ARO.L Regulatory News (ARO)

Arricano Real Estate plc

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

Interim Results for the 6 months ended 30 June 2018

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 147,100 sqm of gross leasable area, a 49.9% shareholding in Assofit and land for a further three sites under development.

Highlights:

§ Total revenues increased 15% to USD14.8 million (30 June 2017: USD 12.9 million)

§ Excluding revaluation gains profit before tax increased by 129% to USD 6.4 million (30 June 2017: USD 2.8 million)

§ Total fair valuation of the Company's portfolio increased by USD 19.1 million to USD 240.4 million as at 30 June 2018 (31 December 2017: USD 221.2 million)

§ Occupancy increased to 99.7 % as at 30 June 2018 (30 June 2017: 98.8%)

§ Borrowings remain conservative at the property level with a loan to investment property ratio of 16 % as at 30 June 2018 (30 June 2017: 23.8%)

§ Net asset value USD 74.3 million (31 December 2017: USD 52.2 million)

§ Signed 68 new lease agreements during H1 2018 compared to 52 in H1 2017 

Mykhailo Merkulov, CEO of Arricano, commented:

"This has been a good period for the business delivering increases in revenue, underlying profitability and the value of our portfolio. While this is a very satisfying result, we continue to push the business in all areas, a key focus in this year has been to achieve a greater understanding of what the visitors to shopping centres are looking for, so that we can better anticipate their needs thereby making a visit to an Arricano shopping centre, a premium experience."

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Chief Executive's Statement 

Introduction

I am pleased to be able to report that in the first six months of 2018 the Company delivered a 15% increase in revenue together with an underlying profit before tax of USD 16.2 million (6 months ended 30 June 2017: USD 18.4 million). In the context of increasing competition from online sales and the challenging political and economic environment in Ukraine, this has been a very successful six months and positions the business well for the full year.

We are now very close to being fully let with occupancy at 99.7%. This is an excellent achievement, however, we remain focused continuing to improve the appeal of our malls and to that end a key focus in 2018 has been on increasing our understanding of visitors, in particular, why they come and what they are looking for.

Government actions in Ukraine continue to point towards the reduction of corruption which can only be positive for Arricano. Also in the period, the Hryvna improved against the US Dollar which has helped support consumer confidence and has improved commercial borrowing costs.

Results

Revenues for the six months to 30 June 2018 increased by 15% to USD 14.8 million, compared with the same period last year, with net operating income (excluding revaluation gains) from the operating properties increasing by 32% to USD 11.0 million compared to USD 8.3 million in H1 2017.

The Company reported an increase in pre-tax profit (excluding revaluation gains) of USD 3.6 million (30 June 2017: USD 2.8 million)

The Company recorded a gain on the revaluation of investment properties of USD 9.8 million (30 June 2017: gain of USD 15.6 million).

Net profit after tax for the six months to 30 June 2018 was USD 13.9 million (30 June 2017: USD 15.9 million) giving earnings per share of USD 0.13 (30 June 2017: USD 0.15).

The portfolio of property assets was independently valued as at 30 June 2018 by Expandia LLC, (part of the CBRE Affiliate Network) at USD 240.4 million (31 December 2017: USD 221.3 million). The valuation uplift came from an increase in rental rates, positive currency movement, increased occupancy and improvement in tenant mix further helped by an improving general economy.

Bank debt at the half-year end was USD 39.5 million, with the majority of borrowings at the project level at an average rate of 11.5 %. Loans mature between 2018 and 2020 and the Company's loan to investment property value ratio is comparatively low at 16 % as at 30 June 2018. In addition, the Company had USD 4 million of cash and cash equivalents, and non-bank loans of USD 57.8 million as at 30 June 2018.

Operational Review

In 2018 we have again made good progress in enhancing the appeal and style of our shopping malls. A key focus has been to develop ways to gain a greater understanding of visitors so that we can then shape our retail spaces to best suit their needs. Historically, retailers and owners of shopping malls have relied on customer surveys which overtime have proven to be highly inaccurate.

With the help of technological advances, in 2018 we are now in a position to use our digital channels such as Facebook, Instagram and YouTube through which we have audiences of tens of thousands to help us better understand what visitors are looking for when they come to an Arricano mall. Findings from these channels is proving valuable and are steering the way we develop our retail spaces.

As part of increasing the appeal of the portfolio, in the second quarter of 2018, the management team has focused on strengthening Arricano's position in the key retail categories of fashion and IT. In total, Arricano signed 68 new leases in the first six months of 2018. This was a good performance increasing occupancy and achieving an average rental rate (excluding hypermarkets) of USD 18.5 per sq.m. The incoming tenants are all of good quality which will further help to increase the appeal of the shopping centres.

A principal task set for 2018 has been for the Arricano team to implement targeted business solutions aimed at supporting the growth in turnover of our tenants.

The consumer relations team are working successfully to attract affluent visitors to Arricano's shopping malls. Alongside focusing on promoting awareness of the comfortable social spaces for visitors to take advantage of when shopping in an Arricano mall. B2C communications on all aspects of the shopping experience is taking place both offline and online where consumers' are sharing opinions and providing interesting and valuable feedback.

The three development sites covering 14 ha. In Lukianivka (Kyiv), Petrivka (Kyiv), and Rozumovska (Odesa) continue to be progressed.

Regarding the 49.9% shareholding in Assofit Holdings Limited ("Assofit"), a holding company, which held the Sky Mall shopping centre, the Company continues to pursue Stockman Interhold S.A. ("Stockman") concerning the ownership of Assofit. The Company announced in January 2018 that the High Court of Justice in London (the "High Court") had dismissed an application made by Stockman for permission to appeal the High Court's earlier judgement in which it dismissed Stockman's various challenges to the Fourth, Fifth and Seventh Awards (the "LCIA Awards") rendered in the London Court of International Arbitration proceedings between Arricano and Stockman.

People

This has been another successful period for the Сompany which is down to the consistent efforts of the entire Arricano team and on behalf of the Board I would like to thank all employees and stakeholders for their commitment and hard work so far in 2018.

Outlook

Arricano has completed a successful first six months and is well placed to achieve a good result for the full year. Today, each Arricano shopping mall is either fully occupied or very nearly so and we believe this reflects positively on the appeal of our sites amongst the domestic and international retail community. Maintaining this appeal is the key objective for our business and we continue to differentiate ourselves by taking a collaborative approach to working with our tenants and viewing their success as interlinked with our success. While the political and economic progress in Ukraine remains slow, Arricano continues to outperform.

Mykhailo Merkulov

Chief Executive Officer

26 September 2018

INDEPENDENT AUDITORS' REPORT ON REVIEW OF CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS

TO ARRICANO REAL ESTATE PLC

Introduction

We have reviewed the accompanying consolidated interim condensed statement of financial position of Arricano Real Estate PLC and its subsidiaries ("the Group") as at 30 June 2018, the consolidated interim condensed statements of comprehensive income, changes in equity and cash flows for the six- month period then ended, and notes to the interim financial statements ("the consolidated interim condensed financial statements"). Management is responsible for the preparation and presentation of these consolidated interim condensed financial statements in accordance with IAS34 "Interim Financial Reporting". Our responsibility is to express a conclusion on these consolidated interim condensed financial statements based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim condensed financial statements do not present fairly, in all material respects, the financial position of the Group as at 30 June 2018, and of its financial performance and its cash flows for the six-month period then ended in accordance with IAS 34 "Interim Financial Reporting".

Emphasis of matter

Without qualifying our conclusion we draw you attention to the following:

1. Note 1(b) to the consolidated interim condensed financial statements, which describes the political and social unrest and regional tensions in Ukraine that started in November 2013 and escalated in 2014 and afterwards. The events referred to in Note 1(b) have adversely affected the Group and could continue to adversely affect the Group's results and financial position in a manner not currently determinable.

2. Note 2(d) to the consolidated interim condensed financial statements, which describes that as at 30 June 2018 the Group's current liabilities exceed current assets by USD 74,327 thousand. This condition, along with the other matters described in Note 2(d), indicate the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.

The consolidated interim condensed statement of financial position is to be read in conjunction with the notes to, and forming part of, the consolidated interim condensed financial statements set out on pages 10 to 39.

* The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018. Under the transition methods chosen, comparative information is not restated. See Note 3.

These consolidated interim condensed financial statements were approved by the Board of Directors on 26 September 2018 and were signed on its behalf by:

* The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018. Under the transition methods chosen, comparative information is not restated. See Note 3.

* The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018. Under the transition methods chosen, comparative information is not restated. See Note 3.

* The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018. Under the transition methods chosen, comparative information is not restated. See Note 3.

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 30 June 2018, the Group operates five shopping centres in Kyiv, Simferopol, Zaporizhzhya and Kryvyi Rig with a total leasable area of over 147,100 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.

(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.

Starting from 2016, 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 government reforms and improved foreign affairs. Further stabilization of economic and political environment depends on the continued implementation of structural reforms and other factors.

As at 30 June 2018, the carrying value of the Group's investment property located in Simferopol, the administrative centre of the Republic of Crimea, amounted toUSD 47,100 thousand (unaudited) (31 December 2017: USD 46,800 thousand). The ultimate effect of above 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 further negatively affect the Group's results and financial position in a manner not currently determinable. These consolidated interim condensed 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 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 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. These condensed consolidated interim 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 interim condensed financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union (EU) and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2017 ("last annual financial statements"). Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual financial statements as at and for the year ended 31 December 2017. These consolidated interim condensed financial statements do not include all the information required for full annual financial statements prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU).

This is the first set of the Group's financial statements where IFRS 15 and IFRS 9 have been applied. Changes to significant accounting policies are described in Note 3.

The results for the six-month period ended 30 June 2018 are not necessarily indicative of the results expected for the full year.

(b) Judgments and estimates

Preparing the consolidated interim condensed financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense and the disclosure of contingent assets and liabilities. Actual results may differ from these estimates.

In preparing these consolidated interim condensed financial statements, significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2017, except for valuation of loans receivable and investment in Filgate Credit Enterprises Limited and valuation of trade and other receivables, which are no longer considered significant areas of estimation uncertainty or critical judgement.

(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 in the Russian Federation and have the Ukrainian Hryvnia (UAH) and Russian Rouble (RUB) as their functional currencies since substantially all transactions and balances of these entities are denominated in the mentioned currencies.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. 

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

In translating the consolidated interim condensed financial statements into USD the Group follows a translation policy in accordance with International Financial Reporting StandardIAS 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 interim condensed financial statements are as follows:

Average USD exchange rates for the six months period ended 30 June are as follows:

As at the date that these consolidated interim condensed financial statements are authorised for issue, 26 September 2018, the exchange rate is UAH 28,06 to USD 1.00 andRUB 65,8 to USD 1.00.

(d) Going concern

As at 30 June 2018, the Group's current liabilities exceed current assets byUSD 74,327 thousand (unaudited). 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 74,311 thousand (unaudited) as at30 June 2018, generated net profit of USD 13,900 (unaudited) thousand and positive cash flows from operating activities of USD 9,151 thousand (unaudited) for the six months then ended.

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

· The Group has financial support from the ultimate controlling party. Based on representations received in writing from the entities under common control, management believes that the Group will not be required to settle the outstanding loans, accrued interest, other liabilities and other payables to related parties in the amount of USD 18,917 thousand (unaudited) plus any accruing interest thereon at least until 30 June 2019.

· 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.

· In August 2018, the Group has received a waiver from Barleypark Limited, waiving repayment of the loan during twelve months ending 30 June 2019, amounting to USD 21,195 thousand (unaudited), which is payable on demand and presented as short- term liability as at 30 June 2018.

· During the six months ended 30 June 2018, 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.

· Subsequent to the reporting date, the Group entered into the loan agreement, in order to obtain a loan, in particular to refinance loans from PJSC "Bank "St. Petersburg" amounting to USD 15,187 thousand as at 30 June 2018 with contractual maturity in 2018-2020,short-term part of which amounts to USD 4,147 thousand (Note 15).

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

These consolidated interim condensed 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.

(e) 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(b) - investment property; and

· Note 12(a) - fair values.

(f) 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 six months ended 30 June 2018 and the year ended 31 December 2017, the Group operated in and was managed as one operating segment, being property investment, with all 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 IFRS as adopted by the EU and which present aggregated performance of all the Group's investment properties.

(g) Change in presentation

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

3 Changes in significant accounting policies

Except as described below, the accounting policies applied in these consolidated interim condensed financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2017.

The changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 31 December 2018.

The Group has initially adopted IFRS 15 Revenue from Contracts with Customers (see A) and IFRS 9 Financial Instruments (see B) from 1 January 2018. A number of other new standards are effective from 1 January 2018. None of these standards have a material effect on the Group's consolidated interim condensed financial statements.

A. IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.

Revenue of the Group is mainly represented by rental income recognised in accordance withIAS 17 Leases.

For revenue from services in respect of exploitation of common parts and other servicesthe Group has adopted IFRS 15 Revenue from Contracts with Customers using the cumulative effect method (without practical expedients). As there were no differences in the amounts of revenue resulting from the adoption of IFRS 15 as at 1 January 2018, the information presented for 2017 generally reflects the requirements of IFRS 15.

The details of the new significant accounting policies and the nature of the changes to previous accounting policies in relation to the Group's services are set out below.

Under IFRS 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control - at a point in time or over time - requires judgement.

B. IFRS 9 Financial Instruments

IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.

The details of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below.

(i) Classification and measurement of financial assets and financial liabilities

IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for financial assets held to maturity, loans and receivables and available for sale.

The adoption of IFRS 9 has not had a significant effect on the Group's accounting policies related to financial liabilities and derivative financial instruments. The impact of IFRS 9 on the classification and measurement of financial assets is set out below.

Under IFRS 9, on initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI - debt investment; FVOCI - equity investment; or FVTPL. The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

· it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

· its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition.

Subsequently, financial assets at amortised cost are measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses (see B.(ii) below). Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

The following table and the accompanying notes below explain the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group's financial assets as at 1 January 2018.

 (ii) Impairment of financial assets

IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognised earlier than under IAS 39.

The financial assets at amortised cost consist of trade and other receivables, cash and cash equivalents and loans receivable.

Under IFRS 9, loss allowances are 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.

The Group measures loss allowances at an amount equal to lifetime ECLs, except for bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition, for which loss allowances are measured as 12-month ECLs.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment.

The Group considers a financial asset to be in default when:

‒ the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or

‒ the financial asset is more than 90 days past due.

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).

ECLs are discounted at the effective interest rate of the financial asset.

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Presentation of impairment

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.

Impairment losses related to trade and other receivables are presented under 'operating expenses' and impairment losses on other financial assets are presented under 'finance costs', similar to the presentation under IAS 39, and not presented separately in the consolidated interim condensed statement of profit or loss and other comprehensive income due to materiality considerations.

As at 31 December 2017, there was no change in the allowance for impairment for the Group's financial assets due to implementation of IFRS 9.

 (iii) Transition

Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except as described below.

· The Group has taken an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements. Therefore, comparative periods have not been restated. Further, as there were no differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 as at 1 January 2018, the information presented for 2017 generally reflects the requirements of IFRS 9.

· The determination of the business model within which financial assets are held has been made on the basis of the facts and circumstances that existed at the date of initial application.

(a) New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the six-month period ended 30 June 2018, and have not been applied in preparing these consolidated interim condensed financial statements. Of these pronouncements, potentially the following will have an impact on the Group's operations. The Group plans to adopt these standards and interpretations when they become effective.

The Group has the following updates to information provided in the last annual financial statements about the standards issued but not yet effective that may have a significant impact on the Group's consolidated financial statements.

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.

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 completed an initial assessment of the potential impact on its consolidated financial statements but has not yet completed its detailed assessment. The actual impact of applying IFRS 16 on the consolidated financial statements in the period of initial application will depend on future economic conditions, including the Group's borrowing rate at1 January 2019, the composition of the Group's lease portfolio at that date, the Group's latest assessment of whether it will exercise any lease renewal options and the extent to which the Group chooses to use practical expedients and recognition exemptions.

Thus far, the most significant impact identified is that the Group will recognise new assets and liabilities for its operating leases.

In addition, the nature of expenses related to those leases will now change because IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities.

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 a 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 a 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.

4 Investment property

(a) Movements in investment property

Movements in investment properties for the six months ended 30 June 2018 are as follows:

Movements in investment properties for the six months ended 30 June 2017 are as follows:

As at 30 June 2018, in connection with loans and borrowings, the Group pledged as security investment property with a carrying value of USD 134,490 thousand (unaudited)(31 December 2017: USD 117,790 thousand) (refer to Note 13(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 certain land held on the leasehold which is not associated with completed property and is therefore categorised within Level 2 category. As at 30 June 2018, the fair value of investment property categorised within Level 2 category is USD 29,300 thousand (unaudited) (31 December 2017: USD 29,100 thousand). To assist with the estimation of the fair value of the Group's investment property as at 30 June 2018, 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 30 June 2018, 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 (unaudited):

· monthly rental rates, ranging from USD 2.1 to USD 160.9 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 98.6% to 100%, capitalisation rates ranging from 12.3% to 16.0% p.a., and discount rate of 22% 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 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 capitalisation rates ranging from 12.5% to 16.0% p.a., and discount rate of 22% 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 30 June 2018, fair value of investment property, denominated in functional currency amounted to UAH 4,562,153 thousand (unaudited) and RUB 2,955,831 thousand (unaudited) (31 December 2017: UAH 4,120,268 thousand and RUB 2,695,689 thousand). The increase in fair value of investment property results from increased rental payments invoiced in Ukrainian hryvnia and Russian Rouble due to the increase in the exchange rates applied to the USD equivalent of rental rates fixed in the rental contracts.

The valuation model used to assess the fair value of investment property as at 30 June 2018 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 1,906 thousand (unaudited) (31 December 2017: USD 1,738 thousand) lower. If rental rates are 1% higher, then the fair value of investment properties would be USD 1,906 thousand (unaudited) (31 December 2017: USD 1,738 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 13,384 thousand (unaudited) (31 December 2017: USD 11,973 thousand) lower. If the discount rate is 1% less, then the fair value of investment properties would be USD 15,598 thousand (unaudited) (31 December 2017:USD 13,907 thousand) higher.

· If the occupancy rate is 1% higher than that used in the valuation model for shopping centers in Simferopol and Kryvyi Rig and is assumed to be 100% for other shopping centers, the fair value of investment properties would be USD 1,347 thousand (unaudited) higher(31 December 2017: if the occupancy rate is 1% higher than that used in the valuation model for shopping center "Prospekt" and are assumed to be 100% for other shopping centers, the fair value of investment properties would be USD 668 thousand higher). If the occupancy rates are 1% less, then the fair value of investment properties would be USD 1,703 thousand (unaudited) (31 December 2017: USD 1,539 thousand) lower.

5 Equity

Share capital 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 six months ended 30 June 2018 and 30 June 2017, the Parent Company did not declare any dividends.

Earnings per share

The calculation of basic earnings per share for the six-month period ended 30 June 2018 was based on the profit for the six-month period ended 30 June 2018 attributable to ordinary shareholders of USD 13,900 thousand (unaudited) and a weighted average number of ordinary shares outstanding as at 30 June 2018 of 103,270,637 (unaudited) (30 June 2017 (unaudited): USD 15,909 thousand and 103,270,637 shares).

The Group has no potential dilutive ordinary shares.

6 Loans and borrowings

This note provides information about the contractual terms of loans.

Terms and debt repayment schedule

As at 30 June 2018, the terms and debt repayment schedule of bank loans are as follows (unaudited):

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

LIBOR for USD is as follows:

During the six months ended 30 June 2018, the Group signed amendments to the loan agreements with PJSC "Bank "St.Petersburg" stipulating a decrease in the amount of loan principal payable for the period from March 2018 till June 2018 by USD 730 thousand.

As at 30 June 2018 (unaudited) and 31 December 2017, the Group has not fulfilled an obligation to replace the existing pledge of investment property by other investment properties acceptable to PJSC "Bank "St.Petersburg", which was considered as the event of default under the loan agreements concluded with the bank. In addition, the Group has not replenished the deposit pledged as a collateral for the amount of USD 1,200 thousand within the time period required by the loan agreement. In June 2018 management obtained the letter from PJSC "Bank "St.Petersburg" waving the above breaches of loan covenants.

In August 2018, the loans payable due to PJSC "Bank "St.Petersburg" was fully repaid and pledge of investment property of PrJSC Livoberezhzhiainvest in the amount ofUSD 39,390 thousand as at 30 June 2018 (unaudited), pledge of investment inPrJSC Livoberezhzhiainvest and pledge in respect of property rights under the Investment Agreement between PrJSC Grandinvest, PrJSC Livoberezhzhiainvest and Voyazh-Krym LLC under pledge agreements with PJSC "Bank "St.Petersburg" were terminated (see Note 15).

As at 30 June 2018, the undrawn credit facilities from this related party amount toUSD 9,607 thousand (unaudited) (31 December 2017: USD 9,607 thousand).

Based on the terms of the loan agreement the loan is repayable on demand but not later than the final repayment date. Subsequent to the reporting period end, the Group obtained the letter from the lender waiving the right to demand repayment of the loan during twelve months ending 30 June 2019.

7 Trade and other payables

Trade and other payables are as follows:

As at 30 June 2018, included in payables for construction works are USD denominated payables with the nominal value of USD 4,349 thousand (unaudited) with maturity on30 June 2021 (31 December 2017: USD 4,349 thousand) and bearing an interest rate of10.00 % per annum.

Also, included in payables for construction works as at 30 June 2018 are EUR denominated payables under a commission agreement concluded with a third party with the nominal value of USD 1,603 thousand (unaudited) (31 December 2017: USD 2,039 thousand) with maturity on 15 September 2019. As at 30 June 2018 and 31 December 2017, these payables relate to construction works performed at shopping centre "Prospekt", are presented in accordance with their contractual maturity and measured at amortised cost under the effective interest rate of 6.01% (unaudited) (31 December 2017: 6.54%) per annum.

Further, included in payables for construction works as at 30 June 2018 are accrued financial charges under construction agreements with third parties amounting to USD 14,299 thousand (unaudited) (31 December 2017: USD 16,838 thousand). Part of charges payable in the amount of USD 11,154 thousand (unaudited) (31 December 2017: USD 12,153 thousand) matures on 31 December 2018, part (including interest accrued) of USD 218 thousand (unaudited)(31 December 2017: USD 1,893 thousand) mature on 30 June 2021 and bear an interest rate of 10.00%, and the remaining part of charges payable of USD 2,927 thousand (unaudited)(31 December 2017: USD 2,792 thousand) with the nominal value of USD 3,220 thousand mature on 30 June 2019 and is measured at amortised cost under the effective interest rate of 10.00% per annum.

8 Other liabilities

As at 30 June 2018, other long-term liabilities comprise mainly the amount of principal and other current liabilities comprise the amount of interest of the deferred consideration that is payable in respect of the acquisition of Wayfield Limited and its subsidiary Budkhol LLC, amounting to USD 20,000 thousand (unaudited) and USD 7,234 thousand (unaudited), respectively (31 December 2017: USD 20,000 thousand and USD 6,267 thousand, respectively).

9 Revenue

The Group's operations are those described in the last annual financial statements. The major amount of the Group's revenue is represented by rental income from investment properties that falls within the requirements of IAS 17 Leases and amounts to USD 11,900 thousand (unaudited) for the six months ended 30 June 2018 (six months ended 30 June 2017 (unaudited): USD 10,284 thousand).

For the six months ended 30 June 2018, 11 % of the Group's rental income was earned from two tenants (6% and 5%, respectively) (unaudited) (six months ended 30 June 2017: 14%; 11% and 3%, respectively (unaudited)).

The Group rents out premises in the shopping centres to tenants in accordance with lease agreements predominantly concluded for a period of 11- 42 months, save for the hypermarkets and large network retails chains, which enter into long term lease agreements. In accordance with lease agreements, rental rates are usually established in USD and are settled in Ukrainian hryvnias and Russian Roubles using the exchange rates established by the National Bank of Ukraine and Central Bank of the Russian Federation, as applicable. However, taking into account the current market conditions, the Group provides temporary discounts to some of its tenants by applying lower exchange rates than those established by the National Bank of Ukraine, in arriving to the rent payment for the particular month.

Management believes that these measures will allow the Group to maintain occupancy rates in the shopping centres at a relatively high level during the current deteriorated period in Ukrainian business environment. Management continued to turn gradually the lower exchange rates used into the exchange rates established by the NBU.

The Group's lease agreements with tenants usually include 2-45 months cancellation clause. The Group believes that execution of the option to prolong the lease period upon expiration of non-cancellable period on the terms different to those agreed during the non-cancellable period, is not substantiated. Accordingly, upon calculation of rental income for the period the Group does not take into account rent payments, which are prescribed by the agreements upon expiration of the period during which the agreement cannot be cancelled. 

All other types of services are derived from contracts with customers and fall within the scope of IFRS 15. The nature and effect of initially applying IFRS 15 on the Group's consolidated interim condensed financial statements are disclosed in Note 3.

(a) Disaggregation of revenue

In the following table revenue for the six months ended 30 June is disaggregated by major service lines. All below types of the Group's revenue are represented by services transferred over time.

10 Finance income and finance costs

Finance income and finance costs for the six months ended 30 June are as follows:

11 Income tax expense

(a) Income tax expense

Income taxes for the six months ended 30 June are as follows:

Corporate profit tax rate for the entities operating under the laws of Ukraine is fixed at 18%.

The applicable tax rate for the entities operating under the laws of the Russian Federationis 20%.

The applicable tax rates are 12.5% for Cyprus companies, 20% for Estonian companies, and nil tax for companies incorporated in the Isle of Man and British Virgin Islands. 

(b) Reconciliation of effective tax rate

The difference between the total expected income tax expense for the six months ended 30 June computed by applying the Ukrainian statutory income tax rate to profit before tax and the reported tax expense is as follows:

In accordance with existing Ukrainian legislation tax losses can be carried forward and utilised indefinitely. As at 30 June 2018, management has not recognised deferred tax assets amounting to USD 15,293 thousand (unaudited) (31 December 2017: USD 21,362 thousand) mainly in respect of tax losses carried forward because of significant uncertainties regarding their realisation.

During the six months ended 30 June 2018, deferred tax benefit for the amount ofUSD 1,128 thousand (unaudited) was recognised in other comprehensive income (six months ended 30 June 2017 (unaudited): USD 1,899 thousand).

12 Financial risk management

During the six months ended 30 June 2018, the Group had no significant changes in financial risk management policies as compared to 31 December 2017.

(a) Fair values

Estimated fair values of the financial assets and liabilities have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to produce the estimated fair values. Accordingly, the estimates are not necessarily indicative of the amounts that could be realised in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values.

The estimated fair values of financial assets and liabilities are determined using discounted cash flow and other appropriate valuation methodologies, at year-end, and are not indicative of the fair value of those instruments at the date these consolidated interim condensed financial statements are prepared or distributed. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Group's entire holdings of a particular financial instrument. Fair value estimates are based on judgments regarding future expected cash flows, current economic conditions, risk characteristics of various financial instruments and other factors.

Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities not considered financial instruments. In addition, tax ramifications related to the realisation of the unrealised gains and losses can have an effect on fair value estimates and have not been considered.

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value:

13 Commitments and contingencies

(a) Pledged assets

In connection with loans and borrowings, the Group pledged the following assets:

As at 30 June 2018 (unaudited) and 31 December 2017, the Group has also pledged the following:

· Future rights on income of Prisma Alfa LLC and Comfort Market Luks LLC under all lease agreements and rights on future income of PrJSC Ukrpangroup under agreement with anchor tenant;

· Investments in the following subsidiaries: PrJSC Ukrpangroup, Comfort Market Luks LLC and PrJSC Livoberezhzhiainvest;

· Property rights under the Investment Agreement between PrJSC Grandinvest, PrJSC Livoberezhzhiainvest and Voyazh-Krym LLC.

(b) Construction commitments

The Group entered into contracts with third parties to construct a shopping centre in Kyiv and a shopping centre in Odesa for the total amount of USD 20,177 thousand as at 30 June 2018 (unaudited) (31 December 2017: USD 19,209 thousand).

(c) Operating lease commitments

The Group entered into lease agreements on its investment property portfolio that consists of five operating shopping centres. These non-cancellable lease agreements have remaining terms up to forty five months. All agreements include a clause to enable upward revision of the rent rate on an annual basis according to prevailing market conditions.

The future minimum lease payments under non-cancellable leases are as follows:

(d) Litigations

In the ordinary course of business, the Group is subject to legal actions and complaints.

(i) Legal case in respect of Assofit Holdings Limited

Starting from November 2010 the Group has been involved in an arbitration dispute with Stockman Interhold S.A. (Stockman), which was the majority shareholder of Assofit Holdings Limited (Assofit), regarding invalidation of the Call Option Agreement dated25 February 2010. In accordance with this Call Option Agreement, Arricano was granted the option to acquire the shareholding of Stockman being equal to 50.03 per cent in the share capital of Assofit during the period starting from 15 November 2010 up to 15 March 2011. In November 2010, the Company sought to exercise the option granted by the Call Option Agreement, however the buy-out was suspended by legal and arbitration proceedings that were initiated by Stockman in relation to the validity of the termination of the agreement relating to the call option under the Call Option Agreement.

In the seventh award delivered on 5 May 2016, the tribunal of the London Court of International Arbitration has found that Stockman is in breach of the Call Option Agreement and has taken "steps deliberately to dissipate and misappropriate Assofit´s assets". As a result, the tribunal has ordered Stockman to transfer, or procure the transfer of, the Option Shares to Arricano within 30 days of the award. Upon registration of the transfer, Arricano shall pay to Stockman the Option Price minus damages, which when netted out brings the balance to nil. In the event that Stockman does not transfer, or procure the transfer of the Option Shares, Arricano may elect instead to claim damages in lieu of the share transfer. 

In its latest award, being the eighth award, made on 17 August 2016, the tribunal of the London Court of International Arbitration has awarded the costs of approximately USD 0.9 million to be paid by Stockman to Arricano. During the six months ended 30 June 2018 the Group received settlement in the amount of USD 478 thousand (unaudited). No receivable for the remaining amount was recognised in these consolidated interim condensed financial statements, as recoverability of the related asset is not certain.

In July 2017, the hearing regarding challenges of the fifth, the sixth and the seventh award by Stockman has taken place. By judgement dated 30 November 2017, the High Court of England and Wales dismissed the claims filed by Stockman challenging the fourth, fifth and seventh awards, and subsequently, on 5 January 2018, dismissed Stockman's application to appeal such judgement.

As at the date that these consolidated interim condensed financial statements are authorised for issuance, a number of related legal cases are under the consideration of the District Court of Nicosia.

In September 2014, Assofit Holdings Limited 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 at that period of time with the responsibility of collecting and safeguarding Assofit's assets. Further in September 2014, Joint-Stock Bank Pivdeniy PJSC, Ukraine, which had an outstanding mortgage loan due from Prizma Beta LLC of USD 32,000 thousand, exercised its right to recover the abovementioned loan by means of reposession of ownership rights to the Sky Mall shopping centre which was pledged to secure this loan in September 2014. As at the date that these consolidated interim condensed financial statements are authorised for issuance, shares of Prizma Beta LLC and ownership rights for the Sky Mall shopping centre remain to be alienated.

As at 30 June 2018 (unaudited) and 31 December 2017, the Group holds 49.97% of nominal voting rights in Assofit without retaining significant influence. In prior years' consolidated financial statements of the Group until 31 December 2013, investment in Assofit was recognised in the statement of financial position as available-for-sale financial asset at its carrying amount of USD 20,727 thousand. Due to loss of the legal control over the major operating asset being the Sky Mall shopping centre in September 2014, management believes that investment in Assofit is fully impaired as at 30 June 2018 (unaudited) and31 December 2017.

Management is unaware of any other significant actual, pending or threatened claims against the Group.

(e) Taxation contingencies

(i) Ukraine

The Group performs most of its operations in Ukraine and therefore within the jurisdiction of the Ukrainian tax authorities. The Ukrainian tax system can be characterised by numerous taxes and frequently changing legislation which may be applied retroactively, open to wide interpretation and in some cases are conflicting. Instances of inconsistent opinions between local, regional, and national tax authorities and between the Ministry of Finance and other state authorities are not unusual. Tax declarations are subject to review and investigation by a number of authorities that are enacted by law to impose severe fines, penalties and interest charges. A tax year remains open for review by the tax authorities during the three subsequent calendar years, however under certain circumstances a tax year may remain open longer. These facts create tax risks substantially more significant than typically found in countries with more developed systems.

Management believes that it has adequately provided for tax liabilities based on its interpretation of tax legislation and official pronouncements. However, the interpretations of the relevant authorities could differ and the effect on these consolidated interim condensed financial statements, if the authorities were successful in enforcing their interpretations, could be significant. No provisions for potential tax assessments have been made in these consolidated interim condensed financial statements.

(ii) Republic of Crimea

As a result of the events described in note 1(b), Ukrainian authorities are not currently able to enforce Ukrainian laws on the territory of the Republic of Crimea. Starting from April 2014, this territory is subject to the transitional provisions of tax rules established by the Russian government to ensure gradual introduction of federal laws into the territory. Although these transitional provisions were thought to put certain relief on the entities registered in the Republic of Crimea, interpretations of these provisions by the tax authorities may be different from the tax payers' view.

Effective from 1 January 2015, the territory of the Republic of Crimea is subject to general legislation of the Russian Federation. The taxation system in the Russian Federation continues to evolve and is characterised by frequent changes in legislation, official pronouncements and court decisions, which are sometimes contradictory and subject to varying interpretation by different tax authorities.

Taxes are subject to review and investigation by a number of authorities, which have the authority to impose severe fines, penalties and interest charges. A tax year generally remains open for review by the tax authorities during the three subsequent calendar years; however, under certain circumstances a tax year may remain open longer. Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive and substance-based position in their interpretation and enforcement of tax legislation.

In addition, a number of new laws introducing changes to the Russian tax legislation have been recently adopted. In particular, starting from 1 January 2015 changes aimed at regulating tax consequences of transactions with foreign companies and their activities were introduced, such as concept of beneficial ownership of income, etc. These changes may potentially impact the Group's tax position and create additional tax risks going forward. This legislation is still evolving and the impact of legislative changes should be considered based on the actual circumstances.

These circumstances may create tax risks in the Russian Federation that are substantially more significant than in other countries. Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Russian tax legislation, official pronouncements and court decisions. However, the interpretations of the tax authorities and courts, especially due to reform of the supreme courts that are resolving tax disputes, could differ and the effect on these consolidated interim condensed financial statements, if the authorities were successful in enforcing their interpretations, could be significant.

(iii) Republic of Cyprus

During the prior years, the Group incurred certain foreign legal expenses, where the VAT accounted for on these expenses was fully claimed. Management believes that the Group properly claimed the VAT accounted for on these expenses, on the basis of the plans to further collect reimbursement of the said expenses, being purely of legal nature, from respective parties in full. Since as at the date of issue of these consolidated interim condensed financial statements the management has just started to implement its plans, the transactions will not be complete in the view of VAT authorities, and the Group may be liable to pay VAT of approximately USD 1,893 thousand plus related interest and penalties.

No provision for VAT liability or related penalties is made in these consolidated interim condensed financial statements as management believes that it is not probable that such VAT liability will materialise, as the Group will proceed with the implementation of the plan on the reimbursement of expenses.

14 Related party transactions

(a) Control relationships

The Group's largest shareholders are Retail Real Estate OU, Dragon - Ukrainian Properties and Development plc, Deltamax Group OU, Rauno Teder and Jüri Põld. The Group's ultimate controlling party is Estonian individual Hillar Teder. Hillar Teder indirectly controls 55.45% of the voting shares of the Parent Company. Apart from this, the adult son of Hillar Teder,Mr. Rauno Teder, controls 15.82% of the voting shares of the Parent Company.

(b) Transactions with management and close family members

Key management compensation included in the consolidated interim condensed statement of profit or loss and other comprehensive income for the six months ended 30 June 2018 is represented by salary and bonuses of USD 538 thousand (unaudited) (six months ended30 June 2017: USD 384 thousand (unaudited)).

(c) Transactions and balances with entities under common control

Outstanding balances with entities under common control are as follows:

None of the balances are secured. The terms and conditions of significant transactions and balances with entities under common control are described in Notes 6, 7 and 8.

Expenses incurred and income earned from transactions with entities under common control for the six months ended 30 June are as follows:

Prices for related party transactions are determined on an ongoing basis.

(d) Guarantees received

The Group's related parties issued guarantees securing loans payable by Ukrainian subsidiaries of Arricano Real Estate PLC to the EBRD (loan payable by UkrPanGroup PrJSC) andPJSC "Bank "St.Petersburg" (loans payable by Livoberezhzhiainvest PrJSC). The guarantees cover the total amount of outstanding liabilities in relation to the EBRD as at 30 June 2018 ofUSD 6,219 thousand (unaudited) (31 December 2017: USD 7,022 thousand) and in relation to PJSC "Bank "St.Petersburg" as at 30 June 2018 of USD 15,187 thousand (unaudited) (31 December 2017: USD 16,062 thousand).

15 Subsequent events

(a) Changes in loan agreements

On 30 July 2018, the Group entered into the syndicated loan agreement withTASCOMBANK JSC, VS Bank PJSC and Universal Bank PJSC to refinance loan from PJSC "Bank "St.Petersburg" amounting to USD 15,187 thousand as at 30 June 2018. The credit facility of new loan obtained amounts to USD 15,200 thousand, bears an interest rate of 11.25% during the period from July 2018 until December 2019 and of 13.00% during the period from January 2020 until July 2023. On 14 August 2018, the credit facility under the new loan agreement was increased by USD 800 thousand to USD 16,000 thousand. Along with the loan agreement, the Group signed pledge agreements in respect of investment property of PrJSC Livoberezhzhiainvest in the amount of USD 39,390 thousand as at 30 June 2018 (unaudited) and investment in PrJSC Livoberezhzhiainvest.

In August 2018, the loan payable due to PJSC "Bank "St.Petersburg" was fully repaid and pledge of investment property of PrJSC Livoberezhzhiainvest in the amount ofUSD 39,390 thousand as at 30 June 2018 (unaudited), pledge of investment inPrJSC Livoberezhzhiainvest and pledge in respect of property rights under the Investment Agreement between PrJSC Grandinvest, PrJSC Livoberezhzhiainvest and Voyazh-Krym LLC under pledge agreements with PJSC "Bank "St.Petersburg" were terminated (unaudited).