DUPD.L Regulatory News (DUPD)

28 September 2012

Dragon-Ukrainian Properties & Development plc

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

Results for the period ending 30 June 2012

Dragon-Ukrainian Properties & Development plc, a leading investor in the real estate sector in Ukraine, is pleased to announce its interim results for the period ending 30 June 2012.

Highlights

Operational Highlights

·; Focused on delivery and development of existing projects

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

·; In the final stage of securing construction finance for Obolon while completing the preliminary construction works

·; Second dividend received from investment in Henryland

·; New opening continues to increase net operating income at Arricano. Arricano is considering an IPO.

·; Sold a further 9 homes at Riviera Villas; 15 out of 64 now sold

·; Sold a further 3 estates at Green Hills; 27 out of 178 now sold

·; Following a lengthy rezoning process, the first 3.5 hectares of the Landbank project have been successfully rezoned to residential and commercial use

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

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

Financial Highlights

·; Total NAV of USD211.4 m at 30 June 2012 (slightly down compared to 31 December 2011 of USD213.3m)

·; NAV per share of USD1.93 at 30 June 2012 (practically unchanged compared to 31 December 2011 NAV per share of USD1.95)

·; Cash balance of USD25.3m (31 December 2011: USD28.7m)

·; Net loss before tax USD 2.2 m (30 June 2011: loss USD3.1m)

Chris Kamtsios, Managing Director of Dragon Capital Partners Ltd (the Investment Manager), commented:

"In the first half of 2012, we stayed focused on the development and securing financing for our portfolio projects amidst generally unchanged market conditions and a growing liquidity squeeze in the local banking sector. We continue to be in negotiations with a large international investment bank for a structured debt facility for construction on the Obolon project, which are now in their final stage, and in the meantime we have completed demolishment of the old building and are advanced in the underground construction works.

The Company received its second dividend from its investment in the Henryland project of USD 872 thousand as the retail property market continued to slowly recover. Despite the absence of the new debt funding, Arricano managed to deliver and open the Rayon shopping centre in Kyiv with an expected annual net operating income of ca. USD 10 million.

Sales in our gated communities at Riviera Villas and Green Hills were generally in line with the previous years. As before, we are expecting an improvement in the wider residential market when banks resume mortgage lending.

The interim financial statements of the Company can be found at the following address at the Company's website http://dragon-upd.com/investor-information/important-information/reports

For further information, please contact:

Project Overview

RETAIL

Arricano

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

Henryland

·; Three schemes out of six operational and income producing

·; Secured anchor tenant

·; Long-term international standards lease agreement

·; Low level or absence of competitive retail schemes

·; Two dividends of USD 570,000 and USD 872,000 received

·; Fourth development at Bila Tserkva remains on hold until 2013

Avenue Shopping Centre

·; Strong retail location and low level of competition

·; Professional concept design by Colliers Int.

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

·; Lease agreement has expired but application has been logged to renew it for new term of 5 years

Glangate

·; Plans for two mid-size shopping centers in second-tier regional cities

·; Low level of competition

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

·; Kremenchuk - design documentation completed and approved by State Expertise

·; Rivne - land plot consolidated and partially rezoned

RESIDENTIAL

Riviera Villas

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

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

·; Nine homes are sold during 1HY 2012, 15 - in total. First street out of four has been completed.

·; Stock of 7 completed homes available for sale.

·; Project development plans for 64 homes in total

Green Hills

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

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

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

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

·; Total number of sales 27

·; Project development plans for 178 homes in total

Obolon

·; Business class residential complex with office and retail premises

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

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

·; Project design documentation completed and approved by State Expertise

·; Initial construction works are underway

·; Final stage of securing construction finance

Sadok Vyshnevy

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

·; Utilities are on the site

·; Individual property acts received for each of the properties

·; All homes commissioned

·; Sales programme commenced

Landbank

·; Land is registered on legal entities

·; The pilot part of the land plot (3.5 hectares) has been successfully rezoned to residential following a lengthy rezoning procedure and despite adverse legislative changes

·; The rezoning of the main landholding is underway at various stages

The consolidated statement of financial position are to be read in conjunction with the notes to, and forming part of, the financial statement.

These consolidated financial statements were approved by the Board of Directors on 28 September 2012 and were signed on its behalf by:

Chairman of the board Aloysius Wilhelmus Johannes Van der Heijden

Non-executive director Rory Macnamara

The consolidated statement of financial position are to be read in conjunction with the notes to, and forming part of, the financial statement.

The Directors believe that all results derive from continuing activities.

The consolidated statement of cash flows are to be read in conjunction with the notes to, and forming part of, the financial statements.

The consolidated statement of cash flows are to be read in conjunction with the notes to, and forming part of, the financial statements.

The consolidated statement of changes in equity are to be read in conjunction with the notes to, and forming part of, the financial statements.

The consolidated statement of changes in equity are to be read in conjunction with the notes to, and forming part of, the financial statements.

1 Background

(a) Organisation and operations

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

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

The consolidated financial statements as at 30 June 2012 comprise the Parent Company and its subsidiaries (together referred to as the Group) and the Group's interest in associates.

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

(b) Business environment

Ukraine is experiencing political and economic change that has affected, and may continue to affect, the activities of enterprises operating in this environment. Consequently, operations in Ukraine involve risks that typically do not exist in other markets. In addition, the contraction in the capital and credit markets and its impact on the economy of Ukraine has further increased the level of economic uncertainty in the environment.

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

2 Basis of preparation

(a) Statement of compliance

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

(b) Basis of measurement

The consolidated financial statements are prepared on the historical cost basis except for investment properties and financial instruments at fair value though profit or loss, which are carried at fair value.

(c) Functional and presentation currency

These consolidated financial statements are presented in thousands of US dollars (USD).

The Group consists of entities that are domiciled in Ukraine, Cyprus, British Virgin Islands and Isle of Man, and as a result different entities are using currencies of different countries.

The Directors believe that the most appropriate functional and presentation currency for all consolidated entities and these consolidated financial statements is US dollars. All funds raised by the Group are in US dollars, and all project developments are based on US dollars. Deposits and prepayments are also in US dollars. All financial information presented in US dollars is rounded to the nearest thousand.

For Ukrainian entities there are certain transactions in Ukrainian Hryvnia, which is not a convertible currency.

(d) Use of judgments, estimates and assumptions

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

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

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

• note 4 - valuation of investment properties

• note 5 - valuation of prepayments for land

• note 8 - net realisable value of trading property

• note 16 - measurement of share-based payments

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

(e) Changes in accounting policies

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

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

3 Significant accounting policies

The accounting policies set out below are applied consistently to all periods presented in these consolidated financial statements, and are applied consistently by Group entities, except as explained in note 2(e), which addresses changes in accounting policies.

(a) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights arising from presently exercisable call options are taken into account.

The financial results of subsidiaries are included in the consolidated and Parent Company financial statements from the date that control commences until the date that control ceases. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by the Group.

The results of subsidiaries acquired during the year are included in profit or loss from the effective date of acquisition. Losses applicable to the non-controlling interest in a subsidiary are allocated to the non-controlling interest even if doing so causes the non-controlling interest to have a deficit balance.

Any premium and discount arising on the acquisition of a non-controlling interest in a subsidiary represents the excess/deficiency of the cost of the additional investment over/under the carrying amount of the net assets acquired at the date of exchange. The effect of these transactions is recognised directly in equity.

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

Consolidated subsidiaries include the following:

(ii) Special Purpose Entity

 On 3 March 2012 Startide Ltd bought 14,300 investment certificates of the closed non-diversified venture investment fund "Development" (Fund "Development") for a total consideration of USD 178 thousand thus obtaining control over its operations. The Group intends to use Fund "Development" as a financial vehicle for its project "Obolon Towers"

(iii) Associates

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. In certain cases when the Group has less than 20% of the voting power of another entity, this entity is still accounted for as an associate on the basis of significant influence (see note 6).

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

The consolidated financial statements include the Group's share of the income and expenses and equity movements of associates, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.

When the Group's share of losses exceeds its interest in an associate, the carrying amount of that interest including any long-term investments, is reduced to zero, and the recognition of further losses is discontinued, except to the extent that the Group has an obligation to or has made payments on behalf of the investee.

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

(iv) Jointly controlled operations

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

(v) Transactions eliminated on consolidation

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

(b) Foreign currency and operations

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period.

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

(ii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to USD at exchange rates at the reporting date. The income and expenses of foreign operations are translated to USD at exchange rates at the dates of the transactions.

(c) Financial instruments

(i) Non-derivative financial assets

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

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

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

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

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

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

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

Loans and receivables comprise the following classes of assets: trade and other receivables as presented in note 9, loans receivable as presented in note 7and cash equivalents as presented in note 10.

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

Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the above categories of financial assets. Such assets are

recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see note 3(i)(i), and foreign currency differences on available-for-sale debt instruments (see note 3(b)(i), are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised or impaired, the cumulative gain or loss in equity is reclassified to profit or loss. Unquoted equity instruments whose fair value cannot reliably be measured are carried at cost.

(ii) Non-derivative financial liabilities

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

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

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

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

Other financial liabilities comprise trade and other payables as presented in note 14 and finance lease liability as presented in note 12.

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

(iii) Share capital

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

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

(iv) Derivative financial instruments

Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss.

Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognised immediately in profit or loss.

(d) Investment properties

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

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

(i) Initial measurement and recognition

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

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

(ii) Subsequent measurement

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

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

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

Investment properties are derecognised on disposal or when they are permanently withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is recognised as gain or loss in profit or loss.

It is the Group's policy that an external, independent valuation company, having an appropriate recognised professional qualification and recent experience in the location and category of property being appraised, values the portfolio every six months. The fair value is the amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm's length transaction. The valuation is prepared in accordance with the practice standards contained in the Appraisal and Valuations Standards published by the Royal Institution of Chartered Surveyors (RICS) or in accordance with International Valuation Standards published by the International Valuations Standards Committee.

The Directors believe that there is no transparent, active market in Ukraine for land because there are few transactions and each transaction tends to be unique and subject to significant negotiations. Therefore, the Directors have chosen to use a valuation model to estimate fair value.

After discussion with the independent appraiser, and considering the types of investment properties owned by the Group and their intended development, the Directors chose to estimate the fair value of land using the "residual land value" income approach. Under this method, the fair value of the freehold and leasehold interest in land equals the residual value of land under development (assuming that the developer will meet the terms set for development).

The residual value of land is determined based on the value for which such land could be sold in the market, which is estimated by appraisers to be the fair value of the completed project less cost to complete and an appropriate developer's profit. The residual value of land is equal to future cash flows generated by the developed property within the forecasting period plus terminal value of the property less development costs and developer's interest.

(e) Property and equipment

(i) Recognition and measurement

Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

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

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

(ii) Reclassification to investment property

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

(iii) Subsequent costs

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

(iv) Depreciation

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

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

• vehicles and equipment 5-7 years

• fixture and fittings 3 years

(f) Intangible assets

(i) Goodwill

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

The Group measures goodwill at the acquisition date as:

·; the fair value of the consideration transferred, plus

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

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

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

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

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

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

(ii) Other intangible assets

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

(iii) Subsequent expenditure

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

(g) Leased assets

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

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

(h) Inventories

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

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

(i) Impairment

(i) Non-derivative financial assets

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

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

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

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

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

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

(ii) Non-financial assets

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

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

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

(j) Share-based payments

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

For equity settled share-based payment transactions other than transactions with Directors and employees the Group measures the goods or services received at their fair value, unless that fair value cannot be estimated reliably. If this is the case the Group measures their fair values and the corresponding increase in equity, indirectly, by reference to the fair value of equity instruments granted.

(k) Provisions

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

(l) Rental income from investment properties

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

(m) Lease payments

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

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

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

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

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

(n) Finance income and costs

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

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

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

(o) Income tax expense

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

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

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

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

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

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

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

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

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

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which

they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(p) Earnings per share

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

(q) Segment reporting

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

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

(r) New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective as at 30 June 2012, and have not been applied in preparing these consolidated and Parent Company financial statements. Of these standards and interpretations, potentially the following will have an impact on the Group's operations. The Group plans to adopt these standards and interpretations when they become effective.

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

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

·; IFRS 9 Financial Instruments will be effective for annual periods beginning on or after 1 January 2015. The new standard is to be issued in phases and is intended ultimately to replace International Financial Reporting Standard IAS 39 Financial Instruments: Recognition and Measurement. The first phase of IFRS 9 was issued in November 2009 and relates to the classification and measurement of financial assets. The second phase regarding classification and measurement of financial liabilities was published in October 2010. The remaining parts of the standard are expected to be issued during 2012. The Group recognises that the new standard introduces many changes to the accounting for financial instruments and is likely to have a significant impact on the consolidated and Parent Company financial statements. The impact of these changes will be analysed during the course of the project as further phases of the standard are issued. The Group does not intend to adopt this standard early.

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

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

·; IFRS 12 Disclosure of Interests in Other Entities will be effective for annual periods beginning on or after 1 January 2013. The new standard contains disclosure requirements for entities that have interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. Interests are widely defined as contractual and non-contractual involvement that exposes an entity

to variability of returns from the performance of the other entity. The expanded and new disclosure requirements aim to provide information to enable the users to evaluate the nature of risks associated with an entity's interests in other entities and the effects of those interests on the entity's financial position, financial performance and cash flows. Entities may early present some of the IFRS 12 disclosures early without a need to early-adopt the other new and amended standards. However, if IFRS 12 is early-adopted in full, then IFRS 10, IFRS 11, IAS 27 (2011) and IAS 28 (2011) must also be early-adopted. The new standard is expected to result in additional disclosures in the consolidated and Parent Company financial statements. The Group does not intend to adopt this standard early.

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

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

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

·; Amendments to IAS 32 Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities do not introduce new rules for offsetting financial assets and liabilities; rather they clarify the offsetting criteria to address inconsistencies in their application. The Amendments specify that an entity currently has a legally enforceable right to set-off if that right is not contingent on a future event; and enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties. The amendments are effective for annual periods beginning on or after 1 January 2014, and are to be applied retrospectively. The amendment is not expected to have significant effect on the consolidated and Parent Company financial statements.

Various Improvements to IFRSs have been dealt with on a standard-by-standard basis. All amendments which result in accounting changes for presentation, recognition or measurement purposes, will come into effect for annual periods beginning after 1 July 2012. The Group has not yet analysed the likely impact of the improvements on its financial position or performance.

4 Investment properties and property under construction

Movements in investment properties for the six months ended 30 June 2012 and for the year ended 31 December 2011 are as follows:

Property is classified in accordance with the intention of the Directors for its future use. The point in time when the intention of the Directors is finalised is the date of start of construction. When construction starts, freehold land, leasehold land and investment properties held for future redevelopment are reclassified into investment properties under development (IAS 40) or inventories (IAS 2) in accordance with the intention to use. The Group's intention with regards to the Obolon project is the construction of a multi-storey business class residential complex with office and retail premises that will be sold upon completion of construction. Having received the construction permit and obtained the permit of KyivEnergo for removal of the power substation from the site the Group has demolished the existing service centre building and started preliminary ground works. According to the Group's accounting policy Investment properties are transferred to Trading Properties under construction when the Group ceased to receive rental income from the properties in question and when the construction works have started on the site. From the date of acquisition until 31 December 2011 the Obolon project was accounted for as an Investment property. Upon the start of construction work in 2012 the project has been reclassified to Inventory and transferred to Trading Properties under construction.Due to changes in the finance lease conditions the Group recognised the decrease in finance lease liabilities of subsidiary Novyy Region LLC. The changes in finance lease conditions are the following:

·; reduction of rental rate from 10% to 5% ;

·; increase of correction coefficient from 0.65 to 0.75, applied to "normative valuation" ("normative valuation" - is a valuation of different types of land according to the methodology and rates set up by the government regulations) in accordance with decision of Kremenchuk City Council from 29 May 2012

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

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

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

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

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

The estimation of fair value is made using a net present value calculation based on certain assumptions, the most important of which as at 30 June 2012 are as follows:

·; monthly rental rates - which were based on current rental rates ranging from USD 9 to USD 27 per m2

·; development costs based on current construction prices

·; discount rate 10-13 %

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

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

As at 31 December 2011 respective assumptions were as follows:

·; monthly rental rates - which were based on current rental rates ranging from USD 9 to USD 48 per m2

·; development costs based on current construction prices

·; discount rate -10%

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

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

5 Prepayments for land

During six months to 30 June 2012 the Group made prepayments for land acquisition totalling USD 50 thousand (land bank project). As a result of this transaction the gross prepayments for land increased from USD 124,844 thousand as at 31 December 2011 to USD 124,894 thousand as at 30 June 2012.

The investment in land bank projects has been historically reflected at cost less any impairment. No impairment of prepayments for land was recognised before 2011. Land plots for the land bank project are currently registered for agricultural use, and the rezoning process to change the purpose of the land plots to construction use was in progress as at 30 June 2012. Recent changes in legislation have resulted in further delay in completion of rezoning by approximately six months for one of the two locations of the land bank, which has entered the final stage of the rezoning process, and an even greater delay for the second location, which remains less advanced in the process. The Board decided to use a conservative approach, taking into account the many current uncertainties surrounding the rezoning of land in Ukraine, and determined with the help of independent appraiser (CB Richard Ellis) the market value of the land bank. The market value of the land bank was determined using agricultural comparatives and discounting for the time period required to sell the land plots. Based on the market value of land as assessed by the appraiser, the Group recognised an impairment loss on prepayments for land as at 30 June 2012 of USD 1,750 thousand (as at 31 December 2011: USD 57,744 thousand).

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

This table summarises the amount of prepayment intended to be secured by collateral rather than the fair value of the collateral itself. The fair value (or market value) of the land plots owned by the above entities is described in detail in paragraph 2 of this note 5.

6 Investments in associates

The Group has the following investments in associates :

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

During six months to 30 June 2012 the Group received dividends of USD 873 thousand from its investments in Henryland Group Ltd (in the year 2011: USD 569 thousand).

In October 2009, due to the fact that certain conditions set out in the shareholders' agreement between the Group and the Avenue project partner were not met (in particular, certain permits were not procured and the land plot was not cleared of garages before October 2009), the Group decreased its stake in Hindale Ltd from 50% + 1 share to 18.77 % and as a result in Promtek LLC, which is 100% owned by Hindale Ltd

The share capital of Hindale Ltd was decreased by 1,539 ordinary shares held by the Group. In return, the Group received USD 5,000 thousand and an option to repurchase the 1,539 ordinary shares of Hindale Ltd for USD 5,000 thousand in accordance with the shareholders' agreement. The lease agreement for the land plot on which Hindale Ltd is planning to construct the real estate, has expired on 2 July 2012. An application has been madeto the relevant authorities to extend the lease for the time needed to complete the project. However Hindale Ltd may not be able to prolong the lease term. Taking all that into account the Board decided to apply a 100% provision for the fair value of the Group's effective ownership in the Avenue Shopping Mall project which amounted to USD 1,617 thousand (31 December 2011: USD 1,624 thousand).

On 10 September 2010 the Parent company entered into a Shareholders Agreement (SHA) with Expert Capital SA (currently - Retail Real Estate SA, RRE) and Arricano Trading Limited (Arricano) and acquired a 35% interest in Arricano, through the issue of 1,077 new shares by Arricano for a consideration of USD 30,000 thousand payable by the Parent Company in cash. Arricano is a leading developer of upscale shopping centres in Ukraine, and the investment of USD 30,000 thousand was earmarked to fund further development of shopping centres and to repay certain existing Arricano debt.

A substantial part of Arricano's net assets was represented by a pool of loans receivable in the amount of USD 134,594 thousand, including accrued interest of USD 30,627 thousand, that were extended by a financial vehicle controlled by Expert Capital SA to the Sky Mall project to finance the real estate assets of the Sky Mall project. As a part of the SHA, these loans receivable together with accrued interest are to be assigned to Assofit (Sky Mall project) for a nominal price of EUR 1 each, and as of the date of these financial statements, are in the process of being assigned to Assofit. These loans receivable were reduced for repayment of loan provided by Swedbank to the Sky Mall project in the amount of USD 20,715 thousand.

On 9 June 2011 the tribunal acting under the UNCITRAL rendered a Final Award according to which it was declared that Stockman had validly terminated the Assofit shareholders agreement on 8 November 2010. In addition, on 13 December 2011 the sole arbitrator acting under the LCIA rendered an award according to which it was declared that Stockman had validly terminated the call option agreement.

Also, in the final award rendered by the tribunal it was ordered that Arricano should transfer all loans extended to the Sky Mall project by a financial vehicle controlled by Expert Capital SA (principal shareholder of Arricano) to a Cypriot company (SPV). This SPV is to be under the joint control of Arricano and Stockman and owned 49.97 % by Arricano and 50.03% by Stockman, mirroring their shareholding in Sky Mall project.

As at 30 June 2012 the net assets of Arricano include the following:

As at 31 December 2011 the net assets of Arricano include the following:

The Group has the right to appoint one (out of four) directors to the Board of Directors of Arricano. Pursuant to the SHA, the management structure of Arricano provides that significant operating, investment and strategic decisions require consent by all parties.

At the date that these financial statements were authorised for issuance, 28 September 2012, there is ongoing litigation between Arricano and Stockman that may ultimately delay the contribution of the loans extended to the Sky Mall project that are planned to be assigned to the SPV.

The Group has the right to appoint two (out of four) representatives to the Board of Directors of Hindale Ltd Pursuant to the shareholders agreement, the management structure of Hindale Ltd provided that significant operating decisions require consent by all parties.

7 Loans receivable

Included in long-term loans receivable is a loan provided by the Group to Commercial Construction LLC at a 2% fixed interest rate. The purpose of the loan was to finance construction of showcase houses in the cottage communities Riviera Villas and Green Hills. As at 30 June 2012 long-term loans receivable due from Commercial Construction LLC totals USD 878 thousand, including accrued interest of USD 90 thousand (31 December 2011: USD 920 thousand, including accrued interest of USD 81 thousand).

8 Inventories

Inventories are as follows:

As at 30 June 2012 and 31 December 2011 trading property is represented by the gated community Sadok Vyshnevyi (38 newly constructed houses and relevant land plots).

As at 30 June 2012 trading property of USD 10,100 thousand (2011: USD 10,200 thousand) represents the net realisable value as defined by the independent appraiser. The impairment loss for the 6 months ended 30 June 2012 of USD 100 thousand (31 December 2011: USD 2,000 thousand) was recognised in profit or loss.

Since starting the construction at the beginning of 2012 the project Obolon was transferred from Investment properties to Trading Properties under construction (see note 4). As at 30 June 2012 the value of transferred property in the amount of USD 34,796 thousand represents its fair value at the date of reclassification plus cost of construction incurred during six month ended 30 June 2012.

9 Trade and other receivables

In January 2010 a portion of the loan provided to Commercial Construction LLC totalling USD 841 thousand (including accrued interest of USD 33 thousand) attributable to the project Riviera Villas was assigned to Intendancy Ltd, the Group's partner in project Riviera Villas, provided that Intendancy Ltd paid to the Group USD 841 thousand. The aforesaid consideration was to be paid to the Group within 180 banking days from the date of registration of the assigned loan contract with the National Bank of Ukraine. During the year ended 31 December 2011 USD 569 thousand was received by the Group as part of the aforesaid consideration. As at 30 June 2012 the remainder of the debt of Intendancy Ltd in the amount of USD 272 thousand is included in other receivables (31 December 2011: USD 272 thousand).

Other receivables include a receivable due from Intendancy Ltd in the amount of USD 1,407 thousand (2011:USD 866 thousand) that relates to the sale of a land plot in project Riviera Villas according to the Project Development Agreement concluded by the Group with Intendancy Ltd (see note 4).

Trade and other receivables are as follows:

10 Cash and cash equivalents

Cash and cash equivalents are as follows:

The following table represents an analysis of cash and cash equivalents based on Fitch ratings or their equivalent:

11 Equity

Movements in share capital and share premium are as follows:

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

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

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

All issued shares are authorised and fully paid. Total authorised shares are 300,000,000.

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

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

Following the extraordinary general meetings of members of the Parent Company on 9 November 2011 and 12 December 2011, 8,355,000 of its own shares were acquired by the Parent Company and were cancelled. The purchase price of acquired 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.

The par value per ordinary share is USD 0.02.

12 Finance lease liabilities

Finance lease liabilities are as follows:

The imputed finance costs on the liabilities are based on the Group's incremental borrowing rate in UAH (2012:15.9% p.a., 2011: 15.0%). As at the dates of entering the lease agreements the Group had no external borrowings, therefore, the incremental borrowing rate was estimated based on available market information.

Future minimum lease payments as at 30 June 2012 are based on the Directors' assessment and calculated based on the actual lease payments effective at the reporting date. The future lease payments are subject to review and approval by the municipal authorities and may differ from the Directors' assessment. In accordance with decision of Kremenchuk City Council from 29 May 2012 there have been following changes to conditions of land lease agreement:

·; reduction of rental rate from 10% to 5% used in valuation model

·; increase of correction coefficient applied to normative valuation of leased land plot

which resulted in assessment of minimum lease payments.

The contractual maturity of land lease agreements is 2023 - 2024. The Group intends to prolong these lease agreements for the period of construction and usage of the investment property being constructed on the leased land. Consequently, the minimum lease payments are calculated for a period of 15-50 years.

13 Income tax expense

(a) Income tax expense

Income taxes for the six months ended are as follows: