DUPD.L Regulatory News (DUPD)

2 May 2013

Dragon-Ukrainian Properties & Development plc

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

Results for the year ended 31 December 2012

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 2012.

Highlights

Operational Highlights

·; Fully invested; focused on existing projects rather than new investments

·; Targeting cash flow generation from development and operating projects

·; DUPD is present in two top-performing market segments in Ukraine that are leading the recovery - retail and residential - and is well positioned to benefit from further improvements in market sentiment

·; Invested in 10 projects; 4 of these are self-funding and cash generating

·; Substantial progress in the development of the Obolon project: in the final stage of formalising a co-investment scheme with an experienced local partner; have already secured pre-sales slightly ahead of expectations; and plan to commence above-ground construction works at full speed in Q2 2013

·; Solid progress on sales of residential properties in Green Hills and Riviera Villas, especially for the latter, where total sales proceeds doubled in 2012 versus 2011

·; Henryland demonstrated strong operational results in 2012 and managed to refinance its property in Kremenchuk by USD 3 million, whilst continuing to distribute dividends to its shareholders

·; Arricano is considering an IPO in 2013, whilst still working on a settlement of the ongoing legal disputes with its local partner in the Sky Mall project

·; In 2012, Arricano successfully opened RayON (Kyiv), its fifth shopping centre, bringing the share of operational GLA to circa 3/4 of its total portfolio. This significantly improved Arricano's NAV and, accordingly, resulted in a 11% higher value of DUPD's stake in the Company.

·; Arricano started construction of the 2nd phase of South Gallery, a shopping centre in Simferopol, which is expected to bring the scheme's NOI up to USD 5.7 million from current USD 1.7 million.

·; Rezoning of a part of the land bank project (19.9ha) was achieved and is to continue during 2013.

Financial Highlights

·; Total NAV of USD198 m at 31 December 2012 (down 6.3% compared to 30 June 2012 of USD 211.4 m)

·; NAV per share of USD 1.81 at 31 December 2012 (down 6.3% compared to 30 June 2012 NAV per share of USD 1.93)

·; Cash balance of USD 21.7 m (30 June 2012: USD 25.3 m)

·; Net loss before tax USD 16.3 m mostly driven by additional impairment on prepayment for land (USD 10.2 m) and write-down of trading property (USD 1.7 m) (30 June 2012 loss USD 2.17 m)

Aloysius Wilhelmus Johannes van der Heijden, non-executive Chairman of the Company commented:

"We are happy to report stronger residential sales, increased NOI at Arricano and continuing dividends from Henryland, as well as substantial progress in the Obolon project, which allows us to start its construction and sales in the current year. With the first part of the land bank rezoned and Arricano aiming for an IPO in 2013, we anticipate to benefit from the starting recovery in the property and financial markets."

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About DUPD

DUPD remains the largest AIM-listed real estate investor operating in Ukraine. The local property market is continuing its slow recovery, but there is still a long way to get back in shape following the abrupt contraction of 2008. The Company is present in two top-performing market segments in Ukraine that are leading the recovery - residential and retail properties - and is well positioned to benefit from further improvement in market sentiment.

2012 for Ukraine was the year of a highly successful EURO 2012 football championship, but also decelerating GDP growth and notorious parliamentary elections. Political matters are likely to continue dominating the country's agenda in 2013, as Ukraine strives to achieve a number of economic and geopolitical goals, such as signing the EU Association Agreement, negotiating a new gas treaty with Russia and resuming IMF financing amidst the EU's pressure on selective justice applied to Ukraine's opposition leaders.

Management of DUPD

DUPD utilises the property investment and development expertise of Dragon Capital Partners Limited ('DCP' or 'Manager') and, where a joint venture arrangement is appropriate, other experienced international and local partners. DCP provides advisory, investment management and monitoring services to DUPD in respect of the acquisition and development of properties in Ukraine. DCP is a 100% subsidiary of Dragon Asset Management, the asset management arm of Dragon Capital, Ukraine's leading investment bank, which offers a full range of services to institutional, corporate and private clients. Established in 2000, Dragon Capital is an independent partnership controlled by management, with a minority stake held by Goldman Sachs. Since 2005, the company has completed more than 100 deals, including IPOs, private placements, M&A transactions and debt financings, raising over USD 3.4 billion for its clients. Dragon's asset management arm has approximately USD 0.5 billion under management.

All investment decisions are authorised by the Board of Directors, which comprises directors with extensive experience in property investment, development and management as well as general investment, company law and administration. At all times, the majority of the seats on the Board are occupied by independent directors.

Our Investment Strategy

Being fully invested, DUPD remains focused on the development and timely delivery of its portfolio projects, which cover the residential, retail and land sectors. DUPD's primary target is to monetise the Company's investments, which were predominantly made prior to the 2008 financial crisis, by bringing our projects to a cash-generating stage and executing orderly divestment, where possible at sensible values.

In the day-to-day management of the projects, including maintenance of existing properties, construction supervision and attracting new financing, the Manager utilises its own proprietary network of local and international contacts, including some world-leading financial institutions which, are also shareholders in the Company.

Chairman's Statement

2012 was the year of great uncertainties for Ukraine. Promising 2011 figures and the planned EURO 2012 championship had built up expectations of accelerated recovery including the financial and property sectors, but 2012 didn't fulfil those expectations. The Ukrainian economy cooled down during the year, the parliamentary elections did not resolve the political issues at hand, and progress with reforms did not significantly improve the business environment, keeping foreign capital largely at bay. However, at the same time, strong local growth trends in the residential and retail property markets, which include the majority of DUPD's portfolio projects, started to form during the year.

Ukraine's challenging environment notably influenced the Company's operations, particularly in our search for debt or quasi-equity financing for DUPD's landmark project in Obolon. As an example, in the final stages of negotiations with an institutional investor, the decision on the project was held back, solely due to unfavourable macroeconomic factors. However, in 1Q 2013, we are in the final stages of formalising the documentation in order to secure an alternative financing scheme for the project, via a co-equity investment with a private local investor.

Our residential sales in Green Hills stood approximately at the level of the previous year, while those in Riviera Villas - our high-end cottage community - soared from six to 17, driven by completion of the first street of homes and finalisation of most of the landscaping. Consequently, the total residential sales for the two projects doubled, reaching US$12.1 million cumulatively since the sales launch. The residential part of our portfolio is thus increasing its cash-generating capacity, as we had expected, and is set to further strengthen with the start of sales in the Obolon Residential Towers project.

Another substantial part of our portfolio - retail property investments - also fared well with Arricano successfully opening a new shopping centre in Kyiv and Henryland continuing to pay out dividends based on its strong and stable rental income. There remain certain legal disputes between DUPD and its partner in the Arricano project but we are currently putting significant effort into reaching an amicable solution to protect as well as maximise the value of our investment. One of the goals for Arricano in 2013 is an IPO on a reputable stock market, which would provide liquidity for its minority shareholders and attract fresh equity for development of pipeline projects.

Results

The Company's Net Asset Value ('NAV') for the year decreased by 7 %, or US$ 15 million, to US$ 198 million, and net loss contracted by 80% - to US$ 15.3 million from US$ 77.5 million in 2011. For the second consecutive year, the main contributor to the NAV decline and the net loss was the reduced valuation of our land bank investment, reflecting a more conservative scenario applied by the Company's independent valuer. We have also made a 100% provision for our investment in our Avenue project associate - Hindale Ltd (2011 valued - US$ 1.6 million,) due to the expiry of the lease for the land plot and the need therefore to obtain consents to renew the required agreements before any development can take place.

Dividend

In 2012, DUPD continued to receive dividends from Henryland Limited, an established retail property company in which DUPD has a 38% shareholding. Since 2011, the Company has received US$ 0.9 million in June 2012 and another US$ 1.1 million in January 2013, bringing the total dividends received from the associate to date to US$ 2.6 million.

Our aim is to maximise the rental income and sales under the Company's portfolio projects to cover its operational expenses and be in a position to distribute dividends to shareholders.

Outlook

The principal objective of the Company for the coming years lies in realising and monetising the value of the assets in our portfolio for the benefit of shareholders. In 2013, we are planning to commence full-scale construction and pre-sales of the 1st tower of our landmark project - Obolon Residential Towers - and to continue the sales and steady development of the Green Hills and Riviera Villas communities. We will be also conducting certain landscaping and refurbishment works in Sadok Vyshnevyj in order to support sales of the houses located there. On the land bank investment, along with the continuing rezoning process, we will be seeking to sell the first of the rezoned land plots in the Zazymya land bank project to individual buyers. We are expecting Arricano Real Estate to complete further development in 2013, being the 2nd phase of its shopping mall in Simferopol, and we are focused on working towards the resolution of the legal disputes with our partner in the Arricano project.

Aloysius Wilhelmus Johannes van der Heijden

Non-Executive Chairman

Investment Manager's Report

Operation Overview

Last year DUPD focussed on the development of portfolio projects rather than new investment opportunities and demonstrated good progress in most cases.

Arricano - DUPD's largest retail property investment - showed strong progress in developing its portfolio and is considering an IPO in 2013 whilst working on a settlement of the ongoing legal disputes with its local partner in the SkyMall project. In 2012, Arricano successfully opened RayON (Kyiv), its fifth shopping centre, with 24,145 sqm of GLA, bringing the share of operational GLA to circa 3/4 of its total portfolio. One of two shopping centre openings in the market during 2012, the launch of RayON was highly successful with its occupancy reaching 93% by the year-end and NOI approaching the budgeted target of US$9.5m. The company also started construction of the 2nd phase of South Gallery, a shopping centre in Simferopol, which is expected to bring the scheme's NOI from US$ 1.7m up to US$ 5.7m. Commissioning of RayON allowed Arricano to significantly improve its NAV and, accordingly, resulted in an 11% higher value of DUPD's stake in the Company.

Henryland, another retail property investment of DUPD with 3 operating retail schemes of 50,505sqm of leasable space, demonstrated strong operational results and managed to refinance its property in Kremenchuk by US$ 3m, whilst continuing distribution of dividends to its shareholders. The total amount of DUPD's share of dividends to date has reached US$ 2.6m.

In 2012, we managed to bring total sales proceeds in the gated communities, Riviera Villas and Green Hills, to US$ 7.8m (17 homes) and US$ 4.3m (28 homes) respectively. The year 2012 was especially successful for Riviera Villas, DUPD's high-end community, where total sales proceeds doubled. In line with our development plan for the project, in 2012, we completed the waterfront infrastructure and utility works as well as the first street (out of a planned four) and for 2013 are set to finish the 2nd street of homes. Similarly, in Green Hills the major part of the required centralised engineering infrastructure is now in place. There are 20 families living in the community which boasts a private clinic, grocery store, kindergarten and children's playground, and which strongly differentiate Green Hills from competing projects.

We also made substantial progress in the development of the Obolon Residential Towers project, a business-class residential complex with office and retail premises on the central square of the prestigious Obolon district in Kyiv. In 2012, we continued construction of the foundations of the 1st phase and completed these in 1Q2013. DUPD is in the final stage of formalising a co-investment scheme with an experienced local partner, and securing sales slightly ahead of expectations, and we plan to commence above-ground construction works at full speed in 2Q2013. With the high quality of the project and improving residential market, we remain optimistic about the project's long-term cash-generating potential for the Company.

In line with our expectations, we achieved rezoning for a part of the land bank project (19.9 ha) in 2012, and are expecting to continue the process in the current year. As the demand for land outside Kyiv from developers remains dormant, in order to start monetisation of the investment in the project, we are planning to test the market by selling rezoned land plots to private individuals.

Market overview

Retail

The retail property sector is seeing the fastest pace of recovery in the Ukrainian market. The double-digit growth of retail turnover during the past few years has kept the vacancy rates in the sector at near pre-crisis levels (3% vs. 17% in the office segment), which we believe bodes well for retail rental rates compared to other property sectors. In 2012, approximately 100,000 sqm of new premises, c.14% of the total stock, was commissioned (represented largely by the RayON and Ocean Plaza shopping centres) and easily absorbed by the market. In the next 3 years, the total stock of retail premises in Kyiv is anticipated to increase by another 60%. The pipeline of new projects has been building up, as investors become attracted by high returns, low saturation and the strong prospects of the sector.

Office and Warehouse

Office market indicators stayed largely unchanged despite a 12% increase in the total stock with new deliveries of 155,000 sqm in 2012 (1.8 times more than in 2011). New supply increased vacancy rates to 17% (14% in 2011) and constrained rental rates from moving up from levels of 2011 - US$ 28/sqm/month and US$ 38/sqm/month for Class B and class A space, respectively. Vacancy rates in the warehouse sector continued to decrease and averaged 10% in 2012, narrowing from 17% a year earlier, against flat rental rates. The supply of industrial space reached 1,366,000 sqm, of which 95,700 sqm was delivered in 2012 (c. 8% of existing stock). The total stock in the office and warehouse sectors is expected to further increase by around 18% and 14%, respectively, in the next two years.

Residential

The residential market embarked on a recovery path and appears to be ready to gear up, restrained only by the dormant mortgage market. In 2012, residential demand was particularly robust - the number of deals in Kyiv increased by an impressive 87% y-o-y, supported by growing household income and affordable financing offers from developers. However, this was not enough to increase prices substantially - they picked up by only 4% and 7% in the secondary and primary market, respectively, remaining on average 40% below 2008 peak levels, and have a long way to go before full recovery. Despite the sharp increase in the number of transactions, residential construction activity remained practically unchanged. In our view, the low saturation of the market (per capita residential space in Ukraine is 24sqm vs. 35sqm in EU) and negligible mortgage-to-GDP ratio in Ukraine provide substantial room for new supply and suggest strong price growth potential of the markets over the mid-term.

Land

The Ukrainian land market remains largely unchanged - it is still inert with little progress towards removing legislative restrictions on land sales. At the same time, there have been weak positive developments in land pricing, which seems to have passed the trough of previous years and had stabilised by the end of the year. Demand is largely limited to well-priced land plots for individual housing around Kyiv and key retail locations within the city. Being a derivative of the residential and commercial real estate sectors, the land market is expected to improve on the back of the stronger recovery of development activity in these sectors over the next few years. It may also receive an additional boost from the government, should a green light be given to authorising currently not-permitted agricultural land sales.

Project Overview

Arricano

The Arricano portfolio, consisting of international quality shopping malls, is unique for the Ukrainian market where both professional retail space and specialised retail developers are highly scarce.

·; Portfolio of five operating shopping centres

·; Sky Mall (Kyiv) - 'Best Shopping Centre 2010' award

·; RayON (Kyiv) - New shopping centre opened in 2012

·; South Gallery (Simferopol) - 2nd phase under construction

Riviera Villas

Riviera Villas is differentiated among other up-scale residential developments in Kyiv by its unique architectural style and its extensive and luxurious social infrastructure.

·; Utilities are on the site and waterfront infrastructure is completed

·; 17 homes sold. First street out of four completed. Stock of 5 homes available for sale

Green Hills

Located on a picturesque hill bordering a forest area with small river and lakes nearby, which makes it ideal for a gated community.

·; Close proximity to Kyiv (10 km) and convenient transport access

·; The first North American style cottage community developed by an international investor in Ukraine

·; All infrastructure is in place, which differentiates Green Hills from peer projects

·; 28 homes sold, 20 families living in

Henryland

·; Secured anchor tenant

·; Long-term international standards lease agreement

·; Low level or absence of competitive retail schemes

·; Three schemes out of six operational

·; USD 2.6 million dividend received

Avenue Shopping Centre

·; Strong retail location and low level of competition

·; Professional concept design by Colliers Int.

·; Project Design Documentation completed and approved by Kyiv Architectural Administration

·; Construction permit and land lease extension pending

Glangate

·; Two community shopping centers in second-tier regional cities

·; Low level of competition

·; Retailers' focus on Kyiv limits leasing potential in smaller cities

·; Kremenchuk - design documentation completed and approved by State Expertise, construction permit in place

·; Rivne - land plot consolidated and partially rezoned

Landbank

·; Land is registered on legal entities

·; The Company is set to monetise its investment by gradual sale of rezoned land, suitable for construction of residential and commercial facilities

·; First part of land (19.9 ha) rezoned

Obolon

·; Business class residential complex with office and retail premises

·; Favourable location on the central square of Obolon district in Kyiv

·; Facade and commercial premises designed by Benoy (UK)

·; Project design documentation completed and approved by State Expertise

·; First phase foundation completed

Sadok Vyshnevy

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

·; Utilities are on the site

·; Individual property acts received for each of the properties

·; All homes commissioned

These consolidated and Parent Company financial statements were approved by the Board of Directors on 29 April 2013 and were signed on its behalf by:

Chairman of the Board Aloysius Johannes Wilhelmus van der Heijden

Non-executive director Rory Macnamara

The directors believe that all results derive from continuing activities.

Consolidated

Parent Company

1 Background

(a) Organisation 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 at the date when these financial statements were approved is 2nd Floor, Belgravia House, 34-44 Circular Road, Douglas, Isle of Man IM1 1AE (before 17 December 2012 - Standard Bank House, One Circular Road, Douglas, Isle of Man, IM1 1SB) and its principal place of business is 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 2012 comprise the Parent Company and its subsidiaries and the Group's interest in associates (together referred to as the Group).

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 typically do not exist in other markets. In addition, contraction in the capital and credit markets and the impact of this on the economy of Ukraine have further increased the level of uncertainty in the economic environment.

These consolidated financial statements reflect the Directors' current assessment of the impact of the Ukrainian business environment on the operations and the financial position of the Group. The future business environment may differ from the Directors' assessment.

2 Basis of preparation

(a) Statement of compliance

These consolidated and Parent Company financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).

(b) Basis of measurement

The consolidated and Parent Company financial statements are prepared on the historical cost basis except for investment properties, 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 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.

The Directors believe 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 IFRS 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.

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

• notes 3(d) and 3(h) - classification between investment properties and inventories.

• note 5 - valuation of investment properties;

• note 6 - valuation of prepayments for land;

• note 7 - associates

• note 10 - net realisable value of trading property;

(e) Changes in accounting policies

(i) Deferred tax associated with investment property

From 1 January 2012, the Group adopted Deferred Tax: Recovery of Underlying Assets - Amendment to IAS 12 that prescribes a change in the accounting policy on measuring deferred tax arising from investment property that is measured using the fair value model in IAS 40 Investment Property.

The change in accounting policy did not have an impact on these consolidated financial statements since previously the Group assumed that the carrying amount of investment property would be recovered entirely through sale, which is in line with the requirements of the Amendment.

(f) Corresponding figures - change in presentation

During the year ended 31 December 2012, the Directors identified certain areas for improvement in order to achieve a more appropriate presentation of the consolidated financial statements. International Financial Reporting Standard IAS 1 Presentation of Financial Statements requires that comparative amounts are reclassified when presentation or reclassification of items is changed in the financial statements. The following presentation was changed in the Parent Company statement of cash flows:

In the Parent Company financial statements for the year ended 31 December 2011 loans repaid by Group companies of USD 7,956 thousand were presented as cash flow from operating activities. During the year ended 31 December 2012, the Directors decided to present the loans granted to (repaid by) Group companies as cash flows used in (from) investing activities.

3 Significant accounting policies

The accounting policies set out below are applied 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 arising from presently exercisable call options 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 profit or loss from the effective date of acquisition. Losses applicable to the non-controlling interest in a subsidiary are allocated to the non-controlling interest even if doing so causes the non-controlling interest to have a deficit balance.

Any premium and 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 recognised directly in equity.

On the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently that retained interest is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained.

In the financial statements of the Parent Company subsidiaries are accounted for at cost less impairment.

Consolidated subsidiaries include the following:

(1) - newly established subsidiaries

(2) - subsidiaries disposed of in 2012

On 3 March 2012 Startide LTD acquired 100% in the closed non-diversified venture investment fund "Development" (Fund "Development") through the purchase of 14,300 investment certificates for a total consideration of USD 178 thousand. The Group intends to use Fund "Development" as a financial vehicle for the Obolon project.

(ii) Associates

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. In certain cases when the Group has less than 20% of the voting power of another entity, this entity is still accounted for as an associate on the basis of significant influence (see note 7).

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

The consolidated financial statements include the Group's share of the income and expenses and equity movements 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 zero, and the recognition of further losses is discontinued, except to the extent that the Group has an obligation to or has made payments on behalf of the investee.

In the financial statements of the Parent Company investments in associates are accounted for at cost less impairment.

(iii) Jointly controlled operations

A jointly controlled operation is a joint venture carried on by each venturer using its own assets in pursuit of the joint operations. The consolidated financial statements include the assets that the Group controls and the liabilities that it incurs in the course of pursuing the joint operation, and the expenses that the Group incurs and its share of the income that it earns from the joint operation.

(iv) Transactions eliminated on consolidation

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

(b) Foreign currency 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. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising in retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments which are recognised in other comprehensive income.

(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) Financial instruments

(i) Non-derivative financial assets

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

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

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

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

A financial asset is classified at fair value through profit or loss 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 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 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.

If the Group 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 Group from classifying investment securities as held-to-maturity for the current and the following two financial years.

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.

Loans and receivables comprise the following classes of assets: trade and other receivables as presented in note 11, loans receivable as presented in note 9, loans to Group companies as presented in note 12 and cash and cash equivalents as presented in note 13.

Cash and cash equivalents comprise cash balances, call deposits and highly 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.

(ii) Non-derivative financial liabilities

The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

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

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

The Group 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 trade and other payables as presented in note 17 and finance lease liability as presented in note 15.

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.

(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 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.

(d) Investment properties

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

Investment properties principally comprise freehold land, leasehold land and investment properties held for future redevelopment. Leasehold of land held under operating lease is classified and accounted for as investment property when it meets the definition of investment property.

(i) Initial measurement and recognition

Investment properties are measured initially at cost, including related acquisition costs. Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self-constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for its intended use and capitalised borrowing costs.

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

(ii) Subsequent measurement

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

When the Group begins to redevelop an existing investment property for continued future use as investment property, the property remains an investment property, which is measured at fair value, and is not reclassified to property and equipment during the redevelopment.

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

Investment properties are derecognised on disposal or when they are permanently withdrawn from use and no future economic benefits are expected from 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 recognised as gain or loss in profit or loss.

It is the Group's policy that an external, independent valuation company, having an appropriate recognised professional qualification and recent experience in the location and category of property being appraised, values the portfolio 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.

The Directors believe 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 negotiation. Therefore, the Directors have 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, the Directors 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) Reclassification to owner-occupied property or inventory

When the use of a property changes from investment property carried at fair value to owner-occupied property or inventory, the property's deemed cost for subsequent accounting in accordance with IAS 16 Property, Plant and Equipment or IAS 2 Inventories is its fair value at the date of change in use. Any gain or loss arising on revaluation as at the date of transfer is recognised in profit or loss.

(e) Property and equipment

(i) Recognition and measurement

Items of property and equipment are measured at cost less accumulated depreciation and accumulated 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 labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

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

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

(ii) Reclassification to investment property

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

(iii) Subsequent costs

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

(iv) Depreciation

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

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

• vehicles and equipment 5-7 years

• fixture and fittings 3 years

(f) Intangible assets

(i) Goodwill

Goodwill that arises on the acquisition of subsidiaries is included in intangible assets.

The Group measures goodwill at the acquisition date as:

·; the fair value of the consideration transferred, plus

·; the recognised amount of any non-controlling interests in the acquiree, plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree, less

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

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

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

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

Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity accounted investee.

(ii) Other intangible assets

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

(iii) Subsequent expenditure

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

(g) Leased assets

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

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

(h) Inventories

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

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

(i) Impairment

(i) Non-derivative financial assets

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

Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers in the Group, economic conditions that correlate with defaults 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 Group 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 Group 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 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 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, 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 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 group that generates cash flows that largely are independent from other assets and groups. 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 (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 recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(j) Share-based payments

The fair value at the date of grant of options granted to directors and employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the directors and employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest.

For equity settled share-based payment transactions other than transactions with directors and employees the Group measures the goods or services received at their fair value, 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.

(k) Provisions

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

(l) Rental income from investment properties

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

(m) Lease payments

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

Minimum lease payments made under finance leases are apportioned between the finance cost and the reduction of the outstanding liability. The finance cost is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the contingency no longer exists and the lease adjustment is known.

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

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

(n) Finance income and costs

Finance income comprises interest income on funds invested, dividend income and currency exchange gains. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised on the date that the Group's right to receive payment is established.

Finance costs comprise fair value losses on financial assets at fair value through profit or loss, impairment loss on financial assets and currency exchange losses.

Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

(o) Income tax expense

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

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

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

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

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

·; taxable temporary differences arising on the initial recognition of goodwill.

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.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

In accordance with the tax legislation of Ukraine, tax losses and current tax assets of a company in the Group may not be set off against taxable profits and current tax liabilities of other Group companies. In addition, the tax base is determined separately for each of the Group's main activities and, therefore, tax losses and taxable profits related to different activities cannot be offset.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(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 profit or loss attributable to ordinary shareholders of the Parent 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.

(q) Segment reporting

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

The Directors 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 actual versus budgeted results is also done on the basis of individual projects.

(r) New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective as at 31 December 2012, and have not been applied in preparing these consolidated and Parent Company financial statements. Of these standards and interpretations, potentially the following will have an impact on the Group's operations. The Group plans to adopt these standards and interpretations when they become effective.

·; IAS 28 (2011) Investments in Associates and Joint Ventures combines the requirements in IAS 28 (2008) and IAS 31 that were carried forward but not incorporated into IFRS 11 and IFRS 12. The amended standard will become effective for annual periods beginning on or after 1 January 2013 with retrospective application required. Early adoption of IAS 28 (2011) is permitted provided the entity also early-adopts IFRS 10, IFRS 11, IFRS 12 and IAS 27 (2011). The Group has not yet analysed the likely impact of the new standard on its financial position or performance. The Group does not intend to adopt this standard early.

·; Amendments to IFRS 7 Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities contain new disclosure requirements for financial assets and liabilities that are offset in the statement of financial position or subject to master netting arrangements or similar agreements. The amendments are effective for annual periods beginning on or after 1 January 2013, and are to be applied retrospectively. The amendment is not expected to have significant effect on the consolidated and Parent Company financial statements.

·; IFRS 9 Financial Instruments will be effective for annual periods beginning on or after 1 January 2015. The new standard is to be issued in phases and is intended ultimately to replace International Financial Reporting Standard IAS 39 Financial Instruments: Recognition and Measurement. The first phase of IFRS 9 was issued in November 2009 and relates to the classification and measurement of financial assets. The second phase regarding classification and measurement of financial liabilities was published in October 2010. The remaining parts of the standard are expected to be issued during 2013. The Group recognises that the new standard introduces many changes to the accounting requirements for financial instruments and is likely to have a significant impact on the consolidated and Parent Company financial statements. The impact of these changes will be analysed during the course of the project as further phases of the standard are issued. The Group does not intend to adopt this standard early.

·; IFRS 10 Consolidated Financial Statements will be effective for annual periods beginning on or after 1 January 2013. The new standard supersedes IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities. IFRS 10 introduces a single control model which includes entities that are currently within the scope of SIC-12 Consolidation - Special Purpose Entities. Under the new three-step control model, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with that investee, has the ability to affect those returns through its power over that investee and there is a link between power and returns. Consolidation procedures are carried forward from IAS 27 (2008). When the adoption of IFRS 10 does not result in a change in the previous consolidation or non-consolidation of an investee, no adjustments to accounting are required on initial application. When the adoption results in a change in the consolidation or non-consolidation of an investee, the new standard may be adopted with either full retrospective application from date that control was obtained or lost or, if not practicable, with limited retrospective application from the beginning of the earliest period for which the application is practicable, which may be the current period. Early adoption of IFRS 10 is permitted provided an entity also early-adopts IFRS 11, IFRS 12, IAS 27 (2011) and IAS 28 (2011). The Group has not yet analysed the likely impact of the new standard on its financial position or performance.

·; IFRS 11 Joint Arrangements will be effective for annual periods beginning on or after 1 January 2013 with retrospective application required. The new standard supersedes IAS 31 Interests in Joint Ventures. The main change introduced by IFRS 11 is that all joint arrangements are classified either as joint operations, which are consolidated on a proportionate basis, or as joint ventures, for which the equity method is applied. The type of arrangement is determined based on the rights and obligations of the parties to the arrangement arising from joint arrangement's structure, legal form, contractual arrangement and other facts and circumstances. When the adoption of IFRS 11 results in a change in the accounting model, the change is accounted for retrospectively from the beginning of the earliest period presented. Under the new standard all parties to a joint arrangement are within the scope of IFRS 11 even if all parties do not participate in the joint control. Early adoption of IFRS 11 is permitted provided the entity also early-adopts IFRS 10, IFRS 12, IAS 27 (2011) and IAS 28 (2011). The new standard is not expected to have a significant effect on the consolidated and Parent Company financial statements. The Group does not intend to adopt this standard early.

·; IFRS 12 Disclosure of Interests in Other Entities will be effective for annual periods beginning on or after 1 January 2013. The new standard contains disclosure requirements for entities that have interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. Interests are widely defined as contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity. The expanded and new disclosure requirements aim to provide information to enable the users to evaluate the nature of risks associated with an entity's interests in other entities and the effects of those interests on the entity's financial position, financial performance and cash flows. Entities may present some of the IFRS 12 disclosures early without a need to early-adopt the other new and amended standards. However, if IFRS 12 is early-adopted in full, then IFRS 10, IFRS 11, IAS 27 (2011) and IAS 28 (2011) must also be early-adopted. The new standard is expected to result in additional disclosures in the consolidated and Parent Company financial statements. The Group does not intend to adopt this standard early.

·; IFRS 13 Fair Value Measurement will be effective for annual periods beginning on or after 1 January 2013. The new standard replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It provides a revised definition of fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurement that currently exist in certain standards. The standard is applied prospectively with early adoption permitted. Comparative disclosure information is not required for periods before the date of initial application. The Group has not yet analysed the likely impact the new disclosures will have on the consolidated and Parent Company financial statements.

·; Amendment to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income. The amendment requires that an entity present separately items of other comprehensive income that may be reclassified to profit or loss in the future from those that will never be reclassified to profit or loss. Additionally, the amendment changes the title of the statement of comprehensive income to statement of profit or loss and other comprehensive income. However, the use of other titles is permitted. The amendment shall be applied retrospectively from 1 July 2012 and early adoption is permitted. The amendment is not expected to have significant effect on the consolidated and Parent Company financial statements.

·; Amendments to IAS 32 Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities do not introduce new rules for offsetting financial assets and liabilities; rather they clarify the offsetting criteria to address inconsistencies in their application. The Amendments specify that an entity 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 entity and all counterparties. The amendments are effective for annual periods beginning on or after 1 January 2014, and are to be applied retrospectively. The amendment is not expected to have significant effect on the consolidated and Parent Company 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 2013. The Group has not yet analysed the likely impact of the improvements on its financial position or performance.

4 Disposal of subsidiaries

In April 2012 the Group sold Ukrainian Development Holding LTD for USD 3 thousand to Mr. Georgios Chr. Kyrou. The gain of USD 4 thousand as a result of this transaction was recognised in profit or loss.

The disposal of the subsidiary had the following effect on assets and liabilities on the date of disposal:

In April 2012 the Group sold Ukrainian Properties LTD for USD 2 thousand to Mittelmeer Nominees Limited. The gain of USD 4 thousand as a result of this transaction was recognised in profit or loss.

The disposal of the subsidiary had the following effect on assets and liabilities on the date of disposal:

5 Investment properties and property under construction

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

The carrying values for investment properties and property under construction as at 31 December are as follows:

Property is classified in accordance with the intention of the Directors for its future use. When construction starts, freehold land, leasehold land and investment properties held for future redevelopment are reclassified to investment properties under development (IAS 40) or inventories (IAS 2) in accordance with the intended future use.

The Group's intention with regard to the Obolon project is the construction of a multi-storey business class residential complex with office and retail premises that will be sold upon completion of construction. Having received the construction permit and obtained the permit of KyivEnergo for removal of the power substation from the site, the Group has demolished the existing service centre building and started preliminary ground works. According to the Group's accounting policy investment property is transferred to trading properties under construction when the Group ceases to receive rental income from the properties in question and when construction has started on the site. From the date of acquisition until 31 December 2011 the Obolon project was accounted for as an investment property. Upon the start of the construction work in 2012 the property under the project has been reclassified to trading properties under construction (see note 10).

Due to changes in the finance lease conditions the Group recognised a decrease in finance lease liabilities of subsidiary New Region LLC, which holds the Kremenchuk project. The changes in finance lease conditions are as follows:

·; reduction of rental rate from 10% to 3% of the normative value of the land plot

·; increase of correction coefficient from 0.65 to 0.85, applied to "normative valuation" ("normative valuation" - is a valuation of different types of land according to the methodology and rates set up by government regulations) in accordance with the decision of the Kremenchuk City Council of 25 December 2012.

Mountcrest Limited (Mountcrest - a Group subsidiary) and Intendancy Limited (Intendancy - third party) entered into a Project Development Agreement on 12 December 2007. It was agreed to undertake and bear all design, engineering and construction costs as well as the costs incurred in connection with the maintenance and development of the land plots and facilities of the Riviera Villas project (one of the Group's projects) in the following proportion:

·; Mountcrest is to bear or reimburse 58.21% of costs incurred in the process of land plot development and Intendancy 41.79%;

·; Mountcrest is to bear or reimburse 59.56% of costs incurred in the process of real estate construction and Intendancy 40.44%.

Irrespective of legal titles that may be attached to the land plots of each of the parties, all benefit from sale or usage of investment property will be split in the following proportion: Mountcrest is entitled to 59.56% of all benefits and Intendancy is entitled to 40.44% of all benefits.

On 20 February 2012 an amendment to the Project Development Agreement was signed. In accordance with this amendment Mountcrest transferred all its rights and obligations under the Project Development Agreement to Stenfield Finance Limited (Stenfield) (a Group subsidiary).

On 20 September 2012 Stenfield and Intendancy (together referred to as the Parties) signed an Amended and Restated Project Development Agreement and agreed to acquire title or to hold under control additional land plots with a total area of 1.7244 hectares (ha) (the "Additional Land Plots") for residential real estate construction. The Parties will bear the acquisition costs of the Additional Land Plots in the same proportions they bear costs incurred in the process of real estate construction. The purchase price of USD 2,346 thousand will be paid in full by Intendancy and Stenfield will reimburse the amount equivalent to its share in the project as stipulated above. This reimbursement will be effected by Stenfield making contributions from its share of future sales proceeds less the budgeted amount of the capital expenditures for the development of the project.

The Directors engaged registered independent appraiser CB Richard Ellis LLC, having a recognised professional qualification and recent experience in the location and categories of the projects being valued, to assist with the estimation of fair value of investment properties and property under construction.

The estimation of fair value was made using a net present value calculation based on certain assumptions, the most important of which as at 31 December 2012 are as follows:

·; monthly rental rates - which were based on current rental rates ranging from USD 9 to USD 30 per sq. m.

·; development costs based on current construction prices

·; discount rate of 10%

·; developer's profit ranging from 20% to 28%

·; 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 2011 the respective assumptions were as follows:

·; monthly rental rates - which were based on current rental rates ranging from USD 9 to USD 48 per sq.m.

·; development costs based on current construction prices

·; discount rate of 10%

·; developer's profit ranging from 20% to 30%

·; 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.

If rental rates are 1% less than those used in the valuation model, the fair value of investment properties as at 31 December 2012 would be USD 600 thousand lower (2011: USD 700 thousand). If rental rates are 1% higher, then the fair value of investment properties as at 31 December 2012 would be USD 700 thousand higher (2011: USD 600 thousand).

If development costs are 5% higher than those used in the valuation model, the fair value of investment properties as at 31 December 2012 would be USD 3,920 thousand lower (2011: USD 7,036 thousand). If development costs are 5% less, then the fair value of investment properties as at 31 December 2012 would be USD 3,920 thousand higher (2011: USD 6,876 thousand).

If the discount rate applied is 1% higher than that used in the valuation model, the fair value of investment properties as at 31 December 2012 would be USD 1,240 thousand lower (2011: USD 2,338 thousand). If the discount rate is 1% less, then the fair value of investment properties as at 31 December 2012 would be USD 1,240 thousand higher (2011: USD 2,379 thousand).

6 Prepayments for land

During 2012 the Group made prepayments for land acquisition totalling USD 317 thousand (land bank project). As a result of this transaction the gross prepayments for land before impairment losses increased from USD 124,844 thousand as at 31 December 2011 to USD 125,161 thousand as at 31 December 2012.

The investment in land bank projects has been historically reflected at cost less impairment. No impairment of prepayments for land was recognised before 2011. Land plots for the land bank project with a total area of 483.7 ha are currently registered for agricultural use, and the rezoning process to change the purpose of the land plots to construction use was in progress as at 31 December 2012 and 2011. Land plots with a total area of 19.9 ha had been rezoned for construction use by the end of 2012. The Board determined the fair value of the land bank with the help of independent appraiser (CB Richard Ellis). The fair value of the land bank was determined using agricultural and residential property comparatives according to actual land plot zoning and discounting for the time period likely to be required to sell the land plots. Based on the fair value of land as assessed by the appraiser, the Group recognised an impairment loss on prepayments for land of USD 10,217 thousand for the year ended 31 December 2012 (2011: USD 57,744 thousand).

In December 2008 the Group entered into the following pledge agreements to secure prepayments for land. During 2009 - 2011 several amendments to the agreements were signed to increase the assigned value of the collateral in conformity with prepayments made. The main conditions of the agreements are as follows:

This table summarises the amount of prepayment intended to be secured by collateral rather than the fair value of the collateral itself. The fair value (or market value) of the land plots owned by the above entities is shown below.

Movements in prepayments for land for the years ended 31 December are as follows:

7 Investments in associates

The Group has the following investments in associates as at 31 December 2012:

The values of Group's shares in the associates as at 31 December are as follows:

The following is summarised financial information for the associates, not adjusted for the percentage ownership held by the Group: