2016 annual financial report Company profile
Our business
Europe is a leading real estate development and
investment company, operating throughout Central reportannual financial 2016 and Eastern Europe, and focusing on the development of large- scale commercial and residential projects. 2
Our diversified assets portfolio currently consists of: • shopping malls and retail properties • business parks and office complexes • large-scale residential and mixed-use projects • Income-yielding residential properties • land-bank designated for future projects
At the end of 2016, we own, develop and manage properties and projects in Bulgaria, Czech Republic, Germany, Hungary, Latvia, Poland, Romania and Serbia, with on-the-ground teams comprising nearly 200 professionals. Our company’s head-office is based in the Netherlands.
AFI Europe is part of the AFI Group, an international holdings and investments conglomerate.
Total asset value Competitive advantage
€1.393m Proven track-record in the development and management of successful large-scale projects and properties
Residential Ability to attract and retain high caliber tenants including projects reputable retailers and multinational corporations Commercial 4% properties (€51m) On-the-ground presence by in-house multidisciplinary 78% teams of highly skilled professionals with local knowledge (€1,086m) and connections, as well as international networks Land bank
18% Good relationships with banks and (€256m) ability to raise debt financing
As at 31 December 2016 based on CBRE valuation as of 30 September 2016, taking Mixed portfolio combining income-generating into account AFI Europe’s actual percentage interest in each project/property properties and further growth through the development The figure for commercial properties includes €297m property held for sale and of additional properties in the company’s land bank €58m under development The figures for residential projects and land bank include equity companies Financial highlights
in €’000
NOI for 20161 €63,234 annual financial reportannual financial 2016 Operating profit for 2016² €121,218
Net profit for 20163 €74,139 3
Total equity on 31 Dec 20164 €774,215
Total balance sheet on 31 Dec 2016 €1,586,634
NOI for 20155 €56,148
1. Excluding €3,299 discontinued operation (German portfolio) 2. Excluding €38,237 discontinued operation (German portfolio) 3. Excluding €15,132 discontinued operation (German portfolio) and €3,040 interest expenses in relation to a shareholder loan 4. Including a shareholder’s loan of €271,486 5. Excluding €5,351 discontinued operation (German portfolio) Financial highlights
Countries of operation annual financial reportannual financial 2016
4 6 1. Romania
2. Czech Republic
3. Serbia 9 5 4 4. Germany
2 5. Poland
8 6. Latvia 1 7. Bulgaria 3 8. Hungary 7 9. Netherlands (Headquarters)
Revenues by country Asset value by country €57m €1,393m
0.1% 1% 1% 5 11% 10.1%* 7 68 8 1 3 5 4 2% 78% 59% 7 1% 5 6 10% 3 4% 2 27
10% 4 3 1 11
2 12 13%
In 2016, taking into account the actual percentage interest in each project, As at 31 December 2016, based on CBRE valuation as at 30 September 2016, taking into and excluding €6.196m discontinued operation (German portfolio) account AFI Europe’s actual percentage interest in each project, and including €297m property held for sale Financial highlights
Commercial property GLA (m2) annual financial reportannual financial 2016 600,000 510,053* 5 500,000 425,495 404,532 389,508 400,000 360,568
293,106 292,163 300,000 233,508 190,169 200,000 134,472
100,000
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
* Including commercial property under development, and AFI Europe’s property portfolio in Germany (which transaction for its partial sale was completed in January 2017)
Rental income and sale of residential units (€’000)
70,000 66,243 64,335 62,795* 60,213 60,000 51,324 50,000 47,500 48,860
40,000 33,384 33,823 30,374 30,000 23,058 19,459 20,000 13,466 10,757 10,000 7,159 7,732
0 2009 2010 2011 2012 2013 2014 2015 2016
Rental income Sale of residential units
* Excluding €6,196 discontinued operation (German portfolio) Financial highlights
Leverage breakdown and key accounting policies As at 31 December 2016, in €’000 annual financial reportannual financial 2016
Leverage breakdown 6 Commercial properties Residential units for sale Commercial properties* under development and under development Land bank Total
Assets value 1,110,078 64,837 54,145 248,187 1,477,247
Bank Loans 500,013 0 19,856 13,556 533,425
Loan to value ratio 45% 0% 37% 5% 36%
Net asset value 610,065 64,837 34,289 234,631 943,822
* Including €297m property held for sale (€141m German portfolio, €156m Afi Park 4 & 5 in Romania)
Key accounting policies • IFRS accounting since 2005, audited by KPMG • Reporting in Euros • Assets valued by independent appraisers at least once a year • Investment properties and investment properties under development stated at fair value • Figures represent AFI Europe’s percentage interest in its subsidiaries and exclude equity companies
Commercial properties by country In €’000
Country Number of properties GLA m2 Annual rent income* Market value December 2016** Average occupancy rate
Bulgaria 1 43 622 22,815 30%
Czech Republic 2 42 5,699 92,931 92%
Romania 6 183 47,456 684,837 98%
Serbia 1 43 6,682 86,364 84%
Germany 22 75 6,196 141,175 93%
TOTAL 32 386 66,655 1,028,122
* Taking into account AFI Europe’s actual percentage interest in each property ** Market value based on CBRE valuation as at 30 September 2016 Financial highlights
Commercial properties In €’000 annual financial reportannual financial 2016
Market Value Average Occupancy Name Country City Type % Holding GLA* m2 December 2016* Annual NOI 2016 Rate December 2016 7
AFI Cotroceni Romania Bucharest Retail 98% 79,226 460,805 31,069 99%
AFI Park 1 ** Romania Bucharest Offices 100% 12,407 28,975 2,020 97%
AFI Park 2 ** Romania Bucharest Offices 100% 12,418 28,597 2,043 100%
AFI Park 3 ** Romania Bucharest Offices 100% 12,530 28,297 1,142 100%
AFI Park 4+5 ** Romania Bucharest Offices 100% 32,475 70,022 5,154 95%
AFI Ploiesti Romania Ploiesti Retail 100% 33,958 68,141 4,965 99%
Broadway Palace Czech Republic Prague Retail, offices 100% 8,886 14,105 1,459 71%
Classic 7 (1-3) Czech Republic Prague Retail, offices 100% 33,166 78,826 4,240 98%
Airport city Serbia Belgrade Offices 53.70% 43,418 86,364 6,682 84% Belgrade
Business Park Bulgaria Varna Offices 100% 43,093 22,815 622 30% Varna Rental AFI Germany Germany Berlin 100% 75,409 141,175 6,196 93% Portfolio *** appartments TOTAL 386,986 1,028,122 66,655
* Taking into account AFI Europe’s actual percentage interest in each property ** Property held for sale *** Property held for sale in 2016 (sale transaction completed in January 2017)
Commercial properties under development In €’000
Annual rent income based Expected cost Completion Name City % Holding GLA m2 on full occupancy Book value to complete the project date ACB phase 4.2 Belgrade 53.70% 7,142 1,331 8,346 2,349 Q1 2017 AFI Vokovice Prague 100% 13,985 3,386 8,375 28,910 Q3 2018 AFI Karlin Prague 100% 20,528 4,332 19,908 25,512 Q4 2017 AFI Brasov Brasov 100% 59,488 12,354 13,551 107,230 Q4 2018 AFI TECH Park Bucharest 100% 21,924 2,774 7,462 25,701 Q2 2018
Total - - 123,067 24,177 57,641 189,702 -
Figures reflect AFI Europe’s actual percentage interest in each property Main events in 2016
Sale of the Berlin property portfolio
In August 2016 AFI Europe signed an agreement for the sale of 18 properties in Berlin for a total purchase price of €125.5m. This transaction was completed in January 2017. reportannual financial 2016 Earlier in 2016 AFI Europe sold an additional property in Berlin for €9m, as well as 8 properties in other cities in Germany for €20.2m. 8
127 apartments delivered during 2016
During 2016 AFI Europe delivered a total of 127 apartments in its residential projects, including 63 apartments in Sofia, Bulgaria: Lagera Tulip (36) and Vitosha Tulip (27), and 64 apartments in its residential project Osiedle Europejskie in Krakow. Main events in 2016
Additional phase completed in Classic 7 Business Park in Prague
The construction of a new office building, which forms the third phase of Classic 7 Business Park, was completed in the second quarter of 2016. The building with GLA of 6,094 m2 is fully leased. reportannual financial 2016 9
Purchase of land for a large-scale project in Belgrade
In June 2016 AFI Europe completed the acquisition of a land plot at the city center of Belgrade for €15.8m. The company plans to develop on that site a mixed-use project comprising high-end residential units alongside offices and retail. Main events in 2016
Purchase of land for a new residential project on Sapiezynska 10, Warsaw
AFI Europe signed in 2016 a preliminary agreement for purchasing the rights with respect to a land plot at the center of Warsaw. This transaction was completed in February 2017, for a purchase reportannual financial 2016 price of PLN 23.3m. The company plans to develop on that plot a project comprising high-end residential units with GSA of 6,000 m2. 10
Expansion of project Złota 83 in Warsaw
In September 2016 AFI Europe completed the purchase of a land plot adjacent to its project on Złota 83 in Warsaw city center, for a purchase price of PLN 11m. This transaction has added 3,000 m2 to the planned development which now reaches a total GSA of 8,000 m2. Main events in 2016
Completion of AFI Park 4 & 5 in Bucharest
The construction of the fourth and fifth buildings at the AFI Park premium office complex in
Bucharest was completed in the first quarter of 2016. The buildings, of a total GLA of 32,000 m2, reportannual financial 2016 have a 95% occupancy rate (as of 31 December 2016). 11
Continuous growth of Airport City Belgrade
The construction of the eighth office building with 13,308 m2 in Airport City Belgrade (phase 4.1 of the project) was completed in the first quarter of 2016, and its occupancy rate has reached 90%. In addition, the construction of the project’s ninth office building, with 13,641 m2, has been completed in the first quarter of 2017. Furthermore, the building rights at the front plot of the project increased in March 2016 from 46,000 m2 to 77,000 m2. Main events in 2016
Purchase of land for a mixed-used project in Brasov
In March 2016 AFI Europe acquired a land plot in Brasov, Romania, for approximately €10m, where it plans to develop a mixed-use project that will include a shopping mall with GLA of 40,000 m2 reportannual financial 2016 and an office building with GLA of 18,0002 m . Construction has started in the first quarter of 2017. 12
Property valuation
The consolidated financial statements of AFI Europe are prepared in accordance with International Financial Reporting Standards (IFRS), which include the application of the fair value method. Accordingly, the company’s properties are appraised on a regular basis by independent experts. During the third quarter of 2016 AFI Europe engaged the services of CBRE for the valuation of all of its investment properties and investment properties under development (IPUD), as well as for the valuation of some of those projects that are classified as inventory in AFI Europe’s financial statements. Based on the results of such valuation, AFI Europe recognized a profit from the revaluation of investment property in the amount of approximately €63.8m, and a profit from the revaluation of investment property under development in the amount of approximately €4.6m. On top of the aforementioned profits, the company recognized additional revaluation profits of approximately €39.7m in relation to its discontinued operation in Germany. Highlighted projects
AFI Cotroceni
(Bucharest, Romania) reportannual financial 2016 13 Developed by AFI Europe and opened in 2009, AFI Cotroceni has become Romania’s largest and most dominant shopping mall.
Located in the heart of Bucharest, this project has won several awards, including “Best Shopping Centre Development”, “Best Overall Development”, “Best Shopping Mall” and “Best Real Estate Project”.
A new expansion by 8,000 m2 will lead to the entry of additional major brands to the variety of international retailers in this shopping mall.
www.aficotroceni.ro
GLA 88,500 m2
Occupancy 99%
Average footfall 50,000 visitors per day
Parking spaces 2,500
NOI 2016 €33.79m Highlighted projects
AFI Park
(Bucharest, Romania) reportannual financial 2016 14 AFI Park is an award-winning complex of premium office buildings, developed by AFI alongside the adjacent AFI Cotroceni, with a total GLA of 152,000 m2. Together, they feature the biggest complex of retail and business in Romania and one of the biggest in CEE.
The business park consists of five class A office buildings, surrounding the highly successful shopping mall, and built to the highest international standards. The tenants benefit from a range of advantages, ranging from luxurious modern offices to the vibrant central location.
The project was developed in phases. The first building was inaugurated in 2012. Buildings 2 and 3 were completed and inaugurated in 2014, and the construction of buildings 4 & 5 was completed in the first quarter of 2016.
www.afieurope.ro
GBA 107,000 m2
GLA 69,530 m2
Occupancy: Buildings 1,2,3 - 100% Buildings 4,5 - 95% Highlighted projects
AFI Ploiesti
(Ploiesti, Romania) reportannual financial 2016 15 Opened in October 2013, AFI Ploiesti is the first and only modern shopping mall in the city center of Ploiesti, Romania.
The shopping mall offers over 100 national and international leading fashion brands spreading over two floors, along with 13,000 m² of hypermarket store and more than 7,000 m² of entertainment.
www.afi-ploiesti.ro
GLA 33,958 m2
Occupancy 99%
Average footfall 15,000 visitors per day
NOI 2016 €4.49m Highlighted projects
Classic 7 Business Park
(Prague, Czech Republic) reportannual financial 2016 16 Classic 7 Business Park is a uniquely designed office project that blends past with the present in Holešovice, one of Prague’ s most vibrant districts.
In the project’s initial phase two old buildings of a historical steam-mill were restored and redeveloped. Two modern office building have subsequently been added to the project.
The office tenants benefit from underground parking lots as well as retail and food venues on the ground level.
Winner of the “Best Office Project” award in the Czech Republic in 2009.
www.classic7.cz
GLA 33,166 m2
Occupancy 98%
NOI 2016 €3.46m Highlighted projects
Airport City Belgrade
(Belgrade, Serbia) reportannual financial 2016 reportannual financial 2016 17 Airport City Belgrade is Serbia’s leading business park, offering a multi-use commercial facility that merges the latest construction technologies with a tenant-focused approach.
The project’s nine office buildings and the nearby redeveloped historic hangar are designed, built and operated in a way that implements the concept of “city within a city”.
The construction of the ninth building in the project was recently completed, and additional buildings are planned.
www.airportcitybelgrade.com
GLA 80,853 m2
Occupancy 84%
NOI 2016 €11m Highlighted projects
Osiedle Europejskie
(Krakow, Poland) reportannual financial 2016 18 This project is a large-scale residential development in one of Krakow’s fastest growing districts. It consists of 24 apartment buildings that have already been completed, one that is presently under construction, and six more that are planned. Upon completion, the number of apartments in this project will be 2,363.
The project is designed to satisfy the needs of the modern family, and includes facilities such as playgrounds and an indoor kindergarten. The residents also benefit from both proximity to green areas and excellent access to the city center.
www.osiedleeuropejskie.pl
Number of apartments sold by the end of 2016 1,923
Number of apartments delivered by the end of 2016 1,895
Number of apartments upon completion 2,363 Highlighted projects
Tulipa Třebešín
(Prague, Czech Republic) reportannual financial 2016 19 Tulipa Třebešín is one of AFI Europe’s newest projects in the city of Prague.
Located in Prague 3, this mixed-use project is developed in phases. The project’s initial phase, currently under construction, consists of two residential buildings with 183 apartments. The project will ultimately include several apartment buildings, alongside retail and office properties.
Ultimately, the gross floor area (GFA) of 83,300 m² will be composed of 75,000 m² residential, 7,700 m² commercial, and 600 m² kindergarten.
www.tulipatrebesin.cz
Land area 47,000 m2
GFA 83,300 m2
Number of planned apartments 700 Highlighted projects
AFI Brasov
(Brasov, Romania) reportannual financial 2016 20 Located in the city center of Brasov on a site that is considered to be the city’s best location for commercial development, AFI Brasov is a mixed-use project under development, featuring a shopping mall and a Class A office complex.
The shopping mall, with a total GLA of 45,000 m2, will be mostly spread over two levels, emphasizing the entertainment and leisure attractions. As a unique feature, visitors will enjoy a large leisure balcony, that can host events, viewing the Carpathian Mountains.
Two high-end office buildings will be developed next to the mall and integrated with it, in two phases, resulting in office space with GLA of 15,000 m2 and 10,000 m2, respectively.
Land area 40,000 m2
GBA 123,000 m2
GLA 70,000 m2
Parking spaces 1,500 Highlighted projects
Skyline Belgrade
(Belgrade, Serbia) reportannual financial 2016 21 Skyline Belgrade is AFI’s newest project in this fastly developing city, joining the company’s two other projects in Belgrade, Airport City and Central Garden.
The project is situated at the location of the ruins of the former Ministry of Interior, damaged during NATO’s bombing of Serbia in 1999.
AFI Skyline Belgrade will be a mixed-use project, consisting of three towers with high-end residential units alongside offices and retail.
Construction is expected to begin by the end of 2017.
NSA 25,500 m2
Office GLA 21,320 m2
Retail GLA 7,200 m2 Highlighted projects
AFI Park
(Krakow, Poland) reportannual financial 2016 22 AFI Park is a premium office complex in Krakow, with a total GLA of 24,700 m2. The project consists of a class A office building developed in two stages, and will be built to the highest international standards.
GLA 24,700 m2
Expected completion 2018 Under Development Income generating properties
Butterfly (Prague, Czech Republic)
The construction of this project in Karlin, resulting in GLA of approximately 20,528 m2, is underway and is expected to be completed in the fourth quarter of 2017. annual financial reportannual financial 2016
23
Osiedle Europejskie (Krakow, Poland)
On top of the 24 apartment buildings already completed in this project, one is currently under construction and six more are planned. Total number of apartments sold by the end of 2016 is 1,923, of which 1895 have already been delivered. Upon completion, the project will consist of 2,363 in total. Under Development Income generating properties
Tulipa Třebešín, (Prague, Czech Republic)
The first phase of the project, expected to be completed in March 2017, includes 183 apartments, of which 182 have already been sold.
The second phase in this project will comprise 255 additional units, of which 125 have already reportannual financial 2016 been sold (49%). The work on this phase started in the third quarter of 2016 and is expected to complete in 2018. 24
Central Garden (Belgrade, Serbia)
The first and second phases of this project were completed in 2015 and 2016, with the delivery of 169 residential units. The construction of the third phase is currently underway, with 129 additional units being built, of which 101 have been sold, and with an office building of 15,0002 m and 400 parking places. Under Development Residential projects
AFI Brasov (Brasov, Romania)
AFI Brasov is a mixed-use project under development in the city center of Brasov, featuring a shopping mall with GLA of 45,000 m2, and a Class A office complex with GLA of 25,0002 m . The construction commenced in 2016 and the delivery of the first office building is expected to occur reportannual financial 2016 in the fourth quarter of 2018. 25
AFI Tech Park (Bucharest, Romania)
An office project in Bucharest, where the first phase is presently under construction with GLA of 21,924 m2. The entire project will have GLA of 50,000 m2. The excavation and piling works started in the third quarter of 2016. Under Development Residential projects
AFI City (Prague)
The construction of the first phase in residential project started in the thrid quarter of 2016 and is expected to complete in he first quarter of 2018. Out of the 257 apartments presently being built, 229 have already been sold (89%). reportannual financial 2016 26
AFI Vokovice (Prague)
Two office buildings with GLA of 13,985 m², including retail and gastro units on the ground level, and 285 underground parking spaces. The project is under construction and its completion is planned for the third quarter of 2018. AFI Europe N.V. Consolidated financial statements as at and for the year ended 31 December 2016
For the purpose of inclusion in the financial statements of Africa Israel Properties Ltd. Contents
29 Consolidated financial statements reportannual financial 2016 28 30 Consolidated statement of financial position
31 Consolidated income statement
32 Consolidated statement of comprehensive income
33 Consolidated statement of changes in shareholders’ equity
34 Consolidated statement of cash flows
35 Notes to the consolidated financial statements
83 Auditors’ report Consolidated financial statements Consolidated financial statements
Consolidated statement of financial position
31 December2016 31 December 2015 Note €’000 €’000
Assets reportannual financial 2016 Investment in (and loans to) equity accounted investees 6 17,749 16,151 Investment property 7 813,287 935,326 30 Investment property under development 8 106,860 120,203 Inventory 10 206,164 189,007 Property, plant and equipment 1,631 2,126 Deferred tax assets 9 2,250 3,269 Goodwill 1,455 1,455 Trade and other receivables 2,000 1,327 Total non-current assets 1,151,396 1,268,864 Property held for sale 4G,I 296,791 12,224 Inventory 10 54,146 30,449 Trade and other receivables 11 47,184 34,318 Cash and cash equivalents 12 37,117 36,706 Total current assets 435,238 113,697 Total assets 1,586,634 1,382,561
Equity 13 Issued capital 930 930 Share premium reserve 411,797 411,797 Translation reserve (7,392) (6,695) Hedging reserve, net (2,961) (2,615) Retained earnings (losses) 100,355 23,484 Total equity attributable to equity holders of the parent 502,729 426,901 Non-controlling interest 50,051 40,697 Total equity 552,780 467,598
Liabilities Interest-bearing loans and borrowings 15 394,128 500,266 Interest-bearing loans and borrowings from related parties 15 271,486 197,603 Deferred tax liabilities 9 111,780 77,305 Other non-current liabilities 16 8,343 7,908 Total non-current liabilities 785,737 783,082 Interest-bearing loans and borrowings 15 184,800 85,204 Interest-bearing loans and borrowings from related parties 15 780 6,303 Trade and other payables 17 51,829 36,614 Advances for selling inventory 10,708 3,760 Total current liabilities 248,117 131,881 Total liabilities 1,033,854 914,963 Total equity and liabilities 1,586,634 1,382,561
The financial statements were approved and authorised for issue by the Board of Directors on 13 March 2017 and were duly signed on the Board’s behalf by A. Barzilay, CEO and A. Goldstein, CFO.
The accompanying notes are an integral part of these consolidated financial statements Consolidated financial statements
Consolidated income statement for the year ended 31 December
Note 2016 2015 (*) 2014 (*) €’000 €’000 €’000 reportannual financial 2016 Gross rental income 20 62,795 56,993 58,711 31 Service charge income 21,165 19,211 18,517
Service charge expenses (19,364) (18,840) (18,487)
Property operating expenses 21 (1,362) (1,216) (1,534) Net rental and related income 63,234 56,148 57,207
Proceeds from sale of properties 10,757 7,732 30,374
Carrying value of properties sold 10 (8,183) (6,695) (28,485)
Write-down of inventory to net realizable value 10 - (5,973) (2,623) Loss on disposal of trading property 2,574 (4,936) (734)
Net valuation gain on investment properties 7 63,799 42,587 28,037
Net valuation gain (loss) on investment properties under development 8 4,590 (273) 1,536
Administrative expenses 22 (8,155) (7,438) (7,343)
Selling and marketing expenses (2,448) (1,830) (1,732)
Other income 23 676 1,568 2,374
Other expenses 23 (3,052) (3,382) (7,004) Net other income (expense) 23 (2,376) (1,814) (4,630) Net operating profit before net financing costs 121,218 82,444 72,341
Financial income 690 628 36,665
Interest expenses to Africa Properties (3,040) (3,091) (4,343)
Financial expenses (29,151) (29,704) (30,609) Net financing costs 24 (31,501) (32,167) 1,713 Profit before tax 89,717 50,277 74,054
Income tax expense 25 (19,683) (11,616) (9,699) profit from continuing operations 70,034 38,661 64,355
Shares of Profit (loss) of equity accounted investees 1,065 (6) (986) Profit from continuing operations 71,099 38,655 63,369
Profit from discontinued operation 28 15,132 8,290 2,028 Profit for the year 86,231 46,945 65,397 Attributable to: Equity holders of the parent 76,871 42,918 62,014
Non- controlling interest 9,360 4,027 3,383 Profit for the year 86,231 46,945 65,397 Basic earnings per share (Euro) 14 0.83 0.46 0.67
Basic Earnings per share (Euro) from continuing operations 0.67 0.37 0.65
Basic Earnings per share (Euro) from discontinued operation 0.16 0.09 0.02
* Reclassified – for further details see note 28- discontinued operation
The accompanying notes are an integral part of these consolidated financial statements Consolidated financial statements
Consolidated statement of comprehensive income for the year ended 31 December
2016 2015 2014 €’000 €’000 €’000 reportannual financial 2016 Foreign exchange translation differences from foreign operations (697) 1,212 (1,024) 32 Net realization of translation reserves transferred to profit or loss - 89 -
Net realization of hedging reserves transferred to profit or loss 291 - 2,037
Reserves from hedge accounting (643) 1,057 (2,033)
Net gain (loss) recognized directly in equity (1,049) 2,358 (1,020)
Profit for the year 86,231 46,945 65,397
Total recognized income for the year 85,182 49,303 64,377
Attributed to:
Equity holders of the parent 75,828 45,077 60,625
Non-controlling interest 9,354 4,226 3,752
Total comprehensive income for the year 85,182 49,303 64,377
The accompanying notes are an integral part of these consolidated financial statements Consolidated financial statements
Consolidated statement of changes in shareholders' equity for the year ended 31 December 2016, 2015 and 2014
Capital reserve Equity
Share from transactions attributable to Non- reportannual financial 2016 Issued premium Translation Hedging with non- Retained equity holders controlling Total capital reserve reserve reserve controlling interest earnings of the parent interest equity €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 33 Balance at January 1, 2014 (Audited) 930 411,797 (6,964) (3,116) (1,708) (79,915) 321,024 33,832 354,856
Share-based payments - - - - - 38 38 - 38
Acquisition of non-controlling interests - - - - 120 - 120 (1,113) (993) Realization of hedging reserve from disposal of subsidiary - - - 2,037 - - 2,037 - 2,037
Adjustments for translation - - (1,032) 8 - - (1,024) - (1,024)
Reserve from hedge accounting - - - (2,402) - - (2,402) 369 (2,033)
Net profit for the year - - - - - 62,014 62,014 3,383 65,397
Balance at December 31, 2014 (Audited) 930 411,797 (7,996) (3,473) (1,588) (17,863) 381,807 36,471 418,278
Balance at January 1, 2015 (Audited) 930 411,797 (7,996) (3,473) (1,588) (17,863) 381,807 36,471 418,278
Share-based payments - - - - - 17 17 - 17 Realization of translation reserve from disposal of associate company - - 89 - - - 89 - 89
Adjustments for translation - - 1,212 - - - 1,212 - 1,212
Reserve from hedge accounting - - - 858 - - 858 199 1,057
Net profit for the year - - - - - 42,918 42,918 4,027 46,945
Balance at December 31, 2015 (Audited) 930 411,797 (6,695) (2,615) (1,588) 25,072 426,901 40,697 467,598
Balance at January 1, 2016 (Audited) 930 411,797 (6,695) (2,615) (1,588) 25,072 426,901 40,697 467,598
Adjustments for translation - - (697) - - - (697) (697)
Reserve from hedge accounting - - - (637) - - (637) (6) (643) Net realization of hedging reserves transferred to profit or loss - - - 291 - - 291 - 291 Net profit for the year - - - - - 76,871 76,871 9,360 86,231
Balance at December 31, 2016 (Audited) 930 411,797 (7,392) (2,961) (1,588) 101,943 502,729 50,051 552,780
As at December 31, 2016, the authorized, issued and paid-up share capital of the Company comprises 93,000,000 ordinary shares of Euro 0.01 each. See also Note 13(b) for additional information regarding authorized, issued and paid-up share capital of the Company. The accompanying notes are an integral part of these consolidated financial statements. Consolidated financial statements
Consolidated statement of cash flows
For the year ended 31 December 2016 2015 2014 €’000 €’000 €’000 annual financial reportannual financial 2016 Cash flows from operating activities Profit for the year 86,231 46,945 65,397 34 Adjustment for: Depreciation 505 554 500 Loss from disposable of subsidiary, net - - (766) Loss (gain) from equity accounted investees (1,065) 6 986 Write-down of inventory to net realized value - 5,973 2,623 Loss on remeasurement to fair value of equity rights in acquire that were held before control was obtained - 67 - Gains on sale of land - - (14) Change in fair value of investment property under development (4,590) 273 (1,536) Change in fair value of investment property (103,515) (51,624) (32,606) Share-based payment transactions - 17 38 Net finance costs 37,353 35,870 4,639 Income tax expense 36,936 12,949 10,445 51,855 51,030 49,706 Decrease (increase) in Inventories (36,922) (8,158) 24,804 Decrease/(increase) in trade and other receivables 520 (2,033) 452 Increase/(decrease) in trade and other payables 8,630 5,977 (2,335) Increase (decrease) in advance from selling inventory 6,984 3,506 (355) 31,067 50,322 72,272 Income taxes paid (349) (80) (609) Cash flows from operating activities 30,718 50,242 71,663 Cash flows from investing activities Grant of loan to equity accounted investees (151) (2,327) (3,169) Proceeds from sale of shares of subsidiaries - 461 25,850 Proceeds from sale of equity accounted investees - - 1,948 Proceeds from sale of assets 21,599 9,589 16,896 Acquisition of subsidiary, net of cash acquired - 55 - Investments in deposit,net (14,196) 1,796 (6,356) Acquisition of property, plant and equipment (414) (263) (1,135) Investment in investment property (13,926) (8,169) (12,485) Investment of investment property under development (45,271) (45,440) (26,014) Cash flows from investing activities (52,359) (44,298) (4,465) Cash flows from financing activities Acquisition of non-controlling interests - - (993) Repayment of borrowings (58,502) (60,319) (381,533) Proceeds of non-current borrowings 99,924 95,717 386,314 Repayment of current borrowings, net 12,124 2,331 (28,163) Payment of finance lease liabilities (1,000) (1,014) (1,058) Interest paid (30,409) (29,458) (33,250) Cash flows from financing activities 22,137 7,257 (58,683) Cash and cash equivalents Net increase in cash and cash equivalents 496 13,201 8,515 Cash and cash equivalents at 1 January 36,706 23,459 14,989 Effect of exchange rate fluctuations on cash held (85) 46 (45) Cash and cash equivalents at December 31 37,117 36,706 23,459
The accompanying notes are an integral part of these consolidated financial statements Notes to the consolidated financial statements Notes to the consolidated financial statements Note 1 / Note 2
Note 1 - General
AFI Europe N.V. (hereinafter – “the Company”) was incorporated on April 4, 2006. By a resolution dated April 18, 2006, the Shareholder of the Company resolved to change the form of the Company to a Dutch public limited liability company (Naamloze Vennootschap) and to change its name reportannual financial 2016 from AIIP Fin B.V. into AFI Europe N.V. The Company is domiciled in Amsterdam, the Netherlands. As from incorporation in 2006, the Company was a wholly-owned subsidiary of Africa Israel 36 International Properties (2002) Ltd. (hereinafter – “AIIP 2002”) a company registered in Israel, wholly owned by Africa Israel Properties Ltd. (hereinafter – “Africa Properties”), an Israeli company listed on the Tel Aviv Stock Exchange, which is approximately 56% owned by Africa Israel Investments Ltd (hereinafter – “Africa Israel Investments”), the ultimate parent of the Company. The Company is a real estate development and investment company operating in Central and Eastern Europe mainly on the development of commercial and residential projects. Over the past few years, Africa Properties provided the Company with shareholder loans, the aggregate outstanding amount of which, effective as of December 31, 2016, is approximately EUR 271 million (December 31, 2015- EUR 197 million). Note 2 - Basis of Preparation
A. Statement of compliance
The consolidated financial statements have been prepared for the purpose of inclusion in the consolidated financial statements of Africa Properties, in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”). The consolidated financial statements of the Company for the year ended December 31, 2016 comprise the Company and its subsidiaries (together referred to as the “Group”) and the group interest in associates and joint arrangements. The consolidated financial statements were authorized for issue by the company’s Board of Directors on March 13, 2017. These IFRS consolidated financial statements are not the statutory financials of the Company. The Company has to file financial statements under Dutch Law for the fiscal year ended December 31, 2016 with the Chamber of Commerce of Amsterdam.
B. Functional and presentation currency
The consolidated financial statements are presented in Euros, which is the Company’s functional currency, and have been rounded to the nearest thousands, except when otherwise indicated. The Euro is the currency that represents the principal economic environment in which the Company operates. Each entity of the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Notes to the consolidated financial statements Note 2
C. Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for the following assets and liabilities:
• investment property and investment property under development measured at fair value; reportannual financial 2016 • inventory measured at the lower of cost or net realizable value; • deferred tax assets and liabilities; 37 • financial instruments and derivatives measured at fair value through profit or loss; Investments in associates and joint ventures. For further information regarding the measurement of these assets and liabilities see Note 3 regarding significant accounting policies. The accounting policies have been consistently applied to the results, income and expenses, assets, liabilities and cash flows of entities included in the consolidated financial statements and are consistent with those used in the previous years.
D. Operating cycle
The Company has two operating cycles. With regards for the entrepreneurial residential sector, the operating cycle of the Company is longer than one year and lasts up to three years. With regards for the Company’s other operations, the operating cycle is one year. As a result, current assets and current liabilities include also items the realization of which is intended and anticipated to take place within the operating cycle of up to three years.
E. Use of estimates and judgments
Use of estimates The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The preparation of accounting estimates used in the preparation of the group’s financial statements requires management of the Company to make assumptions regarding circumstances and events that involve considerable uncertainty. Management of the Company prepares the estimates on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Notes to the consolidated financial statements Note 2
Information about assumptions made by the Group with respect to the future and other reasons for uncertainty with respect to estimates that have a significant risk of resulting in a material adjustment to carrying amounts of assets and liabilities in the next financial year are included in the following notes:
Estimate Principal assumptions Possible effects Reference annual financial reportannual financial 2016
Recognition of deferred tax asset in The probability that in the future there Recognition or reversal of deferred tax For information on losses for which a respect of tax losses will be taxable profits against which asset in profit or loss deferred tax asset was recognized, see carried forward losses can be utilized Note 9 regarding taxes on income. 38
Assessment of probability of Whether it is more likely than not that Reversal or creation of a provision for a For information on the Company’s contingent liabilities an outflow of economic resources will claim exposure to claims see Note 19 be required in respect of legal claims regarding contingent liabilities pending against the Company and its investees
Fair value measurement of investment The expected yield on the investment Profit or loss from a change in the fair For information on the effect of property and investment property property asset value of investment property and changes in the expected yields on the under development investment property under fair value of investment property see construction Note 7 and 8 regarding investment property and investment property under development
Fair value measurement of Unobservable inputs used in the Profit or loss from a change in the fair For information on a sensitivity non-trading derivatives valuation model such as discount rates value of derivative financial analysis of level 3 financial instruments instruments carried at fair value see Note 18 regarding financial instruments
Impairment testing of inventory of The estimated net realizable value of Recognition or reversal of an For information on impairment that land and inventory of residential balances of non-current inventory of impairment loss was recognized see Note 10 regarding apartments land and inventory of residential inventory of land and residential apartments. The net realizable value of apartments residential apartments is based on the project’s estimated revenues and expected costs. The net realizable value of land is based on a valuation prepared using the comparison technique
Determination of fair value Preparation of the financial statements requires the Group to determine the fair value of certain assets and liabilities. Further information about the assumptions that were used to determine fair value is included in the following notes: • Note 7 on investment property • Note 8 on investment property under development • Note 18 on financial instruments When determining the fair value of an asset or liability, the Group uses observable market data as much as possible. There are three levels of fair value measurements in the fair value hierarchy that are based on the data used in the measurement, as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly • Level 3: inputs that are not based on observable market data (unobservable inputs). Notes to the consolidated financial statements Note 3
Note 3 – Significant Accounting Policies
A. Basis of consolidation annual financial reportannual financial 2016 1. Business combinations The Company implements the acquisition method to all business combinations. The acquisition 39 date is the date on which the acquirer obtains control over the acquiree. Control exists when the Company is exposed, or has rights, to variable returns from its involvement with the acquiree and it has the ability to affect those returns through its power over the acquiree. Substantive rights held by the Group and others are taken into account when assessing control. The Company exercises discretion in determining the acquisition date and whether control has been obtained. The Group recognizes goodwill on acquisition according to the fair value of the consideration transferred including any amounts recognized in respect of rights that do not confer control in the acquiree as well as the fair value at the acquisition date of any pre-existing equity right of the Group in the acquiree, less the net amount of the identifiable assets acquired and the liabilities assumed. The consideration transferred includes the fair value of the assets transferred to the previous owners of the acquiree, the liabilities incurred by the acquirer to the previous owners of the acquiree and equity instruments that were issued by the Group. In a step acquisition, the difference between the acquisition date fair value of the Group’s pre-existing equity rights in the acquiree and the carrying amount at that date is recognized in profit or loss under other income or expenses. In addition, the consideration transferred includes the fair value of any contingent consideration. After the acquisition date, the Group recognizes changes in fair value of the contingent consideration classified as a financial liability in profit or loss. If a business combination settles a pre-existing relationship between the acquirer and the acquiree, the Group deducts/adds to the consideration transferred in the business combination the lower of any stated settlement provisions in the contract and the amount by which the contract is favorable or unfavorable for the acquirer, as compared to the terms of current market transactions in identical or similar items, and it recognizes this amount in profit or loss under other income or expenses. Costs associated with the acquisition that were incurred by the acquirer in the business combination such as: finder’s fees, advisory, legal, valuation and other professional fees or consulting fees, other than those associated with an issue of debt or equity instruments connected to the business combination, are expensed in the period the services are received. 2. Subsidiaries Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control is lost. The accounting policies of subsidiaries will be changed when necessary to align them with the policies adopted by the Group. 3. Non-controlling interests Non-controlling interests comprise the equity of a subsidiary that cannot be attributed, directly or indirectly, to the parent company and they include additional components such as: the equity component of convertible debentures of subsidiaries, share-based payments that will be settled with equity instruments of subsidiaries and share options of subsidiaries. Notes to the consolidated financial statements Note 3
Measurement of non-controlling interests on the date of the business combination Non-controlling interests that are instruments that give rise to a present ownership interest and entitle the holder to a share of net assets in the event of liquidation (for example: ordinary shares), are measured at the date of the business combination at either fair value, or at their proportionate
interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction reportannual financial 2016 basis. This accounting policy choice does not apply to other instruments that meet the definition of non-controlling interests (for example: options to ordinary shares). Such instruments will be measured at fair value or in accordance with other relevant IFRS. 40
Allocation of profit or loss and other comprehensive income to the shareholders Profit or loss and any part of other comprehensive income are allocated to the owners of the Company and the non-controlling interests. Total profit or loss and other comprehensive income is allocated to the owners of the Company and the non-controlling interests even if the result is a negative balance of non-controlling interests.
Transactions with non-controlling interests, while retaining control Transactions with non-controlling interests, while retaining control, are accounted for as equity transactions. Any difference between the consideration paid or received and the change in non-controlling interests is included in the owners’ share in equity of the Company directly in a separate capital fund. The amount of the adjustment to non-controlling interests is calculated as follows: For an increase in the holding rate; according to the proportionate share acquired from the balance of non-controlling interests in the consolidated financial statements prior to the transaction. For a decrease in the holding rate; according to the proportionate share realized by the owners of the subsidiary in the net assets of the subsidiary, including goodwill. Furthermore, when the holding rate of the subsidiary changes, while retaining control, the Company re-attributes the accumulated amounts that were recognized in other comprehensive income to the owners of the Company and the non-controlling interests. 4. Loss of control Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. The difference between the sum of the proceeds and fair value of the retained interest, and the derecognized balances is recognized in profit or loss under other income or other expenses. Subsequently the retained interest is accounted for as an equity- accounted investee or as an available-for-sale asset depending on the level of influence retained by the Group in the relevant company. The amounts recognized in capital reserves through other comprehensive income with respect to the same subsidiary are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the subsidiary had itself realized the same assets or liabilities. 5. Investment in associates and joint ventures (equity accounted investees) Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% share in another entity. In assessing significant influence, potential voting rights that are currently exercisable or convertible into shares of the investee are taken into account. Joint ventures are joint arrangements in which the Group has rights to the net assets of the arrangement. Notes to the consolidated financial statements Note 3
Associates and joint ventures are accounted for using the equity method (equity accounted investees) and are recognized initially at cost. The cost of the investment includes transaction costs. When a company first obtains significant influence or joint control in an investment that was accounted for as an available-for-sale financial asset until the date of obtaining significant influence or joint control, accumulated other comprehensive income in respect of that investment is transferred at that date to profit or loss. The consolidated financial statements include the reportannual financial 2016 Group’s share of the income and expenses in profit or loss and of other comprehensive income of equity accounted investees, after adjustments to align the accounting policies with those of 41 the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term interests that form part thereof, is reduced to zero. When the Group’s share of long-term interests that form a part of the investment in the investee is different from its share in the investee’s equity, the Group continues to recognize its share of the investee’s losses, after the equity investment was reduced to zero, according to its economic interest in the long-term interests, after the aforesaid interests were reduced to zero. The recognition of further losses is discontinued except to the extent that the Group has an obligation to support the investee or has made payments on behalf of the investee. 6. Loss of significant influence or joint control The Group discontinues applying the equity method from the date it loses significant influence in an associate or joint control in a joint venture and it accounts for the retained investment as a financial asset, or subsidiary, as relevant. On the date of losing significant influence or joint control, the Group measures at fair value any retained interest it has in the former associate or joint venture. The Company recognizes in profit or loss under other income or expenses any difference between the sum of the fair value of the retained interest and any proceeds received from the partial disposal of the investment in the associate or joint venture, and the carrying amount of the investment on that date. The amounts recognized in equity through other comprehensive income with respect to the same associate or joint venture are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the associate or joint venture had itself realized the same assets or liabilities. 7. Transactions eliminated on consolidation Intra-group balances and any unrealized gains and losses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with associates and joint ventures are eliminated to the extent of the Group’s interest in the entity. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. 8. Property company Upon the acquisition of a property company, the Group exercises discretion when examining whether the transaction constitutes acquisition of a business or acquisition of an asset, for the purpose of determining the accounting treatment of the transaction. When examining whether a property company constitutes a business, the Group examines, inter alia, the nature of the processes in place in the property company, including the extent and nature of the management, security, cleaning and maintenance services that are provided to the tenants. Transactions in which the acquired company is a business are accounted for as a business combination as described above. Conversely, transactions in which the acquired company is not a business are accounted for as the acquisition of a group of assets and liabilities. In such transactions, the cost of acquisition, which includes transaction costs, is allocated proportionately to the acquired identifiable assets and liabilities, based on their proportionate fair value on the acquisition date. In the latter case, no goodwill is recognized and no deferred taxes are recognized in respect of the temporary differences existing on the acquisition date. Notes to the consolidated financial statements Note 3
B. Foreign currency
1. Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of
Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities reportannual financial 2016 denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the 42 difference between amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at the end of the year. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on translation are generally recognized in profit or loss, except for the differences, which are recognized in other comprehensive income, arising on the translation of a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective 2. Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Euros at foreign exchange rates ruling at the reporting date. The income and expenses of foreign operations are translated to Euros at rates approximating the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on translation are recognized in equity in the foreign currency translation reserve (hereinafter – “translation reserve”). When the operation is a non-wholly-owned subsidiary of the company, then the relevant proportionate share of the foreign operation translation difference is allocated to the Non- controlling interests. When a foreign operation is disposed of and control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. Furthermore, when the Group’s interest in a subsidiary that includes a foreign operation changes, while retaining control in the subsidiary, a proportionate part of the cumulative amount of the translation difference that was recognized in other comprehensive income is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation, while retaining significant influence or joint control, the proportionate part of the cumulative amount of the translation difference is reclassified to profit or loss. Generally, foreign currency differences from a monetary item receivable from or payable to a foreign operation, including foreign operations that are subsidiaries, are recognized in profit or loss in the consolidated financial statements. Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognized in other comprehensive income, and are presented within equity in the translation reserve. Notes to the consolidated financial statements Note 3
C. Investment property
Investment property comprise properties which are held either to earn rental income or for capital appreciation or both.
Investment property is initially measured at cost including capitalized borrowing costs. Cost reportannual financial 2016 includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self-constructed investment property includes the cost of materials and direct labor, and 43 any other costs directly attributable to bringing the investment property to a working condition for their intended use. In subsequent periods the investment property is measured at fair value with any changes therein recognized in profit or loss. Investment property under construction is measured at fair value when its fair value can be reliably determined. Borrowing costs are capitalized to investment property under construction measured at fair value. Any gain or loss on disposal of an investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item at the last financial reporting date) is recognized in profit or loss under other income or other expenses, as relevant. Any gain or loss arising from a change in fair value is recognized in the income statement. Rental income from investment property is accounted for as described in accounting policy L. Where the Group begins to redevelop an existing investment property for continued future use as investment property, the property remains an investment property, which is measured based on the fair value model, and is not reclassified as property, plant and equipment during the redevelopment. A property interest under operating lease is classified and accounted for as an investment property on a property-by-property basis when the Group holds it to earn rentals or for capital appreciation or both. Any such property interest under operating lease classified as an investment property is measured at fair value. Where the Group uses part of owned property and retains the remainder to generate rental income or capital appreciation, the extent of the Group’s utilization is considered to determine the classification of the property. If the Group’s utilization is not substantial, this is regarded as immaterial such that the whole property is classified as an investment property and stated at fair value. If the Group uses substantial space, the whole property is classified as property, plant and equipment and recorded at cost less accumulated depreciation and impairment losses.
D. Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation (see below) and accumulated impairment losses (see accounting policy H). Depreciation is recognized in profit and loss on a straight-line basis over the estimated useful lives of each part of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Freehold land is not depreciated. The estimated useful lives are as follows: • Equipment and computers 3-7 years • Motor vehicles 7 years Leasehold improvements are depreciated over the life period of the lease which does not exceed the economic useful life of the asset. Depreciation methods, useful lives and residual values are reviewed at the end of each reporting year and adjusted if appropriate. Notes to the consolidated financial statements Note 3
E. Financial instruments
1. Non-derivative financial assets Initial recognition of financial assets annual financial reportannual financial 2016 The Group initially recognizes loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognized initially on the trade date, which is the date that the Group becomes a party 44 to the contractual provisions of the instrument, meaning on the date the Group undertook to purchase or sell the asset. Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, including service concession receivables and cash and cash equivalents.
Derecognition of financial assets The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.
Classification of financial assets into categories and the accounting treatment of each category The Group classifies non-derivative financial assets into the following categories:
Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. Loans and receivables comprise cash and cash equivalents, trade and other receivables, non- current other receivables and loans to equity accounted investees. Cash and cash equivalents include cash balances available for immediate use and call deposits. Cash equivalents include short-term highly liquid investments (with original maturities of three months or less) that are readily convertible into known amounts of cash and are exposed to insignificant risks of change in value. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Accounting for finance income and expenses is discussed in accounting policy M. 2. Non-derivative financial liabilities Non-derivative financial liabilities include bank overdrafts, loans and borrowings from banks and others, finance lease liabilities and trade and other payables.
Initial recognition of financial liabilities The Group initially recognizes debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognized initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. Financial liabilities (other than financial liabilities at fair value through profit or loss) are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method. Transaction costs directly attributable to an expected issuance of an instrument that will be classified as a financial liability are recognized as an asset in the framework of deferred expenses in the statement of financial position. These transaction costs are deducted from the financial liability upon its initial recognition, or are amortized as financing expenses in the statement of income when the issuance is no longer expected to occur. Notes to the consolidated financial statements Note 3
De-recognition of financial liabilities The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.
Change in terms of debt instruments annual financial reportannual financial 2016 An exchange of debt instruments having substantially different terms, between an existing borrower and lender is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability at fair value. Furthermore, a substantial modification 45 of the terms of the existing financial liability or part of it, is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. In such cases the entire difference between the amortized cost of the original financial liability and the fair value of the new financial liability is recognized in profit or loss as financing income or expense. The terms are substantially different if the discounted present value of the cash flows according to the new terms, including any commissions paid, less any commissions received and discounted using the original effective interest rate, is different by at least ten percent from the discounted present value of the remaining cash flows of the original financial liability.
Offset of financial instruments Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. 3. Derivative financial instruments, including hedge accounting The Group holds both derivative financial instruments to hedge its interest rate risk exposures and derivatives that do not serve hedging purposes.
Hedge accounting On initial designation of the derivative as the hedging instrument, the Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of 80 and 125 percent. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss.
Measurement of derivative financial instruments Derivatives are recognized initially at fair value. Attributable transaction costs are recognized in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.
Cash flow hedges Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognized through other comprehensive income directly in a hedging reserve, to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in profit or loss. The amount recognized in the hedging reserve is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same line item in the statement of income as the hedged item. Notes to the consolidated financial statements Note 3
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in equity remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognized in equity is transferred to the carrying amount of the asset when it is recognized. In other cases the amount recognized in equity is transferred to profit or loss in the same period that the hedged item affects profit or loss. reportannual financial 2016 Economic hedges 46 Hedge accounting is not applied to derivative instruments that economically hedge financial assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognized in profit or loss as part of foreign currency gains and losses. 4. Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares and share options are recognized as a deduction from equity, net of any tax effects. Incremental costs directly attributable to an expected issuance of an instrument that will be classified as an equity instrument are recognized as an asset in deferred expenses in the statement of financial position. The costs are deducted from the equity upon the initial recognition of the equity instruments, or are amortized as financing expenses in the statement of income when the issuance is no longer expected to take place.
F. Intangible assets
Goodwill Goodwill that arises upon the acquisition of subsidiaries is presented as part of intangible assets. For information on measurement of goodwill at initial recognition, see policy A. In subsequent periods goodwill is measured at cost less accumulated impairment losses.
G. Inventory
Inventory consists of inventory of land and inventory of buildings. 1. Inventory of land Inventory of land is measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. 2. Inventory of building Inventory of buildings includes residential property intended for sale in the ordinary course of business or in the process of construction or development for such sale. Inventory of buildings is measured at the lower of cost and net realizable value. The cost of self-constructed inventory includes the cost of materials, direct labor, and an appropriate portion of production overheads. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the inventory are in progress and expenditures and borrowing costs are being incurred. Capitalization of borrowing costs continues until the inventory is substantially ready for their intended use. The capitalization rate is determined by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of the development cost financed out of general funds, to the average rate. Notes to the consolidated financial statements Note 3
When inventory becomes investment property measured at fair value, any difference between the fair value of the property on that date and its previous carrying value is included directly in profit or loss.
H. Impairment reportannual financial 2016
1. Non-derivative financial assets 47 A financial asset not carried at fair value through profit or loss is tested for impairment when objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets are impaired can include: • default by a debtor; • restructuring of an amount due to the Group on terms that the Group would not consider otherwise; • indications that a debtor or issuer will enter bankruptcy; • adverse changes in the payment status of borrowers; • changes in the economic environment that correlate with insolvency of issuers or the disappearance of an active market for a security; • observable data indicating a measurable decrease in the cash flow expected from a group of financial assets. Evidence of impairment of debt instruments The Group considers evidence of impairment for loans, trade receivables, other receivables and held-to-maturity investments at both a specific asset and collective level. All individually significant trade receivables, loans and receivables are assessed for specific impairment. All individually significant trade receivables, loans and receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Trade receivables, loans and receivables that are not individually significant are collectively assessed for impairment by grouping together loans and receivables with similar risk characteristics. In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.
Reversal of impairment loss An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized (such as repayment by the debtor). 2. Non-financial assets Timing of impairment testing The carrying amounts of the Group’s non- financial assets, other than investment property (see accounting policy C) and deferred tax assets (see accounting policy N), are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Once a year and on the same date, or more frequently if there are indications of impairment, the Group estimates the recoverable amount of each cash generating unit that contains goodwill, or intangible assets that have indefinite useful lives or are unavailable for use.
Determining cash-generating units For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). Notes to the consolidated financial statements Note 3
Measurement of recoverable amount The recoverable amount of an asset or cash generating unit is the greater of its value in use and its net selling price (fair value less costs of disposal). In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the
assessments of market participants regarding the time value of money and the risks specific to reportannual financial 2016 the asset or cash generating unit, for which the estimated future cash flows from the asset or cash generating unit were not adjusted. 48 Allocation of goodwill to cash generating units Subject to an operating segment ceiling test (before the aggregation of similar segments), for the purposes of goodwill impairment testing, cash-generating units to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. When goodwill is not monitored for internal reporting purposes, it is allocated to operating segments (before the aggregation of similar segments) and not to a cash-generating unit (or group of cash-generating units) lower in level than an operating segment. Goodwill acquired in a business combination is allocated to groups of cash-generating units that are expected to benefit from the synergies of the combination. For purposes of goodwill impairment testing, the carrying amount of the goodwill is adjusted according to the rate the Company holds in the cash-generating unit to which the goodwill is allocated.
The Company’s corporate assets The Group’s corporate assets do not generate separate cash inflows and are utilized by more than one cash-generating unit. Certain corporate assets are allocated to cash-generating units on a reasonable and consistent basis and tested for impairment as part of testing of the cash- generating units to which the corporate assets are allocated.
Recognition of impairment loss An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. As regards cash-generating units that include goodwill, an impairment loss is recognized when the carrying amount of the cash-generating unit, after adjustment for goodwill, exceeds its recoverable amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the cash-generating unit on a pro rata basis. An impairment loss is allocated between the owners of the Company and the Non-controlling interests on the same basis that the profit or loss is allocated. Nevertheless, if an impairment loss allocated to Non-controlling interests relates to goodwill that was not recognized in the consolidated financial statements, the said impairment is not recognized as an impairment loss on goodwill. In such cases, only an impairment loss relating to goodwill that was allocated to the owners of the Company is recognized as an impairment loss on goodwill.
Reversal of impairment loss An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Notes to the consolidated financial statements Note 3
3. Investments in associates and joint ventures An investment in an associate company and joint venture is tested for impairment when objective evidence indicates there has been impairment (as described in Paragraph (1) above). Goodwill that forms part of the carrying amount of an investment in an associate is not recognized separately, and therefore is not tested for impairment separately. reportannual financial 2016 If objective evidence indicates that the value of the investment may have been impaired, the Group estimates the recoverable amount of the investment, which is the greater of its value in 49 use and its net selling price. In assessing value in use of an investment in an associate company or joint venture, the Group estimates its share of the present value of estimated future cash flows that are expected to be generated by the an associate company or joint venture, including cash flows from operations of the associate company or joint venture and the consideration from the final disposal of the investment, or the present value of the estimated future cash flows that are expected to be derived from dividends that will be received and from the final disposal. An impairment loss is recognized when the carrying amount of the investment, after applying the equity method, exceeds its recoverable amount, and it is recognized in profit or loss. An impairment loss is not allocated to any asset, including goodwill that forms part of the carrying amount of the investment in the associate company or in the joint venture. An impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of the investment after the impairment loss was recognized, and only to the extent that the investment’s carrying amount, after the reversal of the impairment loss, does not exceed the carrying amount of the investment that would have been determined by the equity method if no impairment loss had been recognized.
I. Non-current assets and disposal groups held for sale
Non-current assets (or groups of assets and liabilities for disposal) are classified as held for sale if it is highly probable that they will be recovered primarily through a sale transaction or a distribution to the owners and not through continuing use. This applies also to when the Company is obligated to a sale plan that involves losing control over a subsidiary, whether or not the Company will retain any non-controlling interests in the subsidiary after the sale. Immediately before classification as held for sale, the assets (or components of a disposal group) are remeasured in accordance with the Group’s accounting policies. Thereafter, generally, the assets (or disposal group) are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group is initially allocated to goodwill, and then to remaining assets and liabilities on pro rata basis, except that no loss is allocated to assets not in the scope of the measurement requirements of IFRS 5 such as: inventories, financial assets, deferred tax assets, and investment property measured at fair value, which continue to be measured in accordance with the Group’s accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss. In subsequent periods, depreciable assets classified as held for sale are not periodically depreciated, and investments in associates classified as held for sale are not accounted for by the equity method.
J. Capitalization of borrowing costs
Specific and non-specific borrowing costs were capitalized to qualifying assets throughout the period required for completion and construction until they are ready for their intended use. Non- specific borrowing costs are capitalized in the same manner to the same investment in qualifying assets, or portion thereof, which was not financed with specific credit by means of a rate which is the weighted-average cost of the credit sources which were not specifically capitalized. Other borrowing costs are expensed as incurred. Notes to the consolidated financial statements Note 3
K. Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected annual financial reportannual financial 2016 future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability without adjustment for the company’s credit risk. The carrying amount of the provision is adjusted each period to reflect the time that has passed and 50 the amount of the adjustment is recognized as a financing expense. Legal claims A provision for claims is recognized if, as a result of a past event, the Company has a present legal or constructive obligation and it is more likely than not that an outflow of economic benefits will be required to settle the obligation and the amount of obligation can be estimated reliably. When the value of time is material, the provision is measured at its present value.
L. Revenue
1. Rental income Rental income from investment property is recognized in the income statement on a straight- line basis over the term of the lease. Lease incentives granted are recognized as an integral part of the total rental income, over the term of the lease. 2. Sale of inventory of buildings Revenue from the sale of trading properties or inventories is measured at the fair value of the consideration received or receivable. Revenue is recognized in the income statement when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of inventory can be estimated reliably, there is no continuing management involvement with the inventory, and the amount of revenue can be measured reliably. 3. Services rendered Revenue from services rendered (such as project management) is recognized in the income statement in proportion to the stage of completion of the transaction at the balance sheet date. The stage of completion is assessed by reference to surveys of work performed. No revenue is Recognized if there are significant uncertainties regarding recovery of the consideration due or associated costs.
M. Expenses
1. Service costs and property operating expenses Service costs for service contracts entered into and property operating expenses are recognized in profit or loss as incurred. 2. Lease payments Payments made under operating leases, other than conditional lease payments, are recognized in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognized in the income statement as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under operating leases are recognized in profit or loss as incurred. Leases are classified as operating leases, and the leased assets are not recognized on the Group’s statement of financial position. Operating leases of property which the Group has chosen to classify as investment property are an exception, where the investment property is recognized on the Group’s statement of financial position at fair value, and the lease is accounted for as a finance lease at initial recognition. Notes to the consolidated financial statements Note 3
Minimum lease payments on finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred. Lease payment are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. reportannual financial 2016 3. Finance income and finance costs 51 Finance income comprises interest income on funds invested including dividend income, gains on the disposal of financial assets, changes in the fair value of financial assets at fair value through profit or loss and gains on hedging instruments that are recognized in profit or loss. Interest Income is recognized as it accrues, using the effective interest method. Dividend income is recognized on the date that the Group’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date. Finance expense comprise interest expense on borrowings, changes in time value of provisions and deferred consideration, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognized on financial assets, and losses on hedging instruments that are recognized in profit or loss. Borrowing costs, which are not capitalized to qualifying assets, are recognized in profit or loss using the effective interest method. In the statements of cash flows, interest received and dividends received are presented as part of cash flows from investing activities. Interest paid and dividends paid are presented as part of cash flows from financing activities. Accordingly, financing costs that were capitalized to qualifying assets are presented together with interest paid as part of cash flows from financing activities. Foreign currency gains and losses on financial assets and financial liabilities are reported on a net basis as either financing income or financing expenses depending on whether foreign currency movements are in a net gain or net loss position.
N. Income tax
Income tax comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that they are recognized directly in equity or in other comprehensive income to the extent they relate to items recognized directly in equity or in other comprehensive income. Current taxes Current tax is the expected tax payable (or receivable) on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date. Current taxes also include taxes in respect of prior years and any tax arising from dividends. Offset of current tax assets and liabilities Current tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and there is intent to settle current tax liabilities and assets on a net basis or the tax assets and liabilities will be realized simultaneously. Notes to the consolidated financial statements Note 3
Deferred taxes Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences:
• the initial recognition of assets or liabilities in a transaction that is not a business combination reportannual financial 2016 and that affects neither accounting nor taxable profit nor loss; • differences relating to investments in subsidiaries and joint arrangements and associates to 52 the extent that it is probable that they will not reverse in the foreseeable future either by way of selling the investment or by way of distributing dividends in respect of the investment; and • the initial recognition of goodwill. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. For investment property that is measured at fair value, there is a rebuttable presumption that the carrying amount of the investment property will be recovered through sale. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred tax assets that were not recognized are reevaluated at each reporting date and recognized if it has become probable that future taxable profits will be available against which they can be utilized. Offset of deferred tax assets and liabilities Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
O. Discontinued operations
A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale or distribution, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative income statement is restated as if the operation had been discontinued from the start of the earliest comparative period.
P. Earnings per share
The Group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. The Company does not have diluted earnings per share. Notes to the consolidated financial statements Note 3
Q. Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments operating results annual financial reportannual financial 2016 are reviewed regularly by the Group’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which separate financial information is available. 53 Inter-segment pricing is determined on an arm’s- length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly investments (other than investment property) and related revenue, loans and borrowings and related expenses, corporate assets (primarily the Company’s headquarters) and head office expenses, and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire investment property, inventory and property, plant and equipment.
R. Employee benefits
Currently, the Group does not have significant obligations with respect to defined contribution or defined benefit pension plans. Notes to the consolidated financial statements Note 3
S.New standards and interpretations not yet adopted
Standard/ interpretation/ Effective date and
amendment The requirements of the publication transitional provisions Expected effects reportannual financial 2016 1. A final version of the standard, which includes revised guidance IFRS 9 (2014) is effective for annual The Group is examining the effects on the classification and measurement of financial instruments, periods beginning on or after of applying IFRS 9 (2014) on its IFRS 9 (2014), and a new model for measuring impairment of financial assets. January 1, 2018 with early adoption financial statements. 54 Financial This guidance is in addition to IFRS 9 (2013) which was issued in being permitted. It will be applied Instruments 2013. retrospectively with some exemptions. Classification and measurement In accordance with IFRS 9 (2014), there are three principal categories for measuring financial assets: amortized cost, fair value through profit and loss and fair value through other comprehensive income. The basis of classification for debt instruments is the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial asset. Investments in equity instruments will be measured at fair value through profit and loss (unless the entity elected at initial recognition to present fair value changes in other comprehensive income). IFRS 9 (2014) requires that changes in fair value of financial liabilities designated at fair value through profit or loss that are attributable to changes in its credit risk, should usually be recognized in other comprehensive income. Hedge accounting – general Under IFRS 9 (2014), additional hedging strategies that are used for risk management will qualify for hedge accounting. IFRS 9 (2014) replaces the present 80%-125% test for determining hedge effectiveness, with the requirement that there be an economic relationship between the hedged item and the hedging instrument, with no quantitative threshold. In addition, IFRS 9 (2014) introduces new models that are alternatives to hedge accounting as regards credit exposures and certain contracts outside the scope of IFRS 9 (2014) and sets new principles for accounting for hedging instruments. In addition, IFRS 9 (2014) provides new disclosure requirements. Impairment of financial assets IFRS 9 (2014) presents a new ‘expected credit loss’ model for calculating impairment for most financial assets. The new model presents a dual measurement approach for impairment: if the credit risk of a financial asset has not increased significantly since its initial recognition, an impairment provision will be recorded in the amount of the expected credit losses that result from default events that are possible within the twelve months after the reporting date. If the credit risk has increased significantly, in most cases the impairment provision will increase and be recorded at the level of lifetime expected credit losses of the financial asset. 2. IFRS 15 replaces the current guidance regarding recognition of IFRS 15 is applicable for annual The Group is examining the effects revenues and presents a new model for recognizing revenue periods beginning on or after of applying IFRS 15 on its financial IFRS 15, from contracts with customers. IFRS 15 provides two approaches January 1, 2018 and earlier statements. Accordingly, it seems Revenue from for recognizing revenue: at a point in time or over time. The application is permitted. IFRS 15 that the new standard will not have Contracts with model includes five steps for analyzing transactions so as to includes various alternative any material effect on the revenue determine when to recognize revenue and at what amount. transitional provisions, so that recognition from rental and Customers Furthermore, IFRS 15 provides new and more extensive companies can choose between operation services of investments disclosure requirements than those that exist under current one of the following alternatives at property. guidance. initial application: full retrospective The group is currently in advanced application, full retrospective stages of examining the effects of application with practical applying the new standard on the expedients, or application as from revenue recognition from the sale of the mandatory effective date, with residential units, primarily in an adjustment to the balance of relation to the group portfolio in retained earnings at that date in Poland, Czech republic and Serbia, respect of transactions that are not i.e. whether revenue should be yet complete. recognized over time in accordance with the stage of completion of the project or upon delivery of the units. As part of the examination the group is examining, based on its legal advisors, the relevant local laws and legislations in each location and the contracts with her customers, if there is an enforceable right to payment for performance completed to date and an asset with alternative use to the entity is not created. Notes to the consolidated financial statements Note 3 / Note 4
Standard/ interpretation/ Effective date and amendment The requirements of the publication transitional provisions Expected effects 3. The Amendment clarifies that for purposes of recognizing a The Amendment is applicable The Group is examining the effects deferred tax asset, the effect of reversal of deductible temporary retrospectively for annual periods of adopting the amendment on the Amendment to differences should be excluded when assessing future taxable beginning on or after January 1, financial statements.
IAS 12, Income profit. This assessment should be made separately for different 2017 with early adoption being reportannual financial 2016 Taxes: types of deductible temporary differences if tax laws contain permitted. restrictions on the types of taxable profit from which losses can Recognition of be deducted. Deferred Tax Moreover, the Amendment provides that probable future profits 55 Assets for may include profits from the recovery of assets at more than their carrying value, if there is sufficient supporting evidence. Unrealised Losses 4. The amendment clarifies that an entity shall transfer property The amendment is applicable for The Group is examining the effects into, or out of, investment property only when there is evidence annual periods beginning on or of adopting the amendment on the Amendment to of a change in use. Change in use occurs when the property after January 1, 2018 and earlier financial statements. IAS 40, meets, or ceases to meet, the definition of investment property. application is permitted. The The amendment clarifies that a change in management’s amendment includes various Investment intentions for the use of a property by itself does not constitute alternative transitional provisions, Property: evidence of a change in use. The amendment also states that so that companies can choose Transfers of the list of evidence of change in use that is included in between one of the following paragraph 57 of IAS 40 is a non-exhaustive list of examples. alternatives at initial application: Investment Application of the amendment for Property changes that occurred after the date of initial application and examining the classification of the properties at the date of initial application; retrospective application according to IAS 8 subject to not using hindsight.
5. The interpretation provides that the date of the transaction for IFRIC 22 is applicable for annual The Group has not yet commenced the purpose of determining the exchange rate for recording a periods beginning on or after examining the effects of adopting IFRIC 22, foreign currency transaction that includes advance January 1, 2018 and earlier the amendment on the financial Foreign consideration is the date of initial recognition of the application is permitted. IFRIC 22 statements. non-monetary asset/liability from the prepayment. If there are includes various alternative Currency multiple payments or receipts in advance, a date of transaction transitional provisions, so that Transactions is established for each payment or receipt. companies can choose between and Advance one of the following alternatives at initial application: retrospective Consideration application; Prospective application from the first reporting period the entity initially applied IFRIC 22; or prospective application from the first reporting period presented in the comparative data in the financial statements for the period the entity initially applied IFRIC 22.
Note 4 - Significant Accounting Events in the Reported Period
A.
In accordance with its policy and past practices, the Company periodically examines the values of its investment property, investment property under development and other real estate properties. Such examination is performed at least once a year for investment property and investment property under development by independent outside appraisers having appropriate professional qualifications and knowledge with respect to the relevant location and the type of property appraised. Some of the valuations were performed based on property values under recent transactions with respect to similar properties and in a similar location (to the extent such transactions took place), while some valuations were performed based on discounting the cash flows expected to derive from the property, or by applying the residual method for properties under development. Notes to the consolidated financial statements Note 4
The following table presents the impacts on the values of investment property, investment property under development and other real estate properties (before taxes and non-controlling interest) for the years ended December 31, 2016 and 2015:
2016 2015 reportannual financial 2016 €’000 €’000 Valuation gains of investment property 63,799 42,587 56 Valuation gains (loss) of investment property under development (1) 4,590 (273)
Impairment of inventory of buildings and land inventory - (5,973)
In respect to gains related to the disposal of the German Portfolio reference is made to note 28
B.
The Company and Africa Properties are parties in a Loan Agreement dated 21 December 2008 (the “Loan Agreement”) which governs the terms of an intercompany debt owed by the Company to Africa Properties as a result of intercompany loans provided by the latter to the Company. For further details on conversion of intercompany loan to equity in 2013, refer to Note 13 (b). During the year ended 31 December 2016 the Company has received from Africa properties a net amount of EUR 70,079 thousand. As at 31 December 2016, the outstanding balance of the Company’s debt to Africa Properties under the Loan agreement was EUR 271,486 thousand (as at 31 December 2015: EUR 196,823 thousand).
C.
During March 2016 a Serbian subsidiary in which the Company’s indirect interest is 53.7% signed with a bank a loan agreement for refinancing the loan previously obtained by it for the development of the second phase of the project known as Airport City Belgrade. The Loan bears interest at an annual rate of 3-months-Euribor plus a margin of 4.28% and will be repaid over the long term period. The loan was drawn-down during March 2016, and out of the total loan amount of EUR 22.4 million, approximately EUR 21.3 million was used to repay the old loan.
D.
During July 2015 a Romanian subsidiary of the Company signed a conditional preliminary agreement for the purchase of a land plot of approximately 39,000 sqm in Brasov, Romania, for a purchase price in the amount of EUR 9.7 million. The transaction was completed during March 2016.
E.
During November 2015 a German subsidiary of the Company signed a sale agreement in relation to a property in Berlin, Germany (Schlossstr. 95) based on an asset value of EUR 9 million (book value EUR 7.2 million). Accordingly the Company recognized a valuation gain of EUR 1.8 million in 2015. The transaction was completed during March 2016.
F.
During November 2015 a Polish subsidiary of the Company signed an agreement with a third party regarding the sale of its ownership rights with respect to a commercial center in Krakow, for a sale price of PLN 13,620 thousand (equivalent to EUR 3.2 million). No material profit or loss was recognized by the Company as result of the sale. The Company completed the transaction during January 2016. Notes to the consolidated financial statements Note 4
G.
On 4 August 2016 the Company signed an asset purchase agreement with respect to the sale of the 18 properties in Berlin, Germany (the “Portfolio”) to five companies controlled and managed by the same third-party, for a total purchase price of EUR 125.5 million (the “Transaction”). The annual financial reportannual financial 2016 Transaction was completed on 31 January 2017 following the fulfillment of several conditions precedent. 57 In view of the Transaction, the Company booked valuation gains during year 2016 in the total amount of EUR 44 million based on the ultimate value of the Portfolio upon its sale, and it also booked a provision for taxes and other related costs. Moreover, the Company classified its assets that form the Portfolio as properties held for sale. The Company’s expected net cash flow after tax from the Transaction is approx. EUR 51 million. In addition, since the beginning of year 2016 the Company sold eight additional properties in western Germany for an aggregate consideration of EUR 20.2 million. The Company recognized an impairment of EUR 2.2 million from the sale of the eight additional properties and a valuation loss of EUR 2.3 million related to another asset in western Germany.
H.
On 17 May 2016 a Dutch subsidiary of the Company signed an agreement for the purchase of 100% of the shares in a Serbian company that owns a land plot of approximately 10,400 sqm at the center of Belgrade, on which it is planned to develop a mixed-use project of up to 68,000 sqm above ground. The total consideration under that agreement was set at EUR 15.9 million, and was later reduced by an amendment to the transaction agreement to approx. 15.8 million, of which an amount of EUR 11 million was paid at the transaction’s closing which took place during June 2016, additional payments in the aggregate amount of approx. of EUR 4.3 million were made during November 2016 and January 2017, and the remaining EUR 400 thousand will be paid until September 2017. An additional amount of EUR 600 thousand will be payable to the seller if the total gross building area above ground under the relevant zoning regulations will exceed 69,000 sqm.
I.
On 23 November 2016 the Company signed a letter of intent in relation to the sale of the five office buildings known as AFI Park 1-5 in Bucharest for an aggregate purchase price of EUR 164.5 million. Accordingly, in the 31 December 2016 financial reports, the Company classified its assets as properties held for sale, and booked net valuation gains of approx. EUR 4.4 million and is expected to generate cash flow from the sale in the amount of EUR 71 million. The aforementioned letter of intent followed a previous letter of intent signed with the same buyer earlier during 2016, under which the deal structure was limited to only three of the five buildings.
J.
On July 2016 the Company signed a preliminary agreement regarding the purchase of a building at the city center of Warsaw, Poland, together with the perpetual usufruct in relation to the land plot on which it is presently built, and this transaction was completed during February 2017 upon payment by the Company of the total purchase price in the amount of PLN 23.3 million. The Company plans to demolish that building and to develop on the land plot a high class residential project with gross sellable area (GSA) of approx. 6,000 sqm. Notes to the consolidated financial statements Note 4 / Note 5 / Note 6
K.
On July 2016 the Company signed a preliminary agreement regarding the purchase of a land plot adjacent to the Company’s project known as Zlota 83 in Warsaw, Poland for a purchase price of PLN 11 million. The transaction was completed on September 2016 adding 3,000 sqm to the annual financial reportannual financial 2016 Project GSA, and thereby the Project will have total GSA of 8,000 sqm. 58 Note 5 - Subsidiaries
A. Guarantees to subsidiaries
Effective as of December 31, 2016, the aggregate value of approximately EUR 44 million has been issued by the Company as securities for repayment obligations of certain subsidiary companies with respect to financing obtained by each of such company in relation to its project.
B. Details in respect of subsidiaries
The list of subsidiaries of the entity is detailed in Note 29. Note 6 - Equity Accounted Investees
A. Composition of the investments:
31 December 2016 31 December 2015 €’000 €’000 Shares at cost 1,298 1,298 Company’s share in reserves and retained earnings, net (556) (1,613) Carrying value 742 (315) Loans (1) 17,007 16,466 17,749 16,151
31 December 2016 31 December 2015 (1) Loans: Rate €’000 €’000 Fixed rate loans 1.50% 10,761 10,366 Variable rate loans Euribor + 7% 6,246 6,100 17,007 16,466
B. The movement in investments was as follows:
31 December 2016 31 December 2015 €’000 €’000 Balance as at beginning of the year 16,151 13,742 Movement during the year: Repayment of loans, net 151 2,620 Share in earnings, net 1,066 (6) Dividend - (484) Adjustment for translation (8) (18) Movement in loans 389 297 17,749 16,151 Notes to the consolidated financial statements Note 7
Note 7 - Investment Property
A. Reconciliation of carrying amount annual financial reportannual financial 2016
2016 2015 €’000 €’000 59 Balance at January 1 935,326 870,688 Acquisition/Investment 14,327 8,169 Disposal through sale (9,375) (5,745) Transfer from investment property under development, net1 66,281 21,983 Fair value adjustments (see Note 4A) 63,799 42,587 Fair value adjustments - discontinued operation2 39,717 9,037 Classified to property held for sell2 (296,791) (12,224) Effect of movement in foreign exchange 3 831 Balance at 31 December 813,287 935,326
1. During the year ended December 31, 2016 the Company completed the construction of AFI Park 4&5 Romania, Classic 7 phase 3 Czech Republic, and building 2100 in Air Port city Serbia. During the year ended December 31, 2015 the Company completed the construction of AFI Park 3, Romania. 2. For further details on the sale of investment property and transfer to property held for sale, please refer to Note 4G and Note 4I respectively.
B. Measurement of fair value (including investment property under development)
(1) Fair value hierarchy The investment properties and investment properties under development that are measured at fair value, using a valuation method according to the fair value levels are defined as Level 3. For a definition of the various hierarchy levels, see Note 2E regarding the basis of preparation of the financial statements. For the reconciliation from the opening balance to the closing balance of investment property and investment property under development, please see Note 7A and Note 8, respectively. (2) Valuation processes used by the Company An external, independent valuation company, having appropriate recognized professional qualifications and recent experience in the location and category of property being valued, values the Group’s investment property portfolio once a year, and upon demand in respect to which material events occurred (such as entrance of tenants, completion, significant change in Rental income) as defined in the Group’s policy. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s- length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property. A yield that reflects the specific risks inherent in the net cash flows then is applied to the net annual cash flows to arrive at the property valuation. The valuations of investment properties under development are prepared by the residual method or by the comparison method depending on the stage of completion. The residual value is based on the fair value of a complete project less costs to complete and appropriate developer profit. The comparison method is based on the aggregate of the net annual rental income and where relevant associated costs. A yield which reflects the risk inherent in the net cash flows is then applied to the net annual rental income. Notes to the consolidated financial statements Note 7
Valuations reflect, when appropriate: the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting vacant accommodation, and the market’s general perception of their creditworthiness; the allocation of maintenance and insurance responsibilities between the Group and the lessee; and the remaining economic life of the property. When rent reviews or lease renewals are pending with anticipated reversionary increases, it is assumed that all notices, and when appropriate counter-notices, have been served reportannual financial 2016 validly and within the appropriate time. 60 (3) Details regarding fair value measurement of investment property at Level 3 (*)
Type of property Value €’000 Significant inputs on the properties • Yield rate 6.4% to 7.88% Offices at Czech Republic 92,931 • Actual weighted average rent per sqm EUR 13.26 • Actual Occupancy rate 93%
• Yield rate 7.4% to 7.96% Retail at Romania 536,439 • Actual weighted average rent per sqm EUR 27 • Actual Occupancy rate 99%
• Yield rate 8.75% to 10% Offices at Serbia 160,827 • Actual weighted average rent per sqm EUR 16.05. • Actual Occupancy rate 84%
• Yield rate 10 % Offices at Bulgaria 22,815 • Actual weighted average rent per sqm EUR 6.2 • Actual Occupancy rate 30%
* Not include the office buildings in Romania and the Germany Portfolio that classified as asset held for sale as of December 31 2016. For further information Please refer to Note 4I and Note 4G respectively..
(4) Sensitivity analysis for change in fair value (AFI Palace Cotroceni in Bucharest, Romania) A change in the main unobservable inputs in the fair value valuation of AFI Palace Cotroceni, which is a material project for the Company, is described in the tables below:
A. Sensitivity analysis to change in yield rate:
-0.5% 7.4% +0.5% Yield rate 501,697 467,244 437,176 Fair value ( in thousands of Euro ) B. Sensitivity analysis to change in estimated rental values (ERV) (in thousands of Euro):
-10% 35,040 +10% ERV 427,914 467,244 506,571 Fair value Notes to the consolidated financial statements Note 8 / Note 9
Note 8 - Investment Property under Development
2016 2015 €’000 €’000 annual financial reportannual financial 2016 Balance at January 1 120,203 95,644 Acquisition 19,418 5,233 Cost capitalized 28,154 40,207 61 Interest capitalized (refer to policy in note 3J) 965 1,268 Transfer to investment property, net (see note 7) (66,281) (21,983) Valuation gains (losses) net, (see note 4A) 4,590 (273) Effect of movement in foreign exchange (189) 107 Balance at 31 December 106,860 120,203
The yield rates which were used by the valuation company for residual method for investment property under development as of December 31, 2016 are as following:
In percentages Romania Serbia Czech Republic Office and retail 8.1-8.8 9 7
For further details regarding measurement of fair value please see Note 7 investment property. Note 9 - Deferred Tax Assets and Liabilities
Recognized deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following items:
Assets Liabilities Net 31 December 31 December 31 December 31 December 31 December 31 December 2016 2015 2016 2016 2016 2015 €’000 €’000 €’000 €’000 €’000 €’000 Property, fixtures and fittings (155) (123) 1 - (154) (123) Investment property (646) (497) 119,280 88,236 118,634 87,739
Inventory of building (1,453) (1,541) 1,453 1,453 - (88) held for sale Hedging capital funds (844) (730) - - (844) (730)
Capitalization and deferred (217) (215) 253 200 36 (15) expenses Finance lease liabilities (1,279) (1,282) - - (1,279) (1,282) Allowance for doubtful debts (12) (11) - - (12) (11)
Tax value of loss (6,395) (11,139) - - (6,395) (11,139) carry-forwards recognized Others (694) (588) 238 273 (456) (315) Tax (assets)/liabilities (11,695) (16,126) 121,225 90,162 109,530 74,036 Set off of tax 9,445 12,857 (9,445) (12,857) - - Net tax (asset) liabilities (2,250) (3,269) 111,780 77,305 109,530 74,036 Notes to the consolidated financial statements Note 9 / Note 10
Unrecognized deferred tax assets
Deferred tax assets have not been recognized in respect of the following items:
For the year ended For the year ended 31 December 2016 31 December 2015 reportannual financial 2016 €’000 €’000 Tax losses carried forward 4,432 1,592 62
Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilize the benefits therefrom. At December 31, 2016, the Group had total tax losses carried forward and tax credit for an amount of EUR 40,659 thousand (December 31, 2015, EUR 68,453 thousand) for which a deferred tax asset is EUR 6,395 thousand (December 31, 2015, EUR 11,139 thousand).
Movement in temporary differences during the year
31 December 2016 31 December 2015 €’000 €’000 Balance as at beginning of the year 74,036 61,157 Recognized in profit or loss 35,581 12,610 Recognized in other comprehensive income (77) 233 Effect of movement in foreign exchange (10) 36 Balance as at end of the year 109,530 74,036 Note 10 - Inventory
2016 2016 €’000 €’000 Balance At January 1 219,456 216,103 Additional land purchased (see note 4H,K) 10,906 2,173 Construction cost 36,499 12,680 Interest capitalized (refer to policy 3J) 1,951 203 268,812 231,159 Effect of movement in foreign exchange (319) 965 Write-down of inventory to net realizable value - (5,973) Carrying value of properties sold (8,183) (6,695) At 31 December 260,310 216,103
The balance represents non-current inventory of building and current inventory of building Including inventory expected to be sold after more than 12 months with the amount of EUR 20,908 thousand and land in the amount of EUR 206,164 thousand ( in 2015 20,141 and 189,007 respectively) In respect of the capitalization rate for the interest capitalized please refer to Notes 15 and 18. Notes to the consolidated financial statements Note 11 / Note 12 / Note 13
Note 11 - Trade and Other Receivables
31 December 2016 31 December 2015 €’000 €’000 annual financial reportannual financial 2016 Restricted cash 27,540 13,995 Trade receivables due from tenants 7,920 7,941 VAT receivables 5,161 8,079 63 Receivable from derivatives - 14 Deferred expenses 3,715 2,474 Trade receivables due from related parties 180 268 Other trade receivables 4,422 3,856 48,938 36,627 Allowance for doubtful debts (1,754) (2,309) 47,184 34,318
Information about the company’s exposure to credit and market risks and impairment losses for trade and other receivables is included in Note 18. Note 12 - Cash and Cash Equivalents
31 December 2016 31 December 2015 €’000 €’000 Bank balances 35,494 36,666 Bank deposits 1,623 40 Cash and cash equivalents 37,117 36,706
All cash and cash equivalents are payable on demand. Note 13 - Capital and Reserves Composition of share capital:
31 December 2016 31 December 2015 Issued and Issued and Authorized outstanding Authorized outstanding Ordinary share of Euro 0.01 par value each 122,100,000 93,000,000 122,100,000 93,000,000 a. As at December 31, 2016, the authorized, issued and paid-up share capital of the Company comprises 122,100,000, 93,000,000 and 93,000,000 ordinary shares of EUR 0.01 respectively b. On June 30, 2013 Africa Properties assigned and transferred to its subsidiary, AIIP 2002, which is the Company’s sole shareholder, a receivable from the Company in the amount of EUR 75,000 thousand (the “Receivable”) out of the Intercompany Loan Balance, and AIIP 2002 subsequently, on the same date, contributed the Receivable to the capital of the Company by making a share premium contribution to the Company’s free capital reserves. Translation reserve from foreign operations The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations that are not integral to the operations of the Company. Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. Notes to the consolidated financial statements Note 14 / Note 15
Note 14 - Earnings Per Share
Gain attributable to ordinary equity holders of the parent annual financial reportannual financial 2016
For the three months ended 31 March 2016 2015 2014 64 €’000 €’000 €’000 Net profit attributable to ordinary equity holders 0.83 0.46 0.67
Note 15 - Loans and Borrowings This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more information about the Group’s exposure to interest rate and currency risk, refer to Note 18.
Terms and debt repayment schedule
Terms and conditions of outstanding loans were as follows:
31 December 2016 31 December 2015 €’000 €’000 Year of Nominal Carrying Nominal Carrying Currency Nominal interest rate maturity value value value value Non-current Secured bank loan Euro 3M Euribor+1.9-5.25 2017-2032 354,129 351,709 429,582 424,882 Secured bank loan PLN - - 1,425 1,425 Secured bank loan CZK 3M Pribor+2.6-4.5 20,087 20,087 22,025 22,025 Secured bank loan Euro 2017-2018 - - 64,397 64,058 Finance lease liabilities CZK 2.60% 2048 6,744 6,744 6,746 6,746 Loan from related parties Euro Not determined 271,486 271,486 197,603 197,603 Loan from Joint Venture partners Euro 3M Euribor+2-8 Not determined 673 673 660 660 Corporate bank loan Euro 3M Euribor+2 2019 34,400 34,400 37,200 37,200 Loan from others Euro 6.80% - - 4,091 4,091 Current maturity (19,485) (19,485) (60,821) (60,821) Total non-current interest- bearing liabilities 668,034 665,614 702,908 697,869 Current Secured bank loan Euro 3M Euribor+4-5 2017 99,626 98,297 18,562 18,562 Secured bank loan PLN 1M Wibor+2.6 2017 2,675 2,594 11 11 Secured bank loan CZK 1M Pribor +2.8 2017 14,674 14,674 3,867 3,867 Secured bank loan Euro 2.60% 2017 46,065 46,065 - - Current maturity 19,485 19,485 60,821 60,821 Loan from others Euro 5.75% 2017 3,685 3,685 1,943 1,943 Loan from related parties Euro 3M Euribor+6.6,8 2017 780 780 6,303 6,303 Total current interest-bearing liabilities 186,990 185,580 91,507 91,507
As of December 31 2016, the company is not aware of any breach of covenants (see note 19). Notes to the consolidated financial statements Note 16 / Note 17 / Note 18
Note 16 - Other Non-Current Liabilities
31 December 2016 31 December 2015 €’000 €’000 annual financial reportannual financial 2016 Deposits from tenants 4,338 4,577 Payables for derivatives instruments 2,394 2,176 Other payables 1,611 1,155 65 8,343 7,908 Note 17 - Trade and Other Payables
31 December 2016 31 December 2015 €’000 €’000 Payables for land purchase 4,645 47 Payables for derivative instruments 1,572 1,121 Trade payables due to related parties 2,332 2,850 Suppliers and other trade payables 15,136 11,970 Tax payables 1,095 247 Provision, Accruals expenses and deferred income 14,313 9,404 Interest payables 3,770 3,178 Advances from customers 736 852 Others 8,230 6,945 51,829 36,614 Note 18 - Financial Instruments Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business. The Group uses derivative financial instruments in certain loan agreements to hedge its exposure to interest rate risks arising from construction, financing and investment activities. Furthermore, the Group does not hold or issue derivative financial instruments for trading purposes.
Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. The Group requires collateral from its tenants (bank guarantee or cash deposits usually equal to three months’ rent income) in respect of lease agreements. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the balance date was:
Carrying amounts 2016 2015 Note €’000 €’000 Trade and other receivable LT 2,000 1,327 Loans to associate company 6 17,007 16,466 Trade and other receivable 11 47,184 34,318 Cash and cash equivalents 12 37,117 36,706 103,308 88,817 Notes to the consolidated financial statements Note 18
Allowance for doubtful debts
The aging of trade receivables due from tenants at the balance sheet date was:
Gross Impairment Gross Impairment
2016 2016 2015 2015 reportannual financial 2016 €’000 €’000 €’000 €’000 Not past due 3,901 - 3,561 - Past due 0-30 days 665 - 610 - 66 Past due 31-120 days 892 2 872 1 Past due 121-365 days 821 193 355 52 More than one year 1,641 1,559 2,543 2,256 7,920 1,754 7,941 2,309
The movement in the allowance for doubtful debts in respect of trade receivables due from tenants during the year was as follows:
2016 2015 €’000 €’000 Balance at 1 January 2,309 2,187 Impairment loss recognized 372 304 Receivables write off (927) (182) Balance as at 31 December 1,754 2,309
Liquidity risk
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements:
31 December 2016, €’000 Carrying Contractual 6 months More than amount cash flows or less 6-12 months 1-2 years 2-5 years 5 years Non-derivative financial liabilities: Secured bank loans 371,795 406,711 15,303 14,053 42,359 334,996 - Corporate loan 34,400 40,784 1,183 3,989 4,979 30,633 - Short-term loans 161,630 163,592 136,371 10,604 5,220 11,397 - Finance lease liability 6,744 29,621 463 463 938 2,776 24,981 Loans from related parties 272,266 300,551 809 - - - 299,742 Non-current liabilities 5,949 7,844 - - 2,587 4,254 1,003 Loans from joint venture Partners 4,358 4,358 673 - 3,667 18 - Trade and other payables1 51,784 51,774 48,803 2,971 - - - 908,926 1,005,235 203,605 32,080 59,750 384,074 325,726
1 Including deferred expenses.
31 December 2015, €’000 Carrying Contractual 6 months More than amount cash flows or less 6-12 months 1-2 years 2-5 years 5 years Non-derivative financial liabilities: Secured bank loans 512,390 588,920 44,461 19,613 83,124 411,220 30,502 Corporate loan 37,200 46,155 1,286 4,086 10,150 30,633 Short-term loans 22,440 22,732 12,045 - 10,687 - - Finance lease liability 6,746 29,602 463 463 925 2,775 24,976 Loans from related parties 203,906 224,597 5,639 840 809 - 217,309 Non current liabilities 5,731 5,731 - - 2,399 2,523 809 Loans from joint venture Partners 2,599 2,599 - - 2,581 18 - Loans from others 4,091 4,179 4,179 - - - - Trade and other payables1 35,493 35,493 31,489 4,004 - - - 830,596 960,008 99,562 29,006 110,675 447,169 273,596 1 Including deferred expenses. Notes to the consolidated financial statements Note 18
Currency risk
Exposure to currency risk The Group’s exposure to foreign currency risk was as follows based on notional amounts: annual financial reportannual financial 2016 Euro CZK PLN BGN RON CSD Others Total Euro CZK PLN BGN RON CSD Others Total 31 December 2016 31 December 2015 €’000 €’000 67 Loans to investee 17,749 ------17,749 16,151 ------16,151 company
Trade 20,306 11,846 1,634 1,901 10,760 2,699 38 49,184 16,102 2,986 1,378 1,043 13,590 538 8 35,645 receivables Cash and cash 12,704 2,816 5,986 432 14,214 939 26 37,117 15,710 3,565 1,113 779 13,452 2,073 14 36,706 equivalents Interest-
bearing (807,095) (41,505) (2,594) - - - - (851,194) (755,302) (32,638) (1,436) - - - - loans and (789,376) borrowings Other non current (4,997) (1,793) - (35) (1,517) (1) - (8,343) (5,148) (1,311) - (32) (1,414) (3) - (7,908) liabilities Trade and other (25,746) (9,301) (2,027) (379) (11,783) (2,264) (329) (51,829) (12,815) (3,530) (2,692) (413) (13,411) (3,464) (289) (36,614) payables Balance exposure (787,079) (37,937) 2,999 1,919 11,674 1,373 (265) (807,316) (725,302) (30,928) (1,637) 1,377 12,217 (856) (267) (745,396)
The exchange rates as per period end are presented in the following table:
Average rate Spot rate As at 31 December €’000 2016 2015 2016 2015
CZK (in Euros) 27.0 27.3 27.0 27.1 BGN (in Euros) 2.0 2.0 2.0 2.0 RON (in Euros) 4.5 4.4 4.5 4.5 PLN (in Euros) 4.4 4.2 4.4 4.3 CSD (in Euros) 123.2 120.7 123.1 121.4 Notes to the consolidated financial statements Note 18
Sensitivity analysis An increase as at December 31, 2016 of 10% in the exchange rate of the following currencies against the Euro would increase (decrease) the shareholders’ equity and the net profit (loss) by the amounts presented below. This analysis was made based on the assumption that all the other variables, particularly the interest rates, remain fixed. The analyses for 2015 were made annual financial reportannual financial 2016 based on the same assumptions.
Equity Profit or loss 68 31 December 2016, €’000 CZK (2,095) (3,794) PLN 1,048 300 BGN 192 192 RON 1,167 1,167 CSD 137 137 Others (383) (27)
31 December 2015, €’000 CZK (2,427) (3,093) PLN 824 (164) BGN 138 138 RON 1,222 1,222 CSD (86) (86) Others (373) (27) A decrease as at December 31, 2016 of 10% in the exchange rate of the above currencies against the Euro would have the same effect but in the opposite direction, based on the assumption that all the other variables remain fixed.
Interest rate risk
Profile At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
Carrying amount 2016 2015 €’000 €’000 Fixed rate instruments Financial assets 10,761 10,366 Financial liabilities (90,894) (114,038) (80,133) (103,672) Variable rate instruments Financial assets 6,246 6,100 Financial liabilities* (760,300) (675,338) (754,054) (669,238)
* The variable rate financial liabilities include secured bank loans of which the Company has interest rate swap contracts for fixed interest in the amount of EUR 279,809 thousand (as of 2015- 294,059). Notes to the consolidated financial statements Note 18
Sensitivity analysis of the fair value with respect to financial instruments bearing fixed interest
The Group’s assets and liabilities bearing fixed interest are not measured at fair value with the differences being recorded in the income statement, and the Group does not use derivative annual financial reportannual financial 2016 financial instruments as hedging instruments in accordance with the fair value hedging model. Therefore, any change in the interest rates as at the date of the report will have no effect on the income statement. 69
Sensitivity analysis of the cash flows with respect to financial instruments bearing variable interest
A change of 100 points in the base interest rate as at the date of the report would increase/ decrease the net profit/loss by the following amounts. This analysis was made based on the assumption that all the other variables, particularly the foreign currency exchange rates, will remain fixed. The analyses for 2015 were based on the same assumptions.
Profit or (loss) Equity 100 bp 100 bp 100 bp 100 bp increase decrease increase decrease 31 December 2016, €’000 Variable rate instruments (7,603) 7,603 (7,603) 7,603 Interest rate swap 2,880 (2,880) 6,157 (6,158) Cash flow sensitivity (net) (4,723) 4,723 (1,446) 1,445
31 December 2015, €’000 Variable rate instruments (6,750) 6,750 (6,750) 6,750 Interest rate swap 3,029 (3,029) 8,743 (8,739) Cash flow sensitivity (net) (3,721) 3,721 1,993 (1,989)
Fair values
Fair values versus carrying amounts The book value of certain financial assets and liabilities, including cash and cash equivalents, trade and other receivables, short-term interest-bearing loans and borrowings, loan from others, suppliers and other payables are equal or approximate to their fair value. The fair values of the remaining financial assets and liabilities and their book values as presented in the statement of financial position are as follows:
31 December 2016 31 December 2015 €’000 €’000 Carrying amount Fair value Carrying amount Fair value Secured bank loans (406,195) (414,615) (549,591) (572,403)
The secured bank loans are defined as Level 3 in the fair value hierarchy. Notes to the consolidated financial statements Note 18
Valuation techniques for determining fair value
Fair value of the non-current secured bank loans and loans from others is estimated by discounting future principal and interest cash flows by the market interest rate on the date of measurement. The interest rates used to discount estimated cash flows, where applicable, are based on the annual financial reportannual financial 2016 government yield curve at the reporting date plus an adequate credit spread, and were as follows: Interest rates used for determining fair value: 70 2016 2015 €’000 €’000 Loans and borrowings 3M Euribor +1.9%-5.25% 3M Euribor +1.9%-5.25% Leases 13.44% 13.44%
Derivative financial instruments
The financial liabilities include interest rate swap contracts (“IRS”) used for hedging and IRS not used for hedging which are define as level 2. As of December 31, 2016 the IRS used for hedging and IRS not used for hedging are in the amount of EUR 3,616 thousands and EUR 350 thousands, respectively. Fair value of IRS is measured on the basis of the capitalization of the difference between the forward price in the contract and the current price for the residual period until redemption using appropriate interest curves used for derivative pricing and based on short-term Libor interest rates and long-term IRS transactions.
Expiration Effective Interest receivable Interest payable exercise date Amount Fair value Hedge net of Tax Interest rate swap 3M Pribor 0.460% 13/08/2020 18,836 (140) (91) Interest rate swap 3M Euribor 0.644% 18/06/2019 199,375 (3,116) (2,618) Interest rate swap* 3M Euribor 0.730% 01/10/2019 15,520 (350) (294) Interest rate swap 3M Euribor 0.310% 31/03/2020 34,951 (130) (109) Interest rate swap 3M Euribor 0.330% 13/08/2020 13,086 (230) (186)
* The interest rate swap on this loan was not designated initially to hedge accounting. Notes to the consolidated financial statements Note 19
Note 19 - Contingent Liabilities
A. Securities, guarantees and pledges under bank finance agreements annual financial reportannual financial 2016 According to some of the financing agreements to which group companies are parties, the Company is obliged to provide additional funding in case such funding is required to complete the relevant project. Furthermore, some group companies agreed to comply with certain 71 reporting requirements, as well as to maintain certain financial ratios and minimum cash balances (covenants), such as (i) certain ‘debt- service- coverage ratios’ (DSCR) between net rental income and debt service amount, and (ii) certain ‘loan-to-value’ (LTV) ratios between the outstanding balance of a loan and the value of the relevant assets securing the repayment of such loan. To the best of the Company’s knowledge, the Company is not aware of any breach of covenants under the various financing agreements to which group companies are parties. It should be noted however that a waiver of the bank that provided a loan in relation to project Business Park Varna in Bulgaria was issued during May 2016 in relation to the project Company’s failure to maintain a certain ‘debt yield ratio’. Such waiver is valid until 31 March 2017 and based on its terms the Company deposited an amount of EUR 3.2 million for supporting the project company’s scheduled payments until 31 March 2017. Accordingly, the Company has classified the loan, in the amount of EUR 16.1 million, as a short-term loan liability as of 31 December 2016.
B. Legal claims
1. A claim in Serbia against Airport City d.o.o. Belgrade in which the Company’s indirect interest is 53.7% (“ACB”) was filed by Industrija Masina I Traktoraa.d. (“IMT”) in 2007 for payment of EUR 0.9 million under an agreement dated 11 March 2004. In its response to the aforementioned claim, ACB filed counter claims for damages and argued that such payment was conditional upon the occurrence of certain conditions precedents which were not fulfilled by IMT, and that the amount payable to IMT should therefore be substantially reduced. During April 2014, ACB received the first instance judgment under which ACB was obliged to pay EUR 875 thousand to IMT with interest from December 2007 and under the same judgment IMT was obliged to pay EUR 869 thousand to ACB with interest from February 2008. ACB submitted an appeal to the judgment on 30 April 2014 stating that the court should order to set off the claims against each other, and requested the court of appeals to reconsider some of the counter claims of ACB that were rejected by the court in the first instance. The court of appeals decided to suspend the appeal process because IMT is now in bankruptcy (since September 2015). ACB filed the claim in bankruptcy on 2 February 2016, proposing a set off. The bankruptcy administrator has still not decided on ACB’s aforementioned set off claim. No provision was recorded in respect of the claim. 2. A Romanian subsidiary of the Company (the “Subsidiary”) received during the first quarter of 2014 a letter from the Local Tax Office demanding additional payment of building tax in relation to years 2009-2013 in the amount of approximately EUR 4.6 million. Thereafter, on 1 October 2015 the Prosecution Office attached to the Bucharest Court of Appeals issued an indictment against the Subsidiary and three of its employees, asserting that a criminal offence of tax evasion was allegedly committed by them in connection with the payment of building tax in relation to years 2009-2013, and with respect to the reconciliation and payment of the final amount of the building permit fee for the Subsidiary’s building, in the amount of approximately EUR 300 thousand. The aforementioned indictment is based on an assessment, which is disputed by the Subsidiary, that the amounts of building tax and building permit fee supposedly payable by the Subsidiary were higher than what the Subsidiary actually paid. Notes to the consolidated financial statements Note 19 / Note 20 / Note 21
Although the Subsidiary considered the aforementioned allegations to be not sufficiently grounded, the disputed amounts of the building tax and building permit fee were in in the meantime paid by the Subsidiary. Furthermore, in the opinion of the Subsidiary, based on its consultation with legal advisors,
the authorities’ decision making process in this matter suffered from material flaws, including reportannual financial 2016 with respect to the legality of the investigation procedure, and therefore the Subsidiary and its three employees submitted several complaints and appeals with a view to terminate 72 the criminal proceedings and to claim the disputed amount of the building tax which the Subsidiary considers to be an overpaid tax and related penalties of approximately Euro 4.6 million. However, on 10 March 2016 the pre-trial court dismissed the complaints of the Subsidiary and the employees regarding the flaws in the investigation procedure, and decided to continue the criminal proceedings. On 30 March, 2016 the subsidiary appealed the aforementioned court decision to dismiss the subsidiary complains, but this appeal was rejected by the court. Nevertheless, in the opinion of the Company, among others based on the advice of its legal counsel, the Subsidiary and its employees have good defense arguments against their conviction, because the Company’s management considers that the elements required for conviction under Romanian law cannot be established, inter alia, because the Subsidiary and its employees had no intention to hide, nor it did hide the taxable value of the building or any other information from the Tax Office. The Company’s management believes that such legal proceedings have no material effect on the Company’s financial position as presented in the Company’s financial statements as at 31 December 2016.. Note 20 - Gross Rental Income
For the year ended 31 December, €’000 2016 2015 2014 Czech 5,451 5,685 10,141 Serbia 12,071 10,954 10,770 Romania 44,646 39,361 36,787 Bulgaria 622 728 747 Others 5 265 266 62,795 56,993 58,711
The Group leases out its investment property under operating leases. The operating leases are usually for terms of 5 years or more. Note 21 - Property Operating Expenses
For the year ended 31 December, €’000 2016 2015 2014 Property insurance premium 131 123 116 Property taxes and fees 1,072 934 998 Other expenses 159 159 420 1,362 1,216 1,534 Notes to the consolidated financial statements Note 22 / Note 23
Note 22 - Administrative Expenses
For the year ended 31 December, €’000 2016 2015 2014 annual financial reportannual financial 2016 Wages and salaries 5,652 3,603 3,235 Professional services 2,422 2,319 2,223 Depreciation 284 315 345 73 Legal and audit fees 1,086 1,016 1,042 Rent 413 374 379 Other administrative expenses 2,064 1,926 2,037
Capitalized expenses (3,766) (2,115) (1,918) directly attributed to projects 8,155 7,438 7,343 Note 23 - Net Other Income (Expenses)
For the year ended 31 December, €’000 2016 2015 2014 Management fees 63 64 142 Income from temporary rent 187 220 176 Income from sale of subsidiaries - - 1,118 Other 426 1,284 938 676 1,568 2,374 Building tax from previous year - - (4,780) Loss from sell of a company - (67) (352) Expenses related to purchase and consulting regarding new projects (268) (404) (20) Court decision related to tenants - - - Expenses attributed to land - - (313) Other (2,784) (2,911) (1,539) (3,052) (3,382) (7,004) (2,376) (1,814) (4,630) Notes to the consolidated financial statements Note 24 / Note 25
Note 24 - Net Financing Costs
For the year ended 31 December, €’000 2016 2015 2014 annual financial reportannual financial 2016 Bank interest expense 23,556 23,246 23,689 Interest expenses to Africa Properties 3,040 3,091 4,343 Leasing interest 967 954 896 74 Net foreign exchange loss 601 650 1,059 Other financing expense (income) (690) (628) (1,814) Gain from loan restructuring1 - - (34,850) Commitments and other financing fees2 4,027 4,854 4,964 31,501 32,167 (1,713)
1. As at 31 March 2014, the Company signed an agreement (the “Debt Purchase Agreement”) with a bank, pursuant to which the Company purchased and assumed the entire rights of that bank in relation to loans granted by it to a wholly-owned Bulgarian subsidiary of the Company that owns and operates properties in Varna, Bulgaria (the “Project”, the “Project Company” in this section), the aggregate outstanding amount of which was EUR 55,475 thousand, in consideration for payment by the Company to the bank in the amount of EUR 20,000 thousand. In addition, according to the conditions of Debt Purchase Agreement two Czech subsidiaries of the Company signed amendments to financing agreements to which they are parties, pursuant to which each of them agreed to make early repayment by December 2015 (instead of December 2017) of a loan received by it for financing the acquisition and development of its property in Prague, Czech Republic. The aggregate outstanding balance of both of these two loans is in the amount of EUR 6,390 thousand. The completion of the transaction under the Debt Purchase Agreement occurred during May 2014. Accordingly, the Company recognized during the second quarter of 2014 financial income in the amount of EUR 34,850 thousand. In addition, the Project Company signed a financing agreement with another bank, pursuant to which such bank provided the Project Company with a loan in the amount of EUR 22,500 thousand secured, inter alia, by a mortgage on the Project. The loan was drawn-down by the Project Company during June 2014.
2. Including breakage fees with the amount of EUR 1,040 thousands. Note 25 - Income Tax Expense
Recognized in the income statement
For the year ended 31 December, €’000 2016 2015 2014 Current tax expense Current year 404 338 496 previous years 950 - - 1,354 338 496 Deferred tax expense Origination and reversal of timing differences 18,329 11,278 9,203 19,683 11,616 9,699 1. Results of operations for tax purposes of the Company are computed in accordance with Dutch tax legislation. As of January 1, 2011 the Company (solo) is in fiscal unity for tax with its Dutch subsidiary AFI Europe Financing B.V 2. Tax rates applicable to the Company and its subsidiaries are as follows:
Tax rate Netherlands 25.0% Czech Republic 19.0% Serbia 15.0% Bulgaria 10.0% Hungary 10.0% Romania 16.0% Germany 30.2%/14.4% Poland 19.0% Latvia 15.0% Cyprus 12.5% Israel 25.0% Notes to the consolidated financial statements Note 25 / Note 26
Recognized in the income statement
For the year ended 31 December, €’000 2016 2015 2014
Profit before tax 89,717 50,277 74,054 reportannual financial 2016
Income tax using the Dutch statutory (25.0%) 22,429 (25.0%) 12,569 (25.0%) 18,514 corporation tax rate Effect of tax rates in foreign jurisdictions (8,227) (4,556) (8,391) 75 Non-deductible expenses 227 1,095 604 Tax exempt income (26) (16) (85) Taxes in respect of previous years 950 - -
Current year losses for which 3,482 1,592 1,573 no deferred tax assets
Utilization of losses and tax benefits - - (3,485) from prior years Other 848 932 969 (22.0%) 19,683 (14.0%) 11,616 (26.3%) 9,699 Note 26 - Related Parties The parent company is Africa Israel International Properties (2002) Ltd (Israel) (AIIP 2002) which is part of Africa Israel Investments Group. Transactions between the companies within the Group, which are related parties, have been eliminated in the consolidated financial statements and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below:
31 December, €’000 2016 2015 2014 (unaudited) (unaudited) (audited) Management fees from group companies (63) (26) (142) Management fees to Africa properties 1,055 951 871 Interest expenses to Africa properties 3,040 3,091 4,343
Interest expenses (income) (425) 216 417 to other related parties, net 3,607 4,232 5,489 Balance: Loans from Africa Israel Group (see Note 4B) (271,486) (196,823) (160,680) Loans to associates 17,007 16,466 13,549 Other Africa Israel’s Group companies, net (2,932) (9,668) (13,312)
1. On May 26, 2011 the Company, as borrower, and Danya Cebus Rom. S.R.L. (“DC-Rom”), as lender, signed a loan agreement with respect to a loan in the amount of EUR 4.5 million, for financing part of the works under a construction contract for office building AFI Park 1in Bucharest, Romania. The project was completed in 2012. The loan bears interest at the rate of 3-months Euribor plus 6.6%. On the first quarter of 2016, the company repaid the outstanding loan balance of EUR 240 thousand.
2. On August 9, 2012, the Company, as borrower, and DC-Rom, as lender, signed a loan agreement with respect to a loan in the amount of EUR 4.5 million, for financing part of the works under a general contractor agreement of AFI palace ploiesti. The loan bears interest at the rate of 8% per annum. On the first half of 2016, the company repaid the outstanding loan balance of EUR 1,643 thousand. Notes to the consolidated financial statements Note 26 / Note 27
3. On July 12, 2013, the Company, as borrower, and DC-Rom, as lender, signed a loan agreement with respect to a loan in the amount of EUR 4.5 million for financing part of the works under a general contractor agreement for the construction of the second and the third buildings of project AFI Park in Bucharest. The loans bears interest at the rate of 8% per annum, As of December 31, 2016 the outstanding balance of the loan, including the accrued interest, was EUR 780 thousand. reportannual financial 2016
4. On November 2014, AFI Park 4&5 S.R.L., a wholly-owned Romanian subsidiary of the Company, 76 signed with DC-Rom, a general contractor agreement for the construction of the forth and the five buildings of project AFI Park in Bucharest. The aggregate consideration under the agreement is approximately EUR 17.3 million plus VAT, and plus additional payments for the management of works carried out by subcontractors. The exact consideration will be determined based on measurements of the materials actually used in the project and on the unit prices mentioned in the contract’s bill of quantities.
5. On October 2015, Cotroceni Park S.A., a Romanian subsidiary of the Company, signed with DC-Rom, an agreement for the expansion of AFI Palace mall in Bucharest. The aggregate consideration under the agreement is approximately EUR 1.15 million plus VAT. Note 27 - Operating Segments The Company is presenting reportable operating segments, as described below, in accordance with IFRS 8. The operating segments are based on geographical areas which reflect the principal and material source of risks and rewards to which the Company is exposed and are managed separately. Operating segments are identified on the basis of internal management reports which are reviewed on a regular basis by the Group’s chief operating decision maker (CODM). The accounting policies of the reportable segments are the same as described in Note 3 regarding significant accounting policies.
Geographical segments
The Company has several main geographical areas: Czech Republic, Serbia, Bulgaria, Romania, Poland, Germany and Other regions.
For the year ended 31 December 2016, €’000 Germany Total Czech Republic Serbia Bulgaria Romania Poland (discontinued) Other Regions Reconciliations Consolidated Income from external customers: Rental income 5,451 12,072 622 44,645 5 6,196 - (6,196) 62,795 Proceeds from sale of trading properties 19 - 5,308 - 5,430 - - - 10,757 Service charge income 1,662 3,468 247 15,788 - 1,527 - (1,527) 21,165 Other 52 9 170 309 94 22 - 20 676 Total income 7,184 15,549 6,347 60,742 5,529 7,745 - (7,703) 95,393 Net valuation gain 3,984 15,113 (2,185) 50,838 639 39,716 - (39,716) 68,389 Segment result 8,721 26,170 (464) 96,073 2,139 39,211 (860) (39,169) 131,821 Unallocated expenses (10,603) Profit from operations 121,218 Net financing costs (31,501) Income tax expense (19,683) Equity losses from affiliated company 1,065 Non-controlling interests (9,360) Profit from continuing operations 61,739 Profit from discontinued operation 15,132 Profit for the period 76,871 Notes to the consolidated financial statements Note 27
For the year ended 31 December 2015*, €’000 Germany Total Czech Republic Serbia Bulgaria Romania Poland (discontinued) Other Regions Reconciliations Consolidated Income from external customers: Rental income 5,685 10,954 728 39,361 265 7,342 - (7,342) 56,993
Proceeds from sale of trading properties - - 6,432 - 1,151 - 149 - 7,732 reportannual financial 2016 Service charge income 1,771 3,163 240 13,941 96 1,683 - (1,683) 19,211 Other 172 14 172 737 84 28 344 17 1,568 77 Total income 7,628 14,131 7,572 54,039 1,596 9,053 493 (9,008) 85,504 Write down of inventory to net realize value - - - (1,326) - - (4,647) - (5,973) Net valuation gains (losses) 2,000 3,029 (2,395) 39,680 - 9,037 - (9,037) 42,314 Segment result 6,848 12,947 (1,017) 77,603 579 14,416 (5,293) (14,371) 91,712 Unallocated expenses (9,268) Profit from operations 82,444 Net financing costs (32,167) Income tax expense (11,616) Equity losses from associate companies (6) Non-controlling interest (4,027) Profit from continuing operations 34,628 Profit from discontinued operation 8,290 Profit for the period 42,918
* Reclassified - for further details see note 28 - discontinued operation
For the year ended 31 December 2014*, €’000 Germany Total Czech Republic Serbia Bulgaria Romania Poland (discontinued) Other Regions Reconciliations Consolidated Income from external customers: Rental income 10,141 10,770 747 36,787 266 7,537 - (7,537) 58,711 Proceeds from sale of trading properties - - 712 - 29,109 - 553 - 30,374 Service charge income 3,507 2,928 224 11,763 95 2,096 - (2,096) 18,517 Other 1,300 98 166 642 72 19 96 (19) 2,374 Total income 14,948 13,796 1,849 49,192 29,542 9,652 649 (9,652) 109,976 Write down of inventory to net realize value - - (1,281) (1,342) - - - - (2,623) Net valuation losses (3,989) 1,311 (3,196) 35,489 (42) 4,568 - (4,568) 29,573 Segment result 5,900 11,300 (3,882) 66,471 1,815 10,126 (188) (10,126) 81,416 Unallocated expenses (9,075) Profit from operations 72,341 Net financing costs 1,713 Income tax expense (9,699) Equity losses from affiliated company (986) Non-controlling interests (3,383) Profit from continuing operations 59,986 Profit from discontinued operation 2,028 Profit for the period 62,014
* Reclassified - for further details see note 28 - discontinued operation Notes to the consolidated financial statements Note 27
For the year ended 31 December 2016, €’000 Czech Germany Other Total Republic Serbia Bulgaria Romania Poland (discontinued) Regions Reconciliations Consolidated investment property and investment property under 101,306 209,979 33,670 568,760 6,157 275 - - 920,147
development reportannual financial 2016 inventory of buildings and land 87,269 9,774 22,669 101,814 19,825 - 18,959 - 260,310 Total 188,575 219,753 56,339 670,574 25,982 275 18,959 - 1,180,457 78 Unallocated assets 406,177 Total assets 1,586,634 Segment liabilities 63,432 90,971 20,994 314,673 2,594 46,065 312,465 - 851,194 Unallocated liabilities 182,661 Total liabilities 1,033,854 Capital expenditure 35,214 27,843 219 27,828 6,827 1,313 882 - 100,126 Depreciation 8 66 14 183 8 3 2 - 284
For the year ended 31 December 2015, €’000 Czech Other Republic Serbia Bulgaria Romania Poland Germany Regions Consolidated investment property and investment property under 88,601 168,451 35,819 647,784 5,078 109,796 - - 1,055,529 development inventory of buildings and land 59,337 - 26,609 100,096 15,407 - 18,007 - 219,456 Total 147,938 168,451 62,428 747,880 20,485 109,796 18,007 - 1,274,985 Unallocated assets 107,576 Total assets 1,382,561 Segment liabilities 53,838 85,391 25,625 317,209 1,436 64,058 241,819 - 789,376 Unallocated liabilities 125,588 Total liabilities 914,963 Capital expenditure 11,332 12,736 119 30,768 11,419 3,078 590 - 70,042 Depreciation 15 66 18 204 6 4 6 (4) 315
Write-down of inventory to - - - (1,326) - - (4,647) - (5,973) net realizable value Notes to the consolidated financial statements Note 28
Note 28 - Discontinued Operation As at 30 June 2016 the Company has entered into agreements regarding the sale or the expected sale of most of its assets in Germany (for further details, see Note 4(G)); this segment was not a
discontinued operation nor was it classified as held for sale as at 31 December 2015 and 2014. reportannual financial 2016 The comparative data for the years ended 31 December 2015 and 2014 have been restated in the consolidated income statement to show the discontinued operation separately from continuing operations. 79
A - Results attributable to the discontinued operation were as follows:
2016 2015 2014 €’000 €’000 €’000 Revenues 7,742 9,053 9,652 Expenses (9,221) (4,765) (5,094) Net valuation gains (loss) on investment properties 39,716 9,038 4,568 Net financing cost (5,852) (3,703) (6,352) Profit (losses) before tax 32,385 9,623 2,774 Income tax expense (17,253) (1,333) (746) Profit (loss) for the period 15,132 8,290 2,028
B. Cash flows from discontinued operation
2016 2015 2014 €’000 €’000 €’000 Net cash from operating activities 2,648 4,387 3,926 Net cash from investing activities 17,775 8,847 (3,658) Net cash used in financing activities (21,013) (12,624) (770) Net cash from (used in) discontinued operation (590) 610 (502) Notes to the consolidated financial statements Note 29
Note 29 - Group Entities1
Significant subsidiaries, associates and joint ventures annual financial reportannual financial 2016
Country of incorporation 12.2016 12.2015 12.2014 Adut s.r.o. Czech Republic 100.0 100.0 100.0 80 M.I.C.C Prague s.r.o. Czech Republic 100.0 100.0 100.0 Tulipa City s.r.o. Czech Republic 100.0 100.0 100.0 Broadway Creseus s.r.o. Czech Republic 100.0 100.0 100.0 Balabenka s.r.o. Czech Republic 100.0 100.0 100.0 AFI Europe Czech Republic s.r.o Czech Republic 100.0 100.0 100.0 Faringer Enterprises Ltd. Cyprus 100.0 100.0 100.0 Classic 7 s.r.o. Czech Republic 100.0 100.0 100.0 Tulipa Modranska rokle s.r.o. Czech Republic 100.0 100.0 100.0 Classic Park Group s.r.o. Czech Republic 100.0 100.0 100.0 Tulipa Trebesin s.r.o Czech Republic 100.0 100.0 100.0 Classsic Park III Czech Republic 100.0 100.0 - Tulipa Rokytka s.r.o Czech Republic 100.0 100.0 50.0 Intrastar International Ltd.2 British Virgin Islands 53.7 53.7 53.7 Galway Consolidated Ltd. British Virgin Islands 53.7 53.7 53.7 Airport City Belgrade d.o.o.2 Serbia 53.7 53.7 53.7 Airport City Property Management d.o.o. Serbia 53.7 53.7 53.7 Orchid Group d.o.o Serbia 100 - - Premium Property Management EooD Bulgaria 100.0 100.0 100.0 AFI Lagera Tulip EooD Bulgaria 100.0 100.0 100.0 Plovdiv Logistic Center EooD Bulgaria 75.0 75.0 75.0 Vitosha Gardens EooD Bulgaria 100.0 100.0 100.0 Malina Gardens EooD Bulgaria 100.0 100.0 100.0 AFI Europe Bulgaria EooD Bulgaria 100.0 100.0 100.0 Business Park Varna EooD Bulgaria 100.0 100.0 100.0 AFI Europe Management SRL Romania 100.0 100.0 100.0 S.C Bowling Management SRL Romania 100.0 100.0 100.0 Cotroceni Park SA Romania 98.4 98.4 98.4 Cotroceni Investments Ltd. Cyprus 100.0 100.0 100.0 Europe Logistics SRL Romania 100.0 100.0 100.0 Star Estate SRL Romania 100.0 100.0 100.0 Veroskip Trading SRL Romania 100.0 100.0 100.0 Premier Solutions & Team SRL Romania 100.0 100.0 100.0 Tulip Management SRL Romania 100.0 100.0 100.0 Plaza Arad Imobiliar SRL Romania 100.0 100.0 100.0 Roi Management SRL Romania 100.0 100.0 100.0 AFI Park 2 SRL Romania 100.0 100.0 100.0 AFI Park Building 3 SRL Romania 100.0 100.0 100.0 AFI Park offices 4&5 SRL Romania 100.0 100.0 100.0 AFI Palace B-Noi SRL Romania 100.0 100.0 100.0 AFI Palace Brashov SRL Romania 100.0 100.0 - Afi Global SRL Romania 100.0 100.0 - AFI Project 1 Sp. z o.o. Poland 100.0 100.0 - AFI Project 2 Sp. z o.o. Poland 100.0 100.0 - Novo Maar Sp. z o.o. Poland 100.0 100.0 100.0 AFI Zlota 83 Sp. z o.o. Poland 100.0 100.0 100.0 AFI Management Sp. z o.o. Poland 100.0 100.0 100.0 SIA AFI Investments Latvia 100.0 100.0 100.0 SIA AFI Management Latvia 100.0 100.0 100.0 SIA A.R. Holdings Latvia 100.0 100.0 100.0 SIA B.R. Holdings Latvia 100.0 100.0 100.0 SIA Anninmuizas Ipasums Latvia 100.0 100.0 100.0 Notes to the consolidated financial statements Note 29
Country of incorporation 12.2016 12.2015 12.2014 AFI Europe Hungary KFT Hungary 100.0 100.0 100.0 Szepligat KFT Hungary 100.0 100.0 100.0 Akar Lak KFT Hungary 100.0 100.0 100.0 AFI Properties Berlin B.V. The Netherlands 92.8 92.8 92.8 Margalit Grundstucks GmbH & Co. KG3 Germany 100.0 100.0 100.0 reportannual financial 2016 AFI Properties B.V. The Netherlands 92.8 92.8 92.8 Peerli Grundstucks GmbH & Co. KG4 Germany 100.0 100.0 100.0 81 AFI Properties Logistics B.V. The Netherlands 92.8 92.8 92.8 Harel Grundsturcks GmbH & Co. KG5 Germany 100.0 100.0 100.0 AFI Properties Development B.V. The Netherlands 92.8 92.8 92.8 Margalit Teltower Damm Grundstucks GmbH & Co. KG6 Germany 100.0 100.0 100.0 AFI Germany Investment GmbH Germany 100.0 100.0 100.0 AFI Germany GmbH Germany 100.0 100.0 100.0 AFIEM Cyprus Limited Cyprus 100.0 100.0 100.0 AFI Europe (Israel Branch) Ltd. Israel 100.0 100.0 100.0 AFI Europe Financing B.V. The Netherlands 100.0 100.0 100.0 AFI Corporate Financing B.V. The Netherlands 100.0 100.0 100.0 AFI Mixed-Use Projects B.V7 The Netherlands 96.0 - - M.S.A Efrat Investments Ltd (M.S.A) Israel 100.0 100.0 100.0 D.B.M Harel Investments Ltd (D.B.M) Israel 100.0 100.0 100.0
Joint venture entities
Country of incorporation 12.2016 12.2015 12.2014 Direct Capital Serbia d.o.o. Serbia 45.0 45.0 45.0 Pro-mot Hungaria KFT Hungary 50.0 50.0 50.0 AFI Project Developers B.V.8 The Netherlands 45.0 45.0 45.0
1. As the Group controls these entities, the results and the balance sheet of each company were fully consolidated. 2. Intrastar holds 85% in Airport City Belgrade d.o.o. and Galway Consolidated Ltd. holds 15% in Airport City Belgrade d.o.o. 3. The ownership is by AFI Properties Berlin B.V. (70%), M.S.A (15%) and D.B.M (15%) 4. The ownership is by AFI Properties B.V. (70%), M.S.A (15%) and D.B.M (15%) 5. The ownership is by AFI Properties Logistics B.V. (70%), M.S.A (15%) and D.B.M (15%) 6. The ownership is by AFI Properties Development B.V. (70%), M.S.A (15%) and D.B.M (15%) 7. The rights of AFI Europe N.V in profits 96%. The rights to vote and risks 100%. 8. The rights of AFI Europe N.V in profits 41.87%. The rights to vote and risks 45.025%. Auditors’ report Auditors’ Report
Somekh Chaikin Telephone 972 3 684 8000 KPMG Millennium Tower Fax 972 3 684 8444 annual financial reportannual financial 2016 17 Ha'arba'a Street, PO Box 609 Internet www.kpmg.co.il Tel Aviv 61006 Israel 83
Auditors' Report to the Shareholders of AFI Europe N.V
We have audited the accompanying consolidated financial statements of AFI Europe N.V., (the “Company”), prepared for the purpose of inclusion in the financial statements of Africa Israel Properties Ltd., which comprise the consolidated statements of financial position as at December 31, 2016 and 2015, and the consolidated income statement, the consolidated statement of comprehensive income, changes in shareholders’ equity and cash flows, for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's Board of Directors and of its Management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards in Israel, including standards prescribed by the Auditors Regulations (Manner of Auditor's Performance) - 1973. Such standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Board of Directors and by Management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its consolidated subsidiaries as of December 31, 2016 and 2015 and its results of operations, changes in equity and cash flows, for each of the three years in the period ended December 31, 2016 in accordance with International Financial Reporting Standards (IFRS).
Somekh Chaikin Certified Public Accountants (Isr.) March 13, 2016
Somekh Chaikin, an Israeli partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
2 AFI Europe N.V. Herengracht 456 1017 CA Amsterdam The Netherlands +31 20 4218 928 [email protected] www.afi-europe.eu