TIDMDUPD
RNS Number : 8139A
Dragon-Ukrainian Prop. & Dev. PLC
31 May 2019
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No. 596/2014.
Dragon-Ukrainian Properties & Development PLC
("DUPD" or the "Company")
31 May 2019
Results for the year ended 31 December 2018
Dragon-Ukrainian Properties & Development plc, a leading
investor in the real estate sector in Ukraine, is pleased to
announce its results for the year ended 31 December 2018.
Highlights
Operational Highlights
-- The Company continues to follow its investing policy as
approved by shareholders at the EGM in February 2014.
-- Green Hills, the suburban gated community, continued to
capitalize on its high quality and leading position in the market
as 27 land plots were sold during 2018 (2017: 25)
-- Riviera Villas, our luxury suburban community project,
brought four new contracted sales in 2018 following sales of five
land plots in 2017
Financial Highlights
-- Total NAV of USD 36.2 million as of 31 December 2018 (down
from USD 42.8 million as of 31 December 2017).
-- Cash balance of USD 4.7 million (down from USD 9.2 million as
of 31 December 2017). The Company has no debt at either the holding
company level or project level.
-- DUPD recorded a USD 3.2 million gain from operating
activities in 2018 (2017: USD 4.9 million loss)
Mark Iwashko, non-executive Chairman of the Board commented "As
the dynamics of the real estate market in Ukraine will continue to
depend on the pace of economic reforms and recovery as well as
improvement in investor and consumer sentiment, we will remain
committed to DUPD's investment policy, focusing on the monetization
of our existing properties as quickly and effectively as the market
conditions allows"
For further information, please contact:
Dragon Ukrainian Properties & Development Plc (www.dragon-upd.com)
Mark Iwashko (Chairman) +380 (50) 381 8811
DCM Limited (Investment Manager)
Volodymyr Tymochko +380 (44) 490 7120
Panmure Gordon (UK) Limited
Richard Gray / Atholl Tweedie +44 (0)20 7886 2500
Chairman's Statement
The Ukrainian economy continued its gradual recovery from the
deep recession of 2014-2015 with GDP growth accelerating from 2.5%
in 2017 to 3.3% in 2018 and household consumption, driven by
increases in real wages and pensions, growing by 8.9% year-on-year
in 2018 after increasing 9.5% in the previous year. As a result of
three years of sustained economic growth and much improved macro
stability, Dragon-Ukrainian Properties & Development plc
("DUPD" or the "Company")was able to report a second consecutive
increase in the valuation of its assets. The Company's stake in
Arricano Real Estate plc ("Arricano") benefited the most,
increasing by USD 4.0 million in 2018, as a result of the direct
correlation between rising household consumption and improved
performance of the retail sector. At the same time, the value of
DUPD's residential properties registered a more modest increase in
value of USD 1.0 million while the Company's vast land holdings
remained the most undervalued of DUPD's remaining assets with no
near term recovery expected.
Management and the Board remained focused in 2018 on the adopted
strategy of orderly realizations of its existing assets and return
of surplus funds to shareholders. To that end, the Company
collected the final USD 4.0 million in payments from the
installment sale of Obolon Residences that took place in 2017. In
addition, DUPD contracted USD 3.4 million in new sales and
generated USD 3.5 million in cash from its three remaining
residential developments during the year. As a result, the Company
was able to distribute USD 9.8 million to shareholders in 2018 in
keeping with our commitment to distribute proceeds received from
the divestment of assets.
Looking ahead, we expect GDP growth to continue but with a risk
of slight deceleration as Ukraine faces a period of relatively high
external debt repayments, an incoming president with an as yet
unclear economic reform agenda, and scheduled parliamentary
elections that may reshape the political map in Ukraine in 2019.
Still, it is likely Ukraine's economy will continue its positive
development given the country remains reliant on the IMF for
macroeconomic stability and each disbursement of the approved IMF
program is tied to the delivery of specific structural reforms.
Going forward the Company will continue to redeploy cash
generated from the sale of individual land plots and homes in the
near term to fund the ongoing development and eventual completion
of DUPD's three remaining residential developments in an effort to
maximize overall proceeds from those projects. At the same time, we
will look for opportunities to divest our stake in Arricano as the
retail sector continues to improve and will continue to monitor
developments on the land market in Ukraine for signs of recovery.
That said, the outlook for the realization of significant proceeds
from divestments of DUPD's remaining assets is neither clear nor
optimistic in the near term.
Financial Results
DUPD posted a USD 3.2 million gain in 2018 versus a USD 4.9
million loss a year ago as a result of a net gain from financial
assets of USD 5.1 million (USD 4.0 million from Arricano and USD
1.0 million from DUPD's residential projects). Operating expenses
were in line with the last year's levels with the exception of
management fee, which was reduced by 17% in 2018. In terms of
liquidity, DUPD's cash balance decreased year-on-year as a result
of USD 9.8 million distributed to shareholders but remained healthy
at USD 4.7 million with no debt at either the holding company level
or project level as of December 31, 2018. Taking into account that
the Company's main expense item, the management fee, has been
negotiated down by the Board from USD 1.0 million to USD 0.8
million going forward, DUPD remains well positioned to meet its
future obligations.
Corporate Governance
There were no changes in the composition of the Board of
Directors of DUPD in 2018.
Awards
DUPD's portfolio investment, Arricano Real Estate plc, won in
three out of twelve categories in the Shopping Centers Awards 2018,
a prestigious international forum in the field of retail real
estate, while two of Arricano's shopping malls, Sun Gallery and
City Mall were named the winners of the VII Ukraine National Retail
Award Consumer Choice - 2018.
Dividends and Investment Policy
The Company made an initial distribution of USD 7,655,306.05, or
USD 0.07 per ordinary share, to its shareholders on April 17, 2018
followed by an additional distribution of USD 2,187,230.20 or USD
0.02 per ordinary share to its shareholders on May 16, 2018.
Shareholding
Dragon Capital Investments remained the largest shareholder in
DUPD with 60.91% of the issued share capital of the Company as of
December 31, 2018.
Outlook
Real GDP growth is forecasted to slow to 2.5% in 2019 before
inching up to 2.8% in 2020, reflecting a less favorable external
environment, weaker domestic demand and expected declines in
agricultural production in 2019 and gas transit in 2020. Inflation,
meanwhile, is projected to continue to decline to 7.3% in 2019 and
6.2% in 2020 as a result of monetary tightening and a slowdown in
the growth in domestic salaries as labour migration begins to taper
off. We believe that Ukraine's macroeconomic conditions will
continue to support the gradual recovery of the country's real
estate market but will have only marginal impact on the pace of
monetization of DUPD's remaining assets.
The Ukrainian Government continues to cooperate with the IMF and
is currently awaiting a first review of a USD 3.9 billion Stand-By
facility that is expected to result in an initial USD 1.4 billion
tranche disbursement. The next IMF review is scheduled for May and,
if successful, will clear the way for a second, USD 1.3 billion
loan tranche and allow the government to keep access to budget
financing from other external lenders in reserve. While the newly
elected president, Volodymyr Zelensky, has pledged to maintain
constructive relations with the IMF, numerous challenges exist to
timely future disbursements including the reinstatement criminal
responsibility for illicit enrichment (legislation that was
required under IMF's 2014 Stand-By program that was initially
passed but ultimately cancelled by the Ukrainian Constitutional
Court in February 2019) and passage of anti-money laundering
legislation.
As the dynamics of real estate market in Ukraine will continue
to depend on the pace of economic reforms and recovery as well as
improvement in investor and consumer sentiments we will remain
committed to DUPD's investment policy, focusing on the monetization
of our existing properties as quickly and effectively as the market
conditions allows.
Mark Iwashko
Non-executive Chairman
30 May 2019
Investment Manager's Report
The continuing gradual recovery of the Ukrainian economy
supported us in generating strong residential sales in 2018, in
line with DUPD's divestment strategy.
In line with the Company's strategy, we continued the
development of the existing cash-generating residential projects
while remaining focused on strong marketing activity and
first-grade services to our clients. As a result, during 2018 year,
our residential projects generated USD 3.4 million in contracted
sales (USD 5.2 million in 2017) and USD 7.5 million in cash
proceeds (including USD 4.0 million within two remaining
instalments from the sale of Obolon Residences project).
Green Hills, a suburban gated community, continued to capitalise
on its high quality and leading position in the market as we closed
27 land plot sales during 2018 (2017: 25, 2016: 29, 2015: 23).
Total sales contracted in 2018 amounted to USD 2.7 million, whereas
cash proceeds reached USD 2.4 million, with the combined land area
sold to date reaching 12.1 hectares (75% of the total area for
sales). Combined with success in the sales of residences in the
cottage community, we finished the construction of the lake
recreational zone and the second phase of the community's school,
while the construction of a 2,000 m(2) fitness-centre is underway.
We believe these improvements are highlighting the extra quality of
the property for prospective clients and will continue to support a
generation of stable sales pipeline.
Riviera Villas, our luxury suburban community project, brought 4
new contracted sales in 2018 following sales of five land plots in
2017.
Sadok Vyshnevy, our economy class townhouse community, brought
no new sales in 2018. Main efforts were focused on the review of
the pricing policy and launch of a more aggressive marketing
campaign in order to advance sales of the remaining 15 out of an
original 38 apartments and that effort already resulted in five
contracted sales in 2019. We expect that undertaken activities will
fuel our sales and allow us to significantly divest a current stock
of apartments.
Arricano Real Estate plc, our portfolio investment, in which
DUPD holds a 12.51% stake, continued the London Court of
International Arbitration (LCIA) arbitration process regarding its
largest asset, Sky Mall. Further to the Company's announcement made
on August 17, 2016, when LCIA consequently ruled for Stockman to
cover legal expenses of Arricano in the amount of USD 0.9 million,
by the end of 2017 the High Court had dismissed an application made
by Stockman Interhold S.A. for permission to appeal the High
Court's earlier judgements, having brought an end to Stockman's
challenge proceedings in respect of the LCIA Awards as Stockman has
now exhausted all legal remedies available to it. As at the date
that annual report is published, ownership rights for the Sky Mall
shopping centre remain alienated. Going forward Arricano will keep
focusing its legal efforts on enforcing the respective decisions of
LCIA.
During the year, Arricano increased its net operating income
(excluding revaluation gains) by 19.3 per cent to USD 21.0 million
compared to USD 17.6 million in 2017 as a result of growing rental
rates across its portfolio of 5 shopping malls, managing tenant mix
and turnover.
The high quality of the projects and strong residential sales
allow DUPD to maintain its strong market position despite the
ongoing market challenges. The Company remains on track with
orderly realisation of its assets and is focused on generating cash
proceeds to its shareholders both via development of the existing
residential projects and investment sales of its assets to local
players.
30 May 2019
Volodymyr Tymochko
Partner, DCM Limited
Market Overview 2018
Macroeconomic highlights
The Ukrainian economy rose by 3.3% y-o-y in 2018, slightly
accelerating from 2.5% y-o-y in 2017 and 2.4% y-o-y in 2016, mostly
driven by consumption and investments. Household consumption
continued growth 8.9% y-o-y in 2018 following 9.5% y-o-y in 2017 on
the back of continued salary growth (+25% y-o-y in nominal terms)
and inflows of remittances - both being a consequence of growing
short-term labor migration. It was also boosted by a 28% increase
in the average pension following pension reform in 2017. Investment
continued to expand at a double-digit rate in 2018, though the pace
of growth expectedly slowed to 14.3% y-o-y from 18% in 2017 and 20%
in 2016. Also helping GDP growth was the sharp slowdown in imports,
to 3.2% from 12% in 2017, while exports remained weak, down 1.6%
y-o-y following a 3.5% increase in 2017.
Real GDP growth is expected to decelerate to 2.5% y-o-y in 2019,
before inching up to 2.8% in 2020, reflected by less favourable
external environment, slowing domestic demand (to be partially
offset by weaker import growth), and declines in agricultural
production in 2019 and gas transit in 2020.
Headline inflation slowed to 9.8% y-o-y in 2018 from 13.7% in
2017 on deceleration of raw food prices as domestic fruit
production normalized after a weak 2017 and meat market imbalances
subsided. The Central Bank began marginally easing monetary policy,
cutting its key rate to 17.5% in April 2019, having kept the rate
flat at 18.0% through four consecutive meetings since September
2018, which was enabled by the ongoing slowdown in inflation and
improving inflation expectations, with the former driven by tight
monetary and fiscal policies and moderating salary growth amid
stabilizing labor migration, exchange rate appreciation in 1Q19, a
drop in global gas prices, and higher supply of food products.
The current account deficit continued to widen to 3.6% of GDP in
2018, mostly driven by growing machinery exports, after a moderate
2.2% in 2017 and 1.4% of GDP in 2016 with National Bank of Ukraine
projections staying at a deficit of 3.3% and 4.0% of GDP for 2019
and 2020, respectively. Capital inflows were sufficient to cover
the current account deficit and enabled the Central Bank to
increase its reserves by 11% y-o-y, to USD 20.8bn, or 3.5 months of
imports. The hryvnia strengthened 1.4% y-o-y to UAH 27.7: USD by
end-2018, after 3.1% drop recorded in 2017.
The fiscal deficit stood at a moderate 2.0-2.5% of GDP over the
past several years and public debt to GDP ratio continued a
downward trend, sliding to 61% in 2018 from 72% in 2017 and 81%
2016.
Ukraine's industrial production continued to show only gradual
growth, increased by 1.1% y-o-y in 2018 compared to 0.4% in 2017,
construction activity rose by 4.4% y-o-y in 2018, sliding from a
strong 26.0% y-o-y growth in 2017.
Commercial property
The retail sector reflected robust recovery of consumer
sentiment on the back of growing household income and decelerating
inflation. Tenant demand from existing retailers and new market
entries alike displayed the expansionary trend. Approximately 20
new brands entered the Ukrainian market, including the long-awaited
Swedish mid-range fashion brand H&M, leasing 2,900 sqm in
Lavina Mall SC with the second location in Sky Mall SC in Kyiv. In
2019, there are expectations of a new market entry from brands such
as IKEA (Swedish homeware and department store) and Decathlon
(French sportswear retailer). Due to the demand expansion, average
market vacancy dropped to 3% (- 2.7 p.p YTD) as of December. Prime
rents for retail space grew by 15-20% during 2018, reaching
USD85/sqm/month (triple net).
Tenant demand on the office property market in Kyiv continued to
demonstrate positive dynamics during 2018 with average market
vacancy decreasing to ca. 7%, an 11-year record-low for the sector.
The total lease take-up of office space in Kyiv reached 145,000 sqm
declining by a mere 6.5% due to already visible limited
availability of high-quality office space. Strong demand dynamics
coupled with low development activity during the earlier periods
continued to put upward pressure on prime rents with a 4.3% YTD
increase of effective rates for A-class premises at USD
24/sqm/month, while the asking prime rents escalated by 10% - 20%,
standing at USD 28-32/sqm/month (triple net).
The warehousing market was driven by the increasing activity of
large retailers and logistic operators. The total take-up volume
was limited by low availability of large-scale units, with annual
take-up reaching ca. 154,000 sqm (+28% y-o-y). The annual new
supply was limited to 9,700 sqm in small-scale warehouses almost
fully leased immediately. As a result, average market vacancy
declined to 3.7% (-2.3 p.p YTD) as of the end of 2018. Prime
effective rent ranged from UAH100-142 (USD 3.6-5.1/sqm/month),
posting 20-29% y-o-y growth in UAH and 20-24% in USD terms.
Residential property
In 2018, a new supply of residential developments continued to
grow albeit at a slower pace. The annual volume of new residential
space commissioned amounted to 1,256k sqm (-25.6% y-o-y). The total
volume of residential space offered for sale increased by ca. 10%
(incl. delivered and under construction). The demand for
residential space remains relatively stable. "Economy" and
"comfort" segments continued to dominate in the volume of
transactions closed on the primary market (ca. 72% of total
volume). USD-based prices for "economy" and "comfort" apartments
remain in the range of USD 500-700/sqm.
Land
No remarkable changes in supply and demand for land recorded
over the course of 2018. The land market was still imbalanced with
supply dominating the demand. Prices for land plots remained
roughly flat during 2018, with wide variation depending on
location, physical characteristics, zoning, etc. At the same time,
the revival of investors' interest to the land plots with
commercial and residential zoning in the most-sought-after
locations is expected to be more visible in the next 2-3 years with
the gradual recovery of development activity, provided no shocks to
economic recovery during this period.
Project Overview
1. Land bank
The Company is focused on gradually selling the land as it is
rezoned and when the land market recovers
Details
Location: Kyiv suburbs
Land Title: Freehold
Land Area: 500 ha
DUPD Share: 85%
Fair value of investment
project: USD 9.2 million
2. Arricano Real Estate plc
-- The largest developer of shopping centres in Ukraine
-- Arricano has been listed on the AIM market of the LSE (ARO LN) since 2013
-- DUPD's shareholding is 12.51%
-- Portfolio consists of nine shopping centres of which six are
operational and three under various stages of development
-- Involved in ongoing international legal dispute with a local
partner over control of its largest project, Sky Mall
Summary
DUPD Share: 12.51%
Directors: 1 board representative
Fair value of investment USD 10.6 million
project:
(i) Sky Mall (Kyiv)
Gross leasable area (operating): 67,000 m(2)
Key Tenants: Auchan, Inditex Group, Planettoys,
Marks & Spencer, New Yorker,
Multiplex Cinema
(ii) Rayon (Kyiv)
Gross leasable area (operating): 23,900 m(2)
Key Tenants: Silpo, Comfy, Reserved,
Sportmaster, Game park,
McDonald's
(iii) Sun Gallery (Kryvyi Rig)
Gross leasable area (operating): 37,600 m(2)
Key Tenants: Auchan, Comfy, Sportmaster,
Fly Park, Gloria Jeans,
New Yorker
(iv) South Gallery (Simferopol)
Gross leasable area (operating): 33,400 m(2)
Key Tenants: Auchan, DNS, PoiskHome,
LC Waikiki, L'Etoile,
Baby Boom
(v) City Mall (Zaporizhzhya)
Gross leasable area (operating): 21,500 m(2)
Key Tenants: Auchan, McDonald's, Comfy,
Colin's LC Waikiki, Brocard
(vi) Prospect (Kyiv)
Gross leasable area (operating): 30,900 m(2) (excluding
Auchan)
Key Tenants: Auchan (co-investor), McDonald's,
LC Waikiki, Eldorado,
Foxtrot, Reserved, JYSK,
Multiplex Cinema
(vii) Lukyanivka (Kyiv)
Gross leasable area (under ca 50,000+ m(2)
construction):
(viii) Petrivka (Kyiv)
Gross leasable area (to be N/A (5.4 ha)
developed):
(ix) Rozumovska (Odesa)
Gross leasable area (to be
developed): 38,000 m(2)
3. Riviera Villas
-- Elite cottage community near Kyiv
-- Project consists of two land parcels, one owned by DUPD and the other by its partner
-- Unique luxury leisure infrastructure, including pools, restaurants and sport facilities
-- Utilities on the site and waterfront infrastructure completed
-- Total 33 of 72 land plots are sold (42% of total land area)
Details
Location: Kyiv suburbs
Land Title: Freehold
Land Area: 12.3 ha
DUPD share of overall
project: 59.6%
Fair value of investment USD 3.4 million
project:
4. Green Hills
-- Business class cottage community near Kyiv
-- Furnished with mini-market, restaurant and café, tennis
court, soccer and basketball playgrounds, 2 kindergartens, children
playgrounds, school for 250 pupils, artificial lake and rest
area
-- Total 148 of 198 land are sold (75% of total land area)
-- 81 families living in the community
-- Construction of the second phase of the cottage's school was
finished; building commissioned and put into operations in
September
-- Construction of fitness center underway
-- Construction of warehouse for service company finished
-- Construction works on the lake recreational zone were
finished in May; residents of the cottage community enjoy a greened
garden square fitted with children's playground starting from
June
Details
Location: Kyiv suburbs
Land Title: Freehold
Land Area: 16.2 ha
DUPD Share: 100%
Fair value of investment USD 6.5 million
project:
5. Sadok Vyshnevy
-- 38 apartments in a town-house community in Kyiv suburbs
-- Utilities on the site
-- All homes commissioned and available for sale
-- 23 apartments or 61% of all apartments sold (no sales in 2018)
Details
Location: Kyiv suburbs
Land Title: Freehold
Land Area: 1.6 ha
DUPD Share: 100%
Fair value of investment USD 1.8 million
project:
6. Glangate
Land plot for shopping centre development in Kremenchuk
Details
Location: Kremenchuk
Land Title: Leasehold
Land Area: 3.9 ha aggregate
GLA: 27, 530 m(2)
DUPD Share: 100%
Fair value of investment USD 0.4 million
project:
Investing Policy
Dragon-Ukrainian Properties & Development plc ("DUPD" or
"the Company") is an "investing company" for the purposes of the
AIM Rules for Companies. The AIM Rules for Companies require an
investing company to have in place an investing policy which is
"sufficiently precise and detailed so that it is clear, specific
and definitive". The AIM Rules for Companies provide guidance in
relation to what this investing policy is expected to include as a
minimum.
On 17 February 2014, the Company's shareholders approved a new
investing policy, which is set out below.
Investing strategy - asset allocation - geographic focus and
sector focus
The Board will seek to realise the Company's properties in an
orderly manner, such realisations to be effected at such times, on
such terms and in such manner as the Board (in its absolute
discretion) may determine.
Assets or companies in which the Company can invest
The Company will not make any investments in new properties.
However, this will not preclude the Board (in its absolute
discretion) from making any investment in existing properties in
the following circumstances:
-- where the Board, as advised by the Manager, believes such
investment is to protect or enhance the value and saleability of
such property;
-- where the Company is contractually committed to make such investment;
-- in respect of properties currently under construction, where
the Company continues to pursue, where necessary, any licenses
and/or approvals which are required for a particular property to
continue its development;
-- undertaking investment in additional phases of such
properties (other than the existing phase currently being developed
in respect of such property) where the Board, as advised by the
Manager, believes such investment in additional phases is to
protect or enhance the value and saleability of such property;
-- authorising the expenditure of such capital as is necessary
to: (i) acquire any joint venture party's interests in any of the
Company's existing investments; or (ii) carry out any construction
necessary to maximise value and saleability of any existing
property; and
-- entering into any contract or other arrangement with any
third party to realise all or any part of its existing
properties.
In addition, the Company will only commence construction on any
of its existing properties that have yet to commence construction
to protect or enhance the value and saleability of such property.
In respect of such properties, the Company will also continue to
pursue, where necessary, any licenses and/or approvals which are
required for a particular property.
These above restrictions will not preclude the Company making
investments in short-dated cash or near cash equivalent securities,
which form part of its cash management practices.
Strategy by which the investing policy will be achieved
The Board and the Manager will investigate a number of
approaches to realisation of its properties, which will include,
but not be limited to, sales of individual assets or groups of
assets or a sale of the entire portfolio (or a combination of such
methodologies), or an in-specie distribution of such property. The
Board will only consider in-specie distributions to shareholders
when other realisation alternatives have been fully explored and
the relevant property investment is quoted on a stock exchange.
The Board and the Manager may decide to appoint independent
advisers to assist in the execution of the New Investing Policy,
including, but not limited to, property valuers and property
agents.
Whether investments will be active or passive investments
The Manager assumes a proactive approach to every property
project in the Company's property portfolio.
Holding period for investments
The New Investing Policy includes an orderly realisation of the
Company's properties over the medium term with a view to maximising
returns for shareholders. Accordingly, the Board will seek to
realise the Company's properties and exercise all legal rights of
the Company in such manner and on such timescale as the Directors
see fit, with a view to ensuring that returns to shareholders are
maximised.
Spread of investments and maximum exposure limits
The Company does not have a prescribed policy in relation to the
spread of investments or maximum exposure limits. The realisation
of the Company's properties may, over time, result in the Company
having a reduction in the diversification of investments. However,
the realisation of the Company's properties over time will also
result in the reduction of the Company's overall investment in real
estate assets.
Policy in relation to gearing and cross holdings
The Board (in its absolute discretion) may make prudent use of
leverage to make investments or expenditure consistent with its
investing policy and to satisfy working capital requirements.
Borrowings may be undertaken by the Company itself or by any of its
subsidiaries or project companies. Given that the New Investing
Policy is an orderly realisation of the Company's properties over
the medium term, it is not expected that the Company will secure
additional debt financing other than where the Company believes it
is required to protect or enhance the value and saleability of such
property.
Investing restrictions
Other than the requirement for the Manager to manage any
potential conflicts of interest, and the requirement to invest in
accordance with its New Investing Policy, there are no other
investing restrictions.
Nature of returns that the Company will seek to deliver to
shareholders
Under the New Investing Policy, the Board will seek to return
any surplus funds to shareholders when appropriate. The net
proceeds of all property realisations will be returned to
shareholders, at the Board's discretion, having regard to:
-- the requirement to invest further funds in the Company's
existing property projects only to protect or enhance the value and
saleability of such property, and/or where the Company is
contractually committed to make such investment;
-- the Company's working capital requirements and running costs
(including the fees payable under the Third Management
Agreement);
-- the cost and tax-efficiency of individual transactions and/or distributions; and
-- the 2006 Act.
It is expected that surplus capital will be returned to
shareholders over time in a manner which may involve dividends,
share buy-backs, voluntary tender offers, dividends and/or capital
reductions. The decision to make any such returns, the method
through which such returns are effected, and the quantum and timing
of any such returns will be at the sole discretion of the Board.
The Board will only consider in-specie distributions to
shareholders when other realisation alternatives have been fully
explored and the relevant property investment is quoted on a stock
exchange.
Other matters
Cash management
Pending future returns of value to shareholders, all of the
Company's funds (whether in the form of cash or otherwise) will be
kept under the control of the Board or as it may direct.
Currency hedging
The Company will hedge currency and interest rate risk as and to
the extent that the Board (in its absolute discretion) considers
appropriate.
Management of liabilities
The Company will endeavour, at the direction of the Board (in
its absolute discretion), to manage all actual or potential
material liabilities, risks or exposures of the Company (including,
without limitation, any existing contractual commitments, disputes
(potential or actual) and litigation (threatened or actual)) in a
manner consistent with the orderly realisation of the Company's
properties.
Conflict policy
The Dragon Capital Group pursues a number of real estate
development projects in Ukraine. Under the terms of the Third
Management Agreement the Manager has no ability to commit the
Company or any of its subsidiaries to make any acquisition or
disposal. In the event that any Relevant Party has the opportunity
to acquire Conflict Property then the Manager shall cause the
Relevant Party to provide, inter alia, all material details of the
Conflict Property to the Company, in order for the Company to
decide whether or not to notify the Manager that it should pursue
the opportunity to acquire the Conflict Property (within the scope
of the New Investing Policy). If the Company so notifies the
Manager of its intention to pursue the opportunity to acquire a
Conflict Property, the Manager shall procure that no affiliate of
the Manager shall acquire any interest in the Conflict Property in
question without the prior consent of the Company.
Directors' Remuneration Report
Further to the revision of the remuneration policy of the Board
members in November 2014, in January 2016 the Board approved a
slight modification to the Chairman's remuneration. In accordance
with the modification of the remuneration, as Non-executive
Chairman, Mr. Iwashko is entitled to a fee of USD 50,000 instead of
a fee of USD 40,000 plus any applicable taxes plus USD 10,000
towards compensating his costs associated with carrying out his
duty as the Chairman of the Board.
Mr. Lou van der Heijden's remuneration remained unchanged and
Mr. van der Heijden is entitled to a fee of USD 35,000 plus any
applicable taxes plus USD 5,000 as compensation for additional
duties for chairing the Audit Committee.
The directors' fees for 2018 are summarised in the table
below:
Name Position Annual Fee Date of appointment Notice period
------------------- -------------- ----------------- -------------------- ------------------
Mark Iwashko Non-executive USD 50,000 26 November The Director
Chairman per year plus 2014 or Company
applicable may terminate
VAT payable on three month's
quarterly in written notice.
arrears.
------------------- -------------- ----------------- -------------------- ------------------
The Company has agreed to reimburse Mr Iwashko for reasonably
incurred expenses in the course of his duties to the Company.
------------------------------------------------------------------------------------------------
Aloysius Wilhelmus Non-executive USD 35,000 10 April 2007 The Director
Johannes van Director plus applicable or Company
der Heijden VAT payable may terminate
quarterly in on three month's
arrears plus written notice.
USD 5,000 to
compensate
for his duties
as the Chairman
of the Audit
Committee.
------------------- -------------- ----------------- -------------------- ------------------
The Company has agreed to reimburse Mr van der Heijden for reasonably
incurred expenses in the course of his duties to the Company.
------------------------------------------------------------------------------------------------
Tomas Fiala Non-executive No fee. 26 February The Director
Director 2007 or Company
may terminate
on three month's
written notice.
------------------- -------------- ----------------- -------------------- ------------------
The Company has agreed to reimburse Mr Fiala for reasonably
incurred expenses in the course of his duties to the Company.
------------------------------------------------------------------------------------------------
The aggregate amount paid to Directors for the period ending 31
December 2018 was equal to USD 99 thousand including reimbursement
of all reasonable business and travel expenses.
There were no other payments besides the ones mentioned above
being paid to the Directors for the year ending 31 December
2018.
Corporate Governance
Combined Code
The Directors recognise the importance of good corporate
governance and have chosen to comply with the Quoted Companies
Alliance Corporate Governance Code (the 'QCA Code') where possible
from the date of its listing on 1 June 2007. The QCA Code was
developed by the QCA in consultation with a number of significant
institutional small company investors, as an alternative corporate
governance code applicable to AIM companies. The underlying
principle of the QCA Code is that "the purpose of good corporate
governance is to ensure that the company is managed in an
efficient, effective and entrepreneurial manner for the benefit of
all shareholders over the longer term". Details of application of
QCA principles could be found on the corporate web site
https://dragon-upd.com/investor-information/important-information/corporate-governance
The Board and Board Committees
The Board is comprised of three directors: the non-executive
Chairman, Mark Iwashko, and two other non-executive directors:
Aloysius Johannes van der Heijden and Tomas Fiala. Tomas Fiala, one
of the Company's Directors, is the principal shareholder and
Managing Director of the Dragon Capital Group which holds
66,902,154 ordinary shares in the Company at the date of
publication of this annual report (61.17% of the total number of
shares). At the reporting date of 31 December 2018, Dragon Capital
Group held 66,607,334 ordinary shares in the Company (60.91% of the
total number of shares). DCM Limited is the investment manager for
the Company and is a part of the Dragon Capital Group. Save in that
respect, the Board considers the Directors (with the exception of
Tomas Fiala), to be independent for the purposes of the
above-mentioned Corporate Governance Code. The letters of
appointment of all directors are available for inspection at the
Company's registered office during normal business hours.
The Board meets from time to time as required to take decisions
on the development of projects and to consider general matters
affecting the Company and otherwise as required. Issues which do
not require discussion by the Board members are dealt with by the
written board resolution.
The Audit Committee is chaired by Mr van der Heijden and
comprised of Mr van der Heijden and Mr Iwashko. The Audit Committee
meets at least twice a year and otherwise on an ad hoc basis as
required. The Audit Committee reviews the annual and interim
accounts, meets with its nomad and advisors, reviews supporting
property valuation reports and monitors internal controls and
Company policies. It meets regularly with the Company's auditors to
review their reports on draft accounts and internal controls.
Risk Management and Internal Control
Risk management is the responsibility of the Audit Committee,
which is responsible to the Board for ensuring that proper
procedures are in place, and are being effectively implemented to
identify, evaluate and manage any significant risks faced by the
Company.
An outline of major risk factors affecting the Company was
described in the admission document and is regularly reviewed by
the Audit committee for their importance to the Company and for the
controls that are in place. The Board, on the advice of the
Investment Manager, updates this risk outline as changes arise in
the nature of risks and reviews and amends controls that are
necessary to mitigate them. The Audit Committee reviews the risk
outline and the effectiveness of the risk-modelling undertaken by
the Investment Manager on a regular basis.
Significant issues
The financial assets at fair value through profit or loss is
undertaken in accordance with the accounting policies, disclosed in
note 3(b) Subsidiaries, note 3(c) Associates and note 3(d) Loans
receivable from investees and the processes disclosed in note 4
Financial assets at fair value through profit or loss. The audit
includes an independent review of valuation models used for
reasonableness and verification of supporting documentation. All
financial assets have been categorised as Level 3 within the IFRSs
13 fair value hierarchy
Relations with shareholders
The Board acknowledges that a significant part of its role is to
represent and promote the interests of shareholders. The Board is
accountable to shareholders for the performance and activities of
the Company. The Board encourages participation at the Annual
General Meeting at which a detailed review of the business and
objectives of the Company are given to shareholders. The company
proposes separate resolutions at the AGM for each substantially
separate issue, and there is always an individual resolution
relating to re-election of every director, appointing auditors and
approval of financial statements. Company's shareholders have
access to current information on the Company through its website,
www.dragon-upd.com, which is regularly updated.
Directors' Report
The Directors present their annual report and the audited
Company financial statements of Dragon-Ukrainian Properties &
Development plc (the 'Company') for the year ended 31 December
2018.
Principal activities
The principal activities of the Company is investing in the
development of its existing real estate properties in Ukraine. On
17 February 2014 an Extraordinary Meeting of Shareholders approved
a new Investing Policy as defined by the AIM Rules for Companies.
Under this revised policy the Board will seek to realise the
Company's Properties in an orderly manner, such realisations to be
effected at such times, on such terms and in such manner as the
Board (in its absolute discretion) may determine. The full text of
the Investing Policy can be found on the Company's website at
http://www.dragon-upd.com/files/Investing%20Policy%20approved%20by%20the%20EGM%20held%20on%2017%20Feb%202014.pdf
The Company was incorporated in the Isle of Man under the
provisions of the Companies Act 1931 to 2004 on 23 February 2007
with a company number 119018C. Following the resolution of the
Extraordinary Meeting of Shareholders passed on 17 February 2014
the Company was de-registered under the provisions of the Companies
Acts 1931 to 2004 and has been re-registered under the provisions
of the Companies Act 2006 on 27 February 2014 with a company number
010832V. The Company's registered office is 2nd Floor, St Mary's
Court, 20 Hill Street, Douglas, Isle of Man, IM1 1EU and its
principal place of business is Ukraine.
On 1 June 2007 the Company raised USD 208 million through an
Initial Public Offering on the AIM market of the London Stock
Exchange. On 29 November 2007 the Company completed a secondary
placing on AIM and raised USD 100 million.
Results
The Company made a gain before taxation for the year ended 31
December 2018 of USD 3,171 thousands (2017: loss of USD 4,853
thousands).
Directors
The Directors of the Company during the year and to date
are:
Aloysius Wilhelmus Johannes van der Heijden
Date of appointment 10 April 2007
Tomas Fiala
Date of appointment 26 February 2007
Mark Iwashko
Date of appointment: 26 November 2014
Directors' interests
The Directors interests in the shares of the Company as at 31
December are as follows:
2018 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
Mr Tomas Fiala, one of the Company's directors, is the principal
shareholder and managing director of the Dragon Capital Group which
acquired 6,831,500 shares (6.25%) of the Company during the first
(June 2007) and second (November 2007) share issues. In the
following years through a series of market purchases Dragon Capital
Group acquired additional shares and held in total 19,433,129
ordinary shares as at 31 December 2016.
During 2017 Dragon Capital Group purchased 47,174,205 ordinary
shares of the Company. Following this share purchase, Dragon
Capital Group holds 66,607,334 shares representing 60.91% of the
issued share capital of the Company.
DCM Limited, the Company's investment manager is the asset
management arm of the Dragon Capital Group.
Auditors
The auditors, KPMG Audit LLC, being eligible, have expressed
their willingness to continue in office.
On behalf of the Board
Mark Iwashko
Non-executive Chairman
30 May 2019
Statement of Directors' Responsibilities in Respect of the
Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
The Directors are required to prepare financial statements for
each financial year. They have elected to prepare the financial
statements in accordance with International Financial Reporting
Standards as adopted by the European Union (IFRSs as adopted by the
EU) and applicable law.
The Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Company and of its profit or loss for that
period. In preparing the financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable, relevant and reliable;
-- state whether they have been prepared in accordance with IFRSs as adopted by the EU;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Isle of Man Companies Act
2006. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the Isle of Man governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Mark Iwashko
Non-executive Chairman
30 May 2019
Independent Auditors' Report to the Members of
Dragon-Ukrainian
Properties & Development PLC
1 Our opinion is unmodified
We have audited the financial statements of Dragon Ukrainian
Properties & Development PLC ("the Company") for the year ended
31 December 2018 which comprise the Statement of Financial
Position, the Statement of Comprehensive Income, the Statement of
Changes in Equity, the Statement of Cash Flows and the related
notes, including the accounting policies in note 3.
In our opinion the financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 31 December 2018 and of its profit for the year then
ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the European Union
(IFRSs as adopted by the EU); and
-- the financial statements have been prepared in accordance
with the requirements of the Isle of Man Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are independent of the Company in
accordance with, UK ethical requirements including the FRC Ethical
Standard as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion.
2 Key audit matters: our assessment of risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. One such matter was
identified. This matter was addressed in the context of our audit
of the financial statements as a whole, and in forming our opinion
thereon, we do not provide a separate opinion on this matter. There
has been no change in Key Audit Matters since the prior year.
The risk Our response
Valuation of investments Subjective valuation Our procedures included:
at fair value (significance of risk
through profit unchanged compared with Control design:
or loss (US$32,016k 2017): Documenting and assessing the
(2017: US$30,258k)) processes in place to record
Financial assets at investment transactions and
Refer to page fair value through profit to value the portfolio.
28 (Significant or loss comprises illiquid
accounting matters and/or unquoted equity Assessing valuer's credentials:
identified by investments in and loans Evaluation of the competence
the Board), note to entities principally and independence of the external
1(b) (Business involved in property valuer engaged by the Company,
environment), development in Ukraine. including reference to professional
note 2(e) (Use The estimation of fair qualifications held.
of judgements, value is based on adjusted
estimates and net asset value of the Methodology choice: Challenging
assumptions); investee entities, with the appropriateness of the
note 4 (financial the assets in those valuation basis selected by
assets at fair entities being principally comparison with observed industry
value through comprised of investment best practice and the provisions
profit or loss) property. The valuation of the RICS Valuation - Global
and note 14 (fair of investment property Standards;
values and financial is based on independent,
risk management). professional valuations. Benchmarking assumptions:
This is a key estimate. Comparing the Company's assumptions
to externally derived data
The preparation of the in relation to key inputs such
fair value estimate as development costs on current
and related disclosures construction prices, sales
involves subjective prices and discount rates.
judgments or uncertainties,
which requires special Our sector experience:
audit consideration We used our own valuation specialist
because of the likelihood to evaluate the appropriateness
and potential magnitude of the valuation methods used
of misstatements to by the external valuer engaged
the valuation of the by the Company and assumptions
financial instrument. used, in particular those relating
to forecasted property sales
In particular, Ukraine prices and exposition period,
has been subject to construction and other costs
political and social and discount rates.
unrest and regional
tensions since 2013. Sensitivity analysis:
This situation has adversely Performing sensitivity analysis
affected and could continue over the key inputs used for
to adversely affect calculation of the fair value
the Company's results and comparing the calculation
and financial position to the amounts disclosed in
in a manner not currently the financial statements.
determinable.
Assessing transparency: Considering
the appropriateness, in accordance
with relevant accounting standards,
of the disclosures in respect
of financial assets measured
at fair value.
------------------------------ --------------------------------------
3 Our application of materiality and an overview of the scope of
our audit
Materiality for the financial statements as a whole was set at
US$300,000 (2017: US$415,000), determined with reference to a
benchmark of Company's total assets, of which it represents 1%
(2017: 1%).
We agreed to report to the Board of Directors any corrected or
uncorrected identified misstatements exceeding US$15,000 (2017:
US$20,000), in addition to other identified misstatements that
warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level
specified above and was all performed at the Company's head office
in Kyiv, Ukraine.
4 We have nothing to report on going concern
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the Company
or to cease their operations, and as they have concluded that the
Company's financial position means that this is realistic. They
have also concluded that there are no material uncertainties that
could have cast significant doubt over their ability to continue as
a going concern for at least a year from the date of approval of
the financial statements ("the going concern period").
Our responsibility is to conclude on the appropriateness of the
Directors' conclusions and, had there been a material uncertainty
related to going concern, to make reference to that in this audit
report. However, as we cannot predict all future events or
conditions and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they
were made, the absence of reference to a material uncertainty in
this auditor's report is not a guarantee that the company will
continue in operation.
In our evaluation of the Directors' conclusions, we considered
the inherent risks to the Company's business model, and analysed
how those risks might affect the Company's financial resources or
ability to continue operations over the going concern period. We
evaluated those risks and concluded that they were not significant
enough to require us to perform additional audit procedures.
Based on this work, we are required to report to you if we have
concluded that the use of the going concern basis of accounting is
inappropriate or there is an undisclosed material uncertainty that
may cast significant doubt over the use of that basis for a period
of at least a year from the date of approval of the financial
statements.
We have nothing to report in these respects, and we did not
identify going concern as a key audit matter.
5 We have nothing to report on the other information in the
Annual Report
The Directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit
opinion or any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit knowledge.
Based solely on that work we have not identified material
misstatements in the other information.
6 Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 19,
the Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing the
Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going
concern basis of accounting unless they either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor's report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC's website at www.frc.org.uk/auditorsresponsibilities.
7 The purpose of our audit work and to whom we owe our
responsibilities
This report is made solely to the Company's members, as a body,
in accordance with Section 80(c) of the Isle of Man Companies Act
2006. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members, as a body, for our audit work, for this report, or for the
opinions we have formed.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street Douglas
Isle of Man IM99 1HN
30 May 2019
Statement of financial position as at 31 December 2018
Note 31 December 2018 31 December 2017
(in thousands of USD)
Assets
Non-current assets
Financial assets at fair value through profit or loss 4 32,016 30,258
Total non-current assets 32,016 30,258
Current assets
Receivables from sale of Obolon Residences project 4(b)(ii) - 3,999
Other accounts receivable 5 70 116
Cash and cash equivalents 6 4,728 9,202
Total current assets 4,798 13,317
Total assets 36,814 43,575
Equity and Liabilities
Equity
Share capital 7 2,187 2,187
Share premium 261,408 271,251
Accumulated losses (227,434) (230,605)
Total equity 36,161 42,833
Current liabilities
Other accounts payable 8 653 742
Total current liabilities 653 742
Total liabilities 653 742
Total equity and liabilities 36,814 43,575
These financial statements were approved by the board of
Directors (the Board) on 30 May 2019 and were signed on its behalf
by:
Non-executive Chairman Mark Iwashko
Statement of comprehensive income for the year ended 31 December
2018
Note 2018 2017
(in thousands of USD)
Net gain/(loss) from financial assets at fair value through profit or loss 10 5,095 (2,955)
Management fee 9 (1,000) (1,204)
Administrative expenses 11 (498) (742)
Other income 10 75
Other expenses (42) (43)
Performance fee 9 (492) -
Total operating gain (loss) 3,073 (4,869)
Finance income 108 16
Finance costs (10) -
Gain/(loss) for the year 3,171 (4,853)
Net gain/(loss) and total comprehensive income (loss) for the year 3,171 (4,853)
Gain/(Loss) per share
Basic gain/(loss) per share (in USD) 13 0.03 (0.04)
Diluted gain/(loss) per share (in USD) 13 0.03 (0.04)
The Directors believe that all results are derived from
continuing activities.
Statement of cash flows for the year ended 31 December 2018
Note 2018 2017
(in thousands of USD)
Cash flows from operating activities
Gain/(loss) for the year 3,171 (4,853)
Adjustments for:
Net (gain)/loss from financial assets at fair value
through profit or loss 10 (5,095) 2,955
Finance costs 10 -
Finance income (108) (16)
Loans granted (896) (112)
Loans repaid 4,223 189
Interest received 108 -
Proceeds from assignment of outstanding loans due
to the Company 4(b)(ii) 3,999 991
Proceeds from assignment of outstanding loans due
to the Company's investees 4(b)(ii) - 2,501
Operating cash flows before changes in working
capital 5,412 1,655
Change in other accounts receivable 46 6
Change in other accounts payable (89) (230)
Cash flows from operating activities 5,369 1,431
Cash flows from financing activities
Distribution to Shareholders 7 (9,843) -
Cash flows used in financing activities (9,843) -
Net change in cash and cash equivalents (4,474) 1,431
Cash and cash equivalents at 1 January 9,202 7,771
Cash and cash equivalents at 31 December 4,728 9,202
Statement of changes in equity for the year ended 31 December 2018
Share capital Share premium Accumulated losses Total
(in thousands of USD)
Balances at 1 January 2018 2,187 271,251 (230,605) 42,833
Total comprehensive income for the
year
Net gain - - 3,171 3,171
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 31 December 2018 2,187 261,408 (227,434) 36,161
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
Notes to the financial statements
1. Background
(a) Organisation and operations
Dragon - Ukrainian Properties & Development PLC (the
'Company') was incorporated in the Isle of Man on 23 February 2007.
The Company's registered office is 2nd Floor, St Mary's Court, 20
Hill Street, Douglas, Isle of Man, IM1 1EU and its principal place
of business is Ukraine.
On 1 June 2007 the Company raised USD 208 million through an
initial public offering on the AIM Market (AIM) of the London Stock
Exchange. On 29 November 2007, the Company completed a secondary
placing on AIM and raised USD 100 million.
The main activities of the Company are investing in the
development of its existing real estate properties in Ukraine. The
Company provides financing to its investees either through equity
or debt financing. On 17 February 2014 an Extraordinary Meeting of
Shareholders approved a new Investing Policy as defined by the AIM
Rules for Companies. Under this revised policy the Board will seek
to realise the Company's Properties in an orderly manner, such
realisations to be effected at such times, on such terms and in
such manner as the Board (in its absolute discretion) may
determine.
(b) Business environment
The Company's operations are primarily located in Ukraine. The
political and economic situation in Ukraine has been subject to
significant turbulence in recent years and demonstrates
characteristics of an emerging market. Consequently, operations in
the country involve risks that do not typically exist in other
markets.
The Ukrainian economy continues to recover following a 16%
cumulative decline in output and sharp currency devaluation in
2014-2015 which were brought about by military conflict with
Russia-backed separatists in eastern regions, loss of control over
territory and export-oriented production assets in this area, and
Russia's restrictions on trade and transit of Ukraine's goods and
economic misbalances accumulated in previous years. Real GDP grew
by 3.3% y-o-y in 2018, accelerating from 2.5% in 2017 and rising to
the highest level in seven years. Economic recovery remained driven
by domestic consumption and investment demand. Household
consumption expanded by 9.5% y-o-y in 2017 and 8.9% y-o-y in 2018,
supported by growing salaries and inflows of remittances (both
being a function of intensifying labour migration), an increase in
pension spending in 2017 as part of pension reform, improving
consumer confidence, and incipient recovery in retail bank lending.
Investment in fixed capital rose by 22% y-o-y in 2017 and 16.4%
y-o-y in 2018 as companies across many sectors modernized and
expanded their production capacities. Business confidence remained
on the rise, supported by a stable macroeconomic environment and
government reforms resulting in a better investment climate.
Ukraine's macroeconomic stability rests on continued cooperation
with the IMF and other official creditors, and prudent fiscal and
monetary policies. The National Bank of Ukraine (NBU) 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 within certain limits and
lowering the requirement for converting foreign currency proceeds.
New currency legislation came into effect on 7 February 2019,
substituting for a number of old-dated restrictive legislative acts
and paving the way for fully liberalizing currency and capital
controls in the future. Tight monetary policy helped tame inflation
to 9.8% y-o-y by end-2018 from 13.7% in 2017, while Ukraine's
currency, the hryvnia, appreciated by 1.4% versus the U.S. dollar,
to UAH 27.7:USD, becoming one of the best performers among emerging
markets last year. The Central Bank's international reserves
increased to USD 20.8bn by end-2018, the largest year-end record
for the past five years. The fiscal deficit has remained below 2.5%
of GDP for several years, helping cut the debt-to-GDP ratio to 61%
in 2018 from a high of 81% in 2016. The banking sector was cleaned
of non-viable banks, and the country's largest private bank,
Privatbank, was nationalized in December 2016. As at 31 December
2018, 77 banks operated in Ukraine, down from 180 as at 31 December
2013. The banking sector reported record high net profit of UAH
21bn in 2018 following four years of losses.
The Ukrainian government progressed with structural reforms,
including those affecting the business environment. Ukraine's
ranking in the World Bank's Doing Business survey has improved by
41 spots over the past five years, to 71st (2019 ranking based on
2018 data). In particular, Ukraine leapt in the Paying Taxes
sub-index by 110 spots (vs. 2014 ranking) after almost halving the
rate of the unified social contribution to 22% in 2016,
implementing an electronic system for filing and paying labour
taxes and introducing an electronic system for refunding VAT to
exporters. Ukraine's Protecting Minority Investors score rose 56
spots over the period, as new regulations made it easier to monitor
and review related-party transactions. The government also
significantly reduced the 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. Ukrainian authorities launched
reforms in many other areas, including public procurement,
decentralization, energy sector, healthcare and education.
In December 2018, the IMF approved a new 14-month Stand-By
Arrangement (SBA) for Ukraine, totalling SDR 2.8 billion
(equivalent to USD 3.9 billion), immediately disbursing USD 1.4bn
into Central Bank reserves. The remaining amount is conditional on
progress in reforms covering the energy, financial sector, tax
administration and anti-corruption spheres. In December 2018,
Moody's upgraded its credit rating on Ukraine by one notch to Caa1,
with a stable outlook. The rating action reflects a reduction in
Ukraine's external vulnerabilities thanks to a new SBA with the IMF
and improved resilience to geopolitical risks, supported by the
agency's expectation that recently adopted reforms would help
reduce corruption and strengthen institutions.
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.
This is the first set of the Company's annual financial
statements in which IFRS 9 Financial Instruments has been applied.
Changes to significant accounting policies are described in Note
2(c).
(b) Basis of measurement
The financial statements are prepared under the historical cost
basis, except for the following material items:
Items Measurement basis
------------------------------------------------------------------------------------------------ -----------------
Financial assets at fair value through profit or loss (including equity investments and loans Fair value
receivable)
(c) Adoption of new and revised International Financial
Reporting standards and Interpretations as adopted by the European
Union (EU)
As from 1 January 2018, the Company adopted all changes to
International Financial Reporting Standards (IFRSs), which are
relevant to its operations. This adoption did not have a material
effect on the accounting policies of the Company.
The following Standards, Amendments to Standards and
Interpretations have been issued by International Accounting
Standards Board ("IASB") but are not yet effective for annual
periods beginning on 1 January 2018. Those which may be relevant to
the Company are set below. The Company does not plan to adopt these
Standards early.
Standards and Interpretations adopted by the EU
-- IFRIC 23 "Uncertainty over Income Tax Treatments" (effective
for annual periods beginning on or after 1 January 2019);
-- IFRS 9 (Amendments) "Prepayment Features with Negative
Compensation" (effective for annual periods beginning on or after 1
January 2019).
Standards and Interpretations not adopted by the EU
-- Annual improvements to IFRS Standards 2015-2017 Cycle
(effective for annual periods beginning on or after 1 January
2019);
-- Amendments to References to the Conceptual Framework in IFRS
Standards (effective for annual periods beginning on or after 1
January 2020);
-- IFRS 3 (Amendments) "Business Combinations" (effective for
annual periods beginning on or after 1 January 2020);
-- Amendments to IAS 1 and IAS 8; Definition of Material
(effective for annual periods beginning on or after 1 January
2020).
The Board of Directors expects that the adoption of these
standards or interpretations in future periods will not have a
material effect on the financial statements of the Company.
Adoption of IFRS 9 "Financial Instruments"
The Company has initially applied IFRS 9 from 1 January
2018.
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".
Amendments to IAS 1 "Presentation of Financial
Statements"require impairment of financial assets to be presented
in a separate line item in the statement of profit or loss and
other comprehensive income. Impairment losses on financial assets
are presented under 'Other expenses', similar to the presentation
under IAS 39, and not presented separately in the statement of
profit or loss and other comprehensive income due to materiality
considerations.
Additionally, the Company has adopted consequential amendments
to IFRS 7 "Financial Instruments: Disclosures" that are applied to
disclosures about 2018 but have not been generally applied to
comparative information.
Adoption of this standard did not have significant impact on the
Company`s financial statements.
IFRS 9 contains three principal classification categories for
financial assets: measured at amortised cost, fair value through
other comprehensive income ('FVOCI') and fair value through profit
or loss ('FVTPL'). The classification of financial assets under
IFRS 9 is generally based on the business model in which a
financial asset is managed and its contractual cash flow
characteristics. The standard eliminates the existing IAS 39
categories of held-to-maturity, loans and receivables and
available-for-sale. Under IFRS 9, derivatives embedded in contracts
where the host is a financial asset in the scope of the standard
are never bifurcated. Instead, the whole hybrid instrument is
assessed for classification.
The following table below explains the original measurement
categories under IAS 39 and the new measurement categories under
IFRS 9 for each class of the Company's financial assets and
financial liabilities as at 1 January 2018:
(in thousands of USD) Original New classification Original carrying New carrying amount
classification under under IFRS 9 amount under IAS 39 under IFRS 9
IAS 39
Financial assets
Financial assets at
fair value through
profit or loss FVTPL FVTPL 30,258 30,258
Receivables from sale
of Obolon Residences
project Loans and receivables Amortised cost 3,999 3,999
Other accounts
receivable Loans and receivables Amortised cost 115 115
Cash and cash
equivalents Loans and receivables Amortised cost 9,202 9,202
Total financial assets 43,575 43,575
Financial liabilities
Other accounts Other financial Other financial
payable liabilities liabilities 712 712
Total financial liabilities 712 712
Impairment of financial assets
IFRS 9 replaces the 'incurred loss' model in IAS 39 with an
'expected credit loss' (ECL) model.
Impairment losses were evaluated as follows:
-- for bank deposits and cash and cash equivalents the expected
credit losses were calculated on the basis of external credit
ratings and statistical information on default and repayment for
similar financial instruments.
-- for receivables from sale of Obolon Residences project and
other accounts receivable the Company measured ECLs as a
probability-weighted estimate of credit losses. Credit losses were
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 expected to
receive). Impairment has been measured on a 12-month expected loss
basis and reflected the short maturities of the exposures, due to
which no impairment allowance has been recognized by the
Company.
Under IFRS 9, credit losses are recognised earlier than under
IAS 39. For an explanation of how the Company applies the
impairment requirements of IFRS 9, see Note 3(h).
Transition
The Company has used 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 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 adoption of IFRS 9 did not have material effect on the
Company's retained earnings and reserves as at 1 January 2018.
The determination of the business model within which a financial
asset is held has been made on the basis of the facts and
circumstances that existed at the date of initial application.
(d) 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.
(e) 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.
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 Fourth 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
2018 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 Avenue Shopping mall 100% 100%
Landshere LTD Cyprus Land Bank 90% 90%
Riverscope LTD Cyprus Land Bank 90% 90%
Z Development LLC Ukraine Land Bank 100% 100%
Z Neruhomist LLC Ukraine Land Bank 100% 100%
Development Invest LLC Ukraine Land Bank 100% 100%
K Zatyshna Domivka LLC Ukraine Land Bank 100% 100%
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)).
As at 31 December 2017, investment in associates comprise the
investment in Hindale Executive Investments Limited (part of
investment in the Avenue Shopping Centre project made through
Landzone LTD investee which holds 18.77% of interest in Hindale
Ltd). The investment in Hindale Executive Investments Limited was
disposed by Landzone Ltd during the year ended 31 December 2017
(see note 4(b)).
(d) Loans receivable from investees
In addition to equity financing to its investees, as a part of
structuring its investments the Company also provides debt
financing to its investees. As described in Note 3(a), the Company
accounts receivable from its investees at fair value through profit
or loss, as such that are managed, and whose performance is
evaluated, on a fair value basis.
The loans are denominated in USD and EUR, unsecured, interest
bearing (up to 11.0%) with variable terms of repayment and
represent an alternative to the equity way of financing
investments. The Company at its capacity of the shareholder may
amend any terms of the loans including modification to convert
loans in full or in part into equity.
(e) Foreign currency
Transactions in foreign currencies are translated into US
dollars at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies
at the reporting date are translated to the functional currency at
the exchange rate at that date.
Non-monetary assets and liabilities denominated in foreign
currencies that are measured at fair value are translated into US
dollar at the exchange rate at the date that the fair value was
determined.
Foreign currency differences arising on retranslation are
recognised in profit or loss, except for those arising on financial
instruments at fair value through profit or loss, which are
recognised as a component of net gain/(loss) from investments at
fair value through profit or loss or net gain/(loss) from loans
receivable.
(f) Financial instruments
(i) Recognition and initial measurement
Accounting policy applicable from and before 1 January 2018
Trade receivables are initially recognized when they are
originated.
All other financial assets and financial liabilities are
initially recognized when the Company becomes a party to the
contractual provisions of the instrument. A financial asset (unless
it is a trade receivable without a significant financing component)
or financial liability is initially measured at fair value plus,
for an item not at FVTPL, transaction costs that are directly
attributable to its acquisition or issue. A trade receivable
without a significant financing component is initially measured at
the transaction price.
The Company derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire, or it
transfers the rights to receive the contractual cash flows in a
transaction in which substantially all of the risks and rewards of
ownership of the financial asset are transferred or in which the
Company neither transfers nor retains substantially all of the
risks and rewards of ownership and it does not retain control of
the financial asset.
The Company derecognises a financial liability when its
contractual obligations are discharged or cancelled, or expire. The
Company also derecognises a financial liability when its terms are
modified and the cash flows of the modified liability are
substantially different, in which case a new financial liability
based on the modified terms is recognized at fair value.
On derecognition of a financial liability, the difference
between the carrying amount extinguished and the consideration paid
(including any non-cash assets transferred or liabilities assumed)
is recognized in profit or loss.
(ii) Classification and subsequent measurement of financial assets
Accounting policy applicable from 1 January 2018
On initial recognition, a financial asset is classified as
measured at: amortised cost; fair value through other comprehensive
income (FVOCI) - debt investment; FVOCI - equity investment; or
FVTPL.
Financial assets are not reclassified subsequent to their
initial recognition unless the Company changes its business model
for managing financial assets in which case all affected financial
assets are reclassified on the first day of the first reporting
period following the change in the business model.
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated as at FVTPL to
eliminate or significantly reduce an accounting mismatch:
-- 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.
All financial assets not classified as measured at amortised
cost as described above are measured at FVTPL. These assets are
subsequently measured at fair value. Net gains and losses,
including any interest or dividend income, are recognised in profit
or loss.
The Company's financial assets comprise finance assets at FVTPL,
trade and other receivables, cash and cash equivalents and
short-term deposits and are classified into the financial assets at
amortised cost category. These assets are subsequently measured at
amortised cost using the effective interest method. The amortised
cost is reduced by impairment losses. Interest income, foreign
exchange gains and losses and impairment are recognized in profit
or loss. Any gain or loss on derecognition is recognized in profit
or loss.
Cash and cash equivalents comprise cash balances, call deposits
and highly liquid investments with maturities of three months or
less from the acquisition date that were subject to insignificant
risk of changes in their fair value.
Business model assessment
The Company makes an assessment of the objective of the business
model in which a financial asset is held at a portfolio level
because this best reflects the way the business is managed and
information is provided to management. The information considered
includes:
-- the stated policies and objectives for the portfolio and the
operation of those policies in practice. These include whether
management's strategy focuses on earning contractual interest
income, maintaining a particular interest rate profile, matching
the duration of the financial assets to the duration of any related
liabilities or expected cash outflows or realising cash flows
through the sale of the assets;
-- how the performance of the portfolio is evaluated and reported to the Company's management;
-- the risks that affect the performance of the business model
(and the financial assets held within that business model) and how
those risks are managed;
-- how managers of the business are compensated - e.g. whether
compensation is based on the fair value of the assets managed or
the contractual cash flows collected; and
-- the frequency, volume and timing of sales in prior periods,
the reasons for such sales and its expectations about future sales
activity. However, information about sales activity is not
considered in isolation, but as part of an overall assessment of
how the Company's stated objective for managing the financial
assets is achieved and how cash flows are realised.
Financial assets that are held for trading or managed and whose
performance is evaluated on a fair value basis are measured at
FVTPL because they are neither held to collect contractual cash
flows nor held both to collect contractual cash flows and to sell
financial assets.
Assessment whether contractual cash flows are solely payments of
principal and interest
For the purposes of this assessment, 'principal' is defined as
the fair value of the financial asset on initial recognition.
'Interest' is defined as consideration for the time value of money
and for the credit risk associated with the principal amount
outstanding during a particular period of time and for other basic
lending risks and costs (e.g. liquidity risk and administrative
costs), as well as profit margin.
In assessing whether the contractual cash flows are solely
payments of principal and interest, the Company considers the
contractual terms of the instrument. This includes assessing
whether the financial asset contains a contractual term that could
change the timing or amount of contractual cash flows such that it
would not meet this condition. In making this assessment, the
Company considers:
-- contingent events that would change the amount or timing of cash flows;
-- leverage features;
-- prepayment and extension terms;
-- terms that limit the Company's claim to cash flows from
specified assets - e.g. non-recourse asset arrangements; and
-- features that modify consideration of the time value of money
- e.g. periodical reset of interest rates.
Accounting policy applicable before 1 January 2018
The Company classifies non-derivative financial assets into the
following categories: financial assets at fair value through profit
or loss and other loans and receivables.
Financial assets at fair value through profit or loss
(FVTPL)
A financial asset is classified at fair value through profit or
loss category if it is classified as held for trading or is
designated as such upon initial recognition. Financial assets are
designated at fair value through profit or loss if the Company
manages such investments and makes purchase and sale decisions
based on their fair value in accordance with the Company's
documented risk management or investment strategy. Directly
attributable transaction costs are recognised in profit or loss as
incurred. Financial assets at fair value through profit or loss are
measured at fair value, and changes therein are recognised in
profit or loss.
Financial assets designated at fair value through profit or loss
comprise loans receivable from investees at fair value through
profit or loss and equity investments at fair value through profit
or loss (see Notes 4(b) and 4(c)).
Loans and receivables
Loans and receivables were a category of financial assets with
fixed or determinable payments that were not quoted in an active
market. Such assets were recognised initially at fair value plus
any directly attributable transaction costs. Subsequent to initial
recognition, loans and receivables were measured at amortised cost
using the effective interest method, less any impairment losses.
Interest income, foreign exchange gains and losses and impairment
were also recognised in profit or loss. Any gain or loss on
derecognition were also recognised in profit or loss for the
period.
Loans and receivables category comprised the following classes
of assets: trade and other receivables and cash and cash
equivalents. Cash and cash equivalents comprised cash balances,
call deposits and liquid investments with maturities at initial
recognition of three months or less.
(iii) Classification and subsequent measurement of financial liabilities
Accounting policy applicable from and before 1 January 2018
Financial liabilities are classified as measured at amortized
cost or FVTPL. A financial liability is classified as at FVTPL if
it meets the definition of held-for-trading or it is designated as
such on initial recognition.
Other financial liabilities are subsequently measured at
amortized cost using the effective interest method. Interest
expense and foreign exchange gains and losses are recognized in
profit or loss. Any gain or loss on derecognition is also
recognized in profit or loss.
The Company measures all of its financial liabilities at
amortized cost.
(iv) Offsetting
Financial assets and liabilities are offset and the net amount
presented in the statements of financial position when, and only
when, the Company currently has a legally enforceable right to set
off and intends either to settle on a net basis or to realise the
asset and settle the liability simultaneously. The Company
currently has a legally enforceable right to set off if that right
is not contingent on a future event and enforceable both in the
normal course of business and in the event of default, insolvency
or bankruptcy of the Company and all counterparties.
(g) 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.
Share premium
Share premium reserves include amounts that were created due to
the issue of share capital at a value price greater than the
nominal.
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.
(h) Impairment
Accounting policy applicable from 1 January 2018
The Company uses 'expected credit loss' (ECL) model. This
impairment model applies to financial assets measured at amortised
cost, contract assets and debt investments at FVOCI, but not to
investments in equity instruments.
The financial assets at amortised cost consist of trade and
other receivables and cash and cash equivalents.
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 has elected to measure loss allowances for trade
receivables and receivables on internal settlements at an amount
equal to lifetime ECLs.
Impairment on cash and cash equivalents is measured on a
12-month expected loss basis and reflects the short maturities of
the exposures.
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 maximum period considered when estimating ECLs is the
maximum contractual period over which the Company is exposed to
credit risk.
Measurement of ECLs
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.
Credit-impaired financial assets
At each reporting date, the Company assesses whether financial
assets carried at amortised cost are credit-impaired. A financial
asset is 'credit-impaired' when one or more events that have a
detrimental impact on the estimated future cash flows of the
financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the
following observable data:
-- significant financial difficulty of the borrower or issuer;
-- a breach of contract such as a default or past due event;
-- the restructuring of a debt or advance by the Company on
terms that the Company would not consider otherwise;
-- it is becoming probable that the borrower will enter
bankruptcy or other financial reorganisation; or
-- the disappearance of an active market for a security because of financial difficulties.
In making an assessment of whether cash and cash equivalents are
credit-impaired, the Company considers the following factors:
-- significant financial difficulty of the bank;
-- a breach of contract such as a default or a contractual
payment being more than a couple of days past due;
-- it is becoming probable that the bank will enter bankruptcy
or other financial reorganisation.
Presentation of impairment
Loss allowances for financial assets measured at amortised cost
are deducted from the gross carrying amount of the assets.
Impairment losses on financial assets are presented under 'other
expenses' and not presented separately in the statement of profit
or loss and OCI due to materiality considerations.
Accounting policy applicable before 1 January 2018
Non-derivative financial assets
A financial asset not carried at fair value through profit or
loss is assessed at each reporting date to determine whether there
is any objective evidence that it is impaired. A financial asset is
impaired if objective evidence indicates that a loss event has
occurred after the initial recognition of the asset, and that the
loss event had a negative effect on the estimated future cash flows
of that asset that can be estimated reliably.
Objective evidence that financial assets (including equity
securities) are impaired can include default or delinquency by a
debtor, restructuring of an amount due to the Company on terms that
the Company would not consider otherwise, indications that a debtor
or issuer will enter bankruptcy, adverse changes in the payment
status of borrowers or issuers in the Company, economic conditions
that correlate with defaults or the disappearance of an active
market for a security. In addition, for an investment in an equity
security, a significant or prolonged decline in its fair value
below its cost is objective evidence of impairment.
Loans and receivables
The Company considers evidence of impairment for loans and
receivables at both a specific asset and collective level. All
individually significant loans and receivables are assessed for
specific impairment. All individually significant loans and
receivables found not to be specifically impaired are then
collectively assessed for any impairment that has been incurred but
not yet identified. Loans and receivables that are not individually
significant are collectively assessed for impairment by grouping
together loans and receivables with similar risk
characteristics.
In assessing collective impairment the Company uses historical
trends of the probability of default, timing of recoveries and the
amount of loss incurred, adjusted for the management judgment as to
whether current economic and credit conditions are such that the
actual losses are likely to be greater or less than suggested by
historical trends.
An impairment loss is calculated as the difference between the
asset's carrying amount, and the present value of the estimated
future cash flows discounted at the asset's original effective
interest rate. Losses are recognized in profit or loss and
reflected in an allowance account against loans and receivables.
Interest on the impaired asset continues to be recognized. When a
subsequent event causes the amount of impairment loss to decrease,
the decrease in impairment loss is reversed through profit or
loss.
(f) 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.
(g) Finance income and costs
Finance income comprises interest income on financial assets,
calculated using the effective interest rate, and currency exchange
gains. Finance costs comprise currency exchange losses.
Effective interest rate - Accounting policy applicable from 1
January 2018
The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts through the expected
life of the financial instrument to:
-- the gross carrying amount of the financial asset; or
-- the amortised cost of the financial liability.
In calculating the effective interest rate, the effective
interest rate is applied to the gross carrying amount of the asset
(when the asset is not credit-impaired). However, for financial
assets that have become credit-impaired subsequent to initial
recognition, interest income is calculated by applying the
effective interest rate to the amortised cost of the financial
asset. If the asset is no longer credit-impaired, then the
calculation of interest income is made on a gross basis again.
Effective interest rate - Accounting policy applicable before 1
January 2018
The calculation of the effective interest rate includes
transaction costs and fees and amounts paid or received that are an
integral part of the effective interest rate. Transaction costs
include incremental costs that are directly attributable to the
acquisition or issue of a financial asset or financial
liability.
Amortised cost and gross carrying amount
The 'amortised cost' of a financial asset or financial liability
is the amount at which the financial asset or financial liability
is measured on initial recognition minus the principal repayments,
plus or minus the cumulative amortisation using the effective
interest method of any difference between that initial amount and
the maturity amount and, for financial assets, adjusted for any
expected credit loss allowance (or impairment allowance before 1
January 2018).
The 'gross carrying amount of a financial asset' measured at
amortised cost is the amortised cost of a financial asset before
adjusting for any expected credit loss allowance.
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.
(h) 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.
(i) 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.
(j) Fees and administrative expenses
Fees and administrative expenses are recognised in profit or
loss as the related services are performed or expenses are
incurred.
(k) Segment reporting
An operating segment is a component of the Company that engages
in business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to
transactions with any of the Company's other components.
The Directors determined that the sole segment in which the
Company operates is investing in property development in
Ukraine.
(l) 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.
(m) 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.
(n) Changes in presentation
Certain comparative information in these financial statements
was amended to conform to the current year presentation.
4. Financial assets at fair value through profit or loss
The Company has the following financial assets at fair value
through profit or loss as at 31 December:
Project 31 December 2018 31 December 2017
(in thousands of USD)
Equity investments at fair value through
profit or loss
Other equity investments
Arricano Real Estate plc
(Note 4(a)) Arricano 10,645 6,528
10,645 6,528
Loans receivable at fair value through
profit or loss
Riverscope Ltd Land Bank 5,259 5,274
Linkdell Ltd* Financing company 4,978 7,035
Landshere Ltd Land Bank 3,962 3,966
Linkrose Ltd Green Hills 4,910 5,138
Stenfield Finance Limited Riviera Villas 1,161 1,126
Glangate Ltd Kremenchuk 342 340
Blueberg Trading Limited Green Hills 759 851
21,371 23,730
32,016 30,258
* Linkdell Ltd provides financing through issued loans on the
following projects:
31 December 31 December
2018 2017
(in thousands of USD)
Riviera Villas 2,247 2,028
Sadok Vyshneviy 1,810 2,224
Obolon Residences - 1,520
Green Hills 854 1,199
Kremenchuk 67 64
4,978 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.
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. Arricano Real
Estate PLC's net assets value according to the audited financial
statements as at 31 December 2018 amounted to USD 94,032 thousand
(31 December 2017: USD 52,182 thousand).
The Company's share in Arricano Real Estate PLC is 12.51% as at
31 December 2018 and
31 December 2017.
If Arricano's net assets value was 10% lower than that used in
the valuation model, the fair value of the investment in Arricano
as at 31 December 2018 would be USD 1,065 thousand lower (31
December 2017: USD 653 thousand lower). If Arricano's net assets
value was 10% higher than that used in the valuation model, the
fair value of the investment in Arricano as at 31 December 2018
would be USD 1,065 thousand higher (31 December 2017: USD 653
thousand higher).
(b) Investment in subsidiaries and associates (investees)
(i) Valuation technique and significant unobservable inputs
For the estimation of fair values of the Company's investments
the Company's management used the adjusted net assets method.
Management performed a detailed review of the investees' assets
and liabilities for the purpose of their fair value assessment:
-- Assets are mainly represented by real estate properties and
prepayments for properties (land). The fair value of these
properties and prepayments for properties was assessed by the
independent appraiser, CBRE Ukraine.
-- Liabilities are mainly represented by long-term loans payable due to the Company.
-- Trade receivables balance is mainly represented by long-term
receivables. Fair value of long-term receivables that carry no
interest is measured at present value of all future cash receipts
discounted using the prevailing market rate(s) of interest for a
similar instrument, with a similar credit rating.
Other assets and liabilities are short-term by nature and their
fair value approximates the carrying amount. Thus, no additional
adjustment is required.
(ii) Investment in Obolon Residences project
In October 2017 the Company has announced the sale of the
Company's remaining interest in the Obolon Residences project to
Chariton Overseas Limited, an unrelated party that acquired the
right to develop phase 2 of Obolon Residences project in February
2015. Agreements related to sale of Obolon Residences project were
concluded during October 2017.
The sale of the Company's interest in Obolon Residences was made
through the sale of the rights and shares of certain companies that
own and manage the Obolon Residences project, including the unsold
inventory in relation to phase one, as well as assignment to
Cheriton Overseas Limited of all outstanding intercompany loans
balances that were due to the Company and the Company's
investees.
In accordance with the sale agreements concluded with respect to
sale of Obolon Residences project the Company is entitled to the
total consideration of USD 9,000 thousand to be payable in cash in
four instalments due by April 2018 and represented as follows:
-- sale of the rights and shares owned by the Company and
assignment of outstanding intercompany loans due to the Company in
the amount of USD 4,979 thousand (Note 10);
-- sale of the rights and shares owned by the Company's
investees and assignment of outstanding intercompany loans due to
the Company's investees in the amount of USD 4,021 thousand (Note
10).
The fair value of the Obolon Residences project as at 30 June
2017, which is the latest fair value assessment of the project
performed by an independent appraiser, was USD 15,322 thousand. As
such a loss on disposal of USD 6,322 thousand is recognised in
profit and loss for the year ended 31 December 2017 (Note 10).
Out of USD 4,979 thousand relating to the sale of the rights and
shares owned by the Company and assignment of outstanding
intercompany loans due to the Company mentioned above, USD 991
thousand were received in cash during the year ended 31 December
2017 and the remaining amount of USD 3,999 thousand was received by
Company in April 2018 in two instalments.
Out of USD 4,021 thousand relating to the sale of the rights and
shares owned by the Company's investees and assignment of
outstanding intercompany loans due to the Company's investees
mentioned above, the Company received in cash USD 2,501 thousand
during the year ended 31 December 2017 and the remaining portion of
USD 1,520 thousand was received by the Company's investee in 2017
and retained by the Company's investee as cash and cash equivalents
as at 31 December 2017. During 2018 this cash balance was
transferred to the Company by the Company's investee through
settlement of the respective portion of the intercompany loan.
(iii) Investment in Landzone Ltd (Avenue Shopping mall)
On 4 July 2017 the Board was informed by the Investment Manager
of the project that Promtek LLC has stopped paying lease payments
and it is very unlikely that it will be able to renew the lease
agreement for a land plot which expires in May 2018. Based on this
the Board decided to keep the investment in Landzone which holds
18.77% of interest in Hindale Ltd at zero value in the balance
sheet of the Company. On its subsequent meeting on 4 September 2017
the Board has approved the sale of the corporate rights of Hindale
Ltd to a third party. On 10 October 2017 Landzone Ltd has signed
share purchase agreement with Infinity REEF Ltd and sold Hindale's
shares for the consideration of USD 940.
As at 31 December 2018 the investment in Landzone Ltd is valued
at zero (31 December 2017: zero). A fair value loss in the amount
USD 172 thousand was recognized in profit or loss during the year
ended 31 December 2017.
Summary of fair values of respective investment projects is as
follows as at 31 December 2018:
Riviera Villas Green Hills Sadok Vyshneviy Land Bank Kremenchuk Total
(in thousands of USD)
Assets
Investment properties 2,799 3,907 - 1,410 400 8,516
Prepayments for land - - - 7,990 - 7,990
Property and equipment 80 285 - - - 365
Intangible assets 1 1 - - - 2
Inventories 19 73 830 - - 922
Trade and other receivables 1,181 2,047 649 - - 3,877
VAT recoverable 88 729 - 2 - 819
Prepaid income tax 1 - 24 - - 25
Cash and cash equivalents 226 387 384 12 13 1,022
Total assets 4,395 7,429 1,887 9,414 413 23,538
Deferred tax liabilities - - - 58 - 58
Intercompany loans 23,417 34,263 16,306 253,303 13,490 340,779
Trade and other liabilities 987 906 77 135 4 2,109
Total liabilities 24,404 35,169 16,383 253,496 13,494 342,946
Net identifiable assets and
liabilities (20,009) (27,740) (14,496) (244,082) (13,081) (319,408)
Ownership 100% 100% 100% 90% 100%
Fair value of equity investment - - - - - -
Nominal amount of loans
receivable 23,417 34,263 16,306 253,303 13,490 340,779
Fair value of loans receivable 3,408 6,523 1,810 9,221 409 21,371
Summary of fair values of respective investment projects as at
31 December 2017 is as follows:
Obolon Sadok Rivne and
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%
Fair value of
equity
investment - - - - - - -
Nominal amount
of loans
receivable 25,899 34,466 1,520 16,934 241,741 12,935 333,495
Fair value of
loans
receivable 3,154 7,188 1,520 2,224 9,240 404 23,730
To assist with the estimation of fair value of investment
properties, prepayments for land and inventories (together 'the
real estate projects') as at 31 December 2018 and 2017 the
Directors engaged independent appraiser CBRE Ukraine, having a
recognised professional qualification and recent experience in the
location and categories of the projects being valued.
The fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The valuation
is prepared in accordance with practice standards contained in the
Appraisal and Valuation Standards published by the Royal
Institution of Chartered Surveyors (RICS) or in accordance with
International Valuation Standards published by the International
Valuations Standards Council.
The fair value measurement, developed for determination of fair
value of the properties, is categorised within Level 3 of the fair
value hierarchy, due to the significance of unobservable inputs to
the measurement.
Investment properties
As at 31 December 2018 investment properties were represented by
Green Hills, Riviera Villas, Kremenchuk Retail Centre projects and
Land bank (82 ha).
In the absence of current prices in an active market, the
valuations are prepared under the income approach by converting
estimated future cash flows to a single current capital value.
The estimation of fair value was made using a net present value
calculation based on certain assumptions, which represent key
unobservable inputs, the most important of which as at 31 December
2018 are as follows:
-- monthly average rental rates - which were based on estimated
rental rates ranging from USD 4 to USD 8 per sq. m.
-- development costs based on current construction prices
-- for Green Hills project average sales price of land plot amounts to USD 125 per sq. m.
-- For Riviera Villas project average cottage sales price amounts to USD 1,433 per sq. m.
-- discount rate ranging from 18% 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.
As at 31 December 2017 the respective assumptions, which
represent key unobservable inputs for determination of fair value,
were 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
-- for Green Hills project average cottage sales price amounts to USD 917 per sq. m.
-- for Riviera Villas project average cottage sales price amounts 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 31 December 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 31
December 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
31 December 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 31 December 2018 and 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 2018 are as follows:
-- average market price USD 395 per sq. m.
-- discount rate 20%
-- sales period - from 1 to 3 years
As at 31 December 2017 the respective assumptions were 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 estimated future cash
receipts discounted using the prevailing market rate(s) of interest
for a similar instrument, with a similar credit rating.
The financial instruments not measured at fair value comprise
other accounts receivable, cash and cash equivalents and other
accounts payable. The carrying amount of such instruments
approximates their fair value due to their short-term nature
(except for loans payable).
Sensitivity of fair value measurement to changes in unobservable
inputs - all real estate projects
Although management believes that its estimates of fair value
are appropriate, the use of different methodologies or assumptions
could lead to different measurements of fair value.
If the discount rate applied is 1% higher than that used in the
valuation models, the fair value of the real estate projects as at
31 December 2018 would be USD 681 thousand lower (2017: USD 554
thousand). If the discount rate is 1% less, then the fair value of
the real estate projects as at 31 December 2018 would be USD 514
thousand higher (2017: USD 716 thousand).
Sensitivity of fair value measurement to changes in unobservable
inputs - all real estate projects, except Land Bank project and
Kremenchuk project
If sales prices and rental rates are 5% less than those used in
the valuation models, the fair value of the real estate projects as
at 31 December 2018 would be USD 380 thousand lower (2017: USD
1,085 thousand). If sales prices and rental rates are 5% higher,
then the fair value of the real estate projects as at 31 December
2018 would be USD 380 thousand higher (2017: USD 1,085
thousand).
If development costs are 5% higher than those used in the
valuation models, the fair value of the real estate projects as at
31 December 2018 would be USD 253 thousand lower (2017: USD 741
thousand). If development costs are 5% less, then the fair value of
the real estate projects as at 31 December 2018 would be USD 253
thousand higher (2017: USD 741 thousand).
Sensitivity of fair value measurement to changes in unobservable
inputs - Riviera Villas
Taking into account lack of demand in recent years, which
resulted in low volume of sales, there is especially significant
uncertainty in assessing the sales period for Riviera Villas
project. Therefore the Company's management performed sensitivity
analysis for this assumption: if the sales period is 5 years longer
than that used in the valuation model, the fair value of Riviera
Villas project as at 31 December 2018 would be USD 734 thousand
lower (2017: USD 1,052 thousand).
Sensitivity of fair value measurement to changes in unobservable
inputs - Land Bank
Taking into account the significant extension of the original
timeline of development of Land Bank project, as well as the fact
that this project is still at the very early stage of development,
there is especially significant uncertainty in assessing the fair
value of the underlying land plots. The Company's management
performed sensitivity analysis for the sales price assumption: if
sales prices are 15% lower than used in the valuation model, the
fair value of the real estate projects as at 31 December 2018 would
be USD 1,501 thousand lower (2017: USD 1,374 thousand).
Sensitivity of fair value measurement to changes in unobservable
inputs - Kremenchuk project
If development costs are USD 447 thousand higher than those used
in the valuation models, the fair value of the real estate projects
as at 31 December 2018 is expected to decrease to zero (2017: USD
447 thousand).
The change in fair value of the real estate projects as a result
of different assumptions used in assessing the present value of
future cash flows as described above, will have no impact on the
fair value of the Company's equity investments due to significant
negative net assets of the investees. Thus, there is no impact on
the fair value of the Company's equity investments. However, the
above change in fair value of the real estate projects will
directly affect the fair value of loans receivable (see Note
4(c)).
(c) Loans receivable at fair value through profit or loss
The loans are denominated in USD, unsecured, interest free or
interest bearing (up to 11%) and represent an alternative to the
equity way of financing investments.
Loans are accounted at fair value through profit or loss in
accordance with IFRS 9 Financial Instruments: Recognition and
Measurement and measured at fair value in accordance with IFRS 13
Fair value measurement as the present value of the expected future
cash flows, discounted using a market-related rate (see notes 3(a)
and 3(d)). Expected future cash flows are represented by cash flows
generated from the underlying assets for the loans (the real estate
projects). Therefore, sensitivity of the real estate projects fair
value (see note 4(b)) to different assumptions also approximates
sensitivity of loans receivable fair value to the same
assumptions.
5. Other accounts receivable
Other accounts receivable as at 31 December are as follows:
31 December 2018 31 December 2017
(in thousands of USD)
Other receivables 58 115
Prepayments made 12 1
____________ ____________
Total other accounts receivable 70 116
6. Cash and cash equivalents
Cash and cash equivalents as at 31 December are as follows:
31 December 2018 31 December 2017
(in thousands of USD)
Bank balances 90 1,502
Call deposits 4,638 7,700
Total cash and cash equivalents 4,728 9,202
The following table represents an analysis of cash and cash
equivalents based on Fitch ratings as at
31 December:
31 December 31 December
2018 2017
(in thousands of USD)
Bank balances
AA- 1 371
A 89 1,131
90 1,502
31 December 31 December
2018 2017
Call deposits
A - 938 3,000
3,700 4,700
4,638 7,700
Total 4,728 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 31 December 2017, fully paid 109,361,515 2,187
Outstanding as at 31 December 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 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 7,656 thousand, or USD 0.07
per Ordinary Share, to its shareholders. This decision is in
accordance with Company's Investing Policy, which states that
surplus capital will be returned to shareholders, and is made under
Article 127 of Company's Articles of Association.
The relevant record date for the distribution was 3 April 2018,
the corresponding ex-distribution date was 29 March 2018, and the
distribution was paid to shareholders on 17 April 2018.
On 27 April 2018 the Board of Directors of the Company has
decided to make additional distribution of USD 2,187 thousand, or
USD 0.02 per Ordinary Share, to its shareholders. This decision is
in accordance with Company's Investing Policy, which states that
surplus capital will be returned to shareholders and is made under
Article 127 of Company's Articles of Association.
The relevant record date for the distribution was 11 May 2018,
the corresponding ex-distribution date was 10 May 2018, and the
distribution was paid to shareholders on 16 May 2018.
8. Other accounts payable
Other accounts payable as at 31 December are as follows:
(in thousands of USD) 31 December 2018 31 December 2017
Management fees (Note 9) 500 579
Other payables and accrued expenses 123 133
Advances received 30 30
Total other accounts payable 653 742
9. Management and performance fees
Management and performance fees for the years ended 31 December
are as follows:
2018 2017
(in thousands of USD)
Management fee 1,000 1,204
Performance fee 492 -
Total management and performance fees 1,492 1,204
Unpaid management and performance fees as at 31 December 2018
amounted to USD 500 thousand (2017: USD 579 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 Investment Manager) pursuant to which the latter has agreed to
provide advisory, management and monitoring services to the
Company. The Company may terminate the Investment 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 Investment
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 Investment 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 Investment 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 Investment 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 Investment 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 Investment
Manager).
On 16 November 2016 the Board announced certain modifications to
the existing management arrangement (the Fourth Revised Management
agreement). The Fourth Revised Management Agreement became
effective on 01 January 2017 and will expire on 31 December
2018.
The Directors (excluding Tomas Fiala who is a related party as
explained in detail in the Note 15) believe that the proposed
changes incorporated into the Fourth Management Agreement will
continue to incentivise the Investment 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 Investment Manager maximising the proposed
performance fee payable under the Third and Fourth Management
Agreements.
The Fourth Management Agreement has changed certain provisions
on management fee of the Third Management Agreement and summary of
those changes is presented below:
Management fee
The management fee under the Third Management Agreement changed
from a fee of 1.5 per cent of Gross Asset Value to a fixed amount
as follows and Fourth Management Agreement modified the fees for
2017 and 2018:
-- 1 January 2013 - 30 June 2013: USD 1.25 million
-- 1 July 2013 - 31 December 2013: USD 1.25 million
-- 1 January 2014 - 31 December 2014: USD 2.5 million
-- 1 January 2015 - 31 December 2015: USD 2.1 million
-- 1 January 2016 - 31 December 2016: USD 1.7 million
-- 1 January 2017 - 31 December 2017: USD 1.25 million under the
terms of Fourth Management Agreement (reduced from USD 1.5 million
under the Third Revised Management Agreement).
-- 1 January 2018 - 31 December 2018: USD 1.0 million under the
terms of Fourth Management Agreement (reduced from USD 1.4 million
under the Third Revised Management Agreement).
Included as a 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 the Obolon Residences in 2017,
the management fee was reduced to USD 1.0 million in the year of
such sale.
The management fee under the Fourth Management Agreements is
payable in cash, semi-annually in July and January of each year,
within 10 business days after the end of the relevant period.
On 10 December 2018 the Fifth Management Agreement was signed
extending the term of the agreement until 31 December 2020. The
Fifth Management Agreement modified the terms for the management
fee as following
for the year ending 31 December 2019 - USD 800,000
for the year ending 31 December 2020 - USD 800,000
Also a cap on the management fee was introduced which should not
exceed 3% of the net asset value of the Company as per officially
published financial statements going forward.
Performance fee
The performance fee under the Third Management Agreement changed
from one which is calculated in two parts, being an increase in NAV
and also an increase in share price performance, to the following,
based on distributions to shareholders:
-- in relation to distributions up to threshold 1, a fee of 3.5
percent of such distributions;
-- in relation to distributions from threshold 1 to threshold 2,
a fee of 7 percent of such distributions; and
-- in relation to distributions in excess of threshold 2, a fee
of 10 percent of such distributions.
Thresholds 1 and 2 are equal to USD 50 million and USD 75
million respectively.
The Performance Fee in the Fourth Revised Management Agreement
cancelled all references to the threshold 1 and 2 and replaced it
with a fixed performance fee of 5 percent of all distributions to
Company's shareholders. Distributions will continue to include cash
dividends, share buy backs and other returns of capital, and also
in-specie distributions.
The performance fee under the Third and Fourth Management
Agreements is payable in cash (or in the case of a distribution
that is a distribution in specie, payable by the transfer to the
Investment 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 Fifth Management Agreement did not modify the terms for the
performance fee which is 5 percent of all distributions to
Company's shareholders.
The total management fee for the year ended 31 December 2018 is
USD 1,000 thousand
(31 December 2017: USD 1,204 thousand). The total performance
fee for the year ended
31 December 2018 is USD 492 thousand (2017: there was no
performance fee).
10. Net gain/(loss) from financial assets at fair value through profit or loss
Net loss from financial assets at fair value through profit or
loss for the years ended 31 December is as follows:
2018 2017
(in thousands of USD)
Interest income 13,936 16,508
Loss from loans receivable at fair value through profit or loss (12,958) (16,472)
Net gain from loans receivable at fair value through profit or loss 978 36
Gain on equity investments at fair value through profit or loss 4,117 3,331
Fair value of disposed Obolon Residences project (Note 4(b)(ii)) - (15,322)
Proceeds from disposal of Obolon Residences project (investees level)
(Note 4(b)(ii)) - 4,021
Proceeds from disposal of Obolon Residences project (Company level)
(Note 4(b)(ii)) - 4,979
Net realized gain/(loss) 5,095 (6,322)
Net gain/(loss) from financial assets at fair value through profit or loss 5,095 (2,955)
11. Administrative expenses
Administrative expenses for the years ended 31 December are as
follows:
2018 2017
(in thousands of USD)
Professional services 233 490
Directors' fees (Note 15(a)) 98 98
Audit fees 68 75
Insurance 34 5
Advertising 26 64
Bank charges 3 4
Travel expenses 1 2
Other 35 4
Total administrative expenses 498 742
12. Contingencies
(a) Litigation
The Company is involved in various legal proceedings in the
ordinary course of business but Directors consider that none of
them require provisions or could result in material losses for the
Company.
(b) Taxation contingencies
The Company is not subject to any tax charges within Isle of Man
jurisdiction, however the Company's investees perform most of their
operations in Ukraine and are therefore within the jurisdiction of
the Ukrainian tax authorities. The Ukrainian tax system can be
characterised by numerous taxes and frequently changing
legislation, which may be applied retrospectively, be open to wide
interpretation and in some cases conflict with other legislative
requirements. Instances of inconsistent opinions between local,
regional, and national tax authorities and the Ukrainian Ministry
of Finance are not unusual. Tax declarations are subject to review
and investigation by a number of authorities that are empowered by
law to impose severe fines, penalties and interest charges. A tax
year remains open for review by the tax authorities during the
three subsequent calendar years, however under certain
circumstances a tax year may remain open longer. These facts create
tax risks substantially more significant than typically found in
countries with more developed systems.
The Directors believe that the Company has adequately assessed
tax liabilities based on its interpretation of tax legislation,
official pronouncements and court decisions for the purpose of
assessment of the Company's assets fair value. However, the
interpretations of the relevant authorities could differ and the
effect on the financial statements, if the authorities were
successful in enforcing their interpretations, could be
significant.
(c) 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 year ended 31
December 2018 attributable to the ordinary shareholders of the
Company of
USD 3,171 thousand (2017: net loss of USD 4,853 thousand) and
the weighted average number of ordinary shares outstanding,
calculated as follows:
2018 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 31 December 2018 and 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
Financial
assets Other
(in thousands Note at amortised financial Level Level
of USD) FVTPL cost liabilities Total 1 2 Level 3 Total
31 December 2018
Financial assets
measured
at fair value
Financial assets
at fair
value through
profit or loss 4 32,016 - - 32,016 - - 32,016 32,016
32,016 - - 32,016 - - 32,016 32,016
Financial assets
not measured
at fair value
Cash and cash
equivalents 6 - 4,728 - 4,728
Other accounts
receivable 5 - 58 - 58
- 4,786 - 4,786
Financial
liabilities not
measured at fair
value
Other accounts
payable 8 - - 623 623
- - 623 623
Carrying amount Fair value
Designated Other
Note at fair Loans and financial Level Level
value receivables liabilities Total 1 2 Level 3 Total
(in thousands
of USD)
31 December
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 - 115 - 115
- 13,316 - 13,316
Financial
liabilities not
measured at
fair value
Other accounts
payable 8 - - 712 712
- - 712 712
(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
Gain (loss) included in profit or loss
Interest income 10 16,508
Gain on investments at fair value through
profit or loss 10 3,331
Loss from loans receivable at fair value
through profit or loss 10 (16,472)
Fair value of disposed Obolon Residences
project as at 30 June 2017 10 (15,322)
Proceeds from disposal of Obolon Residences
project (investees level) 10 4,021
Loans granted (2,587)
Balance at 31 December 2017 30,258
Gain (loss) included in profit or loss
Interest income 10 13,936
Gain on investments at fair value through
profit or loss 10 4,117
Loss from loans receivable at fair value
through profit or loss 10 (12,958)
Loans repaid, net (3,337)
Balance at 31 December 2018 32,016
(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. The political and economic
situation is described in Note 1(b) of these financial statements.
The deterioration of political and economic situation 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
Cash and cash equivalents
The Company held cash and cash equivalents of USD 4,728 thousand
at 31 December 2018
(2017: USD 9,202 thousand). USD 4,728 thousand of the cash and
cash equivalents are held with banks, which are rated AA-, based on
Fitch rating.
Impairment on cash and cash equivalents has been measured on a
12-month expected loss basis and reflects the short maturities of
the exposures. The Company considers that its cash and cash
equivalents have low credit risk based on the external credit
ratings of the counterparties, so no expected credit losses were
recognised on initial application of IFRS 9 as at 1 January 2018
and as at 31 December 2018.
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 expected credit 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
and the Company's view of economic conditions over the expected
lives of the receivables.
Exposure to credit risk
As at 31 December 2018 and 31 December 2017, the expected credit
losses were insignificant and were not accounted for. No financial
assets were impaired at the above stated dates.
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk as at 31
December is as follows:
31 December 2018 31 December 2017
(in thousands of USD)
Cash and cash equivalents 4,728 9,202
Receivables from sale of Obolon Residences project - 3,999
Other accounts receivable 13 116
4,741 13,317
(iii) Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Company's approach to managing liquidity is to
ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or
risking damage to the Company's reputation.
The following are the contractual maturities of financial
liabilities as at 31 December 2018:
Contractual cash flows
Carrying Within More than
amount Total one year 2-5 years 5 years
(in thousands of USD)
Other accounts payable 523 523 523 - -
523 523 523 - -
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 712 712 712 - -
712 712 712 - -
(iv) Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates and equity prices will
affect the Company's income or the value of its holdings of
financial instruments. The objective of market risk management is
to manage and control market risk exposures within acceptable
parameters, while optimising the return.
Interest rate risk
Fair value of loans receivable at fair value through profit or
loss depends on fair values of underlying real estate projects (see
Note 4(b)), therefore fair values are not directly impacted by
change in interest rates.
Foreign currency risk
The majority of the Company's income, expenses, assets and
liabilities are denominated in US dollars. However, the underlying
cash flows of the Company's investees are denominated in Ukrainian
hryvnias. Though the Company attempts to peg its revenues to US
dollar in the depressed economy it is not always possible to
recover in full the effect of Ukrainian hryvnia devaluation.
Weakening of the Ukrainian hryvnia would have resulted in decrease
in fair value of loans receivable.
(d) Capital management
The Directors seek to maintain a sufficient capital base for
meeting the Company's operational and strategic needs, and to
maintain confidence of market participants. This is achieved by
efficient cash management and constant monitoring of investment
projects.
From time to time the Company purchases its own shares on the
market; the timing of these purchases depends on market prices. Buy
decisions are made on a specific transaction basis by the Board
within the limits approved by the Company's shareholders. The
Company does not have a defined share buy-back plan.
There were no changes in the Company's approach to capital
management during the year.
The Company is not subject to externally imposed capital
requirements.
15. Related party transactions
(a) Transactions with management and close family members
(i) Directors' remuneration
Directors' compensation included in the statement of
comprehensive income for the years ended 31 December is as
follows:
2018 2017
(in thousands of USD)
Directors' fees 98 98
Reimbursement of travel expense 1 1
Total management remuneration 99 99
(ii) Key management personnel and director transactions
The Directors' interests in shares in the Company as at 31
December are as follows:
2018 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
nominal shareholder, Euroclear Nominees Limited as at 31 December
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 Investment Manager's
performance fee for 2007 in the amount of USD 4,432 thousand.
Through a series of market purchases in 2011 (totalling
1,274,153 ordinary shares) and 2012 (totalling 6,281,158 ordinary
shares) the holding of Dragon Capital Group in the Company has
increased to 16,085,227 ordinary shares or 14.71% of the Company's
issued shares as at 31 December 2012.
During 2013 the Dragon Capital Group made additional market
purchases of 2,842,595 shares in the Company, which resulted in a
total shareholding of 18,927,822 ordinary shares, or 17.31% of the
Company's issued share capital being the Dragon Capital Group
shareholding at the reporting date.
In 2016 Dragon Capital Group sold 71,251 and purchased 576,558
ordinary shares bringing its shareholding to 19,433,129 or 17.77%
of the issued share capital.
During 2017, as the result of series of market share purchases
Dragon Capital Group has acquired in total 47,174,205 ordinary
shares of the Company, which resulted in a total shareholding of
66,607,334 shares representing 60.91% of the issued share capital
of the Company.
(b) Transactions with subsidiaries
Outstanding balances with subsidiaries as at 31 December are as
follows:
2018 2017
(in thousands of USD)
Loans receivable 21,371 23,730
Other accounts receivable 213 213
Allowance for impairment of other accounts
receivable (213) (213)
21,371 23,730
Profit or loss transactions with subsidiaries during the years
ended 31 December are as follows:
2018 2017
(in thousands of USD)
Interest income 13,936 16,508
Loss from loans receivable at fair value
through profit or loss (12,958) (16,472)
Other income - 32
978 68
(c) Other related parties transactions
Other related parties are represented by the Company's
Investment Manager, DCM Limited (see Note 9). Outstanding balances
with DCM Limited as at 31 December are as follows:
2018 2017
(in thousands of USD)
Management fee 500 579
500 579
Expenses incurred in transactions with DCM Limited as at 31
December are as follows:
2018 2017
(in thousands of USD)
Management fee 1,000 1,204
Performance fee 492 -
2, 2,
------ ------
1,492 1,204
16. Events subsequent to the reporting date
On 10 December 2018 the Board has approved the terms of the
Fifth Management Agreement which has extended the term of the
Management Agreement until 31 December 2020. The Fifth Management
Agreement modified the terms for the management as described in the
Note 9.
There have been no other subsequent events that could have had a
significant impact on the Company's financial statements.
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
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