Half Yearly Report

30 September 2013

Dragon-Ukrainian Properties & Development plc

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

Results for the period ended 30 June 2013

Dragon-Ukrainian Properties & Development plc, a leading investor in the real estate sector in Ukraine, is pleased to announce its interim results for the period ended 30 June 2013.

Highlights

Operational Highlights

· Fully invested; focused on delivery and development of existing projects only

· Aiming to achieve cash flow generation in the portfolio projects

· Focused on two top-performing real estate sectors in Ukraine - retail and residential property

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

· Arricano

o successfully completed an IPO on AIM in September 2013 raising $24m and acquiring 4 pipeline projects, bringing the total portfolio to 9 investments. 

o DUPD maintains representation on the enlarged Arricano board and is actively involved with Arricano management in shaping and implementing Arricano's investment strategy for its next stage of development

o DUPD terminated all legal proceedings with Arricano's principal shareholder, Retail Real Estate S.A., via a comprehensive settlement of claims, after receipt of an amount in settlement of the claims.

o continued construction of the 2nd phase of South Gallery, a shopping centre in Simferopol, expected to open in 4Q2013, and attracted $40m in bank refinancing on its Rayon (Kyiv) and City Mall (Zaporizhzhya) shopping centres.

· Substantial progress in the development of the Obolon project: agreement with an equity co-investor signed, construction works on Phase 1 started in May, official sales campaign is set to commence in October 2013.

· the Dragon Capital Group increased its stake in Henryland to 62% by buying out East Capital; the purchase price was equivalent to a 6.4% discount to DUPD's 31 December 2012 carrying value of the Henryland investment, and a 12.15% discount to the 30 June 2013 carrying value.

· DUPD actively continued its efforts on the Land bank project to obtain the necessary rezoning of all of the land; 19.9 hectares (out of 502 hectares) already rezoned

· Rezoning of the land plot in Rivne (Glangate project) was completed in August 2013.

Financial Highlights

· Total NAV of USD 180.3 million as of 30 June 2013 (down 8.9% compared to USD 198 million at 31 December 2012)

· NAV per share of USD 1.65 as of 30 June 2013 (down 8.9% compared to USD 1.81 NAV per share at 31 December 2012)

· Cash balance of USD 18.9 million as of 30 June 2013 (31 December 2012: USD 21.7 million)

· Net loss before tax USD 18.8 million mostly driven by additional impairment provisions on Landbank project (USD 6 million), write-down of trading property (USD 3 million), and decision to value Kremenchuk and Rivne projects as land plots rather than development projects (USD 1.4 million) (31 December 2012 loss USD 16.3 million)

With effect from 30 September 2013, the Company will fall within the regulation of the UK's Takeover Code.

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

"We are happy to have achieved a few break-through successes in our key projects - Obolon Residences, where we secured an equity partner and commenced construction works, and Arricano, where after a series of legal disputes we finally reached a settlement with our majority partner and listed the company on AIM. These form an integral part of our consolidated effort to achieve sustainable progress and streamline the operations in all portfolio projects of DUPD."

For further information, please contact:

Project Overview

1. Land bank

· Land is registered on legal entities

· First part of land bank (19.9 ha) rezoned. Further rezoning is in process.

· The Company is focused on gradually selling the land as it is rezoned, which would be suitable for construction of residential and commercial facilities, when the land market recovers.

2. Obolon Residences

· Business class residential complex with office and retail premises

· Central location in a prestigious Kyiv district

· International standard design and concept

· Local equity co-investor attracted in April 2013

· Construction of Phase 1 underway

· Official sales campaign expected to commence in October 2013

3. Arricano Real Estate plc

· A leading developer of shopping centres in Ukraine.

· On September 12, 2013, Arricano achieved a listing on the AIM market of the LSE (ARO LN).

· DUPD's shareholding decreased to 12.51%.

· Portfolio of nine shopping centres of which five are operational and four under various stages of development, including:

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

o RayON (Kyiv) - New shopping centre opened in 2012

o Prospect (Kyiv) and 2nd phase of South Gallery (Simferopol)- under construction

4. Riviera Villas

· Elite cottage community near Kyiv

· Unique luxurious social and leisure infrastructure

· Won a prestigious award from European Property Awards 2013 in London, in the category of Development Multiple Units for Ukraine

· Utilities are on the site and waterfront infrastructure is completed

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

5. Green Hills

· Business class cottage community in close proximity to Kyiv (10 km)

· The first North American style cottage community developed in Ukraine

· All key infrastructure is in place

· 35 homes sold, including 6 after 30 June (31 December 2012: 28 homes sold)

6. Henryland

· Six "big box" retail schemes in regions of Ukraine, of which three are fully operational and cash-generating

· Secured anchor tenant

· Long-term international standards lease agreements

· Weak competition

· USD 2.6 million dividend received

7. Sadok Vyshnevy

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

· Utilities are on the site

· Individual property acts received for each of the properties

· All homes commissioned, and available for sale

8. Avenue Shopping Centre

· Strong retail location and low level of competition

· Land lease extended by a decision of the Kyiv City Council; lease agreement for the Hindale land plot should be extended for another five years.

· Signing of the extension of the lease agreement not yet finalised with the relevant authorities

· Construction permit pending

9. Glangate

· Two land plots for shopping centre development in second-tier regional cities

· Low level of competition

· Retailers are still focused on Kyiv rather than smaller cities

· Kremenchuk - construction permit received

· Rivne - rezoning of the land plot completed

Dragon - Ukrainian Properties & Development plc.

Consolidated interim financial statements

Consolidated statement of financial position as at 30 June 2013

The consolidated statement of profit or loss and other comprehensive income are to be read in conjunction with the notes to, and forming part of, the interim financial statements set out below.

Dragon - Ukrainian Properties & Development plc.

Consolidated interim financial statements

Consolidated statement of financial position as at 30 June 2013

(continued)

These consolidated interim financial statements were approved by the Board of Directors on 30 September 2013 and were signed on its behalf by:

Chairman of the board Rory Macnamara

Non-executive director Fredrik Svinhufvud

The consolidated statement of profit or loss and other comprehensive income are to be read in conjunction with the notes to, and forming part of, the interim financial statements set out below.

The directors believe that all results are derived from continuing activities

The consolidated statement of profit or loss and other comprehensive income are to be read in conjunction with the notes to, and forming part of, the interim financial statements set out on below.

Dragon - Ukrainian Properties & Development plc.

Consolidated interim financial statements

Consolidated statement of cash flows for the six months ended 30 June 2013

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

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

Dragon - Ukrainian Properties & Development plc.

Consolidated interim financial statements

Consolidated statement of changes in equity for the six months ended 30 June 2013

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

Dragon - Ukrainian Properties & Development plc.

Consolidated interim financial statements

Notes to the Consolidated interim financial statements

1 Background

(a) Organisation and operations

Dragon - Ukrainian Properties & Development plc (the Parent Company) was incorporated in the Isle of Man on 23 February 2007. The Parent Company's registered office is 2nd Floor, Belgravia House, 34-44 Circular Road, Douglas, Isle of Man IM1 1AE and its principal place of business is Ukraine.

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

The consolidated interim financial statements as at 30 June 2013 comprise the Parent Company and its subsidiaries and the Group's interest in associates (together referred to as the Group).

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

(b) Business environment

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

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

The Cyprus economy has been adversely affected over the last few years by the international credit crisis and the instability in the financial markets. During 2012 there was a considerable tightening of financing availability from Cypriot financial institutions, mainly resulting from financial instability in relation to the Greek sovereign debt crisis, including the impairment of Greek Government Bonds, and its impact on the Cyprus economy. In addition, following its credit downgrades, the ability of the Republic of Cyprus to borrow from international markets has been significantly reduced.

On 25 March 2013, the government of Cyprus and the Eurogroup finally reached an agreement for the bailout of the country's banking sector. The agreement opens the way for Cyprus to sign a Memorandum of Understanding with the Troika (committee led by the European Commission, European Central Bank ("ECB") and International Monetary Fund) so as to make the necessary structural and other reforms required to reduce the public debt and improve efficiency within the system.

Under the agreement the Cyprus government will receive ˆ10 billion which will be used to restructure the Government debt and proceed with implementing a program of structural changes including a privatisation program and efficiency drive.

The current economic environment of Cyprus will not have a significant impact on the operations of the Group and the Group does not hold significant funds in Cypriot financial institutions. Directors are unable to predict all developments which could have an impact on the Cyprus economy and consequently, what effect, if any, they could have on the future financial performance, cash flows and financial position of the Group.

The Directors believe that they are taking all the necessary measures to maintain the viability of the Group and the development of its business in the current business and economic environment.

2 Basis of preparation

(a) Statement of compliance

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

(b) Basis of measurement

The consolidated interim financial statements are prepared on the historical cost basis except for investment properties, which are carried at fair value.

(c) Functional and presentation currency

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

The Group consists of entities that are domiciled in Ukraine, Cyprus, British Virgin Islands and Isle of Man, and as a result there are a number of currencies in use by group entities.

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

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

(d) Use of judgments, estimates and assumptions

The preparation of interim 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.

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

• Notes 3(d) and 3(h) - Classification between investment properties and inventories;

• Note 5 - Valuation of investment properties;

• Note 6 - Valuation of prepayments for land;

• Note 7 - Associates;

• Note 9 - Net realisable value of trading property.

(e) Corresponding figures - change in presentation

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

3 Significant accounting policies

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

(a) Basis of consolidation

(i) Subsidiaries

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

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

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

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

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

Consolidated subsidiaries include the following:

On 3 March 2012 Startide LTD acquired 100% in the closed non-diversified venture investment fund "Development" (Fund "Development") through the purchase of 14,300 investment certificates for a total consideration of USD 178 thousand. The Group intends to use Fund "Development" as a financial vehicle for the Obolon project (detailed in note9).

Following a written resolution of the sole shareholder of Landzone Ltd (project Avenue) the share premium account was reduced and an amount of USD 5,000 thousand was returned to the Parent Company.

(ii) Associates

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

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

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

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

(iii) Jointly controlled operations

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

(iv) Transactions eliminated on consolidation

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

(b) Foreign currency and operations

(i) Foreign currency transactions

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

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

(ii) Foreign operations

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

(c) Financial instruments

(i) Non-derivative financial assets

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

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

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

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

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

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

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

Loans and receivables comprise the following classes of assets: trade and other receivables as presented in note 10, loans receivable as presented in note 8, and cash and cash equivalents as presented in note 11.

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

Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the above categories of financial assets. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, and foreign currency differences on available-for-sale debt instruments, are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised or impaired, the cumulative gain or loss in equity is reclassified to profit or loss. Unquoted equity instruments whose fair value cannot reliably be measured are carried at cost.

(ii) Non-derivative financial liabilities

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

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

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

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

Other financial liabilities comprise trade and other payables as presented in note 15 and finance lease liabilities as presented in note 13.

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

(iii) Share capital

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

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

(iv) Derivative financial instruments

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

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

(d) Investment properties

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

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

(i) Initial measurement and recognition

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

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

(ii) Subsequent measurement

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

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

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

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

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

After discussion with the independent appraiser, and considering the types of investment properties owned by the Group their intended development and current status, the Directors chose to estimate the fair value of land using the "residual land value" income approach valuation model and the market approach for different investment property projects.

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

The fair value under the market approach is determined based on the prices for comparative land plots.

(iii) Reclassification to owner-occupied property or inventory

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

(e) Property and equipment

(i) Recognition and measurement

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

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

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

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

(ii) Reclassification to investment property

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

(iii) Subsequent costs

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

(iv) Depreciation

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

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

• Vehicles and equipment 5-7 years

• Fixture and fittings 3 years

(f) Intangible assets

(i) Goodwill

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

The Group measures goodwill at the acquisition date as:

· The fair value of the consideration transferred, plus

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

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

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

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

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

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

(ii) Other intangible assets

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

(iii) Subsequent expenditure

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

(g) Leased assets

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

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

(h) Inventories

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

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

(i) Impairment

(i) Non-derivative financial assets

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

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

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

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

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

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

(ii) Non-financial assets

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

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

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

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

(j) Share-based payments

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

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

(k) Provisions

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

(l) Rental income from investment properties

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

(m) Lease payments

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

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

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

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

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

(n) Finance income and costs

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

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

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

(o) Income tax expense

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

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

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

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

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

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

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

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

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

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

(p) Earnings per share

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

(q) Segment reporting

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

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

(r) Changes in accounting policy

From 1 January 2013, the Group adopted Amendments to IAS 1 Presentation of items of other comprehensive income, IFRS 7 Financial instruments: Disclosures - Offsetting financial assets and financial liabilities, IFRS 13 Fair Value Measurement and IFRS 10 Consolidated Financial Statements.

· Amendments to IAS 1 Presentation of items of other comprehensive income requires that an entity present separately items of other comprehensive income that may be reclassified to profit or loss in the future from those that will never be reclassified to profit or loss. Additionally, the amendment changes the title of the statement of comprehensive income to statement of profit or loss and other comprehensive income. Application of amendments to IAS 1 did not have significant impact on these consolidated interim financial statements.

· Amendments to IFRS 7 Financial instruments: Disclosures - Offsetting financial assets and financial liabilities contain new disclosure requirements for financial assets and liabilities that are offset in the statement of financial position or subject to master netting arrangements or similar agreements. Application of amendments to IFRS 7 did not have significant impact on these consolidated interim financial statements.

· IFRS 13 Fair Value Measurement replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It provides a revised definition of fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurement that currently exist in certain standards. Application of IFRS 13 resulted in extended disclosures in respect of fair value of investment property made in these consolidated interim financial statements Note 5.

· IFRS 10 Consolidated Financial Statements introduces a single control model which includes entities that are currently within the scope of SIC-12 Consolidation - Special Purpose Entities. Under the new three-step control model, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with that investee, has the ability to affect those returns through its power over that investee and there is a link between power and returns. Application of this standard had no impact on consolidation of the Group's investees.

4 Disposal of non-controlling interests

In January 2013, in accordance with the terms agreed with the Group's partner at the time of making the investment the Group disposed of a 5 per cent interest in Riverscope Ltd (Land bank project) for USD 133 in cash (equivalent of EUR 100), decreasing its ownership form 95 to 90 per cent. The carrying amount of Riverscope Ltd net assets in the Group's financial statements on the date of disposal was USD 59,686 thousand. The Group recognised a decrease in non-controlling interests of USD 3,141 thousand and decrease in accumulated losses of USD 3,141 thousand.

In January 2013, in accordance with the terms agreed with the Group's partner at the time of making the investment the Group disposed of a 5 per cent interest in Landshere Ltd (project Land bank) for USD 133 in cash (equivalent of EUR 100), decreasing its ownership form 95 per cent to 90 per cent. The carrying amount of Landshere Ltd net assets in the Group's financial statements on the date of disposal was USD 59,599 thousand. The Group recognised a decrease in non-controlling interests of USD 3,137 thousand and decrease in accumulated losses of USD 3,137 thousand.

5 Investment properties and property under construction

Movements in investment properties and property under construction for the six months ended 30 June are as follows:

Movements in investment properties and property under construction for the six months ended 30 June 2012 are as follows:

The carrying values for investment properties and property under construction as at 30 June are as follows:

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

The Group's intention with regard to the Obolon project is the construction of a multi-storey business class residential complex with office and retail premises that will be sold upon completion of construction. Having received the construction permit and obtained the permit of KyivEnergo for removal of the power substation from the site, the Group has demolished the existing service centre building and started preliminary ground works. According to the Group's accounting policy investment property is transferred to trading properties under construction when the Group ceases to receive rental income from the properties in question and when construction has started on the site. From the date of acquisition until 31 December 2011 the Obolon project was accounted for as an investment property. Upon the start of the construction work in 2012 the property under the project has been reclassified to trading properties under construction (see note 9).

Due to changes in the finance lease conditions during 2012 the Group recognised a decrease in finance lease liabilities of subsidiary New Region LLC, which holds the Kremenchuk project (Glangate). The changes in the finance lease conditions are as follows:

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

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

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

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

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

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

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

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

The fair value measurement, developed for determination of fair value of the Group's investment property, is categorised within Level 3 category due to significance of unobservable inputs to the entire measurement. To assist with the estimation of fair value of investment properties as at 30 June 2013 (represented by land plots for cottage communities and trade centres) the Directors engaged registered independent appraiser CB Richard Ellis LLC, having a recognised professional qualification and recent experience in the location and categories of the projects being valued.

The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing, wherein the parties had each acted knowledgeably. 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 Committee.

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, the most important of which as at 30 June 2013 are as follows:

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

· Development costs based on current construction prices

· Discount rate of 10%

· Developer's profit ranging from 20% to 28%

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

As at 31 December 2012 the respective assumptions were as follows:

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

· Development costs based on current construction prices

· Discount rate of 10%

· Developer's profit ranging from 20% to 30%

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

The reconciliations from the opening balances to closing balances for Level 3 fair value measurements is presented in note 5.

6 Prepayments for land

During the six months ended 30 June 2013 the Group made prepayments for land acquisition totalling USD 822 thousand (Land bank project). As a result of this transaction the gross prepayments for land before impairment losses increased from USD 125,161 thousand as at 31 December 2012 to USD 125,983 thousand as at 30 June 2013.

The investment in the Land bank projects has been historically reflected at cost less impairment. No impairment of prepayments for land were recognised before 2011. Land plots for the Land bank project with a total area of 482 hectares are currently registered for agricultural use, and the rezoning process to change the purpose of the land plots to construction use was in progress as at 30 June 2013. Land plots with a total area of 20 hectares had been rezoned for construction use by the end of 2012. The Board determined the fair value of the Land bank with the assistance of independent appraiser (CB Richard Ellis). The fair value of the Land bank project was determined using agricultural and residential property price comparatives according to actual land plot zoning and discounting for the time period likely to be required to sell the land plots. Based on the fair value of land as assessed by CB Richard Ellis, the Group recognised an impairment loss on prepayments for land of USD 6,608 thousand for the six months ended 30 June 2013 (for the six months ended 30 June 2012: USD 1,750 thousand).

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

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

Movements in prepayments for land for the six months ended 30 June 2013 and for the year ended 31 December 2012 are as follows:

Movements in prepayments for land for the six months ended 30 June 2012 are as follows:

7 Investments in associates

The Group has the following investments in associates are as follows:

The values of the Group's shares in its associates as at 30 June 2013 are as follows:

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

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

As at 30 June 2013 the Parent Company had the right to appoint one (out of four) representatives to the Board of Directors of Arricano Real Estate ("Arricano"). Pursuant to the Shareholders' Agreement SHA (see below), the management structure of Arricano provides that significant operating, investment and strategic decisions require consent by each of the members of the Board of Directors of Arricano appointed by the Parent Company and Retail Real Estate ("RRE") respectively.

Dividends of USD 1,138 thousand were received in cash during the six months ended 30 June 2013 (in the year ended 31 December 2012: USD 873 thousand).

During the six months ended 30 June 2013 the Group recognised share of the profit from its investment in Henryland Group Ltd totalling USD 635 thousand (for the six month ended 30 June 2012: USD 521 thousand).

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

The share capital held by the Group in Hindale was decreased by 1,539 ordinary shares. In return, the Group received USD 5,000 thousand and an option to repurchase the 1,539 ordinary shares of Hindale for USD 5,000 thousand in accordance with the shareholders' agreement. The excess of the fair value of the shares over the purchase price was determined by the Group to be the fair value of the call option and was recognised in the consolidated statement of financial position. By the end of 2011 the fair value of the call option decreased to nil.

The lease agreement for the land plot on which Hindale is planning to construct the real estate expired on 2 July 2012. An application was made to the relevant authorities to extend the lease for the time needed to complete the project Avenue Shopping Centre. However, Hindale may not be able to prolong the lease term. Taking this into account the Board decided to fully write off the Avenue project as at 31 December 2012 following the initial decision of the Board to apply this write-off in the financial statements for the period ended 30 June 2012. As a result, an impairment of the investment in Hindale of USD 1,624 thousand was recognised for the year ended 31 December 2012.

On 18 April 2013 the Kyiv City Council passed a decision No 265/9322 by which the lease agreement for the Hindale land plot should be extended for another five years. As at the date of approval of these consolidated interim financial statements the signing of the extension of the lease agreement had not been finalised and the Directors have therefore decided not to reverse the impairment of this investment.

On 10 September 2010 the Parent Company entered into a SHA with Expert Capital SA (currently - Retail Real Estate SA, RRE) and Arricano Trading Limited (currently - Arricano Real Estate, "Arricano") and acquired a 35% interest in Arricano, through the issue of 1,077 new shares by Arricano for a consideration of USD 30,000 thousand payable by the Parent Company in cash. Arricano is a leading developer of upscale shopping centres in Ukraine, and the investment of USD 30,000 thousand was earmarked to fund further development of shopping centres and to repay certain existing Arricano debt. Arricano holds a 100% interest in four shopping centres across Ukraine and a shareholding of 50% minus one share in Assofit Holdings Limited(Assofit) a holding entity for the Sky Mall shopping centre in Kyiv (the Sky Mall project). In relation to the Sky Mall project, Arricano had entered into a call option agreement with Stockman Interhold SA (Stockman), whereby it could acquire the remaining shareholding of 50% plus one share at a pre-agreed valuation of USD 51,000 - 56,000 thousand, depending on the timing (the Sky Mall Call Option). The exercise period of the Sky Mall Call Option had been set from 15 November 2010 to 15 March 2011. The exercise period for the Sky Mall Call Option has now expired.

Since Arricano effectively controlled the Sky Mall project though its 50% minus one share ownership and call option to acquire the remaining 50% plus one share, it consolidated the Sky Mall project in its consolidated financial statements as at and for the year ended 31 December 2010.

Accordingly, Arricano had made a provision for the cost of the Sky Mall Call Option in the amount of USD 56,000 thousand (the maximum amount that had to be paid under the Sky Mall Call Option) reduced by equity attributable to non-controlling interest of USD 20,780 thousand.

The identifiable net assets of Arricano were as follows at the date of acquisition:

As at 31 December 2010 the net assets of Arricano included the following:

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

RRE (the 65% shareholder in Arricano immediately after the Parent Company acquired its 35% shareholding) and the Parent Company also agreed to consider increasing Arricano's capital by a further USD 60,000 thousand in order to finance the exercise of the Sky Mall Call Option, partial completion of the development of the second stage of the InterMall shopping centre (Simferopol) and repay certain indebtedness. During November 2010 USD 60,000 thousand was paid by Expert Capital SA in return for 3,385 newly issued ordinary shares in Arricano. Following the issue of new shares, the stake of the Parent Company decreased to 16.67%.

The net assets of Arricano were as follows at the date of dilution of the non-controlling interest in Arricano:

Such dilution was in line with the original terms of the SHA.

Having obtained sufficient funds on 5 November 2010 Arricano issued a call option exercise notice in which Arricano applied for execution of the call option over 1,601 ordinary shares in Assofit with an exercise price of USD 51,397 thousand in accordance with the Sky Mall Call Option. However, Stockman claimed that Arricano had breached the shareholders' agreement with themselves and the Sky Mall Call Option and on 8 November 2010 proceeded to terminate both agreements. Stockman initiated arbitration proceedings against Arricano, attempting to terminate Sky Mall Call Option and Arricano initiated arbitration proceedings against Stockman in relation to the validity of Stockman's termination of the shareholders' agreement between Arricano and Stockman.

On 9 November 2010 Stockman initiated arbitration proceedings against Arricano attempting to terminate Sky Mall Call Option in relation to the shares of Assofit. The case was considered by The London Court of International Arbitration (LCIA). In addition Stockman filed an ex-parte application to the competent Cyprus Court which issued an interim order preventing Arricano from exercising the afore-mentioned Call Option Agreement.

On 21 December 2010 Arricano initiated arbitration proceedings against Stockman in relation to the validity of the termination of the shareholders' agreement between Arricano and Stockman. The case was considered by The United Nations Commission on International Trade Law (UNCITRAL). In addition Arricano filed an ex-parte application to the competent Cyprus Court which issued an interim order preventing Stockman and Assofit from altering in any way Assofit's shareholder structure or participation in Assofit's Board of Directors.

Due to these arbitration proceedings between Arricano and Stockman as well as the Cyprus Court Interim Orders, the Sky Mall Call Option was not exercised as at 31 December 2010, because it was the subject of the aforementioned arbitration proceedings and/or interim orders of the Cyprus Court.

Both arbitration proceedings were on-going as at the year ended 31 December 2010.

As at the year ended 31 December 2010, Arricano's management believed that it was likely that the arbitrators would rule in favour of Arricano in respect of the above mentioned arbitration proceedings. Therefore, it believed that the Sky Mall Call Option was exercisable as at 31 December 2010 and was therefore taken into account in assessing whether Arricano had control over Assofit in accordance with International Financial Reporting Standard IAS 27 Consolidated and Separate Financial Statements. Assofit was, therefore, consolidated.

On 9 June 2011, the arbitration tribunal examining the validity of Stockman's termination of the shareholders agreement between Arricano and Stockman issued a final award ruling that Stockman had validly terminated the shareholders agreement between Arricano and Stockman. This ruling was challenged by Arricano in the High Court of England and Wales. On 13 July 2012, judgment was given by the High Court of England and Wales, dismissing Arricano's challenge with no further avenues of appeal being available.

In the other arbitration proceeding which was examining the exercise and termination of rights of the Sky Mall Call Option a ruling was issued to the effect that the call option was not validly exercised by Arricano and it was properly terminated by Stockman. The award was not final as Arricano filed a challenge to the award with the High Court of England and Wales, on the basis of allegedly serious irregularities. On 16 July 2012, the case was remitted to the arbitrator to issue a final decision. At the date that these consolidated interim financial statements were approved this arbitration remains pending.

As a result of the above events Arricano was in practice not able to exercise the Sky Mall Call Option and as there were no other factors which would indicate that Arricano retained control over Assofit as at 9 June 2011, Arricano effectively lost control over Assofit and the subsidiary was deconsolidated at the date when loss of control occurred and was subsequently accounted for as Arricano's associate.

On 12 March 2012 Arricano filed application no. 26/2012 to the District Court of Larnaca in Cyprus to wind up its associate, Assofit, on grounds of oppression of minority shareholders. As a part of this application, on 30 March 2012 Arricano successfully applied for the appointment of a Receiver at the level of Assofit in order to protect Assofit's assets until consideration of the wind up application is completed. The application remains on-going as at the date these consolidated financial statements are authorised for issuance.

On 20 March 2012, the annual general meeting of shareholders of Assofit resolved not to re-appoint Arricano representatives as members of the board of directors of Assofit. No further change in the composition of the board of directors of Assofit took place up to the date these consolidated financial statements are authorised for issuance and no Arricano representative is currently appointed to the board of directors of Assofit.

As a result of the above events, Arricano is no longer able to participate in the financial and operating policy decisions of Assofit and there are no other factors which would indicate that Arricano retains significant influence. Accordingly, as at 20 March 2012, Arricano had lost significant influence over Assofit and the associate was subsequently accounted for as an available-for-sale financial asset. Arricano's management believe that the fair value of this available-for-sale financial asset as at the date of initial recognition approximates the carrying amount of the investment in Assofit as at 31 December 2011, which was recognised as an investment in associate as at that date. Assofit is not a publicly listed entity and consequently does not have published share price quotations, accordingly Arricano management believes that, subsequent to the date of initial recognition, the fair value of Assofit equity cannot be measured reliably, therefore this equity is measured at cost as at the date of initial recognition.

The board of Arricano assessed impairment indicators for the investment in Assofit as at 31 December 2012. As a result of this analysis, it concluded that as at the reporting date there were no indicators of impairment of the investment in Assofit based on the following:

· Historically, Assofit generated positive cash flow and the major underlying asset of Assofit is the Sky Mall shopping centre that as at 31 December 2011 was measured at fair value, as determined by the independent qualified appraiser using the income approach. There were no unfavourable changes in rental rates for similar properties during the year ended 31 December 2012 which could materially decrease the fair value of the shopping centre. Also, many of the tenants have long-term contracts where only upward revision of rental rates is possible;

· Assofit is operating under the direction of a receiver appointed by the Cyprus court to protect the rights of Arricano as a minority shareholder. Major strategic decisions are controlled by this receiver, including potential transfers of significant assets and liabilities from/to the entity;

· As at 31 December 2012 a significant proportion of the liabilities of Assofit were represented by loans payable to Filgate Credit Enterprises Limited. As part of the agreement between Arricano's shareholders, these loans together with accrued interest are to be assigned from Filgate Credit Enterprises Limited to Assofit for a nominal price of EUR 1 each. Further, as an outcome of arbitration proceedings regarding the termination of the Shareholders Agreement between Arricano and Stockman Interhold S.A., The United Nations Commission on International Trade Law Tribunal issued a final award under which Arricano was ordered to take all steps required for these loans to be transferred to a subsidiary newly established by Assofit. This transfer will significantly increase the net assets of Assofit at the date it occurs.

As a result, Arricano's Directors believe that the available-for-sale financial asset is not impaired as at 31 December 2012 and 30 June 2013.

In August 2012, the shareholders of Arricano approved a pre-emptive share issue of an additional 25,848 ordinary shares at par value of EUR 1.00 each to the existing Arricano shareholders, bringing the issued share capital to 32,310 ordinary shares. In September 2012 further shareholder resolutions were passed to increase Arricano's share capital, bringing the total issued share capital to EUR 42,513.16 and the total number of shares to 64,620,000 and the Parent Company's share to 10,770,000 ordinary shares representing 16.67% of Arricano. The Parent Company made a contribution to the share capital of Arricano of USD 6 thousand (equivalent of EUR 4 thousand) fully paid in cash which equalled 16.67% of the newly issued shares.

On 26 September 2012, in anticipation of a planned listing on the Alternative Investment Market of the London Stock Exchange ("AIM"), the Board of Arricano approved the issuance of 20,406,316 shares in Arricano to a series of investors in accordance with a previous shareholder resolution. However, as the AIM listing did not proceed as planned, the monies paid by the new investors for the shares were returned to subscribers and 20,406,316 shares were unpaid. Consequently, Arricano commenced a forfeiture procedure over the 20,406,316 issued shares. This procedure provided for the return of the unpaid shares to Arricano and their consequent cancellation. Consequently, the Parent Company's share in Arricano continued to represent 16.67% with 10,770,000 ordinary shares.

On 2 August 2013 Arricano made a public statement that it intended to list its shares on AIM in August-September 2013 at a valuation of USD 2.33 per share. As part of this initial public offering, on 20 July 2013 the shareholders of the Arricano approved an increase of the Arricano's authorised share capital to EUR 53,000 divided into 106,000,000 ordinary shares of nominal value EUR 0.0005 each. 

As at 30 June 2013 ELQ Investors II Ltd had not exercised their right to convert its holding of a convertible loan facility into 10,770,000 Arricano ordinary shares. Therefore the underlying 10,770,000 Arricano ordinary shares were returned by the escrow agent and allocated to RRE and the Parent Company in the proportion they owned Arricano shares before Arricano had entered into the convertible loan facility. On 12 August 2013 the Parent Company received 2,154,000 ordinary shares at par value which brought total Parent Company shareholding to 12,924,000 ordinary shares or 12.19% of the increased authorised share capital of 106,000,000.

Details of the Arricano IPO are presented in Note 23.

During the six months to 30 June 2013 the Parent Company recognised an impairment of its investment in Arricano of USD 587 thousand (for the six months ended 30 June 2012: recovery of impairment of USD 4,361 thousand).

As at 30 June 2013 the net assets of Arricano include the following:

As at 31 December 2012 the net assets of Arricano include the following:

At the date that these consolidated interim financial statements were authorised for issuance there is on-going litigation between Arricano and Stockman that may ultimately delay the contribution of the loans extended to the Sky Mall project that are planned to be assigned to the SPV.

8 Long-term loans receivable

Included in long-term loans receivable is an unsecured loan provided by the Group to Commercial Construction LLC at a 2% p.a. fixed interest rate. The purpose of the loan was to finance construction of showcase houses in the cottage community Green Hills. As at 30 June 2013 long-term loans receivable due from Commercial Construction LLC totalled USD 537 thousand, including accrued interest of USD 102 thousand (31 December 2012: USD 632 thousand, including accrued interest of USD 97 thousand).

9 Inventories

Inventories  are as follows:

As at 30 June 2013 and 31 December 2012 trading property was represented by the gated community Sadok Vyshnevyi (38 newly constructed flats in townhouses and relevant land plots).

As at 30 June 2013 trading property of USD 5,890 thousand (2012: USD 8,500 thousand) represented the net realisable value as estimated with the assistance of CB Richard Ellis LLC, the independent appraiser. The impairment loss for the six months ended 30 June 2013 of USD 4,355 thousand was recognised in the profit or loss (the six months ended 30 June 2012: impairment of USD 100 thousand).

Following the start of construction at the beginning of 2012 the Obolon project was transferred from investment property to trading property under construction (see note 5). As at 31 December 2012 the property value of USD 36,010 thousand represented its fair value at the date of reclassification plus the construction costs incurred during 2012. No write down to net realisable value was made between the date of transfer to trading property under construction and 31 December 2012, as the appraised net realisable value exceeded cost at that date. According to the report dated 24 September 2013 of CB Richard Ellis LLC the independent appraiser the net realisable value of the Obolon project is less than the book value. The impairment loss for the six months ended 30 June 2013 of USD 1,447 thousand was recognised in profit or loss.

10 Trade and other receivables

In January 2010 a portion of the loan to Commercial Construction LLC totalling USD 841 thousand (including accrued interest of USD 33 thousand) attributable to the Riviera Villas project was assigned to Intendancy, the Group's partner in the Riviera Villas project, provided that Intendancy paid USD 841 thousand to the Group. The aforesaid consideration was to be paid to the Group within 180 working days from the date of registration of the assigned loan contract with the National Bank of Ukraine. During the year ended 31 December 2011 USD 569 thousand was paid to the Group. As at 30 June 2013 and as at 31 December 2012 the remaining amount of USD 272 thousand is included in Other receivables.

Other receivables also include a receivable due from Intendancy as at 30 June 2013 amounting to 816 thousand (31 December 2012: USD1,316 thousand) that relates to the sale of land plots in the Riviera Villas project in accordance with the Project Development Agreement concluded by the Group with Intendancy (see note 5).

Trade and other receivablesare as follows:

11 Cash and cash equivalents

Cash and cash equivalents are as follows:

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

As at 30 June 2013 the Group had deposit balances with Alpha Bank (Cyprus) for total amount of USD 663 thousand (equivalent to EUR 509 thousand) (31 December 2012 USD 659 thousand or equivalent of EUR 500 thousand) that are pledged in favour of Alpha Bank which in turn has issued a guarantee in favour of the Nicosia District Court provided in order to obtain an Interim Prohibitive Order against Arricano and RRE. The Interim Prohibitive Order was issued as a part of the Request for Arbitration proceedings for the breach of SHA described in note 19. Following the signing of the settlement deed by Arricano, RRE and the Parent Company the Interim Prohibitive Order was lifted on 10 July 2013 and, accordingly the guarantee has been recalled and the funds were released by the Alpha bank on 30 July 2013.

12 Equity

Movements in share capital and share premium as at are as follows:

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Parent Company. The par value per ordinary share is USD 0.02.

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

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

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

Following the extraordinary general meetings of members of the Parent Company on 31 July 2008 and 1 December 2008, 11,948,000 of its own shares were repurchased by the Parent Company and were cancelled. 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 was recognised as a share premium decrease.

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

Following the extraordinary general meetings of members of the Parent Company on 9 November 2011 and 12 December 2011, 8,355,000 of its own shares were repurchased by the Parent 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 was recognised as share premium decrease.

13 Finance lease liabilities

Finance lease liabilities as at are as follows: