assets by Delo and 4–10% for container cargo for NUTEP. Group in 2007 and 2011 correspondingly. Goodwill is allocated to cash generating units (CGUs), which represent the lowest level within the Group at which the goodwill is monitored by management and which is not larger than the No impairment was identified as a result of the impairment test as the recoverable amounts exceeded operating segment itself, as follows: carrying value of CGUs.
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9. Mooring Rights and Other Intangible Assets 11. Inventories
Other In thousands of Russian Roubles 31 December 2016 31 December 2015 intangible In thousands of Russian Roubles Mooring rights assets Total Fuel and spare parts 82,166 98,228 Oil products for resale 16,831 14,935 Cost at 1 January 2015 4,338,908 10,667 4,349,575 Total inventories 98,997 113,163 Accumulated amortisation (406,170) (6,993) (413,163) Carrying amount at 1 January2015 3,932,738 3,674 3,936,412 There were no impairment write downs of inventories in 2016 and 2015. Additions — 5,309 5,309 Amortisation charge 18, 19 (107,256) (283) (107,539) Carrying amount at 31 December 2015 3,825,482 8,700 3,834,182 12. Trade and Other Receivables Cost at 31 December 2015 4,338,908 15,976 4,354,884 Accumulated amortisation (513,426) (7,276) (520,702) In thousands of Russian Roubles 31 December 2016 31 December 2015 Carrying amount at 31 December 2015 3,825,482 8,700 3,834,182 Trade receivables 191,684 289,817 Additions — 1,950 1,950 Provision for impairment of trade receivables (32,310) (32,000) Amortisation charge 18, 19 (107,256) (370) (107,626) Trade receivables less provision for impairment of trade receivables Carrying amount at 31 December 2016 3,718,226 10,280 3,728,506 159,374 257,817 Cost at 31 December 2016 4,338,908 17,926 4,356,834 Other receivables 15,110 21,822 Accumulated amortisation (620,682) (7,646) (628,328) Financial receivables 174,484 279,639 Carrying amount at 31 December 2016 3,718,226 10,280 3,728,506 VAT recoverable 112,317 103,441
Prepayments 21,383 12,714 In 2011, Delo Group acquired intangible assets as part of 100% OOO NUTEP consolidation. The fair value was Other taxes receivable 17,405 13,300 determined by an independent appraiser as of the acquisition date. Mooring rights represent the long-term lease rights to hydro technical infrastructure in Novorossiysk, Krasnodar region, owned by the state. Receivables from employees 7,434 8,715 Total trade and other receivables 333,023 417,809
10. Investment in Associate The Group has no overdue and not reserved trade and other accounts receivable as at 31 December 2016 and 31 December 2015. Financial receivables, stated as at 31 December 2016, will be settled within six months from the In thousands of Russian Roubles 2016 2015 reporting date. The fair value of receivables approximates their carrying value as the impact of the discounting is insignificant and is within Level 2 of the fair value hierarchy. The fair value is based on discounting of cash flows using Carrying amount at 1 January 6,491 2,852 14.3% (2015: 15.0%) discount rate. Share of loss of associate (2,664) 3,639
Carrying amount at 31 December 3,827 6,491 13. Cash and Cash Equivalents
In thousands of Russian Roubles 31 December 2016 31 December 2015
At 31 December 2016 and for the year then ended, the Group’s interest in its principal associate, which is unlisted, and Cash in hand 171 254 its summarised financial information, including total assets, liabilities, revenues and loss, was as follows: Cash at bank 387,126 29,529 Short-term bank deposits (less than 90 days) 1,390,618 3,708,401 Name Total assets Total liabilities Revenue Loss % interest held Total cash and cash equivalents 1,777,915 3,738,184 LLC Aquaspas 27,161 11,848 34,116 (10,654) 25%
The average interest rate on short-term deposits at 31 December 2016 was 3.80% (31 December 2015: 7.32%). These deposits have average original maturity of 65 days at 31 December 2016 (31 December 2015: 27 days). At 31 December At 31 December 2015 and for the year then ended, the Group’s interest in its principal associate, which is unlisted, 2016, these deposits have average period to maturity of 42 days from the reporting date (31 December 2015: 19 days). and its summarised financial information, including total assets, liabilities, revenues and profit, was as follows: The Group had deposits with maturity from 90 to 365 days at 31 December 2016 in the amount of 395,613 thousand RR (31 December 2015: 571,996 thousand RR). The average interest rate on these deposits at 31 December 2016 was 2.69% (31 December 2015: 1.66%). These deposits have average original maturity of 205 days (31 December 2015: 197 days). Name Total assets Total liabilities Revenue Profit % interest held At 31 December 2016, these deposits have average period to maturity of 140 days from the reporting date (31 December LLC Aquaspas 32,090 6,123 63,031 14,556 25% 2015: 174 days).
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14. Chartered and Additional Capital 17. Revenue There was no chartered capital at 1 January 2015 because the Company was established in 2015. In thousands of Russian Roubles 2016 2015 Restructuring reserve at 1 January 2015 equal to the sum of individual share capitals of Group’s subsidiaries. Grain handling 3,843,769 3,458,217 Chartered capital at 31 December 2016 amounts to 100,000 thousand RR, which was paid in cash for Container cargo handling 1,843,905 1,378,498 100 thousand RR and for 99,900 thousand RR was made in the form of investments in subsidiaries as a result of completion of reorganisation of the Group. Contribution to the Company’s additional Storage services 655,848 571,718 capital in the amount of 15,590 thousand RR was made in cash in the amount of 12,000 thousand RR and in the form of intangible assets transferred to the Company by the parent company DELOPORTS LIMITED Inspection services 394,616 357,187 in the amount of 3,590 thousand RR. General cargo handling 207,174 302,719 Bunkering 432,012 1,375,490 15. Borrowings Ro Ro handling 70,281 108,090 Other port services 351,377 219,098 In thousands of Russian Roubles 31 December 2016 31 December 2015 Total revenue 7,798,982 7,771,017 Short-term borrowings 1,569,661 2,656,397 Long-term borrowings 1,931,303 3,312,857 Long-term bonds with nominal in Russian Rubles 3,000,000 3,000,000 18. Cost of sales Total borrowings 6,500,964 8,969,254 In thousands of Russian Roubles 2016 2015
In November 2015, the Company issued Rouble denominated bonds for 3,000,000 thousand RR at the rate Depreciation of property, plant and equipment 404,973 388,033 13.8%, which are traded on the Moscow Exchange with a mandatory call in November 2018. Bonds were issued Wages and salaries 386,013 371,739 without pledges and financial covenants. In November 2015, in connection with the debut bond issue of the Company the long-term issuer default rating of ‘‘BB-’’ was confirmed by Fitch Ratings, which was assigned at Cost of oil products 336,242 1,202,997 the beginning of 2015. In May 2016, bonds of the Company were included in the Lombard list of the Bank of Operating lease rentals, Note 25 225,517 195,703 Russia. Purchased services 166,925 215,419 Bank loans are subject to pledges (Note 7) and covenants (Note 25). Interest rate for long-term and short-term loans and borrowings are disclosed in Financial Risk Management note (Note 27). Amortisation of intangible assets 107,503 107,443 Social charges 106,046 101,392 The fair value of long-term bonds equals to 3,081,000 thousand RR as at 31 December 2016 (31 December 2015: approximate the carrying amount) and is within Level 1 of the fair value hierarchy. The carrying amount Taxes other than income taxes 94,311 99,963 of other borrowings doesn’t materially differ from its fair value as the impact of discounting is not significant. Fuel, electricity and gas 89,803 83,955 The fair value of other borrowings is within Level 2 of the fair value hierarchy. Security services 62,524 61,272 Repair and maintenance of property, plant and equipment 50,353 67,125 16. Trade and Other Payables Materials 28,394 24,017 Other expenses 25,050 20,036 In thousands of Russian Roubles 31 December 2016 31 December 2015 Insurance 7,516 8,368 Trade payables 65,819 54,781 Total cost of sales 2,091,170 2,947,462 Other payables 7,248 4,579 Financial payables 73,067 59,360 Advances from customers 142,573 169,555 19. Selling, General and Administrative Expenses Other taxes payable 84,879 90,086 Payables to employees 82,713 75,709 In thousands of Russian Roubles 2016 2015 Accruals and provisions 35,568 37,448 Wages and salaries 195,314 205,488 Total trade and other payables 418,800 432,158 Other remunerations to personnel 77,254 60,149 Social charges 56,843 60,273
The carrying amounts of trade and other payables do not materially differ from their fair value. The fair value of Audit and consulting services 30,757 27,887 payables approximates their carrying value as the impact of the discounting is insignificant and is within Level 2 of Legal expenses 25,823 9,450 the fair value hierarchy. The fair value is based on discounting of cash flows using 14.3% (31 December 2015: 15.0%) discount rate. Information systems and communication 14,933 11,824 Rent expenses, Note 25 14,084 13,731 Travelling expenses and per diems 9,124 8,194
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19. Selling, General and Administrative Expenses 23. Earnings before Interest, Tax, Depreciation and (continued) Amortisation (EBITDA)
In thousands of Russian Roubles 2016 2015 The Group uses EBITDA measure for assessment of segment performance (see Note 5). Since the term EBITDA is not a standard IFRS measure, the Group’s definition of EBITDA may differ from that of other companies. Materials 7,549 6,925 A reconciliation of EBITDA to profit for the year is as follows: Depreciation of property, plant and equipment 7,319 9,350 In thousands of Russian Roubles 2016 2015 Other expenses 6,969 4,133 Profit for the year 4,383,924 2,313,376 Insurance 4,983 6,443 Adjusted for: Repair and maintenance of property, plant and equipment 2,891 12,374 519,918 504,922 Depreciation and amortisation, Note 18, 19 Fuel, electricity and gas 2,786 2,941 Other income and expenses, net, Note 20 (58,720) 20,765 Impairment of trade and other receivables 310 32,000 Share of profit of associates, Note 10 2,664 (3,639) Amortisation of intangible assets 123 96 Finance income, Note 21 (429,448) (137,115) Total selling, general and administrative expenses 457,062 471,258 Finance costs, Note 22 613,146 372,642 Foreign exchange (losses)/gains on financing activity (388,463) 1,221,169 Income tax, Note 24 1,109,938 589,488 20. Other Operating Income / (Expenses), net EBITDA 5,752,959 4,881,608
In thousands of Russian Roubles 2016 2015
Gain / (loss) on disposal of property, plant and equipment 72,249 (6,851) Charity and material aid (4,134) (4,280) 24. Income Tax
Other income and expenses, net (9,395) (9,634) Total other operating income and expenses, net 58,720 (20,765) (a) Components of income tax expense
In thousands of Russian Roubles 2016 2015 Current tax 1,078,569 536,944 21. Finance Income Deferred tax 31,369 52,544 Income tax expense 1,109,938 589,488 In thousands of Russian Roubles 2016 2015
Interest income on deposits and overnights 149,244 96,695 (b) Reconciliation between the tax expense and profit multiplied by applicable tax rate Government grants received and amortisation of deferred income 885 20,282
Interest income on loans issued, Note 6 279,319 20,138 A reconciliation between the expected and the actual taxation charge is provided below. Total finance income 429,448 137,115 In thousands of Russian Roubles 2016 2015 AO KSK receives government grants for partial compensation of interest expenses under bank credit used for Profit before income tax 5,493,862 2,902,864 construction of grain terminal. Theoretical tax charge at statutory rate of 20%: (1,098,772) (580,573) • Income tax on dividends at rate 13% (1,079) — 22. Finance Costs • Effect of non deductible expenses (11,021) (9,691) • Effect of different tax rates in other countries 934 776 In thousands of Russian Roubles 2016 2015 Income tax expense (1,109,938) (589,488) Interest expense on bank loans and bonds 591,332 349,650 The income tax rate applicable to the majority of the Group in 2016 and 2015 is 20%. The Cypriot subsidiary is subject to Bank charges and commissions 21,814 14,708 corporation tax on taxable profits at the rate of 12.5% (2015: 12.5%).
Interest expense on loans received — 8,284 (c) Deferred taxes analysed by type of temporary difference Total finance costs 613,146 372,642 Differences between IFRS and statutory taxation regulations in Russia give rise to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax bases. The Group capitalised borrowing costs arising on financing directly attributable to the construction of qualifying assets. Amounts of interest capitalised are disclosed in Note 7. According to management estimates, net deferred tax asset in the amount of 74,716 thousand RR is expected to be recovered no more than twelve months after the reporting period as at 31 December 2016 (31 December 2015: 161,127 thousand RR).
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24. Income Tax (continued) (e) Deferred taxes in respect of subsidiaries and associates The Group has not recorded any deferred tax liability in respect of temporary differences associated with investments in subsidiaries as the legislation allows zero tax on dividends from subsidiaries under certain conditions. The tax effects for the movements in the temporary differences tax losses carry forward for the year ended 31 December 2016 are: 25. Contingencies and Commitments (Сredited)/ сharged In thousands of Russian Roubles 1 January 2016 to profit or loss 31 December 2016 Legal proceedings. From time to time and in the normal course of business, claims against the Group may be received. Tax effect of (taxable)/ deductible temporary differences On the basis of its own best estimates, management is of the opinion that no material losses will be incurred in respect of claims. Property, plant and equipment (443,556) 33,650 (409,906) Intangible assets (765,010) 21,451 (743,559) Tax contingencies. Russian tax and customs 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. Trade and other receivables 9,069 10,121 19,190 Consequently, tax positions taken by management and the formal documentation supporting the tax positions may Inventories (3,703) 5,113 1,410 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 Tax loss carry forward 166,649 (100,719) 65,930 counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years Deferred income 1,833 (60) 1,773 preceding the year of review. Under certain circumstances reviews may cover longer periods.
Trade and other payables 10,623 (925) 9,698 The Russian transfer pricing legislation is to a large extent aligned with the international transfer pricing principles Net deferred tax liability (1,024,095) (31,369) (1,055,464) developed by the Organisation for Economic Cooperation and Development (OECD) but has specific characteristics. This legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose additional Recognised deferred tax asset 11,640 67,173 tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with Recognised deferred tax liability (1,035,735) (1,122,637) unrelated parties), provided that the transaction price is not arm’s length.
Net deferred tax liability (1,024,095) (1,055,464) 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 In the context of the Group’s current structure, tax losses and current tax assets of different group companies may not the overall operations of the Group. be offset against current tax liabilities and taxable profits of other group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when they The Group includes companies incorporated outside of Russia, one of which is independently pleaded tax resident relate to the same taxable entity, when there is a legally enforceable right to offset current tax assets against current tax of the Russian Federation and created a representative on the territory of Russia. The tax liabilities of the Group are liabilities and when the deferred taxes relate to the same fiscal authority. determined on the basis of the declared Group companies residence. This interpretation of relevant legislation may be challenged but the impact of any such challenge cannot be reliably estimated currently; however, it may be significant The tax effect of the movements in the temporary differences and tax losses carry forward for the year ended to the financial position and/or the overall operations of the Group. The Controlled Foreign Company (CFC) legislation 31 December 2015: introduced Russian taxation of profits of foreign companies and non corporate structures (including trusts) controlled by Russian tax residents (controlling parties). CFC income is subject to a 20% tax rate. (Сredited)/ сharged In thousands of Russian Roubles 1 January 2015 to profit or loss 31 December 2015 As Russian tax legislation does not provide definitive guidance in certain areas, the Group adopts, from time to time, Tax effect of (taxable)/ deductible temporary 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 differences risk that outflow of resources will be required should such tax positions and interpretations be challenged by the tax Property, plant and equipment (428,498) (15,058) (443,556) authorities. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial Intangible assets (786,671) 21,661 (765,010) position and/or the overall operations of the Group. Trade and other receivables 2,135 6,934 9,069 The Group’s management believes that its interpretation of the relevant legislation is appropriate and the Group’s tax, currency legislation and customs positions will be sustained. Accordingly, as of 31 December 2016 and 2015 Inventories (11,519) 7,816 (3,703) management believes no additional tax liability has to be accrued in the consolidated financial statements. Tax loss carry forward 220,691 (54,042) 166,649 Capital expenditure commitments. At 31 December 2016, the Group has contractual capital expenditure Deferred income 1,923 (90) 1,833 commitments in respect of property, plant and equipment totalling 4,504,155 thousand RR (31 December 2015: 659,399 Trade and other payables 30,388 (19,765) 10,623 thousand RR). Increase in capital commitments is connected with the start of construction of berth 38 on OOO NUTEP with payments in amount of 3,055,447 thousand RR until the end of 2018 and the start of tugboats construction Net deferred tax liability (971,551) (52,544) (1,024,095) for OOO TOS with the amount of 1,139,028 thousand RR due at the expense of undrawn credit facility (Note 27). Recognised deferred tax asset 2,233 11,640 Operating lease commitments. Where the Group is the lessee, the future minimum lease payments under non Recognised deferred tax liability (973,784) (1,035,735) cancellable operating leases are as follows: Net deferred tax liability (971,551) (1,024,095) In thousands of Russian Roubles 31 December 2016 31 December 2015
(d) Tax loss carry forwards Not later than 1 year 137,403 133,313
The Group has recognised deferred tax assets in respect of unused tax loss carry forwards of 65,930 thousand RR (2015: Later than 1 year and not later than 5 years 508,710 502,144 166,649 thousand RR). In 2017–2020, the amount of tax losses generated in prior periods that can be used to reduce the Later than 5 years 3,496,914 3,453,568 tax base of the current reporting period are limited to 50% of the tax base of that reporting period determined by the taxpayer without taking that loss into account. Since 2021, accumulated tax losses can be recognised in full amounts. Total operating lease commitments 4,143,027 4,089,025 The law eliminates the time limit on carrying tax losses forward that was previously equal to 10 years (thus, losses received in 2007 and further are carried forward until exhaustion). Most of long-term non cancellable operating lease commitments relate to port facilities and infrastructure in Novorossiysk Port (mooring rights).
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25. Contingencies and Commitments (continued) 27. Financial Risk Management The risk management function within the Group is carried out in respect of financial risks, operational risks and legal risks. Financial risk comprises market risk (including currency risk, interest rate risk and other price risk), credit risk Environmental matters. The enforcement of environmental regulation in the Russian Federation is evolving and the and liquidity risk. The primary objectives of the financial risk management function are to establish risk limits, and enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates then ensure that exposure to risks stays within these limits. The operational and legal risk management functions are its obligations under environmental regulations. In the current enforcement climate under existing legislation, intended to ensure proper functioning of internal policies and procedures, in order to minimise these risks. management believes that there are no significant liabilities for environmental damage.
Russian operating environment. The Russian Federation displays certain characteristics of an emerging market. Its Compliance with covenants. The Group is subject to certain covenants, both financial and non financial, related economy is particularly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop primarily to its borrowings. Non compliance with such covenants may result in negative consequences for the Group and are subject to frequent changes and varying interpretations (Note 25). During 2016, the Russian economy was including growth in the cost of borrowings and declaration of default. The Group was in compliance with covenants negatively impacted by low oil prices, ongoing political tension in the region and continuing international sanctions specified in the loan agreements and the bond issue prospectus at 31 December 2016 and 31 December 2015. against certain Russian companies and individuals, all of which contributed to the country’s economic recession Under the credit facility provided by Raiffeisenbank OOO NUTEP is subject to four financial covenants calculated on the characterised by a decline in gross domestic product. The financial markets continue to be volatile and are characterised basis of financial statements under Russian accounting standards: 1) Debt to Equity, where Debt consists of short and by frequent significant price movements and increased trading spreads. Russia’s credit rating was downgraded to below long-term loans and borrowings excluding the increase in value due to foreign exchange differences and excluding loan investment grade. This operating environment has a significant impact on the Group’s operations and financial position. balances from the Group companies, and Equity equals to the sum of all lines of Section III of the balance sheet reduced Management is taking necessary measures to ensure sustainability of the Group’s operations. However, the future by the increase in the cost of borrowings due to foreign exchange differences; 2) Current ratio, calculated as Current effects of the current economic situation are difficult to predict and management’s current expectations and estimates assets excluding long-term receivables to Current liabilities excluding deferred revenue, accruals and debt in relation to could differ from actual results. Raiffeisenbank; 3) Net operating margin calculated as Gross Profit divided by Revenue; 4) Debt to EBITDA, where Debt Credit risk. The Group takes on exposure to credit risk, which is the risk that one party to a financial instrument will is calculated as all financial liabilities excluding those from Related parties and EBITDA is calculated as Operating profit cause a financial loss for the other party by failing to discharge an obligation. Exposure to credit risk arises as a result excluding depreciation and amortisation. Besides, OOO “DeloPorts” is subject to two financial covenants calculated on of the Group’s sales of products and rendering of services on credit terms and other transactions with counterparties the basis of IFRS consolidated financial statements in accordance with guarantee agreement: 1) Debt to EBITDA, where giving rise to financial assets. Financial assets, which potentially subject the Group to credit risk, consist primarily of the rates are calculated similar to the sub item 4 above; 2) Debt to Equity. trade and other receivables, loans granted and cash and cash equivalents. Short-term loans are issued to related parties Under the credit facility provided by Alfa-Bank AO KSK is subject to two financial covenants calculated on the basis of and they are not overdue and impaired as at 31 December 2016. financial statements under Russian accounting standards: 1) Net Debt to EBITDA Ratio, where Net debt is calculated as The Group’s maximum exposure to credit risk by class of assets is reflected in the carrying amounts of financial assets in all financial liabilities less cash and deposits, and EBITDA is calculated as Operating profit excluding depreciation and the consolidated statement of financial position as follows: amortisation and all types of income and expenses that are not directly related to the economic activity of AO KSK and not of permanent nature for the last twelve months 2) the Interest Coverage Ratio, calculated as 12 Month EBITDA to 12 Month Total Interest Expense. In thousands of Russian Roubles 31 December 2016 31 December 2015 Trade and other receivables, Note 12 174,484 279,639 26. Non Controlling Interest Trade receivables 159,374 257,817
The following table provides information about each subsidiary that has non-controlling interest that is material to the Other receivables 15,110 21,822 Group: Short-term loans issued 2,761,169 835,117
Proportion of Dividends Deposits (with maturity over 90 days) 395,613 571,996 Place of Proportion non-controlling Profit or loss Accumu lated paid to non- business and of non- interest’s attribu table to non-controlling controlling Cash and cash equivalents, Note 13 1,777,744 3,737,930 country of controlling voting rights non-controlling interest in the interest during Cash at bank 387,126 29,529 In thousands of Russian Roubles incorporation interest held interest subsidiary the year Year ended 31 December 2016 Short-term bank deposits (less than 90 days) 1,390,618 3,708,401 DCP Group (DCP HOLDINGS LTD and Cyprus, 25 25 611,101 710,774 (626,440) Total maximum exposure to credit risk 5,109,010 5,424,682 subsidiary AO KSK) Russia
Year ended 31 December 2015 The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in DCP Group (DCP HOLDINGS LTD and Cyprus, 25 25 526,766 726,113 — relation to counterparties or groups of counterparties. Limits on the level of credit risk are approved regularly by management. Such risks are monitored on a revolving basis and are subject to review at least once a quarter. The subsidiary AO KSK) Russia Group’s management reviews ageing analysis of outstanding trade receivables and follows up on past due balances. Management therefore considers it appropriate to provide ageing and other information about credit risk as disclosed in The summarised financial information of these subsidiaries on a 100% basis and before intercompany eliminations was Note 12. as follows at 31 December 2016 and 31 December 2015: The following table shows the credit quality and the concentration of the credit risk in relation to the cash and cash Total compre equivalents and other bank deposits as at 31 December 2016 and 31 December 2015: In thousands Current Non-current Current Non-current hensive Cash of Russian Roubles assets assets liabilities liabilities Revenue Profit income flows Rating of bank according Cash amount Cash amount Year ended In thousands of Russian Roubles to Moody’s at 31 December 2016 at 31 December 2015 31 December 2016 Cash and cash equivalents at bank DCP Group (DCP 1,276,931 2,694,596 (805,300) (323,130) 3,978,168 2,444,151 2,444,151 (358,878) Unicredit Bank* Baa1 27 27,492 HOLDINGS LTD and subsidiary AO KSK) Raiffeisenbank* Baa2 140,497 74,904 Year ended Sberbank Ba1 149,349 730,773 31 December 2015 VTB Ba1 91,821 2,904,439 DCP Group (DCP 1,992,639 2,634,589 (1,553,338) (169,438) 3,597,103 2,107,063 2,106,936 1,103,593 Alfa-Bank Ba2 537,525 — HOLDINGS LTD and subsidiary AO KSK)
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27. Financial Risk Management dollars) which, in turn, led to the recognition financial liability equal to 8,436 thousand RR. According to the Group, as a result of a gain on the revaluation of USD denominated bank deposits and exchange gains on transactions, the total (continued) loss from exchange differences came to 424,617 thousand RR in 2016 (2015: total gain from exchange differences came to 259,690 thousand RR).
In addition, the Group uses multi currency credit facilities allowing for a choice of currency depending on market Rating of bank according Cash amount Cash amount conditions. In thousands of Russian Roubles to Moody’s at 31 December 2016 at 31 December 2015 The table below summarises the Group’s exposure to foreign currency exchange rate risk as at 31 December 2016: Sovcombank B1 653,113 —
Promsvyazbank Ba3 200,010 — At 31 December 2016 Other — 5,402 322 In thousands of Russian Roubles RR EUR USD TOTAL
Total cash and cash equivalents — 1,777,744 3,737,930 Financial assets Bank deposits (with maturity 90 to 365 days) Cash and cash equivalents 495,245 5,087 1,277,583 1,777,915 Raiffeisenbank* Baa2 — 12 375 Deposits (with maturity over 90 days) 62,000 — 333,613 395,613 VTB Ba1 62,000 249 623 Short-term loans issued 2,443,085 — 318,084 2,761,169 Sberbank Ba1 333,613 309 998 Financial receivables 155,720 — 18,764 174,484 Total bank deposits 395,613 571 996 Total Financial Assets 3,156,050 5,087 1,948,044 5,109,181 Financial Liabilities * Deposit rating of these banks refers to parent companies. Long-term borrowings (3,000,000) — (1,931,303) (4,931,303) Short-term borrowings (41,966) — (1,527,695) (1,569,661) The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit rating, if available. For accounts receivable with no external credit rating available management assesses credit Financial payables (73,067) — — (73,067) quality by reference to the prior history of working with customers. Customers with longer history of working with the Other financial liabilities — — (8,436) (8,436) Group are regarded by management as having lower risk of default. The credit quality of trade and other receivables that are neither past due nor impaired classified by reference to the working history of the counterparty with the Group Total Financial Liabilities (3,115,033) — (3,467,434) (6,582,467) is as follows: Net Financial Assets/(Liabilities) 41,017 5,087 (1,519,390) (1,473,286)
In thousands of Russian Roubles 31 December 2016 31 December 2015
Core Clients 172,162 223,964 The table below summarises the Group’s exposure to foreign currency exchange rate risk as at 31 December 2015: Other Clients 2,322 55,675 At 31 December 2015 Total trade and other receivables 174,484 279,639 In thousands of Russian Roubles RR EUR USD TOTAL
Core clients – Large customers with more than one year of working history with the Group. Financial assets Cash and cash equivalents 2,508,430 68 1,229,686 3,738,184 These accounts receivables were formed in an ordinary course of business. In 2016, the Group worked with most of Deposits (with maturity over 90 days) — 44,690 527,306 571,996 customers on the following conditions: Short-term loans issued 178,093 — 657,024 835,117 • AO KSK works with most customers on a prepayment basis; Financial receivables 251,156 — 28,483 279,639 • OOO NUTEP provides its customers 15 to 45 working days payment deferral from the date of invoice delivery; Total Financial Assets 2,937,679 44,758 2,442,499 5,424,936 • OOO TOS grants 5 to 60 days payment deferral to its customers. Financial Liabilities Long-term borrowings (3,000,000) — (3,312,857) (6,312,857) The Group’s business is dependent on several large key customers accounting for 67% and 51% of the Group’s revenue for the year ended 31 December 2016 and 2015 respectively. Short-term borrowings (39,699) (123,747) (2,492,951) (2,656,397) Financial payables (43,029) — (16,331) (59,360) Currency risk. In respect of currency risk, management sets limits on the level of exposure by currency and in total. The positions are monitored quarterly. Total Financial Liabilities (3,082,728) (123,747) (5,822,139) (9,028,614)
The majority of the Group’s revenue is denominated in US dollars, while at the same time the company’s operating Net Financial Assets/(Liabilities) (145,049) (78,989) (3,379,640) (3,603,678) revenue comes both in rubles and in US dollars. Revenue received in Russian Roubles is linearly converted into foreign currency and placed on deposit in accordance with the Group’s policy if there is no need to make payments in rubles. Thus, a currency risk exists between the dates of revenue accrual and the date of the actual currency purchase. Currency The above analysis includes only monetary assets and liabilities. Currency risk arises when future transactions or assets help to minimise the risk, as the majority of borrowings are denominated in US dollars. recognised assets or liabilities are denominated in a currency that is not that company’s functional currency.
Moreover, Group’s companies use forward contracts for currency purchases matching in duration future loan The following table presents sensitivities of profit and loss and equity to reasonably possible changes in exchange rates repayments. During 2016 and 2015, the Group entered into a number of forward transactions for purchase of currency applied at the end of the reporting period relative to the functional currency of the respective Group entities, with all of 6 million US dollars and sale of currency of 6 million US dollars in 2016 (2015: purchase of currency of 5.5 million US other variables held constant:
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27. Financial Risk Management Profit and equity impact In thousands of Russian Roubles 100 bp decrease 100 bp increase (continued) 2016 Variable rate instruments 34,241 (34,241)
Impact on pre tax profit or loss 2016 Impact on pre tax profit or loss 2015 2015 Variable rate instruments 58,773 (58,773) In thousands of Russian Roubles EUR USD EUR USD
Strengthening by 30,00% 1,526 (455,818) (23,697) (1,013,892) Market risk. The Group takes on exposure to market risks. Market risks arise from open positions in (a) foreign Weakening by 30,00% (1,526) 455,818 23,697 1,013,892 currencies, (b) interest bearing assets and liabilities, all of which are exposed to general and specific market movements. Management monitors this risk on a regular basis using calculations of current and future exposures and evaluating Strengthening by 20,00% 1,017 (303,879) (15,798) (675,926) various hedging alternatives. Weakening by 20,00% (1,017) 303,879 15,798 675,926 Fair value estimation. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an Strengthening by 10,00% 509 (151,939) (7,899) (337,965) orderly transaction between market participants at the measurement date. The best evidence of fair value is the price in an active market. Weakening by 10,00% (509) 151,939 7,899 337,965 Financial assets carried at amortised cost. The fair value of floating rate instruments is normally their carrying amount. The estimated fair value of fixed interest rate instruments is based on estimated future cash flows expected to Interest rate risk. The Group’s interest rate risk arises from borrowings, loans issued and bank deposits. Borrowings be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity and raised at floating rates expose the Group to cash flow interest rate risk. Cash and cash equivalents, loans and similar other terms. The discount rates used depend on the credit risks of counterparty. Also, carrying amounts of trade borrowings issued at fixed rates expose the Group to fair value interest rate risk. The table presents the aggregated receivables approximate fair values. amounts of the Group’s cash and cash equivalents, loans and borrowings granted and received, and other financial liabilities recognised at fair value split by exposure to fixed or variable interest rates: Liabilities carried at amortised cost. The fair value of floating rate liabilities is normally their carrying amount. The fair value is based on quoted market prices, if available. The estimated fair value of fixed interest rate instruments with In thousands of Russian Roubles 31 December 2016 31 December 2015 stated maturity, for which a quoted market price is unavailable, is estimated based on expected cash flows discounted at current interest rates for new instruments with similar credit risk and remaining maturity and similar other terms. As Fixed rate instruments at 31 December 2016 the fair value of the Group’s borrowings and payables do not differ materially from their carrying amounts. Bank deposits 1,786,231 4,280,397 Liquidity risk. Liquidity risk is a risk whereby the Group encounters difficulty in meeting obligations associated with Short-term loans issued 2,761,169 835,117 its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing Short-term borrowings (41,967) (39,699) liquidity is to ensure, as much as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to its reputation. Long-term borrowings (3,000,000) (3,000,000) The Group’s management monitors current liquidity based on expected cash flows and revenue receipts. Cash flow Variable rate instruments forecasting is performed at the level of the Group’s operating entities and at its consolidated level. Short-term borrowings (1,527,694) (2,616,698) The Group has deposits of 1,452,619 thousand RR with a maturity of less than 90 days after the reporting date, deposits Long-term borrowings (1,931,303) (3,312,857) of 166,806 thousand RR with a maturity of more than 90 days but less than six months after the reporting date and deposits of 166,806 thousand RR with a maturity of more than six months after the reporting date. At 31 December 2016, the Group had an undrawn credit facility amounting to 1,250,080 thousand RR and 182,207 thousand RR at 31 December 2015. In August 2016, the Moscow Exchange registered stock bonds program of the Company which allows The table below summarises effective interest rates at each reporting date: to issue stock bonds in the maximum amount of 50,000,000 thousand RR or its equivalent in foreign currency.
31 December 2016 31 December 2015 The tables below show liabilities as at 31 December 2016 and 31 December 2015, respectively, according to their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual undiscounted cash In % p.a. RR USD RR EUR USD flows, including gross loan commitments.
Assets When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the Short-term loans issued 13.82% 3.75% 14.50% — 7.32% end of the reporting period. Foreign currency payments are translated using the spot exchange rate at the end of the reporting period.
Cash and cash equivalents and bank deposits 9.81% 1.04% 10.55% 1.04% 0.55% The maturity analysis of financial liabilities at 31 December 2016 is as follows: Liabilities Amount From From From Loans and borrowings 13.80% 4.77% 13.80% 4.59% 4.60% Carrying of future payments Within 6 to 12 1 year 2 years In thousands of Russian Roubles amount on the contract 6 months months to 2 years to 5 years
Liabilities The Group does not account for any fixed rate financial assets as fair value through profit or loss or as available for sale. Therefore a change in interest rates at the reporting date would not have an effect in profit or loss or in equity. Borrowings, Note 15 6,500,964 7,466,053 954,163 1,101,695 5,410,195 —
A change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit Financial payables, Note 16 73,067 73,067 73,067 — — — by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain Other financial liabilities 8,436 8,436 8,436 — — — constant. The analysis is performed on the same basis for 2015. Total future payments 6,582,467 7,547,556 1,035,666 1,101,695 5,410,195 —
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27. Financial Risk Management (continued)
The maturity analysis of financial liabilities at 31 December 2015 is as follows:
Amount From From From Carrying of future payments Within 6 to 12 1 year 2 years In thousands of Russian Roubles amount on the contract 6 months months to 2 years to 5 years Liabilities Borrowings, Note 15 8,969,254 10,576,662 1,571,844 1,646,753 1,751,504 5,606,561 Financial payables, Note 16 59,360 59,360 59,360 — — — Total future payments 9,028,614 10,636,022 1,631,204 1,646,753 1,751,504 5,606,561
28. Management of Capital
The Group monitors its capital structure on the basis of Net Debt to EBITDA ratio. For this purpose, the Group defines Net Debt as total current and non-current loans and borrowings (Note 15) less cash and cash equivalents (Note 13). The Group’s Net Debt to EBITDA ratio as at 31 December 2016 is 0.75 (31 December 2015: 0.95). Reduction in the Net Debt to EBITDA ratio in 2016 compared to 2015 is the effect of a combination of factors, the main ones are the growth of operating cash flow and as a result of EBITDA (definition of EBITDA is disclosed in Note 23) and the repayment of debt (Note 15). Management believes that Group’s Net Debt to EBITDA ratio in 2016 is at a comfortable level.
29. Events After the Reporting Period
In March 2017, an interim dividend distribution for 2016 in the amount of 350,000 thousand RR was approved by the Company’s stakeholders. In March 2017, it was also approved to distribute dividends in relation to non-controlling interest in the amount of 202,733 thousand RR.
In March 2017, OOO TOS was renamed to Limited Liability Company “Service Company “Delo” due to the fact that the company is prescheduled to provide towing services in addition to bunkering and is expected to become a single center for the provision of ancillary services at DeloPorts Group terminals.
There were no other material events after the reporting period that had an effect on the consolidated financial statements as at 31 December 2016.
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Full legal name Location
DeloPorts 353902, Russia, Novorossiysk, Limited Liability Company Sukhimskoye Shosse, 21
Abbreviated Tel./Fax: +7 (8617) 300-821 name
DeloPorts www.deloports.ru
Delo Management Company International auditor
119049, Russia, Moscow, PricewaterhouseCoopers Audit Donskaya St, 15 125047, Russia, Moscow, Butyrsky Val, 10 Tel.: +7 (495) 933-19-16 Tel.: +7 (495) 967-00-00 E-mail: Fax: +7 495 967-60-01 [email protected] www.pwc.ru
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