SPDI Secure Property Development & Investment Plc

 4.1.3 Property Market price risk 
 Market price risk is the risk that the value of the Company's 
  portfolio investments will fluctuate as a result of changes in 
  market prices. The Group's assets are susceptible to market price 
  risk arising from uncertainties about future prices of the investments. 
  The Group's market price risk is managed through diversification 
  of the investment portfolio, continuous elaboration of the market 
  conditions and active asset management. 
 
  The prevailing global economic conditions throughout 2008-2010 
  and the ensuing Euro zone Sovereign Debt crisis have had a considerable 
  effect on the market prices of the current portfolio investments 
  of the Group. 
 
  In cases that the BoD deemed necessary, it has taken provisions 
  on the assets' valuation in order to ensure that the asset value 
  is presented within the financial statements of the Group in 
  such a way as to take into account various uncertainties. To 
  quantify the value of its assets and/or indicate the possibility 
  of impairment losses, the Company commissioned internationally 
  acclaimed valuers. 
 4.1.4 Interest rate risk 
 
 Interest rate risk is the risk that the value of financial instruments 
  will fluctuate due to changes in market interest rates. 
 
  The Group's income and operating cash flows are substantially 
  independent of changes in market interest rates as the Group 
  has no significant interest--bearing assets apart from its cash 
  balances that are mainly kept for liquidity purposes. 
 
  The Group is exposed to interest rate risk in relation to its 
  borrowings. Borrowings issued at variable rates expose the Group 
  to cash flow interest rate risk. Borrowings issued at fixed rates 
  expose the Group to fair value interest rate risk. All of the 
  Group's borrowings are issued at a variable interest rate. Management 
  monitors the interest rate fluctuations on a continuous basis 
  and acts accordingly. 
 4.1.5 Credit risk 
 
 Credit risk arises when a failure by counter parties to discharge 
  their obligations could reduce the amount of future cash inflows 
  from financial assets at hand at the end of the reporting period. 
  Cash balances are held with high credit quality financial institutions 
  and the Group has policies to limit the amount of credit exposure 
  to any financial institution. 
 
  Management has been in continuous discussions with banking institutions 
  monitoring their ability to extend financing as per the Group's 
  needs. The sovereign debt crisis has affected the pan-European 
  banking system during 2011 and has imposed financing uncertainties 
  for new development projects. 
 
  Management also monitors the developing Eurozone debt crisis 
  situation in respect of its possible effects on the Region's 
  banking system. More specifically Management evaluates the probability 
  that the parent Italian, Austrian and Greek banks liquidity related 
  issues affect negatively the local subsidiaries of the said banks. 
 
 4.1.6 Currency risk 
 
 Currency risk is the risk that the value of financial instruments 
  will fluctuate due to changes in foreign exchange rates. 
 
  Currency risk arises when future commercial transactions and 
  recognized assets and liabilities are denominated in a currency 
  that is not the Group's functional currency. Most of the Group's 
  transactions, including the rental proceeds are denominated in 
  the functional currency (USD). For the rest of the foreign exchange 
  exposure Management monitors the exchange rate fluctuations on 
  a continuous basis and acts accordingly. 
 
  As a precaution against probable depreciation of local currencies, 
  and especially of the UAH, the majority of the Group's liquid 
  assets are held in USD denominated deposit accounts. 
 4.1.7 Capital risk management 
 
 The Group manages its capital to ensure that it will be able 
  to continue as a going concern while maximizing the return to 
  shareholders through the optimization of the debt and equity 
  balance. The Group's core strategy is described in note 27 of 
  the financial statements. 
 4.1.8 Compliance risk 
 Compliance risk is the risk of financial loss, including fines 
  and other penalties, which arises from non--compliance with laws 
  and regulations of the state. 
 
  Although the Group is trying to limit such risk, the uncertain 
  environment in which it operates increases the complexities handled 
  by Management. A new compliance policy is expected to be implemented 
  in 2012.The Group's exposures are discussed under note 27. 
 4.1.9 Litigation risk 
 
 Litigation risk is the risk of financial loss, interruption of 
  the Group's operations or any other undesirable situation that 
  arises from the possibility of non--execution or violation of 
  legal contracts and consequentially of lawsuits. The risk is 
  restricted through the contracts used by the Group to execute 
  its operations and is discussed in note 25. 
 4.1.10 Reputation risk 
 The risk of loss of reputation arising from the negative publicity 
  relating to the Group's operations (whether true or false) may 
  result in a reduction of its clientele, reduction in revenue 
  and legal cases against the Group. Following the Group's distress 
  period between 2010 and mid 2011 and the settlement of its known 
  liabilities Management expects that the risk of negative publicity 
  is reduced. 
 4.2. Operational risk 
 Operational risk is the risk that derives from the deficiencies 
  relating to the Group's information technology and control systems 
  as well as the risk of human error and natural disasters. The 
  Group's systems are evaluated, maintained and upgraded continuously. 
 4.3 Fair value estimation 
 The fair values of the Group's financial assets and liabilities 
  approximate their carrying amounts at the end of the reporting 
  period. 
 5. Critical accounting estimates and judgements 
 
  The preparation of financial statements in conformity with IFRSs 
  requires the use of certain critical accounting estimates and 
  requires Management to exercise its judgement in the process 
  of applying the Group's accounting policies. It also requires 
  the use of assumptions that affect the reported amounts of assets 
  and liabilities and disclosure of contingent assets and liabilities 
  at the date of the financial statements and the reported amounts 
  of revenues and expenses during the reporting period. These estimates 
  are based on Management's best knowledge of current events and 
  actions and other factors, including expectations of future events 
  that are believed to be reasonable under the circumstances. Actual 
  results though may ultimately differ from those estimates. 
 
   As the Group makes estimates and assumptions concerning the future 
   the resulting accounting estimates will, by definition, seldom 
   equal the related actual results. The estimates and assumptions 
   that have a significant risk of causing a material adjustment 
   to the carrying amounts of assets and liabilities within the 
   next financial year are discussed below: 
 
             *    Provision for impairment of receivables 
 
 
 
            The Group reviews its trade and other receivables for evidence 
            of their recoverability. Such evidence includes the counter party's 
            payment record, and overall financial position as well as the 
            state's ability to pay its dues (VAT receivable). If indications 
            of irrecoverability exist, the recoverable amount is estimated 
            and a respective provision for impairment of receivables is made. 
            The amount of the provision is charged through profit or loss. 
            The review of credit risk is continuous and the methodology and 
            assumptions used for estimating the provision are reviewed regularly 
            and adjusted accordingly. 
           -- Fair value of investment property 
 
            The fair value of investment property is determined by using 
            various valuation techniques. The Group selects highly reputed 
            international companies with local presence to effect such valuations. 
            Such valuers use their judgement to select a variety of methods 
            and make assumptions that are mainly based on market conditions 
            existing at each financial reporting date. The fair value of 
            the investment property has been estimated based on the fair 
            value of their individual assets. 
 
 
             *    Income taxes 
 
 
 
            Significant judgement is required in determining the provision 
            for income taxes. There are transactions and calculations for 
            which the ultimate tax determination is uncertain during the 
            ordinary course of business. The Group recognises liabilities 
            for anticipated tax audit issues based on estimates of whether 
            additional taxes will be due. Where the final tax outcome of 
            these matters is different from the amounts that were initially 
            recorded, such differences will impact the income tax and deferred 
            tax provisions in the period in which such determination is made. 
 
             *    Impairment of tangible assets 
 
 
 
            Assets that are subject to depreciation are reviewed for impairment 
            whenever events or changes in circumstances indicate that the 
            carrying amount may not be recoverable. An impairment loss is 
            recognized for the amount by which the asset's carrying amount 
            exceeds its recoverable amount. The recoverable amount is the 
            higher of an asset's fair value less costs to sell and value 
            in use. For the purposes of assessing impairment, assets are 
            grouped at the lowest levels for which there are separately identifiable 
            cash flows (cash-generating units). 
 
             *    Impairment of intangible assets 
 
 
 

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