DUPD.L Regulatory News (DUPD)

9 June 2014

Dragon-Ukrainian Properties & Development plc

("DUPD" or the "Company")

Results for the year ended 31 December 2014

Dragon-Ukrainian Properties & Development plc, a leading investor in the real estate sector in Ukraine, is pleased to announce its final results for the year ended 31 December 2014.

Highlights

Operational Highlights

· The most challenging year for Ukraine since gaining independence in 1991. DUPD's assets are not directly affected by the arms conflict in the East of Ukraine

· The Company generated a record USD 20.4 million in contracted sales and USD 17.6 million in cash proceeds in 2014 from residential projects

· Almost all funds from the sale of the Henryland project were received in 2014 and the Company made its first ever distribution to shareholders

· In the Obolon Residences project, the right to develop the second stage is sold for USD 5 million in cash

· In Arricano, a positive ruling was obtained from the London Court of International Arbitration. Arricano Group opened new shopping mall Prospekt in Kyiv and the second stage of South Gallery in Simferopol

Financial Highlights

· Total NAV of USD 92.4 million at 31 December 2014 (down from USD 168.5 million as of 30 December 2013)

· Cash balance of USD 16.5 million (compared to USD 22.1 million as of 31 December 2013)

· Net loss from operating activities USD 70.2 million, mostly driven by fair value loss on company projects due to lower prices on comparable properties in the market, longer sales periods and higher discount rates used in valuations (31 December 2013 loss from operating activities USD 29.5 million)

Mark Iwashko, non-executive Chairman of the Company, commented:

DUPD's principal objective remains the orderly realization of the Company's properties and return of surplus cash to its shareholders. It is clear that under the current economic and political conditions in Ukraine this will not be an easy objective to achieve in the near term. We do not foresee a quick recovery for the real estate market in Ukraine that will allow rapid monetization of DUPD's portfolio of properties.

While it is difficult to foresee a clear and final resolution to the conflict in eastern Ukraine in the near future, we are hopeful that the continued attention and diplomatic efforts of world leaders leads to its stabilization in 2015. In the meantime, we are cautiously optimistic that support from the IMF and other donors and the economic reforms that are currently underway in Ukraine lead to macroeconomic stabilization in the near term and a return to GDP growth as early as 2016.

For further information, please contact:

Chairman's Statement

2014 was probably the most challenging year for Ukraine since gaining independence in 1991. The Euromaidan movement that began as a peaceful protest in November 2013 when then-President Victor Yanukovych chose not to sign a political association and free trade agreement with the European Union turned violent in early 2014 and culminated in the ousting of the Yanukovych regime in February. In the aftermath, Russia annexed the internationally recognized Ukrainian territory of Crimea while pro-Russian unrest in some of Ukraine's south-eastern regions ultimately led to armed conflict between the Ukrainian government and Russia-backed separatists in the industrial region of Donbas. By the time Ukrainians rallied to elect a western leaning and pro-business President, Petro Poroshenko, and the newly elected Parliament installed a technocrat dominated, reform minded government a full blown economic crises was underway.

As a consequence of the events, GDP decreased by 6.8% and the currency devalued by 48% relative to the US dollar; FDI evaporated and capital controls were put into place to stem capital flight; a banking crises arose as loan losses increased and depositors left the system; inflation accelerated while household disposable income fell; and Ukraine found itself in a deep recession by the end of the year.

Fortunately, most of DUPD's assets (other than one of Arricano's shopping malls that are located in Simferopol) were not directly affected by the events in Crimea or Donbas. However, neither Ukraine's real estate industry nor DUPD's operations were immune to the deep economic crises that took hold in 2014.

Accordingly, the weakening of Ukraine's real estate market has been reflected in DUPD's financial statements via significant decreases in the valuations of our properties. It is therefore all the more remarkable to note and important to emphasize that despite the challenges of the previous year the Company was still able to deliver record cash flows with its four residential projects generating USD 20.4 million in contracted sales and USD 17.6 million in cash proceeds in 2014.

Following the sale of the assets of Henryland to a local strategic buyer for the total consideration of USD 23.7 million (DUPD's share of proceeds was USD 9 million) the Company distributed its first ever dividend in the amount of USD 6 million (USD 0.055 per ordinary share). At the same time, DUPD sold the rights to develop the second phase of the Obolon project to a third party for USD 5 million, to be paid in four quarterly instalments throughout 2015. The landmark agreement has the dual benefit of eliminating the need for DUPD to invest its own funds to monetize the value of the second phase of the project while setting the stage to accumulate cash in the coming year that can be used to make additional distributions to its shareholders.

In other important developments Arricano, one of DUPD's most significant investments (18.6% of the total investments as of 31 December 2014), obtained a positive ruling from the London Court of International Arbitration on the developer's longstanding dispute with Stockman Interhold confirming Arricano's right to buy out Stockman's 50%+1 share in the Kyiv-based SkyMall shopping centre. While other disputes including, but not limited to, Arricano's claim on recovery of incurred losses remain unresolved we anticipate a comprehensive resolution of the conflict by the end of 2015. In the meantime, Arricano Group opened new shopping mall Prospekt in Kyiv and the second stage of South Gallery in Simferopol in 2014 and owned six operating shopping malls with the total GLA of above 200 thousand sq. meters as of the end of the year.

Financial Results

DUPD incurred a USD 70 million loss from operating activities in 2014, USD 66.8 million of which was attributable to the decrease in fair value of Company's projects. The decrease in fair value, in turn, was driven by the lengthening of expected realization periods and increases in the discount rates applied by the appraiser for projects under development and a substantial decrease in comparable prices for the Company's land bank as demand for land for development purposes weakened during course of the year. As a result, the Company's Net Asset Value decreased by USD 76.2 million to US 92.4 million in 2014 in line with the decrease in fair value of company's projects.

While the negative financial results reflect Ukraine's deteriorating macroeconomic conditions and difficult state of Ukraine's finances in 2014, we can similarly expect fair values to rebound once the Ukrainian Government's program of economic reforms take hold and the economy begins to grow again in the coming years.

In the meantime, DUPD's balance sheet remains healthy with a cash balance of USD 16.6 million and no debt at either the holding company level or at any of the projects as of the end of 2014. This will enable the Company to allocate sufficient cash generated from the sale of any properties in 2015 to prudently protect or enhance the value of the most promising projects already under development while promptly distributing further dividends to shareholders in line with our revised investing policy.

Corporate Governance

I joined the Board on 26 November 2014 and took over the role of Non-Executive Chairman on 30 November 2014 after DUPD's decision to reduce the size of the Board and the voluntary resignations of two of its members. On behalf of the Company I would like to take the opportunity to thank Mr. Rory Macnamara for his stewardship over the course of the last year and Mr. Fredrik Svinhufvud for his longstanding service to the Company. Mr. Tomas Fiala and Mr. Aloysius Wilhelmus Johannes van der Heijden, who continues to chair the Audit Committee, remain on the Board maintaining its continuity.

The smaller Board and lower level of its remuneration reflects DUPD's commitment to the tight control of administrative costs at all levels of the Company. At the same time, the weight of the Investment Manager's remuneration continues to shift increasingly to the Performance Fee with the Fixed Management Fee component gradually declining.

Awards

We are pleased to announce that high quality of our projects continued to be recognized by independent third parties both locally and internationally. European Property Awards named Obolon Residences the winner of the "High-Rise Apartment Building" category and Riviera Villas the winner of the "Residential Development Multiple Units" category in 2014 while Green Hills was named "Best Cottage Community" in 2014 by iBuild Ukraine.

Outlook

DUPD's principal objective remains the orderly realization of the Company's properties and return of surplus cash to its shareholders. It is clear that under the current economic and political conditions in Ukraine this will not be an easy objective to achieve in the near term. We do not foresee a quick recovery for the real estate market in Ukraine that will allow rapid monetization of DUPD's portfolio of properties.

As such, the Board will continue to prudently evaluate modest investments to protect or enhance the value and saleability of the Company's most promising projects that are already under development while aggressively seizing opportunities to realise sales as they become economically justified and feasible in the current market environment.

We expect to benefit from lower hard cost of construction in USD terms for projects already under development as a result of the significant devaluation of the Ukrainian hryvnia, partially compensating for lower USD sales prices due to the significant softening of demand. However, we expect sales volumes to continue to be modest until economic growth returns to Ukraine.

We expect 2015 to be an especially challenging year at Arricano as deceased rental rates due to the devaluation of the Ukrainian hryvnia will make it more difficult to service the developer's USD denominated debt. At the same time, we hope to see continued progress in the on-going legal dispute with Stockman and Arricano eventually regaining control over its key asset Sky Mall in Kyiv.

While it is difficult to foresee a clear and final resolution to the conflict in eastern Ukraine in the near future, we are hopeful that the continued attention and diplomatic efforts of world leaders leads to its stabilization in 2015. In the meantime, we are cautiously optimistic that support from the IMF and other donors and the economic reforms that are currently underway in Ukraine lead to macroeconomic stabilization in the near term and a return to GDP growth as early as 2016.

Mark Iwashko

Non-executive Chairman

08 June 2015

Investment Manager's Report

As detailed in our previous annual report, in early 2014 DUPD shareholders approved an investing policy focused on developing and monetizing the existing portfolio of assets rather than making new investments. Operating in the framework of this new policy, we managed to achieve some of the best results in terms of residential sales in 2014, despite the negative impact of the military conflict in the eastern regions of Ukraine on the domestic economy and business and consumer confidence.

Summing up the results of 2014, our four residential projects boast a DUPD record of USD 20.4 million in contracted sales and USD 17.6 million in cash proceeds. The bulk of contracted sales, USD 15.6 million or 76% of the total amount, was generated by Obolon Residences, our leading premium-class apartment complex. In 2014, residential property prices in Ukraine fell by a third on average in U.S. dollar terms, with Kyiv registering the sharpest price drop of 37%. Nevertheless, Obolon Residences achieved a 68% average price increase in UAH terms for sales contracted in 2014 with USD prices decreasing by 13%, which attests to the strong domestic demand for quality residential properties. Despite a market-wide downturn continuing throughout 2014, the second half of 2014 generated 75% of the full-year contracted sales for Obolon Residences. As of the end of 2014, 111 out of 160 apartments in Phase I (70%) were contractually sold, manifesting the project's rapid construction pace and superior value-for-money ratio.

The year 2014 marked a turnaround for our townhouse community Sadok Vyshnevy, which was acquired as a completed development. With a well-balanced pricing policy and effective sales and marketing campaign, total contracted sales amounted to USD 2.2 million based on 13 deals, averaging USD 675 per sq. m or 31% above the asset's fair value at 31 December 2014 (USD 516).

Despite the declining demand for single-family homes, our other suburban gated community, Green Hills, remained one of the most successful projects in its market segment with one of the best value-for-money offerings ratios. In 2014, contracted sales based on 6 deals increased by over 50% year-over-year, to USD 2.0 million from USD 1.3 million in 2013, with the combined area of land plots sold to date reaching 40,533 sq. m (17% of total 235,122 sq. m, net of roads and technical premises). We are currently in the process of building a private school at Green Hills and plan to launch it just in time for the 2015/2016 academic year.

For Riviera Villas, the luxury suburban project, the downward trend of 2013 continued into 2014, with one contracted sale for USD 0.6 million completed. The weak demand in this market segment can be explained by a high degree of economic uncertainty, resulting in declining consumption of upscale properties.

Henryland, in which DUPD holds a 38% interest, sold all its property assets to a local private investor in Q3 2013 for USD 23.7 million, entitling DUPD to a dividend of around USD 9 million. The latest dividend tranche of USD 3.1 million was paid in January 2015, bringing the total dividends received by DUPD to USD 8.4 million. The remaining USD 600,000 is expected to be paid in late 2015.

Our portfolio investment, Arricano Real Estate plc, in which DUPD holds a 12.51% stake, obtained a positive ruling from the London Court of International Arbitration with respect to its dispute with third-party investor Stockman Interhold over the SkyMall project call option. On March 31, 2015, a further positive court ruling was secured, confirming that all the required conditions had been met by Arricano to execute the call option in full before 31 December 2010. While certain other disputes remain in progress, we hope a positive outcome on this matter to be achieved in the near future.

In December 2014 Arricano announced the signing of a USD 25 million loan agreement with the EBRD. The proceeds will be used mainly to finance the construction payables of Arricano's new shopping and entertainment center in Kyiv, Prospect, and to repay USD 10 million of an outstanding loan attracted from Oshchadbank, Ukraine's state savings bank.

Having launched the Prospect shopping mall and the 2nd stage of South Gallery in 2014, Arricano currently has five operating shopping malls in Ukraine with total GLA in excess of 144,200 sq. m (excluding SkyMall - 67,000 sq. m).

On the land bank project, we are proceeding with the previously adopted gradual re-zoning plan. As of 2014, we split the previously re-zoned 19.9 hectares of land into separate plots for further sale. Moreover, basic infrastructure was constructed.

Overall we are confident that our strategy is well balanced and aimed at achieving goals and targets set out by the Company's new investing policy adopted in early 2014.

08 June 2015

Eugene Baranov Volodymyr Tymochko

Partner Partner

DCM Limited DCM Limited

MARKET OVERVIEW

2014 was one of the most challenging years for Ukraine: annexation of Crimea by Russia, military conflict in Donbas, a deep 6.8% economic GDP drop and 48% devaluation of the national currency against the US Dollar. All these factors strongly influenced the Ukrainian property market.

Construction activity in 2014 dropped by 20.4% y-o-y, driven by non-residential (-33.7% y-o-y) and infrastructure (-20.3% y-o-y) segments. Residential construction slowed down but, for the second consecutive year, remained the only property sector to show positive growth (+3.5% y-o-y in 2014).

Commercial property

Kyiv's retail properties are going through especially difficult times. The 8.6% decline in retail trade turnover and sharp hryvnia devaluation squeezed both the rental income of developers and retailers' margins. Landlords were forced to provide generous rent discounts, in some cases over 50%, in order to retain existing lessees and nevertheless vacancies rose from 3.9% to 7.8%, while prime rental rates fell to USD 50-70/sqm from USD 105/sqm last year.

The office sector in 2014 faced further decline in business activity and saw most of the transactions coming from relocation and extension of existing leases. Amid decreasing demand and vast volumes of delivered supply in 2014 (+149 000 sqm or +9.7%) the vacancy rate increased to 19.8% from 15.1% in 2013 and prime base rental rates dropped by 14% y-o-y to USD 31/sqm/month.

Unfavorable economic conditions were also reflected in the performance of the warehouse property market. About 110 000 sqm of new space (+7.4%) were delivered for the open market, which matched by sluggish demand, led to a considerable increase in the vacancy rate to 7.0% (4.0% in 2013), breaking the opposite 4-year trend, and to a decline of rents to USD 5.5/sqm from USD 6.0/sqm in 2013.

Residential property

Despite the increase in residential construction works and new supply, sales in the sector were significantly lower compared to the previous year reflecting a further decline in household income and rising instability due to unrest in the east of Ukraine. In Kyiv, the number of apartment sales plunged by 56% y-o-y from 30.6k to 13.4k. The drop was mainly driven by the secondary market (-65% y-o-y), where sellers were not as flexible as developers on the primary market (-46% y-o-y). Apartment prices in USD-terms declined on both primary (-40% y-o-y) and secondary markets (-15% y-o-y). In contrast, prices in local currency in Kyiv increased by 20% on the primary and 70% on the secondary market.

Land

2014 saw no shift on the domestic land market with prices for land plots for individual construction around Kyiv staying largely unchanged. The market activity also remained low due to the absence of mortgage lending, low construction appetite from developers and decreasing households' incomes.

Project Overview

1. Land bank

· First part of land bank (19.9 ha) rezoned.

· The Company is focused on gradually selling the land as it is rezoned and when the land market recovers

2. Obolon Residences

· Business class residential complex with office and retail premises

· Prime location in a prestigious Obolon district in Kyiv

· International standard design

· The winner in the category "high-rise apartment building 2014" by European Property Awards

· Construction of Phase 1 expected to complete in summer of 2015

· DUPD agreed to sell the rights to develop the second phase of the Project. USD 5 million to be paid during 2015 in 4 equal instalments. First instalment of USD 1.25 million received

· 65 per cent of residential space in Phase 1 contracted for sale

· 111 apartments pre-sold, of which 69 were pre sold in 2014

3. Arricano Real Estate plc

· The largest developer of shopping centres in Ukraine

· Listing on the AIM market of the LSE (ARO LN) since September 2013

· DUPD's shareholding is 12.51%

· Portfolio of nine shopping centres of which six are operational and three under various stages of development

· Liquidity squeeze due to heavy devaluation of hryvnia and falling disposable income of population

· Second phase of shopping centre South Gallery (Simferopol) commissioned in February 2014

· New 30,400 sqm shopping mall Prospect, anchored by Auchan, opened in Kyiv in September 2014

4. Riviera Villas

· Elite cottage community near Kyiv

· Unique luxury leisure infrastructure

· Prestigious award from European Property Awards 2013 in London - winner in the category of Development Multiple Units for Ukraine

· Utilities on the site and waterfront infrastructure completed

· 19 households sold, including 1 sale in 2014. First street out of four completed. Stock of 5 homes available for sale

5. Green Hills

· Business class cottage community, 10km from Kyiv

· The first North American style cottage community developed in the country

· All key infrastructure in place

· 43 households sold (6 - in 2014) out of 178

· 35 families living in the community

· Private School under construction

6. Henryland

· All assets of Henryland were sold for a cash consideration of USD 23.7m in 2013

· DUPD's share of consideration is USD 9.0m, out of which the company has received USD 8.4m, including USD 3.1m in January 2015

7. Sadok Vyshnevy

· 38 apartments in a town-house community in Kyiv suburbs

· Utilities on the site

· All homes commissioned, and available for sale

· 14 apartments sold (13 - in 2014)

8. Avenue Shopping Centre

· Land plot for a shopping mall development

· Land plot offered for sale

9. Glangate

· Two land plots for shopping centre development in second-tier regional cities of Kremenchuk and Rivne

· Land plots offered for sale

Directors' Report

The Directors present their annual report and the audited Company financial statements of Dragon-Ukrainian Properties & Development plc (the Company) for the year ended 31 December 2014.

Principal activities

The principal activities of the Company is that of investing in the development of its existing real estate properties in Ukraine. On 17 February 2014 an Extraordinary Meeting of Shareholders approved a new Investing Policy as defined by the AIM Rules for Companies. Under this revised policy the Board will seek to realise the Company's Properties in an orderly manner, such realisations to be effected at such times, on such terms and in such manner as the Board (in its absolute discretion) may determine. The full text of the Investing Policy can be found on the Company's website http://dragon-upd.com/investor-information

The Company was incorporated in the Isle of Man under the provisions of the 1931 to 2004 Companies Acts on the 23rd February 2007 with a company number 119018C. Following the resolution of the Extraordinary Meeting of Shareholders passed on 17 February 2014 the Company was de-registered under the provisions of the 1931 to 2004 Companies Act and has re-registered under the provisions of the 2006 Companies Act on the 27th February 2014 with a company number 010832V. The Company's registered office is 2nd Floor, Belgravia House, 34-44 Circular Road, Douglas, Isle of Man IM1 1AE and its principal place of business is Ukraine.

On 1 June 2007 the Company raised USD 208 million through an Initial Public Offering on the AIM market of the London Stock Exchange. On 29 November 2007 the Company completed a secondary placing on AIM and raised USD 100 million.

Results

The Company made a loss before taxation for the year ended 31 December 2014 of USD 70,173,000 (2013 - restated loss of USD 29,348,000) all of which has been transferred from reserves.

Dividend

On 24 December 2014 the Directors, after having reviewed the updated cash flow projection prepared by the Investment Manager, adopted a resolution for a distribution to the Company's shareholders in the amount of USD 0.055 per share. Having considered a cash distribution of USD 6,014,883.33 or USD 0.055 per share (the Distribution) under section 50 of the Companies Act (2006) and article 128 of the Company's Articles of Association, the Directors satisfied themselves on reasonable grounds, that immediately after the Distribution:

1. the Company would be able to pay its debts as they become due in the normal course of the Company's business; and

2. the value of the Company's assets would exceed the value of its liabilities thus conforming to the requirements of the Companies Act section 50, being the Solvency Test.

The above mentioned cash distribution of USD 6,014,883.33 or USD 0.055 per share was paid as a dividend (2013 - nil).

Directors

The Directors of the Company during the year and to date are:

Aloysius Wilhelmus Johannes van der Heijden

Date of appointment 10 April 2007

Fredrik Svinhufvud

Date of appointment 10 April 2007

Date of resignation 30 November 2014

Tomas Fiala

Date of appointment 26 February 2007

Rory Macnamara

Date of appointment: 6 December 2011

Date of resignation 30 November 2014

Mark Iwashko

Date of appointment: 26 November 2014

Directors' interests

The Directors interests in shares in the Company as at 31 December are as follows:

Mr. Tomas Fiala, one of the Company's directors, is the principal shareholder and managing director of the Dragon Capital Group which acquired 6,831,500 shares (6.25%) of the Company during the first (June 2007) and second (November 2007) share issues. Also Mr. Tomas Fiala was a director of Dragon Capital Partners which received 1,698,416 (1.55%) 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.

DCM Limited, the Company's investment manager is the asset management arm of the Dragon Capital Group.

Through a series of market purchases in 2011 (totalling 1,274,153 ordinary shares) and 2012 (totalling 6,281,158 ordinary shares) the holding of the Dragon Capital Group in the Company increased to 16,085,227 ordinary shares or 14.71% of the Company's issued share capital as at 31 December 2012.

In February 2013 the Dragon Capital Group made additional market purchases of 2,707,087 shares in the Company, which resulted in a total shareholding of 18,792,314 ordinary shares, or 17.18% of the Company's issued share capital, being the current shareholding.

Auditors

The auditors, KPMG Audit LLC, being eligible, have expressed their willingness to continue in office.

By Order of the Board

Mark Iwashko

Non-executive chairman

08 June 2015

Statement of Directors' Responsibilities in Respect of the Directors' Report and the Financial Statements

The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations. In addition, the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards, as adopted by the EU.

The financial statements are required to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with International Financial Reporting Standards as adopted by the EU; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation governing the preparation and dissemination of financial statements may differ from one jurisdiction to another.

Mark Iwashko

Non-Executive Chairman

08 June 2015

Report of the Independent Auditors, KPMG Audit LLC, to the members of Dragon-Ukrainian Properties & Development plc

We have audited the financial statements of Dragon-Ukrainian Properties & Development plc (the "Company") for the year ended 31 December 2014 which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Cash Flows and the Statement of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards, as adopted by the EU.

This report is made solely to the Company's members, as a body. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditor

As explained more fully in the Directors' Responsibilities Statement, the Directors are responsible for the preparation of financial statements that give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual financial statements to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on the financial statements

In our opinion the financial statements:

· give a true and fair view of the state of the Company's affairs as at 31 December 2014 and of its loss for the year then ended; and

· have been properly prepared in accordance with International Financial Reporting Standards, as adopted by the EU.

Emphasis of matter

We draw attention to Note 1(b) to the Company's financial statements, which describes the political and social unrest and regional tensions that started in November 2013 and escalated in 2014 and 2015 in Ukraine. The events referred to in Note 1(b) have adversely affected and could continue to adversely affect the Company's results and financial position in a manner not currently determinable.

We also draw attention to Note 2(d) to these financial statements, which refers to significant areas of estimation uncertainty and critical judgments in applying accounting policies. Actual results could differ from the estimates made and there could be significant adjustment in the next financial year.

Further, during the year the Company changed its accounting policy for investment entity accounting and made adjustments to the figures that were included in the financial statements of the Company as at and for the year ended 31 December 2013. The reason for and the effects of these changes and adjustments are described in Note 4 to the financial statements. We have audited the adjustments described in Note 4 that were applied to restate the 2013 financial statements and the statement of financial position as at 1 January 2013.

Our opinion is not qualified in respect of these matters.

KPMG Audit LLC

Chartered Accountants

Heritage Court

41 Athol Street

Douglas

Isle of Man IM99 1HN

These financial statements were approved by the board of Directors (the Board) on 08 June 2015 and were signed on its behalf by:

Chairman of the Board Mark Iwashko

Non-executive director Aloysius Wilhelmus Johannes van der Heijden

The Directors believe that all results are derived from continuing activities.

1. Background

(a) Organisation and operations

Dragon - Ukrainian Properties & Development plc (the Company) was incorporated in the Isle of Man on 23 February 2007. The Company's registered office is 2nd Floor, Belgravia House, 34-44 Circular Road, Douglas, Isle of Man IM1 1AE and its principal place of business is Ukraine.

On 1 June 2007 the 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 Company completed a secondary placing on AIM and raised USD 100 million.

The main activities of the Company are investing in the development of its existing real estate properties in Ukraine. The Company provides financing to its investees either through equity or debt financing.

(b) Business environment

Ukraine's political and economic situation has deteriorated significantly since the Government's decision not to sign the Association Agreement and the Deep and Comprehensive Free Trade Agreement with the European Union in late November 2013. Political and social unrest combined with rising regional tensions has deepened the ongoing economic crisis and has resulted in a widening of the state budget deficit and a depletion of the National Bank of Ukraine's foreign currency reserves and, as a result, a further downgrading of the Ukrainian sovereign debt credit ratings.

In February 2014, following the devaluation of the national currency, the National Bank of Ukraine introduced certain administrative restrictions on currency conversion transactions and also announced a transition to a floating foreign exchange rate regime. In March 2014 Republic of Crimea was annexed by the Russian Federation. This event resulted in a significant deterioration of the relationship between Ukraine and the Russian Federation. Following the annexation of Crimea, regional tensions have spread to the Eastern regions of Ukraine, primarily to the parts of Donetsk and Lugansk regions. In May 2014 arms supplies and flood of mercenaries from the Russian Federation escalated unrest into military clashes and armed conflict between armed supporters of the self-declared republics of the Donetsk and Lugansk regions and the Ukrainian forces. As at the date these financial statements were authorised for issue, the instability and unrest continue, and part of the Donetsk and Lugansk regions remains under control of the self-proclaimed republics. As a result, Ukrainian authorities are not currently able to fully enforce Ukrainian laws in this territory.

Whilst the Directors believe they are taking appropriate measures to support the sustainability of the Company's business in the current circumstances, a further deterioration in the business environment could negatively affect the Company's results and financial position in a manner not currently determinable. These financial statements reflect management's current assessment of the impact of the Ukrainian business environment on the operations and the financial position of the Company. The future business environment may differ from management's assessment.

2. Basis of preparation

(a) Statement of compliance

These financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

(b) Basis of measurement

The financial statements are prepared under the historical cost basis, except for the following material items:

(c) Functional and presentation currency

These financial statements are presented in thousands of US dollars (USD), which is the Company's functional currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.

(i) Determination of functional currency

Functional currency is the currency of the primary economic environment in which the Company operates. If indicators of the primary economic environment are mixed, then management uses its judgement to determine the functional currency that most faithfully represents the economic effect of the underlying transactions, events and conditions. The majority of the Company's investments and transactions are denominated in US dollars. The expenses (including management and performance fees, administrative expenses) are denominated and paid in US dollars. Accordingly, management has determined that the functional currency of the Company is US dollar. All information presented in US dollars is rounded to the nearest thousand.

(d) Use of judgments, estimates and assumptions

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

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

As stated in note 1(b) to these financial statements, the political and business situation has deteriorated significantly. This is a key factor in the estimation uncertainty and critical judgements associated with applying the accounting policies in these financial statements.

In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements and could lead to significant adjustment in the next financial year are included in the following notes:

• Note 3(a) - Determination of investment entity criteria

• Note 5 - Valuation of financial assets at fair value through profit or loss

Measurement of fair values

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

The Directors are responsible for overseeing all significant fair value measurements, including Level 3 fair values. They review and approve significant unobservable inputs and valuation adjustments before they are included in the Company's financial statements. To assist with the estimation of fair values the Directors, when appropriate, engage registered independent appraiser, having a recognised professional qualification and recent experience in the location and categories of the assets being valued.

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

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

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

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

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

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

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

· Note 5 - financial assets at fair value through profit or loss.

(e) Going concern

These financial statements are prepared on a going concern basis. In the year ended 31 December 2014 the Company incurred a net loss of USD 70,173 thousand (31 December 2013: restated loss of USD 29,348 thousand) and had negative cash flows from operating activities of USD 5,495 thousand (31 December 2013: restated positive cash flows from operating activities USD 6,971 thousand). As at that date the Company's current assets exceeded its current liabilities by USD 17,052 thousand and its Net Asset Value amounted to USD 92,355 thousand.

The Directors believe that the Company's existing cash resources are sufficient to meet the Company's liabilities for the foreseeable future and therefore that the going concern basis for preparing these financial statements is appropriate.

3. Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these ‍financial statements, and have been applied consistently by the Company, except as explained in note 4, which addresses changes in accounting policies.

(a) Investment entity

The Company is an investment entity as defined by IFRS and measures all of its investments at fair value through profit or loss.

In determining whether the Company meets the definition of an investment entity, management considered the following:

• The Company raised funds on AIM (through the first and second issue of shares) only for the purpose of making investments in the development of new properties and the redevelopment of existing properties in Ukraine.

• The Company has a clear exit strategy from its real estate projects (either through sale of the properties, or through sale of shareholding rights in the entities, which own the properties). This is stated in the Company's new investing policy that was voted and approved by the general meeting of shareholders in February 2014. The full text of the current investing policy could be found on the Company's website http://www.dragon-upd.com/investor-information/important-information/business-strategy-and-investing-policy 

• The Company measures and evaluates the performance of substantially all of its investments on a fair value basis.

• The Company's Directors (acting on behalf of the Company) take only strategic decisions and approve overall direction of investing activity in order to maximise the returns to shareholders. At the same time, the Directors chose and appointed DCM Limited as the Company's investment manager (see note 10). DCM Limited's employees perform recurring management operating activities in accordance with the Third Management Agreement and within the strategic decisions of the Directors. There is no separate substantial business activity beyond earning returns from capital appreciation and investment income. The Directors seek to return any surplus funds and net proceeds from property realisation to shareholders when appropriate, in accordance with its investing policy.

Considering the above, the Company's management determined that the Company meets the definition of investment entity in accordance with IFRS 10 Consolidated Financial Statements and, accordingly, the Company has not consolidated its subsidiaries. Before 1 January 2014 the Company's management consolidated all its subsidiaries as there was no provision in IFRS allowing investment companies to measure all of its investments at fair value through profit or loss. The Company now measures its investments in subsidiaries at fair value through profit and loss (note 3(b)). Such approach provides a fair and transparent view on the Company to the Company's shareholders and stakeholders.

The Company also elected to measure its investments in associates and loans receivable from its investees at fair value through profit or loss (notes 3(c) and 3(d)).

All these assets are presented within financial assets at fair value through profit or loss in the Company's statement of financial position.

(b) Subsidiaries

Subsidiaries are investees controlled by the Company. The Company controls an investee when it is exposed to, or has right to, variable returns from its involvement with the company and has the ability to affect those returns through its power over the investee.

Investments in subsidiaries are measured and accounted for at fair value with gain or loss recognised in profit or loss (see note 3(a)).

Unconsolidated subsidiaries and their grouping by investment in respective projects are as follows:

(c) Associates

Associates are those companies in which the Company has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20% and 50% of the voting power of another company. In certain cases when the Company has less than 20% of the voting power of another company, this company is still accounted for as an associate on the basis of significant influence.

Investments in associates are measured and accounted for at fair value with gains or losses recognised in profit or loss (see note 3(a)).

Investments in associates comprise investment in Henryland Group Ltd and investment in Hindale Executive Investments Limited (part of investment in the Avenue Shopping Centre project).

(d) Loans receivable from investees

In addition to equity financing to its investees, as a part of structuring its investments the Company also provides debt financing to its investees. As described in note 3(a), the Company elected to measure loans receivable from its investees at fair value through profit or loss. These investments are presented as "loans and receivables" in accordance with IFRS requirements.

(e) Foreign currency

Transactions in foreign currencies are translated into US dollars 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 denominated in foreign currencies that are measured at fair value are retranslated into US dollar at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on retranslation are recognised in profit or loss, except for those arising on financial instruments at fair value through profit or loss, which are recognised as a component of net gain/(loss) from investments at fair value through profit or loss or net gain/(loss) from loans receivable.

(f) Financial instruments

(i) Non-derivative financial assets

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

The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Company classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, other loans and receivables and available-for-sale financial assets.

A financial asset is classified at fair value through profit or loss -category if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company's documented risk management or investment strategy. Directly attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss.

Financial assets designated at fair value through profit or loss comprise loans receivable from investees at fair value through profit or loss and investments at fair value through profit or loss (see notes 3(b), 3(c) and 3(d)).

Held-to-maturity financial assets

If the Company has the positive intent and ability to hold debt securities to maturity, then such financial assets are classified to held-to-maturity. Held-to-maturity financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses. Any sale or reclassification of a more than insignificant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Company from classifying investment securities as held-to-maturity for the current and the following two financial years.

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

Other loans and receivables comprise the following classes of assets: other accounts receivable as presented in note 6 and cash and cash equivalents as presented in note 7.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances, call deposits and liquid investments with maturities at initial recognition of three months or less.

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

For a reconciliation of line items in the statement of financial position to the categories of financial instruments, as defined by IAS 39, see Note 16(a).

(ii) Non-derivative financial liabilities

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

Other financial liabilities comprise other payables as presented in note 9.

Bank overdrafts that are repayable on demand and form an integral part of the Company's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

(iii) Share capital

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

When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are immediately cancelled and the total number of issued shares reduced by the purchase.

(iv) 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.

(g) Impairment

(i) Non-derivative financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers in the Company, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

The Company considers evidence of impairment for loans and receivables and held-to-maturity investment securities at both a specific asset and collective level. All individually significant loans and receivables and held-to-maturity investment securities are assessed for specific impairment. All individually significant loans and receivables and held-to-maturity investment securities found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and receivables and held-to-maturity investment securities that are not individually significant are collectively assessed for impairment by grouping together loans and receivables and held-to-maturity investment securities with similar risk characteristics.

In assessing collective impairment the Company uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for the Directors' judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss is calculated as the difference between the asset's carrying amount, and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables or held-to-maturity investment securities. Interest on the impaired asset continues to be recognised. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

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

(ii) Non-financial assets

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

An impairment loss is recognised 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 Company that generates cash flows that largely are independent from other assets . Impairment losses are recognised in profit or loss. Impairment losses recognised 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 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 recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(h) Provisions

A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

(i) Finance income and costs

Finance income comprises interest income on financial assets and currency exchange gains. Finance costs comprise interest expense and currency exchange losses.

Interest income and expense, including interest income from non-derivative financial assets at fair value through profit or loss, are recognised in profit or loss, using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts, without consideration of future credit losses, over the expected life of the financial instrument or through to the next market based repricing date to the net carrying amount of the financial instrument on initial recognition.

Interest received or receivable, and interest paid or payable, are recognised in profit or loss as finance income and finance costs, respectively, except for those arising on financial instruments at fair value through profit or loss, which are recognised as a component of net gain/(loss) from investments at fair value through profit or loss or net loss from loans receivable.

(j) Dividend income

Dividend income is recognised in profit or loss on the date on which the right to receive payment is established. For quoted equity securities, this is usually the ex-dividend date. For unquoted equity securities, this is usually the date on which the shareholders approve the payment of a dividend. Dividend income from equity securities designated as at fair value through profit or loss is recognised in profit or loss in separate line item.

(k) Net gain/(loss) from financial assets at fair value through profit or loss

Net gain/(loss) from financial assets at fair value through profit or loss includes all realised and unrealised fair value changes, interest income and foreign exchange differences, but excludes dividend income.

(l) Fees and administrative expenses

Fees and administrative expenses are recognised in profit or loss as the related services are performed or expenses are incurred.

(m) Tax

Under the current tax legislation in the Isle of Man, the applicable tax rate is 0% for the Company.

However, some dividend and interest income received by the Company may be subject to withholding tax imposed in certain countries of origin. Income that is subject to such tax is recognised gross of the taxes and the corresponding withholding tax is recognised as tax expense.

(n) Earnings per share

The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise warrants and share options.

(o) Segment reporting

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company's other components.

The Directors determined that the sole segment in which the Company operates is investing in property development. For operational purposes the Board analyses the Company's activity on the basis of individual projects. Budgeting and comparison of actual versus budgeted results is also done on the basis of individual projects.

(p) 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 2014, and have not been applied in preparing these financial statements. Of these pronouncements, potentially the following will have an impact on the Company's financial statements. The Company plans to adopt these pronouncements when they become effective.

IFRS 9 Financial Instruments, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Company is assessing the potential impact on its financial statements resulting from the application of IFRS 9. The Company does not intend to adopt this standard early.

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28 (2011), in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The amendments will be effective for annual periods beginning on or after 1 January 2016. The amendments are not expected to have a significant effect on the Company's financial statements.

Various improvements to IFRSs have been dealt with on a standard-by-standard basis. All amendments, which result in accounting changes for presentation, recognition or measurement purposes, will come into effect for annual periods beginning after 1 January 2015.

4. Changes in accounting policy and corrections

Except for the changes below, the Company has consistently applied the accounting policies set out in Note 3 to all periods presented in these financial statements.

The Company has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2014.

(a) Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32 Financial Instruments: Presentation).

Amendments to IAS 32 Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities specify that a company currently has a legally enforceable right to set-off if that right is not contingent on a future event; and enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the company and all counterparties. Application of this amendment had no impact on the financial statements.

(b) Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)

The Company has adopted Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (2012) ("Investment Entities" amendments) with a date of initial application of 1 January 2014.

The Directors always treated the Company as an investment entity. The Company published its formal investing strategy adopted by EGM in September 2009 (subsequently modified in February 2014), however, investment entities were not specifically defined in IFRS. With recent changes in IFRS the Company meets the definition of an investment entity (see Note 3(a)). As a result, the Company has changed its accounting policy on accounting for its investments in subsidiaries and associates,to measure them at fair value through profit or loss. Before adoption of "Investment Entities" amendments, the Company consolidated its subsidiaries and associates. As a result of adoption of "Investment Entities" amendments, the Company ceased to prepare consolidated and separate financial statements and now prepares only unconsolidated financial statements in accordance with these amendments.

In accordance with the transitional provisions of the amendments, the Company has applied the new accounting policy retrospectively and restated the comparative information in accordance with IAS 8.

(c) Corrections

In 2014, the Company's management identified and corrected a prior period error related to the understatement of the underlying asset in the Obolon Residences project as at 31 December 2013. No such error was identified as at 1 January 2013.

Summary of quantitative impacts

The table below presents, in respect of the period immediately preceding the date of initial application, the resulting changes for each financial statement line item affected.

Statement of cash flows

5. Financial assets at fair value through profit or loss

The Company has the following financial assets at fair value through profit or loss as at 31 December:

* Linkdell LTD provides financing through issued loans on the following projects:

(a) Investment in Arricano Real Estate plc

The Company acquired a shareholding in Arricano Real Estate plc (Arricano) in 2010. In September 2013 the shares of Arricano were admitted to trading on the AIM market of the London Stock Exchange. Since then the Company has been accounting for its shareholding in Arricano at its market price.

However, taking into account that severely deteriorated macroeconomic conditions (see note 1(b)) significantly decreased revenues generated by commercial properties in Ukraine while Arricano's share price remained largely unchanged, and due to the limited volume of Arricano shares traded during 2014,management changed the valuation methodology to adjusted net assets method to estimate the fair value of the investment in Arricano as at 31 December 2014.Under the new valuation method Arricano's net assets value as at 30 June 2014 (as per Arricano's published interim financial statements as of and for the six-month period ended 30 June 2014) were adjusted by the same proportion as estimated change of fair value of commercial retail real estate property in Ukraine (Arricano's primary assets) for the six-month period ended 31 December 2014, and multiplied by the Company's share in Arricano's net assets as at 31 December 2014. To assist with the estimation of change in fair value of commercial retail real estate property in Ukraine for the six-month period ended 31 December 2014, the Directors engaged independent appraiser DTZ Kiev B.V.

As there is no other publicly available information as at the moment these financial statements were approved, the Company's management considers this to be the most appropriate method to estimate the fair value of the Company's investment in Arricano.

Sensitivity of fair value measurement to changes in unobservable inputs

Although management believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value.

If the estimated decrease in fair value of commercial retail real estate property denominated in US dollars during the six-month period ended 30 June 2014 was 30% less than that used in the valuation model, the fair value of the investment in Arricano as at 31 December 2014 would be USD 2,792 thousand higher. If the estimated decrease in fair value of commercial retail real estate property denominated in US dollars during the six-month period ended 30 June 2014 was 30% higher, then the fair value of the investment in Arricano as at 31 December 2014 would be USD 2,792 thousand lower.

(b) Investment in subsidiaries and associates (investees)

(i) Valuation technique and significant unobservable inputs

For the estimation of fair values of the Company's investments the Company's management used the adjusted net assets method.

Management performed a detailed review of the investees' assets and liabilities for the purpose of their fair value assessment:

· Assets are mainly represented by real estate properties and prepayments for properties (land). The fair value of these properties and prepayments for properties was assessed by the independent appraiser, DTZ Kiev B.V.

· Liabilities are mainly represented by loans payable due to the Company.

· Other assets and liabilities are short-term by nature and their fair value approximates the carrying amount. Thus, no additional adjustment is required.

The investees' net assets are adjusted for the non-controlling interest based on the ownership percentage

Composition of assets and liabilities of respective investment projects is as follows as at 31 December 2014: