DUPD.L Regulatory News (DUPD)

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No. 596/2014.

Dragon-Ukrainian Properties & Development PLC

("DUPD" or the "Company")

31 May 2019 

Results for the year ended 31 December 2018

Dragon-Ukrainian Properties & Development plc, a leading investor in the real estate sector in Ukraine, is pleased to announce its results for the year ended 31 December 2018.

Highlights

Operational Highlights

· The Company continues to follow its investing policy as approved by shareholders at the EGM in February 2014.

· Green Hills, the suburban gated community, continued to capitalize on its high quality and leading position in the market as 27 land plots were sold during 2018 (2017: 25)

· Riviera Villas, our luxury suburban community project, brought four new contracted sales in 2018 following sales of five land plots in 2017

Financial Highlights

· Total NAV of USD 36.2 million as of 31 December 2018 (down from USD 42.8 million as of 31 December 2017).

· Cash balance of USD 4.7 million (down from USD 9.2 million as of 31 December 2017). The Company has no debt at either the holding company level or project level.

· DUPD recorded a USD 3.2 million gain from operating activities in 2018 (2017: USD 4.9 million loss)

Mark Iwashko, non-executive Chairman of the Board commented "As the dynamics of the real estate market in Ukraine will continue to depend on the pace of economic reforms and recovery as well as improvement in investor and consumer sentiment, we will remain committed to DUPD's investment policy, focusing on the monetization of our existing properties as quickly and effectively as the market conditions allows"

For further information, please contact:

Chairman's Statement

The Ukrainian economy continued its gradual recovery from the deep recession of 2014-2015 with GDP growth accelerating from 2.5% in 2017 to 3.3% in 2018 and household consumption, driven by increases in real wages and pensions, growing by 8.9% year-on-year in 2018 after increasing 9.5% in the previous year. As a result of three years of sustained economic growth and much improved macro stability, Dragon-Ukrainian Properties & Development plc ("DUPD" or the "Company")was able to report a second consecutive increase in the valuation of its assets. The Company's stake in Arricano Real Estate plc ("Arricano") benefited the most, increasing by USD 4.0 million in 2018, as a result of the direct correlation between rising household consumption and improved performance of the retail sector. At the same time, the value of DUPD's residential properties registered a more modest increase in value of USD 1.0 million while the Company's vast land holdings remained the most undervalued of DUPD's remaining assets with no near term recovery expected.

Management and the Board remained focused in 2018 on the adopted strategy of orderly realizations of its existing assets and return of surplus funds to shareholders. To that end, the Company collected the final USD 4.0 million in payments from the installment sale of Obolon Residences that took place in 2017. In addition, DUPD contracted USD 3.4 million in new sales and generated USD 3.5 million in cash from its three remaining residential developments during the year. As a result, the Company was able to distribute USD 9.8 million to shareholders in 2018 in keeping with our commitment to distribute proceeds received from the divestment of assets.

Looking ahead, we expect GDP growth to continue but with a risk of slight deceleration as Ukraine faces a period of relatively high external debt repayments, an incoming president with an as yet unclear economic reform agenda, and scheduled parliamentary elections that may reshape the political map in Ukraine in 2019. Still, it is likely Ukraine's economy will continue its positive development given the country remains reliant on the IMF for macroeconomic stability and each disbursement of the approved IMF program is tied to the delivery of specific structural reforms.

Going forward the Company will continue to redeploy cash generated from the sale of individual land plots and homes in the near term to fund the ongoing development and eventual completion of DUPD's three remaining residential developments in an effort to maximize overall proceeds from those projects. At the same time, we will look for opportunities to divest our stake in Arricano as the retail sector continues to improve and will continue to monitor developments on the land market in Ukraine for signs of recovery. That said, the outlook for the realization of significant proceeds from divestments of DUPD's remaining assets is neither clear nor optimistic in the near term.

Financial Results

DUPD posted a USD 3.2 million gain in 2018 versus a USD 4.9 million loss a year ago as a result of a net gain from financial assets of USD 5.1 million (USD 4.0 million from Arricano and USD 1.0 million from DUPD's residential projects). Operating expenses were in line with the last year's levels with the exception of management fee, which was reduced by 17% in 2018. In terms of liquidity, DUPD's cash balance decreased year-on-year as a result of USD 9.8 million distributed to shareholders but remained healthy at USD 4.7 million with no debt at either the holding company level or project level as of December 31, 2018. Taking into account that the Company's main expense item, the management fee, has been negotiated down by the Board from USD 1.0 million to USD 0.8 million going forward, DUPD remains well positioned to meet its future obligations.

Corporate Governance

There were no changes in the composition of the Board of Directors of DUPD in 2018.

Awards

DUPD's portfolio investment, Arricano Real Estate plc, won in three out of twelve categories in the Shopping Centers Awards 2018, a prestigious international forum in the field of retail real estate, while two of Arricano's shopping malls, Sun Gallery and City Mall were named the winners of the VII Ukraine National Retail Award Consumer Choice - 2018.

Dividends and Investment Policy

The Company made an initial distribution of USD 7,655,306.05, or USD 0.07 per ordinary share, to its shareholders on April 17, 2018 followed by an additional distribution of USD 2,187,230.20 or USD 0.02 per ordinary share to its shareholders on May 16, 2018.

Shareholding

Dragon Capital Investments remained the largest shareholder in DUPD with 60.91% of the issued share capital of the Company as of December 31, 2018.

Outlook

Real GDP growth is forecasted to slow to 2.5% in 2019 before inching up to 2.8% in 2020, reflecting a less favorable external environment, weaker domestic demand and expected declines in agricultural production in 2019 and gas transit in 2020. Inflation, meanwhile, is projected to continue to decline to 7.3% in 2019 and 6.2% in 2020 as a result of monetary tightening and a slowdown in the growth in domestic salaries as labour migration begins to taper off. We believe that Ukraine's macroeconomic conditions will continue to support the gradual recovery of the country's real estate market but will have only marginal impact on the pace of monetization of DUPD's remaining assets.

The Ukrainian Government continues to cooperate with the IMF and is currently awaiting a first review of a USD 3.9 billion Stand-By facility that is expected to result in an initial USD 1.4 billion tranche disbursement. The next IMF review is scheduled for May and, if successful, will clear the way for a second, USD 1.3 billion loan tranche and allow the government to keep access to budget financing from other external lenders in reserve. While the newly elected president, Volodymyr Zelensky, has pledged to maintain constructive relations with the IMF, numerous challenges exist to timely future disbursements including the reinstatement criminal responsibility for illicit enrichment (legislation that was required under IMF's 2014 Stand-By program that was initially passed but ultimately cancelled by the Ukrainian Constitutional Court in February 2019) and passage of anti-money laundering legislation.

As the dynamics of real estate market in Ukraine will continue to depend on the pace of economic reforms and recovery as well as improvement in investor and consumer sentiments we will remain committed to DUPD's investment policy, focusing on the monetization of our existing properties as quickly and effectively as the market conditions allows.

Mark Iwashko

Non-executive Chairman

30 May 2019

Investment Manager's Report

The continuing gradual recovery of the Ukrainian economy supported us in generating strong residential sales in 2018, in line with DUPD's divestment strategy.

In line with the Company's strategy, we continued the development of the existing cash-generating residential projects while remaining focused on strong marketing activity and first-grade services to our clients. As a result, during 2018 year, our residential projects generated USD 3.4 million in contracted sales (USD 5.2 million in 2017) and USD 7.5 million in cash proceeds (including USD 4.0 million within two remaining instalments from the sale of Obolon Residences project).

Green Hills, a suburban gated community, continued to capitalise on its high quality and leading position in the market as we closed 27 land plot sales during 2018 (2017: 25, 2016: 29, 2015: 23). Total sales contracted in 2018 amounted to USD 2.7 million, whereas cash proceeds reached USD 2.4 million, with the combined land area sold to date reaching 12.1 hectares (75% of the total area for sales). Combined with success in the sales of residences in the cottage community, we finished the construction of the lake recreational zone and the second phase of the community's school, while the construction of a 2,000 m2 fitness-centre is underway. We believe these improvements are highlighting the extra quality of the property for prospective clients and will continue to support a generation of stable sales pipeline.

Riviera Villas, our luxury suburban community project, brought 4 new contracted sales in 2018 following sales of five land plots in 2017.

Sadok Vyshnevy, our economy class townhouse community, brought no new sales in 2018. Main efforts were focused on the review of the pricing policy and launch of a more aggressive marketing campaign in order to advance sales of the remaining 15 out of an original 38 apartments and that effort already resulted in five contracted sales in 2019. We expect that undertaken activities will fuel our sales and allow us to significantly divest a current stock of apartments.

Arricano Real Estate plc, our portfolio investment, in which DUPD holds a 12.51% stake, continued the London Court of International Arbitration (LCIA) arbitration process regarding its largest asset, Sky Mall. Further to the Company's announcement made on August 17, 2016, when LCIA consequently ruled for Stockman to cover legal expenses of Arricano in the amount of USD 0.9 million, by the end of 2017 the High Court had dismissed an application made by Stockman Interhold S.A. for permission to appeal the High Court's earlier judgements, having brought an end to Stockman's challenge proceedings in respect of the LCIA Awards as Stockman has now exhausted all legal remedies available to it. As at the date that annual report is published, ownership rights for the Sky Mall shopping centre remain alienated. Going forward Arricano will keep focusing its legal efforts on enforcing the respective decisions of LCIA.

During the year, Arricano increased its net operating income (excluding revaluation gains) by 19.3 per cent to USD 21.0 million compared to USD 17.6 million in 2017 as a result of growing rental rates across its portfolio of 5 shopping malls, managing tenant mix and turnover.

The high quality of the projects and strong residential sales allow DUPD to maintain its strong market position despite the ongoing market challenges. The Company remains on track with orderly realisation of its assets and is focused on generating cash proceeds to its shareholders both via development of the existing residential projects and investment sales of its assets to local players.

30 May 2019

Volodymyr Tymochko

Partner, DCM Limited

Market Overview 2018

Macroeconomic highlights

The Ukrainian economy rose by 3.3% y-o-y in 2018, slightly accelerating from 2.5% y-o-y in 2017 and 2.4% y-o-y in 2016, mostly driven by consumption and investments. Household consumption continued growth 8.9% y-o-y in 2018 following 9.5% y-o-y in 2017 on the back of continued salary growth (+25% y-o-y in nominal terms) and inflows of remittances - both being a consequence of growing short-term labor migration. It was also boosted by a 28% increase in the average pension following pension reform in 2017. Investment continued to expand at a double-digit rate in 2018, though the pace of growth expectedly slowed to 14.3% y-o-y from 18% in 2017 and 20% in 2016. Also helping GDP growth was the sharp slowdown in imports, to 3.2% from 12% in 2017, while exports remained weak, down 1.6% y-o-y following a 3.5% increase in 2017.

Real GDP growth is expected to decelerate to 2.5% y-o-y in 2019, before inching up to 2.8% in 2020, reflected by less favourable external environment, slowing domestic demand (to be partially offset by weaker import growth), and declines in agricultural production in 2019 and gas transit in 2020.

Headline inflation slowed to 9.8% y-o-y in 2018 from 13.7% in 2017 on deceleration of raw food prices as domestic fruit production normalized after a weak 2017 and meat market imbalances subsided. The Central Bank began marginally easing monetary policy, cutting its key rate to 17.5% in April 2019, having kept the rate flat at 18.0% through four consecutive meetings since September 2018, which was enabled by the ongoing slowdown in inflation and improving inflation expectations, with the former driven by tight monetary and fiscal policies and moderating salary growth amid stabilizing labor migration, exchange rate appreciation in 1Q19, a drop in global gas prices, and higher supply of food products.

The current account deficit continued to widen to 3.6% of GDP in 2018, mostly driven by growing machinery exports, after a moderate 2.2% in 2017 and 1.4% of GDP in 2016 with National Bank of Ukraine projections staying at a deficit of 3.3% and 4.0% of GDP for 2019 and 2020, respectively. Capital inflows were sufficient to cover the current account deficit and enabled the Central Bank to increase its reserves by 11% y-o-y, to USD 20.8bn, or 3.5 months of imports. The hryvnia strengthened 1.4% y-o-y to UAH 27.7: USD by end-2018, after 3.1% drop recorded in 2017.

The fiscal deficit stood at a moderate 2.0-2.5% of GDP over the past several years and public debt to GDP ratio continued a downward trend, sliding to 61% in 2018 from 72% in 2017 and 81% 2016.

Ukraine's industrial production continued to show only gradual growth, increased by 1.1% y-o-y in 2018 compared to 0.4% in 2017, construction activity rose by 4.4% y-o-y in 2018, sliding from a strong 26.0% y-o-y growth in 2017.

Commercial property

The retail sector reflected robust recovery of consumer sentiment on the back of growing household income and decelerating inflation. Tenant demand from existing retailers and new market entries alike displayed the expansionary trend. Approximately 20 new brands entered the Ukrainian market, including the long-awaited Swedish mid-range fashion brand H&M, leasing 2,900 sqm in Lavina Mall SC with the second location in Sky Mall SC in Kyiv. In 2019, there are expectations of a new market entry from brands such as IKEA (Swedish homeware and department store) and Decathlon (French sportswear retailer). Due to the demand expansion, average market vacancy dropped to 3% (- 2.7 p.p YTD) as of December. Prime rents for retail space grew by 15-20% during 2018, reaching USD85/sqm/month (triple net).

Tenant demand on the office property market in Kyiv continued to demonstrate positive dynamics during 2018 with average market vacancy decreasing to ca. 7%, an 11-year record-low for the sector. The total lease take-up of office space in Kyiv reached 145,000 sqm declining by a mere 6.5% due to already visible limited availability of high-quality office space. Strong demand dynamics coupled with low development activity during the earlier periods continued to put upward pressure on prime rents with a 4.3% YTD increase of effective rates for A-class premises at USD 24/sqm/month, while the asking prime rents escalated by 10% - 20%, standing at USD 28-32/sqm/month (triple net).

The warehousing market was driven by the increasing activity of large retailers and logistic operators. The total take-up volume was limited by low availability of large-scale units, with annual take-up reaching ca. 154,000 sqm (+28% y-o-y). The annual new supply was limited to 9,700 sqm in small-scale warehouses almost fully leased immediately. As a result, average market vacancy declined to 3.7% (-2.3 p.p YTD) as of the end of 2018. Prime effective rent ranged from UAH100-142 (USD 3.6-5.1/sqm/month), posting 20-29% y-o-y growth in UAH and 20-24% in USD terms.

Residential property

In 2018, a new supply of residential developments continued to grow albeit at a slower pace. The annual volume of new residential space commissioned amounted to 1,256k sqm (-25.6% y-o-y). The total volume of residential space offered for sale increased by ca. 10% (incl. delivered and under construction). The demand for residential space remains relatively stable. "Economy" and "comfort" segments continued to dominate in the volume of transactions closed on the primary market (ca. 72% of total volume). USD-based prices for "economy" and "comfort" apartments remain in the range of USD 500-700/sqm.

Land

No remarkable changes in supply and demand for land recorded over the course of 2018. The land market was still imbalanced with supply dominating the demand. Prices for land plots remained roughly flat during 2018, with wide variation depending on location, physical characteristics, zoning, etc. At the same time, the revival of investors' interest to the land plots with commercial and residential zoning in the most-sought-after locations is expected to be more visible in the next 2-3 years with the gradual recovery of development activity, provided no shocks to economic recovery during this period.

Project Overview

1. Land bank

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

2. Arricano Real Estate plc

· The largest developer of shopping centres in Ukraine

· Arricano has been listed on the AIM market of the LSE (ARO LN) since 2013

· DUPD's shareholding is 12.51%

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

· Involved in ongoing international legal dispute with a local partner over control of its largest project, Sky Mall

3. Riviera Villas

· Elite cottage community near Kyiv

· Project consists of two land parcels, one owned by DUPD and the other by its partner

· Unique luxury leisure infrastructure, including pools, restaurants and sport facilities

· Utilities on the site and waterfront infrastructure completed

· Total 33 of 72 land plots are sold (42% of total land area)

4. Green Hills

· Business class cottage community near Kyiv

· Furnished with mini-market, restaurant and café, tennis court, soccer and basketball playgrounds, 2 kindergartens, children playgrounds, school for 250 pupils, artificial lake and rest area

· Total 148 of 198 land are sold (75% of total land area)

· 81 families living in the community

· Construction of the second phase of the cottage's school was finished; building commissioned and put into operations in September

· Construction of fitness center underway

· Construction of warehouse for service company finished

· Construction works on the lake recreational zone were finished in May; residents of the cottage community enjoy a greened garden square fitted with children's playground starting from June

5. Sadok Vyshnevy

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

· Utilities on the site

· All homes commissioned and available for sale

· 23 apartments or 61% of all apartments sold (no sales in 2018)

6. Glangate

Land plot for shopping centre development in Kremenchuk

Investing Policy

Dragon-Ukrainian Properties & Development plc ("DUPD" or "the Company") is an "investing company" for the purposes of the AIM Rules for Companies. The AIM Rules for Companies require an investing company to have in place an investing policy which is "sufficiently precise and detailed so that it is clear, specific and definitive". The AIM Rules for Companies provide guidance in relation to what this investing policy is expected to include as a minimum.

On 17 February 2014, the Company's shareholders approved a new investing policy, which is set out below.

Investing strategy - asset allocation - geographic focus and sector focus

The Board will seek to realise the Company's properties in an orderly manner, such realisations to be effected at such times, on such terms and in such manner as the Board (in its absolute discretion) may determine.

Assets or companies in which the Company can invest

The Company will not make any investments in new properties.

However, this will not preclude the Board (in its absolute discretion) from making any investment in existing properties in the following circumstances:

· where the Board, as advised by the Manager, believes such investment is to protect or enhance the value and saleability of such property;

· where the Company is contractually committed to make such investment;

· in respect of properties currently under construction, where the Company continues to pursue, where necessary, any licenses and/or approvals which are required for a particular property to continue its development;

· undertaking investment in additional phases of such properties (other than the existing phase currently being developed in respect of such property) where the Board, as advised by the Manager, believes such investment in additional phases is to protect or enhance the value and saleability of such property;

· authorising the expenditure of such capital as is necessary to: (i) acquire any joint venture party's interests in any of the Company's existing investments; or (ii) carry out any construction necessary to maximise value and saleability of any existing property; and

· entering into any contract or other arrangement with any third party to realise all or any part of its existing properties.

In addition, the Company will only commence construction on any of its existing properties that have yet to commence construction to protect or enhance the value and saleability of such property. In respect of such properties, the Company will also continue to pursue, where necessary, any licenses and/or approvals which are required for a particular property.

These above restrictions will not preclude the Company making investments in short-dated cash or near cash equivalent securities, which form part of its cash management practices.

Strategy by which the investing policy will be achieved

The Board and the Manager will investigate a number of approaches to realisation of its properties, which will include, but not be limited to, sales of individual assets or groups of assets or a sale of the entire portfolio (or a combination of such methodologies), or an in-specie distribution of such property. The Board will only consider in-specie distributions to shareholders when other realisation alternatives have been fully explored and the relevant property investment is quoted on a stock exchange.

The Board and the Manager may decide to appoint independent advisers to assist in the execution of the New Investing Policy, including, but not limited to, property valuers and property agents.

Whether investments will be active or passive investments

The Manager assumes a proactive approach to every property project in the Company's property portfolio.

Holding period for investments

The New Investing Policy includes an orderly realisation of the Company's properties over the medium term with a view to maximising returns for shareholders. Accordingly, the Board will seek to realise the Company's properties and exercise all legal rights of the Company in such manner and on such timescale as the Directors see fit, with a view to ensuring that returns to shareholders are maximised.

Spread of investments and maximum exposure limits

The Company does not have a prescribed policy in relation to the spread of investments or maximum exposure limits. The realisation of the Company's properties may, over time, result in the Company having a reduction in the diversification of investments. However, the realisation of the Company's properties over time will also result in the reduction of the Company's overall investment in real estate assets.

Policy in relation to gearing and cross holdings

The Board (in its absolute discretion) may make prudent use of leverage to make investments or expenditure consistent with its investing policy and to satisfy working capital requirements. Borrowings may be undertaken by the Company itself or by any of its subsidiaries or project companies. Given that the New Investing Policy is an orderly realisation of the Company's properties over the medium term, it is not expected that the Company will secure additional debt financing other than where the Company believes it is required to protect or enhance the value and saleability of such property.

Investing restrictions

Other than the requirement for the Manager to manage any potential conflicts of interest, and the requirement to invest in accordance with its New Investing Policy, there are no other investing restrictions.

Nature of returns that the Company will seek to deliver to shareholders

Under the New Investing Policy, the Board will seek to return any surplus funds to shareholders when appropriate. The net proceeds of all property realisations will be returned to shareholders, at the Board's discretion, having regard to:

· the requirement to invest further funds in the Company's existing property projects only to protect or enhance the value and saleability of such property, and/or where the Company is contractually committed to make such investment;

· the Company's working capital requirements and running costs (including the fees payable under the Third Management Agreement);

· the cost and tax-efficiency of individual transactions and/or distributions; and

· the 2006 Act.

It is expected that surplus capital will be returned to shareholders over time in a manner which may involve dividends, share buy-backs, voluntary tender offers, dividends and/or capital reductions. The decision to make any such returns, the method through which such returns are effected, and the quantum and timing of any such returns will be at the sole discretion of the Board. The Board will only consider in-specie distributions to shareholders when other realisation alternatives have been fully explored and the relevant property investment is quoted on a stock exchange.

Other matters

Cash management

Pending future returns of value to shareholders, all of the Company's funds (whether in the form of cash or otherwise) will be kept under the control of the Board or as it may direct.

Currency hedging

The Company will hedge currency and interest rate risk as and to the extent that the Board (in its absolute discretion) considers appropriate.

Management of liabilities

The Company will endeavour, at the direction of the Board (in its absolute discretion), to manage all actual or potential material liabilities, risks or exposures of the Company (including, without limitation, any existing contractual commitments, disputes (potential or actual) and litigation (threatened or actual)) in a manner consistent with the orderly realisation of the Company's properties.

Conflict policy

The Dragon Capital Group pursues a number of real estate development projects in Ukraine. Under the terms of the Third Management Agreement the Manager has no ability to commit the Company or any of its subsidiaries to make any acquisition or disposal. In the event that any Relevant Party has the opportunity to acquire Conflict Property then the Manager shall cause the Relevant Party to provide, inter alia, all material details of the Conflict Property to the Company, in order for the Company to decide whether or not to notify the Manager that it should pursue the opportunity to acquire the Conflict Property (within the scope of the New Investing Policy). If the Company so notifies the Manager of its intention to pursue the opportunity to acquire a Conflict Property, the Manager shall procure that no affiliate of the Manager shall acquire any interest in the Conflict Property in question without the prior consent of the Company.

Directors' Remuneration Report

Further to the revision of the remuneration policy of the Board members in November 2014, in January 2016 the Board approved a slight modification to the Chairman's remuneration. In accordance with the modification of the remuneration, as Non-executive Chairman, Mr. Iwashko is entitled to a fee of USD 50,000 instead of a fee of USD 40,000 plus any applicable taxes plus USD 10,000 towards compensating his costs associated with carrying out his duty as the Chairman of the Board.

Mr. Lou van der Heijden's remuneration remained unchanged and Mr. van der Heijden is entitled to a fee of USD 35,000 plus any applicable taxes plus USD 5,000 as compensation for additional duties for chairing the Audit Committee.

The directors' fees for 2018 are summarised in the table below:

The aggregate amount paid to Directors for the period ending 31 December 2018 was equal to USD 99 thousand including reimbursement of all reasonable business and travel expenses.

There were no other payments besides the ones mentioned above being paid to the Directors for the year ending 31 December 2018.

Corporate Governance

Combined Code

The Directors recognise the importance of good corporate governance and have chosen to comply with the Quoted Companies Alliance Corporate Governance Code (the 'QCA Code') where possible from the date of its listing on 1 June 2007. The QCA Code was developed by the QCA in consultation with a number of significant institutional small company investors, as an alternative corporate governance code applicable to AIM companies. The underlying principle of the QCA Code is that "the purpose of good corporate governance is to ensure that the company is managed in an efficient, effective and entrepreneurial manner for the benefit of all shareholders over the longer term". Details of application of QCA principles could be found on the corporate web site https://dragon-upd.com/investor-information/important-information/corporate-governance

The Board and Board Committees

The Board is comprised of three directors: the non-executive Chairman, Mark Iwashko, and two other non-executive directors: Aloysius Johannes van der Heijden and Tomas Fiala. Tomas Fiala, one of the Company's Directors, is the principal shareholder and Managing Director of the Dragon Capital Group which holds 66,902,154 ordinary shares in the Company at the date of publication of this annual report (61.17% of the total number of shares). At the reporting date of 31 December 2018, Dragon Capital Group held 66,607,334 ordinary shares in the Company (60.91% of the total number of shares). DCM Limited is the investment manager for the Company and is a part of the Dragon Capital Group. Save in that respect, the Board considers the Directors (with the exception of Tomas Fiala), to be independent for the purposes of the above-mentioned Corporate Governance Code. The letters of appointment of all directors are available for inspection at the Company's registered office during normal business hours.

The Board meets from time to time as required to take decisions on the development of projects and to consider general matters affecting the Company and otherwise as required. Issues which do not require discussion by the Board members are dealt with by the written board resolution.

The Audit Committee is chaired by Mr van der Heijden and comprised of Mr van der Heijden and Mr Iwashko. The Audit Committee meets at least twice a year and otherwise on an ad hoc basis as required. The Audit Committee reviews the annual and interim accounts, meets with its nomad and advisors, reviews supporting property valuation reports and monitors internal controls and Company policies. It meets regularly with the Company's auditors to review their reports on draft accounts and internal controls.

Risk Management and Internal Control

Risk management is the responsibility of the Audit Committee, which is responsible to the Board for ensuring that proper procedures are in place, and are being effectively implemented to identify, evaluate and manage any significant risks faced by the Company.

An outline of major risk factors affecting the Company was described in the admission document and is regularly reviewed by the Audit committee for their importance to the Company and for the controls that are in place. The Board, on the advice of the Investment Manager, updates this risk outline as changes arise in the nature of risks and reviews and amends controls that are necessary to mitigate them. The Audit Committee reviews the risk outline and the effectiveness of the risk-modelling undertaken by the Investment Manager on a regular basis.

Significant issues

The financial assets at fair value through profit or loss is undertaken in accordance with the accounting policies, disclosed in note 3(b) Subsidiaries, note 3(c) Associates and note 3(d) Loans receivable from investees and the processes disclosed in note 4 Financial assets at fair value through profit or loss. The audit includes an independent review of valuation models used for reasonableness and verification of supporting documentation. All financial assets have been categorised as Level 3 within the IFRSs 13 fair value hierarchy

Relations with shareholders

The Board acknowledges that a significant part of its role is to represent and promote the interests of shareholders. The Board is accountable to shareholders for the performance and activities of the Company. The Board encourages participation at the Annual General Meeting at which a detailed review of the business and objectives of the Company are given to shareholders. The company proposes separate resolutions at the AGM for each substantially separate issue, and there is always an individual resolution relating to re-election of every director, appointing auditors and approval of financial statements. Company's shareholders have access to current information on the Company through its website, www.dragon-upd.com, which is regularly updated.

Directors' Report

The Directors present their annual report and the audited Company financial statements of Dragon-Ukrainian Properties & Development plc (the 'Company') for the year ended 31 December 2018.

Principal activities

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

http://www.dragon-upd.com/files/Investing%20Policy%20approved%20by%20the%20EGM%20held%20on%2017%20Feb%202014.pdf

The Company was incorporated in the Isle of Man under the provisions of the Companies Act 1931 to 2004 on 23 February 2007 with a company number 119018C. Following the resolution of the Extraordinary Meeting of Shareholders passed on 17 February 2014 the Company was de-registered under the provisions of the Companies Acts 1931 to 2004 and has been re-registered under the provisions of the Companies Act 2006 on 27 February 2014 with a company number 010832V. The Company's registered office is 2nd Floor, St Mary's Court, 20 Hill Street, Douglas, Isle of Man, IM1 1EU and its principal place of business is Ukraine.

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

Results

The Company made a gain before taxation for the year ended 31 December 2018 of USD 3,171 thousands (2017: loss of USD 4,853 thousands).

Directors

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

Aloysius Wilhelmus Johannes van der Heijden

Date of appointment 10 April 2007

Tomas Fiala

Date of appointment 26 February 2007

Mark Iwashko

Date of appointment: 26 November 2014

Directors' interests

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

Mr Tomas Fiala, one of the Company's directors, is the principal shareholder and managing director of the Dragon Capital Group which acquired 6,831,500 shares (6.25%) of the Company during the first (June 2007) and second (November 2007) share issues. In the following years through a series of market purchases Dragon Capital Group acquired additional shares and held in total 19,433,129 ordinary shares as at 31 December 2016.

During 2017 Dragon Capital Group purchased 47,174,205 ordinary shares of the Company. Following this share purchase, Dragon Capital Group holds 66,607,334 shares representing 60.91% of the issued share capital of the Company.

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

Auditors

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

On behalf of the Board

Mark Iwashko

Non-executive Chairman

30 May 2019

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

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

The Directors are required to prepare financial statements for each financial year. They have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law.

The Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period. In preparing the financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable, relevant and reliable;

· state whether they have been prepared in accordance with IFRSs as adopted by the EU;

· assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

· use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Isle of Man Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Mark Iwashko

Non-executive Chairman

30 May 2019

Independent Auditors' Report to the Members of Dragon-Ukrainian

Properties & Development PLC

1 Our opinion is unmodified

We have audited the financial statements of Dragon Ukrainian Properties & Development PLC ("the Company") for the year ended 31 December 2018 which comprise the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Changes in Equity, the Statement of Cash Flows and the related notes, including the accounting policies in note 3.

In our opinion the financial statements:

· give a true and fair view of the state of the Company's affairs as at 31 December 2018 and of its profit for the year then ended;

· have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU); and

· the financial statements have been prepared in accordance with the requirements of the Isle of Man Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

2 Key audit matters: our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. One such matter was identified. This matter was addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, we do not provide a separate opinion on this matter. There has been no change in Key Audit Matters since the prior year.

3 Our application of materiality and an overview of the scope of our audit

Materiality for the financial statements as a whole was set at US$300,000 (2017: US$415,000), determined with reference to a benchmark of Company's total assets, of which it represents 1% (2017: 1%).

We agreed to report to the Board of Directors any corrected or uncorrected identified misstatements exceeding US$15,000 (2017: US$20,000), in addition to other identified misstatements that warranted reporting on qualitative grounds.

Our audit of the Company was undertaken to the materiality level specified above and was all performed at the Company's head office in Kyiv, Ukraine.

4 We have nothing to report on going concern

The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or to cease their operations, and as they have concluded that the Company's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements ("the going concern period").

Our responsibility is to conclude on the appropriateness of the Directors' conclusions and, had there been a material uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the company will continue in operation.

In our evaluation of the Directors' conclusions, we considered the inherent risks to the Company's business model, and analysed how those risks might affect the Company's financial resources or ability to continue operations over the going concern period. We evaluated those risks and concluded that they were not significant enough to require us to perform additional audit procedures.

Based on this work, we are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least a year from the date of approval of the financial statements.

We have nothing to report in these respects, and we did not identify going concern as a key audit matter.

5 We have nothing to report on the other information in the Annual Report

The Directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.

6 Respective responsibilities

Directors' responsibilities

As explained more fully in their statement set out on page 19, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities.

7 The purpose of our audit work and to whom we owe our responsibilities

This report is made solely to the Company's members, as a body, in accordance with Section 80(c) of the Isle of Man Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

KPMG Audit LLC

Chartered Accountants

Heritage Court

41 Athol Street Douglas

Isle of Man IM99 1HN

30 May 2019

Statement of financial position as at 31 December 2018

These financial statements were approved by the board of Directors (the Board) on 30 May 2019 and were signed on its behalf by:

Non-executive Chairman Mark Iwashko

Statement of comprehensive income for the year ended 31 December 2018

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

Statement of cash flows for the year ended 31 December 2018

Notes to the financial statements

1. Background

(a) Organisation and operations

Dragon - Ukrainian Properties & Development PLC (the 'Company') was incorporated in the Isle of Man on 23 February 2007. The Company's registered office is 2nd Floor, St Mary's Court, 20 Hill Street, Douglas, Isle of Man, IM1 1EU and its principal place of business is Ukraine.

On 1 June 2007 the Company raised USD 208 million through an initial public offering on the AIM Market (AIM) of the London Stock Exchange. On 29 November 2007, the Company completed a secondary placing on AIM and raised USD 100 million.

The main activities of the Company are investing in the development of its existing real estate properties in Ukraine. The Company provides financing to its investees either through equity or debt financing. On 17 February 2014 an Extraordinary Meeting of Shareholders approved a new Investing Policy as defined by the AIM Rules for Companies. Under this revised policy the Board will seek to realise the Company's Properties in an orderly manner, such realisations to be effected at such times, on such terms and in such manner as the Board (in its absolute discretion) may determine.

(b) Business environment

The Company's operations are primarily located in Ukraine. The political and economic situation in Ukraine has been subject to significant turbulence in recent years and demonstrates characteristics of an emerging market. Consequently, operations in the country involve risks that do not typically exist in other markets.

The Ukrainian economy continues to recover following a 16% cumulative decline in output and sharp currency devaluation in 2014-2015 which were brought about by military conflict with Russia-backed separatists in eastern regions, loss of control over territory and export-oriented production assets in this area, and Russia's restrictions on trade and transit of Ukraine's goods and economic misbalances accumulated in previous years. Real GDP grew by 3.3% y-o-y in 2018, accelerating from 2.5% in 2017 and rising to the highest level in seven years. Economic recovery remained driven by domestic consumption and investment demand. Household consumption expanded by 9.5% y-o-y in 2017 and 8.9% y-o-y in 2018, supported by growing salaries and inflows of remittances (both being a function of intensifying labour migration), an increase in pension spending in 2017 as part of pension reform, improving consumer confidence, and incipient recovery in retail bank lending. Investment in fixed capital rose by 22% y-o-y in 2017 and 16.4% y-o-y in 2018 as companies across many sectors modernized and expanded their production capacities. Business confidence remained on the rise, supported by a stable macroeconomic environment and government reforms resulting in a better investment climate.

Ukraine's macroeconomic stability rests on continued cooperation with the IMF and other official creditors, and prudent fiscal and monetary policies. The National Bank of Ukraine (NBU) adopted an inflation targeting regime and started to gradually relax the strict capital and exchange restrictions imposed in 2014 and 2015, including permission to pay dividends within certain limits and lowering the requirement for converting foreign currency proceeds. New currency legislation came into effect on 7 February 2019, substituting for a number of old-dated restrictive legislative acts and paving the way for fully liberalizing currency and capital controls in the future. Tight monetary policy helped tame inflation to 9.8% y-o-y by end-2018 from 13.7% in 2017, while Ukraine's currency, the hryvnia, appreciated by 1.4% versus the U.S. dollar, to UAH 27.7:USD, becoming one of the best performers among emerging markets last year. The Central Bank's international reserves increased to USD 20.8bn by end-2018, the largest year-end record for the past five years. The fiscal deficit has remained below 2.5% of GDP for several years, helping cut the debt-to-GDP ratio to 61% in 2018 from a high of 81% in 2016. The banking sector was cleaned of non-viable banks, and the country's largest private bank, Privatbank, was nationalized in December 2016. As at 31 December 2018, 77 banks operated in Ukraine, down from 180 as at 31 December 2013. The banking sector reported record high net profit of UAH 21bn in 2018 following four years of losses.

The Ukrainian government progressed with structural reforms, including those affecting the business environment. Ukraine's ranking in the World Bank's Doing Business survey has improved by 41 spots over the past five years, to 71st (2019 ranking based on 2018 data). In particular, Ukraine leapt in the Paying Taxes sub-index by 110 spots (vs. 2014 ranking) after almost halving the rate of the unified social contribution to 22% in 2016, implementing an electronic system for filing and paying labour taxes and introducing an electronic system for refunding VAT to exporters. Ukraine's Protecting Minority Investors score rose 56 spots over the period, as new regulations made it easier to monitor and review related-party transactions. The government also significantly reduced the number of permits and licensed activities, abolished the obsolete system of mandatory certification of products and eliminated stamps as a mandatory attribute of the legal entity. Ukrainian authorities launched reforms in many other areas, including public procurement, decentralization, energy sector, healthcare and education.

In December 2018, the IMF approved a new 14-month Stand-By Arrangement (SBA) for Ukraine, totalling SDR 2.8 billion (equivalent to USD 3.9 billion), immediately disbursing USD 1.4bn into Central Bank reserves. The remaining amount is conditional on progress in reforms covering the energy, financial sector, tax administration and anti-corruption spheres. In December 2018, Moody's upgraded its credit rating on Ukraine by one notch to Caa1, with a stable outlook. The rating action reflects a reduction in Ukraine's external vulnerabilities thanks to a new SBA with the IMF and improved resilience to geopolitical risks, supported by the agency's expectation that recently adopted reforms would help reduce corruption and strengthen institutions.

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

2. Basis of preparation

(a) Statement of compliance

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

This is the first set of the Company's annual financial statements in which IFRS 9 Financial Instruments has been applied. Changes to significant accounting policies are described in Note 2(c).

(b) Basis of measurement

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

(c) Adoption of new and revised International Financial Reporting standards and Interpretations as adopted by the European Union (EU)

As from 1 January 2018, the Company adopted all changes to International Financial Reporting Standards (IFRSs), which are relevant to its operations. This adoption did not have a material effect on the accounting policies of the Company.

The following Standards, Amendments to Standards and Interpretations have been issued by International Accounting Standards Board ("IASB") but are not yet effective for annual periods beginning on 1 January 2018. Those which may be relevant to the Company are set below. The Company does not plan to adopt these Standards early.

The Company has initially applied IFRS 9 from 1 January 2018.

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

Amendments to IAS 1 "Presentation of Financial Statements"require impairment of financial assets to be presented in a separate line item in the statement of profit or loss and other comprehensive income. Impairment losses on financial assets are presented under 'Other expenses', similar to the presentation under IAS 39, and not presented separately in the statement of profit or loss and other comprehensive income due to materiality considerations.

Additionally, the Company has adopted consequential amendments to IFRS 7 "Financial Instruments: Disclosures" that are applied to disclosures about 2018 but have not been generally applied to comparative information.

Adoption of this standard did not have significant impact on the Company`s financial statements.

IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income ('FVOCI') and fair value through profit or loss ('FVTPL'). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The standard eliminates the existing IAS 39 categories of held-to-maturity, loans and receivables and available-for-sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the whole hybrid instrument is assessed for classification.

The following table below explains the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Company's financial assets and financial liabilities as at 1 January 2018:

Impairment of financial assets

IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' (ECL) model.

Impairment losses were evaluated as follows:

· for bank deposits and cash and cash equivalents the expected credit losses were calculated on the basis of external credit ratings and statistical information on default and repayment for similar financial instruments.

· for receivables from sale of Obolon Residences project and other accounts receivable the Company measured ECLs as a probability-weighted estimate of credit losses. Credit losses were measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expected to receive). Impairment has been measured on a 12-month expected loss basis and reflected the short maturities of the exposures, due to which no impairment allowance has been recognized by the Company.

Under IFRS 9, credit losses are recognised earlier than under IAS 39. For an explanation of how the Company applies the impairment requirements of IFRS 9, see Note 3(h).

Transition

The Company has used an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements. Therefore, comparative periods have not been restated. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves as at 1 January 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9, but rather those of IAS 39.

The adoption of IFRS 9 did not have material effect on the Company's retained earnings and reserves as at 1 January 2018.

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

(d) Functional and presentation currency

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

(i) Determination of functional currency

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

(e) Use of judgments, estimates and assumptions

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

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

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

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

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

• Note 4 - Financial assets at fair value through profit or loss.

Measurement of fair values

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

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

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

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

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

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

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

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

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

• Note 4 - Financial assets at fair value through profit or loss.

3. Significant accounting policies

The Company has consistently applied the following accounting policies to all periods presented in these financial statements.

(a) Investment entity

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

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

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

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

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

• The Company's Directors (acting on behalf of the Company) take only strategic decisions and approve overall direction of investing activity in order to maximise the returns to shareholders. At the same time, the Directors chose and appointed DCM Limited as the Company's investment manager (see Note 9). DCM Limited's employees perform recurring management operating activities in accordance with the Fourth Management Agreement and within the strategic decisions of the Directors. There is no separate substantial business activity beyond earning returns from capital appreciation and investment income. The Directors seek to return any surplus funds and net proceeds from property realisation to shareholders when appropriate, in accordance with its investing policy.

Considering the above, the Company's management determined that the Company meets the definition of investment entity in accordance with IFRS 10 Consolidated Financial Statements and, accordingly, the Company has not consolidated its subsidiaries. The Company measures its investments in subsidiaries at fair value through profit and loss (Note 3(b)). Such approach provides a fair and transparent view on the Company to the Company's shareholders and stakeholders.

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

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

(b) Subsidiaries

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

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

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

(c) Associates

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

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

As at 31 December 2017, investment in associates comprise the investment in Hindale Executive Investments Limited (part of investment in the Avenue Shopping Centre project made through Landzone LTD investee which holds 18.77% of interest in Hindale Ltd). The investment in Hindale Executive Investments Limited was disposed by Landzone Ltd during the year ended 31 December 2017 (see note 4(b)).

(d) Loans receivable from investees

In addition to equity financing to its investees, as a part of structuring its investments the Company also provides debt financing to its investees. As described in Note 3(a), the Company accounts receivable from its investees at fair value through profit or loss, as such that are managed, and whose performance is evaluated, on a fair value basis.

The loans are denominated in USD and EUR, unsecured, interest bearing (up to 11.0%) with variable terms of repayment and represent an alternative to the equity way of financing investments. The Company at its capacity of the shareholder may amend any terms of the loans including modification to convert loans in full or in part into equity.

(e) Foreign currency

Transactions in foreign currencies are translated into US dollars at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into US dollar at the exchange rate at the date that the fair value was determined.

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

(f) Financial instruments

(i) Recognition and initial measurement

Accounting policy applicable from and before 1 January 2018

Trade receivables are initially recognized when they are originated.

All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.

(ii) Classification and subsequent measurement of financial assets

Accounting policy applicable from 1 January 2018

On initial recognition, a financial asset is classified as measured at: amortised cost; fair value through other comprehensive income (FVOCI) - debt investment; FVOCI - equity investment; or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL to eliminate or significantly reduce an accounting mismatch:

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

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

All financial assets not classified as measured at amortised cost as described above are measured at FVTPL. These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss.

The Company's financial assets comprise finance assets at FVTPL, trade and other receivables, cash and cash equivalents and short-term deposits and are classified into the financial assets at amortised cost category. These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

Cash and cash equivalents comprise cash balances, call deposits and highly liquid investments with maturities of three months or less from the acquisition date that were subject to insignificant risk of changes in their fair value.

The Company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:

· the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management's strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets;

· how the performance of the portfolio is evaluated and reported to the Company's management;

· the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;

· how managers of the business are compensated - e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and

· the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Company's stated objective for managing the financial assets is achieved and how cash flows are realised.

Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.

For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Company considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Company considers:

· contingent events that would change the amount or timing of cash flows;

· leverage features;

· prepayment and extension terms;

· terms that limit the Company's claim to cash flows from specified assets - e.g. non-recourse asset arrangements; and

· features that modify consideration of the time value of money - e.g. periodical reset of interest rates.

Accounting policy applicable before 1 January 2018

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

Financial assets at fair value through profit or loss (FVTPL)

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

Financial assets designated at fair value through profit or loss comprise loans receivable from investees at fair value through profit or loss and equity investments at fair value through profit or loss (see Notes 4(b) and 4(c)).

Loans and receivables were a category of financial assets with fixed or determinable payments that were not quoted in an active market. Such assets were recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables were measured at amortised cost using the effective interest method, less any impairment losses. Interest income, foreign exchange gains and losses and impairment were also recognised in profit or loss. Any gain or loss on derecognition were also recognised in profit or loss for the period.

Loans and receivables category comprised the following classes of assets: trade and other receivables and cash and cash equivalents. Cash and cash equivalents comprised cash balances, call deposits and liquid investments with maturities at initial recognition of three months or less.

(iii) Classification and subsequent measurement of financial liabilities

Accounting policy applicable from and before 1 January 2018

Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it meets the definition of held-for-trading or it is designated as such on initial recognition.

Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.

The Company measures all of its financial liabilities at amortized cost.

(iv) Offsetting

Financial assets and liabilities are offset and the net amount presented in the statements of financial position when, and only when, the Company currently has a legally enforceable right to set off and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Company currently has a legally enforceable right to set off if that right is not contingent on a future event and enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the Company and all counterparties.

(g) 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.

Share premium

Share premium reserves include amounts that were created due to the issue of share capital at a value price greater than the nominal.

Repurchase, disposal and reissue of share capital (treasury shares)

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

(h) Impairment

Accounting policy applicable from 1 January 2018

The Company uses 'expected credit loss' (ECL) model. This impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments.

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

Loss allowances are measured on either of the following bases:

· 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and

· lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.

The Company has elected to measure loss allowances for trade receivables and receivables on internal settlements at an amount equal to lifetime ECLs.

Impairment on cash and cash equivalents is measured on a 12-month expected loss basis and reflects the short maturities of the exposures.

The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

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

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

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

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

Measurement of ECLs

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

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

Credit-impaired financial assets

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

Evidence that a financial asset is credit-impaired includes the following observable data:

· significant financial difficulty of the borrower or issuer;

· a breach of contract such as a default or past due event;

· the restructuring of a debt or advance by the Company on terms that the Company would not consider otherwise;

· it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or

· the disappearance of an active market for a security because of financial difficulties.

In making an assessment of whether cash and cash equivalents are credit-impaired, the Company considers the following factors:

· significant financial difficulty of the bank;

· a breach of contract such as a default or a contractual payment being more than a couple of days past due;

· it is becoming probable that the bank will enter bankruptcy or other financial reorganisation.

Presentation of impairment

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

Impairment losses on financial assets are presented under 'other expenses' and not presented separately in the statement of profit or loss and OCI due to materiality considerations.

Accounting policy applicable before 1 January 2018

Non-derivative financial assets

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

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

Loans and receivables

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

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

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

(f) Provisions

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

(g) Finance income and costs

Finance income comprises interest income on financial assets, calculated using the effective interest rate, and currency exchange gains. Finance costs comprise currency exchange losses.

Effective interest rate - Accounting policy applicable from 1 January 2018

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to: 

· the gross carrying amount of the financial asset; or

· the amortised cost of the financial liability.

In calculating the effective interest rate, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired). However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income is made on a gross basis again.

Effective interest rate - Accounting policy applicable before 1 January 2018

The calculation of the effective interest rate includes transaction costs and fees and amounts paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.

Amortised cost and gross carrying amount

The 'amortised cost' of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance (or impairment allowance before 1 January 2018).

The 'gross carrying amount of a financial asset' measured at amortised cost is the amortised cost of a financial asset before adjusting for any expected credit loss allowance.

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

(h) Dividend income

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

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

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

(j) Fees and administrative expenses

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

(k) Segment reporting

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

The Directors determined that the sole segment in which the Company operates is investing in property development in Ukraine.

(l) Tax

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

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

Further, as stated in Note 12(b), the Company's investees perform most of their operations in Ukraine and are therefore within the jurisdiction of the Ukrainian tax authorities.

(m) Earnings per share

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

(n) Changes in presentation

Certain comparative information in these financial statements was amended to conform to the current year presentation.

4. Financial assets at fair value through profit or loss

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

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

(a) Investment in Arricano Real Estate PLC

The Company acquired a shareholding in Arricano Real Estate PLC (Arricano) in 2010.In September 2013 the shares of Arricano were admitted to trading on the AIM market of the London Stock Exchange.

There was no active market trading in Arricano shares during 2018 and 2017. Therefore, management used the adjusted net assets method to estimate the fair value of investment in Arricano. The Company's management considers this to be the most appropriate method to estimate the fair value of the Company's investment in Arricano.

Although management believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value. Arricano Real Estate PLC's net assets value according to the audited financial statements as at 31 December 2018 amounted to USD 94,032 thousand (31 December 2017: USD 52,182 thousand).

The Company's share in Arricano Real Estate PLC is 12.51% as at 31 December 2018 and31 December 2017.

If Arricano's net assets value was 10% lower than that used in the valuation model, the fair value of the investment in Arricano as at 31 December 2018 would be USD 1,065 thousand lower (31 December 2017: USD 653 thousand lower). If Arricano's net assets value was 10% higher than that used in the valuation model, the fair value of the investment in Arricano as at 31 December 2018 would be USD 1,065 thousand higher (31 December 2017: USD 653 thousand higher).

(b) Investment in subsidiaries and associates (investees)

(i) Valuation technique and significant unobservable inputs

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

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

• Assets are mainly represented by real estate properties and prepayments for properties (land). The fair value of these properties and prepayments for properties was assessed by the independent appraiser, CBRE Ukraine.

• Liabilities are mainly represented by long-term loans payable due to the Company.

• Trade receivables balance is mainly represented by long-term receivables. Fair value of long-term receivables that carry no interest is measured at present value of all future cash receipts discounted using the prevailing market rate(s) of interest for a similar instrument, with a similar credit rating.

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

(ii) Investment in Obolon Residences project

In October 2017 the Company has announced the sale of the Company's remaining interest in the Obolon Residences project to Chariton Overseas Limited, an unrelated party that acquired the right to develop phase 2 of Obolon Residences project in February 2015. Agreements related to sale of Obolon Residences project were concluded during October 2017.

The sale of the Company's interest in Obolon Residences was made through the sale of the rights and shares of certain companies that own and manage the Obolon Residences project, including the unsold inventory in relation to phase one, as well as assignment to Cheriton Overseas Limited of all outstanding intercompany loans balances that were due to the Company and the Company's investees.

In accordance with the sale agreements concluded with respect to sale of Obolon Residences project the Company is entitled to the total consideration of USD 9,000 thousand to be payable in cash in four instalments due by April 2018 and represented as follows:

• sale of the rights and shares owned by the Company and assignment of outstanding intercompany loans due to the Company in the amount of USD 4,979 thousand (Note 10);

• sale of the rights and shares owned by the Company's investees and assignment of outstanding intercompany loans due to the Company's investees in the amount of USD 4,021 thousand (Note 10).

The fair value of the Obolon Residences project as at 30 June 2017, which is the latest fair value assessment of the project performed by an independent appraiser, was USD 15,322 thousand. As such a loss on disposal of USD 6,322 thousand is recognised in profit and loss for the year ended 31 December 2017 (Note 10).

Out of USD 4,979 thousand relating to the sale of the rights and shares owned by the Company and assignment of outstanding intercompany loans due to the Company mentioned above, USD 991 thousand were received in cash during the year ended 31 December 2017 and the remaining amount of USD 3,999 thousand was received by Company in April 2018 in two instalments.

Out of USD 4,021 thousand relating to the sale of the rights and shares owned by the Company's investees and assignment of outstanding intercompany loans due to the Company's investees mentioned above, the Company received in cash USD 2,501 thousand during the year ended 31 December 2017 and the remaining portion of USD 1,520 thousand was received by the Company's investee in 2017 and retained by the Company's investee as cash and cash equivalents as at 31 December 2017. During 2018 this cash balance was transferred to the Company by the Company's investee through settlement of the respective portion of the intercompany loan.

(iii) Investment in Landzone Ltd (Avenue Shopping mall)

On 4 July 2017 the Board was informed by the Investment Manager of the project that Promtek LLC has stopped paying lease payments and it is very unlikely that it will be able to renew the lease agreement for a land plot which expires in May 2018. Based on this the Board decided to keep the investment in Landzone which holds 18.77% of interest in Hindale Ltd at zero value in the balance sheet of the Company. On its subsequent meeting on 4 September 2017 the Board has approved the sale of the corporate rights of Hindale Ltd to a third party. On 10 October 2017 Landzone Ltd has signed share purchase agreement with Infinity REEF Ltd and sold Hindale's shares for the consideration of USD 940.

As at 31 December 2018 the investment in Landzone Ltd is valued at zero (31 December 2017: zero). A fair value loss in the amount USD 172 thousand was recognized in profit or loss during the year ended 31 December 2017.

Summary of fair values of respective investment projects is as follows as at 31 December 2018:

Summary of fair values of respective investment projects as at 31 December 2017 is as follows:

To assist with the estimation of fair value of investment properties, prepayments for land and inventories (together 'the real estate projects') as at 31 December 2018 and 2017 the Directors engaged independent appraiser CBRE Ukraine, having a recognised professional qualification and recent experience in the location and categories of the projects being valued.

The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation is prepared in accordance with practice standards contained in the Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors (RICS) or in accordance with International Valuation Standards published by the International Valuations Standards Council.

The fair value measurement, developed for determination of fair value of the properties, is categorised within Level 3 of the fair value hierarchy, due to the significance of unobservable inputs to the measurement.

Investment properties

As at 31 December 2018 investment properties were represented by Green Hills, Riviera Villas, Kremenchuk Retail Centre projects and Land bank (82 ha).

In the absence of current prices in an active market, the valuations are prepared under the income approach by converting estimated future cash flows to a single current capital value.

The estimation of fair value was made using a net present value calculation based on certain assumptions, which represent key unobservable inputs, the most important of which as at 31 December 2018 are as follows:

• monthly average rental rates - which were based on estimated rental rates ranging from USD 4 to USD 8 per sq. m.

• development costs based on current construction prices

• for Green Hills project average sales price of land plot amounts to USD 125 per sq. m.

• For Riviera Villas project average cottage sales price amounts to USD 1,433 per sq. m.

• discount rate ranging from 18% to 22%

• sales period - from 1 to 7 years

• all relevant licenses and permits, to the extent not yet received, will be obtained, in accordance with the timetables as set out in the investment project plans.

As at 31 December 2017 the respective assumptions, which represent key unobservable inputs for determination of fair value, were as follows:

• monthly rental rates - which were based on estimated rental rates ranging from USD 4 to USD 10 per sq. m.

• development costs based on current construction prices

• for Green Hills project average cottage sales price amounts to USD 917 per sq. m.

• for Riviera Villas project average cottage sales price amounts to USD 1,488 per sq. m.

• discount rate - 22%

• sales period - from 1 to 7 years

• 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.

Prepayments for land

Land plots for the land bank project with a total area of 481 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 2018 and 2017. Land plots with a total area of 19.9 ha had been rezoned for construction use by the end of 2012. 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.

However, the Ukrainian market for land plots zoned for agricultural use is characterized by low liquidity and restrictions related to disposal of such land. Therefore, although management of the Company exercised the generally acceptable valuation approach in such circumstances taking into account all available information, significant uncertainties with regards to low liquidity and legislation restrictions still exist as at 31 December 2018 and 31 December 2017.

The estimation of fair value of the underlying assets (the land plots) was made based on certain assumptions, which represent key unobservable inputs, the most important of which as at 31 December 2018 are as follows:

• average market prices ranging from USD 41 thousand to USD 125 thousand per ha

• discount rate of 23%

• sales period - from 1 to 7 years

As at 31 December 2017 the respective assumptions were as follows:

• average market prices ranging from USD 43 thousand to USD 124 thousand per ha

• discount rate of 23%

• sales period - from 1 to 7 years

Inventory

 As at 31 December 2018 and 2017 inventory was represented by the gated community Sadok Vyshnevyi (15 constructed flats in townhouses and relevant land plots).

The estimation of fair value was made using a net present value calculation based on certain assumptions, which represent key unobservable inputs, the most important of which as at31 December 2018 are as follows:

• average market price USD 395 per sq. m.

• discount rate 20%

• sales period - from 1 to 3 years

As at 31 December 2017 the respective assumptions were as follows:

• average market price USD 430 per sq. m.

• discount rate 20%

• sales period - from 1 to 3 years

Other assets and liabilities

Liabilities are mainly represented by the long-term loans payable to the Company.

Trade receivables balance is mainly represented by long-term receivables. Fair value of long-term receivables that carry no interest is measured at present value of all estimated future cash receipts discounted using the prevailing market rate(s) of interest for a similar instrument, with a similar credit rating.

The financial instruments not measured at fair value comprise other accounts receivable, cash and cash equivalents and other accounts payable. The carrying amount of such instruments approximates their fair value due to their short-term nature (except for loans payable).

Sensitivity of fair value measurement to changes in unobservable inputs - all real estate projects

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

If the discount rate applied is 1% higher than that used in the valuation models, the fair value of the real estate projects as at 31 December 2018 would be USD 681 thousand lower (2017: USD 554 thousand). If the discount rate is 1% less, then the fair value of the real estate projects as at 31 December 2018 would be USD 514 thousand higher (2017: USD 716 thousand).

Sensitivity of fair value measurement to changes in unobservable inputs - all real estate projects, except Land Bank project and Kremenchuk project

If sales prices and rental rates are 5% less than those used in the valuation models, the fair value of the real estate projects as at 31 December 2018 would be USD 380 thousand lower (2017: USD 1,085 thousand). If sales prices and rental rates are 5% higher, then the fair value of the real estate projects as at 31 December 2018 would be USD 380 thousand higher (2017: USD 1,085 thousand).

If development costs are 5% higher than those used in the valuation models, the fair value of the real estate projects as at 31 December 2018 would be USD 253 thousand lower (2017: USD 741 thousand). If development costs are 5% less, then the fair value of the real estate projects as at 31 December 2018 would be USD 253 thousand higher (2017: USD 741 thousand).

Sensitivity of fair value measurement to changes in unobservable inputs - Riviera Villas

Taking into account lack of demand in recent years, which resulted in low volume of sales, there is especially significant uncertainty in assessing the sales period for Riviera Villas project. Therefore the Company's management performed sensitivity analysis for this assumption: if the sales period is 5 years longer than that used in the valuation model, the fair value of Riviera Villas project as at 31 December 2018 would be USD 734 thousand lower (2017: USD 1,052 thousand).

Sensitivity of fair value measurement to changes in unobservable inputs - Land Bank

Taking into account the significant extension of the original timeline of development of Land Bank project, as well as the fact that this project is still at the very early stage of development, there is especially significant uncertainty in assessing the fair value of the underlying land plots. The Company's management performed sensitivity analysis for the sales price assumption: if sales prices are 15% lower than used in the valuation model, the fair value of the real estate projects as at 31 December 2018 would be USD 1,501 thousand lower (2017: USD 1,374 thousand).

Sensitivity of fair value measurement to changes in unobservable inputs - Kremenchuk project

If development costs are USD 447 thousand higher than those used in the valuation models, the fair value of the real estate projects as at 31 December 2018 is expected to decrease to zero (2017: USD 447 thousand).

The change in fair value of the real estate projects as a result of different assumptions used in assessing the present value of future cash flows as described above, will have no impact on the fair value of the Company's equity investments due to significant negative net assets of the investees. Thus, there is no impact on the fair value of the Company's equity investments. However, the above change in fair value of the real estate projects will directly affect the fair value of loans receivable (see Note 4(c)).

(c) Loans receivable at fair value through profit or loss

The loans are denominated in USD, unsecured, interest free or interest bearing (up to 11%) and represent an alternative to the equity way of financing investments.

Loans are accounted at fair value through profit or loss in accordance with IFRS 9 Financial Instruments: Recognition and Measurement and measured at fair value in accordance with IFRS 13 Fair value measurement as the present value of the expected future cash flows, discounted using a market-related rate (see notes 3(a) and 3(d)). Expected future cash flows are represented by cash flows generated from the underlying assets for the loans (the real estate projects). Therefore, sensitivity of the real estate projects fair value (see note 4(b)) to different assumptions also approximates sensitivity of loans receivable fair value to the same assumptions.

5. Other accounts receivable

Other accounts receivable as at 31 December are as follows:

6. Cash and cash equivalents

Cash and cash equivalents as at 31 December are as follows:

The following table represents an analysis of cash and cash equivalents based on Fitch ratings as at31 December:

7. Equity

Movements in share capital and share premium are as follows:

The share capital of the Company consists of an unlimited number of ordinary shares of £0.01 each. All ordinary shares rank equally with regard to the Company's residual assets.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

As part of an initial public offering on 1 June 2007 104,000,000 ordinary shares were sold to certain institutional investors at a price of USD 2.00 per ordinary share, raising gross proceeds of USD 208,000 thousand. In addition 36,630,100 ordinary shares were sold on 29 November 2007 at a price of USD 2.73 per ordinary share, raising gross proceeds of USD 100,000 thousand. The difference between net proceeds per share and par value is recognised as share premium.

During 2008 the Company issued 1,698,416 new ordinary shares at a price of USD 2.60 per ordinary share to settle 70 % of the manager's performance fee for 2007 in the amount of USD 4,432 thousand.

Following the extraordinary general meetings of members of the Company on 31 July 2008 and 1 December 2008, 11,948,000 of its own shares were authorised for repurchase by the Company and were annulled. The purchase price of repurchased shares ranged from USD 0.50 to USD 1.47 per share. The difference between the total price paid and par value is recognised as a share premium decrease.

Following the extraordinary general meeting of members of the Company on 29 May 2009, 12,664,201 of its own shares were authorised for repurchase by the Company and were annulled. The purchase price of repurchased shares ranged from USD 0.53 to USD 0.68 per share. The difference between the total price paid and par value is recognised as share premium decrease.

Following the extraordinary general meetings of members of the Company on 9 November 2011 and12 December 2011, 8,355,000 of its own shares were repurchased by the Company and were cancelled. The purchase price of repurchased shares ranged from USD 0.48 to USD 0.63 per share. The difference between the total price paid and par value is recognised as share premium decrease.

Distributions to Shareholders

On 24 December 2014 following the adoption of the new investing policy in early 2014 and an assessment of the Company's working capital requirements, the Board of Directors decided to declare a dividend of USD 0.055 per Ordinary Share, which is in accordance with its investing policy of distributing surplus funds to the Company's shareholders.

On 29 January 2016 following review of the Company's performance in 2015 and the re-assessment of the Company's working capital needs, the Board of Directors of the Company decided to make distribution of USD 6,014 thousand, or USD 0.055 per ordinary share, to its shareholders.

On 22 March 2018 having reviewed the Company's performance in 2017, including the sale of the remaining interest in the Obolon Residences project, the Board of Directors of the Company has decided to make a distribution of USD 7,656 thousand, or USD 0.07 per Ordinary Share, to its shareholders. This decision is in accordance with Company's Investing Policy, which states that surplus capital will be returned to shareholders, and is made under Article 127 of Company's Articles of Association.

The relevant record date for the distribution was 3 April 2018, the corresponding ex-distribution date was 29 March 2018, and the distribution was paid to shareholders on 17 April 2018.

On 27 April 2018 the Board of Directors of the Company has decided to make additional distribution of USD 2,187 thousand, or USD 0.02 per Ordinary Share, to its shareholders. This decision is in accordance with Company's Investing Policy, which states that surplus capital will be returned to shareholders and is made under Article 127 of Company's Articles of Association.

The relevant record date for the distribution was 11 May 2018, the corresponding ex-distribution date was 10 May 2018, and the distribution was paid to shareholders on 16 May 2018.

8. Other accounts payable

Other accounts payable as at 31 December are as follows:

9. Management and performance fees

Management and performance fees for the years ended 31 December are as follows:

Unpaid management and performance fees as at 31 December 2018 amounted to USD 500 thousand (2017: USD 579 thousand) (Note 8).

Initial Management Agreement

The Company entered into a management agreement dated 16 May 2007 (the Management Agreement) with Dragon Capital Partners Ltd (the Investment Manager) pursuant to which the latter has agreed to provide advisory, management and monitoring services to the Company. The Company may terminate the Investment Manager's appointment on at least 6 months written notice expiring on or after the fifth anniversary of admission to AIM, or without written notice subject to certain criteria.

In consideration for its services thereunder, the Investment Manager was entitled to be paid an annual management fee of 1.5% of the gross asset value of the Company at the end of the relevant accounting period or part thereof plus value added tax or similar taxes which may be applicable. In addition, the Investment Manager was entitled to performance fees based on the net asset value (NAV) growth.

Second Revised Management Agreement

On 23 April 2010 the Board approved changes to the Management Agreement between the Investment Manager and the Company effective as at 31 December 2009 (Second Revised Management Agreement). The performance fee was divided into two parts. One is based on NAV growth, and the second on share price growth. Therefore, prior to the Second Revised Management Agreement the Investment Manager was entitled to an annual performance fee of 20% of the amount of such increase in NAV growth in excess of 10%, and under the Second Revised Management Agreement the Investment Manager is entitled to 10% of the amount of such increase in NAV growth in excess of 10%. The other performance fee of 10% is calculated based on the amount by which the final share price growth exceeds 10% from the base share price set at GBP 1.085 per share.

Since 1 December 2011 the Second Revised Management Agreement was subject to termination with six months' notice by either party.

Third Management Agreement and Fourth Revised Management Agreement

On 17 February 2014 an Extraordinary General Meeting of the shareholders approved a revision of the Management Agreement (Third Management Agreement) and accordingly the Company entered into a new management agreement with DCM Limited (the company which replaced Dragon Capital Partners Limited as the Investment Manager).

On 16 November 2016 the Board announced certain modifications to the existing management arrangement (the Fourth Revised Management agreement). The Fourth Revised Management Agreement became effective on 01 January 2017 and will expire on 31 December 2018.

The Directors (excluding Tomas Fiala who is a related party as explained in detail in the Note 15) believe that the proposed changes incorporated into the Fourth Management Agreement will continue to incentivise the Investment Manager to:

• maximise the disposal proceeds of the Company's properties; and

• achieve the best possible sales value for each property in order to maximise the cash returns to shareholders that would result in the Investment Manager maximising the proposed performance fee payable under the Third and Fourth Management Agreements.

The Fourth Management Agreement has changed certain provisions on management fee of the Third Management Agreement and summary of those changes is presented below:

Management fee

The management fee under the Third Management Agreement changed from a fee of 1.5 per cent of Gross Asset Value to a fixed amount as follows and Fourth Management Agreement modified the fees for 2017 and 2018:

• 1 January 2013 - 30 June 2013: USD 1.25 million

• 1 July 2013 - 31 December 2013: USD 1.25 million

• 1 January 2014 - 31 December 2014: USD 2.5 million

• 1 January 2015 - 31 December 2015: USD 2.1 million

• 1 January 2016 - 31 December 2016: USD 1.7 million

• 1 January 2017 - 31 December 2017: USD 1.25 million under the terms of Fourth Management Agreement (reduced from USD 1.5 million under the Third Revised Management Agreement).

• 1 January 2018 - 31 December 2018: USD 1.0 million under the terms of Fourth Management Agreement (reduced from USD 1.4 million under the Third Revised Management Agreement).

Included as a part of the terms of the Fourth Revised Management Agreement, due to the fact that the Company sold the right to the development of the third phase of the Obolon Residences in 2017, the management fee was reduced to USD 1.0 million in the year of such sale.

The management fee under the Fourth Management Agreements is payable in cash, semi-annually in July and January of each year, within 10 business days after the end of the relevant period.

On 10 December 2018 the Fifth Management Agreement was signed extending the term of the agreement until 31 December 2020. The Fifth Management Agreement modified the terms for the management fee as following

for the year ending 31 December 2019 - USD 800,000

for the year ending 31 December 2020 - USD 800,000

Also a cap on the management fee was introduced which should not exceed 3% of the net asset value of the Company as per officially published financial statements going forward.

Performance fee

The performance fee under the Third Management Agreement changed from one which is calculated in two parts, being an increase in NAV and also an increase in share price performance, to the following, based on distributions to shareholders:

· in relation to distributions up to threshold 1, a fee of 3.5 percent of such distributions;

· in relation to distributions from threshold 1 to threshold 2, a fee of 7 percent of such distributions; and

· in relation to distributions in excess of threshold 2, a fee of 10 percent of such distributions.

Thresholds 1 and 2 are equal to USD 50 million and USD 75 million respectively.

The Performance Fee in the Fourth Revised Management Agreement cancelled all references to the threshold 1 and 2 and replaced it with a fixed performance fee of 5 percent of all distributions to Company's shareholders. Distributions will continue to include cash dividends, share buy backs and other returns of capital, and also in-specie distributions.

The performance fee under the Third and Fourth Management Agreements is payable in cash (or in the case of a distribution that is a distribution in specie, payable by the transfer to the Investment Manager of the appropriate proportion of the financial instrument that is the subject of the distribution), simultaneously with the distributions to which they relate.

The Fifth Management Agreement did not modify the terms for the performance fee which is 5 percent of all distributions to Company's shareholders.

The total management fee for the year ended 31 December 2018 is USD 1,000 thousand(31 December 2017: USD 1,204 thousand). The total performance fee for the year ended31 December 2018 is USD 492 thousand (2017: there was no performance fee).

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

Net loss from financial assets at fair value through profit or loss for the years ended 31 December is as follows:

11. Administrative expenses

Administrative expenses for the years ended 31 December are as follows: