ARO.L Regulatory News (ARO)

26 June 2015

Arricano Real Estate plc

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

Final Results for the 12 months ended 31 December 2014

Arricano is one of the leading real estate developers and operators of shopping centres in the Ukraine.

Today, Arricano owns and operates five completed shopping centres comprising 144,050 sqm of gross leasable area, a 49.9% shareholding in Sky Mall and land for a further three sites currently under development.

Highlights

· Total revenues were USD22.8 million (2013: USD25.3 million), reflecting in part the Company's decision to mitigate some of the impact of the fall in the Ukrainian Hryvnia for tenants during the year 

· Operating profit was USD10. 5 million (2013: USD10.5 million), both figures including revaluation gains and adjustments to operating expenses explained below.

· Total fair valuation of the Company's portfolio was USD205.6 million as at 31 December 2014 (2013: USD287.8 million), which excludes the fair value of Sky Mall

· Expanded the portfolio with the addition of a fifth shopping centre, SEC Prospect, which opened in September 2014

· Excluding the recently opened SEC Prospect which is as at 31 December 2014 78% let, but including South Gallery stage 2 in take-up phase, overall occupancy rates for 2014 fluctuated and ended on 92.8% against 98.2% in 2013.

· As at 31 December 2014, the Company's borrowings at project level remain conservative with a loan to investment property value ratio of 29.6% per cent, compared to 2013 number of 25%

Rupert Cottrell, Chairman of Arricano, commented: "In the context of the market in which we have been operating, Arricano remains in a good position. In 2014, the Company expanded the size of its portfolio by 21% with the completion of two projects. Occupancy remains high, and with the support of our major shareholder, we will be in a good position to benefit, when Ukraine normalises."

For further information please contact:

Chairman's Statement

We had been hoping to report that the economic and geo-political situation in Ukraine had improved from the outset of the financial year. However in practice, this has not occurred and the conflict has escalated which has had a significant impact on the Ukrainian Hryvnia and, consequently, the results we are reporting are affected by the movements of the Hryvnia against the US Dollar.

However, against this difficult background, Arricano has actually performed well, with relatively low levels of third party borrowings and occupancy in the five shopping centres remaining high at 88.5%, increasing to 97.5% when SEC Prospect in Kyiv is excluded which opened in September 2014 on plan and on budget.

As a result, today Arricano has 144,050 sqm of completed assets spread across five shopping centres that generated total income of approximately USD22.8 million for the year ended 31 December 2014. In addition to the Company's five shopping centres, the Company also owns title rights for 14 ha. of development land divided into three specific sites which are at varying stages of development and has an interest in Sky Mall with 67,369 sqm of leasable area.

Unavoidably, the events in Eastern Ukraine together with the significant fall in the value of the Ukrainian Hryvnia have impacted on the value of our real estate portfolio. The portfolio of assets was externally and independently valued as at 31 December 2014 by Expandia LLC, part of the CBRE Affiliate Network. The expanded portfolio was valued at USD205.6 million (2013: USD287.8 million). The valuation reflects the inclusion of SEC Prospect as a trading entity.

In August 2014, we announced that the London Court of International Arbitration tribunal had made an award declaring that Arricano validly exercised the call option in 2010 whereby it sought to acquire the remaining shareholding of 50.03% of the holding company of the Sky Mall shopping centre in Kyiv. The price of the option exercise is USD51.4 million. In early 2015 a further tribunal ruling confirmed that the Arricano beneficiaries had satisfied the required conditions for their obligations under the call option agreement.

During the year, Yarema Kovaliv was appointed to the board as a non-executive director having been Acting Chief Executive Officer. Simultaneously, Mykhailo Merkulov was appointed Chief Executive (non-Board appointment) in September 2014. Hillar Teder stepped down from his position as non-executive director of the Company at the same time as Mr. Kovaliv joined the Board. Hillar Teder is the Company's largest shareholder and has been instrumental in ensuring the Company is financially secure and continues to be highly supportive. Since the year end, Mr. Merkulov has joined the Board and Mr. Kovaliv resigned to take up a position in the Ukrainian government.

Our commercial objective has always been to use the cash generative completed portfolio to support the addition of further lettable space and the development of new shopping centre and entertainment complexes. We have continued this strategy albeit more cautiously and 2014 saw the opening of SEC Prospect and the completion of the SEC South Gallery Stage 2 in Simferopol, both being significant achievements given the market environment.

The Board is not recommending a dividend for this period, however, it is the Company's intention to make distributions to shareholders in the future in line with the profitability of the business.

Looking ahead, we will continue to take a very cautious approach to expansion whilst there are so many unknowns. Our primary focus is on safeguarding our assets, working supportively with our 400+ tenants and positioning the business for the medium to long term.

2015 is likely to be another challenging year for the business from the perspective of the economic and political situation in Ukraine. We have worked hard to structure the business so that it will be able to benefit from the recovery when it arrives. Ukraine remains severely structurally undersupplied in terms of good to high quality retail space and Arricano continues to establish a market leading portfolio of shopping and entertainment centres in key Ukrainian cities.

Rupert Cottrell

Chairman

23 June 2015

Chief Executive Officer's Report

Introduction

This has been a very unusual year dominated by political and economic problems, nevertheless, Arricano has managed to continue to operate successfully shown most clearly by the fact that we have increased the size of our completed portfolio by 21% with the opening of SEC Prospect and the extension to SEC Simferopol and trading has continued broadly as normal.

Excluding the new openings, our portfolio is virtually fully let and given the circumstances, the trading performance of the business has been good with no material defaults and new lettings progressing in the new space introduced into the portfolio.

Results

Our customers are our priority and we recognise the impact the 50% fall in the value of the Ukrainian Hryvnia against the USD has had upon our tenants who are all on USD linked rents. However, in the period under review, we have managed to continuously substitute and rotate tenants in order to preserve high occupancy.

Revenues were lower than the prior year at USD22.8 million reflecting the very different market environment and our decision to share some of the risk on currency fluctuations with a number of our tenants by temporarily fixing the foreign exchange rate coefficients on a case by case basis. As a result, the NOI (net operating income) of the operating properties was USD20.8 million compared to USD 23 million in 2013.

The loss before tax was USD69.6million (2013: profit USD4.1 million), reflecting the provisions being made for matured loans made by the Company and investments in Assofit. The total comprehensive loss for the year which includes the impact of the foreign currency movements is equal to USD 169.9 million.

Costs across the business have been reduced where possible to reflect the reduction in revenues and the future uncertainty given the wider market environment. Staff numbers have been reduced at head office and the individual centres through implementation of a programme of operational efficiencies.

Bank debt at the year-end was USD 60.9 million, with the majority of borrowings at the project level at an average rate of 9.7%. Loans mature between 2018 and 2020 and the Company's loan to investment property value ratio is comparatively low at 29.6%. In addition, there was USD3.1 million of cash, cash equivalents, and restricted deposits, as at 31 December 2014.

People

I would like to pay particular tribute to all the employees of Arricano and thank them for their commitment during what has been a very difficult period for everyone on a personal and a professional level. I am pleased to be able to confirm that so far only one Arricano employee has been drafted to serve in the Ukrainian army and we were delighted when he returned safely and once again took up his position in the Company.

The Market

Despite the extraordinary events of the last 12 months, the business has operated relatively normally, the five shopping and entertainment centres have opened every day and footfall across the portfolio was slightly higher in 2014 compared to the prior year. Unsurprisingly, consumer spending was down especially for imported goods most exposed to the significant currency fluctuations but overall trading continued. Consequently, there has been a decline in leased GLA (gross leasable area), although it has not been noticeable due to the lenient landlord-tenant policy implemented.

The increase in footfall numbers across the portfolio is attributable to pro-active marketing programmes. In particular, the Company has staged a series of events in each of the shopping centres that have been an important part of attracting people in. These events have ranged from celebrations of holidays and consumer-intensive events to neighbourhood engagement campaigns. The marketing team has also worked effectively to build the social media profile of each centre, promoting our business to a different, younger demographic and thereby introducing potential new customers.

Also as part of responding to the economic challenges, the Company sought to generate additional revenue streams by increasing revenue from advertising through the increased use of billboards across the portfolio and increased commercialisation of shared communal premises such as general access walkways.

The opening of the Prospect centre in Kyiv in September 2014 demonstrated our commitment to developing the business for the long-term in spite of the ongoing conflict. Prospect opened with occupancy at 50% with Auchan, the international hypermarket as co-investor and cornerstone tenant. All other comparable developments have been suspended or delayed and as a consequence it was the only new space that came into the market during 2014. This scarcity of new retail space worked to our advantage, resulting in a number of new lettings. By 31 December 2014, occupancy at Prospect rose to 78%, a very impressive beginning.

Outlook

The Company sees 2015 as a year of opportunity for its business. We hope that the geopolitical situation will stabilise and the military conflict in the east of the country will at least move to a more dormant phase, which would result in economic stabilisation that is much needed after the turmoil of 2014.

Ukraine was always seen as the last remaining sizeable real estate market in Europe that was still underdeveloped in terms of retail space. With reducing security risks and improving economic fundamentals we believe it is going to once again garner the attention of investors willing to capitalise on the attractively priced assets after the market correction in 2014.

New retailers have been eyeing the market for some time and if the economic fundamentals improve as expected then we will benefit. The Company already has new leases in the pipeline for 2015 for the two projects that are currently in the uptake phase.

From an operational perspective looking forward we are acting conservatively whilst continuing to build the portfolio for the long term. We are not taking on any new projects but we are progressing the ones currently in the portfolio. The Company is actively pursuing innovations in business, employing new retail formats, and new marketing activities with a strong focus on digital marketing and footfall engagement.

The Company is already actively engaged in the automation of routine management tasks in order to provide more efficiency to day-to-day activities and allow valuable labour resources to be engaged in more value added activities.

Overall the Company aims to convert the current outdated 'build and lease' paradigm into an agile hospitality focused business, changing the appeal from a pure B2B to focusing on customers that ultimately drive the revenue of the Company's tenants and of the Company itself.

Mykhailo Merkulov

Chief Executive Officer

23 June 2015

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 car access and good public transport links. The primary shopping centre catchment area includes almost the whole territory of the Saksahanskyi district and part of the Zhovtnevyi district. The secondary area covers the Dovhyntsivskyi district.

The shopping centre is on two levels, spanning a total GLA of approximately 35,600 sq. m. There are approximately 80 gallery tenants, a children's entertainment zone, a food court with restaurants and cafes, a bowling alley, and anchor tenants electronics store Comfy and hypermarket Auchan.

Key statistics

• GLA - c. 35,600 sq. m.

• Vacancy rate as at 31 December 2014 - 3.5 per cent.

• Visitors (2014) - 4.2 million

• Bank debt at 31 December 2014 - USD9.7million

• Valuation at 31 December 2014 - USD21.9million

City Mall (Zaporizhzhia)

City Mall is one of the largest shopping centres in Zaporizhzhia with a total GLA of approximately 21,450 sq. m. on a single level. The shopping centre is located on the Dnipro river approximately 3 km from Zaporizhzhia city centre, between two densely populated areas of Zaporizhzhia in the Zhovtnevyi administrative district (1b Zaporizska street), with convenient accessibility by public and private transport.

The second phase of City Mall was opened in April 2011 and comprises a gallery with approximately 80 international and local tenants, a food court with 10 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.

Key statistics

• GLA - c. 21,450 sq. m.

• Vacancy rate as at 31 December 2014 - 1 per cent.

• Visitors (2014) - 5.1 million

• Bank debt at 31 December 2014 - USD12.6 million

• Valuation at 31 December 2014 - USD25.9 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 includes the tenants Auchan (international hypermarket chain) and a Comfy electronics store, with a small gallery. Phase II of the South Gallery shopping centre was officially opened on 27 February 2014.

Phase I of the South Gallery initially opened with a 13,100 sq.m. GLA, and Phase II extended this to 32,200 sq.m. South Gallery boasts xx tenants and the largest entertainment centre for children, "Baby Boom", in Crimea.

Key statistics

• GLA - c. 32,200 sq. m.

• Vacancy rate as at 31 December 2014 - 17 per cent.

• Visitors (11 months of 2014) - 4.2 million

• Bank debt at 31 December 2014 - USD6.5million

• Valuation at 31 December 2014 - USD27.8 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 24,350 sq. m 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, with an estimated catchment area of approximately 170,000.

Key statistics

• GLA - c. 24,350 sq. m.

• Vacancy rate as at 31 December 2014 - 4 per cent.

• Visitors (2014) - 5.7 million

• Bank debt at 31 December 2014 - USD21.8million

• Valuation at 31 December 2014 - USD41.6 million

In early 2014, a claim was lodged with the Commercial Court in Kyiv contesting the Group's ownership of RayON. On 05 September 2014 this claim was resolved in favour of Arricano and duly dismissed. During the period RayON continued to operate as normal and there was no impact on the trading of the Group.

Prospect/Krasnotkatska (Kyiv)

The Prospect shopping centre and entertainment complex was opened on 25 September 2014 (cold opening) and 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 accessibility for vehicles and public transport links. Prospect was the only new professional retail scheme to open in Kyiv in 2014, with a GLA of approximately 30,450 sq. m.

Occupancy levels are experiencing steady growth and reaching 78% as of the date this announcement is written, presenting growth over the year-end figure.

The Company has refinanced the existing indebtedness on the property from Oschadbank with a new loan from EBRD, furthering the existing long standing partnership with the financial institution committed to support growth in socially responsible sectors of Ukraine economy.

Within the project there was also a joint venture with an SPV of retail operator Auchan, Real Estate F.C.A.U LLC, in which their own hypermarket block was constructed with an estimated GBA of approximately 11,700 sq. m. (excluding parking).

• GLA - c. 30,450 sq. m.

• Vacancy rate as at 31 December 2014 - 27 per cent.

• Visitors (3 months, 2014) - 3.1 million

• Bank debt at 31 December 2014 - USD10.9 million

• Valuation at 31 December 2014 - USD38.9 million

Portfolio-Investment Property

Sky Mall (Kyiv)

Sky Mall is one of the largest shopping centres in Kyiv, built to an award-winning design by the international architectural firm Chapman Taylor. It is home to top-quality brands, which include TopShop and Marks & Spencer, and anchored by the hypermarket Auchan, Comfy and stores of the Inditex Group. The first phase of the shopping centre (hypermarket) opened in 2007 and the second phase of the development opened in August 2010. It is located in the Dniprovskyi district of Kyiv on Vatutina Avenue, on the left bank of the Dnipro River. The shopping centre has good motor vehicle access and public transport links.

The GLA of the current operating centre (Phases I and II) is approximately 68,000 sq. m, with approximately 1,880 parking spaces. The shopping centre spans three levels with a cinema, children's and entertainment zone, food court, hypermarket and gallery shops.

It is anticipated that the third phase, which may be developed provided such development will be feasible at the time, would add a further GLA of approximately 46,500 sq. m. The third phase of development envisages an extension of the existing gallery with the addition of retail, leisure and entertainment space and the development of a number of stand-alone ("big box") retailers (furniture and DIY). Several preliminary concepts are available for the development of the third phase.

The Company currently owns 49.97 per cent. of the holding company of the asset, however its attempt to exercise its right to buy out the majority interest in Sky Mall in 2010 has been delayed by legal and arbitration proceedings. The exercise price of the option is USD 51.4 million. The Company intends to proceed as soon as practicable with the acquisition of this interest. Currently a 100% provision for impairment has been made with regards to the Skymall asset..

Key statistics

• Arricano ownership - 49.97 per cent.

• GLA - c. 67, 369 sq. m.

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 sq. m. The Group obtained the relevant building consent in June 2013.

* This comprises mainly residential space with a small amount of commercial property.

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 sq. m., 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, completion is now targeted for 2016.

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. If the site is to be developed as a shopping centre, the management expects the GLA to be approximately 31,450 sq. m.

Finance Report

The Company's revenue mainly consists of rental income from the portfolio of the completed properties. During the year ended 31 December 2014 the Company's rental income comprised USD22.8 million (2013: USD25.3 million). The decrease in revenues reflects the very difficult market environment and the Company's decision to mitigate some of the impact of the fall in the value of the Ukrainian Hryvnia on tenants by fixing the exchange rates for certain periods.

Unsurprisingly in 2014, the total fair valuation of the Company's portfolio was USD205.6 million as at 31 December 2014 (2013: USD287.8 million). The change reflected the decrease in USD revenue forecasts due to discounts provided to tenants and the increased yields applied at valuation that have changed with the market conditions and perceived security risks.

Due to the influence of the currency devaluation and the presentational characteristics applied in the consolidated financial statements, the revaluation of the investment property showed a gain of USD42.2 million compared to a gain of USD1.7 million in 2013. Although there has been a decrease in the overall portfolio value, the specifics of accounting for foreign exchange cross calculations among subsidiaries in different currency requires the new value is calculated in USD to be booked in the functional currency of the domicile of the property (Ukrainian Hryvnia in Ukraine). The dynamics of the decrease in USD value and the devaluation of the functional currency do not match; resulting in an increase in the Hryvnia amount, which translates to the gain in the USD presentation in the consolidated accounts. It is outweighed by the foreign exchange losses booked after the net profit figure (described further).

The Company has worked to reduce the cost base during 2014 to help offset the reduction in revenues, which was helped by the fact that operational costs are fixed in Hryvnia for the short term. Operating expenses were USD8.3 million, excluding the allowance for bad debts (2013: respectively USD12.2 million).

Employee costs reduced by 20.5% per cent for the year ended 31 December 2014 as compared to the previous year, aided by the devaluation of the Hryvnia. The 25% decrease compared to the 40% devaluation of Hryvnia is explained by the gradual devaluation of wages throughout the year.

The resultant profit from operating activities has been negatively influenced by a USD 42,6 million bad debts allowance, resulting in a 2014 figure of USD 10.5 million and USD10.5 million in 2013, both including revaluation gains

The fluctuations and the rapid devaluation of the Hryvnia have resulted in USD146.5 million of foreign exchange losses on monetary items that form part of the net investment in the foreign operation, net of tax effect; and foreign currency translation gain of USD55.3 million, both booked under other comprehensive income in the statement of profit or loss and other comprehensive income. This is partially offset by the revaluation gain booked above to the net profit (loss) figure of USD42.2 million.

Net finance expenses in 2014 increased by USD73.6million, as a result of foreign exchange losses of USD49.8 million and the impairment of the Assofit asset (Skymall) of USD20.7 in the finance costs line. Bare finance costs have increased by USD5.3 million from USD10.3 million in 2013 to USD15.6 million in 2014.

The Company's net loss for the year ended 31 December 2014, was USD78.6 million (2013 profit: USD3.2 million). One of the main drivers in the net loss has been the foreign exchange losses in the finance costs line, accounted above the net profit figure, and the impairments applied to the assets during preparation of the consolidated financial statements.

Net Asset Value as at 31 December 2014 was USD61.7 million (2013: USD231.5 million), resulting in an Adjusted Net Asset Value per Share of USD0.59 (2013: USD2.24). The decrease in NAV was driven principally by the loss carried to the balance sheet and the impact of the foreign exchange losses. and the impairments applied to the loan granted by the Company and the Company's treatment of the available-for-sale financial asset of Assofit.

Total assets, as at 31 December 2014, amounted to USD239.9 million, a decrease of 41.4% from the year end 31 December 2013 mainly relating to the impairments applied, the decrease in investment property value, and cash and prepayment decreases.

Cash balances as at 31 December 2014 including cash equivalents and both current and long term deposits amounted to USD3.1 million (2013: USD13.3 million).

In 2014 the Group entered into loan agreements with EBRD for the refinancing of the Prospect property as part of the announced liquidity support program by the Bank for the Ukrainian corporate sector.

Overall, during the year the Company repaid USD25.6 million of borrowings, while attracting USD19.3 million of new borrowings.

In the acquisition of subsidiaries in 2013, the Company agreed deferred consideration of USD20 million to be paid by April 2015. This amount is included within other liabilities of the Company and, subsequent to the year end, has been re-scheduled to April 2016.

Tetyana Kolesnyk

Acting Chief Financial Officer

23 June 2015

Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2014.

Consolidated statement of financial position as at 31 December 2014

Consolidated statement of Cash Flow for the year ended 31 December 2014

Non-cash movements

During the year ended 31 December 2014, acquisition of investment property of USD 3,334 thousand was financed through finance leases (2013: USD 5,144 thousand).

Consolidated statement of changes in equity as at and for the year ended 31 December 2014

1. Background

(a) Organization 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 London Alternative Investment Market (London AIM). 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 2014, the Group operates five shopping centres in Kyiv, Simferopol, Zaporizhzhya and Kryvyi Rig with a total leasable area of over 144,050 square meters and is in the process of development of two new investment projects in Kyiv and Odesa.

(b) Ukrainian business environment

Ukraine's political and economic situation has deteriorated significantly since the Government's decision not to sign the Association Agreement and the Deep and Comprehensive Free Trade Agreement with the European Union in late November 2013. Political and social unrest combined with rising regional tensions has deepened the ongoing economic crisis and has resulted in a widening of the state budget deficit and a depletion of the National Bank of Ukraine's foreign currency reserves and, as a result, a further downgrading of the Ukrainian sovereign debt credit ratings. In February 2014, following the devaluation of the national currency, the National Bank of Ukraine introduced certain administrative restrictions on currency conversion transactions and also announced a transition to a floating foreign exchange rate regime. The final resolution and the effects of the political and economic crisis are difficult to predict but may have further severe effects on the Ukrainian economy.

In March 2014, the regional parliament in the Republic of Crimea declared its independence from Ukraine and signed an agreement with the Russian Federation outlining the Republic of Crimea's intention to join the Russian Federation. Effective from 1 May 2014 the national currency of the Republic of Crimea is the Russian Rouble. The Ukrainian state authorities and authorities of other leading countries do not recognise these declarations and agreements as they believe they are in violation of the Ukrainian constitution and international law.

However, as a result of these events and the Crimean parliament no longer recognising the authority of the Ukrainian national government, the Ukrainian authorities are not currently able to enforce Ukrainian laws on the territory of the Republic of Crimea.

As at 31 December 2014, the carrying value of the Group's investment property located in Simferopol, the administrative centre of the Republic of Crimea, amounted to USD 27,800 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.

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.

(c) Cyprus business environment

The Cyprus economy has been adversely affected from the crisis in the Cyprus banking system in conjunction with the inability of the Republic of Cyprus to borrow from international markets. As a result, the Republic of Cyprus entered into negotiations with the European Commission, the European Central Bank and the International Monetary Fund (the "Troika"), for financial support, which resulted into an agreement and the Eurogroup decision of 25 March 2013.

The current economic environment of Cyprus is not expected to have a significant impact on the operations of the Company as the Company does not hold significant funds in Cypriot financial institutions.

On the basis of the evaluation performed, the Group's management has concluded that no additional provisions or impairment charges are necessary .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.

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) and the requirements of the Cyprus Companies Law, Cap. 113.

(b) Basis of measurement

The consolidated financial statements have been prepared under the historical cost basis except for investment property, including investment property classified as held for sale, 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 and Isle of Man have the US dollar as their functional currency, since substantially all transactions and balances of these entities are denominated in US dollars.

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 procedures are performed:

- 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 the 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 (also refer to note 3(b)(i)).

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 year ended 31 December are as follows:

* no balances and transactions were translated from RUB to USD as at 31 December 2013 and for the year ended 31 December 2013.

As at the date of these consolidated financial statements are authorised for issue, 23 June 2015, the exchange rate is UAH 21.77 to USD 1.00 and RUB 53.56 to USD 1.00.

(d) Use of judgments, estimates and assumptions

The preparation of the 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 3(b)(i) - application of foreign currency exchange rates,

· note 7 - valuation of investment property,

· note 8 - valuation of available-for-sale financial assets,

· note 9 - valuation and presentation of loans receivable,

· note 11 - valuation of trade and other receivables,

· note 12(a) - classification of assets held for sale,

· note 26 - calculation of deferred tax.

(e) Going concern

The Group incurred a net loss of USD 78,596 thousand in 2014 and, as at 31 December 2014, the Group's current liabilities exceed current assets by USD 84,208 thousand.

At the same time, the Group has positive equity of USD 61,654 thousand as at 31 December 2014 and positive cash flows from operating activities amounting to USD 5,496 thousand for the year then ended.

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

· During the year ended 31 December 2014, the Group has finalised the construction of the new shopping centre "Prospect" located in Kyiv which started its operations in September 2014. In accordance with the budget for 2015, net operating income from this shopping centre is estimated at USD 4,461 thousand. Management expects positive cash-flows from operations of shopping centre "Prospect" in 2015;

· In March 2015, the Group signed an amendment to the share exchange agreement in order to postpone the settlement of the deferred consideration payable of USD 20,000 thousand from 30 April 2015 to 30 April 2016 (refer to note 30(a));

· In March 2015, the Group signed an amendment to the loan agreement with Bytenem Co Limited in order to postpone the settlement of the outstanding balance of USD 17,471 thousand from 14 March 2015 to 14 March 2016 (refer to note 30(a));

· In December 2014, the Group concluded a new loan agreement with the EBRD for a facility up to USD 25,000 thousand to refinance an existing loan due to Oshchadbank amounting to USD 10,000 thousand and to repay amounts due to constructors of USD 15,000 thousand;

· The Group has financial support from the ultimate controlling party. Based on representations received from an entity under common control, management believes that the Group will not be required to settle the outstanding loan payable to International Baltic Investments of USD 15,582 thousand in 2015. In addition, management believes that the Group will be able to obtain new loans from entities under common control should this be required for operational and other needs of the Group.

Management believes that the measures that it undertakes, as described above, will allow the Group to operate on a going concern basis in the foreseeable future. Therefore, management believes that the going concern basis for preparing these consolidated financial statements is appropriate and there is no significant uncertainty regarding the Group's ability to continue as a going concern.

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 7 - investment property; and

· Note 27(e)(iii) - fair values.

3. Significant accounting policies

The accounting policies set out in the full financial statements are applied consistently to all periods presented in this announcement, and have been applied consistently by Group entities.

4. Changes in presentation of related party disclosures

During the year ended 31 December 2014, the Group management became aware that one of the Group's counterparties which has been providing and continues to provide major construction services to the Group, and which was considered by management to be a related party up to and including 2013 due to its relationship with the ultimate controlling party of the Company, was disposed in 2011 out of control of the ultimate controlling party to an entity in which a close family member of one of the Company's minority shareholders has significant interest. As of the date of this disposal, the Company no longer has a reportable related party relationship with the said counterparty. Consequently, as at 31 December 2014, the transactions and balances with this counterparty are not presented as related party relationships and corresponding changes to comparative information were made in these consolidated financial statements to conform to the current year presentation.

5. Acquisition of subsidiaries

On 12 September 2013, the Group acquired Twible Holdings Limited and its subsidiary LLC Comfort Market Luks, Gelida Holding Limited and its subsidiary LLC Mezokred Holding, Sapete Holdings Limited and its subsidiary LLC Vektor Capital, Wayfield Limited and its subsidiary LLC Budkhol from entities under common control. The acquisition of these subsidiaries was accounted for as an acquisition of assets and liabilities as they did not meet the definition of a business according to IFRS 3 Business Combinations and the Group has transferred 28,350,214 ordinary shares issued for the purposes of IPO in exchange for these assets and liabilities. In addition, the Group has agreed to pay a deferred consideration related to acquisition of the shares of Wayfield Limited and its subsidiary LLC Budkhol via a cash payment of USD 20,000 thousands in two tranches. The first tranche amounting to USD 10,000 thousand was to be paid before 30 April 2014, while the payment of the second tranche was to be paid not later than 30 April 2015. The Group is liable to pay quarterly interest on any deferred consideration outstanding at the rate of 9.75% per annum.

In May 2014, the Group signed an amendment to the share exchange agreement in order to postpone the payment of USD 10,000 thousand from 30 April 2014 to 30 April 2015 (refer to note 21). In March 2015, the Group signed an amendment to the share exchange agreement in order to postpone the payment of USD 20,000 thousand from 30 April 2015 to 30 April 2016 (refer to notes 21, 30(a)).

The fair value of the shares transferred in the above transaction was determined by reference to the market price of the Parent Company's ordinary shares of USD 2.33 per share. This price was determined based on the price of shares settled by a third party in cash on the date the Parent Company was admitted for trading. The excess of the fair value of the acquired assets and liabilities over the fair value of shares transferred and deferred consideration payable was recognised as contribution from the shareholder within share premium.

The cost of the acquisition was allocated to the assets and liabilities acquired based on their relative fair values as follows:

The share purchase agreements stipulated that certain loans payable by the acquired subsidiaries to a third party and entities under common control are to be re-assigned to Arricano for a nominal amount of EUR 1 each. Accordingly, as at the date of acquisition the relative fair value of these loans is considered to be nil despite that formal legal procedures for loan re-assignment were only substantially completed in the fourth quarter of 2013.

As at 12 September 2013, included in investment property are priority land lease rights for three land plots located in Odesa amounting to USD 10,900 thousand in total. These priority land lease rights were recognised since LLC Vektor Capital, being the owner of non-residential premises located on these land plots, had the priority right to conclude land lease agreements with the Odesa City Council. On 17 December 2013, these land lease agreements were approved to be concluded with formal sign-off finalised on 20 March 2014 (refer to note 18).

6. Amendments to the consolidated financial statements that were authorized for issue

Subsequent to the date that the original consolidated financial statements as at and for the year ended 31 December 2014 were authorised for issue, 28 April 2015, management was able to obtain additional information about matters affecting the recoverable values of certain assets and proceeded to amend the consolidated financial statements of the Group as at and for the year ended 31 December 2014 and submit anew the consolidated financial statements for approval and authorization for issuance.

Management determined that certain corrections to the amounts initially reported are required:

· Recognition of impairment of available-for-sale financial asset for the amount of USD 20,727 thousand as at 31 December 2014 (refer to note 8);

· Recognition of impairment of loans receivable for the amount of USD 39,761 thousand, including accrued interest in the amount of USD 9,761 thousand (refer to note 9).

·

The table below represents the summarised impact of the corrections to the originally reported amounts on the consolidated statement of financial position as at 31 December 2014:

The table below represents the summarised impact of the correction to the originally reported amounts on the consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2014:

7. Investment property

(a) Movements in investment property

Movements in investment properties for the year ended 31 December are as follows:

* As at 31 December 2014, the Group had not obtained the title documents for the shopping centre "Prospect" in Kyiv with a total gross leasable area (GLA) of nearly 30,400 square meters and a carrying value of USD 29,100 thousand. On 5 March 2015, the Group has obtained title documents for the shopping center "Prospect". In September 2014, this shopping centre started its operations.

During the year ended 31 December 2014, acquisition of a land plot held on leasehold of USD 3,334 thousand was financed through finance lease (2013: USD 5,144 thousand) (refer to note 18).

During the year ended 31 December 2014, 79% of total construction services were purchased from one company (2013: 79% of total construction services) (refer to note 4).

During the year ended 31 December 2014, capitalised borrowing costs related to the construction of the new shopping centre in Kyiv amounted to USD 476 thousands (2013: USD 795 thousand and were related to the construction of the new shopping centre in Simferopol), with a capitalisation rate of 11.5% (2013: 11%).

As at 31 December 2014, in connection with loans and borrowings, the Group pledged as security investment property with a carrying value of USD 143,878 thousand (2013: USD 193,111 thousand) (refer to note 28(a)).

(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 the land held on the leasehold which is not associated with completed property and is therefore categorised within Level 2 category. As at 31 December 2014, the fair value of land held on leasehold categorized within Level 2 category is USD 25,800 thousand (2013: USD 49,700 thousand). To assist with the estimation of the fair value of the Group's investment property as at 31 December 2014, 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 Company 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 2014, 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 3.00 to USD 35.00 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 71% to 99% and discount rates ranging from 12.50% to 19.00% 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 2013, 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 which were based on contractual and market rental rates ranging from USD 3.00 to USD 48.70 per sq.m., occupancy rates ranging from 95% to 99% and discount rates ranging from 13.50% to 17.20% 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 7(a).

As at 31 December 2014, fair value of investment property denominated in functional currency amounted to UAH 2,950,175 thousand and RUB 1,035,233 thousand (31 December 2013: UAH 2,300,375 thousand). The increase in fair value of investment property results from increased rental rates invoiced in Ukrainian Hryvnia due to the increase in the exchange rates applied to the USD equivalent of rental rates fixed in the contracts.

The valuation model used to assess the fair value of investment property as at 31 December 2014 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 1,603 thousand (2013: USD 1,756 thousand) lower. If rental rates are 1% higher, then the fair value of investment properties would be USD 1,603 thousand (2013: USD 1,756 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 10,362 thousand (2013: USD 11,747 thousand) lower. If the discount rate is 1% less, then the fair value of investment properties would be USD 11,908 thousand (2013: USD 13,563 thousand) higher.

· If the occupancy rates are 1% higher than those used in the valuation models, the fair value of investment properties would be USD 1,351 thousand higher (2013: if the occupancy rates are 1% higher than those used in the valuation models, or are assumed to be 100% for the shopping centers in Zaporizhzhya and Kyiv, the fair value of investment properties would be USD 1,813 thousand higher). If the occupancy rates are 1% less, then the fair value of investment properties would be USD 1,430 thousand (2013: USD 3,040 thousand) lower.

8. Available-for-sale financial assets

As at 31 December 2013, available-for-sale financial assets are represented by the investment in Assofit Holdings Limited, in which the Group holds 49.97% of nominal voting rights without retaining significant influence.

Assofit Holdings Limited (Assofit) is not a publicly listed entity and consequently does not have published price quotations of its shares. Also, management believes that the range and variability of fair value estimates for the investment in Assofit is significant. Thus, management believes that the fair value of equity investment in Assofit cannot be measured reliably, therefore this equity investment is measured as cost less impairment.

As at 31 December 2013, Assofit was operating Skymall shopping centre with a total gross leasable area of nearly 65,600 square metres through its wholly owned subsidiary Prizma Beta LLC. As at 31 December 2013, management assessed impairment indicators for investment in Assofit. As a result of this analysis, management concluded that as at 31 December 2013 there were no indicators of impairment of investment in Assofit based on the following:

· Historically, Assofit generated strong positive cash flows and the major underlying asset of Assofit is Skymall shopping centre that as at 31 December 2011 was measured at fair value, as determined by an independent qualified appraiser using the income approach. There were no decreases in rental rates for similar properties since that date up to 31 December 2013 which could materially decrease the fair value of the shopping centre. Also, many of the tenants have long-term contracts where only upward revision of rental rates is possible;

· Assofit was operating under direction of a receiver appointed by the court to protect the rights of Arricano as a minority shareholder. Therefore, potential transfer of significant assets from the entity was deemed to be controlled by the receiver;

· As at 31 December 2013, a significant portion of liabilities of Assofit was represented by loans payable by the Ukrainian subsidiary of Assofit, Prizma Beta LLC, to Filgate Credit Enterprises Limited. In accordance with a final award issued by the United Nations Commission on International Trade Law Tribunal on 9 June 2011, these loans together with accrued interest were to be assigned from Filgate Credit Enterprises Limited to the entity under joint control of Arricano and Stockman Interhold S.A., the majority shareholder of Assofit, for a nominal price of EUR 1 each.

On 28 January 2014, the Highest Economic Court of Ukraine upheld the rulings of the lower instances courts to re-assign the abovementioned loans payable amounting to USD 120,000 thousand to Assofit. A subsequent appeal of Filgate Credit Enterprises Limited to the Supreme Court of Ukraine was not satisfied, thus leaving the abovementioned decision of the Highest Economic Court of Ukraine unchanged and in effect. These loans were reassigned to Torsem Co Limited, jointly owned by two BVI holding companies. As 31 December 2013, Arricano had a right to acquire one of the abovementioned BVI holding companies in accordance with the final award issued by the United Nations Commission on International Trade Law Tribunal on 9 June 2011. Management believed this right proved that value of investment into Assofit significantly exceeded its carrying amount.

In September 2014, Assofit transferred the shares of Prizma Beta LLC to Financial and Investment Solutions BV, a company registered in the Netherlands, despite the fact that an Interim Receiver was appointed in Assofit with the responsibility of collecting and safeguarding Assofit's assets. Further, in September 2014, Joint-Stock Bank Pivdennyi PJSC, Ukraine, which had an outstanding mortgage loan from Prizma Beta LLC of USD 32,000 thousand, exercised its right to recover the above-mentioned loan by means of reposession of ownership rights to the Skymall shopping centre which was pledged to secure this loan in September 2014. Consequently, Assofit has lost legal control over the Skymall shopping centre. The Group is contesting the eligibility of these developments in court (refer to note 28 (d)(i)). As a result of the abovementioned events, as at 31 December 2014 there are indications that the carrying amount of available-for-sale financial assets might not be recoverable. Correspondingly, management has performed an impairment assessment of available-for-sale financial assets as at that date. Based on the results of this assessment, management has determined that due to loss of the legal control over major asset, represented by the Skymall shopping centre, investment in Assofit fully is impaired as at 31 December 2014.

9. Loans receivable

Loans receivable as at 31 December are as follows:

Loans receivable from third parties

As at 31 December 2014 and 2013, the long-term loans receivable from third party have their maturity date on 31 December 2018, are unsecured and bear a 3.2% interest rate per annum that is fully capitalised and to be repaid together with the principal.

As at 31 December 2014, short-term loans receivable due from third parties in the amount of USD 8,199 thousand (2013: USD 7,973 thousand) are represented by a loan, which bears a 3.2% interest rate per annum and is overdue. Management of the Group believes that it will be able to recover this loan receivable due from the third party due to the existence of sufficient assets of a short-term nature at the borrower and, accordingly, this loan receivable is not considered to be impaired. Should actual collections prove to be less than management estimates, the Group will be required to record additional impairment expense in the next reporting period. The Group management exercises significant judgment in presentation of this loan due within current assets.

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. As at 31 December 2014, the resulting loan receivable of USD 39,761 thousand (2013: USD 38,579 thousand), including accrued interest of USD 9,761 thousand (2013: USD 8,579 thousand), is unsecured, bears a 3% fixed interest rate that is fully capitalised and repayable together with the principal and is overdue.

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 its 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. Subsequent to this transfer, settlement of the loan by Weather Empire Limited depends on the intention and ability of the Company's majority shareholder and ultimate controlling party to repay this loan.

As at 31 December 2013, this loan was presented within current assets in accordance with its contractual maturity.

As at 31 December 2014, this loan is overdue and management considers this to be irrecoverable. 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 2014. Corresponding impairment loss of USD 39,761 thousand has been recognised in the consolidated statement of profit or loss and other comprehensive income for 2014.

Included in short-term loans receivable as at 31 December 2014 is also a loan due from PrJSC Dniprovska Prystan, a subsidiary of Assofit Holdings Limited, amounting to USD 336 thousand (2013: USD 664 thousand) which is overdue. Full amount of receivable was impaired as of 31 December 2014.

As at 31 December 2014, the remaining short-term loans receivable granted to related parties and third parties of USD 591 thousand are due within one year, unsecured and interest-free (2013: USD 1,253 thousand).

10. VAT recoverable

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

Management expects that long-term VAT recoverable will be recovered in full by 2018.

11. Trade and other receivables

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

Trade receivables are mainly comprised of 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 is recognised.

As at 31 December 2014, included in other receivables from related parties are receivables from Dniprovska Prystan PrJSC amounting to USD 9,029 thousand (2013: USD 9,260 thousand), which are overdue. In 2012, the court ruled to initiate bankruptcy proceedings against the mentioned related party and, as at 31 December 2014, the decision which would declare Dniprovska Prystan PrJSC insolvent has not yet been made. Full amount of receivable was impaired as at 31 December 2014.

12. Assets held for sale

(a) Movements in assets held for sale

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

On 3 April 2014, the Board of Directors of the Company committed to a plan to sell Gelida Holding Limited and its subsidiary Mezokred Holding LLC to the ultimate controlling party of the Group. Accordingly, the assets and liabilities of the abovementioned subsidiaries are presented as classified as held for sale as at 31 December 2014. Assets of these subsidiaries are represented by investment property, which is a land plot, including the finance lease asset, measured at fair value of USD 5,996 thousand, prepayments for investment property in the amount of USD 24 thousand, property under construction measured at cost of USD 654 thousand and other assets of USD 71 thousand as at 31 December 2014. As at 31 December 2014, the Group recognised a gain on revaluation of this land plot in the amount of USD 2,281 thousand. During the year ended 31 December 2014, additions to land plot held on leasehold of USD 80 thousand were financed through finance lease. Based on representation obtained from the ultimate controlling party, management believes that subsidiaries Gelida Holding Limited and Mezokred Holding LLC will be sold without causing financial losses or equity reduction to Arricano. Accordingly, management believes that the assets of these subsidiaries are not impaired and are appropriately classified as held for sale as at 31 December 2014.

As at 31 December 2014, the Group is involved as a defendant in a lawsuit alleging invalidation of a resolution of the Kyiv City Council, according to which the latter has approved an allocation of a land plot for construction of the hypermarket to Mezokred Holding LLC and entitled Mezokred Holding LLC to lease this land plot for a period of 25 years (refer to note 28(d)(iii)).

Included in other assets classified as held for sale as at 31 December 2014, is a land plot with a carrying amount of USD 2,742 thousand (2013: USD 5,410 thousand), which is intended to be transferred by one of the Group's subsidiaries, Comfort Market Luks LLC, to a third party in accordance with an investment agreement concluded between the parties.

Based on this investment agreement, Comfort Market Luks LLC acted as an intermediary in the construction of a hypermarket with a 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 2013, the advance payment received under the investment agreement with a third party amounted to USD 14,636 thousand (refer to note 20). Simultaneously, Comfort Market Luks LLC concluded a contract of mandate, according to which this third party acted as a representative of the developer in the construction of this hypermarket and parking lot. As at 31 December 2013, prepayment made to this third party and other assets under the contract of mandate amounted to USD 8,110 thousand and prepayments made to other third parties and other assets under the abovementioned investment agreement amounted to USD 784 thousand (refer to note 13). As at 31 December 2014, the construction of the hypermarket and a parking lot is finalised and, except for the abovementioned land plot to be transferred, the investment agreement is considered to be executed. Management expects that the land plot will be transferred to the third party in 2015 subject to completion of formal legal procedures. As at 31 December 2014, advance payment received under this investment agreement amounts to USD 2,917 thousand (refer to note 20) and will be settled upon transfer of the land plot.

(b) Determination of fair value

The fair value measurement, developed for determination of fair value of the Group's investment property classified as held for sale, which is represented by a land plot, is based on market prices for similar properties and is categorised within the Level 2 category. To assist with the estimation of the fair value of the investment property classified as held for sale as at 31 December 2014, 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.

13. Prepayments made and other assets

As at 31 December 2014, prepayments made are represented by other prepaid miscellaneous expenses in the amount of USD 576 thousand (2013: USD 1,222 thousand). As at 31 December 2013, the prepayments made also included prepayments made and other assets under the investment agreement and the associated contract of mandate for the amount of USD 8,894 thousand in total (refer to note 12).

14. Cash and cash equivalents

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

Excluded from cash and cash equivalents as at 31 December 2014 are restricted deposits in amounts of USD 1,385 thousand and USD 897 thousand with maturity in 2015 and 2020, respectively (2013: USD 663 thousand and USD 820 thousand, with a maturity in 2014 and 2020, respectively). These deposits serve as pledge under three different loan facilities (refer note 28(a)).

As at 31 December 2014, cash and cash equivalents placed with two bank institutions amounted to USD 612 thousand, or 74% of the total balance of cash and cash equivalents (2013: USD 11,476 thousand, or 97%). In accordance with Moody's rating, these banks are rated as Caa2 and A2 as at 31 December 2014 (2013: both banks were rated as A2).

15. 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 2014 and 2013 the Group did not declare any dividends.

Initial public offering of the Company's shares

In 2012, the Parent Company was contemplating an initial public offering of its shares (the "IPO") at the London AIM.

The Company's authorised share capital was increased to meet the minimum requirements established for the share capital of public companies under the laws of Cyprus. On 12 September 2012 the authorised share capital of the Company was divided into 3,231,000 ordinary shares of nominal value Euro 0.01 each and on the same day the authorised share capital was further increased to Euro 42,513.16 divided into 4,251,316 ordinary shares of nominal value Euro 0.01 each by the creation of 1,020,316 ordinary shares of Euro 0.01 each. On 19 September 2012 the authorised share capital was further divided into 85,026,320 ordinary shares with nominal value of Euro 0.0005 each, of which 64,620,000 ordinary shares with nominal value of EUR 0.0005 each were allotted to existing shareholders.

Further, with a view to fulfill obligations of the Company under share purchase agreements with new investors, concluded with a view to facilitate the IPO process, on 26 September 2012 the Board of Directors of the Company took a decision on allotment of 20,406,309 shares to new investors for a total consideration of USD 70,000 thousand. As at 31 December 2012, these shares were unpaid.

Subsequent to allotment of these shares, the Company did not fulfill certain conditions stipulated in share purchase agreements. In particular, it had neither completed the listing on the London AIM nor had it completed the purchase of certain properties for development. Under those circumstances, share purchase agreements require the Company and the investors to take all necessary steps to unwind the purchase of the shares by the investors. The Board of Directors of the Company made a call on unpaid shares by sending the necessary notices to investors. Further to the investors' non-compliance with the notices and non-payment of the consideration for the issue of the shares, on 16 April 2013 the Board of Directors of the Company initiated the procedure for the forfeiture of the shares in question. It was expected that upon completion of the forfeiture of the shares issued to the new investors, the Company's Board of Directors will make its decision with regards to the disposal of the shares forfeited as it deemed appropriate and in the interests of the Company. Thus, as at 31 December 2012 the effect related to forfeiture of the shares was recognised in other reserves within equity. Subsequently, in accordance with the decision of the Board of Directors of the Company, dated 25 May 2013, unpaid shares were legally forfeited, which resulted in a decrease in share capital by USD 13 thousand, share premium by USD 69,987 thousand and increase in other reserves by USD 70,000 thousand.

Further, as part of the initial public offering (IPO) of the Company's shares at London AIM, on 20 July 2013 the Shareholders approved the increase of the Company's authorised share capital to EUR 53,000 (or USD 68,564) divided into 106,000,000 ordinary shares of nominal value EUR 0.0005 each.

On 12 September 2013 the Company was admitted for trading on London AIM. As a result of the IPO, the Company placed 38,650,637 ordinary shares and had an effect on equity of USD 93,759 thousand. 28,350,214 ordinary shares were transferred to entities under common control as consideration for acquired subsidiaries at a fair value of USD 66,056 thousand (refer to note 5) and 10,300,423 ordinary shares that were settled in cash at a price of USD 2.33 per share. Cash proceeds from placement of 10,300,423 ordinary shares, net of direct costs related to the IPO process of USD 1,757 thousand, amounted to USD 22,243 thousand.

Call option agreement with ELQ Investors II Ltd.

On 14 July 2011 the Company entered into a transaction pursuant to which ELQ Investors II Ltd., a wholly-owned subsidiary of the Goldman Sachs Group Inc, provided the Company with convertible loans in the maximum amount of up to USD 40 million at an interest rate of 11.5% per annum. Out of the maximum amount, USD 30 million were provided to the Company. The funds were used by the Company to provide a loan (with an initial interest at 11.85% p.a.) to Weather Empire Limited (a special purpose vehicle incorporated in the British Virgin Islands) in order to purchase 1,077 shares (or 16.67% of subscribed share capital) in the Company from Retail Real Estate S.A.

As part of the transaction, ELQ Investors II Ltd. received one Initial Arricano Share. The shares purchased by Weather Empire Limited were held under escrow by a Cypriot escrow agent, Themis Professional Services Limited. In accordance with a call option agreement, from 14 July 2011 ELQ Investors II Ltd. obtained the right to receive the entire issued capital of Weather Empire Limited, which in turn held the 1,077 ordinary shares of the Company, for USD 1. However, the conversion right expired in July 2013 and accordingly the loan due to ELQ Investors II Ltd became repayable.

In July 2013, the Company entered into a settlement and release deed, in accordance with which related parties of the Group and UBS AG agreed to settle the Company's indebtedness due to ELQ Investors II Ltd. Simultaneously, the Company concluded two loan agreements with these related parties amounting to USD 36,974 thousand in total. One loan amounting to USD 8,475 thousand was repaid on 20 September 2013. As at 31 December 2013, the loan amounting to USD 28,500 thousand was payable on demand by 17 December 2014 at the latest. Also, the Company issued an irrevocable guarantee to UBS AG securing the repayment of the loan obtained by the related party for the amount of USD 28,800 thousand and the interest accrued thereon. During the year ended 31 December 2014, the Group signed an amended loan agreement with this related party, stipulating a decrease of the loan principal to USD 15,300 thousand and prolongation of the final repayment date until 13 August 2017, although the loan remains payable on demand in accordance with the contractual terms of the loan agreement (refer to note 17). Accordingly, the amount secured by the irrevocable guarantee issued to UBS AG was decreased to USD 15,300 thousand, plus interest accrued thereon and other specified costs related to the loan facility provided by UBS AG. Later in 2014, the related party settled its liabilities to UBS AG in full, and, as at 31 December 2014, the Company's obligations under the irrevocable guarantee issued to UBS AG were extinguished.

16. Earnings per share

The calculation of basic earnings per share for the year ended 31 December 2014 was based on the loss for the year ended 31 December 2014 attributable to ordinary shareholders of USD 78,596 thousand, and a weighted average number of ordinary shares outstanding as at 31 December 2014 of 103,270,637.

The calculation of basic earnings per share for the year ended 31 December 2013 was based on the profit for the year ended 31 December 2013 attributable to ordinary shareholders of USD 3,197 thousand and a weighted average number of ordinary shares outstanding of 84,262,942.

The Group has no potential dilutive ordinary shares.

17. 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 27.

Terms and debt repayment schedule

As at 31 December 2014, the terms and debt repayment schedule of loans and borrowings are as follows: