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DUPD Dragon-ukrainian Properties & Development Plc

10.90
0.00 (0.00%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Dragon-ukrainian Properties & Development Plc LSE:DUPD London Ordinary Share IM00B1XH2B90 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 10.90 9.70 12.10 0.00 00:00:00
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
0 0 N/A 0

Dragon-Ukrainian Prop. & Dev. PLC Final Results (0172Q)

01/06/2018 10:38am

UK Regulatory


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TIDMDUPD

RNS Number : 0172Q

Dragon-Ukrainian Prop. & Dev. PLC

01 June 2018

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")

1 June 2018

Results for the year ended 31 December 2017

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 2017.

Highlights

Operational Highlights

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

-- Sold the remaining interest in the Obolon Residences project to Cheriton Overseas Limited, the same third-party developer that acquired the rights to develop phase 2 of the Obolon Residences project in February 2015.

-- Green Hills won a prestigious Eastern Europe Real Estate Project Award for the Cottage of the Year while Obolon Residences won an International Property Award for the Interior Design Show Home category.

-- Green Hills, the suburban gated community, continued to capitalize on its high quality and leading position in the market as 25 land plots were sold during 2017 (2016: 29, 2015: 23).

Financial Highlights

-- Total NAV of USD 42.8 million as of 31 December 2017 (down from USD 47.7 million as of 31 December 2016).

-- Cash balance as of 31 December 2017 is USD 9.2 million (compared to USD 7.8 million as of 31 December 2016). The Company has no debt at either the holding company level or project level.

-- DUPD incurred a USD 4.9 million loss from operating activities in 2017 (2016: USD 4.7 million loss), USD 3.0 million of which was attributable to net loss from financial assets and USD 1.9 million attributable to operational expenses.

   --      Current cash position after payment of both distributions is USD 5.8 million. 

Mark Iwashko, Non-executive Chairman of the Board commented in his statement "...As a result of our continued focus on asset realisations, DUPD was able declare a distribution of USD 0.09 per ordinary share in 2018 while still leaving the Company in a sufficiently strong current cash position to withstand any unforeseen economic downturns or shocks and the ability to continue the development of its existing residential projects. The Company intends to continue distribute proceeds received from the divestment of its assets in future."

For further information, please contact:

 
Dragon Ukrainian Properties & Development Plc (www.dragon-upd.com) 
                                                 +380 (50) 381 
Mark Iwashko (Chairman)                           8811 
 
 
 
DCM Limited (Investment Manager) 
                                                 +380 (44) 490 
Volodymyr Tymochko                                7120 
 
 
 
Panmure Gordon (UK) Limited 
                                                 +44 (0)20 7886 
Richard Gray / Andrew Potts                       2500 
 

Contents

Chairman's Statement 3

Investment Manager's Report 5

Market Overview 2017 6

Project Overview 8

Investing Policy 11

Directors' Remuneration Report 14

Corporate Governance 15

Directors' report 17

Statement of Directors' responsibilities 19

Independent auditors' report 20

Statement of financial position 24

   Statement of comprehensive income                                                              25 

Statement of cash flows 26

Statement of changes in equity 27

Notes to the financial statements 28

Chairman's Statement

The Ukrainian economy continued to slowly but steadily recover in 2017 with GDP rising by 2.5% year-on-year, a slight improvement over the 2.4% increase in 2016. Private consumption also increased by 7.8% year-on-year, fuelled by growth in real salaries and an increase in pension spending. As a result, the consumer confidence index reached its highest level since July 2014.

Two years of moderate growth of the Ukrainian economy give us cautious optimism for the future. However, sporadic fighting from the military conflict in eastern Ukraine and the stumbling progress of the government's structural reforms remain impediments to greater inflows of foreign direct investment into and the acceleration of economic growth of the country.

DUPD's primary focus, accordingly, remains the orderly realisation of its portfolio of assets to maximise distributions to shareholders, with new investments limited to the continued development of the Company's existing residential projects. To that end, the most significant milestone in 2017 was the sale of the Obolon Residences project to Cheriton Overseas Limited for a total consideration of USD 9.0 million. While the sale of the project was below its fair value (USD 15.3 million as at 30 June 2017), the divestment eliminated development risk and compressed the timeline for the distribution of net proceeds from the project to shareholders. As bank debt for large construction projects remains limited in Ukraine, the development of Phase 3 of Obolon would have been financed via sale of individual apartments, the pace and timing of would have been uncertain and which would have tied up capital that would have otherwise been available to be distributed to shareholders. The Company was also able to generated USD 5.2 million in contracted sales and USD 5.5 million in cash proceeds from its other residential projects.

As a result of our continued focus on asset realisations, DUPD was able declare a distribution of USD 0.09 per ordinary share in 2018 while still leaving the Company in a sufficiently strong current cash position to withstand any unforeseen economic downturns or shocks and the ability to continue the development of its existing residential projects. The Company intends to continue distribute proceeds received from the divestment of its assets in future.

Financial Results

DUPD incurred a USD 4.9 million loss from operating activities in 2017 (2016: USD 4.7 million loss), USD 3.0 million of which was attributable to net loss from financial assets and USD 1.9 million attributable to operational expenses. In terms of liquidity, DUPD's financial position remained healthy with a cash balance of USD 9.2 million and no debt at either the holding company level or project level as of 31 December 2017. Current cash position after payment of both distributions is USD 5.8 million.

Corporate Governance

There were no changes in the make-up of the Board of Directors of DUPD in 2017.

Awards

The prestigious Eastern Europe Real Estate Project Awards chose Green Hills as the Cottage Complex of the Year while Obolon Residences won the award winner in the Interior Design Show Home category at the International Property Awards in 2017.

Dividends and Investment Policy

Having reviewed the Company's performance in 2017, including the successful divestment of the Obolon Residence project for USD 9 million and steady sales in Green Hills and Sadok Vyshnevy residential projects, and having assessed the Company's working capital needs going forward, the Board of Directors of the Company decided to make a distribution of USD 7,655,306.05, or USD 0.07 per ordinary share, to its shareholders on 17 April 2018 and a further distribution of USD 2,187,230.20 or USD 0.02 per ordinary share to its shareholders on 16 May 2018.

Shareholding

Dragon Capital Investments Limited (DCI), having crossed the 30% shareholding threshold during 2017, was required to make a mandatory cash offer for all of DUPD's shares. Following the close of the mandatory cash offer, DCI increased its interest in DUPD to 60.91% of the issued share capital of the Company as of the end of August 2017.

Outlook

Real GDP growth is forecasted to accelerate slightly to 3.5% in 2018 as a result of further increases in private consumption and a slight uptick in investments before moderating to 3.0% in 2019. Inflation, meanwhile, is projected to finally decrease to single digits in 2018 as the economy continues to stabilize. These improving macroeconomic conditions will, in turn, help support a recovery in Ukraine's real estate market; however, we expect the recovery to be gradual and have only marginal impact on the pace of monetization DUPD's remaining assets.

The Ukrainian Government continues to cooperate with the IMF but has failed to fulfil some of the disbursement criteria for the next tranche of the IMF loan as a result of a slowdown in the pace of reforms. As such, the IMF postponed the planned disbursement for an indefinite term. Still, the central bank expects Ukraine to receive the next IMF tranche of USD 1.9 billion sometime in 2018 and forecasts its reserves to reach USD 21 billion by the end of the year. Progress on structural reforms remains key to the country's access to funding from international donors, which is necessary to keep national currency stable and improve investor sentiment.

The Ukrainian real estate market's dynamics will continue to depend greatly pace of economic recovery of and improvement of investor sentiment, which remain steady but fragile. Uncertainty notwithstanding, we are keen to continue to advance DUPD's investment policy in 2018, monetizing our existing properties as quickly and effectively as the market conditions allows.

Mark Iwashko

Non-executive Chairman

30 May 2018

Investment Manager's Report

The stepwise recovery of the Ukrainian economy continued in 2017, allowing us to generate strong residential sales as well as sell one of our key residential property projects, Obolon Residences, 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 the 2017 year, our four residential projects generated USD 5.2 million in contracted sales (USD 8.5 million in 2016[1]) and USD 5.5 million in cash proceeds.

In October 2017, DUPD successfully sold the Company's remaining interest in the Obolon Residences project to the same party that acquired the rights to develop phase 2 of the Obolon Residences project in February 2015. The consideration of USD 9 million was payable in cash in four instalments with the final instalment paid by 30 April 2018.

Green Hills, a suburban gated community, continued to capitalise on its high quality and leading position in the market as we closed 25 land plot sales during 2017 (2016: 29, 2015: 23, 2014: 6). Total contracted sales amounted to USD 2.3 million in 2017, whereas cash proceeds reached USD 2.0 million, with the combined land area sold to date reaching 10.0 hectares (62% of the total area for sales). Following the success in the sales of residences in the cottage community, we commenced the construction of the lake recreational zone, while the construction of a 2,000 m(2) fitness-center and the second phase of the community's school are at the final stage. We believe these improvements are important in order to continue to generate stable sales.

Riviera Villas, our luxury suburban community project, delivered 5 new contracted sales in 2017 following sales of 4 land plots in 2016. The newly built Riviera Villas Club with multiple leisure and sport options available was opened in 2017 as part of our effort to remain competitive among other high-end communities.

Sadok Vyshnevy, our economy class townhouse community, brought 5 new contracted sales in 2017 for a total consideration of USD 0.6 million. As a result, the remaining stock of apartments is down to 15 out of an original 38.

Arricano Real Estate plc, our portfolio investment, in which DUPD holds a 12.51% stake, continued the 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 bringing such challenges. Going forward Arricano will keep focusing its legal efforts on enforcing the respective decisions of LCIA.

During the year, Arricano increased its NOI from operating activities (excluding revaluation gains) by 10.5 per cent to USD 17.6 million compared to USD 15.9 million in 2016 as a result of growing rental rates across its portfolio of 5 shopping malls, managing tenant mix and turnover. With strong residential sales and the high quality of its projects, DUPD is well positioned to maintain its strong market position despite the ongoing market challenges. The Company remains on track with orderly realisations 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 2018

Volodymyr Tymochko

Partner, DCM Limited

Market Overview 2017

Macroeconomic highlights

The Ukrainian economy rose 2.5% y-o-y in 2017, in line with 2.4% y-o-y in 2016 and following a cumulative decline of 16% in 2014-15. The recovery was driven primarily by domestic demand, while private consumption escalated due to the real salaries growth and increase in pension spending. Investment in fixed capital rose by +18% y-o-y in 2017, on top of +20% in 2016. Investment growth was broad-based with industry, agriculture, trade and real estate contributing the most. Exports advanced by 19% y-o-y in 2017 after five consecutive years of decline. On the production side, faster growth in trade, processing industries, construction and real estate helped offset weakness in agriculture, caused by a lower harvest, and the adverse effect of the severing of economic ties with separatist-held Donbas on the extracting and utilities industries. Real GDP growth is expected to accelerate to 3.5% y-o-y in 2018, before moderating to 3.0% in 2019, driven by further growth in private consumption and continuing, though slowing, investment growth.

Headline consumer inflation accelerated to 13.7% y-o-y in 2017 from 12.4% in 2016, driven by supply-side factors in the food segment and recovering domestic demand. The central bank began tightening monetary policy in October, raising its key rate to 14.5% at the end of 2017.

The current account deficit stood at a moderate USD 2.1 billion (1.9% of GDP) in 2017, slightly widening from USD 1.3 billion (1.4% of GDP) in 2016. Trade deficit continued to widen driven by energy and machinery imports, but was partially offset by growing inflows of remittances, as labour migration intensified. Capital inflows were sufficient to cover the current account deficit and enabled the central bank to increase its reserves by 21% y-o-y, to USD 18.8bn, or 3.6 months of imports. The hryvnia inched down 3.1% y-o-y to UAH 28.1: USD by end-2017, after 11.7% drop recorded in 2016.

Fiscal deficit stood at a moderate 2.0-2.5% of GDP over past several years and public debt to GDP ratio turned on a downward trend, sliding to 72% in 2017 from 81% in 2016.

Bank lending remained frozen, with outstanding loans remaining virtually flat y-o-y on an F/X-adjusted basis, while recovery in F/X-adjusted deposits accelerated to 10% y-o-y in 2017 (from 5% y-o-y in 2016). Consumer lending started to recover in early 2018 and will likely gain pace.

Construction activity rose by 26% y-o-y, following 17% y-o-y growth in 2016, with strong growth recorded in all major segments including residential (+16% y-o-y), non-residential (+26%) and infrastructure (+32%) construction.

Commercial property

Kyiv's retail property market was gradually gaining steam in 2017 incentivised by the rise in disposable income and domestic consumption. Retail turnover continued to expand growing by 9.7% y-o-y. Average market vacancy decreased from 11% to 5% throughout the year, caused by stronger retailers' demand, low volume of new supply, and gradual absorption of retail space added to the market in the end of 2016. Rental rates continue to recover posting a 10-15% growth during a year.

Gradually improving business activity combined with limited new supply of office space (+31,500 m2 or +2.0%) determined healthier occupancies across the segment. Average vacancy narrowed to 17% (-10.5%) by year-end, while annual take-up doubled reaching 155,000 sq. m. Telecommunications, IT and high-tech made up the lion's share of the total lettings.

The warehousing market also continued to grow in 2017 and reached an annual take-up volume of ca. 120,000 sq. m (+9%). Rising occupier demand, lack of new supply and shrinking speculative stock put a downward pressure on vacancy, which decreased from 12% to 6% over the year. Rental rates for professional warehouse space were mostly unchanged during the year: $3.0 - $4.1/sq. m/month for top-quality properties and $2.3 - $3.0/sq.m/month for B-class warehouses.

Residential property

The supply on Kyiv real estate market continued to exceed the demand greatly with developers and real estate companies dumping the prices for the apartments and houses. Given the low purchasing power of the households, "economy" and "comfort" apartments in the USD 500-700/m2 range comprised the main part of demand, accounting for over 70% of the total number of transactions. At the same time, Kyiv's residential market continues seeing more new projects being started as it remains the only real estate sector appealing to development investors.

Land

The situation on the land market remained characterised by oversupply with asking prices for land plots staying at the relatively same level during 2017. Most developers who suspended their projects were not in a hurry to put on sale land plots in good location waiting for improvement of land values as the real estate market continues its recovery.

Project Overview

   1.   Land bank 

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

 
 Details 
 Location:                   Kyiv suburbs 
 Land Title:                 Freehold 
 Land Area:                  500 ha 
 DUPD Share:                 85% 
 Fair value of investment 
  project:                   USD 9.2m 
 
   2.   Obolon Residences 

The project is sold to the Cheriton Overseas Limited, an unrelated party, for a total consideration of USD 9 million.

   3.   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 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

-- Hryvnia devaluation and foreign currency loan portfolio together with high legal costs related to the Sky Mall dispute have put the company in a challenging financial situation

 
 Summary 
 DUPD Share:                         12.51% 
 Directors:                          1 board representative 
 Fair value of investment            USD 6.5m 
  project: 
 
 (i) Sky Mall (Kyiv) 
 Gross leasable area (operating):                             67,000 m(2) 
 Key Tenants:                          Auchan, Inditex Group, Planettoys, 
                                                         Marks & Spencer, 
                                             New Yorker, Multiplex Cinema 
 
 
 
 (ii) Rayon (Kyiv) 
 Gross leasable area (operating):                  24,300 m(2) 
 Key Tenants:                          Silpo, Comfy, Reserved, 
                                      Sportmaster, LC Waikiki, 
                                       Gloria Jeans, Game park 
 
 
 (iii) Sun Gallery (Kryvyi Rig) 
 Gross leasable area (operating):                    37,470 m(2) 
 Key Tenants:                        Auchan, Comfy, Sportmaster, 
                                         Fly Park, Gloria Jeans, 
                                                      New Yorker 
 
 
 
 
 
   (iv) South Gallery (Simferopol) 
 Gross leasable area (operating):                    33,390 m(2) 
 Key Tenants:                            Auchan, DNS, PoiskHome, 
                                      LC Waikiki, L'Etoile, Baby 
                                                            Boom 
 
 
 (v) City Mall (Zaporizhzhya) 
 Gross leasable area (operating):                     21,440 m(2) 
 Key Tenants:                          Auchan, McDonald's, Comfy, 
                                      Colin's LC Waikiki, Brocard 
 
 
 (vi) Prospect (Kyiv) 
 Gross leasable area (operating):              30,900 m(2) (excluding 
                                                              Auchan) 
 Key Tenants:                       Auchan (co-investor), McDonald's, 
                                       Names UA, LC Waikiki, Foxtrot, 
                                            Reserved, JYSK, Multiplex 
                                                               Cinema 
 
 
 (vii) Lukyanivka (Kyiv) 
 Gross leasable area (under 
  construction):               47,000 m(2) 
 
 (viii) Petrivka (Kyiv) 
 Gross leasable area (to be 
  developed):                  31,450 m(2) 
 
 (ix) Rozumovska (Odesa) 
 Gross leasable area (to be 
  developed):                  38,000 m(2) 
 
   4.   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 of 30 land plots are sold (42%) 
 
 Details 
 Location:                   Kyiv suburbs 
 Land Title:                 Freehold 
 Land Area:                  14.3 ha 
 DUPD share of overall 
  project:                   59.6% 
 Fair value of investment    USD 3.2m 
  project: 
 
   5.   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 200 pupils, artificial lake and rest area

   --     10.0 ha of land sold out of 16.2 ha (62%) 
   --     72 families living in the community 

-- Construction works of the Stage 2 finished, while the construction of fitness centre and phase of the cottage's school at the final stage

   --     Construction works on the lake recreational zone has started 
 
 Details 
 Location:                   Kyiv suburbs 
 Land Title:                 Freehold 
 Land Area:                  16.2 ha 
 DUPD Share:                 100% 
 Fair value of investment    USD 7.2m 
  project: 
 
   6.   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 (13% of sales were in 2017) 
 
 Details 
 Location:                   Kyiv suburbs 
 Land Title:                 Freehold 
 Land Area:                  1.6 ha 
 DUPD Share:                 100% 
 Fair value of investment    USD 2.2m 
  project: 
 
   7.   Avenue Shopping Centre 
   8.   Glangate 

Land plot for shopping centre development in Kremenchuk

 
 Details 
 Location:                   Kremenchuk 
 Land Title:                 Leasehold 
 Land Area:                  3.9 ha aggregate 
 GLA:                        26,530 m(2) 
 DUPD Share:                 100% 
 Fair value of investment    USD 0.4 mln 
  project: 
 

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 salability 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.

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 2017 are summarised in the table below:

 
 Name                 Position        Annual Fee         Date of appointment   Notice period 
-------------------  --------------  -----------------  --------------------  ------------------ 
 Mark Iwashko         Non-executive   USD 50,000         26 November           The Director 
                       Chairman        per year plus      2014                  or Company 
                                       applicable                               may terminate 
                                       VAT payable                              on three month's 
                                       quarterly in                             written notice. 
                                       arrears. 
-------------------  --------------  -----------------  --------------------  ------------------ 
 The Company has agreed to reimburse Mr Iwashko for reasonably 
  incurred expenses in the course of his duties to the Company. 
------------------------------------------------------------------------------------------------ 
 Aloysius Wilhelmus   Non-executive   USD 35,000         10 April 2007         The Director 
  Johannes van         Director        plus applicable                          or Company 
  der Heijden                          VAT payable                              may terminate 
                                       quarterly in                             on three month's 
                                       arrears plus                             written notice. 
                                       USD 5,000 to 
                                       compensate 
                                       for his duties 
                                       as the Chairman 
                                       of the Audit 
                                       Committee. 
-------------------  --------------  -----------------  --------------------  ------------------ 
 The Company has agreed to reimburse Mr van der Heijden for reasonably 
  incurred expenses in the course of his duties to the Company. 
------------------------------------------------------------------------------------------------ 
 Tomas Fiala          Non-executive   No fee.            26 February           The Director 
                       Director                           2007                  or Company 
                                                                                may terminate 
                                                                                on three month's 
                                                                                written notice. 
-------------------  --------------  -----------------  --------------------  ------------------ 
 The Company has agreed to reimburse Mr Fiala for reasonably 
  incurred expenses in the course of his duties to the Company. 
------------------------------------------------------------------------------------------------ 
 

The aggregate amount paid to Directors for the period ending 31 December 2017 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 2017.

Corporate Governance

Combined Code

The Directors recognise the importance of sound corporate governance. The Company has complied, where possible, with the Corporate Governance Guidelines for AIM Companies published by the Quoted Companies Alliance. The Directors are committed to maintaining the highest standards of corporate governance in the future.

The Board and Board Committees

The Board is comprised of three directors: the 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 66,607,334 ordinary shares in the Company at the date of publication of this annual report (60.91% of the total number of shares). At the reporting date of 31 December 2017, Dragon Capital Group held same amount 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 Guidelines. 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 Mark 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 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 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 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 investee 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 2017.

Principal activities

The principal activities of the Company is that of investing in the development of its existing real estate properties in Ukraine. On 17 February 2014 an Extraordinary Meeting of Shareholders approved a new Investing Policy as defined by the AIM Rules for Companies. Under this revised policy the Board will seek to realise the Company's Properties in an orderly manner, such realisations to be effected at such times, on such terms and in such manner as the Board (in its absolute discretion) may determine. The full text of the Investing Policy can be found on the Company's website 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 the 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 loss before taxation for the year ended 31 December 2017 of USD 4,853 thousands (2016: loss of USD 4,687 thousands) all of which has been transferred from reserves.

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:

 
                                     2017                      2016 
                             Number of   Ownership%    Number of   Ownership% 
                                shares                    shares 
 
 Dragon Capital Group 
  (with Tomas Fiala as 
  principal shareholder 
  and managing director)    66,607,334        60.91   19,433,129        17.77 
 
 

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 2018

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 2018

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 2017 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 2017 and of its loss 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. 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.

Independent Auditors' Report to the Members of Dragon-Ukrainian Properties & Development PLC (continued)

 
                        The risk                       Our response 
 Valuation of           Subjective valuation           Our procedures included: 
  investments            (significance of risk 
  at fair value          unchanged compared             Control design: 
  through profit         with 2016):                    Documenting and assessing 
  or loss (US$30,258k                                   the processes in place to 
  (2016: US$40,779k))    Financial assets at            record investment transactions 
                         fair value through             and to value the portfolio. 
  Refer to page          profit or loss comprises 
  15 (Significant        illiquid and/or unquoted       Assessing valuer's credentials: 
  accounting matters     equity investments             Evaluation of the competence 
  identified by          in and loans to entities       and independence of the external 
  the Board),            principally involved           expert engaged by the Company, 
  note 1(b) (Business    in property development        including reference to professional 
  environment),          in Ukraine. The estimation     qualifications held. 
  note 2(d) (Use         of fair value is based 
  of judgements,         on adjusted net asset          Methodology choice: Challenging 
  estimates and          value of the investee          the appropriateness of the 
  assumptions);          entities, with the             valuation basis selected by 
  note 4 (financial      assets in those entities       comparison with observed industry 
  assets at fair         being principally comprised    best practice and the provisions 
  value through          of investment property.        of the RICS Valuation - Global 
  profit or loss)        The valuation of investment    Standards; 
  and note 14            property is based on 
  (fair values           independent, professional      Benchmarking assumptions: 
  and financial          valuations. This is            Comparing the Company's assumptions 
  risk management).      a key estimate.                to externally derived data 
                                                        in relation to key inputs 
                         The preparation of             such as development costs 
                         the fair value estimate        on current construction prices, 
                         and related disclosures        sales prices and discount 
                         involves subjective            rates. 
                         judgments or uncertainties, 
                         which requires special         Our sector experience: 
                         audit consideration            We used our own valuation 
                         because of the likelihood      specialist to evaluate the 
                         and potential magnitude        appropriateness of the valuation 
                         of misstatements to            methods used by the external 
                         the valuation of the           valuer engaged by the Company 
                         financial instrument.          and assumptions used, in particular 
                                                        those relating to forecasted 
                         In particular, Ukraine         property sales prices and 
                         has been subject to            exposition period, construction 
                         political and social           and other costs and discount 
                         unrest and regional            rates. 
                         tensions since 2013. 
                         This situation has             Sensitivity analysis: 
                         adversely affected             Performing sensitivity analysis 
                         and could continue             over the key inputs used for 
                         to adversely affect            calculation of the fair value 
                         the Company's results          and comparing the calculation 
                         and financial position         to the amounts disclosed in 
                         in a manner not currently      the financial statements. 
                         determinable. 
                                                        Assessing transparency: Considering 
                                                        the appropriateness, in accordance 
                                                        with relevant accounting standards, 
                                                        of the disclosures in respect 
                                                        of financial assets measured 
                                                        at fair value. 
                       -----------------------------  ------------------------------------- 
 

Independent Auditors' Report to the Members of Dragon-Ukrainian Properties & Development PLC (continued)

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$415,000 (2017: US$480,000), determined with reference to a benchmark of Company's total assets, of which it represents 1% (2017: 1%).

Whilst our audit procedures are designed to identify misstatements (including disclosure misstatements) which are material to our opinion on the financial statements as a whole, we nevertheless report any misstatements of lesser amounts to the extent that these are identified by our audit work.

Under ISA 260, we are obliged to report omissions or misstatements (including disclosure misstatements) other than those which are 'clearly trivial' to those charged with governance. ISA 260 defines 'clearly trivial' as matters that are clearly inconsequential, whether taken individually or in aggregate and whether judged by any quantitative or qualitative criteria.

We agreed to report to the Board of Directors any corrected or uncorrected identified misstatements exceeding US$20,000 (2017: US$24,000) for the Company's financial statements, in addition to other identified misstatements that warranted reporting on qualitative grounds.

4 We have nothing to report on going concern

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 twelve months from the date of approval of the financial statements. We have nothing to report in these respects.

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.

Independent Auditors' Report to the Members of Dragon-Ukrainian Properties & Development PLC (continued)

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

31 May 2018

Statement of financial position as at 31 December 2017

 
 
                                                            Note     31 December 2017   31 December 2016 
 (in thousands of USD) 
 
 Assets 
 Non-current assets 
 Financial assets at fair value through profit or loss       4                 30,258             40,779 
 
 Total non-current assets                                                      30,258             40,779 
 
 Current assets 
 Receivables from sale of Obolon Residences project       4(b)(ii)              3,999                  - 
 Other accounts receivable                                   5                    116                108 
 Cash and cash equivalents                                   6                  9,202              7,771 
 
 Total current assets                                                          13,317              7,879 
 
 Total assets                                                                  43,575             48,658 
 
 Equity and Liabilities 
 Equity 
 Share capital                                               7                  2,187              2,187 
 Share premium                                                                271,251            271,251 
 Accumulated losses                                                         (230,605)          (225,752) 
 
 Total equity                                                                  42,833             47,686 
 
 Current liabilities 
 Other accounts payable                                      8                    742                972 
 
 Total current liabilities                                                        742                972 
 
 Total liabilities                                                                742                972 
 
 Total equity and liabilities                                                  43,575             48,658 
 
 

These financial statements were approved by the board of Directors (the Board) on 30 May 2018 and were signed on its behalf by:

Non-executive Chairman Mark Iwashko

The statement of financial position is to be read in conjunction with the notes to, and forming part of, the financial statements set out on pages 28 to 65.

Statement of comprehensive income for the year ended 31 December 2017

 
                                                                        Note      2017      2016 
 (in thousands of USD) 
 
 Net loss from financial assets at fair value through profit or loss     10    (2,955)   (2,252) 
 Management fee                                                          9     (1,204)   (1,700) 
 Administrative expenses                                                 11      (742)     (492) 
 Other income                                                                       75        49 
 Other expenses                                                                   (43)      (80) 
 Performance fee                                                         9           -     (211) 
 
 Total operating loss                                                          (4,869)   (4,686) 
 Finance income                                                                     16         9 
 Finance costs                                                                       -      (10) 
 
 Loss for the year                                                             (4,853)   (4,687) 
 
 Net loss and total comprehensive loss for the year                            (4,853)   (4,687) 
 
 Loss per share 
 Basic loss per share (in USD)                                           13     (0.04)    (0.04) 
 Diluted loss per share (in USD)                                         13     (0.04)    (0.04) 
 

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

The statement of comprehensive income is to be read in conjunction with the notes to, and forming part of, the financial statements set out on pages 28 to 65.

Statement of cash flows for the year ended 31 December 2017

 
                                                                              Note                      2017      2016 
 (in thousands of USD) 
 
 Cash flows from operating activities 
 Loss for the year                                                                                   (4,853)   (4,687) 
 Adjustments for: 
 Net loss from financial assets at fair value through profit or loss           10                      2,955     2,252 
 Finance income                                                                                         (16)      (10) 
 Loans granted                                                                                         (112)     (207) 
 Loans repaid                                                                                            189       801 
 Interest received                                                                                         -         9 
 Proceeds from assignment of outstanding loans due to the Company           4(b)(ii)                     991         - 
 Proceeds from assignment of outstanding loans due to the Company's 
 investees                                                                  4(b)(ii)                   2,501         - 
 
 Operating cash flows before changes in working capital                                                1,655   (1,842) 
 
 
 Change in other accounts receivable                                                                       6      (50) 
 Change in other accounts payable                                                                      (230)     (236) 
 
 Cash flows from/(used in) operating activities                                                        1,431   (2,128) 
 
 Cash flows from financing activities 
 Distribution to Shareholders                                                  7                           -   (6,014) 
 
 Cash flows used in financing activities                                                                   -   (6,014) 
 
 Net change in cash and cash equivalents                                                               1,431   (8,142) 
 
 Cash and cash equivalents at 1 January                                                                7,771    15,912 
 Effect of foreign exchange fluctuation on cash balances                                                   -         1 
 
 Cash and cash equivalents at 31 December                                                              9,202     7,771 
 
 

The statement of cash flows is to be read in conjunction with the notes to, and forming part of, the financial statements set out on pages 28 to 65.

 
Statement of changes in equity for the year ended 31 December 2017 
 
 
 
 
 
                                          Share capital      Share premium    Accumulated losses       Total 
 (in thousands of USD) 
 
  Balances at 1 January 2017                      2,187            271,251             (225,752)      47,686 
 
Total comprehensive loss for the 
year 
Net loss                                              -                  -               (4,853)     (4,853) 
 
  Balances at 31 December 2017                    2,187            271,251             (230,605)      42,833 
 
Balances at 1 January 2016                        2,187            277,265             (221,065)      58,387 
 
Total comprehensive loss for the 
year 
Net loss                                              -                  -               (4,687)     (4,687) 
 
Transactions with owners of the 
Company 
Distribution to Shareholders (note 
 7)                                                   -            (6,014)                     -     (6,014) 
 
Total transactions with owners of 
 the Company                                          -            (6,014)                     -     (6,014) 
 
Balances at 31 December 2016                      2,187            271,251             (225,752)      47,686 
 
 
 

The statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the financial statements set out on pages 28 to 65.

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.

In March 2014 Autonomous Republic of Crimea (Crimea) was annexed by the Russian Federation and this annexation is not recognised by the international community. This event resulted in a significant deterioration of political and economic relationships between Ukraine and the Russian Federation. Following the annexation of Crimea, regional tensions have spread to the Eastern regions of Ukraine, primarily to the parts of Donetsk and Lugansk regions. In May 2014, unrest escalated into military clashes and armed conflict between armed supporters of the self-declared republics of Donetsk and Lugansk regions and the Ukrainian army forces. As at the date these financial statements were authorised for issue part of Donetsk and Lugansk regions is not controlled by the Ukrainian authorities and as a result Ukrainian authorities are not currently able to fully enforce Ukrainian laws in this territory. The economy started to recover in 2016, following a deep slump in 2014-2015 caused by military tensions in Eastern Ukraine and economic misbalances accumulated in previous years. Real GDP grew 2.4% y-o-y in 2016 and 2.5% in 2017. Economic recovery was driven by domestic demand, including revival of private investment. Investment in fixed capital surged by +22% y-o-y in 2017, on top of 18% in 2016. Investment growth was broad-based with industry, agriculture, trade and real estate s contributing the most. Private consumption also gained momentum in 2017 advancing by +7.8% y-o-y on the back of 19% of real salaries growth and increase in pension spending.

Currency stabilization and prudent monetary and fiscal policy helped to tame average consumer inflation from 49% in 2015 to 14% in 2016 and 2017. The National Bank of Ukraine 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 to a certain level and lowering the requirement for converting of foreign currency proceeds. Owing to conservative spending policy and energy sector reform, the broad fiscal deficit (including Naftogas deficit) narrowed from 10% of gross domestic product in 2014 to 2% of gross domestic product in 2015 and remained close to this level in 2016 and 2017, helping to reduce debt-to-GDP ratio to 72% in 2017 from 81% in 2016. The banking sector was cleaned from non-viable banks and the country's largest private bank Privatbank was nationalized in December 2016. As at 31 December 2017, 82 banks operated in Ukraine, compared to 180 as at 31 December 2013.

Ukraine's government progressed with structural reforms, including those affecting business environment. The government reduced payroll tax rate by almost twofold in 2016, from average rate of over 40% to unified rate of 22%, introduced electronic system of VAT refund to exporters, significantly reduced 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. As a result, Ukraine advanced in the World Bank Doing Business ranking to 76(th) rank (2018 ranking based on 2017 data), from 112(th) four years ago.

In August 2017 Moody's upgraded Ukraine's credit rating to Caa2, with a positive outlook, reflecting recent government reforms and improved foreign affairs. Further stabilization of economic and political environment depends on the continued implementation of structural reforms and other factors.

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.

   (b)         Basis of measurement 

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

 
                       Items                           Measurement basis 
---------------------------------------------------    ----------------- 
   Investments at fair value through profit or loss       Fair value 
   Loans receivable                                       Fair value 
 
   (c)         Functional and presentation currency 

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

   (i)          Determination of functional currency 

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

   (d)         Use of judgments, estimates and assumptions 

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

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

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

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

   --                              Note 3 (a) - Determination of investment entity criteria; 
   --                              Note 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. 
   (e)         Going concern 

These financial statements are prepared on a going concern basis. In the year ended 31 December 2017 the Company incurred a net loss of USD 4,853 thousand (31 December 2016: USD 4,687 thousand) and had positive cash flows from operating activities of USD 1,431 thousand (31 December 2016: negative cash flows from operating activities of USD 2,128 thousand). As at that date the Company's current assets exceeded its current liabilities by USD 12,575 thousand (31 December 2016: USD 6,907 thousand) and its Net Asset Value amounted to USD 42,833 thousand (31 December 2016: USD 47,686 thousand).

As described in note 3(a), the Company has a clear exit strategy from its real estate projects under which no new investments are planned. The Company expects to receive the returns from the existing projects in its portfolio and intends to pass through these returns to its shareholders via distribution. The Company intends to continue operations until final realization of its investment projects. The Directors believe that the Company currently plans to continue operations for the foreseeable future and that its existing cash resources are sufficient to meet the Company's liabilities for at least several years and, therefore, the going concern basis for preparing these financial statements is appropriate.

   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 Third Management Agreement and within the strategic decisions of the Directors. There is no separate substantial business activity beyond earning returns from capital appreciation and investment income. The Directors seek to return any surplus funds and net proceeds from property realisation to shareholders when appropriate, in accordance with its investing policy.

Considering the above, the Company's management determined that the Company meets the definition of investment entity in accordance with IFRS 10 Consolidated Financial Statements and, accordingly, the Company has not consolidated its subsidiaries. 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:

 
                 Name                     Country of incorporation           Project                 % of ownership 
                                                                                                    2017        2016 
 
 Glangate LTD                              Cyprus                      Kremenchuk                   100%        100% 
 New Region LLC                            Ukraine                     Kremenchuk                   100%        100% 
 Blueberg Trading Limited                  British Virgin Islands      Green Hills                  100%        100% 
 Capital Construction LLC                  Ukraine                     Green Hills                     -        100% 
 Grand Development LLC                     Ukraine                     Green Hills                  100%        100% 
 J Komfort Neruhomist LLC                  Ukraine                     Green Hills                  100%        100% 
 Korona Development LLC                    Ukraine                     Green Hills                  100%        100% 
 Linkrose LTD                              Cyprus                      Green Hills                  100%        100% 
 Landzone LTD                              Cyprus                      Avenue Shopping mall         100%        100% 
 Landshere LTD                             Cyprus                      Land Bank                     90%         90% 
 Riverscope LTD                            Cyprus                      Land Bank                     90%         90% 
 Z Development LLC                         Ukraine                     Land Bank                    100%        100% 
 Z Neruhomist LLC                          Ukraine                     Land Bank                    100%        100% 
 Development Invest LLC                    Ukraine                     Land Bank                    100%        100% 
 K Zatyshna Domivka LLC                    Ukraine                     Land Bank                    100%        100% 
 Closed investment fund "Development"      Ukraine                     Obolon Residences               -        100% 
 OJSC "Dom byta "Obolon"                   Ukraine                     Obolon Residences               -        100% 
 Startide LTD                              Cyprus                      Obolon Residences               -        100% 
 Bi Dolyna Development LLC                 Ukraine                     Riviera Villas               100%        100% 
 EF Nova Oselya LLC                        Ukraine                     Riviera Villas               100%        100% 
 Mountcrest LTD                            Cyprus                      None                         100%        100% 
 Riviera Villas LLC                        Ukraine                     Riviera Villas               100%        100% 
 Stenfield Finance Limited                 British Virgin Islands      Riviera Villas               100%        100% 
 Linkdell LTD                              Cyprus                      Sadok Vyshneviy              100%        100% 
 Komfort Oselya Obolon LLC                 Ukraine                     Obolon Residences               -        100% 
 
   (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)).

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 designates receivable from its investees at fair value through profit or loss.

   (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)          Non-derivative financial assets 

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

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

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

The Company classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss 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 3(b), 3(c) and 3(d)).

Other loans and receivables

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

Other loans and receivables comprise the following classes of assets: other accounts receivable as presented in note 5 and cash and cash equivalents as presented in note 6.

Cash and cash equivalents

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

   (ii)           Non-derivative financial liabilities 

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

Other financial liabilities comprise other payables as presented in note 8.

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

   (iii)          Share capital 

Ordinary shares

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.

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.

   (g)           Impairment 
   (i)            Non-derivative financial assets 

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

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

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 Directors' judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss is calculated as the difference between the asset's carrying amount, and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables. 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.

   (h)           Provisions 

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

   (i)            Finance income and costs 

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

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

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

   (j)            Dividend income 

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

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

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

   (l)            Fees and administrative expenses 

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

   (m)          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.

   (n)           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.

   (o)           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.

   (p)           Changes in presentation 

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

   (q)           New standards and interpretations not yet adopted 

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2017, and have not been applied in preparing these financial statements. Of these pronouncements, potentially the following will have an impact on the Company's financial statements. The Company plans to adopt these pronouncements when they become effective.

Estimated impact of the adoption of IFRS 9

The Company is required to adopt IFRS 9 Financial Instruments from 1 January 2018. The Company has assessed the estimated impact that the initial application of IFRS 9 will have on its financial statements. The estimated impact of the adoption of this standard on the Company's equity as at 1 January 2018 is based on assessments undertaken to date. The actual impacts of adopting the standard at 1 January 2018 may change because:

-- the new accounting policies are subject to change until the Company presents its first financial statements that include the date of initial application.

-- accounting processes and internal controls related to implementation of new standard are not yet complete.

Based on assessment performed by the Company adoption of IFRS 9 is not expected to have a significant effect on the financial statements.

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments 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.

Classification - Financial assets and liabilities

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 not separated. Instead, the whole hybrid instrument is assessed for classification. Equity investments are measured at fair value.

IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities.

Based on assessment performed by the Company, adoption of IFRS 9 is not expected to have an effect on classification of financial assets and liabilities in the Company's financial statements.

Impairment - Financial assets and contract assets

IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' model. The new impairment model applies to financial assets measured at amortised cost and FVOCI and does not apply to financial assets measured at FVTPL. The new impairment model generally requires to recognise expected credit losses in profit or loss for all financial assets, even those that are newly originated or acquired. Under IFRS 9, impairment is measured as either expected credit losses resulting from default events on the financial instrument that are possible within the next 12 months ('12-month ECL') or expected credit losses resulting from all possible default events over the expected life of the financial instrument ('lifetime ECL'). Initial amount of expected credit losses recognised for a financial asset is equal to 12-month ECL (except for certain trade and lease receivables, and contract assets, or purchased or originated credit-impaired financial assets). If the credit risk on the financial instrument has increased significantly since initial recognition, the loss allowance is measured at an amount equal to lifetime ECL.

Financial assets for which 12-month ECL is recognised are considered to be in stage 1; financial assets that have experienced a significant increase in credit risk since initial recognition, but are not defaulted are considered to be in stage 2; and financial assets that are in default or otherwise credit-impaired are considered to be in stage 3.

Measurement of expected credit losses is required to be unbiased and probability-weighted, should reflect the time value of money and incorporate reasonable and supportable information that is available without undue cost or effort about past events, current conditions and forecasts of future economic conditions. Under IFRS 9, credit losses are recognised earlier than under IAS 39, resulting in increased volatility in profit or loss. It will also tend to result in an increased impairment allowance, since all financial assets will be assessed for at least 12-month ECL and the population of financial assets to which lifetime ECL applies is likely to be larger than the population with objective evidence of impairment identified under IAS 39.

Based on assessment performed by the Company, adoption of IFRS 9 is not expected to result in significant additional impairment losses in the Company's financial statements.

Disclosures

IFRS 9 will require extensive new disclosures, in particular about credit risk and expected credit losses.

Transition

IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018. Early adoption of the standard is permitted. The Company does not intend to adopt the standard earlier.

The classification and measurement and impairment requirements are generally applied retrospectively (with some exemptions) by adjusting the opening retained earnings and reserves at the date of initial application, with no requirement to restate comparative periods.

Various Improvements to IFRSs

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 not earlier than 1 January 2018. The Company has not yet analysed the likely impact of the improvements on its financial position or performance.

   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:

 
                                Project              31 December 2017     31 December 2016 
 (in thousands of USD) 
 
 Equity investments at fair value through 
  profit or loss 
 
 Subsidiaries 
                              Avenue Shopping 
 Landzone Ltd                  mall                                 -                  172 
 Stenfield Finance Ltd        Riviera Villas                        -                    - 
 Mountcrest Ltd               Riviera Villas                        -                    - 
 Linkdell Ltd                 Financing company                     -                    - 
 Glangate Ltd                 Kremenchuk                            -                    - 
 Blueberg Trading Ltd         Green Hills                           -                    - 
 Riverscope Ltd               Land Bank                             -                    - 
 Landshere Ltd                Land Bank                             -                    - 
 Linkrose Ltd                 Green Hills                           -                    - 
 Startide Ltd                 Obolon Residences                     -                    - 
 
                                                                    -                  172 
 
 Other equity investments 
 
 Arricano Real Estate plc 
  (note 4(a))                 Arricano                          6,528                3,025 
 
                                                                6,528                3,197 
 
 Loans receivable at fair value through 
  profit or loss 
 Startide Ltd                 Obolon Residences                     -               12,391 
 Riverscope Ltd               Land Bank                         5,274                6,934 
 Linkdell Ltd*                Financing company                 7,035                7,060 
 Landshere Ltd                Land Bank                         3,966                3,698 
 Linkrose Ltd                 Green Hills                       5,138                4,884 
 Stenfield Finance Limited    Riviera Villas                    1,126                1,346 
 Glangate Ltd                 Kremenchuk                          340                  431 
 Blueberg Trading Limited     Green Hills                         851                  838 
 
                                                               23,730               37,582 
 
                                                               30,258               40,779 
 
 

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

 
                            31 December      31 December 
                                   2017             2016 
(in thousands of USD) 
 
Riviera Villas                    2,028            2,281 
Sadok Vyshneviy                   2,224            2,300 
Obolon Residences                 1,520            1,288 
Green Hills                       1,199            1,113 
Kremenchuk                           64               78 
 
                                  7,035            7,060 
 
 
   (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 2017 and 2016. 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.

Fair value as at 31 December 2017 and 31 December 2016

The Company's management applied a valuation method under which Arricano's net assets value as at 31 December 2017 (audited) and 31 December 2016 (audited) were multiplied by the Company's share in Arricano's net assets.

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 Arricano's net assets were 10% lower than that used in the valuation model, the fair value of the investment in Arricano as at 31 December 2017 would be USD 653 thousand lower (31 December 2016: USD 302 thousand lower). If Arricano's net assets were 10% higher than that used in the valuation model, the fair value of the investment in Arricano as at 31 December 2017 would be USD 653 thousand higher (31 December 2016: USD 302 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.

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

   (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 (31 December 2016: USD 13,679 thousand (note 4(b)(iii))). 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).

As a result of sale of Obolon Residences project, the Company's ownership in its unconsolidated subsidiaries was changed as follows:

 
                 Name                     Country of incorporation         Project                % of ownership 
                                                                                                  2017        2016 
 Closed investment fund "Development"      Ukraine                     Obolon Residences             -        100% 
 OJSC "Dom byta "Obolon"                   Ukraine                     Obolon Residences             -        100% 
 Startide LTD                              Cyprus                      Obolon Residences             -        100% 
 Komfort Oselya Obolon LLC                 Ukraine                     Obolon Residences             -        100% 
 

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 to be received in April 2018 in two instalments. Subsequent to the reporting date and before the date these financial statements were authorised for issue, this remaining portion was settled to the Company by Cheriton Overseas Limited.

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. Subsequently to the reporting date and before the date these financial statements were authorised for issue, 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 2017 the investment in Landzone Ltd is valued at zero (31 December 2016: USD 172 thousand) and a respective fair value loss in the amount USD 172 thousand is recognized in profit or loss.

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

 
                                                          Obolon 
                  Riviera Villas      Green Hills       Residences      Sadok Vyshneviy      Land Bank        Kremenchuk        Total 
 (in thousands 
 of USD) 
 Assets 
 Investment 
  properties                3,338             3,162                 -                 -             1,410               400       8,310 
 Prepayments 
  for land                      -                 -                 -                 -             7,990                 -       7,990 
 Property and 
  equipment                    85               182                 -                 -                 -                 -         267 
 Intangible 
  assets                        -                 5                 -                 -                 -                 -           5 
 Inventories                   23                72                 -               880                 -                 -         975 
 Trade and 
  other 
  receivables                 350             2,541                 -             1,336                 -                 -       4,227 
 VAT 
  recoverable                  97               442                 -                 -                 -                 -         539 
 Prepaid income 
  tax                           1                 -                 -                25                 -                 -          26 
 Cash and cash 
  equivalents                 237             1,409             1,520                60                13                 8       3,247 
 
 Total assets               4,131             7,813             1,520             2,301             9,413               408      25,586 
 
 Deferred tax 
  liabilities                   -                 -                 -                 -                61                 -          61 
 Intercompany 
  loans                    25,899            34,466             1,520            16,934           241,741            12,935     333,495 
 Trade and 
  other 
  liabilities                 977               625                 -                77               112                 4       1,795 
 
 Total 
  liabilities              26,876            35,091             1,520            17,011           241,914            12,939     335,351 
 
 Net 
  identifiable 
  assets and 
  liabilities            (22,745)          (27,278)                 -          (14,710)         (232,501)          (12,531)   (309,765) 
 Ownership                   100%              100%                 -              100%               90%              100% 
 
 Fair value of 
 equity 
 investment                     -                 -                 -                 -                 -                 -           - 
 
 Nominal amount 
  of loans 
  receivable               25,899            34,466             1,520            16,934           241,741            12,935     333,495 
 Fair value of 
  loans 
  receivable                3,154             7,188             1,520             2,224             9,240               404      23,730 
 
 

Summary of fair values of respective investment projects as at 31 December 2016 are as follows:

 
                                                                        Avenue 
                  Riviera                    Obolon         Sadok       Shopping                Rivne and 
                   Villas    Green Hills    Residences    Vyshneviy      Centre    Land Bank    Kremenchuk     Total 
 (in thousands 
 of USD) 
 Assets 
 Investment 
  properties         4,069         4,037             -             -       1,240           7           500       9,853 
 Prepayments 
  for land               -             -             -             -           -      10,707             -      10,707 
 Property and 
  equipment             45           136            43             -           -           -             -         224 
 Intangible 
  assets                 1             -            19             -           -           -             -          20 
 Inventories            21            73        12,635         1,142           -           -             -      13,871 
 Trade and 
  other 
  receivables          132         1,453         3,667         1,096          12           -             -       6,360 
 VAT 
  recoverable          101           497             1             -           -           -             -         599 
 Prepaid income 
  tax                    1             -             -            22           -           -             -          23 
 Cash and cash 
  equivalents          230         1,161           481           112          86           3            12       2,085 
 
 Total assets        4,600         7,357        16,846         2,372       1,338      10,717           512      43,742 
 
 Deferred tax 
  liabilities            -             -         1,377             -         199           -             -       1,576 
 Long-term 
  loans payable     24,936        32,970        40,989        17,349           5     230,172        12,390     358,811 
 Intercompany 
  loans                  -             -             -             -          85           -             -          85 
 Other 
  long-term 
  payables               -             -             4             -           -           -             -           4 
 Trade and 
  other 
  liabilities          973           522         1,783            72          92          85             3       3,530 
 Income tax 
  payable                -             -             3             -           -           -             -           3 
 
 Total 
  liabilities       25,909        33,492        44,156        17,421         381     230,257        12,393     364,009 
 
 Net 
  identifiable 
  assets 
  and 
  liabilities     (21,309)      (26,135)      (27,310)      (15,049)         957   (219,540)      (11,881)   (320,267) 
 Ownership            100%          100%          100%          100%      18.77%         90%          100% 
 
 Fair value of 
  equity 
  investment             -             -             -             -         172           -             -         172 
 
 Nominal amount 
  of loans 
  receivable        24,936        32,970        40,989        17,349           5     230,172        12,390     358,811 
 Fair value of 
  loans 
  receivable         3,627         6,835        13,679         2,300           -      10,632           509      37,582 
 
 

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 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. As at 31 December 2016 the Directors engaged independent appraiser DTZ Kiev B.V.

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 2017 investment properties were represented by Green Hills, Riviera Villas, Kremenchuk Retail Centres 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 2017 are 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 
   --   average cottage sales price ranging from USD 917 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.

As at 31 December 2016 the respective assumptions, which represent key unobservable inputs for determination of fair value, were as follows:

-- monthly rental rates - which were based on current rental rates ranging from USD 3.4 to USD 32 per sq. m.

   --   development costs based on current construction prices 
   --   average cottage sales price ranging from USD 834 to USD 1,537 per sq. m. 
   --   discount rate -  from 22% to 24.5% 
   --   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 2017 and 2016. 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 2017 and 31 December 2016.

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 2017 are 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 

As at 31 December 2016 the respective assumptions were as follows:

   --   average market prices ranging from USD 28 thousand to USD 189 thousand per ha 
   --   discount rates ranging from 21.5% to 22.5% 
   --   sales period - from 1 to 7 years 

Inventory

As at 31 December 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 at 31 December 2017 are as follows:

   --   average market price USD 430 per sq. m. 
   --   discount rate 20% 
   --   sales period - from 1 to 3 years 

As at 31 December 2016 inventory was represented by the gated community Sadok Vyshnevyi (20 newly constructed flats in townhouses and relevant land plots) and the Obolon Residences project (residential complex in Kyiv under construction).

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 2016 are as follows:

   --   average market prices ranging from USD 387 to USD 2,101 per sq. m. 
   --   discount rates ranging from 18.75% to 23% 
   --   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 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 2017 would be USD 2,723 thousand lower (2016: USD 3,743 thousand). If sales prices and rental rates are 5% higher, then the fair value of the real estate projects as at 31 December 2017 would be USD 2,772 thousand higher (2016: USD 3,754 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 2017 would be USD 1,674 thousand lower (2016: USD 1,847 thousand). If development costs are 5% less, then the fair value of the real estate projects as at 31 December 2017 would be USD 1,674 thousand higher (2016: USD 1,849 thousand).

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 2017 would be USD 554 thousand lower (2016: USD 824 thousand). If the discount rate is 1% less, then the fair value of the real estate projects as at 31 December 2017 would be USD 716 thousand higher (2016: USD 857 thousand).

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

Management has determined that two real estate projects, namely: Riviera Villas and Land Bank are particularly sensitive to unobservable inputs in valuation models and, therefore, are subject to especially significant estimation uncertainty.

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 2017 would be USD 1,418 thousand lower (2016: USD 1,014 thousand).

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 real estate projects as at 31 December 2017 would be USD 1,374 thousand lower (2016: USD 1,794 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 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 receivable are designated at fair value through profit or loss in accordance with IAS 39 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:

 
                                    31 December 2017   31 December 2016 
 (in thousands of USD) 
 
 Other receivables                               115                 59 
 Prepayments made                                  1                 49 
                                        ____________       ____________ 
 Total other accounts receivable                 116                108 
 
 
   6.        Cash and cash equivalents 

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

 
                                    31 December 2017   31 December 2016 
 (in thousands of USD) 
 
 Bank balances                                 1,502              7,771 
 Call deposits                                 7,700                  - 
 
 Total cash and cash equivalents               9,202              7,771 
 
 

The following table represents an analysis of cash and cash equivalents based on Fitch ratings as at 31 December:

 
                          31 December   31 December 
                                 2017          2016 
 (in thousands of USD) 
 
 Bank balances 
 AA-                              371         3,372 
 A+                             1,131         4,399 
 
                                1,502         7,771 
 
 Call deposits 
 A -                            3,000             - 
 +                              4,700             - 
 
                                7,700             - 
 
 Total                          9,202         7,771 
 
 
   7.        Equity 

Movements in share capital and share premium are as follows:

 
                                                      Ordinary shares             Amount 
                                                     Number of shares   Thousands of USD 
 Issued as at 31 December 2007, fully paid                140,630,300              2,813 
 
 Issued during 2008                                         1,698,416                 34 
 Own shares repurchased and cancelled during 2008         (8,943,000)              (179) 
 
 Outstanding as at 31 December 2008, fully paid           133,385,716              2,668 
 
 Own shares repurchased and cancelled during 2009        (15,669,201)              (314) 
 
 Outstanding as at 31 December 2009, fully paid           117,716,515              2,354 
 
 Outstanding as at 31 December 2010, fully paid           117,716,515              2,354 
 
 Own shares repurchased and cancelled during 2011         (8,355,000)              (167) 
 
 Outstanding as at 31 December 2011, fully paid           109,361,515              2,187 
 
 Outstanding as at 31 December 2012, fully paid           109,361,515              2,187 
 
 Outstanding as at 31 December 2013, fully paid           109,361,515              2,187 
 
 Outstanding as at 31 December 2014, fully paid           109,361,515              2,187 
 
 Outstanding as at 31 December 2015, fully paid           109,361,515              2,187 
 
 Outstanding as at 31 December 2016, fully paid           109,361,515              2,187 
 
 Outstanding as at 31 December 2017, fully paid           109,361,515              2,187 
 
 

The share capital of the Company consists of an unlimited number of ordinary shares of GBP0.01 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 and 12 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 7,655 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:

 
 (in thousands of USD)                  31 December 2017   31 December 2016 
 
 Management fees (note 9)                            579                850 
 Other payables and accrued expenses                 133                 92 
 Advances received                                    30                 30 
 
 Total other accounts payable                        742                972 
 
 
   9.        Management and performance fees 

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

 
                                           2017    2016 
 (in thousands of USD) 
 
 Management fee                           1,204   1,700 
 Performance fee                              -     211 
 
 Total management and performance fees    1,204   1,911 
 
 

Unpaid management and performance fees as at 31 December 2017 amounted to USD 579 thousand (2016: USD 850 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 Manager) pursuant to which the latter has agreed to provide advisory, management and monitoring services to the Company. The Company may terminate the 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 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 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 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 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 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 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 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 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).

As set out in the Fourth Management Agreement, as a result of the sale of the Obolon Residences project, the management fee payable to DCM Limited is reduced to US$ 1.0 million per annum, and accordingly the management fee for the year ending 31 December 2017 was reduced on a pro rata basis from the date of project's 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.

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 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 total management fee for the year ended 31 December 2017 is USD 1,204 thousand (31 December 2016: USD 1,700 thousand). There is no performance fee for the year ended 31 December 2017 that has to be paid to the Company (2016: USD 211 thousand).

   10.      Net 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:

 
                                                                                            2017       2016 
 (in thousands of USD) 
 
 Interest income                                                                          16,508     16,228 
 Loss from loans receivable at fair value through profit or loss                        (16,472)   (19,360) 
 
 Net gain/(loss) from loans receivable at fair value through profit or loss                   36    (3,132) 
 
 Gain on equity investments at fair value through profit or loss                           3,331        880 
 
 Fair value of disposed Obolon Residences project as at 30 June 2017 (Note 4(b)(ii))    (15,322)          - 
 Proceeds from disposal of Obolon Residences project (investees level) 
  (Note 4(b)(ii))                                                                          4,021          - 
 Proceeds from disposal of Obolon Residences project (Company level) 
  (Note 4(b)(ii))                                                                          4,979          - 
 
 Net realized loss                                                                       (6,322)          - 
 
 Net loss from financial assets at fair value through profit or loss                     (2,955)    (2,252) 
 
 
   11.      Administrative expenses 

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

 
                                   2017    2016 
 (in thousands of USD) 
 
 Professional services              490     227 
 Audit fees                          75      92 
 Directors' fees (note 15(a))        98      88 
 Advertising                         64      60 
 Insurance                            5      18 
 Bank charges                         4       5 
 Travel expenses                      2       2 
 Other                                4       - 
 
 Total administrative expenses      742     492 
 
 
   12.      Contingencies 
   (a)          Litigation 

The Company is involved in various legal proceedings in the ordinary course of business but Directors consider that none of them require provisions or could result in material losses for the Company.

   (b)          Taxation contingencies 

The Company is not subject to any tax charges within Isle of Man jurisdiction, however the Company's investees perform most of their operations in Ukraine and are therefore within the jurisdiction of the Ukrainian tax authorities. The Ukrainian tax system can be characterised by numerous taxes and frequently changing legislation, which may be applied retrospectively, be open to wide interpretation and in some cases conflict with other legislative requirements. Instances of inconsistent opinions between local, regional, and national tax authorities and the Ukrainian Ministry of Finance are not unusual. Tax declarations are subject to review and investigation by a number of authorities that are empowered by law to impose severe fines, penalties and interest charges. A tax year remains open for review by the tax authorities during the three subsequent calendar years, however under certain circumstances a tax year may remain open longer. These facts create tax risks substantially more significant than typically found in countries with more developed systems.

The Directors believe that the Company has adequately assessed tax liabilities based on its interpretation of tax legislation, official pronouncements and court decisions for the purpose of assessment of the Company's assets fair value. However, the interpretations of the relevant authorities could differ and the effect on the financial statements, if the authorities were successful in enforcing their interpretations, could be significant.

   (c)          Litigation with tax authorities 

In 2015 the Company's investee Grand Development LLC (Green Hills project) was involved in litigation with tax authorities with respect to penalties of USD 437 thousand imposed as a result of tax inspection. Respective provision for the full amount of penalties has been recognised in the investee's accounts as at and for the year ended 31 December 2015. During 2016 the Kyiv Administrative Court ruled decision in favour of the company, Grand Development LLC. Based on that fact recognized in 2015 provision was reversed as at 31 December 2016.

   (d)         Insurance 

The Company and its investees do not have full coverage for the property, business interruption, or third party liability in respect of property or environmental damage arising from accidents on property or relating to the operations of the Company and its investees. For the real estate projects, the Company uses subcontractors who are responsible for insuring those risks until the time the property is commissioned. Until the Company and its investees obtain adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Company's operations and financial position.

   13.      Earnings per share 

Basic earnings per share

The calculation of basic earnings per share for the financial statements is based upon the net loss for the year ended 31 December 2017 attributable to the ordinary shareholders of the Company of USD 4,853 thousand (2016: net loss of USD 4,687 thousand) and the weighted average number of ordinary shares outstanding, calculated as follows:

 
                                                                                      2017                        2016 
 (number of shares weighted during the period outstanding) 
 
 Shares issued on incorporation on 23 February 2007                                      2                           2 
 Sub-division of GBP 1 shares into GBP 0.01 shares on 16 May 
  2007                                                                                 198                         198 
 Shares issued on 1 June 2007                                                  104,000,000                 104,000,000 
 Shares issued on 29 November 2007                                              36,630,100                  36,630,100 
 Shares issued on 24 April 2008                                                  1,698,416                   1,698,416 
 Own shares buyback in 2008                                                    (8,943,000)                 (8,943,000) 
 Own shares buyback in 2009                                                   (15,669,201)                (15,669,201) 
 Own shares buyback in 2011                                                    (8,355,000)                 (8,355,000) 
 
 Weighted average number of shares for the year                                109,361,515                 109,361,515 
 
 

Diluted earnings per share

As at 31 December 2017 and 2016 there were no options or warrants in issue. Therefore, there was no dilution on the Company's basic earnings per share.

   14.      Fair values and financial risk management 
   (a)       Accounting classifications and fair values 

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. Management believes that fair value of cash and cash equivalents, other accounts receivable and other accounts payable approximates their carrying amount.

 
                                                    Carrying amount                           Fair value 
 
                             Designated                  Other 
 (in thousands         Note    at fair    Loans and    financial                Level    Level 
 of USD)                        value    receivables  liabilities      Total      1        2        Level 3      Total 
31 December 
2017 
Financial 
assets measured 
at fair value 
Financial 
 assets at fair 
 value through 
 profit or loss      4           30,258            -            -     30,258        -        -       30,258     30,258 
 
                                 30,258            -            -     30,258        -        -       30,258     30,258 
 
Financial 
assets not 
measured 
at fair value 
Cash and cash 
 equivalents         6                -        9,202            -      9,202 
Receivables 
 from sale of 
 Obolon 
 Residences 
 project                              -        3,999                   3,999 
Other accounts 
 receivable          5                -          116            -        116 
 
                                      -       13,317            -     13,317 
 
Financial 
liabilities not 
measured at 
fair value 
Other accounts 
 payable             8                -            -          742        742 
 
                                      -            -          742        742 
 
 
 
                                                    Carrying amount                           Fair value 
 
                             Designated                  Other 
                       Note    at fair    Loans and    financial                Level    Level 
                                value    receivables  liabilities      Total      1        2        Level 3      Total 
 (in thousands 
 of USD) 
31 December 
2016 
Financial 
assets measured 
at fair value 
Financial 
 assets at fair 
 value through 
 profit or loss      4           40,779            -            -     40,779        -        -       40,779     40,779 
 
                                 40,779            -            -     40,779        -        -       40,779     40,779 
 
Financial 
assets not 
measured 
at fair value 
Cash and cash 
 equivalents         6                -        7,771            -      7,771 
Other accounts 
 receivable          5                -          108            -        108 
 
                                      -        7,879            -      7,879 
 
Financial 
liabilities not 
measured at 
fair value 
Other accounts 
 payable             8                -            -          972        972 
 
                                      -            -          972        972 
 
 
   (b)          Measurement of fair values 
   (i)      Valuation techniques and significant unobservable inputs 

The valuation techniques used in measuring Level 3 fair values, as well as the significant unobservable inputs used for Level 3 fair values, are disclosed in the following relevant notes:

   --                              Note 4 - Financial assets at fair value through profit and loss 

Reconciliation of Level 3 fair values

The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values.

 
                                                             Financial assets at 
                                                              fair value through 
                                              Note              profit or loss 
(in thousands of USD) 
Balance at 1 January 2016                                                           43,625 
Loss included in profit or loss 
Interest income                                10                                   16,228 
Gain on investments at fair value through 
 profit or loss                                10                                      880 
Loss from loans receivable at fair value 
 through profit or loss                        10                                 (19,360) 
Loans granted                                                                        (594) 
 
Balance at 31 December 2016                                                         40,779 
 
Loss included in profit or loss 
Interest income                                10                                   16,508 
Gain on investments at fair value through 
 profit or loss                                10                                    3,331 
Loss from loans receivable at fair value 
 through profit or loss                        10                                 (16,472) 
Fair value of disposed Obolon Residences 
 project as at 30 June 2017                    4                                  (15,322) 
Proceeds from disposal of Obolon Residences 
 project (investees level)                     10                                    4,021 
Loans repaid                                                                       (2,587) 
 
Balance at 31 December 2017                                                         30,258 
 
 
   (c)          Financial risk management 

Exposure to credit, interest rate and currency risk arises in the normal course of the Company's business. The Company does not hedge its exposure to such risks. As stated in note 1(b) to these financial statements the political and economic situation has deteriorated significantly since 2014. Further deterioration could negatively impact the results and financial position in a manner not currently determinable.

   (i)      Risk management policy 

The Board has assessed major risks and grouped them in a register of significant risks. This register is reviewed by the Board at least twice per year or more often if there are circumstances requiring such a review.

   (ii)     Credit risk 

Loans receivable

The Company issues loans to its subsidiaries. All these loans are unsecured and are stated at fair value in these financial statements. Recoverability of these loans receivable depends on timely realisation of the real estate projects (see note 4). As at 31 December 2017, USD 9,240 thousand, or 39% of the total loans receivable, are due from four counterparties, which further invest in Land Bank projects (31 December 2016: USD 24,311 thousand, or 65% which further invest in the Obolon Residences and Land Bank projects).

Other accounts receivable

The Company's exposure to credit risk is influenced mainly by the individual characteristics of each counterparty.

The exposure to credit risk is approved and monitored on an ongoing basis individually for all significant counterparties.

The Company does not require collateral in respect of other accounts receivable.

The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of other accounts receivable. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. At the reporting date the Company had no such collective impairment provision.

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk as at 31 December is as follows:

 
 
                                                       31 December 2017   31 December 2016 
 (in thousands of USD) 
 
 Loans receivable from investees                                 23,730             37,582 
 Cash and cash equivalents                                        9,202              7,771 
 Receivables from sale of Obolon Residences project               3,999                  - 
 Other accounts receivable                                          116                108 
 
                                                                 37,047             45,461 
 
 
   (iii)    Liquidity risk 

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation.

The following are the contractual maturities of financial liabilities as at 31 December 2017:

 
                                                 Contractual cash flows 
                           Carrying              Within                   More than 
                            amount     Total     one year    2-5 years     5 years 
(in thousands of USD) 
 
Other accounts payable          742      742          742            -            - 
 
                                742      742          742            -            - 
 
 

The following are the contractual maturities of financial liabilities as of 31 December 2016:

 
                                                 Contractual cash flows 
                                     ---------------------------------------------- 
                           Carrying              Within                   More than 
                            amount     Total     one year    2-5 years     5 years 
(in thousands of USD) 
 
Other accounts payable          972      972          972            -            - 
 
                                972      972          972            -            - 
 
 
   (iv)    Market risk 

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Interest rate risk

Fair value of loans receivable at fair value through profit or loss depends on fair values of underlying real estate projects (see note 4(b)), therefore fair values are not directly impacted by change in interest rates.

Foreign currency risk

The majority of the Company's income, expenses, assets and liabilities are denominated in US dollars. However, the underlying cash flows of the Company's investees are denominated in Ukrainian hryvnias. Though the Company attempts to peg its revenues to US dollar in the depressed economy it is not always possible to recover in full the effect of Ukrainian hryvnia devaluation. Weakening of the Ukrainian hryvnia would have resulted in decrease in fair value of loans receivable.

   (d)           Capital management 

The Directors seek to maintain a sufficient capital base for meeting the Company's operational and strategic needs, and to maintain confidence of market participants. This is achieved by efficient cash management and constant monitoring of investment projects.

From time to time the Company purchases its own shares on the market; the timing of these purchases depends on market prices. Buy decisions are made on a specific transaction basis by the Board within the limits approved by the Company's shareholders. The Company does not have a defined share buy-back plan.

There were no changes in the Company's approach to capital management during the year.

The Company is not subject to externally imposed capital requirements.

   15.      Related party transactions 
   (a)         Transactions with management and close family members 
   (i)      Directors' remuneration 

Directors' compensation included in the statement of comprehensive income for the years ended 31 December is as follows:

 
                                    2017   2016 
 (in thousands of USD) 
 
 Directors' fees                      98     88 
 Reimbursement of travel expense       1      2 
 
 Total management remuneration        99     90 
 
 
   (ii)     Key management personnel and director transactions 

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

 
                                     2017                      2016 
                             Number of   Ownership,   Number of    Ownership, 
                               shares         %         shares          % 
 
 Aloysius Johannes Van               -            -            -            - 
  der Heijden 
 Dragon Capital Group 
  (with Tomas Fiala as 
  principal shareholder 
  and managing director) 
  *                         66,607,334        60.91   19,433,129        17.77 
 
                            66,607,334        60.91   19,433,129        17.77 
 
 

* Dragon Capital Group holds its shares in the Company through nominal shareholder, Vidacos Nominees Limited as at 31 December 2017 and 31 December 2016.

Mr Tomas Fiala, one of the Company's directors, is the principal shareholder and managing director of Dragon Capital Group which acquired 6,831,500 shares (6.25%) of the Company during the first (June 2007) and second (November 2007) share issues. Also Mr Tomas Fiala is a director in Dragon Capital Partners which received 1,698,416 (1.55%) ordinary shares at a price of USD 2.60 per ordinary share to settle 70% of the Manager's performance fee for 2007 in the amount of USD 4,432 thousand.

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

During 2013 the Dragon Capital Group made additional market purchases of 2,842,595 shares in the Company, which resulted in a total shareholding of 18,927,822 ordinary shares, or 17.31% of the Company's issued share capital being the Dragon Capital Group shareholding at the reporting date.

In 2016 Dragon Capital Group sold 71,251 and purchased 576,558 ordinary shares bringing its shareholding to 19,433,129 or 17.77% of the issued share capital.

During 2017, as the result of series of market share purchases Dragon Capital Group has acquired in total 47,174,205 ordinary shares of the Company, which resulted in a total shareholding of 66,607,334 shares representing 60.91% of the issued share capital of the Company.

   (b)         Transactions with subsidiaries 

Outstanding balances with subsidiaries as at 31 December are as follows:

 
                                                 2017     2016 
 (in thousands of USD) 
 
 Loans receivable                              23,730   37,582 
 Other accounts receivable                        213      281 
 Allowance for impairment of other accounts 
  receivable                                    (213)    (281) 
 
                                               23,730   37,582 
 
 

Profit or loss transactions with subsidiaries during the years ended 31 December are as follows:

 
                                                 2017       2016 
 (in thousands of USD) 
 Interest income                               16,508     16,228 
 Loss from loans receivable at fair value 
  through profit or loss                     (16,472)   (19,360) 
 Other income                                      32          - 
 
                                                   68    (3,132) 
 
 
   (c)         Other related parties transactions 

Other related parties are represented by the Company's Manager, DCM Limited (see note 9) and DTZ Kiev B.V.

Outstanding balances with DCM Limited as at 31 December are as follows:

 
                          2017   2016 
 (in thousands of USD) 
 
 Management fee            579    850 
 
                           579    850 
 
 

Expenses incurred in transactions with DCM Limited as at 31 December are as follows:

 
                           2017    2016 
 (in thousands of USD) 
 
 Management fee           1,204   1,700 
 Performance fee              -     211 
                           2,      2, 
                         ------  ------ 
                          1,204   1,911 
 
 

One of the Company's non-executive directors is also a Chairman of DTZ Kiev B.V., the independent appraiser engaged by the Directors to assist with the estimation of fair value of the real estate projects as at 31 December 2016.

Outstanding balances with DTZ Kiev B.V. as at 31 December are as follows:

 
                         2017   2016 
 (in thousands of USD) 
 
 Appraisal services         -      - 
 
                            -      - 
 
 

Fees for services for the year ended 31 December are as follows:

 
 (in thousands of USD) 
 
 Appraisal services         3   23 
                           2, 
                         ----  --- 
                            3   23 
 
 
   16.      Events subsequent to the reporting date 

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 7,655 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 an 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.

Subsequently to the reporting date and before the date these financial statements were authorised for issue, receivables from sale of Obolon Residences project amounting to USD 3,999 thousand were fully settled to the Company by Cheriton Overseas Limited.

(1) Not including the sale of Obolon Residences to Cheriton Overseas Limited for USD 9.0 million

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR EANKFEDFPEEF

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