14 Apr 2010 07:00
For release 14 April 2010
Dragon-Ukrainian Properties & Development PLC
("DUPD" or the "Company" and together with its subsidiaries, the "Group")
Preliminary results for the year ended 31 December 2009
Dragon-Ukrainian Properties & Development plc, a leading investor in the real estate sector in Ukraine, is pleased to announce its preliminary results for the year ended 31 December 2009 and provide an update on operations since its last Trading Update, released on 19 January 2010.
Highlights
Operational Highlights
- Sound progress on all projects
- Strong residential sales in Q4 2009
Financial Highlights
- NAV per share of USD2,62 at 31 December 2009 (up 6.3% since 31 December 2009)
- Uncommitted cash of USD 57.7m as at 31 December 2009 (2008: USD 86.2m)
- USD231.3m Committed funds as at end of 2009 across 10 investments
- USD86.2m Cash balance as at 31 December 2009 (2008: USD 121.2m)
- GBP10.4m spent for the share buy back. Since August, 2008 the Company has pursued the effort of buying back its shares at a substantial discount to NAV 17.3% of shares have been bought and subsequently cancelled through the share buy-back program.
Aloysius Wilhelmus Johannes van der Heijden, non-executive Chairman of the Company commented:
"We have maintained our focus on developing the projects in our portfolio, which at the current stage do not require debt financing and, despite a turbulent market environment, have been able to demonstrate strong progress on all of them."
For further information, call:
| Dragon Ukrainian Properties & Development Plc (www.dragon-upd.com) | |
| Tomas Fiala | +380 44 490 7120 |
| Dragon Capital Partners Limited (Investment Manager) | |
| Chris Kamtsios | + 380 44 490 7120 |
| Panmure Gordon (UK) Limited | |
| Richard Gray / Andrew Potts / Stuart Gledhill | +44 (0)20 7459 3600 |
Chairman's Statement
I am delighted to present the final results of Dragon Ukrainian Properties & Development plc for the year ended 31 December 2009.While the financial crisis of 2008 and 2009 and its negative effect on all industries, including real estate, have been very well documented, DUPD's internal policy of refraining from leveraging our development projects prior to exhausting the equity capital assigned to each project, coupled with conservative approach to valuation of our portfolio and the share buy-back programme pursued at the period of lowest share price levels allowed us to achieve a 6.3% growth in NAV per share as of December 31, 2009. During 2009 we have successfully acquired 24.6 million shares or 17.3% of the Company's share capital for a total consideration of GBP 10.35 million. All of the acquired shares were cancelled immediately post acquisition. It is our strong belief that such effort resulted in creating substantial long-term value for our shareholders, as all of the aforementioned acquisitions were made at a substantial discount to the Company's NAV and market price as of yearend. Having no leverage and a strong cash balance of USD 86.3 million as of yearend, allows us to feel safe on the development prospects of all projects in our portfolio as well as selectively asses opportunities to acquire distressed assets.
On operations, 2009 has been an incredibly active year for DUPD. Management has conducted a detailed project-by-project assessment of all existing investments and development pipeline with an absolute focus on optimizing the risk profile and tight control of capital expenditures. In 2009 we achieved significant progress on all projects in our portfolio and realized the first revenues from both residential and commercial properties in our portfolio. Such disposals reconfirmed our ability to divest both completed properties and projects with construction permit at valuations which correspond or even exceed the valuations reflected in the balance sheet of the Company. A remarkable progress in sales of our residential properties in 4Q 2009 makes us believe that the mass market housing segment has begun its recovery. Consumer confidence has risen in line with the general improvement in economic sentiment and visible signs of improvement in the residential housing market. In 2009, many development projects across all geographical markets and real estate sectors were put on hold due to the uncertain economic situation and due to the fact that financing for development projects was not available in many countries. Ukraine was not an exception - lending effectively stopped, mortgages in foreign currency as well as project financing are not available, while mortgages in local currency are heavily overpriced. Depressed by scarce financing and limited credit availability, the construction of buildings (including commercial and residential properties), which accounted for 50% of total construction output, fell 54% y-o-y in 2009, while infrastructure construction (roads, bridges, local and trunk pipelines, telecommunications and electricity networks), with 23% of total output, decreased by 36% y-o-y. This means that, to some extent, the supply has been restrained which might result in favourably stronger demand for space in DUPD's standing assets and assets under development, if the economic environment continues to improve.
Outlook
The situation today is very different from what it was a year ago, both from a market perspective and DUPD's standpoint. 2009 was very much about ensuring we were able to optimize performance of every project in our portfolio and extract the full potential from our completed assets, through improvements in efficiencies while keeping the policy of delivering only high-quality product to the market.
Having assessed the Company's commitments to its development pipeline in relation to its strong cash position, we have began to examine ways in which our resources could be used to gain optimal benefit in the current market. While development of our portfolio is still a key element of DUPD's future growth, we also aim to enhance growth through acquisitions of income-generating properties, our existing portfolio and which offer a higher degree of security for income. I believe DUPD is now very well-placed and I am confident about the future.
Aloysius Wilhelmus Johannes van der Heijden
Non-Executive Chairman
Investment Manager's Report
Overview
The past year was the first full calendar year coloured in "crisis" tones in the Ukrainian real estate market since 1999. As expected, it turned out to be a challenging period for most local market players as demand continued to decrease while lending and equity investments into the sector halted completely. In these circumstances, DUPD was unique in having a strong cash position, no debt obligations, and a balanced portfolio of investments, which allowed the Company to pass through the down-cycle relatively unscathed. We executed the third stage of the share buy-back program, acquired a completed asset from a distressed developer, while divesting another asset at a premium to its valuation and continued the development of all of our portfolio projects.
Having acquired 38 completed residences within Sadok Vyshnevy gated community in 2009 for USD 12.4 million, DUPD increased its total commitments to USD 231.3 million spread over 10 projects in total. As of year end, the Company had USD 86.2 million of cash on its accounts, of which USD 57.7 million remains uncommitted.
The Company moved forward with the development of its portfolio projects during the course of the year without delays following the strategy of creating value for the shareholders and benefiting from savings opportunities available on the local market. We completed development of project documentation and received the construction permit for the Sevastopol retail complex, which allowed us to immediately sell it to one of the leading local retailers for USD 1.95 million, representing a 3% premium to its book value as of end 1H09. In December the Company received project documentation approval from the Kyiv Architectural Council on Obolon Residential Towers and is targeting to obtain the construction permit in 1H10. As planned, we have started the pre-sales campaign on our gated community projects in August, having pre-sold by year end a total of 10 homes in Green Hills. This by far exceeded our expectations given the current sluggish market of residential sales in Ukraine, and bodes well for 2010 sales prospects. Henryland Group Limited started construction works on its land plot in Odesa and obtained project documentation state approvals for Mykolaiv and Vinytsia retail complexes. Project documentation for Avenue Shopping Mall was approved by Kyiv Architectural Council and is submitted for the state expertise. However, due to delays on certain deliverables by the Company's partner in this project, we chose to exercise the option to decrease the stake in the project from 50.01% to 18.77%. Having cancelled a share capital increase in Hindale Executive Investments Ltd, DUPD received back USD 5 million to its accounts, while maintaining the right, but not the obligation, to return to its initial stake should the deliverables be executed to its satisfaction. On land bank projects, the Company reached the final stages of consolidation and title registration, looking to complete them in 2010.
The Company's NAV slipped by 6.2% (to USD 293.9 million) while NAV per share increased by 6.3% over 2009, as a result of revaluation losses and completion of the last phase of the share buy-back program. Following the slump of real estate values in 2H08, most of this year's revaluation losses were recorded in 1H09, while in the second half of the year portfolio depreciation was marginal, reflecting the stabilization of yields, rental rates and sales prices in the market place.
Since the development activities and financial position of the Company remains strong, in 2010 we are determined to continue the pro-active development of our portfolio projects, including sales of the residential projects, construction of Odesa retail centre and Green Hills and Riviera Villas gated communities, as well as to start construction of other portfolio projects upon completion of permitting stage and securing debt finance. As the Ukrainian market is starting to emerge from the crisis, we expect to see in 1H10 more opportunities to acquire semicompleted or completed income-generating assets, which the Company, being one of very few active buyers in the market, shall be in a position to take advantage of.
Market Overview
Ukraine was one of the last regional markets affected by the financial crisis in 2008, and now appears to be also the last one to recover. Consequently, after the record-high volume of investment deals in 2008, we saw no significant open market investment transactions in the commercial real estate during the past year. This was caused by the misalignment of pricing expectations of vendors and of the very few active buyers as well as the fact that most properties served as collateral to bank loans that greatly exceeded their new true market values, which prompted banks to pursue debt restructuring rather than to foreclose. However, since 3Q09, the number of investment opportunities has been growing as sellers were adjusting their pricing expectations to the market realities, while investors started to slowly show interest in the local assets. The first investment deals are only expected to take place in 1H10, as ask and bid yields converge to 14-15% for prime properties.
Development has become less attractive than property acquisition as debt financing remains largely unavailable, with multilateral financial institutions remaining the only active lenders to development projects. Private investment was scarce and focused only on select, institutional quality, income-generating properties.
Office Segment
The office segment was one of the most affected by the country's economic downturn. In 2009, new office supply in Kyiv decreased by 29% as compared to 2008, amounting to only 124,000sqm. New deliveries represented mostly mid-size class B reconstruction office centres developed by local players.
Office space demand contraction followed the overall plunge of business activity in the country with take-up falling by 34% and vacancies skyrocketing to 17.6% (1.3% in 2007 and 4.2% in 2008). As companies were not in the expansion mode, most deals in the market represented rent renegotiations, optimization of occupied space, and relocations to improve the office space quality at no extra costs. Prime office rents reached their 6-year lowest level at USD30-35 per sqm down from USD75-80 per sqm in mid 2008. On top of that, office space was offered in fitted conditions mostly, as opposed to shell-and-core in the previous years.
The market demand trend was reversed in 4Q09 as leasing activity picked up following the recovery of the local economy. In 2010, larger occupiers are expected to take advantage of the depressed rental market opportunities to optimize their office solutions. New supply, however, is set to remain restricted until 2012 due to the lack of development finance and weak tenant demand, which may push rental rates up in the 2-3 year horizon.
Retail Segment
Despite major impact of decreasing personal income and Hryvnia depreciation on the retail property sector, the vast undersupply of retail space softened the adjustment of the sector's indicators. Despite the record delivery of new stock in 2009 (over 200,000sqm), vacancy in Kyiv shopping centres remained relatively low, and well below that in the office segment, ranging from 1% to 5.5% depending on the property. Quality of shopping centres has finally become crucial for tenants, as downward rent renegotiations varied from 10% in successful schemes to 70% in poorly designed complexes. Percentage of retail turnover and Hryvnia-denomination became common in lease agreements as tenants gained negotiation power over landlords. Retailers followed mixed strategies with some, such as Inditex Group and M&S, seizing the moment to expand, and some closing their operations.
The sector appears to be the first one to recover given the bounce back of consumer spending started in 4Q09 and low competition level. In 2010, a few more large shopping malls representing the delayed delivery of pre-crisis pipeline are to open. However, a trough is expected in 2011-2012, as there are no new large scale developments in development to come to market in 2-3 years from now.
Industrial Segment
Economic downturn had major impact on the sector as retailers and logistic operators had to downsize their operations significantly. The new supply of warehousing space in 2009 halved as compared to the previous year's figure, reaching 195,000sqm and bringing the total stock in the greater Kyiv area to just over 1 million sqm. In 2010, a similar volume of new stock is expected, being represented mainly by the few delayed large warehouse developments from the pre-crisis pipeline. However, in the medium-term, the market shall see by far smaller volumes of new deliveries given the absence of new investments coming to the sector today and high availability of sub-lease opportunities.
Prime rents continued to decrease in 2009 reaching USD5.5-7.0 per sqm, levelling off with the average in CEE markets, and some leases switching to Hryvnia denomination. The vacancy across the sector reached the historic high of 20.6% as of year end, but as is suggested by the starting recovery of demand, is likely set for gradual decrease in the course of 2010, with rents staying stable at the renegotiated levels.
Residential Segment
Absence of mortgage financing was the main factor slowing down the residential real estate market in Ukraine. Issuance of the most popular USD-denominated mortgages was restricted by the National Bank of Ukraine while Hryvnia denominated loans were offered only by a handful of banks at prohibitively high interest of 22-25%. Hence, most deals were executed with upfront cash payments, on the secondary market, largely supported by excess cash liquidity of the local population, not relying on the local banking system.
Prices stayed stable in Hryvnia terms, falling by 40-60% in USD terms from the mid-2008 peak prices. Most of the adjustment took place in 2H08-1H09, while during 2H09 prices remained largely unchanged. The volume of transactions was insignificant in 1H09, particularly in the primary market, starting to grow by year end as population was realizing that prices had already bottomed up. However, demand was only recovering for select properties within completed or close to completion new buildings as well as new projects developed by strong local and international investors with a reputable image in the market.
The trend of the second half of 2009 is seen to continue in the next year, as price recovery and buyers' activity will be gaining support from resumption of mortgage lending. In the medium term, Ukraine is expected to remain one of the most undersupplied regional residential markets with weak competition, which keeps it highly attractive for investments into development of quality modern residential space even through the market down-cycle.
Chris Kamtsios
Senior Partner and Managing Director
Dragon Capital Partners Ltd.
Project Overview
Green Hills
Green Hills is the first North American style gated community in the Ukraine offering an authentic, country lifestyle, in 16.2 ha surrounded by natural beauty only 10 miles from Kiev. The Company has committed USD16.5m to the development for a 100% shareholding of which USD15.8m has been invested to date. The project is expected to complete in 2013 with the development of up to 178 homes in 4 phases.
Recent progress:
Utilities are on the site
Construction of the "Dream-Street" of 8 homes completed.
Fit-out of 2 show-homes completed.
10 homes pre-sold since sales campaign started July 2009.
USD2.6mln. generated in revenues.
http://green-hills.com.ua
Henryland Group
The Henryland Group represents a series of investments in commercial retail property across a number of locations in the Ukraine with an aggregate gross lettable area of 103,000 m2. The Company has committed USD14.7m to the developments for a 38% shareholding of which USD14.0m has been invested to date. The project is expected to complete in 2011-2012.
Recent progress:
Kremenchuk and Lutsk - operational.
Odesa - under construction.
Vinnytsia and Mykolaiv - positive Conclusions of State Expertise Authority received.
Bila Tserkva - project documentation approved.
Avenue Shopping Mall
The Avenue Shopping Mall is an investment in 50% of the project foreseeing construction of a shopping mall in Kyiv with an aggregate gross lettable area of 26,300 m2. The Company has committed USD10.8m to the development of which USD1.5m has been invested to date. The project is expected to complete in 2012.
Recent progress:
Project Documentation approved.
State Expertise underway.
Glangate Group
The Glangate Group represents a series of investments in commercial retail property across a number of locations in Ukraine with an aggregate gross lettable area of 45,500 m2. The Company has committed USD12.5m to the developments for a 100% shareholding of which USD7.7m has been invested to date. The project is expected to complete in 2012.
Recent progress:
Kremenchuk - project documentation development underway.
Rivne - seller delivering conditions precedent.
Sevastopol project sold to a local DIY-retailer for USD1,950,000 at a 3% premium to its 1H09 valuation.
Riviera Villas
Riviera Villas is an exclusive residence club development built with modern environmentally friendly technology due to set a new standard for suburban living in Ukraine. The Company has committed USD12.0m to the development for a 58.2% shareholding of which USD11.5m has been invested to date. The project is expected to complete in 2011 - 2012 with the development of up to 64 homes in 4 phases.
Recent progress:
Utilities are on the site
Construction of the "Dream-Street" of 3 homes completed.
Fit-out of 1 show-home completed.
Sales campaign started.
http://r-v.com.ua/
Obolon Residential Towers
Obolon residential towers is a new residential and commercial development situated in a 1.07ha landplot in a high profile district of Kyiv. The development will have a sales area of 37,600 m2 consisting primarily of residential accommodation. The Company has committed USD20.7m to the development for a 100% shareholding of which USD18.6m has been invested to date. The project is expected to complete in 2012 - 2014 with the development in 3 phases.
Recent progress:
Land lease agreement with appropriate zoning re-signed with the Kyiv city authorities.
Facade and commercial premises designed by "Benoy" (UK).
Project Documentation approved
There is a customer service centre in place with rental income USD818K in 2008, and USD652K in 2009
Land Bank (2 sites)
The Company's land bank is located in the suburbs of Kyiv and covers 600 ha of land. The Company has committed USD130.75m to the development for a 85% shareholding of which USD120.5m has been invested to date
Recent progress:
82% of land consolidated
The company is set to make a profit on a premium from converting the existing
zoning of the land to allow construction of residential and commercial facilities.
Sadok Vyshnevy
Sadok Vyshnevy is a 1.6 ha development in the Kiev suburbs comprising 38 residences. The Company has invested USD 13.1m out of a total commitment of USD 13.1m for a 100% shareholding.
Recent progress:
All homes commissioned
Utilities are on the site
Individual property acts received for each of the landplots.
Sales campaign started
Consolidated statement of financial position
|
|
| Consolidated | Consolidated |
|
| Note | 2009 | 2008 |
| (in thousands of USD) |
|
|
|
|
|
|
|
|
| Assets |
|
|
|
| Non-current assets |
|
|
|
| Investment properties | 5 | 62,500 | 70,225 |
| Property under construction | 5 | 6,331 | 2,559 |
| Prepayments for land | 6 | 121,487 | 122,440 |
| Investments in subsidiaries |
| - | - |
| Investments in associates | 7 | 14,184 | 13,151 |
| Long-term loan | 8 | 2,702 | 1,378 |
| Property and equipment |
| 63 | 63 |
| Intangible assets |
| 45 | 24 |
|
|
|
|
|
| Total non-current assets |
| 207,312 | 209,840 |
|
|
|
|
|
| Current assets |
|
|
|
| Inventories | 9 | 12,242 | 70 |
| Loans due from Group companies | 10 | - | - |
| Trade and other receivables | 11 | 3,076 | 757 |
| Prepaid income tax |
| 16 | 16 |
| Financial instruments (call option) | 7 | 2,437 | - |
| Cash and cash equivalents | 12 | 86,195 | 121,216 |
|
|
|
|
|
| Total current assets |
| 103,966 | 122,059 |
|
|
|
|
|
| Total assets |
| 311,278 | 331,899 |
|
|
|
|
|
|
|
| Consolidated | Consolidated |
|
| Note | 2009 | 2008 |
| (in thousands of USD) |
|
|
|
|
|
|
|
|
| Equity and Liabilities |
|
|
|
| Equity | 13 |
|
|
| Share capital |
| 2,354 | 2,668 |
| Share premium |
| 282,077 | 292,127 |
| Retained earnings |
| 10,029 | 18,429 |
|
|
|
|
|
| Total equity attributable to equity holders of the Parent Company |
| 294,460 | 313,224 |
| Non-controlling interest |
| (563) | - |
|
|
|
|
|
| Total equity |
| 293,897 | 313,224 |
|
|
|
|
|
| Non-current liabilities |
|
|
|
| Deferred tax liabilities | 14 | 14,832 | 15,929 |
|
|
|
|
|
| Total non-current liabilities |
| 14,832 | 15,929 |
|
|
|
|
|
| Current liabilities |
|
|
|
| Trade and other payables | 15 | 2,537 | 2,735 |
| Income tax payable |
| 12 | 11 |
|
|
|
|
|
| Total current liabilities |
| 2,549 | 2,746 |
|
|
|
|
|
| Total liabilities |
| 17,381 | 18,675 |
|
|
|
|
|
| Total equity and liabilities |
| 311,278 | 331,899 |
|
|
|
|
|
These consolidated and Parent Company financial statements were approved by management on 7 April 2010 and were signed on its behalf by:
Chairman of the Board Aloysius Wilhelmus Johannes
Van der Heijden
Non-executive director Fredrik Svinhufvud
Consolidated Statement of comprehensive income
|
|
| For the year ended 31 December 2009 | For the year ended 31 December 2008 | ||
|
|
|
|
|
|
|
|
|
| Consolidated |
| Consolidated |
|
|
| Note |
|
|
|
|
| (in thousands of USD) |
|
|
|
|
|
|
|
|
|
|
|
|
| Rental income |
| 652 |
| 818 |
|
| Profit (loss) from sales of investment property |
| (45) |
| - |
|
| Loss on revaluation of investment properties | 5 | (1,814) |
| (70,907) |
|
| Write-down of trading property to net realizable value | 9 |
(465) |
| - |
|
| Management fee | 16 | (4,485) |
| (4,769) |
|
| Administrative expenses | 18 | (1,589) |
| (2,035) |
|
| Other income |
| 3 |
| 37 |
|
| Other expenses |
| (26) |
| (51) |
|
|
|
|
|
|
|
|
| Loss from operating activities |
| (7,769) |
| (76,907) |
|
|
|
|
|
|
|
|
| Gain on disposal of subsidiaries | 4 | 125 |
| - |
|
| Gain on recognition of joint venture | 7 | - |
| 8,398 |
|
| Net financial income | 19 | 887 |
| 10,586 |
|
| Share of the loss of associates | 7 | (1,935) |
| (4,116) |
|
|
|
|
|
|
|
|
| (Loss) profit before income tax |
| (8,692) |
| (62,039) |
|
| Income tax benefit (expense) | 14 | (272) |
| 14,553 |
|
|
|
|
|
|
|
|
| Total comprehensive income (loss) for the period |
|
(8,964) |
| (47,486) |
|
|
|
|
|
|
|
|
| Attributable to: |
|
|
|
|
|
| Equity holders of the Parent Company |
| (8,415) |
| (46,457) |
|
| Non-controlling interest |
| (549) |
| (1,029) |
|
|
|
|
|
|
|
|
| Total comprehensive income (loss) for the period |
|
(8,964) |
| (47,486) |
|
|
|
|
|
|
|
|
| (Loss) earnings per share |
|
|
|
|
|
| Basic (loss) earnings per share (in USD) | 21 | (0.07) |
| (0.34) |
|
| Diluted (loss) earnings per share (in USD) | 21 | (0.07) |
| (0.34) |
|
|
|
|
|
Consolidated Statement of cash flows
|
|
| For the year ended 31 December 2009 | For the year ended 31 December 2008 | ||
|
|
|
|
|
|
|
|
|
| Consolidated |
| Consolidatedd |
|
|
| Note |
|
|
|
|
| (in thousands of USD) |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows from operating activities |
|
|
|
|
|
| Profit (loss) before income tax |
| (8,692) |
| (62,039) |
|
| Adjustments for: |
|
|
|
|
|
| Write-down of trading property to net realisable value | 9 | 465 |
| - |
|
| Gain on disposal of subsidiary | 4 | (125) |
| - |
|
| Gain on acquisition of joint venture | 7 | - |
| (8,398) |
|
| Other expenses |
| - |
| - |
|
| Loss on revaluation of investment properties |
5 |
1,814 |
| 70,907 |
|
| Depreciation |
| 10 |
| 7 |
|
| Share of the loss of associates | 7 | 1,935 |
| 4,116 |
|
| Net financial income | 19 | (887) |
| (10,586) |
|
|
|
|
|
|
|
|
| Operating cash flows before changes in working capital |
| (5,480) |
| (5,993) |
|
| Decrease (increase) in inventories |
| (12,637) |
| 98 |
|
| Decrease (increase) in trade and other receivables |
| (512) |
| 3,739 |
|
| Decrease (increase) in loans to Group companies |
| - |
| - |
|
| Increase (decrease) in trade and other payables |
| 405 |
| (3,015) |
|
| Share based payments |
| 15 |
| 19 |
|
| Income tax paid |
| (29) |
| (78) |
|
| Cash flows (used in) from operating |
|
|
|
|
|
| Activities |
| (18,238) |
| (5,230) |
|
|
|
|
|
|
|
|
|
|
|
For the year ended 31 December 2009 | For the year ended 31 December 2008 | ||
|
|
|
|
|
|
|
|
|
| Consolidated |
| Consolidated |
|
|
| Note |
|
|
|
|
| (in thousands of USD) |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows from investing activities |
|
|
|
|
|
| Interest received |
| 641 |
| 10,839 |
|
| Acquisition of investment properties | 5 | (4,599) |
| (15,691) |
|
| Acquisition of property, equipment and intangible assets |
| (35) |
| (66) |
|
| Prepayments for land | 6 | (3,547) |
| (26,440) |
|
| Disbursement of long-term loan | 8 | (1,300) |
| (1,350) |
|
| Acquisition of subsidiary and non-controlling interest, net of cash acquired | 7 | - |
| (3,455) |
|
| Acquisition of joint venture, net of cash acquired |
| - |
| (3,455) |
|
| Proceed from reduction of shareholding in joint venture, net of cash out-flow | 7 | 2,416 |
| - |
|
| Investments in associates |
| - |
| (6,000) |
|
| Cash flows (used in) from investing |
|
|
|
|
|
| Activities |
| (6,424) |
| (45,618) |
|
|
|
|
|
|
|
|
| Cash flows from financing activities |
|
|
|
|
|
| Purchase of own shares |
| (10,364) |
| (6,444) |
|
| Cash flows used in financing |
|
|
|
|
|
| Activities |
| (10,364) |
| (6,444) |
|
|
|
|
|
|
|
|
| Net (decrease) increase in cash and cash equivalents |
| (35,026) |
| (57,292) |
|
| Cash and cash equivalents at 1 January |
| 121,216 |
| 178,350 |
|
| Effect of the foreign exchange fluctuation on cash balances |
| 5 |
| 158 |
|
| Cash and cash equivalents at 31 |
|
|
|
|
|
| December |
| 86,195 |
| 121,216 |
|
|
|
|
|
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|
|
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|
Consolidated Statement of changes in equity
|
| Attributable to equity holders of the Parent Company |
|
| |||
|
| Share capital | Share premium | Retained earnings | Total | Non-controlling interest |
Total |
| (In thousands of USD) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balances at 1 January 2008 | 2,813 | 293,994 | 53,139 | 349,946 | 16,216 | 366,162 |
| Total comprehensive loss for the period |
|
|
|
|
|
|
| Net loss | - | - | (46,457) | (46,457) | (1,029) | (47,486) |
|
|
|
|
|
|
|
|
| Total comprehensive loss for the period | - | - | (46,457) | (46,457) | (1,029) | (47,486) |
|
|
|
|
|
|
|
|
| Transactions with owners, recorded directly in equity |
|
|
|
|
|
|
| Contributions by and distributions to owners |
|
|
|
|
|
|
| Issue of ordinary shares | 34 | 4,398 | - | 4,432 | - | 4,432 |
| Own shares acquired | (179) | (6,265) | - | (6,444) | - | (6,444) |
| Share based compensation | - | - | 19 | 19 | - | 19 |
|
|
|
|
|
|
|
|
| Total contributions by and distributions to owners | (145) | (1,867) | 19 | (1,993) | - | (1,993) |
|
|
|
|
|
|
|
|
| Changes in ownership interests in subsidiaries that do not result in a loss of control |
|
|
|
|
|
|
| Acquisition of non-controlling interest | - | - | 11,728 | 11,728 | (15,187) | (3,459) |
|
|
|
|
|
|
|
|
| Total changes in ownership interests in subsidiaries | - | - | 11,728 | 11,728 | (15,187) | (3,459) |
|
|
|
|
|
|
|
|
| Total transactions with owners | (145) | (1,867) | 11,747 | 9,735 | (15,187) | (5,452) |
|
|
|
|
|
|
|
|
| Balances at 31 December 2008 | 2,668 | 292,127 | 18,429 | 313,224 | - | 313,224 |
|
|
|
|
|
|
|
|
|
| Attributable to equity holders of the Parent Company |
|
| |||
|
| Share capital | Share premium | Retained earnings | Total | Non-controlling interest |
Total |
| (In thousands of USD) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balances at 1 January 2009 | 2,668 | 292,127 | 18,429 | 313,224 | - | 313,224 |
| Total comprehensive loss for the period |
|
|
|
|
|
|
| Net loss | - | - | (8,415) | (8,415) | (549) | (8,964) |
|
|
|
|
|
|
|
|
| Total comprehensive loss for the period | - | - | (8,415) | (8,415) | (549) | (8,964) |
|
|
|
|
|
|
|
|
| Transactions with owners, recorded directly in equity |
|
|
|
|
|
|
| Contributions by and distributions to owners |
|
|
|
|
|
|
| Own shares acquired | (314) | (10,050) | - | (10,364) | - | (10,364) |
| Share based compensation | - | - | 15 | 15 | - | 15 |
|
|
|
|
|
|
|
|
| Total contributions by and distributions to owners | (314) | (10,050) | 15 | (10,349) | - | (10,349) |
|
|
|
|
|
|
|
|
| Changes in ownership interests in subsidiaries that do not result in a loss of control |
|
|
|
|
|
|
| Acquisition of non-controlling interest | - | - | - | - | (14) | (14) |
|
|
|
|
|
|
|
|
| Total changes in ownership interests in subsidiaries | - | - | - | - | (14) | (14) |
|
|
|
|
|
|
|
|
| Total transactions with owners | (314) | (10,050) | 15 | (10,349) | (14) | (10,363) |
|
|
|
|
|
|
|
|
| Balances at 31 December 2009 | 2,354 | 282,077 | 10,029 | 294,460 | (563) | 293,897 |
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|
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|
|
1 Background
(a) Organization and operations
Dragon - Ukrainian Properties & Development plc. (the Parent Company) was incorporated in the Isle of Man on 23 February 2007. The Parent Company's registered office is Standard Bank House, One Circular Road, Douglas, Isle of Man, IM1 1SB and its principal place of business is in Ukraine.
On 1 June 2007 the Parent Company raised USD 208 million through an initial public offering on the Alternative Investment Market (AIM) of the London Stock Exchange. On 29 November 2007 the Parent Company completed a secondary placing on AIM and raised USD 100 million.
The consolidated financial statements as at 31 December 2009 comprise the Parent Company and its subsidiaries (together referred to as the Group) and the Group's interest in associates.
The main activities of the Group are investing in the development of new properties and redevelopment of existing properties in Ukraine.
(b) Business environment
Ukraine is experiencing political and economic change that has affected, and may continue to affect, the activities of enterprises operating in this environment. Consequently, operations in Ukraine involve risks that do not typically exist in other markets.
The accompanying financial statements reflect management's current assessment of the possible 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.
The impact of such differences on the operations and financial position may be significant. In addition, the effect of future developments on the financial position and the ability of others to continue to transact with the Group cannot presently be determined. The consolidated financial statements therefore may not include all adjustments that might ultimately result from these adverse conditions.
The ongoing global liquidity crisis has resulted in, among other things, a lower level of capital market funding, lower liquidity levels across the Ukrainian and international banking sector, and higher interest rates. Such circumstances could affect the ability of the Group to obtain borrowings required for financing the development of properties.
Deteriorating operating conditions may also have an impact on cash flow forecasts and assessment of the impairment of assets. Due to the potential for these economic uncertainties to continue in the foreseeable future, there is a possibility that the assets may not be recovered at their carrying amounts in the ordinary course of business, with a corresponding impact on profitability in future periods.
Various regulatory bodies in Ukraine are considering regulations that could increase the Group's costs to comply with such regulations or limit the lines of business it may conduct.
Management believes it is taking all necessary measures to support the sustainability and growth of the Group's business in the current circumstances.
2 Basis of preparation
(a) Statement of compliance
These consolidated and Parent Company financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs).
(b) Basis of measurement
The consolidated and Parent Company financial statements are prepared on the historical cost basis except for investment property and derivative financial instruments, which are carried at fair value.
(c) Functional and presentation currency
These consolidated and Parent Company financial statements are presented in thousands of US dollars (USD).
The Group consists of the entities that are domiciled in Ukraine, Cyprus, British Virgin Islands and Isle of Man, and as a result different entities are using currencies of different countries.
Management believes that the most appropriate functional and presentation currency for all consolidated entities and these consolidated financial statements is US dollars. All funds raised by the Parent Company are in US dollars, and all project developments are based on US dollars. Deposits and prepayments are also in US dollars. All financial information presented in US dollars is rounded to the nearest thousand.
For Ukrainian entities there are certain transactions in Ukrainian Hryvnia, which is not a convertible currency.
(d) Use of judgments, estimates and assumptions
The preparation of financial statements in conformity with IFRSs 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 recognized 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 recognized in the financial statements are included in the following notes:
• note 5 - valuation of investment property
• note 17 - measurement of share-based payments
• notes 3 (e) and 3 (h) classification between investment property and inventories.
(e) Adoption of new accounting standards
Starting from 1 January 2009 the Group adopted new accounting standards in the following areas:
• Determination and presentation of operating segments
• Presentation of financial statements
• Accounting for business combinations
• Accounting for consolidated and separate financial statements
(i) Determination and presentation of operating segments
As at 1 January 2009 the Group determines and presents operating segments based on the information that internally is provided to the Board, which collectively is the Group's chief operating decision maker. This change in accounting policy is due to the adoption of International Financial Reporting Standard 8 Operating Segments. Previously operating segments were determined and presented in accordance with International Financial Reporting Standard IAS 14 Segment Reporting. The new accounting policy in respect of segment operating disclosures is presented as follows.
Management determined that the sole segment in which the Group operates is property development. For operational purposes the Board analyses the Group's activity on the basis of individual projects and they are described in detail in the Annual Report. Budgeting and comparison of actuals versus budgeted is also done on the basis of individual projects.
(ii) Presentation of financial statements
The Group applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as at 1 January 2009. The revised standard requires a presentation of all owner changes in equity to be presented in the statement of changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income.
Comparative information is re-presented so that it also is in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.
(iii) Accounting for business combination
The Group has adopted early IFRS 3 Business Combinations (2008) and IAS 27 Consolidated and Separate Financial Statements (2008) for all business combinations occurring in the financial year starting 1 January 2009. All business combinations occurring on or after 1 January 2009 are accounted for by applying the acquisition method. The change in accounting policy is applied prospectively and had no material impact on earnings per share.
Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The acquisition date is the date on which control is transferred to the acquirer. Judgment is applied in determining the acquisition date and determining whether control is transferred from one party to another.
The Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date.
Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination (see below). If a business combination results in the termination of pre-existing relationships between the Group and the acquiree, then the lower of the termination amount, as contained in the agreement, and the value of the off-market element is deducted from the consideration transferred and recognised in other expenses.
When share-based payment awards exchanged (replacement awards) for awards held by the acquiree's employees (acquiree's awards) relate to past services, then a part of the market-based measure of the awards replaced is included in the consideration transferred. If they require future services, then the difference between the amount included in consideration transferred and the market-based measure of the replacement awards is treated as post-combination compensation cost.
A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably.
The Group measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree.
Transaction costs that the Group incurs in connection with a business combination, such as finder's fees, legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred.
Profit or loss and each component of other comprehensive income of subsidiaries are attributed to the owners of the Parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. This change in accounting policy was applied prospectively and had no material impact on earnings per share.
(iv) Accounting for consolidated and separate financial statements
The Parent Company accounts for investments in subsidiaries, jointly controlled entities and associates at cost less impairment provision.
3 Significant accounting policies
The accounting policies set out below are consistently to all periods presented in these consolidated financial statements, and are applied consistently by Group entities, except as explained in note 2(e), which addresses changes in accounting policies.
(a) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.
The financial results of subsidiaries are included in the consolidated and Parent Company financial statements from the date that control commences until the date that control ceases. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by the Group.
The results of subsidiaries acquired during the year are included in the statement of comprehensive income from the effective date of acquisition.
Any premium or discount arising on the acquisition of a non-controlling interest in a subsidiary represents the excess/deficiency of the cost of the additional investment over/under the carrying amount of the net assets acquired at the date of exchange. The effect of these transactions is recognized directly in equity.
In the financial statements of the Parent Company subsidiaries are accounted for at cost.
Consolidated subsidiaries include the following:
| Name |
| Country of incorporation | Cost | % of ownership | ||
|
|
|
| 2009 | 2008 | 2009 | 2008 |
|
|
|
|
|
|
|
|
| Bi Dolyna Development LLC |
| Ukraine | 9 | 9 | 100% | 100% |
| EF Nova Oselya LLC |
| Ukraine | 48 | 24 | 100% | 100% |
| Glangate LTD |
| Cyprus | 1 | - | 100% | 100% |
| Grand Development LLC |
| Ukraine | 21 | 11 | 100% | 100% |
| Hindale LTD | *(1) | Cyprus | 1,500 | 6,500 | 18.77% | 50%+1 share |
| J Komfort Neruhomist LLC |
| Ukraine | 9 | 9 | 100% | 100% |
| Korona Development LLC |
| Ukraine | 48 | 10 | 100% | 100% |
| Landshere LTD |
| Cyprus | 3 | 3 | 95% | 95% |
| Landzone LTD |
| Cyprus | 6,503 | 6,503 | 100% | 100% |
| Linkdell LTD |
| Cyprus | 3 | 3 | 100% | 100% |
| Linkrose LTD |
| Cyprus | 3 | 3 | 100% | 100% |
| Mountcrest LTD |
| Cyprus | 64 | 3 | 100% | 100% |
| OJSC "Dom byta "Obolon" |
| Ukraine | 16,470 | 16,456 | 98% | 98% |
| Promtek LLC | *(1) | Ukraine | - | - | 18.77% | 50%+1 share |
| Riverscope LTD |
| Cyprus | 3 | 3 | 95% | 95% |
| Startide LTD |
| Cyprus | 3 | 3 | 100% | 100% |
| Tradecom Inco LLC | *(3) | Ukraine | - | 1,500 | - | 100% |
| Ukrainian Development Holding LTD |
| Cyprus | 46 | 1 | 100% | 100% |
| Ukrainian Properties LTD |
| Cyprus | 1 | - | 100% | 100% |
| VP Development LLC | *(3) | Ukraine | - | 10 | - | 99% |
| Noviy Region LLC | *(2) | Ukraine | 4,507 | - | 100% | - |
(1) - in 2009, after the decrease in ownership, Hindale LTD is accounted for as an associate. In 2008 Hindale LTD was accounted for as a joint venture using proportional consolidation.
(2) - assets acquisition
(3) - subsidiary disposed
All subsidiaries are involved in property development.
(ii) Associates
Associates are those entities, in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Associates are accounted for using the equity method. The financial statements include the Group's share of the income and expenses of associates, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group's share of losses exceeds its interest in an associate, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.
(iii) Joint ventures
A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control, that is, when the strategic, financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control.
Joint venture arrangements that involve the establishment of a separate entity in which each venture has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using proportionate consolidation. The Group's share of the assets, liabilities, income and expenses of jointly controlled entities are combined with the equivalent items in the financial statements on a line-by-line basis.
Where the Group transacts with its jointly controlled entities, unrealized profits and losses are eliminated to the extent of the Group's interest in the joint venture.
Any goodwill arising on the acquisition of the Group's interest in a jointly controlled entity is accounted for in accordance with the accounting policy for goodwill arising on the acquisition as described in note 3(g).
As at 31 December 2009 the Group has no joint ventures. As at 31 December 2008 the Group had the following joint ventures: Hindale LTD (Cyprus) and Promtek LLC (Ukraine).
(iv) Transactions eliminated on consolidation
Intra-group balances, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing these financial statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
(b) Foreign currency and operations
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognized in the statement of comprehensive income.
(ii) Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to USD at exchange rates at the reporting date. The income and expenses of foreign operations are translated to USD at exchange rates at the dates of the transactions.
(c) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for this purpose.
(d) Share capital
Incremental costs directly attributable to issue of ordinary shares and share options are netted against proceeds received.
(e) Investment properties
Investment properties are those that are held either to earn rental income or for capital appreciation or for both. Investment properties principally comprise freehold land, leasehold land and investment properties held for future redevelopment. Land held under operating lease is classified and accounted for as investment property when it meets the definition of investment property. Residential and mixed used investment properties are classified as investment properties when these properties are developed by the Group.
(i) Initial measurement and recognition
Investment properties are measured initially at cost, including related acquisition costs. Investment properties are derecognized on disposal or when they are permanently withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is recognized as gain or loss in profit or loss.
If the Group uses part of the property for its own use, and part to earn rentals or for capital appreciation, and the portions can be sold or leased out separately, they are accounted for separately. Therefore the part that is rented out is investment property. If the portions cannot be sold or leased out separately, the property is investment property only if the company-occupied portion is insignificant.
(ii) Subsequent measurement
Subsequent to initial recognition investment properties are stated at fair value. Any gain or loss arising from a change in fair value is included in profit or loss in the period in which it arises.
When the Group begins to redevelop an existing investment property for continued future use as investment property, the property remains an investment property, which is measured at fair value, and is not reclassified to property and equipment during the redevelopment.
It is the Group's policy that an external, independent valuation company, having an appropriate recognized professional qualification and recent experience in the location and category of property being appraised, values the portfolio every six months. The fair value is the amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm's length transaction. The valuation is prepared in accordance with the practice standards contained in the Appraisal and Valuations Standards published by the Royal Institution of Chartered Surveyors (RICS) or in accordance with International Valuation Standards published by the International Valuations Standards Committee.
Management believes that there is no transparent, active market in Ukraine for land because there are few transactions and each transaction tends to be unique and subject to significant negotiations. Therefore, management has chosen to use a valuation model to estimate fair value.
After discussion with the independent appraiser, and considering the types of investment properties owned by the Group and their intended development, management chose to estimate the fair value of land using the "residual land value" income approach. Under this method, the fair value of the freehold and leasehold interest in land equals the residual value of land under development (assuming that the developer will meet the terms set for development).
The residual value of land is determined based on the value for which such land could be sold in the market, which is estimated by appraisers to be the fair value of the completed project less cost to complete and an appropriate developer's profit. The residual value of land is equal to future cash flows generated by the developed property within the forecasting period plus terminal value of the property less development costs and developer's interest.
(iii) Property under construction
Property that is being constructed or developed for future uses as an investment property is accounted for as property and equipment and is stated at cost until construction or development is complete. During the construction phase only the building is accounted as property under construction. The land is classified as an investment property throughout the construction phase. Upon completing construction and bringing the building into condition in which it is ready for operation and when it is put into operation, the item is reclassified and subsequently accounted as an investment property.
(f) Property and equipment
(i) Recognition and measurement
Items of property and equipment are measured at cost less accumulated depreciation and impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.
(ii) Subsequent costs
The cost of replacing part of an item of property and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred.
(iii) Depreciation
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.
The estimated useful lives for the current and comparative periods are as follows:
• vehicles and equipment 5-7 years
• fixture and fittings 3 years
(g) Goodwill
Goodwill arises on the acquisition of subsidiaries, associates and joint ventures. Goodwill represents the excess of the cost of the acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognized immediately in profit or loss.
Goodwill is measured at cost less accumulated impairment losses. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment.
(h) Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Trading properties are considered to be inventories because these are acquired exclusively with a view to subsequent disposal in the near future.
(i) Financial instruments
(i) Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Accounting for finance income and expenses is discussed in note 3(n).
Held-to-maturity investments
If the Group has the positive intent and ability to hold debt securities to maturity, then they are classified as held-to-maturity. Held-to-maturity investments are measured at amortised cost using the effective interest method, less any impairment losses.
Available-for-sale financial assets
Investments in equity securities and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see note 3(j)(i)), and foreign exchange gains and losses on available-for-sale monetary items (see note 3(b)(i)), are recognised in other comprehensive income. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is transferred to profit or loss.
Financial assets at fair value through profit or loss
An instrument is classified as at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group's documented risk management or investment strategy. Upon initial recognition attributable transaction costs are recognised in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss.
Other
Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses. Investments in equity securities that are not quoted on a stock exchange are principally valued using valuation techniques such as discounted cash flow analysis, option pricing models and comparisons to other transactions and instruments that are substantially the same. Where fair value cannot be estimated on a reasonable basis by other means, investments are stated at cost less impairment losses.
(ii) Derivative financial instruments
Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss.
Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognised immediately in profit or loss.
(j) Impairment
(i) Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost the reversal is recognised in other comprehensive income.
(ii) Non-financial assets
The carrying amounts of the non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date.
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(k) Share based payments
The grant date fair value of options granted to employees is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The amount recognized as an expense is adjusted to reflect the actual number of share options that vest.
For equity settled share-based payment transaction other than transactions with employees the Group measures the goods or services received at the fair value of goods and services, unless that fair value cannot be estimated reliably. If this is the case the Group measures their fair values and the corresponding increase in equity, indirectly, by reference to the fair value of equity instruments granted.
(l) Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
(m) Rental income
Rental income from investment property is recognized in profit or loss on a straight-line basis over the time of the lease.
(n) Finance income and expenses
Finance income comprises interest income on funds invested, dividend income, and foreign currency gains. Interest income is recognized as it accrues, using the effective interest method. Dividend income is recognized on the date that the Group's right to receive payment is established.
Finance expenses comprise interest expense on borrowings and the unwinding of the discount on provisions. All borrowing costs are recognized in profit or loss using the effective interest method, except for borrowing costs related to qualifying assets which are recognized as part of the cost of such assets.
Foreign currency gains and losses are reported on a net basis.
(o) Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
(p) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the total comprehensive income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the total comprehensive income (loss) attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise warrants and share options.
(q) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2009, and have not been applied in preparing these consolidated financial statements. Of these pronouncements, potentially the following will have an impact on the Group's operations. Management plans to adopt these pronouncements when they become effective, and has not yet analyzed the likely impact of these new standards on its consolidated financial statements.
Amendment to IAS 32 Financial Instruments: Presentation - Classification of Rights Issues clarifies that rights, options or warrants to acquire a fixed number of an entity's own equity instruments for a fixed amount are classified as equity instruments even if the fixed amount is determined in foreign currency. A fixed amount can be determined in any currency provided that entity offers these instruments pro rata to all of the existing owners of the same class of its own non-derivative equity instruments. The amendment is applicable for annual periods beginning on or after 1 February 2010.
Amendment to IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations. The amendment, which becomes mandatory for the Group's 2010 consolidated financial statements, with retrospective application required.
Amendment to IFRS 2 Share-based Payment - Group Cash-settled Share-based Payment Transactions which clarifies that the entity receiving goods or services in a share-based payment transaction that is settled by any other entity in the group or any shareholder of such an entity in cash or other assets is required to recognise the goods or services received in its financial statements. The amendment will come into effect on 1 January 2010.
IFRS 9 Financial Instruments will be effective for annual periods beginning on or after 1 January 2013. The new standard is to be issued in several phases and is intended to replace International Financial Reporting Standard IAS 39 Financial Instruments: Recognition and Measurement once the project is completed by the end of 2010. The first phase of IFRS 9 was issued in November 2009 and relates to the recognition and measurement of financial assets. The Group recognises that the new standard introduces many changes to the accounting for financial instruments and is likely to have a significant impact on the financial statements. The impact of these changes will be analysed during the course of the project as further phases of the standard are issued.
IFRIC 17 Distributions of Non-cash Assets to Owners addresses the accounting for non-cash dividend distributions to owners. The interpretation clarifies when and how a non-cash dividend should be recognised and how the difference between the dividend paid and the carrying amount of the net assets distributed should be recognised. IFRIC 17 became effective for annual periods beginning on or after 1 July 2009.
4 Disposal of subsidiaries
In February 2009 the Group sold VP Development LLC for USD 5 thousand. Neither gains nor loss are recognized in result of this transaction.
In December 2009 the Group sold 100% of its stake in Tradecom Inco LLC for USD 1,620 thousand to be settled in cash on a monthly basis until 28 February 2011.
The disposal of the subsidiaries had the following effect on assets and liabilities on the date of disposal:
|
| Recognised fair values on the date of disposal of subsidiary |
| (in thousands of USD) |
|
| Non-current assets |
|
| Investment properties | 1,649 |
| Property under construction | 441 |
| Intangible assets | 4 |
| Current assets |
|
| Trade and other receivables | 140 |
| Cash and cash equivalents | 5 |
| Non-current liabilities |
|
| Deferred tax liabilities | (313) |
| Loan and borrowings | (330) |
| Current liabilities |
|
| Trade and other payables | (96) |
|
|
|
| Net identifiable assets and liabilities | 1,500 |
|
|
|
| Groups share in the net identifiable assets and liabilities | 1,500 |
|
|
|
| Selling price | 1,625 |
|
|
|
| Gain on disposal of subsidiaries | 125 |
|
|
|
| Consideration received | 5 |
| Cash disposed | (5) |
|
|
|
| Net cash outflow | - |
|
|
|
5 Investment properties and property under construction
Movements in investment properties for the year ended 31 December are as follows:
|
| Freehold land | Leasehold land |
Total |
| (in thousands of USD) |
|
|
|
|
|
|
|
|
| At 1 January 2008 | 18,197 | 87,599 | 105,796 |
|
|
|
|
|
| Acquisitions | 11,901 | - | 11,901 |
| Assets acquisition* | - | 1,339 | 1,339 |
| Construction | 1,259 | 1,192 | 2,451 |
| Recognized as joint venture | - | 22,204 | 22,204 |
| Fair value losses on revaluation | (2,679) | (68,228) | (70,907) |
|
|
|
|
|
| At 31 December 2008 | 28,678 | 44,106 | 72,784 |
|
|
|
|
|
| Assets acquisition** | - | 6,018 | 6,018 |
| Construction | 2,742 | 1,857 | 4,599 |
| Disposal of subsidiary and joint venture (construction) | - | (850) | (850) |
| Disposal of subsidiary and joint venture (investment properties)*** | - | (11,459) | (11,459) |
| Disposal of investment properties | (447) | - | (447) |
| Fair value gains (losses) on revaluation | 137 | (1,951) | (1,814) |
|
|
|
|
|
| At 31 December 2009 | 31,110 | 37,721 | 68,831 |
|
|
|
|
|
*During the year ended 31 December 2008 the Group recognized the acquisition of subsidiary Tradecom Inco LCC as an acquisition of assets since the entity had no operations or business activities.
**During the year ended 31 December 2009 the Group recognized the acquisition of subsidiary Novyy Region LLC as an acquisition of assets since the entity had no operations or business activities.
***During the year ended 31 December 2009 the Group sold its subsidiary Tradecom Inco LLC and decreased its stake in joint ventures Hindale Ltd and Promtek LLC. After the decrease in ownership in Hindale Ltd and Promtek LLC are accounted for as associates.
Management engaged registered independent appraiser CB Richard Ellis LLC, having a recognized professional qualification and recent experience in the location and categories of the projects being valued, to assist with the estimation of fair value.
The estimation of fair value is made using a net present value calculation based on certain assumptions, the most important of which as at 31 December 2009 are as follows:
·; monthly rental rates which were based on current rental rates ranging from USD 10 to USD 45 per sq.m.
·; development costs based on current construction prices
·; discount rates ranging from 14% to 27% p.a.
·; developers profit - from 20.0% to 25.0%
·; 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 2008 respective assumptions were as follows:
·; monthly rental rates which were based on current rental rates ranging from USD 6.3 to USD 60 per sq.m.
·; development costs based on current construction prices
·; discount rates ranging from 18% to 20% p.a.
·; developers profit - from 10.0% to 20.0%
·; 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.
Sensitivity
If rental rates are 1% less than those used in valuation models, the fair value of investment properties would be USD 1,453 thousand lower. If rental rates are 1% higher, then the fair value of investment properties would be USD 1,453 thousand higher.
If development costs are 5% higher than those used in the valuation models, the fair value of investment properties would be USD 3,655 thousand lower. If development costs are 5% less, then the fair value of investment properties would be USD 3,655 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 2,189 thousand lower. If the discount rate is 1% less, then the fair value of investment properties would be USD 2,189 thousand higher.
6 Prepayments for land
During 2009 the Group made several prepayments for land acquisition totaling USD 3,547 thousand (land banking project). In 2008 the Group made a prepayment for a leasehold interest in a 3.8 hectares land plot located in Kremenchug for USD 4,500 thousand through purchasing 99.99% of a Ukrainian company (Glangate project). In 2009 this prepayment was settled. As a result of these transactions the total prepayments for land decreased from USD 122,440 thousand as at 31 December 2008 to USD 121,487 thousand as at 31 December 2009. The prepayments made are secured by the pledge of relevant land plots as per the table below.
In December 2008 the Group entered into the following pledge agreements to secure prepayments for land. The main conditions of the agreements are as follows:
| Date of signing | Pledgor | Collateral | Amount of prepayment for land | Assigned value of the collateral |
|
|
|
|
| |
|
|
|
| (In thousands of USD) | |
|
|
|
|
|
|
| 24 December 2008 | K Zatyshna Domivka LLC, Ukraine | The corporate rights of Pledgor in Ukrainian subsidiaries that own land amounting to 85.5 hectares located in the Kyiv region. | 16,500 | 16,500 |
| 25 December 2008 | Land Investments LLC, Ukraine | The corporate rights of Pledgor in Ukrainian subsidiaries that own land amounting to 191.5 hectares located in the Kyiv region. | 54,500 | 54,500 |
| 25 December 2008 | Naukovo-doslidne innovatsiyne gospodarstvo LLC, Ukraine | The corporate rights of Pledgor in Ukrainian subsidiaries that own land amounting to 156.0 hectares located in the Kyiv region. | 49,487 | 49,500 |
|
|
|
|
|
|
|
|
|
| 120,487 | 120,500 |
|
|
|
|
|
|
This table summarizes the amount of prepayment secured by collateral rather than the fair value of the collateral itself.
On 28 October 2008 the Group concluded a preliminary agreement with Texville Ltd, Cyprus, for purchasing of a Ukrainian company (Ukr SPV) for USD 3,000 thousand. Ukr SPV is expected to receive a freehold right to a land plot with a total area of 3.7 hectares, located at Gagarina Avenue, Rivne, Ukraine. The first payment of USD 1,000 thousand was made upon signing of the preliminary agreement. The full settlement will be made upon obtaining by Ukr SPV the original state act of ownership over the land plot and signing a share purchase agreement for the acquisition of Ukr SPV.
7 Investments in associate and interest in joint venture
The Group has the following investments in associates and joint venture as at 31 December:
| Name | Country | Ownership/Voting | |
|
|
| 2009 | 2008 |
|
|
|
|
|
| Henryland Group Ltd. | British Virgin Islands | 38% | 38% |
| Hindale Ltd. | Cyprus | 18.77% | 50%+1 share |
The following is summarized financial information for associates and joint ventures, not adjusted for the percentage ownership held by the Group:
|
| Ownership | Total assets | Total liabilities | Revenues | (Loss) |
| (in thousands of USD) |
|
|
|
|
|
|
|
|
|
|
|
|
| 2008 |
|
|
|
|
|
| Henryland Group Ltd. | 38% | 41,958 | 7,350 | 1,347 | (5,037) |
| Hindale Ltd. | 50%+1 share | 12,516 | 2,363 | - | (9,688) |
|
|
|
|
|
|
|
|
|
| 54,474 | 9,713 | 1,347 | (14,725) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
|
|
|
|
|
| Henryland Group Ltd. | 38% | 34,763 | 5,235 | 2,926 | (5,392) |
| Hindale Ltd. | 18.77% | 21,520 | 5,735 | - | 607 |
|
|
|
|
|
|
|
|
|
| 56,283 | 10,970 | 2,926 | (4,785) |
|
|
|
|
|
|
|
In December 2007 the Group acquired 15% of the shareholding interest of Hindale Ltd. This company, through its subsidiary Promtek Ltd, holds the lease right on a plot of land located on Komarova Avenue, Kiev, Ukraine. As at 30 June 2008 the Group increased its stake in Hindale Ltd. from 15% to 50% plus one share by acquisition of additional shares issued for USD 6,500 thousand.
The acquisition of an additional 35% plus one share of Hindale Ltd in June 2008 had the following effect on assets and liabilities on the acquisition date:
|
| Total recognized fair values | Group's share of recognized fair values |
| (in thousands of USD) |
|
|
| Non-current assets |
|
|
| Investment property | 44,190 | 22,095 |
| Construction in progress | 218 | 109 |
| Current assets |
|
|
| Trade and other receivables | 196 | 98 |
| Cash and cash equivalents | 6,090 | 3,045 |
| Non-current liabilities |
|
|
| Deferred tax liabilities | (10,980) | (5,490) |
| Current liabilities |
|
|
| Trade and other payables | (36) | (18) |
|
|
|
|
| Net identifiable assets and liabilities | 39,678 | 19,839 |
|
|
|
|
| Previously recognized fair value gain on investments in associate |
| (4,941) |
|
|
|
|
|
|
| 14,898 |
|
|
|
|
| Gain on acquisition (negative goodwill) |
| 8,398 |
| Consideration paid |
| 6,500 |
| Cash acquired |
| (3,045) |
|
|
|
|
| Net cash outflow |
| 3,455 |
|
|
|
|
The group has the right to appoint two (out of four) representatives to the Board of Directors of Hindale Ltd. Pursuant to the shareholders agreement, the management structure of Hindale Ltd provided that significant operating decisions require consent by all parties. Accordingly, management determined that the Group had joint control over Hindale Ltd. As at 31 December 2008 the Group stated its investment in Hindale Ltd. as interest in joint venture and 50% of assets and liabilities of Hindale Ltd were added to the consolidated financial statements.
In October 2009, due to the fact that certain conditions set in the shareholders agreement between the Group and the partner were not met (in particular, the State Detailed Expertise was not procured and the land plot was not cleared of garages before October 2009) the Group decreased its stake in Hindale Ltd from 50% + 1 share to 18.77 % and as a result in Promtek LLC, which is 100% owned by Hindale LTD.
The share capital of Hindale Ltd was decreased by 1,539 ordinary shares held by the Group. In return, the Group received USD 5,000 thousand and an option to repurchase the 1,539 ordinary shares of Hindale Ltd for USD 5,000 thousand in accordance with the shareholders agreement. Because the fair value of the 1,539 shares of Hindale Ltd as at 31 December 2009 is equal to USD 7,437 thousand, the Group determines the excess of the fair value of the shares over the cash purchase price to be the fair value of the call option and recognized it in the consolidated statement of financial position as at 31 December 2009.
The decrease of the interest in Hindale Ltd from 50% plus one share to 18.77% had the following effect on assets and liabilities:
|
| Recognised fair values on the date of reduction of shareholding in joint venture |
| (in thousands of USD) |
|
| Non-current assets |
|
| Investment property | 9,810 |
| Construction in progress | 409 |
| Current assets |
|
| Trade and other receivables | 236 |
| Cash and cash equivalents | 2,584 |
| Non-current liabilities |
|
| Deferred tax liabilities | (2,523) |
| Current liabilities |
|
| Trade and other payables | (109) |
|
|
|
| Net identifiable assets and liabilities | 10,407 |
|
|
|
| Remaining interest in Hindale LTD (18.77%) | 2,970 |
|
|
|
| Net identifiable assets sold | 7,437 |
|
|
|
| Consideration received: |
|
| - cash | 5,000 |
| - call option | 2,437 |
|
|
|
| Cash disposed | (2,584) |
|
|
|
| Net cash inflow | 2,416 |
|
|
|
Since the shareholding is decreased to 18.77% as at 31 December 2009, the investment in Hindale Ltd is presented as an associate in consolidated financial statements as at 31 December 2009. The carrying value of the investments in Hindale Ltd as at 31 December 2009 is USD 3,082 thousand.
As at 31 December 2009 the total cash investment in Henryland Group Ltd (Henryland) amounts to USD 14,000 thousand. During 2009 the Group recognised losses from Henryland of USD 2,049 thousand (2008: of USD 4,116 thousand). During 2009 the share of the losses of associate includes the share in net losses of Henryland and movements in its currency translation reserves that were recognized directly in equity of Henryland. The principal activity of Henryland is the development of investment property in Ukraine. The carrying value of the investment in Henryland as at 31 December 2009 is USD 11,102 thousand (as at 31 December 2008: USD 13,151 thousand).
8 Long-term loan
On 14 July 2008 a loan facility agreement between the Group and "Commercial Construction" LLC (the Borrower) was signed. According to the agreement the Group provided a loan with a maturity date of 31 August 2011 and 11% fixed interest rate. On 1 October 2009 an Additional Agreement was signed according to which the interest rate is decreased to 2% retrospectively to be applied from the first tranche issued, and the maturity date is extended to 31 August 2020. As at 31 December 2009 the total amount of the loan outstanding is USD 2,356 thousand including accrued interest of USD 52 thousand. The effect of the application the decreased interest rate retrospectively amounts to a decrease in the interest income from USD 28 thousand recognized in 2008 to USD 5 thousand, the effects of which are recognized in 2009. The maximum amount of the loan that can be extended to the Borrower is USD 10,000 thousand. However, this does not represent an irrevocable commitment of the Group to extend the loan up to the full amount. Additional disbursements will be subject to the discretion of the Group.
Additionally, during 2009 the Group granted a loan to an unrelated party, Morgan Furniture Ltd, of USD 346 thousand, which is collateralized by industrial real estate. This loan was taken over from Rodovid bank as a partial settlement of a deposit held by the Group in this bank as at 31 December 2008. This decision was approved by the Board in a written resolution dated 17 February 2009.
9 Inventories
Inventories as at 31 December are as follows:
|
| Consolidated | Consolidated |
|
| 2009 | 2008 |
| (in thousands of USD) |
|
|
|
|
|
|
| Trading property | 12,210 | - |
| Other inventory | 31 | 7 |
| Construction materials | 1 | 63 |
|
|
|
|
| Total | 12,242 | 70 |
|
|
|
|
As at December 2008 the Group had a deposit with Rodovid bank of USD 12,779 thousand and accrued interest receivable of USD 127 thousand. Because Rodovid bank failed to repay the deposit in cash it was decided to settle a part of this deposit by transferring real estate in the gated community Sadok Vyshnevyi (38 newly constructed houses and relevant land plots that were valued at a contractual price of USD 12,432 thousand) to the Group. This transaction was approved by the Board of Directors written resolution dated 17 February 2009. Pursuant to London Stock Exchange Rule 13, the independent directors consider, having consulted with the nominated advisor, that the terms of this agreement are fair and reasonable as far as shareholders are concerned. Sadok Vyshnevyi was acquired on behalf of the Group by the Group's agent for USD 12,432 thousand plus costs related to property registration of USD 242 thousand. The property is held for sale by the agent according to the Agency Agreement dated 3 March 2009. As at 31 December 2009 trading property of USD 12,210 thousand represents the net realizable value as defined by the independent appraiser. The revaluation loss of USD 465 thousand is recognized in profit or loss.
10 Loans due from Group companies
The amounts due from Group companies are denominated in USD, unsecured, interest bearing (5% - 12% p.a.) and repayable on demand.
11 Trade and other receivables
Trade and other receivables as at 31 December are as follows:
|
| Consolidated | Consolidated |
|
|
| 2009 | 2008 |
|
| (in thousands of USD) |
|
|
|
|
|
|
|
|
| Other receivables | 2,460 | 326 |
|
| Prepayments made | 462 | 428 |
|
| Accrued interest | 154 | 3 |
|
|
|
|
|
|
| Total | 3,076 | 757 |
|
|
|
|
|
|
12 Cash and cash equivalents
Cash and cash equivalents as at 31 December are as follows:
|
| Consolidated | Consolidated |
|
| 2009 | 2008 |
| (in thousands of USD) |
|
|
|
|
|
|
| Bank balances | 806 | 1,146 |
| Call deposits | 85,389 | 120,070 |
|
|
|
|
| Total | 86,195 | 121,216 |
|
|
|
|
The following table represents an analysis of cash and cash equivalents by rating agency designation based on Fitch ratings or their equivalent as at 31 December:
|
| Consolidated | Consolidated |
|
| 2009 | 2008 |
| (in thousands of USD) |
|
|
|
|
|
|
| Bank balances |
|
|
| B | 315 | 914 |
| AA- | 491 | 232 |
|
|
|
|
|
| 806 | 1,146 |
| Call deposits |
|
|
| AA | 80,104 | 9,500 |
| AA- | 5,110 | 94,171 |
| A- | - | 3,577 |
| not rated | 175 | 12,822 |
|
|
|
|
|
| 85,389 | 120,070 |
|
|
|
|
| Total | 86,195 | 121,216 |
|
|
|
|
13 Equity
Movements in share capital and share premium for the year ended 31 December are as follows:
|
| Ordinary shares | Amount |
| (in thousands of USD, except for share numbers) |
|
|
| Number of shares unless otherwise stated |
|
|
|
|
|
|
| Outstanding as at 31 December 2007, fully paid | 140,630,300 | 2,813 |
|
|
|
|
| Issued during 2008 | 1,698,416 | 34 |
| Own shares acquired and cancelled | (8,943,000) | (179) |
|
|
|
|
| Outstanding as at 31 December 2008, fully paid | 133,385,716 | 2,668 |
|
|
|
|
| Own shares acquired and cancelled | (15,669,201) | (314) |
|
|
|
|
| Outstanding as at 31 December 2009, fully paid | 117,716,515 | 2,354 |
|
|
|
|
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.
As part of an initial public offering on 1 June 2007 104,000,000 ordinary shares were sold to certain institutional investors at a price of USD 2.00 per ordinary share, raising gross proceeds of USD 208,000 thousand. In addition 36,630,100 ordinary shares were sold on 29 November 2007 at a price of USD 2.73 per ordinary share, raising gross proceeds of USD 100,000 thousand. The difference between net proceeds per share and par value is recognized as share premium.
During 2008 the Group issued 1,698,416 new ordinary shares at a price of USD 2.60 per ordinary share to settle 70 % of the manager's performance fee for 2007 in the amount of USD 4,432 thousand.
Following the extraordinary general meetings of members of the Parent Company on 31 July 2008 and 1 December 2008, 11,948,000 of its own shares were acquired by the Parent Company and were cancelled. The purchase price of acquired shares ranged from USD 0.50 to USD 1.47 per share. The difference between the total price paid and par value is recognized as share premium decrease.
Following the extraordinary general meeting of members of the Parent Company on 29 May 2009, 12,664,201 of its own shares were acquired by the Parent Company and were cancelled. The purchase price of acquired shares ranged from USD 0.53 to USD 0.68 per share. The difference between the total price paid and par value is recognized as share premium decrease.
14 Income tax expense
(a) Income tax expense
Income taxes for the years ended 31 December are as follows:
|
| Consolidated | Consolidated |
|
| 2009 | 2008 |
|
|
|
|
| (in thousands of USD) |
|
|
|
|
|
|
| Current tax expense | (30) | (59) |
| Deferred tax benefit (expense) | (242) | 14,612 |
|
|
|
|
| Total benefit (expense) | (272) | 14,553 |
|
|
|
|
The applicable tax rate is 25% for Ukrainian companies and 10% for Cyprus companies.
(b) Reconciliation of effective tax rate
The difference between the total expected income tax (benefit) expense for the years ended 31 December computed by applying the Ukrainian statutory income tax rate to (loss) profit before tax and the reported tax (benefit) expense is as follows:
|
| 2009 | % | 2008 | % |
| (in thousands of USD) |
|
|
|
|
|
|
|
|
|
|
| Loss before tax | (8,692) | 100 | (62,039) | 100 |
|
|
|
|
|
|
| Computed expected income tax expense at statutory rate | (2,173) | 25 | (15,510) | 25 |
| Effect of lower tax rates | (15) | - | (2,835) | 5 |
| Non-taxable income (income earned by holding companies) | (12) | - | (840) | 1 |
| Change in unrecognized temporary differences | (775) | 9 | 1,233 | (2) |
| Non-deductible expenses | 3,247 | (37) | 3,399 | (5) |
|
|
|
|
|
|
| Effective income tax (benefit) expense | 272 | (3) | (14,553) | 24 |
|
|
|
|
|
|
(c) Recognized deferred tax assets and liabilities
The movement in deferred tax liabilities for the year ended 31 December 2009 is as follows:
|
| 1 January 2009 liability | Recognized in income | Acquisition of Novyy Region | Decrease in share in joint venture and disposal of subsidiary | 31 December 2009 Liability |
| (in thousands of USD) |
|
|
|
|
|
|
|
|
|
|
|
|
| Investment property | (15,929) | (242) | (1,497) | 2,836 | (14,832) |
|
|
|
|
|
|
|
| Tax liabilities | (15,929) | (242) | (1,497) | 2,836 | (14,832) |
|
|
|
|
|
|
|
The movement in deferred tax liabilities for the year ended 31 December 2008 is as follows:
|
| 1 January 2008 liability | Recognized in income | Recognised in business combinations | 31 December 2008 liability |
| (in thousands of USD) |
|
|
|
|
|
|
|
|
|
|
| Investment property | (25,051) | 14,612 | (5,490) | (15,929) |
|
|
|
|
|
|
| Tax liabilities | (25,051) | 14,612 | (5,490) | (15,929) |
|
|
|
|
|
|
(d) Unrecognized deferred tax assets
Deferred tax assets as at 31 December have not been recognised in respect of the following items:
|
| Consolidated | Parent Company | Consolidated | Parent Company |
|
| 2009 | 2009 | 2008 | 2008 |
| (in thousands of USD) |
|
|
|
|
|
|
|
|
|
|
| Tax loss carry-forwards | 811 | - | 1,586 | - |
|
|
|
|
|
|
|
| 811 | - | 1,586 | - |
|
|
|
|
|
|
In accordance with existing Ukrainian legislation tax losses can be carried forward and utilised indefinitely. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom.
15 Trade and other payables
Trade and other payables as at 31 December are as follows:
|
| Consolidated | Consolidated |
|
| 2009 | 2008 |
| (in thousands of USD) |
|
|
|
|
|
|
| Management and performance fees | 2,255 | 1,841 |
| Other payables and accrued expenses | 282 | 894 |
|
|
|
|
| Total current liabilities | 2,537 | 2,735 |
|
|
|
|
16 Management and performance fees
Management and performance fees for the years ended 31 December are as follows:
|
| Consolidated | Consolidated |
|
| 2009 | 2008 |
| (in thousands of USD) |
|
|
|
|
|
|
| Management fee | 4,485 | 4,769 |
|
|
|
|
| Total | 4,485 | 4,769 |
|
|
|
|
The Parent Company entered into a management agreement dated 16 May 2007 with Dragon Capital Partners Ltd (the Manager) pursuant to which the latter has agreed to provide advisory, management and monitoring services to the Group.
In consideration for its services thereunder, the Manager is entitled to be paid an annual management fee of 1.5% of the gross asset value (GAV) of the Group at the end of the relevant accounting period or part thereof plus value added tax or similar taxes which may be applicable.
GAV is to be calculated on a semi-annual basis and is derived from the consolidated statement of financial position after adding back any dividends declared or paid in relation to such accounting period.
For these purposes GAV is the aggregate of the consolidated non-current and current assets adjusted to reflect the value of investment property and other assets representing interests in property or property related activities valued in accordance with the Group's property valuation policy less consolidated liabilities, excluding bank or third party indebtedness directly related to the relevant real estate.
The Manager is also entitled to receive an annual performance fee calculated by reference to the increase in the net asset value (NAV) per share over the relevant accounting period. For these purposes NAV is the aggregate of the consolidated non-current and current assets adjusted to reflect the value of its properties and other assets representing interests in property or property related activities valued in accordance with the property valuation policy less its consolidated liabilities (including non-controlling interest and payables related to management fees) provided that, in respect of the Group's first accounting reference period, the opening NAV is equal to the net proceeds of the initial sale of shares.
Where the NAV per share at the end of the relevant accounting period exceeds the highest NAV per share at the end of any previous accounting period by 10% or more but not more than 35%, the Manager is entitled to a performance fee in respect of such accounting period of 20% of the amount by which such excess exceeds 10%.
Where the NAV per share at the end of the relevant accounting period exceeds the highest NAV per share at the end of any previous accounting period by 35% or more, the Manager is entitled to an additional performance fee in respect of such accounting period of 25% of the amount by which such excess exceeds 35%.
Payment of 30% of the performance fee will be paid within 10 business days following the publication of the audited financial results for the relevant accounting period. The remaining balance will be satisfied by the issue of ordinary shares at a price equal to the average middle market closing price of ordinary shares over the last 20 business days in the accounting period in relation to which the performance fee is being paid.
The total management fee for the year ended 31 December 2009 is USD 4,485 thousand (2008: USD 4,769 thousand). No performance fee is applicable based on the results of 2009.
17 Share based payments
On 16 May 2007 the Parent Company granted share options, conditional on the public issuance of shares, to subscribe for up to 100,000 ordinary shares to Mr. Van der Heijden, a director of the Parent Company.
On 16 May 2007 the Parent Company entered into the Dragon Capital Partners Warrant Instrument and the Zimmerman Adams International Ltd (ZAI) Warrant Instrument. These warrants entitle Dragon Capital Partners and ZAI to subscribe for such number of ordinary shares as is equal to 5% and 1%, respectively, of publicly issued shares from 1 June 2007 and terminating five years thereafter. The warrants are exercisable at the market price of the shares at the date of grant.
The terms and conditions of the options and warrants granted are as follows:
|
| Options granted to Mr. Van der Heijden | Warrants granted to Dragon Capital Partners
| Warrants granted to ZAI | Total | |
|
|
|
|
|
| |
| Date granted | 16 May 2007 | 16 May 2007 | 29 November 2007 | 16 May 2007 |
|
| Number of instruments | 100,000 | 5,200,000 | 1,831,505 | 1,040,000 | 8,171,505 |
| Vesting period | 1-5 years | Immediately | Immediately | Immediately |
|
| Expiry date | 16 May 2008 - 16 May 2012 | 16 May 2012 | 29 November 2012 | 16 May 2012 |
|
| Exercise price | 2.00USD | 2.00USD | 1.30GBP | 2.00USD |
|
| Share based compensation (USD thousand) during 2008 | 19 | - | - | - | 19 |
| Share based compensation (USD thousand) during 2009 | 15 | - | - | - | 15 |
Options granted to Mr. Van der Heijden will vest as follows:
- 10,000 options on 16 May 2008
- 15,000 options on 16 May 2009
- 20,000 options on 16 May 2010
- 25,000 options on 16 May 2011
- 30,000 options on 16 May 2012
These options are exercisable by Mr. Van der Heijden only while he remains a director and will lapse on the termination of his appointment.
There were no forfeited or exercised options during the years ended 31 December 2009 and 31 December 2008.
The fair value of services received in return for share options and warrants granted is based on the fair value of share options and warrants granted, measured using the Black-Scholes formula, using the following assumptions:
|
| Key management personnel | Dragon Capital Partners Ltd | Zimmerman Adams International Ltd | |
| Initial share issue | Secondary share issue | |||
| (in USD, except for number of shares and percent) |
|
|
|
|
|
|
|
|
|
|
| Fair value at grant date | 0.82 | 0.82 | 0.82 | 0.82 |
|
|
|
|
|
|
| Share price | 2.00 | 2.00 | 2.73 | 2.00 |
| Exercise price | 2.00 | 2.00 | 2.73 | 2.00 |
| Expected volatility, percent | 33.80 | 33.80 | 33.80 | 33.80 |
| Option life, years | 1 - 5 | 5 | 5 | 5 |
| Expected dividends, percent | 0.00 | 0.00 | 0.00 | 0.00 |
| Risk free interest rate, percent | 6.39 | 6.39 | 6.39 | 6.39 |
|
|
|
|
|
|
Expected volatility is estimated by considering the data of peer companies listed on AIM.
Share based payments recognized for the years ended 31 December is as follows:
|
| 2009 | 2008 |
| (in thousands of USD) |
|
|
|
|
|
|
| Share options granted in 2007: |
|
|
| Share options (compensation expenses) | 15 | 19 |
|
|
|
|
| Total share based payments | 15 | 19 |
|
|
|
|
The number and weighted average fair value and exercise price of share options and warrants is as follows:
|
| Weighted average fair value | Weighted average exercise price | Number of options and warrants |
| (in USD, except for number of shares) |
|
|
|
|
|
|
|
|
| Outstanding at 31 December 2007 | 0.88 | 2.16 | 8,171,505 |
| Exercisable at 31 December 2007 | 0.88 | 2.17 | 8,071,505 |
| Exercisable at 31 December 2008 | 0.83 | 2.16 | 8,081,505 |
| Exercisable at 31 December 2009 | 0.88 | 2.01 | 8,096,505 |
|
|
|
|
|
|
|
|
|
|
18 Administrative expenses
Administrative expenses for the years ended 31 December are as follows:
|
| Consolidated | Consolidated |
|
| 2009 | 2008 |
|
|
|
|
| (in thousands of USD) |
|
|
|
|
|
|
| Professional services | 495 | 799 |
| Advertising | 283 | 72 |
| Other | 265 | 349 |
| Wages and salaries | 206 | 327 |
| Directors' fees | 125 | 125 |
| Audit fees | 115 | 112 |
| Bank charges | 42 | 18 |
| Insurance | 37 | 117 |
| Share based compensation | 15 | 19 |
| Travel expenses | 6 | 97 |
|
|
|
|
| Total administrative expenses | 1,589 | 2,035 |
|
|
|
|
19 Net financial income
Net financial income for the year ended 31 December is as follows:
|
| Consolidated | Consolidated |
|
| 2009 | 2008 |
|
|
|
|
| (in thousands of USD) |
|
|
|
|
|
|
| Interest income on inter-Group loans | - | - |
| Interest income | 792 | 10,870 |
| Currency exchange losses | 95 | (284) |
|
|
|
|
| Net financial income | 887 | 10,586 |
|
|
|
|
20 Contingencies
(a) Litigation
As at 31 December 2009 the land plot leased by Hindale Ltd. relating to project Avenue Shopping Mall on Komarova Avenue, Kyiv, is not cleared of garages and there are a number of litigations relating to this project in which Hindale Ltd. is involved. These litigations and difficulties in obtaining relevant permits may delay the construction works on the land plot. Additionally, taking into account the short term period of the lease of the land plot at which Hindale Ltd. is planning to construct the real estate, Hindale Ltd. may not be able to prolong the lease term at the expiry date of the land lease agreement should the construction works not start before 2012. The Group has won all law suits to date and the management is confident that the Group will prevail in ongoing law suits, obtain all relevant permits and the construction works will start as planned and that the lease term will be extended if needed without additional material costs and delays. The Group's effective ownership in the Avenue Shopping Mall project amounts to USD 3,970 thousand.
(b) Taxation contingencies
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 characterized 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 the Ministry of Finance 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, official pronouncements and court decisions. However, the interpretations of the relevant authorities could differ and the effect on consolidated 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 financial statements.
(c) Insurance
The Group does not have full coverage for its property, business interruption, or third party liability in respect of property or environmental damage arising from accidents on Group property or relating to Group operations. Until the Group obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Group's operations and financial position.
(d) Capital expenditure and other commitments
As at 31 December 2009 outstanding commitments to finance construction of investment properties and other commitments amount to USD 22,586 thousand (2008: USD 34,484 thousand).
21 Earnings per share
Basic earnings per share
The calculation of basic earnings per share is based upon the loss for the year ended 31 December 2009 attributable to the ordinary shareholders of USD 8,964 thousand (2008: USD 47,486 thousand) and a weighted average number of ordinary shares outstanding calculated as follows:
|
| 2009 | 2008 |
| (in number of shares weighted on the period outstanding) |
|
|
|
|
|
|
| Shares issued on incorporation on 23 February 2007 | 2 | 2 |
| Sub-division of GBP 1 shares into GBP 0.01 shares on 16 May 2007 | 198 | 198 |
| Shares issued on 1 June 2007 | 104,000,000 | 104,000,000 |
| Shares issued on 29 November 2007 | 36,630,100 | 36,630,100 |
| Shares issued on 24 April 2008 | 1,698,416 | 1,693,776 |
| Own shares buyback announced in 2008 and acquired in 2008 and 2009 | (8,943,000) | (1,289,612) |
| Own shares buyback in 2009 | (8,869,529) | - |
|
|
|
|
| Weighted average number of shares for the period | 124,516,187 | 141,034,464 |
|
|
|
|
Diluted earnings per share
The calculation of diluted earnings per share is based on the loss for the year ended 31 December 2009 attributable to ordinary shareholders of USD 8,964 thousand (2008: USD 47,486 thousand) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares calculated as follows:
|
| 31 December 2009 | 31 December 2008 |
|
|
|
|
| (in number of shares) |
|
|
|
|
|
|
| Weighted average number of shares for the year ended 31 December | 124,516,187 | 141,034,464 |
|
|
|
|
| Weighted average number of shares for the period (fully diluted) | 124,516,187 | 141,034,464 |
|
|
|
|
Because during the year ended 31 December 2009 and 2008 the average market price of ordinary shares was below the exercise price of the share options and warrants these options and warrants have no dilutive effect.
22 Financial risk management
Exposure to credit, interest rate and currency risk arises in the normal course of the Group's business. The Group does not hedge its exposure to such risk.
(a) Risk management policy
The Board has assessed major risks and grouped them in a register of significant risks. This register is reviewed by the Board at least twice per year or more often if there are circumstances requiring such a review.
(b) Credit risk
When the Group enters into an arrangement exposing it to credit risk, it does so only on basis of due diligence research and the reputation of the counterparty. As at 31 December 2009 the largest exposures relate to prepayments made under three land acquisition contracts totaling USD 121,487 thousand (31 December 2008: USD 122,440 thousand). This latter risk is mitigated by pledge agreements for corporate rights of the pledgor in the entities that own the land to be acquired.
(c) Interest rate risk
Changes in interest rates impact primarily cash and cash equivalents by changing either their fair value (fixed rate deposits) or their future cash flows (variable rate deposits). Management does not have a formal policy of determining how much of the Group's exposure should be to fixed or variable rates. However, at the time of placing new deposits Management uses its judgment to decide whether it believes that a fixed or variable rate would be more favorable over the expected period until maturity.
As at 31 December 2009 and 2008 all cash and cash equivalent have fixed interest rates. The Group does not account for the fixed rate financial assets at fair value through profit or loss. Therefore a change in interest rates as at 31 December 2009 would not affect profit or loss.
A change of 100 basis points in interest rates would have increased or decreased equity by USD 854 thousand (2008: USD 801 thousand).
(d) Foreign currency risk
The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currencies of the respective Group entities. The currencies giving rise to this risk are primarily UAH and EUR. The exposure to foreign currency risk as at 31 December is as follows based on notional amounts:
|
| 2009 |
| 2008 |
| ||
| (in thousands of USD) | EUR | GBP | UAH | EUR | GBP | UAH |
|
|
|
|
|
|
|
|
| Current assets |
|
|
|
|
|
|
| Cash and cash equivalent | 86 | 1 | 35 | 44 | 168 | 80 |
| Trade and other receivables | - | - | 408 | - | - | 648 |
| Current liabilities |
|
|
|
|
|
|
| Trade and other payables | (29) | (9) | (8) | (27) | (359) | (61) |
|
|
|
|
|
|
|
|
| Net long (short) position | 57 | (8) | 435 | 17 | (191) | 667 |
|
|
|
|
|
|
|
|
The foreign exchange rates of the USD at 31 December are as follows:
| Currency | 2009 | 2008 |
| EUR | 1.4338 | 1,4098 |
| GBP | 1.5861 | 1,4471 |
| UAH | 0.1252 | 0,1299 |
As at 31 December 2009 a 10 percent weakening of the US dollar against the UAH would have decreased post-tax profit and equity by USD 33 thousand (2008: USD 50 thousand).
As at 31 December 2009 a 10 percent weakening of the US dollar against the GBP would have increased post-tax profit and equity by USD 1 thousand (2008: USD 14 thousand).
As at 31 December 2009 a 10 percent weakening of the US dollar against the EUR would have decreased post-tax profit and equity by USD 5 thousand (2008: USD 1 thousand).
This analysis assumes that all other variables, in particular interest rates, remain constant.
(e) Fair values
Except for long term loan, the fair values of all assets and liabilities are assumed to equal their carrying values due to their short-term nature and market interest rates at period end. As at 31 December 2009 the fair value of long term loan is USD 2,092 thousand (2008: USD 621 thousand).
(f) Capital management
The Group has no formal policy for capital management but management seeks to maintain a sufficient capital base for meeting the Group's operational and strategic needs, and to maintain confidence of market participants. This is achieved with efficient cash management, constant monitoring of the Group's investment projects. With these measures the Group aims for steady profits growth.
From time to time the Group purchases its own shares on the market; the timing of these purchases depends on market prices. Buy and sell decisions are made on a specific transaction basis by the Board; the Group does not have a defined share buy-back plan.
There were no changes in the Group's approach to capital management during the year.
Neither the Parent Company nor any of its subsidiaries are subject to externally imposed capital requirements.
23 Related party transactions
(a) Transactions with management and close family members
(i) Key management remuneration
Key management compensation included in the statement of comprehensive income for the year ended 31 December is as follows:
|
| 2009 | 2008 |
| (in thousands of USD) |
|
|
|
|
|
|
| Directors' fees | 125 | 125 |
| Share based payment expense (options granted) | 15 | 19 |
|
|
|
|
| Total management remuneration | 140 | 144 |
|
|
|
|
(ii) Key management personnel and director transactions
The Directors own shares in the Parent Company as at 31 December as follows:
|
| 2009 | 2008 | ||
|
| Number of shares | Ownership, % | Number of shares | Ownership, % |
|
|
|
|
|
|
| Aloysius Johannes Van der Heijden | 200,000 | 0.17 | 200,000 | 0.15 |
| Tomas Fiala | 6,831,500 | 5.80 | 6,831,500 | 5.12 |
|
|
|
|
|
|
|
| 7,031,500 | 5.97 | 7,031,500 | 5.27 |
|
|
|
|
|
|
Boris Erenburg, one of the Group's directors, is also an executive of Spinnaker Capital Group, which acquired 14,874,400 shares (12.64%) of the Group during the first and second share issues.
Mr. Rafaël Biosse Duplan, one of the Group's directors, is a partner at emerging markets investment specialist, Finisterre Capital LLP, which is authorised and regulated by the Financial Services Authority. Finisterre Capital LLP is involved in managing total return funds, including Finisterre Recovery Fund 1 which currently owns 9,900,000 shares and Finisterre Global Opportunity Master Fund which currently owns 4,369,299 shares of Dragon - Ukrainian Properties and Development Plc.
Tomas Fiala, one of the Group's directors, is the principal shareholder and managing director of Dragon Capital Group, which acquired 6,831,500 shares (5.80%) of the Group during the first and second share issues. Also Tomas Fiala is a director in Dragon Capital Partners which has received 1,698,416 ordinary shares at a price of USD 2.60 per ordinary share to settle 70 % of the Manager's performance fee for 2007 in the amount of USD 4,432 thousand.
(b) Transactions with other related parties
Expenses incurred and outstanding balances of transactions for the years ended 31 December are as follows:
|
| 2009 | 2008 | ||
|
| Transactions | Balance outstanding | Transactions | Balance outstanding |
| (in thousands of USD) |
|
|
|
|
|
|
|
|
|
|
| Disposal of subsidiary | 1,620 | 1,620 | - | - |
| Management fee for project management to be paid to Dragon Development | 210 | 36 | - | - |
| Loan issued to Tradecom Inco | 420 | 420 | - | - |
| Expenses to be reimbursed to Manager | - | - | 164 | 164 |
|
|
|
|
|
|
|
| 2,250 | 2,076 | 164 | 164 |
|
|
|
|
|
|
All outstanding balances are to be settled in cash. None of the balances are secured.
24 Events subsequent to the balance sheet date
On 12 March 2010 the Board approved changes to the Management Agreement between the Manager (Dragon Capital Partners Ltd.) and the Group (for the terms of the agreement effective as at 31 December 2009, please refer note 16). Those changes foresee a split of the performance fee into two parts. One is based on NAV growth, and the second on share price growth. Therefore, if prior to this change the Manager was entitled to an annual performance fee of 20% of the amount by which such excess exceeds 10%, after the above mentioned changes the Manager is entitled to 10% of the amount by which such excess exceeds 10%. Another 10% will be calculated based on the amount by which share price growth would exceed 10% from the base share price set at GBP1.08 per share.
The next level of performance fee that is based on the growth of net asset value by more than 35% was cancelled.
Additionally, the part of the performance fee payable in shares (70%) is now allocated based on the relationship NAV/share and not on the actual share price as before.