Annual Report 2013 Arricano Annual Report 2013 About Arricano Today, Arricano has 113,800 square metres of completed assets spread across four shopping centres. In addition, the Company also owns title rights for 185,567 square metres of development land divided into four specific sites which are at varying stages of development and has an interest in Sky Mall, a 67,000 square metre shopping centre in Kyiv. 2013 Financial Highlights Recurring Revenues Profit before tax (excluding the benefits from revaluation of the portfolio) 30 3 2.4 25 25.3 20 0 15 16.4 USD Million USD Million USD 10 -3 5 -5.6 0 -6 2012 2013 2012 2013 Total value of the portfolio Occupancy (independently valued) (across completed portfolio) 300 100 287.8 250 98 98.3 200 96.8 96 150 161.2 % USD Million USD 94 100 92 50 90 2012 2013 2012 2013 Our Portfolio at a Glance Strategic Report Report Strategic Our Portfolio at a Glance 01 Chairman’s Statement 02 Chief Executive Officer’s Report 04 Operating Portfolio 06 Financial Review 12 Completed Portfolio Consists of four shopping centres located in the cities of Kryvyi Rih, Zaporizhzhya, Simferopol and Read more: Directors’ Report Kyiv. Spread over 113,800 square metres offering Page 06 consumers a range of domestic and international Directors’ Report 14 retail brands. Board of Directors 16 Senior Management 18 Independent Auditors’ Report 20 Directors’ Report Directors’ Financial Statements Consolidated Statement of Financial Position 21 Consolidated Statement of Profit or Loss Investment Property and other Comprehensive Income 23 Consolidated Statement of Cash Flows 24 Consolidated Statement of Changes in Equity 26 49% shareholding in Kyiv’s Sky Mall, one of the City’s largest shopping centres, home to a range of leading Read more: Notes to the Consolidated Statements 27 retail brands including Marks & Spencer, TopShop Page 10 and Comfy. Financial Statements Financial Development Property Following the IPO on AIM, the Company acquired four development sites for approximately USD66m, Read more: the sites are in varying stages of development. Page 10 Three are located in Kyiv and one in Odessa. Arricano Annual Report 2013 01 Chairman’s Statement I am pleased to be able to provide Arricano’s maiden results following its admission to AIM in September 2013. Our commercial objective is to use the cash generative completed portfolio to support the addition of further lettable space and the development of new shopping centres and entertainment complexes. 02 Arricano Annual Report 2013 Strategic Report Strategic Introduction Vunderbuilt S.A. in exchange for ownership of the The search for a new CEO is underway while, at the I am pleased to be able to provide Arricano’s maiden four development sites. Arricano, as part of this same time, the Board is confident the Company is set of full year results following its admission to AIM transaction, also took over the benefit of certain in safe hands under the guidance of Yarema Kovaliv. in September 2013. The Company has made good shareholder loans relating to these sites arranged by Tetiana Kolesnyk, head of Planning and Reporting, progress during the period under review and has the beneficiary of Vunderbuilt S.A. The IPO enabled has also taken on the financial management role re-enforced its position as one of the leading real the Company to acquire this new land bank to following the departure of Maxim Goncharuk who estate developers and operators of shopping centres develop, thereby substantially increasing the scale was Chief Financial Officer (non-Board position). and entertainment complexes in the Ukraine. of the business. Outlook Today, Arricano has 113,800 square metres of The Company’s strategy has remained unchanged The Group believes that it is well positioned completed assets spread across four shopping centres and the second half of the financial year saw the to capitalise on the under-developed retail real in which occupancy is high at 98.3 per cent and Company continue to use its asset management estate market in the Ukraine. However, it is likely generated rental income of approximately USD25 skills to increase the long-term value of the that progress at least in the first half of the million for the year ended 31 December 2013. In portfolio, manage over 440 tenants and continue current financial year will be slower than originally addition to the Company’s four shopping centres, to move forward the development opportunities anticipated due to the general political and economic the Company also owns title rights for 185,567 across the Group. uncertainty. The South Gallery in Simferopol (Crimea) square metres of development land divided into continues to operate as before and we will monitor four specific sites which are in varying stages of Managing risk has always been an important part of the situation there closely. Everyone connected development and has an interest in Sky Mall with the Company’s strategy and to this end, we seek to to the Company is hoping for a peaceful solution 68,000 square metres of leasable area. pre-let and secure anchor tenants for future projects over the coming months, though there is likely Report Directors’ and keep speculative development to a minimum. to be an impact on the capital markets while issues The Company’s portfolio of assets was externally and remain unresolved. However, at the time of release independently valued as at 31 December 2013 by The Market of this statement for Arricano, there has been Expandia LLC, part of the CBRE Affiliate Network. While there are always challenges to overcome, no material impact on the underlying trading and The expanded portfolio was valued at USD287.8 Arricano has been successfully operating in the it remains ‘business as usual’, with new leases million, including property under construction and Ukraine since 2007. There have been many changes continuing to be signed, loans extended and prepayments that are stated at cost for a total in the market during that time but the Company has rents paid. amount of USD39.2 million. consistently commissioned a new project every year since then. Our aim is to build long-term shareholder Rupert Cottrell Strategy value and we believe the Ukraine remains severely Chairman Our commercial objective is to use the cash generative structurally undersupplied in terms of good to high 8 April 2014 completed portfolio to support the addition of further quality retail space. Sentiment has been affected by lettable space and the development of new shopping the current market conditions and the Company is centres and entertainment complexes. 2013 saw the taking a more cautious approach to the pace of the Company successfully pursue this strategy by growing development pipeline but existing projects are recurring revenues through securing new tenants, continuing, albeit with a focus on mitigating risk improving average letting rates and the Company’s where appropriate. stock market listing. The Board and Management As part of the listing on the AIM market of the In December 2013, Emil Budilovsky, Chief Executive London Stock Exchange, the Company raised a net Officer of Arricano stepped down from his role with Statements Financial USD23 million through a placing of new ordinary the Company for personal reasons. His position has shares and issued 28,350,214 ordinary shares been covered by Yarema Kovaliv, previously head of (equivalent to approximately USD66 million) to the Company’s legal department, on an interim basis. Managing risk has always been an important part of the Company’s strategy and to this end we seek to pre-let and secure anchor tenants for future projects. Arricano Annual Report 2013 03 Chief Executive Officer’s Report Arricano is focused on generating value for shareholders over the long-term. The Company is in a healthy position. We own and operate four shopping centres and entertainment complexes generating strong and predictable cashflows which support our aim to develop similar sites in other under developed retail areas in the Ukraine. 04 Arricano Annual Report 2013 Strategic Report Strategic Introduction The annual revaluation of the Group’s portfolio The Market I am pleased to be able to report on a successful year as at 31 December 2013, valued the portfolio at Arricano is focused on generating value for which saw the Company list on the AIM market and USD287.8 million compared to USD161.2 million shareholders over the long-term. Our experiences substantially increase the size and potential of the in the prior year. The current valuation includes the of working in the Ukrainian and neighbouring business. We began the year with five completed acquisition of the development land and property markets show that there is a strong desire amongst assets (in the case of Sky Mall, an interest in) and under construction valued at USD86.9 million and consumers to adopt western shopping habits and at the time of the IPO acquired a development USD38 million of direct additions to the investment follow similar retail trends. Today, the Ukrainian pipeline with the potential to establish four more property during the period. The revaluation on a market is severely structurally under-supplied and shopping centre and entertainment complexes. comparable basis showed a small uplift of USD1.7 in establishing and extending Arricano’s presence million. A value of USD20.7 million is attributed we are seeking to address this market opportunity From our headquarters in Kyiv, we have a successful to the Company’s interest in the holding company by developing shopping formats that compare asset management team who have assisted in of Sky Mall. favourably to Western Europe and provide maintaining high levels of occupancy across the innovative, modern, retail environments offering portfolio, pushing through appropriate rental Bank debt at the year-end was USD72.7 million, a good mix of domestic and international retailers.