BANK OF KHANTY-MANSIYSK
OPEN JOINT STOCK COMPANY
(OJSC BANK OF KHANTY-
MANSIYSK) GROUP
Page
STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013 1
INDEPENDENT AUDITOR'S REPORT 2
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013:
CONSOLIDATED INCOME STATEMENT 4
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 5 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 6 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 7
CONSOLIDATED STATEMENT OF CASH FLOWS 8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
1. Organisation 10
2. Basis of presentation 12
3. Significant accounting policies 13
4. Net interest income 32
5. Trading income on foreign currency, precious metal and securities operations 33
6. Net commission income 33
7. Other income 34
8. Operating expenses 34
9. Income tax 35
10. Cash and balances with the Central Bank of the Russian Federation 37 11. Minimum reserve deposit with the Central Bank of the Russian Federation 37
12. Precious metals 38
13. Financial assets at fair value through profit or loss 38
14. Derivative financial instruments 39
15. Loans and advances to banks and other financial institutions 41
16. Loans to customers 42
17. Investments available-for-sale 50
18. Property, plant and equipment and intangible assets 51
19. Investment property 52
20. Other assets 53
21. Financial liabilities at fair value through profit or loss 54 22. Due to banks and the Central Bank of the Russian Federation 54
23. Customer accounts 55
24. Promissory notes issued 55
25. Bonds 56
26. Other liabilities 56
27. Subordinated debt and eurobonds 57
28. Share capital, share premium 57
29. Acquisitions and disposals of subsidiaries 58
30. Non-controlling interests 61
31. Commitments and contingencies 61
32. Related party transactions 63
33. Segment reporting 67
34. Fair value 72
35. Capital management 77
36. Risk management policies 78
Management is responsible for the preparation of the consolidated financial statements that present fairly the financial position of Bank of Khanty-Mansiysk Open Joint Stock Company (the “Bank”) and its subsidiaries (the “Group”) as at 31 December 2013 and the consolidated results of its operations, comprehensive income, cash flows and changes in shareholders’ equity for the years then ended, in compliance with International Financial Reporting Standards (“IFRS”).
In preparing the consolidated financial statements, management is responsible for: Properly selecting and applying accounting policies;
Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
Providing additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s consolidated financial position and financial performance;
Stating whether IFRS has been followed, subject to any material departures disclosed and explained in the consolidated financial statements; and
Making an assessment of the Group's ability to continue as a going concern. Management is also responsible for:
Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Group;
Maintaining adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the consolidated financial position of the Group, and which enable them to ensure that the consolidated financial statements of the Group comply with IFRS;
Maintaining statutory accounting records in compliance with legislation and accounting standards of the Russian Federation (the “RF”);
Taking such steps as are reasonably available to them to safeguard the assets of the Group; and Preventing and detecting fraud and other irregularities.
On behalf of the Management Board:
______________________________ ______________________________
President, Chairman of the Management Board Chief Accountant
D.A. Mizgulin V.I. Marinina
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and the Board of Directors of Bank of Khanty-Mansiysk Open Joint Stock Company.
We have audited the accompanying consolidated financial statements of BANK OF KHANTY-MANSIYSK OPEN JOINT STOCK COMPANY (the “Bank”) and its subsidiaries (the “Group”) which comprise the consolidated statement of financial position as at 31 December 2013, and the consolidated statements of income, comprehensive income, changes in equity and cash flow for the year then ended, and notes comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for the internal control system which the management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the fair presentation of these consolidated financial statements based on our audit. We conducted our audit in accordance with Russian Federal Auditing Standards and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management of the audited entity, as well as evaluating the overall presentation of the consolidated financial statements.
Audited entity: OJSC BANK OF KHANTY-MANSIYSK
State Registration Certificate No. 1971.
Issued by the Central Bank of the Russian Federation on 27.07.1992.
Certificate of entry in the Unified State Register of Legal Entities: №1028600001880,
issued on 14.08.2002 by the Department of the Russian Ministry of Taxes and Levies for the Khanty-Manskiysk Autonomous District.
Location: 38 Mira st., Khanty-Mansiysk, Khanty-Mansiysk Autonomous District Yugra, Russian Federation 628012
Independent Auditor: ZAO DELOITTE & TOUCHE CIS
State Registration Certificate No. 018.482 issued by Moscow Registration Chamber on 30 October 1992.
Certificate of registration in the Unified State Register of Legal Entities No. 1027700425444 issued by Interregional Inspectorate of the Russian Ministry of Taxation No.39 for Moscow on 13 November 2002.
Certificate of membership in self-regulated organization "Non-Commercial Partnership “Audit Chamber of Russia” No. 3026 dated 20 May 2009; main registration number 10201017407.
Standards.
3 April 2014
Moscow, Russian Federation
Svetlana Ploutalova, Partner
The notes on pages 10-96 form an integral part of these consolidated financial statements. Notes Year ended 31 December 2013 Year ended 31 December 2012 Continuing operations Interest income 4,16,32 30,425,299 21,415,734 Interest expense 4,32 (18,032,237) (11,902,292)
(Loss)/recovery of loss on loans issued at
below market rates 4,32 (374) 132,152
NET INTEREST INCOME 12,392,688 9,645,594
Provision for impairment losses on interest
bearing assets 15,16,32 (2,337,937) (1,477,172)
NET INTEREST INCOME AFTER
PROVISION FOR IMPAIRMENT LOSSES
ON INTEREST BEARING ASSETS 10,054,751 8,168,422
Trading income on foreign currency, precious
metal and securities operations: 5,32 122,399 1,696,583
Foreign exchange operations 519,147 832,218
Securities operations (345,466) 840,359
Precious metal operations (68,241) 34,087
Other derivatives 16,959 (10,081)
Net commission income 3,251,358 2,962,948
Fee and commission income 6,32 4,122,776 3,429,656
Fee and commission expense 6,32 (871,418) (466,708)
Provision for impairment losses on financial
guarantees and other transactions 20,26,32 (25,861) (30,670)
(Loss)/gain on revaluation of investment
property 19 (200,884) 29,150
Net gain on investments available-for-sale - 616,861
Other income 7,32 413,345 261,272
NET NON-INTEREST INCOME 3,560,357 5,536,144
OPERATING INCOME 13,615,108 13,704,566
OPERATING EXPENSES 8,32 (7,721,110) (6,668,193)
Reversal of impairment loss on property, plant
and equipment 18 19,400 29,573
PROFIT BEFORE TAX 5,913,398 7,065,946
Income tax expense 9 (1,301,731) (1,440,099)
INCOME FROM CONTINUING
OPERATIONS 4,611,667 5,625,847
Discontinued operations
Loss from discontinued operations net of tax 29, 32 - (253,410)
NET PROFIT 4,611,667 5,372,437
Attributable to:
Owners of the Bank 4,499,191 5,362,617
Non-controlling interests 112,476 9,820
On behalf of the Management Board:
_____________________________ _____________________________
President, Chairman of the Management Board Chief Accountant
D.A. Mizgulin V.I. Marinina
The notes on pages 10-96 form an integral part of these consolidated financial statements. Notes Year ended 31 December 2013 Year ended 31 December 2012 NET PROFIT 4,611,667 5,372,437
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified subsequently to profit or loss:
Revaluation of property, plant and equipment 18 151,945 138,000
Deferred tax relating to revaluation of property, plant and equipment 9 (28,701) (24,139)
Items that will be reclassified subsequently to profit or loss: Investments available-for-sale:
Net gain for the period 17 31,397 170,633
Less: Reclassification adjustments relating to amounts recognized in
the income statement - (426,492)
Deferred income tax effect 9 (6,279) 50,979
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS)
NET OF TAX 148,362 (91,019)
TOTAL COMPREHENSIVE INCOME 4,760,029 5,281,418
Attributable to:
Owners of the Bank 4,647,553 5,271,648
Non-controlling interests 30 112,476 9,770
On behalf of the Management Board:
_____________________________ _____________________________
President, Chairman of the Management Board Chief Accountant
D.A. Mizgulin V.I. Marinina
The notes on pages 10-96 form an integral part of these consolidated financial statements. Notes 31 December 2013 31 December 2012 ASSETS:
Cash and balances with the Central Bank of the Russian Federation 10 17,337,369 14,805,626
Minimum reserve deposits with the Central Bank of the Russian
Federation 11 1,998,171 2,300,890
Precious metals 12 10,100 11,844
Loans and advances to banks and other financial institutions 15,32 82,664,122 67,763,429
Financial assets at fair value through profit or loss 13,14,32 37,390,296 37,648,947
Loans to customers 16,32 210,092,021 165,847,241
Investments available-for-sale 17 475,338 443,941
Property, plant and equipment and intangible assets 18 4,893,925 4,811,628
Deferred income tax asset 9 103,738 30,851
Investment property 19 1,583,889 1,297,680
Other assets 20,32 4,065,170 3,405,801
TOTAL ASSETS 360,614,139 298,367,878
LIABILITIES AND EQUITY LIABILITIES:
Financial liabilities at fair value through profit or loss 14,21,32 2,024,706 1,235,108
Due to banks and the Central Bank of the Russian Federation 22,32 64,200,137 103,541,013
Customer accounts 23,32 233,668,616 140,158,348
Promissory notes issued 24 8,613,400 12,559,760
Bonds 25,32 4,804,151 3,014,393
Deferred income tax liability 9 700,904 480,708
Other liabilities 26,32 1,657,588 1,748,381
Subordinated debt and Eurobonds 27 9,597,389 5,042,958
TOTAL LIABILITIES 325,266,891 267,780,669
EQUITY:
Equity attributable to owners of the Bank
Share capital 28 11,282,369 11,282,369
Share premium 28 4,550,504 4,550,504
Revaluation of investments available-for-sale 68,130 43,012
Property, plant and equipment revaluation reserve 1,115,982 1,071,328
Retained earnings 18,217,777 13,639,996
Total equity attributable to owners of the Bank 35,234,762 30,587,209
Non-controlling interests 30 112,486 -
TOTAL EQUITY 35,347,248 30,587,209
TOTAL LIABILITIES AND EQUITY 360,614,139 298,367,878
On behalf of the Management Board:
_____________________________ _____________________________
President, Chairman of the Management Board Chief Accountant
D.A. Mizgulin V.I. Marinina
The notes on pages 10-96 form an integral part of these consolidated financial statements.
Notes Share capital Share premium
Revaluation of investments available-for-sale revaluation reserve Property, plant and equipment revaluation reserve Retained earnings Total equity attributable to owners of the Bank Non controlling
interests TOTAL EQUITY
Balance as at 31 December 2011 11,282,369 4,550,504 247,861 996,439 8,238,388 25,315,561 74,713 25,390,274
Net profit for the period - - - - 5,362,617 5,362,617 9,820 5,372,437
Total other comprehensive income for the period
net of deferred tax - - (204,849) 91,313 22,567 (90,969) (50) (91,019)
Total comprehensive income - - (204,849) 91,313 5,385,184 5,271,648 9,770 5,281,418
Disposal of share in subsidiary 29,30 - - - (16,424) 16,424 - (84,483) (84,483)
Balance as at 31 December 2012 11,282,369 4,550,504 43,012 1,071,328 13,639,996 30,587,209 - 30,587,209
Net profit for the period - - - - 4,499,191 4,499,191 112,476 4,611,667
Total other comprehensive income for the period
net of deferred tax - - 25,118 44,654 78,590 148,362 - 148,362
Total comprehensive income - - 25,118 44,654 4,577,781 4,647,553 112,476 4,760,029
Issue of shares by subsidiaries, acquired by
non-controlling interests 30 - - - 10 10
Balance as at 31 December 2013 11,282,369 4,550,504 68,130 1,115,982 18,217,777 35,234,762 112,486 35,347,248
On behalf of the Management Board:
________________________________________ _____________________________________
President, Chairman of the Management Board Chief Accountant
D.A. Mizgulin V.I. Marinina
The notes on pages 10-96 form an integral part of these consolidated financial statements. Notes Year ended 31 December 2013 Year ended 31 December 2012 CASH FLOWS FROM OPERATING ACTIVITIES
Interest received 29,747,609 20,825,588
Interest paid (17,970,820) (10,813,149)
Net receipts on financial instruments at fair value through profit or
loss 1,271,254 1,040,176
Net (payments)/receipts on precious metals transactions (68,339) 2,718
Net (payments)/receipts on foreign exchange operations (45,446) 575,017
Fee and commission income 4,123,193 3,396,708
Fee and commission expense (872,809) (463,312)
Other income received 262,853 166,192
Operating expenses paid (7,264,213) (5,765,308)
Income tax paid (942,674) (1,401,314)
8,240,608 7,563,316
Decrease/(increase) in the minimum reserve deposit at Central Bank
of the Russian Federation 11 302,719 (437,227)
Increase of guarantee deposits on plastic cards (38,232) (569)
(Purchase)/sale of precious metals (2,248) 12,149
Repayment/(issue) of loans and funds to banks and other financial
institutions 3 45,905,532 (38,574,508)
Net (increase)/decrease of financial assets and liabilities at fair value
through profit or loss (408,158) 5,831,599
Net increase in loans to customers (45,125,862) (49,290,881)
(Payments)/raising of funds from banks and the Central Bank of the
Russian Federation (38,680,687) 43,828,041
Net increase of customer accounts 92,473,135 22,844,405
Net (decrease)/increase in promissory notes issued (4,074,545) 5,952,384
Issue of bonds 25 1,762,593 -
Net increase in other assets (1,187,796) (907,985)
Net decrease in other liabilities 84,939 69,632
Net cash inflow/(outflow) from operating activities 3 59,251,998 (3,109,644)
Net cash outflow from operating activities -
discontinued operations 3 - (2,306,606)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment and intangible assets 18 (415,382) (357,234)
Proceeds on sale of property, plant and equipment and intangible
assets 4,142 8,189
Acquisition of investment property 19 (655,413) (162,242)
Proceeds from disposal of investment properties 19 458,415 186,538
Income from lease of investment property 3,19 24,522 26,770
Dividends received 3,7 1,384 707
Sale of investments available-for-sale - 8,702,457
Purchase of investments available-for-sale - (134,822)
Disposal of interests in subsidiaries 29 - 97,860
Net cash (outflow)/inflow from, investing activities (582,332) 8,368,223
Net cash outflow from investing activities -
The notes on pages 10-96 form an integral part of these consolidated financial statements. Notes Year ended 31 December 2013 Year ended 31 December 2012 CASH FLOWS FROM FINANCING ACTIVITIES
Subordinated debt received 27 977,963 -
Issue of subordinated Eurobonds 27 6,335,800 -
Redemption of subordinated Eurobonds 27 (3,167,900) -
Issue of shares by subsidiaries, acquired by non-controlling interests 30 10 -
Net cash inflow from financing activities 4,145,873 -
Net cash outflow from financing activities -
discontinued operations 27 - (40,000)
Effect of foreign exchange changes on cash and
cash equivalents 787,524 (264,587)
NET INCREASE IN CASH AND CASH EQUIVALENTS 3 63,603,063 2,581,540
CASH AND CASH EQUIVALENTS
beginning of the period 3, 10 23,548,227 20,966,687
CASH AND CASH EQUIVALENTS
end of the period 3, 10 87,151,290 23,548,227
During the years ended 31 December 2013 and 31 December 2012, the Group obtained non-cash settlement for uncollectible loans to customers. These non-cash settlements were excluded from the consolidated statement of cash flows and presented separately below:
Year ended 31 December 2013 Year ended 31 December 2012 NON-CASH TRANSACTIONS:
Loans to customers settled by means of collateral repossession: (27,317) (70,333)
Property received as a collateral 27,317 70,333
On behalf of the Management Board:
________________________________________ _____________________________________
President, Chairman of the Management Board Chief Accountant
D.A. Mizgulin V.I. Marinina
1. ORGANIZATION
The BANK OF KHANTY-MANSIYSK GROUP comprises the Bank of Khanty-Mansiysk Open Joint Stock Company, (the “Bank”) and its subsidiaries (the “Group”). The Bank of Khanty-Mansiysk Open Joint Stock Company (OJSC Bank of Khanty-Mansiysk) is an open joint-stock company, which was incorporated in the Russian Federation in 1992. The registered office of the Bank is located at: 38, Mira St., Khanty-Mansiysk, Khanty-Mansiysk Autonomous District-Yugra, Russian Federation. The Bank is regulated by the Central Bank of the Russian Federation (the “CBR”) and conducts its business under general license number 1971. The Bank’s primary business consists of commercial banking, trading with securities, foreign currencies and originating loans and financial guarantees. The Bank holds the following licenses:
General banking license issued by the CBR;
Precious metals operations license issued by the CBR;
Professional securities market participant license for broker operations issued by the Federal Service For Financial Markets (“FSFM”);
Professional securities market participant license for securities management issued by the FSFM; Professional securities market participant license for custodian operations issued by the FSFM; Professional securities market participant license for dealer operations issued by the FSFM; and License of commodity exchange intermediary for performing futures and options transactions in
the stock exchange market issued by the FSFM.
The Bank has a branch network to deliver services to its customers. As at 31 December 2013 and 31 December 2012, the Group had a head office in Khanty-Mansiysk, and 7 and 10 branches across the Russian Federation, respectively. As at 31 December 2013 and 31 December 2012, the Group had a representative office abroad. As at 31 December 2013 and 31 December 2012, the Group had 140 and 138 additional offices and operating cash desks, respectively.
The Bank is the parent company of a banking group which consists of the following enterprises which have been included in the consolidated financial statements of the Group:
Description Country of operation Ownership/ control interest of the Bank as at 31 December 2013 Ownership/ control interest of the Bank as at 31 December 2012 Type of activity
OJSC BANK OF
KHANTY-MANSIYSK RF Parent company Parent company Banking activity LLC “Yugra-Leasing” RF 100% / 100% 100% / 100% Finance leases
LLC “GPF” RF 100% / 100% 100% / 100% Construction
CUIT Real estate” KhMB Capital” RF 100% /100% 100% /100%
Investment fund management CJSC “Mortgage Agent KhMB-1” RF 0% / 100% -
Issue of mortgage-backed bonds
BKM Finance Limited Ireland 0% / 100% 0% / 100%
Assistance to the Bank in securities issuance
As at 31 December 2013 and 31 December 2012, the Group also had holdings (50%) in CJSC PK “HESCARD” that does not conduct active operations.
CUIT Real estate “KhMB-Capital” is a closed unit trust comprising real estate, transferred in trust to managing company OJSC “RONIN Trust”.
CJSC “Mortgage Agent KhMB-1” is a special purpose entity founded for the securitization of mortgage loans through their sale. The Group does not have an ownership interest in the capital of the company, but exercises the control through the determination of its operations.
BKM Finance Limited is a special purpose entity incorporated for the purposes of assisting in the issuance of the Group’s securities. The Group does not have an ownership interest in the capital of the company, but exercises the control through the determination of its operations.
The Group's management assessed the nature of interest and the level of impact of subsidiaries on the consolidated financial statements of the Group and took a decision not to disclose the statements of consolidated subsidiaries due to their immateriality.
The acquisitions and disposals of subsidiaries during the years ended 31 December 2013 and 31 December 2012 are disclosed in Note 29.
The Bank is a member/participant of:
Association of Regional Banks (“Russia” Association); Association of Russian Banks;
Tyumen Regional Association of Credit Institutions; Association of Banks of the North-West;
National Currency Association;
Russian National Association of S.W.I.F.T.; National Stock Exchange Association; Moscow Interbank Currency Exchange; Siberian Interbank Currency Exchange;
National Settlement Depositary (as a depositor);
Chamber of Industry and Commerce of the Khanty-Mansiysk Autonomous District-Yugra; Chamber of Industry and Commerce of the Tyumen Region;
St.-Petersburg Chamber of Industry and Commerce;
Chamber of Industry and Commerce of the Leningrad Region; Chamber of Industry and Commerce of Nizhnevartovsk; Chamber of Industry and Commerce of Kurgan;
“Russian Trading System” Stock Exchange;
VISA International payment system (principal member);
MasterCard International Incorporated payment system (principal member); UNION CARD Russian payment system;
Obligatory Deposit Insurance System (register number 322); “Brussels International Banking Club” International Association; The “Union of Builders of Yugra” Non-Commercial Organization;
The “West-Siberian Association of Builders” Non-Commercial Organization; Moscow International Foreign Currency Association;
Association of Russian members of Europay International.
As at 31 December 2013 and 31 December 2012 the Management Board consisted of 6 persons. As at 31 December 2013 and 31 December 2012 the Board of Directors included 7 and 9 directors, respectively, including 1 member of the Bank's Management Board.
As at 31 December 2013 and 31 December 2012 the following shareholders owned the shares of the Bank:
Shareholders(Shareholders of the first level):
Share in capital, % 31 December 2013 Share in capital, % 31 December 2012
Limited Liability Company “Ferrosplav Invest” 48.08* 44.20**
Limited Liability Company “KN-Estate” 19.99* 19.99**
Limited Liability Company “Vostok-Capital” 19.98* 19.98**
Open Joint-Stock Company “NOMOS-BANK” 7.79* 6.29**
Limited Liability Company “Promgazcomplekt” 3.53* 3.53**
Open Joint-Stock Company “NOMOS-REGIOBANK” - 1.50**
Other 0.63 4.51
Total 100.00 100.00
Ultimate shareholders of the Bank
Share in capital, % 31 December 2013 Share in capital, % 31 December 2012
Open Joint-Stock Company “NOMOS-BANK” 51.29 51.29
Nikolay Ivanovich Dobrinov 48.08 44.20
Other 0.63 4.51
Total 100.00 100.00
* The statements have been provided by the nominal holder as at 30 December 2013. ** The statements have been provided by the nominal holder as at 22 October 2012.
2. BASIS OF PREPARATION
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”).
The consolidated financial statements have been prepared on a historical cost basis, except for financial assets and liabilities designated at fair value through profit or loss, available–for–sale investments and derivative financial instruments, which have all been measured at fair value, precious metals, loans and deposits held in precious metals and land plots, buildings and investment property stated at revalued amounts.
These consolidated financial statements are presented in thousands of Russian Roubles (“RUB thousand”), unless otherwise indicated.
The Bank and its consolidated entities incorporated in the Russian Federation maintain their accounting records in accordance with Russian Accounting Standards (“RAS”), and foreign consolidated entities of the Bank maintain their accounting records in accordance with the laws and regulations of the countries in which they operate. These consolidated financial statements, except for BKM Finance Limited whose accounting records are prepared in accordance with IFRS, have been prepared from the Russian statutory accounting records and have been adjusted to conform to IFRS.
Functional currency
The functional currency of a majority of the entities within the Group is Russian Roubles (“RUB”). Each entity in the group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The presentational currency of the consolidated financial statements of the Group is Russian Roubles (“RUB”). All values are rounded to the nearest thousand Roubles, except when otherwise indicated.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation – The consolidated financial statements incorporate the financial statements of the Bank and entities (including special purpose entities) controlled by the Bank (its subsidiaries). Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Subsidiaries are those enterprises controlled by the Bank. Control exists when the Bank has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities.
Special purpose entities (“SPEs”) are entities that are created to accomplish a narrow and well-defined objective such as the securitization of particular assets, or the execution of a specific borrowing or lending transaction.
An SPE is consolidated if, based on an evaluation of the substance of its relationship with the Group and the SPE’s risks and rewards, the Group concludes that it controls the SPE.
Non-controlling interests – non-controlling interests the portion of profit or loss and net assets of subsidiaries not owned, directly or indirectly, by the Bank. Non-controlling interests are presented separately in the consolidated income statement, consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from parent shareholders’ equity.
exchange for control of the acquiree. Acquisition-related costs are generally recognized in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value at the acquisition date.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS.
The equity attributable to owners of the parent is shown separately in the consolidated statement of financial position and net income attributable to non-controlling interests is presented in the consolidated income statement and consolidated statement of comprehensive income.
When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.
If the initial accounting for a business combination is incomplete at the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.
Changes in the Group's ownership interests in existing subsidiaries – Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the parent.
Recognition and measurement of financial instruments – The Group recognizes financial assets and liabilities in its consolidated statement of financial position when it becomes a party to the contractual provisions of the financial instrument. Regular way purchases and sales of financial assets and liabilities are recognized using settlement date accounting. Rights to purchase financial instruments that will be subsequently measured at fair value between trade date and settlement date are accounted for in the same way as for acquired instruments.
Financial assets and liabilities are initially recognized at fair value. Financial assets or financial liabilities not designated at or classified as fair value through profit or loss are initially recognized at fair value. Transaction costs are directly attributable to the acquisition or issue of the financial asset or financial liability. The accounting policies for subsequent re-measurement of these financial instruments are disclosed in the respective accounting policies set out below.
Derecognition – A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or when the Group transfers substantially all the risks and rewards of ownership of the financial asset. Any rights or obligations created or retained in the transfer are recognized separately as assets or liabilities.
Also, when a financial asset is deemed to be uncollectible, the Group writes them off.
The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.
If the Group purchases its own debt, it is removed from the consolidated statement of financial position and the difference between the carrying amount of the liability and the consideration paid is included in gains or losses arising from early retirement of debt.
Cash and balances with the Central Bank of the Russian Federation – Cash represents cash on hand. Unrestricted balances on correspondent and term deposit accounts with the CBR are recognized as balances with the CBR and are measured at amortized cost.
In the consolidated statement of cash flows the cash and cash equivalents, include cash on hand, unrestricted balances on correspondent and term deposit accounts with the Central Bank of the Russian Federation, loans issued to banks with an initial maturity of up to 90 days, loans issued to banks under reverse repurchase agreements with an initial maturity of up to 90 days and correspondent accounts with banks and other financial institutions that are not restricted, except for margin deposits for operations with plastic cards, which may be converted to cash within a short period of time (less than 90 days).
Precious metals – Assets and liabilities denominated in precious metals are translated at the current rate computed based on the second fixing of the London Metal Exchange (LME) rates, using the RUB/USD exchange rate effective at the date. Changes in the bid prices are recorded in net gain/(loss) on operations with precious metals.
Loans and advances to banks and other financial institutions include funds placed on nostro accounts with banks and other financial institutions. Also, in the normal course of business, the Group originates loans and deposits to other banks and other credit institutions for various time periods. Loans and deposits to credit institutions thus non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables and that are measured at amortized cost using the effective interest method.
Financial assets and liabilities at fair value through profit or loss represent financial instruments:
Acquired for the purpose of selling/purchasing them in the near future;
Are derivative financial instruments (except for derivative financial instruments that are designated and effective as a hedging instruments); or
Are financial assets and liabilities that upon initial recognition are designated by the Group at fair value through profit or loss.
The Group designates financial assets and liabilities at fair value through profit or loss where either: Such designation eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise;
The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
It forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL in consolidated income statement.
Financial assets and liabilities at fair value through profit or loss are initially recorded and subsequently measured at fair value. The Group uses quoted market prices to determine the fair value for financial assets and liabilities at fair value through profit or loss or appropriate pricing models if quoted market prices are not available. The valuation models include the use of information about current market prices of similar instruments, discounted cash flow analysis and use of other valuation models where appropriate. If there is a valuation technique commonly used by market participants to compute fair value for the financial instrument and that technique has been demonstrated to provide reliable estimates of the fair value obtained in actual market transactions, the Group uses that technique. Changes in fair value of financial assets and liabilities at fair value through profit or loss are recognized in profit or loss in the period that they occurred.
Derivative financial instruments – The Group enters into derivative financial instruments to manage currency, interest rate and liquidity risks and for trading purposes. Derivatives entered into by the Group include forward transactions in foreign exchange, precious metals and securities, interest rate and currency interest swaps. Derivative financial instruments entered by the Group are not designated as hedges and do not qualify for hedge accounting.
Loans to customers are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those classified in other categories of financial assets. Loans are initially recognized at fair value plus related transaction costs that directly relate to acquisition or creation of such financial assets. Where the fair value of the consideration given does not equal the fair value of the loan, for example where the loans to customers are issued at lower than market rates, the difference between the fair value of the consideration given and the fair value of the loan is included in profit or loss or in the consolidated statement of changes in equity. Subsequently, loans are carried at amortized cost using the effective interest rate method. Loans to customers are accounted for net of any provision for impairment losses.
Write-off of loans to customers – The Bank's Management Board and/or Board of Directors considers and makes a decision on writing off loans in the consolidated statement of financial position against the provision for loan impairment. The Group writes off a loan balance (and any related provision for loan impairment) when management determines that the loans are uncollectible and when all necessary steps to collect the loan are completed.
A repo is an agreement to transfer securities to another party in exchange for cash or other consideration with an obligation to repurchase the securities at a future date for an amount equal to the cash or other consideration exchanged plus interest. These agreements are accounted for as financing transactions. Securities transferred under repo agreements are not derecognized from the Group’s consolidated statement of financial position. The funds received are recognized as collateralized deposits received.
Reverse repo agreements are recognized in the consolidated financial statements as amounts placed on deposit, which is collateralized by securities. Assets purchased under reverse repo agreements are not recognized in the consolidated statement of financial position.
Gain/loss on the sale of the above instruments is recognized as interest income or expense in the consolidated income statement based on the difference between the repurchase price accreted to date using the effective interest method and the sale price when such instruments are sold to third parties. When the reverse repo/repo is fulfilled on its original terms, the effective yield or interest between the sale and repurchase price negotiated under the original contract is recognized using the effective interest method.
When securities purchased under reverse repo agreements are sold to third parties the obligation to return securities is recorded as a financial liability at fair value through profit or loss and measured at fair value.
Investments classified as available-for-sale are those financial assets that are designated as
available-for-sale or are not classified as loans and receivables, held-to-maturity financial assets or financial assets at fair value through profit or loss. Financial assets available-for-sale represent debt and equity investments that are intended to be held for an indefinite period of time. Financial assets classified as available for sale are initially recorded at fair value. Subsequently the financial assets are measured at fair value, with revaluation recognized in other comprehensive income until the financial asset is derecognized, at which time the cumulative gain or loss previously recognized in other comprehensive income is recognized in profit or loss , except for impairment losses, foreign exchange gains and losses on debt financial instruments and interest income accrued using the effective interest method, which are recognized in consolidated profit or loss.
The Group uses quoted market prices to determine fair value of financial assets available-for-sale or appropriate valuation models if quoted market prices are not available. The valuation models include the use of information about current market prices of similar instruments, discounted cash flow analysis and use of other valuation models where appropriate. If there is a valuation technique commonly used by market participants to compute fair value of the instrument and that technique has been demonstrated to provide reliable estimates of fair values obtained in actual market transactions, the Group uses that technique.
Unquoted shares are stated at acquisition cost less impairment losses, unless fair value can be reliably measured.
Impairment – Financial assets carried at amortized cost consist principally of loans and receivables. The Group reviews its loans and receivables to assess impairment on a regular basis. A loan or receivable is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the loan or receivable and that event (or events) has (have) had an impact on the estimated future cash flows of the loan that can be reliably estimated.
The Group first assesses whether objective evidence of impairment exists individually for loans and receivables that are individually significant, and individually or collectively for loans and receivables that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed loan or receivable, whether significant or not, it includes the loan in a group of loans and receivables with similar credit risk characteristics and collectively assesses them for impairment. Loans and receivables that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss on a loan or receivable has been incurred, the amount of the loss is measured as the difference between the carrying amount of the loan or receivable and the present value of estimated future cash flows including amounts recoverable from guarantees and collateral discounted at the loan or receivable’s original effective interest rate. Contractual cash flows and historical loss experience adjusted on the basis of relevant observable data that reflect current economic conditions provide the basis for estimating expected cash flows. In some cases the observable data required to estimate the amount of impairment loss on a loan or receivable may be limited or no longer fully relevant to current circumstances. This may be the case when a borrower is in financial difficulties and there is little available historical data relating to similar borrowers. In such cases, the Group uses its experience and judgment to estimate the amount of any impairment loss.
All impairment losses in respect of loans and receivables are recognized in profit or loss and are only reversed if a subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognized.
Impairment – Financial assets classified as available-for-sale. When there is objective evidence that financial assets available-for-sale are impaired, the cumulative loss previously recognized in the consolidated statement of comprehensive income is removed from the statement of comprehensive income and recognized in the consolidated income statement. For an investment available-for-sale, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. Once an impairment loss has been recognised on an available-for-sale financial asset, the subsequent accounting treatment for changes in the fair value of that asset differs depending on the nature of the available-for-sale financial asset concerned:
For an available-for-sale debt security, a subsequent decline in the fair value of the instrument is recognized in the consolidated income statement when there is further objective evidence of impairment as a result of further decreases in the estimated future cash flows of the financial asset. Where there is no further objective evidence of impairment, the decline in the fair value of the financial asset is recognized in the consolidated statement of comprehensive income. If the fair value of a debt security increases in a subsequent period, and the increase can be objectively related to an event occurring after the impairment loss was recognized in the income statement, the impairment loss is reversed through the income statement to the extent of the increase in fair value;
For an available-for-sale equity security, all subsequent increases in the fair value of the instrument are treated as a revaluation and are recognized in the consolidated statement of comprehensive income. Impairment losses recognized on the equity security are not reversed through the income statement. Subsequent decreases in the fair value of the available-for-sale equity security are recognized in the consolidated income statement, to the extent that further cumulative impairment losses have been incurred in relation to the acquisition cost of the equity security.
Impairment – Financial assets carried at cost include unquoted equity instruments included in available-for-sale assets that are not carried at fair value because their fair value can not be reliably measured. If there is objective evidence that such investments are impaired, the impairment loss is calculated as the difference between the carrying amount of the investment and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset.
Reclassification of financial assets – Non-derivative financial assets (other than those designated at fair value through profit or loss upon initial recognition) may be reclassified out of the fair value through profit or loss category in the following circumstances:
Financial assets that would have met the definition of loans and receivables at initial recognition (if the financial asset had not been required to be classified as held for trading) may be reclassified out of the fair value through profit or loss category if there is the intention and ability to hold the financial asset for the foreseeable future or until maturity; and
Financial assets (except financial assets that would have met the definition of loans and receivables at initial recognition) may be reclassified out of the fair value through profit or loss category and into another category in rare circumstances.
When a financial asset is reclassified as described in the above circumstances, the financial asset is reclassified at its fair value on the date of reclassification. Any gain or loss already recognized in the income statement is not reversed. The fair value of the financial asset on the date of reclassification becomes its new cost or amortised cost, as applicable.
Property, plant, equipment and intangible assets – Property, plant, equipment and intangible assets (except for land plots and buildings) acquired after 31 December 2002 are carried at cost less accumulated depreciation/amortization and accumulated impairment losses. Property, plant and equipment and intangible assets (except for land plots and buildings) acquired before 31 December 2002 are carried at cost adjusted for hyperinflation less accumulated depreciation/amortization and accumulated impairment losses.
Land plots and buildings held for use in supply of services, or for administrative purposes, are stated in the consolidated statement of financial position at their revalued amounts, being the fair value at the date of revaluation, determined from market-based evidence by appraisal undertaken by professional independent appraisers, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The following methods were used to measure the fair value: discounted cash flow method (income approach), integrated cost estimation method (cost based method), method of sales comparison (comparative approach). Revaluation is performed on a sufficiently regular basis such that the carrying amount does not differ significantly from the fair value of land plots and buildings subject to revaluation.
Any increase in the carrying amount of land plots and buildings for use in the supply of service, or for administrative purposes as a result of the revaluation is recognized in the revaluation reserve for property, plant and equipment within other comprehensive income, except to the extent that it reverses a previous revaluation decrease recognized in profit or loss, in which case it is recognized in profit or loss. A revaluation decrease on such an item of land plots or buildings is recognized as a loss to the extent that it exceeds a revaluation surplus resulted from a previous revaluation.
Depreciation on revalued buildings is charged to profit or loss. The depreciation attributable to revalued buildings is transferred from the revaluation reserve for property, plant and equipment to retained earnings/(accumulated deficit), without any charge to the consolidated income statement. On the subsequent sale or disposal of revalued land plots and buildings, the attributable revaluation surplus remaining in the revaluation reserve for property, plant and equipment is transferred directly to retained earnings/(accumulated deficit).
Depreciation and amortization is charged on the carrying value of property, plant and equipment (except for land plots) and intangible assets and is designed to write off assets over their useful economic lives. Depreciation is calculated on a straight line basis at the following annual prescribed rates:
Buildings 50 years
Furniture and equipment 5 years
Transport and other equipment
from 4 to 5 years
Intangible assets 4 years
After the recognition of an impairment loss the depreciation charge for property, plant and equipment, and intangible assets is adjusted in future periods to allocate the assets’ revised carrying value, less its residual value (if any), on a straight line basis over its remaining useful life.
Expenses related to repairs and renewals are charged when incurred and are included in the operating expenses unless they qualify for capitalization.
Impairment –Tangible and intangible assets are assessed at each reporting date for any indications of impairment. The recoverable amount of non-financial assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash flows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount.
All impairment losses in respect of non-financial assets are recognized in profit or loss, unless the relevant assets are carried at their revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where there is objective evidence that an impairment loss has subsequently reversed, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Operating leases – Leases under which the risks and rewards of ownership are effectively retained with the lessor are classified as operating leases.
Payments under operating leases are expensed over the term of the lease and included in the operating expenses.
Finance leases – The Group as a lessor presents finance leases as loans to customers and initially measures them at an amount equal to the net investment in the lease. Subsequently, the recognition of finance income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment in the finance lease.
Before commencement date property, plant and equipment purchased for future transfer to finance lease is recognized in the consolidated financial statements as property, plant and equipment purchased to transfer to finance lease at cost.
Assets held for sale consists of non-current assets or disposal groups where the carrying amount of the asset or liability is expected to be recovered primarily through a sale transaction rather than through continuing use are classified as held for sale, with the assets or disposal group measured at the lower of the carrying amount or fair value less costs to sell.
Taxation – Income tax expense represents the sum of the current and deferred tax expense. Income tax is recognized in profit or loss except to the extent that it relates to items of other comprehensive income or transactions with shareholders recognized directly in equity, in which case it is recognized in other comprehensive income or directly in equity, respectively.
The current tax expense is based on taxable profit for the year. Taxable profit differs from profit before taxes reported in the consolidated income statement and consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
Current tax expense is calculated as a percentage from taxable profit for the reporting period using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years. If several tax rates are used, total current tax expense is calculated as a sum of tax expenses calculated separately as percentages from relevant tax bases using relevant tax rates.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred income tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences, unused tax losses and credits can be utilized. Such tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit and if temporary differences are related to investments in subsidiaries and associates where the parent is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized.
Deferred and current income tax assets and liabilities are offset where:
The Group has the legal right to offset recognized amounts of current income tax assets and current income tax liabilities;
The Group has an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously; and
The deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority in each future tax period in which significant amounts of deferred tax liabilities and assets are expected to be settled or recovered.
Due to banks and Central Bank of the Russian Federation and customer accounts are initially recognized at fair value, which is equal to the issue proceeds less transaction costs incurred. Subsequently, amounts due to banks and Central Bank of the Russian Federation and customers are stated at amortized cost. Any respective difference between net proceeds and the redemption value is recognized as interest expense in profit or loss over the period of the borrowings using the effective interest method.
Securities issued represent promissory notes and bonds issued to obtain additional financing. These financial instruments are initially recognized at fair value, which is equal to the issue proceeds less transaction costs incurred. Subsequently, securities issued are stated at amortized cost and any difference between net proceeds and the redemption value is recognized as interest expense in profit or loss over remaining period to maturity using the effective interest method.
Subordinated debt and Eurobonds are initially recognized at fair value, which is equal to the issue proceeds less transaction costs incurred. Subsequently, subordinated debt and Eurobonds are stated at amortized cost, and any difference between net proceeds and the redemption value is recognized as interest expense in profit or loss over the period till redemption using the effective interest method. All other non-derivative financial liabilities, other than those which arise when a transfer of a financial asset carried at fair value does not qualify for derecognition, are initially recognized at fair value, which is equal to the issue proceeds less transaction costs incurred. Subsequently these financial liabilities are stated at amortized cost, and any respective difference between net proceeds and the redemption value is recognized as interest expense in profit or loss over the period till redemption using the effective interest method.
Share capital and share premium – Contributions to share capital made before 31 December 2002 are recognized at their cost adjusted for hyperinflation. Contributions to share capital, made after 31 January 2002 are recognized at cost. Share premium represents the excess of contributions over the nominal value of the shares issued. Gains and losses on sales of treasury stock are charged or credited to share premium.
Costs directly attributable to the issue of new shares are deducted from equity net of any related income taxes.
Dividends on ordinary and preference shares are recognized in equity as a reduction in the period in which they are declared. Dividends declared after the balance sheet date are treated as an unadjusted subsequent event under IAS 10 “Events After the Balance Sheet Date” and disclosed accordingly.
Pension obligations – The Group does not have any pension arrangements other than payments to the State pension system of the Russian Federation, which requires current contributions by an employer calculated as a percentage of current gross salary payments. This expense is charged in the period in which the related salaries are earned. In addition, the Group has no post-retirement benefits or other significant compensated benefits requiring accrual.
