TIDMDUPD
RNS Number : 0389B
Dragon-Ukrainian Prop. & Dev. PLC
18 September 2018
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No. 596/2014.
18 September 2018
Dragon-Ukrainian Properties & Development plc
("DUPD" or the "Company")
Results for the period ended 30 June 2018
Dragon-Ukrainian Properties & Development plc, a leading
investor in the real estate sector in Ukraine, is pleased to
announce its results for the period ended 30 June 2018.
Highlights
Operational Highlights
-- The Company continues to follow its investing policy as approved by the EGM in February 2014
-- The Company has received all outstanding payments for the
sale of Obolon project as per contract obligations
-- Green Hills, the suburban gated community, continues to
capitalize on its high quality and leading position in the market
recording further sales and improvements to the community
infrastructure
-- A new sale was recorded in the suburban club community
Riviera Villas, further improvements were made to the
infrastructure
-- Positive outlook for the operational results of Arricano for
1HY 2018 based on trends in the commercial real estate market
Financial Highlights
-- Total NAV of USD 33.7 million as of 30 June 2018 (down from
USD 42.8 million as of 31 December 2017). Decrease in NAV is
attributed to the USD 9.8 million distributions made to
shareholders
-- Cash balance of USD 5.0 million (compared to USD 9.2 million
as of 31 December 2017); significant decrease in cash balance is
due to USD 9.8 million distribution paid to shareholders. Company
has no leverage
-- DUPD recorded a USD 0.7 million profit from operating
activities for the period ending 30 June 2018 (2017: USD 1.4
million profit)
-- USD 9.8 million distributions were made to shareholders in
line with the Company's investment policy
For further information, please contact:
Dragon - Ukrainian Properties & Development plc (www.dragon-upd.com)
Tomas Fiala +380 44 490 7120
DCM Limited (Investment Manager)
+ 380 44 490
Eugene Baranov / Volodymyr Tymochko 7120
Panmure Gordon (UK) Limited
+44 (0)20 7886
Richard Gray / Andrew Potts 2500
Statement of financial position as at 30 June 2018
Note 30 June 2018 31 December 2017
(in thousands of USD)
Assets
Non-current assets
Financial assets at fair value through profit or loss 4 29,344 30,258
Total non-current assets 29,344 30,258
Current assets
Receivables from sale of Obolon Residences project - 3,999
Other accounts receivable 5 87 116
Cash and cash equivalents 6 5,018 9,202
Total current assets 5,105 13,317
Total assets 34,449 43,575
Equity and Liabilities
Equity
Share capital 7 2,187 2,187
Share premium 261,408 271,251
Accumulated losses (229,856) (230,605)
Total equity 33,739 42,833
Current liabilities
Other accounts payable 8 710 742
Total current liabilities 710 742
Total liabilities 710 742
Total equity and liabilities 34,449 43,575
Statement of financial position as at 30 June
These financial statements were approved by the board of
Directors (the Board) on 17 September 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 the following pages.
Statement of comprehensive income for the 6 months ended 30
June
Note 6 months 2018 6 months 2017
(in thousands of USD)
Net gain from financial assets at fair value through profit or loss 10 1,976 2,230
Management and Performance fee 9 (992) (625)
Administrative expenses 11 (243) (193)
Other income 10 -
Other expenses (54) (9)
Total operating gain 697 1,403
Finance income 57 7
Finance costs (5) -
Gain for the 6 months 749 1,410
Net gain and total comprehensive gain for the 6 months 749 1,410
Gain per share
Basic gain per share (in USD) 13 0.01 0.01
Diluted gain per share (in USD) 13 0.01 0.01
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 the following pages.
Statement of cash flows for the 6 months ended 30 June
Note 6 months 2018 6 months 2017
(in thousands of USD)
Cash flows from operating activities
Gain for the 6 months 749 1,410
Adjustments for:
Net gain from financial assets at fair value through profit or loss 10 (1,976) (2,230)
Finance cost 2 -
Finance income (57) (7)
Loans granted (192) (43)
Loans repaid 3,080 5
Operating cash flows before changes in working capital 1,606 (865)
Change in other accounts receivable 29 (17)
Change in other accounts payable (32) (266)
Cash flows (used in)/from operating activities 1,603 (1,148)
Cash flows from financing activities
Distribution to Shareholders 7 (9,843) -
Proceed from assignment of outstanding loan due to the Company 3,999 -
Interest received 57 -
Cash flows used in financing activities (5,787) -
Net change in cash and cash equivalents (4,184) (1,148)
Cash and cash equivalents at 1 January 9,202 7,771
Effect of foreign exchange fluctuation on cash balances - -
Cash and cash equivalents at 30 June 5,018 6,623
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 the following pages.
Statement of changes in equity
Retained earnings/
(accumulated
Share capital Share premium 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
Total comprehensive gain
for the 6 months
Net gain 749 749
Transactions with owners
of the Company
Distribution to Shareholders
(note 7) - (9,843) - (9,843)
Total Transactions with
owners of the Company - (9,843) - (9,843)
Balances at 30 June 2018 2,187 261,408 (229,856) 33,739
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 the following pages.
Notes to the financial statements
1. Background
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.
(a) 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 the 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 the 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 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.
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
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.
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.
Going concern
These financial statements are prepared on a going concern
basis. In the 6 months ended 30 June 2018 the Company incurred a
net gain of USD 749 thousand (30 June 2017: net gain USD 1,410
thousand) and had positive cash flows from operating activities of
USD 1,603 thousand (30 June 2017: negative cash flows from
operating activities of USD 1,148 thousand). As at that date the
Company's current assets exceeded its current liabilities by USD
4,395 thousand (31 December 2017: USD 12,575 thousand) and its Net
Asset Value amounted to USD 33,739 thousand (31 December 2017: USD
42,833 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
30 June 2018 31 December 2017
Glangate LTD Cyprus Kremenchuk 100% 100%
New Region LLC Ukraine Kremenchuk 100% 100%
Blueberg Trading Limited British Virgin Islands Green Hills 100% 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 None 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%
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%
(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)).
(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
elected to measure loans receivable from its investees at fair
value through profit or loss. These investments are presented as
"loans and receivables" in accordance with IFRS requirements.
(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 retranslated 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 retranslated 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 at amortised cost.
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)).
Financial assets measured at amortised cost
The Company measures financial asset at amortised cost if it
meets both of the following conditions and is not designated as at
FVTPL:
-- it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
-- its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
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
The Company recognises impairment for its financial assets
within 'expected credit loss' (ECL) model. This impairment model
applies to financial assets measured at amortised cost.
Under the ECL model, loss allowances are measured on either of
the following bases:
-- 12-month ECLs: these are ECLs that result from possible
default events within the 12 months after the reporting date;
and
-- lifetime ECLs: these are ECLs that result from all possible
default events over the expected life of a financial
instrument.
The Company measures loss allowances at an amount equal to
lifetime ECLs, except for the following, which are measured as
12-month ECLs:
-- bank balances that are determined to have low credit risk at the reporting date; and
-- bank balances for which credit risk (i.e. the risk of default
occurring over the expected life of the financial instrument) has
not increased significantly since initial recognition.
The Company has elected to measure loss allowances for
receivables at an amount equal to lifetime ECLs.
When determining whether the credit risk of a financial asset
has increased significantly since initial recognition and when
estimating ECLs, the Company considers reasonable and supportable
information that is relevant and available without undue cost or
effort. This includes both quantitative and qualitative information
and analysis, based on the Company's historical experience and
informed credit assessment and including forward-looking
information.
The Company assumes that the credit risk on a financial asset
has increased significantly if it is more than 30 days past
due.
The Company considers a financial asset to be in default
when:
-- the borrower is unlikely to pay its credit obligations to the
Company in full, without recourse by the Company to actions such as
realising security (if any is held); or
-- the financial asset is more than 90 days past due.
The Company considers a bank balance to have low credit risk
when its credit risk rating is equivalent to the globally
understood definition of 'investment grade'. The Company considers
this to be BBB or higher by Fitch rating, BBB- or higher by
Standard and Poor's or Baa3 or higher by Moody's.
The maximum period considered when estimating ECLs is the
maximum contractual period over which the Company is exposed to
credit risk.
ECLs are a probability-weighted estimate of credit losses.
Credit losses are measured as the present value of all cash
shortfalls (i.e. the difference between the cash flows due to the
entity in accordance with the contract and the cash flows that the
Company expects to receive).
ECLs are discounted at the effective interest rate of the
financial asset.
(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.
(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) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and
interpretations are not yet effective for the six-month period
ended 30 June 2018, and have not been applied in preparing these
interim financial statements. The Company plans to adopt these
standards and interpretations when they become effective. A number
of new standards and amendments to standards are effective for
annual periods beginning after 1 January 2018 and earlier
application is permitted; however, the Company has not early
adopted them in preparing these interim financial statements and
does not expect that the adoption would have significant on it
financial information.
(q) Changes in significant accounting policies
Except as described below, the accounting policies applied in
these interim financial statements are the same as those applied in
the Company's financial statements as at and for the year ended 31
December 2017.
The changes in accounting policies are also expected to be
reflected in the Company's financial statements as at and for the
year ending 31 December 2018.
The Company has initially adopted IFRS 9 Financial Instruments
from 1 January 2018. A number of other new standards are effective
from 1 January 2018. None of these standards has a material effect
on the Company's financial statements.
IFRS 9 Financial Instruments
IFRS 9 sets out requirements for recognising and measuring
financial assets, financial liabilities and some contracts to buy
or sell non-financial items. This standard replaces IAS 39
Financial Instruments: Recognition and Measurement.
The details of new significant accounting policies and the
nature and effect of the changes to previous accounting policies
are set out below.
(i) Classification and measurement of financial assets and
financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification and measurement of financial liabilities.
However, it eliminates the previous IAS 39 categories for financial
assets of held to maturity, loans and receivables and available for
sale.
The adoption of IFRS 9 has not had a significant effect on the
Company's accounting policies related to financial liabilities and
derivative financial instruments. The impact of IFRS 9 on the
classification and measurement of financial assets is set out
below.
Under IFRS 9, on initial recognition, a financial asset is
classified as measured at: amortised cost; FVOCI - debt investment;
FVOCI - equity investment; or 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. Derivatives embedded in contracts where
the host is a financial asset in the scope of the standard are
never separated. Instead, the hybrid financial instrument as a
whole is assessed for classification.
The following table and the accompanying notes below explain the
original measurement categories under IAS 39 and the new
measurement categories under IFRS 9 for each class of the Group's
financial assets as at 1 January 2018.
Original
(in thousands of classification New classification Original carrying New carrying amount
USD) under IAS 39 under IFRS 9 amount under IAS 39 under IFRS 9
Financial assets
Financial assets
at fair value
through profit
or loss FVTPL FVTPL 30,258 30,258
Receivables from
sale of
development Other loans and
project receivables Amortised cost 3,999 3,918
Other accounts Other loans and
receivable receivables Amortised cost 116 116
Cash and cash Other loans and
equivalents receivables Amortised cost 9,202 9,202
Total financial assets 43,575 43,494
(ii) Impairment of financial 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 an assessment performed by the Company, adoption of
IFRS 9 did not result in any significant changes in the carrying
value of the financial assets in the Company's financial statements
as at 1 January 2018 arising from application of the new impairment
model.
(iii) Transition
Changes in accounting policies resulting from the adoption of
IFRS 9 have been applied retrospectively, except as described
below.
- The Company has taken an exemption not to restate comparative
information for prior periods with respect to classification and
measurement (including impairment) requirements. Therefore,
comparative periods have not been restated. Differences in the
carrying amounts of financial assets and financial liabilities
resulting from the adoption of IFRS 9, if any, are recognised in
retained earnings and reserves as at 1 January 2018. Accordingly,
the information presented for 2017 does not generally reflect the
requirements of IFRS 9 but rather those of IAS 39.
- The following assessments have been made on the basis of the
facts and circumstances that existed at the date of initial
application.
- The determination of the business model within which a financial asset is held.
- If an investment in a debt security had low credit risk at the
date of initial application of IFRS 9, then the Company has assumed
that the credit risk on the asset had not increased significantly
since its initial recognition.
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:
Project 30 June 2018 31 December 2017
(in thousands of USD)
Equity investments at fair value through
profit or loss
Subsidiaries
Landzone Ltd None - -
Stenfield Finance Ltd Riviera Villas - -
Mountcrest Ltd None - -
Linkdell Ltd Financing company - -
Glangate Ltd Kremenchuk - -
Blueberg Trading Ltd Green Hills - -
Riverscope Ltd Land Bank - -
Landshere Ltd Land Bank - -
Linkrose Ltd Green Hills - -
- -
Other equity investments
Arricano Real Estate
plc (note 4(a)) Arricano 8,725 6,528
8,725 6,528
Loans receivable at fair value through
profit or loss
30 June 2018 31 December 2017
Riverscope Ltd Land Bank 5,268 5,274
Linkdell Ltd* Financing company 4,871 7,035
Landshere Ltd Land Bank 3,965 3,966
Linkrose Ltd Green Hills 4,479 5,138
Stenfield Finance Limited Riviera Villas 1,042 1,126
Glangate Ltd Kremenchuk 343 340
Blueberg Trading Limited Green Hills 651 851
20,619 23,730
29,344 30,258
* Linkdell Ltd provides financing through issued loans on the
following projects:
30 June 31 December
2018 2017
(in thousands of USD)
Riviera Villas 1,929 2,028
Sadok Vyshneviy 1,980 2,224
Obolon Residences - 1,520
Green Hills 896 1,199
Kremenchuk 66 64
4,871 7,035
(a) Investment in Arricano Real Estate PLC
The Company acquired a shareholding in Arricano Real Estate PLC
(Arricano) in 2010. In September 2013 the shares of Arricano were
admitted to trading on the AIM market of the London Stock
Exchange.
There was no active market trading in Arricano shares during
2018 and 2017. Therefore, management used the adjusted net assets
method to estimate the fair value of investment in Arricano. The
Company's management considers this to be the most appropriate
method to estimate the fair value of the Company's investment in
Arricano. Under this valuation method Arricano's net assets value
as at 31 December 2017 (as per Arricano's published audited
financial statements) were adjusted by the same proportion as
estimated change of fair value of commercial retail real estate
property in Ukraine (Arricano's primary assets) for the six-month
period ended 30 June 2018 and multiplied by the Company's share in
Arricano's net assets. To assist with the estimation of change in
fair value of commercial retail real estate property in Ukraine for
the six-month period ended 30 June 2018, the Directors engaged
independent appraiser CBRE Ukraine.
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.
(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.
Summary of fair values of respective investment projects is as
follows as at 30 June 2018:
Riviera Villas Green Hills Sadok Vyshneviy Land Bank Kremenchuk Total
(in thousands of USD)
Assets
Investment properties 3,097 3,714 1,410 400 8,621
Prepayments for land - - - 7,990 - 7,990
Property and equipment 87 198 - - - 285
Intangible assets 1 - - - - 1
Inventories 25 74 880 - - 979
Trade and other receivables 260 2,050 777 - - 3,087
VAT recoverable 106 693 - - - 799
Prepaid income tax 2 - 25 - - 27
Cash and cash equivalents 309 103 305 7 11 735
Total assets 3,887 6,832 1,987 9,323 411 22,524
Deferred tax liabilities - - - 43 - 43
Intercompany loans 26,353 33,881 16,624 247,468 13,211 337,537
Other long-term payables - - - - - -
Trade and other liabilities 914 806 7 132 3 1,862
Total liabilities 27,267 34,687 16,631 247,643 13,214 339,442
Net identifiable assets
and liabilities (23,380) (27,855) (14,644) (238,236) (12,803) (316,918)
Ownership 100% 100% 100% 90% 100%
Nominal amount of
loans receivable 26,353 33,881 16,624 247,468 13,211 337,537
Fair value of loans
receivable 2,971 6,026 1,980 9,234 408 20,619
Summary of fair values of respective investment projects as at
31 December 2017 are as follows:
Obolon Sadok
Riviera Villas Green Hills Residences 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%
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
To assist with the estimation of fair value of investment
properties, prepayments for land and inventories (together "the
real estate projects") as at 30 June 2018 the Directors engaged
independent appraiser CBRE Ukraine, having a recognised
professional qualification and recent experience in the location
and categories of the projects being valued.
The fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The valuation
is prepared in accordance with practice standards contained in the
Appraisal and Valuation Standards published by the Royal
Institution of Chartered Surveyors (RICS) or in accordance with
International Valuation Standards published by the International
Valuations Standards Council.
The fair value measurement, developed for determination of fair
value of the properties, is categorised within Level 3 of the fair
value hierarchy, due to the significance of unobservable inputs to
the measurement.
Investment properties
As at 30 June 2018 investment properties were represented by
Green Hills, Riviera Villas, Kremenchuk Retail Centres projects and
the Land Bank project (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 30 June 2018
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 877 to USD 1,433 per sq. m.
-- discount rate from 12% to 22%
-- sales period - from 1 to 7 years
-- all relevant licenses and permits, to the extent not yet
received, will be obtained, in accordance with the timetables as
set out in the investment project plans.
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.
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 30 June 2018 and 2017. Land plots with a
total area of 19.9 ha had been rezoned for construction use by the
end of 2012. The fair value of the land bank was determined using
agricultural and residential property comparatives according to
actual land plot zoning and discounting for the time period likely
to be required to sell the land plots.
However, the Ukrainian market for land plots zoned for
agricultural use is characterized by low liquidity and restrictions
related to disposal of such land. Therefore, although management of
the Company exercised the generally acceptable valuation approach
in such circumstances taking into account all available
information, significant uncertainties with regards to low
liquidity and legislation restrictions still exist as at 30 June
2018 and 31 December 2017.
The estimation of fair value of the underlying assets (the land
plots) was made based on certain assumptions, which represent key
unobservable inputs, the most important of which as at 30 June 2018
are as follows:
-- average market prices ranging from USD 41 thousand to USD 125 thousand per ha
-- discount rate of 23%
-- sales period - from 1 to 7 years
As at 31 December 2017 the respective assumptions were as
follows:
-- average market prices ranging from USD 43 thousand to USD 124 thousand per ha
-- discount rate of 23%
-- sales period - from 1 to 7 years
Inventory
As at 30 June 2018 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 30 June 2018
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 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
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 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).
(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 IFRS 9 Financial Instruments: Recognition
and Measurement and measured at fair value. Expected future cash
flows are represented by cash flows generated from the underlying
assets for the loans (the real estate projects).
5. Other accounts receivable
Other accounts receivable are as follows:
30 June 2018 31 December 2017
(in thousands of USD)
Other receivables 58 115
Prepayments made 29 1
____________ ____________
Total other accounts receivable 87 116
6. Cash and cash equivalents
Cash and cash equivalents are as follows:
30 June 2018 31 December 2017
(in thousands of USD)
Bank balances 1,018 1,502
Call deposits 4,000 7,700
Total cash and cash equivalents 5,018 9,202
The following table represents an analysis of cash and cash
equivalents based on Fitch ratings:
30 June 2018 31 December 2017
(in thousands of USD)
Bank balances
AA- 1,018 371
A+ - 1,131
1,018 1,502
Call deposits
AA- 4,000 3,000
A+ - 4,700
4,000 7,700
Total 5,018 9,202
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 30 June 2018, 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 a 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 was in
accordance with the Company's Investing Policy, which states that
surplus capital will be returned to shareholders, and was 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 decided
to make an additional distribution of USD 2,187 thousand, or USD
0.02 per Ordinary Share, to its shareholders. This decision was in
accordance with the Company's Investing Policy, which states that
surplus capital will be returned to shareholders and was 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 are as follows:
30 June 2018 31 December 2017
(in thousands of USD)
Management fees (note 9) 609 579
Other payables and accrued expenses 71 133
Advances received 30 30
Total other accounts payable 710 742
9. Management and performance fees
Management and performance fees for the 6 months ended 30 June
are as follows:
6 months ended 30 June 2018 6 months ended 30 June 2017
(in thousands of USD)
Management fee 500 625
Performance fee 492 -
Total management and performance fees 992 625
Unpaid management and performance fees as at 30 June 2018
amounted to USD 609 thousand (2017: USD 625 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 1 January 2017 and will expire on 31 December
2018.
The Directors (excluding Tomas Fiala who is a related party as
explained in detail in note 15) believe that the proposed changes
incorporated into the Fourth Revised 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 Fourth Revised Management Agreement.
The Fourth Revised Management Agreement has changed certain
provisions of the management fee of the Third Management Agreement
and a 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 Revised 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 Revised 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 Revised Management (reduced from USD 1.4 million
under the Third Revised Management Agreement).
Included as part of the terms of the Fourth Revised Management
Agreement, due to the fact that the Company sold the right to the
development of the third phase of Obolon Residences in 2017, the
management fee was reduced to USD 1.0 million per annum in the year
of such sale.
The management fee under the Fourth Revised Management Agreement
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
DUPD 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 Management Agreement and the
Fourth Revised Management Agreement 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 6 months ended 30 June 2018 is
USD 500 thousand (6 months ended 30 June 2016: USD 625 thousand).
The total performance fee for the 6 months ended June 2018 is USD
492 thousand (there was no performance fee for the 6 months ended
June 2017).
10. Net gain from financial assets at fair value through profit or loss
Net loss from financial assets at fair value through profit or
loss for the period 6 months ended 30 June is as follows:
6 months ended 30 June 2018 6 months ended 30 June 2017
(in thousands of USD)
Interest income 6,933 8,018
Loss from loans receivable at fair value through profit
or loss (7,154) (8,294)
Net loss from loans receivable at fair value through
profit or loss (221) (276)
Gain on equity investments at fair value through profit
or loss 2,197 2,470
Gain from other receivables at fair value through profit
and loss - 36
Net gain from financial assets at fair value through
profit or loss 1,976 2,230
11. Administrative expenses
Administrative expenses for the 6 months ended 30 June are as
follows:
6 months ended 30 June 2018 6 months ended 30 June 2017
(in thousands of USD)
Professional services 136 90
Audit fees - 4
Directors' fees (note 15(a)) 49 49
Advertising 22 35
Insurance 24 9
Bank charges 2 2
Travel expenses - 2
Other 10 2
Total administrative expenses 243 193
12. Contingencies
(a) Litigation
The Company is involved in various legal proceedings in the
ordinary course of business but the 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) 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 gain for the 6 months ended 30
June 2018 attributable to the ordinary shareholders of the Company
of USD 749 thousand (6 months ended 30 June 2016: net gain USD
1,410 thousand) and the weighted average number of ordinary shares
outstanding, calculated as follows:
6 months ended 30 June 2018 6 months ended 30 June 2017
(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 30 June 2018 and 31 December 2017 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
Note at fair Loans and financial Level Level
value receivables liabilities Total 1 2 Level 3 Total
(in thousands
of USD)
30 June 2018
Financial
assets measured
at fair value
Financial
assets at fair
value through
profit or loss 4 29,344 - - 29,344 - - 29,344 29,344
29,344 - - 29,344 - - 29,344 29,344
Financial
assets not
measured
at fair value
Cash and cash
equivalents 6 - 5,018 - 5,018
Other accounts
receivable 5 - 87 - 87
- 5,105 - 5,105
Financial
liabilities not
measured at
fair value
Other accounts
payable 8 - - 710 710
- - 710 710
Carrying amount Fair value
Note Designated Other
at fair Loans and financial Level Level Level
value receivables liabilities Total 1 2 3 Total
(in thousands
of USD)
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
(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 2017 40,779
Loss included in profit or loss
Interest income 10 8,018
Gain on investments at fair value through
profit or loss 10 2,470
Loss from loans receivable at fair value
through profit or loss 10 (8,294)
Loans granted 47
Balance at 30 June 2017 43,020
Balance at 1 January 2018 30,258
Loss included in profit or loss
Interest income 10 6,933
Gain on investments at fair value through
profit or loss 10 2,197
Loss from loans receivable at fair value
through profit or loss 10 (7,154)
Loans repaid (2,890)
Balance at 30 June 2018 29,344
(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. 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
30 June 2018 USD 9,233 thousand, or 45% of the total loans
receivable, are due from two counterparties, which further invest
in Land Bank projects (31 December 2017: USD 9,240 thousand, or
39%).
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 is as
follows:
30 June 2018 31 December 2017
(in thousands of USD)
Loans receivable from investees 20,619 23,730
Cash and cash equivalents 5,018 9,202
Receivables from sale of Obolon Residences project - 3,999
Other accounts receivable 30 116
25,667 37,047
(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 30 June 2018:
Contractual cash flows
Carrying Within More than
amount Total one year 2-5 years 5 years
(in thousands of USD)
Other accounts payable 710 710 710 - -
710 710 710 - -
The following are the contractual maturities of financial
liabilities as of 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 - -
(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.
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 6 months ended 30 June is as
follows:
6 months 6 months
ended 30 ended 30
June 2018 June 2017
(in thousands of USD)
Directors' fees 49 49
Reimbursement of travel expense - 2
Total management remuneration 49 51
(ii) Key management personnel and director transactions
The Directors' interests in shares in the Company are as
follows:
30 June 2018 31 December 2017
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 66,607,334 60.91
66,607,334 60.91 66,607,334 60.91
* Dragon Capital Group holds its shares in the Company through
nominee shareholder, Euroclear Nominees Limited as at 30 June 2018
and 31 December 2017.
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 end of 2013.
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 at the end of 2016.
During 2017, as the result of series of market share purchases
Dragon Capital Group 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.
(iii) Transactions with subsidiaries
Outstanding balances with subsidiaries are as follows:
30 June 31 December
2018 2017
(in thousands of USD)
Loans receivable 20,619 23,730
Other accounts receivable 213 213
Allowance for impairment of other accounts
receivable (213) (213)
20,619 23,730
Profit or loss transactions with subsidiaries during the 6
months ended as at 30 June are as follows:
6 months 6 months
ended 30 ended 30
June 2018 June 2017
(in thousands of USD)
Interest income 6,933 8,018
Loss from loans receivable at fair value
through profit or loss (7,154) (8,294)
Gain (loss) from other receivables at fair
value through profit and loss - 36
(221) (240)
(b) Other related parties transactions
Other related parties are represented by the Company's Manager,
DCM Limited (see note 9)
Outstanding balances with DCM Limited are as follows:
30 June 31 December
2018 2017
(in thousands of USD)
Management fee 500 579
Performance fee 109 -
609 579
Expenses incurred in transactions with DCM Limited are as
follows:
6 months 6 months
ended 30 ended 30
June 2018 June 2017
(in thousands of USD)
Management fee 500 625
Performance fee 492 -
992 625
16. Events subsequent to the reporting date
No material events took place after the reporting date.
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
IR UBAWRWVAKAAR
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