DUPD.L Regulatory News (DUPD)

27 April 2012

Dragon-Ukrainian Properties & Development plc

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

Results for the year ended 31 December 2011

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 2011.

Highlights

Operational Highlights

·; Focused on delivery and development of existing projects

·; Targeting at securing cash flow generation from the development and operating projects

·; Ukraine real estate market slowly recovering

·; In discussions on securing construction finance for Obolon

·; Solid progress on sales of residential properties in Green Hills and Riviera Villas

·; First dividend received from investment in Henryland

·; New openings continue to increase net operating income at Arricano; remaining development project in Arricano due for opening in Q3 2012

·; Arricano secured a USD30m convertible loan from Goldman Sachs

·; Discussions regarding the legal dispute between Arricano and its partner in Sky Mall continue, although the courts have ruled in favour of Arricano's partner

·; Recent legislative changes have resulted in additional time required to complete the rezoning of the land bank; the Board has reassessed the basis for valuation of the land bank projects

·; One of land bank projects passed the key Kyiv region council permit; Manager expects to complete rezoning of a part of the land within 12 months

·; Invested in 10 projects across retail, residential and commercial real estate sectors; 4 of these are self-funding and cash generating

·; Value of the Company's investment property was appraised by CB Richard Ellis and amounted to USD 77.0 million as at 31 December 2011 (30 June 2011: USD 76.61 million), excluding the investment in land banking.

·; Effectively fully invested; focused on existing projects rather than potential new investments

Financial Highlights

·; Total NAV of USD213.3m at 31 December 2011 (down 27% compared to 30 June 2011 of USD292.8m)

·; NAV per share of USD1.95 at 31 December 2011 (down 22% compared to 30 June 2011 NAV per share of USD2.49)

·; Cash balance of USD28.7m (30 June 2011: USD38.4m)

·; Property write-downs and impairments of USD69.0m out of which write-down on land bank is USD57.7m (2010: USD0.5m gain)

·; Net loss before tax and property write-downs/impairments USD9.6m (2010: loss USD2.3m)

·; Tender offers in 2011 resulted in repurchase of 8.355m shares for a total consideration of £3.1m, all of which were accretive to NAV per share

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

"We are pleased to have reported progress on our development projects, increased net operating income from Arricano and our first dividend from Henryland. Given delays experienced by the Manager in the rezoning of the land bank project, the Board took the decision to reassess the basis for valuation of the land bank project. The Manager expects to report positive progress on the rezoning which should result in an upward revaluation. We remain focused on the development of our portfolio and look forward to delivering further progress in 2012."

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About DUPD

Following the establishment of political stability and the start of economic recovery in Ukraine, 2011 turned out to be a year of further economic strengthening on the back of unprecedented government spending, which led to a 5.2% y-o-y real GDP growth and supported the recovery of the local real estate market. The country's brighter economic prospects were dimmed by resonance criminal prosecution of opposition leaders and political distancing between Ukraine and EU, which immediately affected international investors' sentiment for the country. This said, Ukraine still boasts weak competition, low market saturation and high investment yields, presenting unique long-term opportunities for proactive real estate investors.

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 has been appointed to provide advisory, investment management and monitoring services to DUPD in respect of property development and acquisition opportunities in Ukraine. DCP is a 100% subsidiary of Dragon Asset Management, the asset management arm of Dragon Capital, Ukraine's leading investment bank, offering 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. The сompany has completed more than 90 deals, including IPOs, private placements, M&A transactions and debt financings, since 2005, raising over USD 3.0 billion. Dragon's asset management arm has approximately USD 0.6 billion under management. All investment opportunities identified by the Manager are considered by the Board of Directors, comprising of independent directors with extensive experience in property investment, development and management, as well as general investment, company law and administration.

Our Investment Strategy

Being fully invested, DUPD is now focused on timely delivery and further development of the existing projects in its portfolio, which span across residential, retail and land sectors. Our primary target is to monetise the incurred investments by bringing development and land bank projects to the cash-generating stage and building-up sales in our cottage community projects. We assume a proactive approach to every investment project in our portfolio, trying to efficiently deal with typical issues of the local market - complicated procedures in real estate development and land market - as well as unavailability of mortgage lending and project financing. The Manager is utilizing its own proprietary network of local and international contacts and is capitalizing on access to leading institutional investors, being shareholders of the Company.

Chairman's Statement

I am pleased to announce the Company's annual results for the year ended 31 December 2011. The Company operated over the last year in a particularly challenging environment, where Ukrainian real estate market remained weak despite some initial signs of recovery with financing background for real estate projects being quite uncertain. During the year, our management team was able to achieve good progress on projects under development, with two residential community projects in our portfolio - Green Hills and Riviera Villas - becoming award-winning for their quality and concept. Despite the difficult market environment, we have been able to achieve strong sales in both communities, which resulted in DUPD's total sales proceeds growing from USD 2.2 million in 2010 to USD 4.9 million as of the end of 2011 cumulatively. Significant progress was also made on completion of soft-development stage and receipt of project approvals and construction permit on the Obolon Residential Towers project. Alongside our belief that the local retail property market possesses significant growth potential, we have seen substantial improvements in operational income of Arricano and Henryland, while also receiving our first dividends from the latter. Both retail and residential projects, except Obolon, are expected to be fully self-funded in 2012 with positive cash flow available for re-investment, or distribution.

Results

The Company's Net Asset Value ('NAV') decreased to USD 213.3 million, which is 28% below the 2010 result. The largest contributor to such decline is decrease in value of investments into land-banking projects, as management took a decision to use a more conservative approach to valuation by completely discounting all the progress on re-zoning process achieved to date. As a Board Chairman, I believe that such approach is prudent in the current environment despite of the fact that some of the key approvals were obtained during the last year and allows for best representation of the fair value of such investment, while posting a revaluation gain potential once the actual rezoning process on such assets is completed. As a result, the Company's net loss for the year amounted to USD 77.5 million.

Buy-Back

While the trading environment remained extremely difficult and the Company's shares were trading at a substantial discount to NAV, we have pursued another round of buy-back program, which allowed us to acquire 8,355,000 of Company's shares for a total consideration of GBP 3,134,847 at a substantial discount to NAV per share, which in our opinion was one of the best options to enhance NAV per share and the overall return to shareholders of the Company.

Board Changes

On 15 July 2011 and 20 January 2012 Christopher Watson and Boris Erenburg resigned from the Board of the Company. The Board would like to thank Christopher and Boris for their contribution and on-going support of the Company during the term of their involvement. Mr. Rory Macnamara and Mr. Nikolay Artemenko joined the Board on 6 December 2011 and 14 February 2012 respectively. Both gentlemen possess substantial expertise in the real estate sector and emerging markets in particular, which adds substantial value to the management of the Company.

Outlook

We expect 2012 to be a particularly important year in the history of DUPD. As reported previously, the Company's focus is on driving rental income, sales of residential properties and efficiency across the business, while also focusing on completing the rezoning procedures on its land bank portfolio. We plan to complete demolishment works and secure debt finance, which would allow commencing construction of the first tower of our 67,000 m2 Obolon Residential Towers project. Within the Arricano portfolio project, lease space is expected to increase by 66,100 m2, as Rayon shopping centre is delivered in 3Q2012, while an additional 73,400 m2 is planned to be under construction, and more importantly, a settlement over Sky Mall dispute to be reached with the local partner. With a strong cash position and conservative business model for development of our projects, the Company is well positioned to continue building up value for its shareholders and increase cash-flow generating potential of its portfolio in 2012. In early 2013 we expect to complete the rezoning process, which given our recent decision on revaluation of land bank projects should become a substantial milestone in building up asset value.

Investment Manager's Report

Operations Overview

In 2011, we focused on the management of our diverse portfolio of ten projects - rather than considering new investments - which had to be pro-active and innovative amidst illiquidity of the Ukrainian financial system, in order to achieve good progress in most of them.

The largest retail property investment of DUPD, Arricano Trading ltd, where the Company has a 16.7% shareholding, had two key achievements in 2011: first, the opening of a 10,900 m2 extension of City Mall shopping centre in Zaporizhya, anchored by Auchan, which brought the scheme's NOI from USD 0.5 million to USD 4.6 million (2012 estimate), and then, attracting a USD 30 million convertible loan facility from Goldman Sachs, in line with the strategy of Arricano to develop into the leading retail developer in Ukraine and hold an IPO in 2013. With vacancy of only 2% and average rent in the shopping gallery of USD 41/m2, the successful opening of City Mall served as a proof of market recovery. Construction of the last shopping centre in Arricano's portfolio of five projects - Rayon (Kyiv) - continued according to schedule, despite a delay in loan disbursement by a multilateral lender, and is set to open in 3Q2012 with planned NOI of USD 10.8 million. Arricano remains in legal disputes over execution of its call option on its key project, Sky Mall (Kyiv), but expects to reach an amicable agreement with its local partner during the first half of 2012.

Another retail investment of DUPD - Henryland, the project of six DIY-stores, three of which are operational - postponed the development of its fourth property in Bila Tserkva until 2013, allowing the company for the first time to distribute USD 1.5 million in dividends, of which DUPD's share was USD 0.6 million.

Sales in Green Hills in 2011 were on the level of 2010, bringing the total number of pre-sales to 26 and sales proceeds to USD 3.3 million. At the same time, we managed to increase the average sales price by 10% reflecting our strategy to increase the margin as the project progresses. Several initiatives in Green Hills were completed, such as construction of centralised water supply system, centralised sewerage and private kindergarten. The American Medical Centre opened its Green Hills premises in March 2012. Similarly in Riviera Villas, our elite cottage community project, we completed installation of all utilities for the first phase, built 13 new homes, and set up the maintenance company's office, which allowed to boost sales to six homes and USD 2.7 million in sales revenue.

Likewise, we made substantial progress with the Obolon project last year, receiving the construction permit, resolving such key issues as passing public hearings and obtaining the permit of KyivEnergo for removal of the power substation from the site. On the back of this, in autumn 2011, we started preliminary ground and demolition works over the existing service centre building. Subject to securing debt finance, the full-fledged construction is set to start in 2-3Q2012. The Company had secured a credit line for the development in 3Q2011 from a leading international bank, which had to withdraw its commitment following introduction of financial security measures in the EU. As bank financing still remains largely unavailable for residential development projects in Ukraine, we have commenced negotiations with certain mezzanine investors, considering high-yield debt to fund the construction of the first tower.

Mainly due to the land reform introducing new rezoning and property acts registration procedures, the finalization of the rezoning process under the two land banking projects was delayed. As the procedures are now estimated to be significantly lengthier than expected to have been from the beginning of 2012, the Board has instructed the valuator to be determining the fair market value of the land bank, discounting entirely the rezoning progress, until it is completed. The total effect of such conservative approach resulted in a decrease of the land bank's value to USD 67.1 million, bringing it to slightly above half of its costs. Company has not been able to complete rezoning of its land banking projects in 2011. Nevertheless, we did manage to pass the key permit on one of the two projects - approval of the Kyiv region council - and expect to complete rezoning of at least a part of the land holding within 12 months. Upon rezoning as the local land market remains stagnant with demand mostly originating from private individuals rather than development companies, we have set retail sales as a priority divestment channel in the short-run, incorporating a set of small land plots into the masterplan of the territory, readily available for retail sale upon completion of the rezoning process.

Market Overview

Retail

Last year we saw recovery continue across all property market sectors, fueled by economic growth and increasing consumer spending. The retail property market, the undisputed leader, rebounding strongly for the second year in a row and nearly reaching pre-crisis levels of vacancy (1.7%), benefited from 15% y-o-y growth in retail trade turnover in real terms. New supply was nearly non-existent, but higher development yield attracted new investments into the sector with four large shopping centre projects currently underway in the central Kyiv, and the total stock expected to double in 2014 reaching 1.4 million m2.

Office and Warehouse

In the office market, new supply totaled 85,000 m2 in 2011 bringing Kyiv's office stock to 1.3 million m2, while take-up reached 170,000 m2 (+40% y-o-y) driven by more robust business activity. This narrowed the vacancies to 13.5% and allowed rents to further recover, reaching USD 38/m2/month

(excl. VAT) for prime Class A premises still half of 2007-2008 levels however, and leaving room for long-term improvement.

Similarly, industrial properties, the most depressed segment after the crisis, started to recover driven by business expansion and relocation, with 2011 take-up totaling 200,000 m2 vs.140,000 m2 of new deliveries, thus exerting downward pressure on vacancy rates (17% down from 19%) and keeping rents stable at USD 6/m2/month.

Residential

Low household income and slow recovery of mortgage lending, which was hampered in 2H 2011 by turbulence in the European capital markets, kept demand for housing subdued in 2011 with still only 7% of total deals financed by mortgage loans (vs. 30% in 2007). Supported by growing demand and stagnating supply, apartment prices in Kyiv rose by 4% y-o-y to USD 1,612/m2 on average with the number of new apartments sold tripling last year. Still the recovery has a long way to go as the number of transactions in 2011 constituted only 55% of the 2007 record high, while in Moscow, for example, the market registered a new all-time high.

Given that the market is fundamentally undersupplied, with average residential space per capita at 23.9 m2 against 35 m2 for CEE, expansion of banks' home loans programs will be driving residential sales in 2012-15. Pre-crisis levels will be reached, though, not sooner than in 2014-15 due to very gradual recovery of mortgages. In the meantime, severe undersupply of quality residential space will be likely putting upward pressure on prices.

Land

The domestic land market remained stagnant in 2011 with prices depressed due to limited commercial and residential market activity, anemic mortgage financing and slow pace of land market reform. Same as last year, rapid land market recovery is not expected in 2012 with activity booming after the government completes land market liberalization, which is now expected in January 2013 with the sanctioning of 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.

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.

·; Six homes sold.

·; First street out of four has been completed.

·; Stock of 12 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.

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 569,000 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 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;

·; 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

Obolon

·; Business class residential complex with office and retail premises

·; Favorable 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

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

The consolidated and Parent Company statements of financial position are to be read in conjunction with the notes to, and forming part of, the financial statement set out on pages 2 to 2.

These consolidated and Parent Company financial statements were approved by the Board of Directors on 26 April 2012 and were signed on its behalf by:

Chairman of the board Aloysius Johannes Van der Heijden

Non-executive director Fredrik Svinhufvud

The consolidated and Parent Company statements of financial position are to be read in conjunction with the notes to, and forming part of, the financial statement set out on pages 2 to 2.

The Directors believe that all results derive from continuing activities.

The consolidated and Parent Company statements of comprehensive income are to be read in conjunction with the notes to, and forming part of, the financial statement set out on pages 2 to 2.

The consolidated and Parent Company statements of cash flows are to be read in conjunction with the notes to, and forming part of, the financial statements set out on pages 2 to 2.

The consolidated and Parent Company statements of cash flows are to be read in conjunction with the notes to, and forming part of, the financial statements set out on pages 2 to 2

Consolidated

The consolidated and Parent Company statements of changes in equity are to be read in conjunction with the notes to, and forming part of, the financial statements set out on pages 2 to 2.

Parent Company

The consolidated and Parent Company statements of changes in equity are to be read in conjunction with the notes to, and forming part of, the financial statements set out on pages 2 to 2.

1 Background

(a) Organization and operations

Dragon - Ukrainian Properties & Development plc (the Parent Company) was incorporated in the Isle of Man on 23 February 2007. The Parent Company's registered office is Standard Bank House, One Circular Road, Douglas, Isle of Man, IM1 1SB and its principal place of business is 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 ParentCompany completed a secondary placing on AIM and raised USD 100 million.

The consolidated financial statements as at 31 December 2011 comprise the Parent Company and its subsidiaries (together referred to as the Group) and the Group's interest in associates.

The main activities of the Group are investing in the development of new properties and redevelopment of existing properties in Ukraine.

(b) Business environment

Ukraine is experiencing political and economic change that has affected, and may continue to affect, the activities of enterprises operating in this environment. Consequently, operations in Ukraine involve risks that typically do not exist in other markets. In addition, the contraction in the capital and credit markets and its impact on the economy of Ukraine have further increased the level of economic uncertainty in the 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 and financial instruments at fair value though profit or loss, 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 are included in the following notes:

• note 5 - valuation of investment properties

• note 6 - valuation of prepayments for land

• note 10 - net realisable value of trading property

• note 19 - measurement of share-based payments

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

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.

No changes in accounting policies were made in 2011 as a result of adoption of new accounting standards.

Certain comparative amounts have been reclassified to conform to the current year presentation (see note 4).

(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.

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) -special purpose entity as at 31 December 2010, and the Group's legal subsidiary as at 31 December 2011 (see note 3(a)(ii))

(3) - asset acquisition in 2010 (see note 5)

(ii) Special purpose entities

During 2010 the Group sold its direct shareholding in Grand Development LLC and repurchased 100% interest back on 23 February 2011 through a newly established British Virgin Island subsidiary Blueberg Trading Ltd. The purpose of this was to consolidate all infrastructure assets of the gated community project Green Hills and make them easily divestible at the completion of the project. As the Group has effectively controlled this entity all the time, it consolidated Grand Development LLC as a special purpose entity (SPE) as at 31 December 2010. An SPE is consolidated if, based on an evaluation of the substance of its relationship with the Group and the SPE's risks and rewards, the Group concludes that it controls the SPE. The SPE controlled by the Group was established under terms that impose strict limitations on the decision-making powers of the SPEs' Directors and that result in the Group receiving the majority of the benefits related to the SPE's operations and net assets, being exposed to the majority of risks incident to the SPE's activities, and retaining the majority of the residual or ownership risks related to the SPE or its assets.

As at 31 December 2011 the Group had no special purpose entities.

(iii) 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.

(iv) 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.

(v) 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 (see note 3(i)(i), and foreign currency differences on available-for-sale debt instruments (see note 3(b)(i), 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 is reduced by this 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, 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 negotiations. 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.

(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, currency exchange gains, and fair value gains on financial assets at fair value through profit or loss. 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 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 2011, 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.

·; 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 2012. The Group recognises that the new standard introduces many changes to the accounting for financial instruments and is likely to have a significant impact on the 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 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 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 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 early 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.

·; Amendment to IAS 12 Income taxes - Deferred Tax: Recovery of Underlying Assets. The amendment introduces an exception to the current measurement principles for deferred tax assets and liabilities arising from investment property measured using the fair value model in accordance with IAS 40 Investment Property. The exception also applies to investment property acquired in a business combination accounted for in accordance with IFRS 3 Business Combinations provided the acquirer subsequently measures the assets using the fair value model. In these specified circumstances the measurement of deferred tax liabilities and deferred tax assets should reflect a rebuttable presumption that the carrying amount of the underlying asset will be recovered entirely by sale unless the asset is depreciated or the business model is to consume substantially all the asset. The amendment is effective for periods beginning on or after 1 January 2012 and is applied retrospectively. The Group has not yet analysed the likely impact of the amendment to this standard on its financial position or performance.

·; Amendment to IFRS 7 Disclosures - Transfers of Financial Assets introduces additional disclosure requirements for transfers of financial assets in situations where assets are not derecognised in their entirety or where the assets are derecognised in their entirety but a continuing involvement in the transferred assets is retained. The new disclosure requirements are designated to enable the users of financial statements to better understand the nature of the risks and rewards associated with these assets. The amendment is effective for annual periods beginning on or after 1 July 2011. 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 2012. The Group has not yet analysed the likely impact of the improvements on its financial position or performance.

4 Corresponding figures - change in presentation

During the year ended 31 December 2011, 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 Directors reclassified amounts by adjusting the respective balances as at 31 December 2010. The following presentation was changed in the statement of financial position:

Offsetting of investment properties and finance lease liabilities

In the consolidated financial statements as at and for the year ended 31 December 2010, the carrying amount of investment properties included finance lease liabilities and was presented on a net basis. During the year ended 31 December 2011, the Directors decided to present investment properties and finance lease liabilities on a gross basis in order to achieve a more appropriate presentation of the consolidated financial statements. Investment properties and finance lease liabilities are presented on a gross basis in 2011.

Summary of reclassifications

The summary of reclassifications to the consolidated statement of financial position as at 31 December 2010 is as follows:

The reclassification between investment properties and finance lease liabilities has no effect on the consolidated statements of comprehensive income for the years ended 31 December 2011 and 2010.

The following corresponding figures as at 31 December 2010 in the consolidated statement of cash flows are reclassified to conform to the current period presentation: interest paid was increased and acquisition and development of investment property was decreased by USD 502 thousand.

5 Investment properties and property under construction

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

*During the year ended 31 December 2010 the Group recognised the acquisition of subsidiaries Rivnobud LLC and Commercial project LLC as acquisitions of assets since the entities had no operations or business activities.

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

Mountcrest Limited (a subsidiary) and Intendancy Limited (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 on the Riviera Villas project (one of the Group's projects) in the following proportion:

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

·; Mountcrest Limited is to bear or reimburse 59.56% of costs incurred in the process of real estate construction and Intendancy Limited 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: Montcrest Limited is entitled to 59.56% of all benefits and Intendancy Limited is entitled to 40.44% of all benefits.

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.

The estimation of fair value is made using a net present value calculation based on certain assumptions, the most important of which as at 31 December 2011 are 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 -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.

As at 31 December 2010 respective assumptions were as follows:

·; monthly rental rates - which were based on current rental rates ranging from USD 19 to USD 40 per sq.m.

·; development costs based on current construction prices

·; discount rate -10%

·; developer's profit ranging from 20% to 25%

·; 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 valuation model, the fair value of investment properties as at 31 December 2011 would be USD 700 thousand lower (2010: USD 851 thousand). If rental rates are 1% higher, then the fair value of investment properties as at 31 December 2011 would be USD 600 thousand higher (2010: USD 1,029 thousand).

If development costs are 5% higher than those used in the valuation model, the fair value of investment properties as at 31 December 2011 would be USD 7,036 thousand lower (2010: USD 5,166 thousand). If development costs are 5% less, then the fair value of investment properties as at 31 December 2011 would be USD 6,876 thousand higher (2010: USD 5,366 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 2011 would be USD 2,338 thousand lower (2010: USD 2,129 thousand). If the discount rate is 1% less, then the fair value of investment properties as at 31 December 2011 would be USD 2,379 thousand higher (2010: USD 2,424 thousand).

6 Prepayments for land

During 2011 the Group made prepayments for land acquisition totalling USD 750 thousand (land bank project). As a result of this transaction the gross prepayments for land before impairment losses, increased from USD 124,094 thousand as at 31 December 2010 to USD 124,844 thousand as at 31 December 2011.

The investment in land bank projects has been historically reflected at cost less any impairment. No impairment of prepayments for land was recognised before 2011. Land plots for the land bank project 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 2011. Recent changes in legislation have resulted in further delay in completion of rezoning by approximately nine months for one of the two locations of the land bank, which has entered the final stage of the rezoning process, and an even greater delay for the second location, which remains less advanced in the process. The Board decided to use a conservative approach, taking into account the many current uncertainties surrounding the rezoning of land in Ukraine, and determined with the help of independent appraiser (CB Richard Ellis) the market value of the land bank. The market value of the land bank was determined using agricultural comparatives and discounting for the time period required to sell the land plots. Based on the market value of land as assessed by the appraiser, the Group recognised an impairment loss on prepayments for land of 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: