ARO.L Regulatory News (ARO)

26 April 2018

Arricano Real Estate plc

("Arricano" or the "Company" or, together with its subsidiaries, the "Group")

Final Results for the 12 months ended 31 December 2017

Arricano is one of the leading real estate developers and operators of shopping centres in Ukraine. Today, Arricano owns and operates five completed shopping centres comprising 147,500 sqm of gross leasable area, a 49.9% shareholding in Assofit and land for a further three sites under development.

Highlights

· Recurring revenues increased by 19% to USD 27.5 million (2016: USD 23.1 million)

· Operating profit increased to USD 65.5 million (2016: USD 43.8 million), both figures including revaluation gains

· Total fair valuation of the Company's portfolio was USD 221.2 million as at 31 December 2017 (2016: USD 175.7 million)

· Overall occupancy rates for 2017 increased to 98.7% against 98.3% in 2016

· As at 31 December 2017, the Company's borrowings at project level remain conservative with a banks' loan to investment property value ratio of 19.5%, against 28.5% in 2016

· Net asset value of USD 52.2 million (2016: USD 24.2 million)

Philip Scales, Interim Independent Chairman of Arricano, commented: 

"2017 was a successful year for Arricano and a continuation of the progress made by the Company in 2016. Delivering revenue growth of 19% in the current market reflects well on the management team and the strategies they are pursuing to increase the appeal of the shopping centres to both consumers and tenants."

This announcement is inside information for the purposes of Article 7 of EU Regulation 596/2014.

For further information please contact:

Chairman's Statement

In 2017, Arricano delivered a positive performance increasing rental income by 19% to USD 27.5 million and growing recurring profits by 10.5% to USD 17.6 million (excluding gains from property revaluation). Along with improving economic stability in Ukraine, Arricano has significantly outperformed the market with these results, attracting and maintaining new tenants and creating modern retail environments which consumers want to shop and socialise in.

It is noteworthy that rental income from the portfolio now exceeds income generated in 2013 which was the year before the military conflicts started. Since that time, the social and economic environment has been particularly challenging. It is therefore a significant achievement for Arricano to have not only maintained the portfolio but to have expanded it with the opening of the Prospekt Mall in 2014 and to have adapted the business to be able to grow in the current environment.

Arricano's management team has been dynamic in its approach to understanding and anticipating new trends in 21st Century retailing and their impact upon city based shopping centres. The focus has been on working in partnership with tenants to jointly enhance the attraction of each Arricano shopping centre making them places where consumers want to visit in order to spend time relaxing, socialising and shopping. To achieve this objective, a key focus in 2017 was managing tenant mix and turnover and ensuring tenants were rotated to keep retail environments refreshed and new.

The success of the Company's strategy to increase the appeal of each shopping centre in the portfolio is reflected in the significant increase in visitor numbers up by 17% in 2017 to 45.2 million visitors. This is an excellent achievement and demonstrates the significant appeal of the shopping centres.

Tenant demand for space has continued to be strong and the Company has worked hard to select new tenants who add to the appeal and ambience of the shopping centres thereby increasing occupancy and number of visitors. Occupancy across the portfolio improved to 98.7%, up from 98.3% at 31 December 2016, demonstrating Arricano's ability to both attract new and keep existing tenants. In 2017, the Company signed 101 new lease agreements relating to 11,574 sqm of retail space.

As at 31 December 2017, Arricano had 147,500 sqm of completed assets spread across five completed shopping centres. In addition, the Company also owns title rights for 14 ha. of development land divided into three specific sites which are at varying stages of development. These are in Lukianivka and Petrivka (both Kyiv), as well as Rozumovska (Odessa).

During the financial year, the ongoing court case regarding Arricano's 49.97% shareholding in Assofit Holdings Limited ("Assofit"), the holding company which held the Sky Mall shopping centre, continued with further awards from the High Court of England and Wales ruling in Arricano's favour. Arricano's focus is now on enforcement of the Court's decision and seeing the rightful return of the asset to the Company. In October 2017, Arricano became one of 46 member companies of the Ukrainian Network of Integrity and Compliance (UNIC) a new movement aiming to promote ethical business practices.

During 2017, Arricano was nominated for and won a series of industry awards reflecting the Company's leadership across multiple areas. At the well regarded Retail & Development Business Awards, Arricano won awards for Corporate & Social Responsibility, Marketing and came second in The Best Medium-Sized Shopping Mall rating. The National Commercial Property awards saw Arricano win the Best Marketing Project in Shopping Malls for its social campaign 'Change Old Things for New'. Since the year-end, Arricano attended the Consumer's Choice Retail Awards and won awards for best shopping mall in Kryvyi Rih, and the best shopping mall in Zaporizhia.

On behalf of the Board I would like to thank all the employees across the business, for their contributions and commitment to the business during 2017 and I look forward to them achieving another successful year in 2018.

Arricano's long-term strategy remains focused on developing and protecting value of the portfolio. Key metrics of visitor numbers and occupancy demonstrate the success of the management's strategies to date. However, retail is a fast-moving world and the Company is focused on anticipating future trends and ensuring that Arricano centres maintain their strong appeal.

Philip Scales

Interim Independent Chairman

25 April 2018

Chief Executive Officer's Report

Introduction

2017 was a satisfying year for the business, while the economy in Ukraine grew by 2.5%, Arricano grew much faster recording a 19% increase in sales together with the independent valuation of the portfolio of assets increasing by 26% to USD 221 million. This was therefore a pleasing performance and a reflection of the Company's success in continuing to enhance the appeal of the Group's shopping centres.

2017 was also the year of the Customer Experience with the management team focused on better understanding the primary issues facing tenants and visitors. Research combined with practical experience helped to identify areas where the Company has been able to remove potential issues and thereby increase loyalty and ultimately revenues.

Results

Recurring revenues for the period were USD 27.5 million (2016: USD 23.1 million). As a result, the Net Operating Income ("NOI") from the operating properties excluding revaluation gains were USD 17.6 million compared to USD 15.9 million in 2016.

Profit before tax was USD 33.6 million (2016: USD 29.2 million). This increase was achieved through a combination of improved recurring revenues and an increase in the valuation of the Company's property portfolio.

The portfolio of assets was externally and independently valued as at 31 December 2017 by Expandia LLC, part of the CBRE Affiliate Network. The portfolio was valued at USD 221.3 million (31 December 2016: USD 175.7 million), the increase in the value of the portfolio was primarily driven by the increase in rental income and through conservative operational cost management.

Bank debt at the year-end was USD 43 million, with the majority of borrowings at the project level at an average interest rate of 11.1%. Loans mature between 2017 and 2020 and the Company's banks' loan to investment property value ratio is 19.5%. In addition, there was USD 1.2 million of restricted cash, cash equivalents, and restricted deposits, as at 31 December 2017.

The Market

With 45.2 million visits to Arricano's shopping centres in 2017, it is clear consumers are still enjoying visiting shopping centres, despite global trends towards shopping online and the wider political and economic challenges that persist in Ukraine. The outlook for the business is therefore positive and the management team remains focused on ensuring the Company is constantly adapting and keeping up with modern trends and lifestyle preferences.

To that end in 2017, technology was a made a central feature of the Group, with the objective of incorporating technology-led solutions across the business. Investment in these new solutions is supporting internal functions, whilst also being shared with tenants to support their businesses with retail focused online tools such as 'Portal for Tenants' providing access to all documentation and additional services to increase tenants' turnover.

2017 also saw a significant increase in the use of social media across the business, moving away from more traditional communication channels to focus on digital. Arricano estimates social media interaction increased sixfold during the period under review, with each shopping centre launching dedicated YouTube channels as part of this strategy. Through the use of these digital channels, the Company is also compiling a database of customer preferences, based upon their digital behaviour which is intended to support more targeted customer communication in the future.

At the heart of the Company's operational focus is the simple aim of enhancing the appeal of the shopping centres. Central to this, is maintaining the rotation of tenants so that each shopping centre is able to offer new brands and new stores, thereby keeping the experience of visiting each shopping centre fresh. Selection of new tenants is a genuine skill and the Company is applying increasing resources to researching potential tenants and assessing their likely level of appeal to consumers.

These efforts are clearly producing results given the 17% increase in visitor numbers during the year. Alongside achieving a good mix of tenants an important reason behind the popularity of the Company's shopping centres is having the right balance of social spaces within each centre. With this in place, visitors can come and find their favourite retailers under one roof and also enjoy the well-designed social spaces to meet, eat and relax.

In terms of the new developments, the Company is progressing projects in Odessa and Lukyanivka, Kyiv. Our main focus is on development of the Lukyanivka project, construction is underway and we are currently assessing financing options to complete the project in 2020.

Outlook

As a developer and operator of city centre shopping centres Arricano is a market leader in Ukraine. Maintaining this position requires Arricano to be constantly evolving its offering to consumers and tenants alike. In 2018, an important focus for the Group is to improve upon its environmental credentials, currently the Company is evaluating the benefits of eco-friendly energy solutions such as solar panels and solar blinds within the Group.

Trading in 2018 has continued to be positive with occupancy and rental income in line with management expectations.

Mykhailo Merkulov

Chief Executive Officer

25 April 2018

Operating Portfolio

In the following section we have provided an overview of each asset in the completed portfolio.

Sun Gallery (Kryvyi Rih)

Sun Gallery, opened in 2008, is one of the largest shopping malls in Kryvyi Rih. It is located at 30-richchia Peremohy Square, in the Saksahanskyi district in the northeastern part of Kryvyi Rih. It has easy access by car and has good public transport links. The primary shopping centre catchment area includes almost the whole territory of the Saksahanskyi district and part of the Pokrovskyy district. The secondary area covers the Dovhyntsivskyi district.

The shopping centre is on two levels, spanning a total GLA of approximately 37,470 sqm. There are approximately 139 tenants, including children's entertainment zone, a food court with restaurants and cafes. During 2017, 25 new agreements were signed bringing new brands to the Sun Gallery, including brands that were previously unavailable in the region. Two anchor tenants were added: LC Waikiki (fashion) and Jysk (home goods) both stores opened in 2017.

Key statistics

• GLA - c. 37,470 sqm

• Vacancy rate as at 31 December 2017 - 0.4 per cent.

• Average monthly rental rate 2017 - USD 12.7 /sqm

• Average Monthly Visitors 2017 - 0.4 million

• Bank debt at 31 December 2017 - USD 7.0 million

• Valuation at 31 December 2017 - USD 25.1 million

City Mall (Zaporizhzhia)

City Mall is one of the largest shopping centres in Zaporizhzhia with a total GLA of approximately 21,440 sqm on a single level. The shopping centre is located on the Dnipro river approximately 3km from Zaporizhzhia city centre, between two densely populated areas of Zaporizhzhia in the Alexandrovskyy administrative district (1b Zaporizska street), with convenient accessibility by public and private transport.

City Mall comprises a gallery with approximately 88 international and local tenants, including a food court with 5 restaurants, a children's entertainment zone and parking which is shared with DIY superstore Epicenter. City Mall's anchor tenants are the hypermarket Auchan, which is the largest in the city, and the electronics store Comfy. During 2017, 14 new contracts were signed bringing new brands to the City Mall, including brands that were previously unavailable in the region. Building on the fourth successive year of nil vacancy rates, the tenant portfolio continues to be strengthened, with additions such as McDonald's.

Key statistics

• GLA - c. 21,440 sqm

• Vacancy rate as at 31 December 2017 - 0.0 per cent.

• Average monthly rental rate 2017 - USD 24.7 /sqm

• Average Monthly Visitors 2017 - 0.5 million

• Bank debt at 31 December 2017 - USD 7.4 million

• Valuation at 31 December 2017 - USD 24.5 million

South Gallery (Simferopol)

The site is located in the north of Simferopol, about five minutes' driving distance from one of the city's major crossroads, Moskovska Square. The site is linked to the city centre and residential areas east of the city by one of the main thoroughfares of Simferopol. The primary shopping centre catchment area includes northern parts of the Kyivskyi and Zaliznychnyi districts. The secondary area covers almost the whole city, except for its very southern parts.

South Gallery shopping centre (Phases I and II) is situated on a land plot with a total area of 10.2 ha. Phase I of the shopping centre tenants include Auchan (international hypermarket chain), with a small gallery. With the completion of Phase II in February 2014 the mall is now a regional destination shopping centre with a total GLA of 33,390 sqm.

During 2017, 20 new lease contracts were signed, including LCWaikiki (expected to be opened in 2018) and Zenden.

Key statistics

• GLA - 33,390 sqm

• Vacancy rate as at 31 December 2017 - 0.5 per cent.

• Average monthly rental rate 2017 - USD 19.4 /sqm

• Average Monthly Visitors 2017 - 0.8 million

• Bank debt at 31 December 2016 - USD Nil

• Valuation at 31 December 2017 - USD 46.8 million

RayON (Kyiv)

The RayON shopping centre was opened to the public in August 2012. The shopping centre is located in the north east of Kyiv along the left bank of the Dnipro river, with satisfactory transportation links.

The shopping centre has a GLA of approximately 24,300 sqm on two levels, with approximately 860 parking spaces. The concept for RayON is a district shopping centre, which focuses on food, clothing and convenience products. The shopping centre is anchored by a Silpo foods supermarket, one of the biggest supermarket chains in Ukraine and a member of the Fozzy group. Electronics supermarket Comfy also operates within the shopping centre.

RayON has several restaurants and a children's entertainment zone to complement the retail facilities. RayON is located in the middle of the Desnjanski district, one of the most densely populated areas in Kyiv.

Rayon completed the refurbishment of its food court in and the installation of baby-rooms in the centre has produced very positive feedback from customers with young children. During 2017, 18 new lease contracts were signed, including McDonalds. "Boomer" (Cinema) opened two additional halls.

Key statistics

• GLA - c. 24,300 sqm

• Vacancy rate as at 31 December 2017 - 4.64 per cent.

• Average monthly rental rate 2017 - USD 16.8 /sqm

• Average Monthly Visitors 2017 - 0.5 million

• Bank debt at 31 December 2017 - USD 16.1 million

• Valuation at 31 December 2017 - USD 34.9million

Prospect (Kyiv)

SEC Prospect is located directly on the inner ring road of Kyiv on the left bank of the Dnipro river in the Desnianskyi administrative district, with good automobile accessibility and public transport links. The area is already recognised as a popular shopping destination, located close to a large open-air market and a bazaar-style shopping centre (SC Darinok).

 The SEC consists of a two-storey retail and leisure complex with a total gross building area of approximately 61,872 sqm (excluding roof and surface parking and excluding the hypermarket building referred to below) and a GLA of approximately 30,900 sq. m. and parking with 1,350 parking spaces. The centre opened at the end of 2014.

2017 saw the successful continuation of free training sessions for shop personnel, building on demand from the previous year. During 2017, 24 new lease contracts were signed. Brands such as Vovk and Budynok Ihrashok were introduced as tenants, with international brands such as Xiaomi and Smyk also joining the centre.

Key statistics

• GLA - c. 30,900 sqm

• Vacancy rate as at 31 December 2017 - 1.7 per cent.

• Average monthly rental rate 2017 - USD 13.9 /sqm

• Average Monthly Visitors 2017 - 1.5 million

• Bank debt at 31 December 2017 - USD 12.7 million

• Valuation at 31 December 2017 - USD 43.7 million

Development Properties

Lukianivka (Kyiv)

The Lukianivka development property is located on the right bank of Kyiv in the Shevchenkivskyi administrative district. The land plot has a total area of 4.14 hectares. The Group is planning to construct its flagship shopping centre in the central business district of Kyiv, with a more upmarket vision in terms of the concept and tenant mix. The Lukianivka development property allows for the construction of a multi-use complex, consisting of a shopping and leisure centre including, inter alia, a hypermarket, shops and shopping galleries, a leisure and entertainment area, a food court restaurants and a service area. The property would also have two underground parking levels and one seven-storey residential building, construction of which will continue after completion of the shopping centre. It is expected that the GLA of the shopping and entertainment centre would be approximately 47,000 sqm. The Group obtained the relevant construction permit in June 2013.

Rozumovska (Odesa)

The Black Sea port of Odesa is Ukraine's fourth largest city, with over one million inhabitants, and is a popular leisure destination. The Rozumovska development property is located partly on the façade of Rozumovska Street close to its intersection with Balkovska Street, in the Malynovskyi administrative district of Odesa, in close proximity to public transportation links.

The site is located opposite the city's main bus station. Rozumovska Street connects directly to the highway to Kyiv.

The Group has signed a lease agreement for the land plot with a total area of 4.5 hectares. The Rozumovska development property is expected to be a three-storey shopping and entertainment centre with a sufficient number of parking spaces to accommodate customer demand. The target GLA is approximately 38,000 sqm, including a hypermarket, shops and shopping galleries, a leisure and entertainment area, a food court restaurants and a service area. The preliminary design concept of the project has been completed and the developer is currently applying for the relevant consents and permits, given current market conditions.

Petrivka (Kyiv)

The Petrivka development property is located on the right bank of the Dnipro river in Kyiv, in the Obolonskyi administrative district. The site has an area of 5.4 ha. The Group is currently considering the best use of the site, which could include both residential and retail use.

Finance Report

The Company's revenue mainly consists of rental income from the portfolio of the completed properties. During the year ended 31 December 2017 the Company's rental income amounted to USD 27.5 million (2016: USD 23.1 million).

The total fair valuation of the Company's portfolio was USD 221.3 million as at 31 December 2017 (2016: USD 175.7 million). The main reasons for the increase of fair value of the Company's portfolio were successful rotations of lessees, increase in rental rates and close control of costs. Operating expenses during the period were USD 7.1 million, compared to USD 4.5 million in the previous year reflecting increases primarily in consulting and legal expenses.

As a result of the above, profit from operating activities has increased to USD 65.5 million (2016: USD 43.8 million).

Finance expenses in 2017 increased to USD 32.5 million being a result of recognized foreign exchange losses (2016 USD 17.7 million), while finance income was USD 0.7 million (2016 USD 3.1 million).

The Company's net profits for the year ended 31 December 2017, was USD 25.8 million (2016: USD 23.5 million). The improvement has come from property valuation gains, but held back by the increase in finance costs.

Net Asset Value as at 31 December 2017 was USD 52.2 million (2016: USD 24.2 million), resulting in an Adjusted Net Asset Value per Share of USD 0.51 (2016: USD 0.23).

Total assets, as at 31 December 2017, amounted to USD 230.9 million (2016: USD187.1 million), an increase of 23.4 % from the previous year. This mainly related the increase in investment property value, as well as trade and other receivables.

Cash balances as at 31 December 2017 including cash equivalents and current deposits amounted to USD 2.61 million (2016: USD 4.95 million).

 As at 31 December 2017, the Company had USD 98.7 million of outstanding borrowings.

The consolidated statement of financial position is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements.

The consolidated statement of financial position is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements.

The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements.

The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements.

Non-cash movements

During the year ended 31 December 2017,an acquisition of a land plot held on leasehold of USD 396 thousand occurred through a finance lease (2016: acquisition and disposal of a land plot held on leasehold of USD 954 thousand and USD 1,173 thousand, respectively).

The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements.

The consolidated statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements.

The consolidated statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements.

Notes to the consolidated financial statements

1 Background

(a) Organisation and operations

Arricano Real Estate PLC (Arricano, the Company or the Parent Company) is a public company that was incorporated in Cyprus and is listed on the AIM Market of the London Stock Exchange. The Parent Company's registered address is office 1002, 10th floor, Nicolaou Pentadromos Centre, Thessalonikis Street, 3025 Limassol, Cyprus. Arricano and its subsidiaries are referred to as the Group, and their principal place of business is in Ukraine.

The main activities of the Group are investing in the development of new properties in Ukraine and leasing them out. As at 31 December 2017, the Group operates five shopping centres in Kyiv, Simferopol, Zaporizhzhya and Kryvyi Rig with a total leasable area of over 147,500 square meters and is in the process of development of two new investment projects in Kyiv and Odesa, with one more project to be consequently developed.

The average number of employees employed by the Group during the year is 106 (2016: 112).

(b) Ukrainian business environment

The Group's operations are primarily located in Ukraine. The political and economic situation in Ukraine has been subject to significant turbulence in recent years and demonstrates characteristics of an emerging market. Consequently, operations in the country involve risks that do not typically exist in other markets.

An armed conflict in certain parts of Lugansk and Donetsk regions, which started in spring 2014, has not been resolved and part of the Donetsk and Lugansk regions remains under control of the self-proclaimed republics, and Ukrainian authorities are not currently able to fully enforce Ukrainian laws on this territory. Various events in March 2014 led to the accession of the Republic of Crimea to the Russian Federation, which was not recognised by Ukraine and many other countries. This event resulted in a significant deterioration of the relationship between Ukraine and the Russian Federation.

Ukraine's economic situation deteriorated significantly since 2014 as a result of the fall in trade with the Russian Federation and military tensions in Eastern Ukraine. Although instability continued throughout 2016 and 2017, Ukrainian economy showed first signs of recovery with inflation rate slowing down, lower depreciation of hryvnia against major foreign currencies, growing international reserves of the National Bank of Ukraine (the "NBU") and general revival in business activity.

In 2016 and 2017, the NBU made certain steps to provide a relief to the currency control restrictions introduced in 2014-2015. In particular, the required share of foreign currency proceeds subject to mandatory sale on the interbank market was gradually decreased, while the settlement period for export-import transactions in foreign currency was increased. Also, the NBU allowed Ukrainian companies to pay dividends abroad with a certain monthly limitation.

The banking system remains fragile due to low level of capital and weak asset quality and the Ukrainian companies and banks continue to suffer from the lack of funding from domestic and international financial markets.

The International Monetary Fund continued to support the Ukrainian government under the four-year Extended Fund Facility Programme approved in March 2015. Other international financial institutions have also provided significant technical support in recent years to help Ukraine restructure its external debt and launch various reforms (including anticorruption, corporate law, and gradual liberalization of the energy sector).

In August 2017 Moody's upgraded Ukraine's credit rating to Caa2, with a positive outlook, reflecting recent government reforms and improved foreign affairs. Further stabilization of economic and political environment depends on the continued implementation of structural reforms and other factors.

Whilst management believes it is taking appropriate measures to support the sustainability of the Group's business in the current circumstances, a continuation of the current unstable business environment could negatively affect the Group's results and financial position in a manner not currently determinable. These consolidated financial statements reflect management's current assessment of the impact of the Ukrainian business environment on the operations and the financial position of the Group. The future business environment may differ from management's assessment.

As at 31 December 2017, the carrying value of the Group's investment property located in Simferopol, the administrative centre of the Republic of Crimea, amounted to USD 46,800 thousand (2016: USD 35,400 thousand). The ultimate effect of these developments in the Republic of Crimea on the Group's ability to continue operations in this region, to realise its related assets and to maintain and secure its ownership rights cannot yet be determined.

(c) Cyprus business environment

The Cyprus economy has been adversely affected during the last few years by the economic crisis. The negative effects have to some extent been resolved, following the negotiations and the relevant agreements reached with the European Commission, the European Central Bank and the International Monetary Fund (IMF) for financial assistance which was dependent on the formulation and the successful implementation of an Economic Adjustment Program. The agreements also resulted in the restructuring of the two largest (systemic) banks in Cyprus through a "bail in".

The Cyprus Government has successfully completed earlier than anticipated the Economic Adjustments Program and exited the IMF program on 7 March 2016, after having recovered in the international markets and having only used EUR 7,25 billion of the total EUR 10 billion earmarked in the financial bailout. Under the new Euro area rules, Cyprus will continue to be under surveillance by its lenders with bi-annual post-program visits until it repays 75% of the economic assistance received.

Although there are signs of improvement, especially in the macroeconomic environment of the country's economy including growth in GDP and reducing unemployment rates, significant challenges remain that could affect the estimates of the Company's cash flows and its assessment of impairment of financial and non-financial assets.

The Group's management believes that it is taking all the necessary measures to maintain the viability of the Group and the development of its business in the current business and economic environment and that no adverse impact on the Group's operations is expected.

(d) Russian business environment

The Group's operations are also carried out in the Russian Federation. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation.

The conflict in Ukraine and related events has increased the perceived risks of doing business in the Russian Federation. The imposition of economic sanctions on Russian individuals and legal entities by the European Union, the United States of America, Japan, Canada, Australia and others, as well as retaliatory sanctions imposed by the Russian government, has resulted in increased economic uncertainty including more volatile equity markets, a depreciation of the Russian Rouble, a reduction in both local and foreign direct investment inflows and a significant tightening in the availability of credit. In particular, some Russian entities may be experiencing difficulties in accessing international equity and debt markets and may become increasingly dependent on Russian state banks to finance their operations. The longer term effects of recently implemented sanctions, as well as the threat of additional future sanctions, are difficult to determine.

The consolidated financial statements reflect management's assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from management's assessment.

2 Basis of preparation

(a) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union (EU).

(b) Basis of measurement

The consolidated financial statements have been prepared under the historical cost basis except for investment property, which is carried at fair value.

(c) Functional and presentation currency

The functional currency of Arricano Real Estate PLC is the US dollar (USD). The majority of Group entities are located in Ukraine and have the Ukrainian Hryvnia (UAH) as their functional currency, except for Voyazh-Krym LLC, which has the Russian Rouble (RUB) as its functional currency starting from 1 May 2014, following the changes in the Ukrainian business environment described in Note 1(b). The Group entities located in Cyprus, Estonia, Isle of Man and BVI have the US dollar as their functional currency, since substantially all transactions and balances of these entities are denominated in US dollar. The Group entity located in the Russian Federation, Green City LLC, has the Russian Rouble (RUB) as its functional currency, since substantially all transactions and balances of this entity are denominated in the Russian Rouble.

For the benefits of principal users, the management chose to present the consolidated financial statements in USD, rounded to the nearest thousand.

In translating the consolidated financial statements into USD the Group follows a translation policy in accordance with International Financial Reporting Standard IAS 21 The Effects of Changes in Foreign Exchange Rates and the following rates are used:

· Historical rates: for the equity accounts except for net profit or loss and other comprehensive income (loss) for the year.

· Year-end rate: for all assets and liabilities.

· Rates at the dates of transactions: for the statement of profit or loss and other comprehensive income and for capital transactions.

UAH and RUB are not freely convertible currencies outside Ukraine and the Russian Federation, and, accordingly, any conversion of UAH and RUB amounts into USD should not be construed as a representation that UAH and RUB amounts have been, could be, or will be in the future, convertible into USD at the exchange rate shown, or any other exchange rate.

The principal USD exchange rates used in the preparation of these consolidated financial statements are as follows.

Year-end USD exchange rates as at 31 December are as follows:

Average USD exchange rates for the years ended 31 December are as follows:

As at the date of these consolidated financial statements are authorised for issue, 25 April 2018, the exchange rate is UAH 26.18 to USD 1.00 and RUB 61.66 to USD 1.00.

(d) Use of judgments, estimates and assumptions

The preparation of consolidated financial statements in conformity with IFRSs as adopted by the EU requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses and the disclosure of contingent assets and liabilities. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements and have significant risk of resulting in a material adjustment within the next financial year are included in the following notes:

· Note 2(c) - determination of functional currency,

· Note 4 - valuation of investment property,

· Note 5 - valuation of loans receivable and investment in Filgate Credit Enterprises Limited,

· Note 7 - valuation of trade and other receivables,

· Note 8(a) - classification of assets held for sale,

· Note 23(d)(i) - legal case in respect of Assofit Holdings Limited and valuation of related available-for-sale financial asset.

(e) Going concern

As at 31 December 2017, the Group's current liabilities exceed current assets by USD 69,293 thousand. This condition indicates the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.

At the same time, the Group has positive equity of USD 52,182 thousand as at 31 December 2017, generated net profit of USD 25,807 thousand and positive cash flows from operating activities amounting to USD 11,559 thousand for the year then ended.

Management is undertaking the following measures in order to ensure the Group's continuing operation on a going concern basis:

· The Group has financial support from the ultimate controlling party. Based on representations received in writing from entities under common control, management believes that the Group will not be required to settle the outstanding loans and accrued interest to related parties in the amount of USD 16,513 thousand plus any accruing interest during the year ending 31 December 2018.

· In April 2018, the Group has received a waiver from Barleypark Limited waiving repayment of the loan during twelve months ending 31 December 2018, amounting to USD 20,420 thousand, which is payable on demand and presented as short-term liability as at 31 December 2017.

· The Group will be able to draw on existing facilities granted from entities under common control, should this be required for operational and other needs of the Group.

· The Group expects to obtain bank financing to refinance loans from PJSC "Bank "St. Petersburg" amounting to USD 16,062 thousand as at 31 December 2017 with contractual maturity in 2018-2020, short-term part of which amounts to USD 3,705 thousand.

· During the year ended 31 December 2017, management was able to conclude a number of new tenancy agreements and increase occupancy rate of its shopping centres. Besides, the Group managed to gradually increase its rental rates during the year for existing tenants.

· In accordance with the budget approved for 2018, the Group plans to increase its operating income during the next year.

Management believes that the measures that it undertakes, as described above, will allow the Group to maintain the positive working capital and operate on a going concern basis in the foreseeable future.

These consolidated financial statements are prepared on a going concern basis, which contemplates the realisation of assets and the settlement of liabilities in the normal course of business.

(f) Measurement of fair values

A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

· Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the following Notes:

· Note 4 - investment property; and

· Note 22(e)(iii) - fair values.

(g) Change in presentation

Management made some minor amendments to comparative information in a way that it conforms with the current year presentation.

3 Significant accounting policies

The accounting policies set out below are applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities.

(a) Basis of consolidation

(i) Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.

The Group measures goodwill at the acquisition date as:

· The fair value of the consideration transferred; plus

· The recognised amount of any non-controlling interests in the acquiree; plus

· If the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less

· The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Transaction costs, other than those associated with the issue of debt or equity securities that the Group incurs in connection with a business combination, are expensed as incurred.

Any contingent consideration payable is recognised at fair value at the acquisition date. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

When the acquisition of subsidiaries does not represent a business, it is accounted for as an acquisition of a group of assets and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based on their relative fair values, and no goodwill or deferred tax is recognised.

(ii) Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.

Consolidated entities as at 31 December are as follows:

On 31 July 2017, the Parent Company established Coppersnow Limited, a company incorporated in British Virgin Islands for the purpose of facilitating of management activities.

On 29 April 2016, the Group's subsidiary U.A. Terra Property Management Limited acquired Green City LLC, the company incorporated in the Russian Federation, from the entity under common control for the purpose of facilitating operations and cash flow management of the investment property.

On 5 October 2016, the Parent Company acquired RRE Development Services OU, a company incorporated in Estonia, for the purpose of facilitating of management activities.

These acquisitions were accounted for as an acquisition of assets and liabilities as they do not meet the definition of a business according to IFRS 3 Business Combinations.

No significant identifiable assets were acquired and no significant liabilities were assumed upon these acquisitions. Consideration transferred was also not significant. As part of the above acquisitions, the rights to receive certain loans of the acquired subsidiaries payable to entities under common control were reassigned to the Group for a nominal amount of USD 1 per each loan assignment. Accordingly, as at the date of each acquisition the relative fair value of these loans receivable is considered to be nil.

During the year ended 31 December 2016, the Group liquidated its subsidiary Crimsonville Investments Limited, a company incorporated in Cyprus. This subsidiary was dormant and had no significant assets or liabilities.

(iii) Interests in equity-accounted investees

The Group's interests in equity-accounted investees comprise interests in associates.

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% of the voting power of another entity.

Interest in associates is accounted for using the equity method and is recognised initially at cost. The cost of the investment includes transaction costs.

The consolidated financial statements include the Group's share of the profit or loss and other comprehensive income of equity accounted investees from the date that significant influence commences until the date that significant influence 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 investments, is reduced to zero, and the recognition of further losses is discontinued, except to the extent that the Group has an obligation or has made payments on behalf of the investee.

The listing of associates as at 31 December is as follows:

On 14 December 2016, the Parent Company acquired non-controlling interest (49% of corporate rights) of Filgate Credit Enterprises Limited from the company under common control incorporated in Cyprus, in exchange for loan receivable from Weather Empire Limited (refer to Note 5) as additional instrument in legal proceeding regarding gaining the control over the Sky Mall. As part of the above acquisition, the rights to receive certain loans payable by Filgate Credit Enterprises Limited to entities under common control in amount of USD 215,891 thousand were reassigned to the Group for a nominal amount of USD 1. The fair value of these loans receivable is considered to be nil at the date of reassignment (refer to Note 5).

In addition, a call share option agreement was concluded granting an option to the Parent Company to purchase the remaining 51% of the corporate rights of Filgate Credit Enterprises Limited within 5 years from the effective date. Exercise of the call option depends on certain criteria and occurrence of certain condition, and, as at the date of these consolidated financial statements are authorised for issuance, the call option was not exercised by the Group. Thus, the rights under the call option agreement were not taken into consideration upon recognition of investment in Filgate Credit Enterprises Limited and determination of the investment's classification.

(iv) Transactions with entities under common control

Acquisitions from entities under common control

Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for using book value accounting. Any result from the acquisition is recognised directly in equity.

Disposals to entities under common control

Disposals of interests in subsidiaries to entities that are under the control of the shareholder that controls the Group are accounted for using book value accounting. Any result from the disposal is recognised directly in equity.

(v) Loss of control

Upon the loss of control, the Group derecognises the carrying amounts of the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. 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. Subsequently it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained.

(vi) Transactions eliminated on consolidation

Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing these consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(b) Foreign currency transactions and operations

(i) 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 denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rates as at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period.

Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments which are recognised in other comprehensive income.

Foreign currency transactions of Group entities located in Ukraine

In preparation of these consolidated financial statements for the retranslation of the operations and balances of Group entities located in Ukraine denominated in foreign currencies, management applied the National Bank of Ukraine's (NBU) official rates. Management believes that application of these rates substantially serves comparability purposes.

(ii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to USD at exchange rates at the reporting date. The income and expenses of foreign operations are translated to USD at exchange rates at the dates of the transactions.

Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of, such that 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. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount 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 relevant proportion of the cumulative amount is reclassified to profit or loss.

When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and presented in the foreign currency translation difference reserve in equity.

(c) Financial instruments

The Group classifies non-derivative financial assets into the following categories: loans and receivables and available-for-sale financial assets.

The Group classifies non-derivative financial liabilities into the other financial liabilities category.

(i) Non-derivative financial assets and financial liabilities - recognition and derecognition

The Group initially recognises loans and receivables on the date that they are originated. All other financial assets and financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises 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 recognised as a separate asset or liability.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

Financial assets and liabilities are offset and the net amount presented in the consolidated 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 realise the asset and settle the liability simultaneously. The Group currently has a legally enforceable right to set off if that right is not contingent on a future event and enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the Group and all counterparties.

(ii) Non-derivative financial assets and financial liabilities - measurement

Loans and receivables

Loans and receivables are a category of financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses (refer to Note 3(i)(i)).

Loans and receivables comprise the following classes of financial assets: trade and other receivables as presented in Note 7, loans receivable as presented in Note 5 and cash and cash equivalents as presented in Note 9.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances, call deposits and highly liquid investments with maturities of three months or less from the acquisition date that are subject to insignificant risk of changes in their fair value.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the other categories of financial assets. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (refer to Note 3(i)(i)), are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised or impaired, the cumulative gain or loss in equity is reclassified to profit or loss. Unquoted equity instruments whose fair value cannot be reliably measured are carried at cost.

Available-for-sale financial assets comprise equity securities.

(iii) Non-derivative financial liabilities - measurement

The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.

Other financial liabilities comprise loans and borrowings as presented in Note 12, finance lease liability as presented in Note 13, trade and other payables as presented in Note 14 and other liabilities as presented in Note 16.

(iv) Capital and reserves

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

Share premium

Share premium reserves include amounts that were created due to the issue of share capital at a value price greater than the nominal.

Non-reciprocal shareholders contribution

Non-reciprocal shareholders contribution reserve includes contributions made by the shareholders directly in the reserves. The shareholders do not have any rights to these contributions which are distributable at the discretion of the Board of Directors, subject to the shareholders' approval.

Retained earnings (accumulated deficit)

Retained earnings (accumulated deficit) include accumulated profits and losses incurred by the Group.

Other reserves

Other reserves comprise the effect of acquisition and disposal of subsidiaries under common control, change in non-controlling interest in these subsidiaries and the effect of forfeiture of shares.

Foreign currency translation differences

Foreign currency translation differences comprise foreign currency differences arising from the translation of the financial statements of foreign operations and foreign exchange gains and losses from monetary items that form part of the net investment in the foreign operation.

(d) Investment properties

Investment properties are those that are held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in production or supply of goods or services or for administrative purposes.

Investment properties principally comprise freehold land, leasehold land and investment properties held for rental income earning or future redevelopment.

Leasehold of land under operating lease is classified and accounted for as an investment property when the definition of investment property is met. Under investment property accounting, the right to use the land is measured at fair value and the obligation to pay rentals is accounted for as a finance lease.

(i) Initial measurement and recognition

Investment properties are measured initially at cost, including related acquisition costs. Cost 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 labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs.

If the Group uses part of the property for its own use, and part to earn rentals or for capital appreciation, and the portions can be sold or leased out separately, they are accounted for separately. Therefore the part that is rented out is investment property. If the portions cannot be sold or leased out separately, the property is investment property only if the company-occupied portion is insignificant.

(ii) Subsequent measurement

Subsequent to initial recognition investment properties are stated at fair value. Any gain or loss arising from a change in fair value is included in profit or loss in the period in which it arises.

When 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 at fair value, and is not reclassified to property and equipment during the redevelopment.

When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.

Investment properties are derecognised on disposal or when they are permanently withdrawn from use and no future economic benefits are expected from their disposal. The gain or loss on disposal is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is recognised as gain or loss in profit or loss.

It is the Group's policy that an external, independent valuation company, having an appropriate recognised professional qualification and recent experience in the location and category of property being appraised, values the portfolio as at each reporting date. The fair value is the amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm's length transaction. The valuation is prepared in accordance with International Valuation Standards published by the International Valuation Standards Council.

(iii) Property under development (construction)

Property that is being constructed or developed for future use as an investment property and for which it is not possible to reliably determine fair value is accounted for as an investment property that is stated at cost until construction or development is complete, or until it becomes possible to reliably determine its fair value. When construction is performed on land previously classified as an investment property and measured at fair value, such land continues to be accounted at fair value throughout the construction phase.

(e) Property and equipment

(i) Recognition and measurement

Items of property and equipment are measured at cost less accumulated depreciation and impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.

The gain or loss on disposal of an item of property and equipment is determined by comparing the proceeds from disposal with the carrying amount of property and equipment, and is recognised net within other income/other operating expenses in profit or loss.

(ii) Reclassification to investment property

When the use of a property changes from owner-occupied to investment property, the property is re-measured to fair value and reclassified to investment property. Any gain arising on re-measurement is recognised in profit or loss to the extent that it reverses a previous impairment loss on the specific property, with any remaining gain recognised in other comprehensive income and presented in the revaluation reserve in equity. Any loss is recognised immediately in profit or loss.

(iii) Subsequent costs

The cost of replacing part of an item of property and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred.

(iv) Depreciation

Items of property and equipment are depreciated from the date that they are installed and are ready for use, or in respect of internally constructed assets, from the date that the asset is completed and ready for use. Depreciation is based on the cost of an asset less its residual value.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:

· vehicles and equipment 5 years

· fixture and fittings 2.5 - 5 years

Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

(f) Intangible assets

(i) Recognition and measurement

Intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses.

(ii) Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.

(iii) Amortisation

Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value.

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use since this most closely reflects the expected pattern of consumption of future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows:

· software 3-5 years

Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

(g) Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

(h) Assets classified as held for sale

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale.

Such 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 allocated first to goodwill, and then to the remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets or investment property, which continue to be measured in accordance with the Group's other accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss.

Intangible assets and property and equipment once classified as held for sale are not amortised or depreciated.

(i) Impairment

(i) Non-derivative financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is impaired if 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 or delinquency 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 or issuers in the Group, economic conditions that correlate with defaults, the disappearance of an active market for a security or observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

Financial assets measured at amortised cost

The Group considers evidence of impairment for financial assets measured at amortised cost at both a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets 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.

An impairment loss is calculated as the difference between an asset's carrying amount, and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account. When the Group believes that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease and the decrease can be related objectively to an event occurring after the impairment was recognised, the decrease in impairment loss is reversed through profit or loss.

Available-for-sale financial assets

Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity, to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.

(ii) Non-financial assets

The carrying amounts of non-financial assets, other than investment property, deferred tax asset and inventory are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

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 cash-generating unit (CGU). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs 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. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

The Group's corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. 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 or CGU.

An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs) and then to reduce the carrying amount of the other assets in the CGU (group of CGUs) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised 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 amortisation, if no impairment loss had been recognised.

(j) Provisions

A provision is recognised 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 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. The unwinding of the discount is recognised as finance cost.

(k) Revenue

(i) Rental income from investment property

Rental income from investment property is recognised in profit or loss on a straight-line basis over the term of the lease.

(ii) Sale of services

Revenue from services rendered is recognised in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

(l) Leases

(i) Determining whether an arrangement contains a lease

At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. This will be the case if the fulfilment of the arrangement is dependent on the use of a specific asset and the arrangement conveys a right to use the asset.

At inception or upon reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group's incremental borrowing rate.

(ii) Leased assets

Assets held by the Group under leases that transfer to the Group substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Other leases are operating leases and the leased assets are not recognised in the statement of financial position.

(iii) Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance cost and the reduction of the outstanding liability. The finance cost 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 lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the contingency no longer exists and the lease adjustment is known.

(m) Finance income and costs

Finance income comprises interest income on funds invested, foreign currency gains, income from derecognition of finance lease liabilities and gains on initial recognition of financial liabilities at fair value. Interest income is recognised as it accrues in profit or loss, using the effective interest method.

Finance costs comprise interest expense on borrowings and on deferred consideration, foreign exchange losses, costs from recognition of finance lease liabilities and impairment of available-for-sale financial assets.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

Foreign currency gains and losses arising on loans receivable and borrowings are reported on a net basis as either finance income or finance cost.

(n) Income tax expense

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised 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 recognised for:

· temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

· temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and

· taxable temporary differences arising on 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 this purpose, the carrying amount of investment property measured at fair value is presumed to be recovered through sale, and the Group has not rebutted this presumption.

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes, penalties and late-payment interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact the tax expense in the period that such a determination is made.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, 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 realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amount of taxable temporary differences is insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.

(o) Earnings per share

The Group presents basic and diluted 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, adjusted for own shares held.

As at 31 December 2017 and 2016, there were no potential dilutive ordinary shares.

(p) 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. Management believes that during the current year and prior year, the Group operated in and was managed as one operating segment, being property investment, with investment properties located in Ukraine and the Republic of Crimea.

The Board of Directors, which is considered to be the chief operating decision maker of the Group for IFRS 8 Operating Segments purposes, receives semi-annually management accounts that are prepared in accordance with IFRSs as adopted by the EU and which present aggregated performance of all the Group's investment properties.

(q) New standards and interpretations not yet adopted

A number of new Standards, amendments to Standards and Interpretations are not yet effective as of 31 December 2017 and have not been applied in preparing these consolidated financial statements. Of these pronouncements, potentially the following will have an impact on the Group's operations. Management plans to adopt these pronouncements when they become effective.

Estimated impact of the adoption of IFRS 9 and IFRS 15

The Group is required to adopt IFRS 9 "Financial Instruments: Classification and Measurement" and IFRS 15 "Revenue from Contracts with Customers" from 1 January 2018. The estimated impact of the adoption of these standards on the Group's consolidated financial statements as at 1 January 2018 is based on assessments undertaken to date and is summarised below. The actual impacts of adopting the standards at 1 January 2018 may change because the new accounting policies are subject to change until the Group presents its first consolidated financial statements that include the date of initial application of these standards.

IFRS 9 "Financial Instruments: Classification and Measurement". IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 "Financial Instruments: Recognition and Measurement" and sets out requirements for classification and measurement of financial instruments, impairment of financial assets and accounting for hedging.

Classification and measurement

IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income and fair value through profit or loss. IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. The standard eliminates the existing IAS 39 categories of held-to-maturity, loans and receivables and available-for-sale.

Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. Investments in equity instruments are measured at fair value.

IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities.

Based on its assessment, the Group believes that the new classification requirements will not have significant impact on accounting of the Group's financial assets and financial liabilities.

Impairment

IFRS 9 replaces the 'incurred loss' model in IAS 39 with a forward-looking 'expected credit loss' (ECL) model. This will require considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis.

The new impairment model will apply to financial assets measured at amortised cost or FVOCI, accounts receivable under lease agreements, certain lending commitments and financial guarantee contracts. The new impairment model generally requires recognition of credit losses for all financial assets, even if they are newly created or acquired.

Under IFRS 9, loss allowances will be measured on either of the following bases:

· 12-month ECLs. These are ECLs that result from possible default events within the 12 months after the reporting date; and

· lifetime ECLs. These are ECLs that result from all possible default events over the expected life of a financial instrument.

Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly since initial recognition and 12-month ECL measurement applies if it has not. An entity may determine that a financial asset's credit risk has not increased significantly if the asset has low credit risk at the reporting date. However, lifetime ECL measurement always applies for trade receivables and contract assets without a significant financing component.

The Group has conducted a preliminary assessment of expected credit losses on financial assets in accordance with IFRS 9 and concluded that the additional impairment losses to be recognised by the Group in connection with the adoption of the new standard will not have significant effect on the Group's financial results and net assets.

Measurement of the impairment losses will be carried out as follows:

· for loans receivable and trade and other receivables, expected credit losses will be calculated on the basis of prior periods loss ratios, taking into account the effect of forecasted macroeconomic indicators for the period of existence of accounts receivable;

· for cash and cash equivalents, expected credit losses will be calculated on the basis of external credit ratings and statistical information on default and repayment for similar financial instruments.

Disclosures

IFRS 9 will require extensive new disclosures, in particular about credit risk and expected credit losses. The Group's assessment included an analysis to identify data gaps against current processes and the Group is in the process of implementing the system and controls changes that it believes will be necessary to capture the required data.

Transition

The classification and measurement and impairment requirements are generally applied retrospectively (with some exemptions) by adjusting the opening retained earnings and reserves at the date of initial application, with no requirement to restate comparative periods.

The Group will take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 generally will be recognised in retained earnings and reserves as at 1 January 2018.

IFRS 15 "Revenue from Contracts with Customers". IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The core principle of the new standard is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements. Since the revenue of the Group is mainly represented by the rental income in accordance with IAS 17 Leases and the amount of revenue from other services rendered is not significant, the expected impact of implementation is considered to be not significant.

IFRS 16 Leases. IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 at or before the date of initial application of IFRS 16.

IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard - i.e. lessors continue to classify leases as finance or operating leases.

The Group has not yet analysed the likely impact of the new Standard on its financial position or performance.

Transition

As a lessee, the Group can either apply the standard using a:

· retrospective approach; or

· modified retrospective approach with optional practical expedients.

The lessee applies the election consistently to all of its leases.

The Group plans to apply IFRS 16 initially on 1 January 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparative information.

When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. The Group is assessing the potential impact of using these practical expedients.

The Group is not required to make any adjustments for leases in which it is a lessor except where it is an intermediate lessor in a sub-lease.

Various Improvements to IFRSs. Various Improvements to IFRSs have been dealt with on a standard-by-standard basis. All amendments, which result in accounting changes for presentation, recognition or measurement purposes, will come into effect not earlier than 1 January 2018. The Group has not yet analysed the likely impact of the improvements on its financial position or performance.

4 Investment property

(a) Movements in investment property

Movements in investment property for the years ended 31 December are as follows:

During the year ended 31 December 2017, acquisition of a land plot held on leasehold of USD 396 thousand occurred through finance lease (2016: acquisition and disposal of a land plot held on leasehold of USD 954 thousand and USD 1,173 thousand, respectively) (refer to Note 13).

As at 31 December 2017, in connection with loans and borrowings, the Group pledged as security investment property with a carrying value of USD 117,790 thousand (2016: USD 102,337 thousand) (refer to Note 23(a)).

During the year ended 31 December 2017, disposal of property under construction is represented by reversal of capitalised charges in respect of an agreement on customer share participation in the creation and development of engineering, transport and social infrastructure of Odesa due to win of the related court case (refer to Note 23(d)(iv)).

During the year ended 31 December 2017, 79% of total construction services were purchased from one counterparty (2016: 53% of total construction services).

(b) Determination of fair value

The fair value measurement, developed for determination of fair value of the Group's investment property, is categorised within Level 3 category due to significance of unobservable inputs to the entire measurement, except for certain land held on the leasehold which is not associated with completed property and is therefore categorised within Level 2 category. As at 31 December 2017, the fair value of investment property categorised within the Level 2 category is USD 29,100 thousand (2016: USD 26,800 thousand). To assist with the estimation of the fair value of the Group's investment property as at 31 December 2017, which is represented by the shopping centres, management engaged registered independent appraiser Expandia LLC, part of the CBRE Affiliate network, having a recognised professional qualification and recent experience in the location and categories of the projects being valued.

The fair values are based on the estimated rental value of property. A market yield is applied to the estimated rental value to arrive at the gross property valuation. When actual rents differ materially from the estimated rental value, adjustments are made to reflect actual rents. The valuation is prepared in accordance with the practice standards contained in the Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors ("RICS") or in accordance with International Valuation Standards published by the International Valuation Standards Council.

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, 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 validly and within the appropriate time.

Land parcels are valued based on market prices for similar properties.

As at 31 December 2017, the estimation of fair value is made using a net present value calculation based on certain assumptions, the most important of which are as follows:

· monthly rental rates, ranging from USD 2.00 to USD 150.00 per sq.m., which are based on contractual and market rental rates, adjusted for discounts or fixation of rental rates in Ukrainian hryvnia at a pre-agreed exchange rate, occupancy rates ranging from 95.4% to 100.0%, and discount rate ranging from 14.0% to 22.5% p.a., which represent key unobservable inputs for determination of fair value;

· all relevant licenses and permits, to the extent not yet received, will be obtained, in accordance with the timetables as set out in the investment project plans.

As at 31 December 2016, the estimation of fair value is made using a net present value calculation based on certain assumptions, the most important of which are as follows:

· monthly rental rates, ranging from USD 1.00 to USD 131.40 per sq.m., which are based on contractual and market rental rates, adjusted for discounts or fixation of rental rates in Ukrainian hryvnia at a pre-agreed exchange rate, occupancy rates ranging from 97.6% to 100.0%, and discount rates ranging from 18.4% to 24.4% p.a., which represent key unobservable inputs for determination of fair value;

· all relevant licenses and permits, to the extent not yet received, will be obtained, in accordance with the timetables as set out in the investment project plans.

The reconciliation from the opening balances to the closing balances for Level 3 fair value measurements is presented in Note 4(a).

As at 31 December 2017, the fair value of investment property denominated in functional currency amounted to UAH 4,120,268 thousand and RUB 2,695,689 thousand (2016: UAH 4,115,139 thousand and RUB 1,475,176 thousand). The increase in fair value of investment property mainly results from increased rental rates invoiced in local currency due to the increase in the exchange rates applied to the USD equivalent of rental rates fixed in the rental contracts.

Sensitivity at the date of valuation

The valuation model used to assess the fair value of investment property as at 31 December 2017 is particularly sensitive to unobservable inputs in the following areas:

· If rental rates are 1% less than those used in valuation models, the fair value of investment properties would be USD 1,738 thousand (2016: USD 1,309 thousand) lower. If rental rates are 1% higher, then the fair value of investment properties would be USD 1,738 thousand (2016: USD 1,309 thousand) higher.

· If the discount rate applied is 1% higher than that used in the valuation models, the fair value of investment properties would be USD 11,973 thousand (2016: USD 8,505 thousand) lower. If the discount rate is 1% less, then the fair value of investment properties would be USD 13,907 thousand (2016: USD 9,783 thousand) higher.

· If the occupancy rate is 1% higher than that used in the valuation model for shopping center "Prospect" and is assumed to be 100% for other shopping centers, the fair value of investment properties would be USD 668 thousand higher (2016: if the occupancy rates are 1% higher than that used in the valuation or are assumed to be 100% for the shopping center in Kyiv, the fair value of investment properties would be USD 956 thousand higher). If the occupancy rates are 1% less, then the fair value of investment properties would be USD 1,539 thousand (2016: USD 1,154 thousand) lower.

5 Loans receivable

Loans receivable as at 31 December are as follows:

Loans receivable from related parties

In July 2011 the Parent Company granted a loan to Weather Empire Limited with the purpose of buying 1,077 shares in the Parent Company's share capital from Retail Real Estate S.A.

In July 2013 the shares of Weather Empire Limited were transferred to the Parent Company's major shareholders pro-rata to their ownership rights due to non-exercising of conversion rights by ELQ Investors II Ltd and later on or about 12 August 2013 were transferred in full to Retail Real Estate S.A.

As at 31 December 2015, this loan was overdue and management considered it to be non-recoverable. In this respect management has proceeded with the full impairment of that loan receivable of USD 39,761 thousand, including accrued interest of USD 9,761 thousand, as at 31 December 2015.

On 14 December 2016, the Group acquired 49% of shares in Filgate Credit Enterprises Limited (refer to Note 3(a)(iii)). Due to the net liability position of Filgate Credit Enterprise Limited as at the date of acquisition, this investment is considered to be fully impaired. The purchase price was set-off in full against the loan receivable from Weather Empire Limited of USD 39,761 thousand that was fully impaired during the prior periods. Following the set-off, the loans receivable along with respective allowance for impairment were derecognised.

As part of the above acquisition, the rights to receive certain loans payable by Filgate Credit Enterprises Limited to entities under common control in amount of USD 215,891 thousand were reassigned to the Group for a nominal amount of USD 1. These loans are unsecured, bear an interest rate of 9-10% and are overdue as at 31 December 2017 and 2016. The fair value of these loans receivable is considered to be nil.

Included in loans receivable as at 31 December 2017 is a loan due from Filgate Credit Enterprises Limited amounting to USD 10,568 thousand (2016: USD 10,300 thousand), out of which the amount of USD 8,390 thousand is overdue. Full amount of this loan receivable was impaired as at 31 December 2017 and 2016.

6 VAT receivable

Management presents VAT receivable within non-current and current assets based on the expected timing of VAT liabilities being available against which VAT receivable can be utilised.

Management expects that long-term VAT receivable will be recovered in full by 2020.

7 Trade and other receivables

Trade and other receivables as at 31 December are as follows:

As at 31 December 2016, trade receivables from related parties mainly comprised accounts receivable from related party, OKey Ukraine, under the common control of the ultimate controlling party. The Group ceased working with OKey Ukraine in August 2009. As the result of financial difficulties faced by this tenant, an allowance for impairment was recognised.

During the year ended 31 December 2017, accounts receivable from OKey Ukraine in the amount of USD 1,371 thousand were written-off against previously recognised allowance for impairment.

As at 31 December 2017, included in other receivables from related parties are receivables from Dniprovska Prystan PrJSC amounting to USD 7,796 thousand (2016: USD 8,598 thousand), which are overdue. In 2012, the court ruled to initiate bankruptcy proceedings against the mentioned related party and, as at 31 December 2017, the decision which would declare Dniprovska Prystan PrJSC insolvent has not yet been made. Full amount of receivable was impaired as at 31 December 2017 and 2016. During the year ended 31 December 2017, other receivables from Dniprovska Prystan PrJSC amounting to USD 802 thousand were written-off against previously recognised allowance for impairment.

8 Assets classified as held for sale

(a) Movements in assets classified as held for sale

Movements in assets classified as held for sale for the years ended 31 December are as follows:

Included in other assets classified as held for sale as at 31 December 2017, is a land plot with a carrying amount of USD 1,541 thousand (2016: USD 1,590 thousand), land lease rights for which were intended to be amended by one of the Group's subsidiaries, Comfort Market Luks LLC, in respect of allocation of part of such land plot to a third party in accordance with an investment agreement concluded between the parties. Based on this investment agreement, Comfort Market Luks LLC acts as an intermediary in construction of a hypermarket with the total estimated area of 11,769 square meters and a parking lot with a total estimated area of 20,650 square meters.

As at 31 December 2017, the construction of the hypermarket and a parking lot is finalised and, except for the lease rights for the abovementioned land plot to be allocated to a third party, the owner of the hypermarket, the investment agreement is considered to be fulfilled. Management expects that the lease rights for the land plot under the hypermarket will be transferred to the third party in 2018 subject to completion of formal legal procedures. As at 31 December 2017, advance payment received under this agreement (refer to Note 15) amounts to USD 1,639 thousand (2016: USD 1,692 thousand) and will be settled upon transfer of the lease rights for the land plot.

9 Cash and cash equivalents

Cash and cash equivalents as at 31 December are as follows:

As at 31 December 2017, in connection with loans and borrowings, the Group pledged as security bank balances and call deposits with a carrying value of USD 29 thousand and USD 1,153 thousand, respectively (2016: USD 44 thousand and USD 1,159 thousand, respectively) (refer to Note 23(a)).

As at 31 December 2017, cash and cash equivalents placed with two bank institutions amounted to USD 2,482 thousand, or 95 % of the total balance of cash and cash equivalents (2016: USD 3,710 thousand, or 75%). In accordance with Moody's rating, these banks are rated Caa3 and Aa3 as at 31 December 2017, respectively (2016: Caa2 and Aa3, respectively).

10 Share capital

Share capital as at 31 December is as follows:

All shares rank equally with regard to the Parent Company's residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Parent Company.

During the years ended 31 December 2017 and 2016, the Parent Company did not declare any dividends.

11 Earnings per share

The calculation of basic earnings per share for the years ended 31 December 2017 and 2016 was based on the profit for the years ended 31 December 2017 and 2016 attributable to ordinary shareholders ofUSD 25,807 thousand and USD 23,493 thousand, respectively, and weighted average number of ordinary shares outstanding as at 31 December 2017 and 2016 of 103,270,637.

The Group has no potential dilutive ordinary shares.

12 Loans and borrowings

This Note provides information about the contractual terms of loans. For more information about the Group's exposure to interest rate and foreign currency risk, refer to Note 22.

Terms and debt repayment schedule

As at 31 December 2017, the terms and debt repayment schedule of loans and borrowings are as follows: