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                                                                   R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


CHAIRMAN’S STATEMENT
Introduction

2010 has proved to be another significant year in the progress of the Company and as the economy and property
market recovers from the traumas of 2008 we can see improvements in the years ahead. By the end of the year
there were signs that the recovery in the real estate market was well established particularly in Moscow.
Management believes there are once again good growth opportunities for experienced market operators.

Market overview

The Russian economy took time to recover from the global financial crisis and during Q3 2010, it was further
hit by drought and wildfires, causing disruption across central Russia. As a result, GDP growth fell to 2.7%
between July and September, down from 4.2% during the first six months of the year. However the economy
has recently gained momentum again, pointing to higher GDP growth in 2011. Strong consumption and
investment numbers, together with credit acceleration, suggest that, despite the Q3 slump, growth may reach 4%
for 2010. Even a slightly lower outcome would mark a considerable turnaround from 2009’s 7.9% GDP
contraction.

As a highly cyclical sector that is closely correlated to macro-economic trends, real estate saw an encouraging
recovery during 2010. In the residential market there have been positive signs across the board, from the elite to
the economy market segments. In the elite housing segment, completed transactions increased by 35% against
2009 levels. In the economy class, the market is also experiencing growth with mortgage lending up and
consumers who did not buy during the crisis now returning to the market.

Residential pricing in Moscow improved in 2010 with a year on year increase of 14% according to VTB Capital
and demand in Moscow remains the strongest due to inadequate supply. Prices are expected to continue to
outstrip inflation in the medium term.

Long-term supply problems in the residential market remain and in particular there continues to be a shortage of
higher quality economy housing in Moscow. This ‘premium economy’ segment of the market is where we
believe the greatest growth opportunity lies and it is where RGI has invested considerable resources during the
last year. We are confident our business model is well placed to meet this growing demand.

In retail we have seen completions in Moscow show a 4% increase over 2009 with total shopping center stock at
3 million m2. The volume of completions in 2011 and 2012 is expected to fall and then rise again in 2013 and
beyond. This will drive rental values higher and in Moscow we saw an 8% increase in rental terms with the
average price level now between $3,500 and $4,000 per m2. In the office market, vacancy rates in Moscow have
fallen and there are signs that rental rates for offices are beginning to grow for the first time since before the
crisis. However the available supply of offices still significantly outstrips demand and it is the Company’s
current strategy not to re-enter the office market at the present time.

2010 Highlights

The Company’s focus in 2010 has been on executing the Tsvetnoy department store project and the Kingston
residential project. I am pleased to report that major milestones have been achieved for both.

Tsvetnoy Central Market had its soft opening on 9th December 2010, opening with a mix of major brands
trading from day one. Our strategy to focus on medium income consumers has resulted in sales to date growing
every week since opening. We believe that the quality of the building is a major talking point in Moscow and
the reaction from consumers has been positive.
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                                                                    R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


On the Kingston project the final major approval of the construction permit for phase 1 was received and ground
works began on Phase 1 at the beginning of March 2011, in line with previous guidance. Funding in the form of
a bank loan has been received and signed to finance the first stage. This is a large project with 8 phases that for
the first time will bring a new type of premium economy housing to the Moscow market. The project is due for
completion in 2017.

Share issue proceeds

In 2010 the Group received the proceeds from share issue of $90m from Synergy Classic Limited (“Synergy”).
The investment was made in two tranches in May and July 2010. The first consideration was for 1.8m shares for
$9.0m followed by an option for a further 34.2m shares for $81.0m which was exercised. As a result of the
investment RGI issued 36 million shares, representing 22.25% of the share capital of the Company to Synergy.

Among the conditions for the proceeds from share issue were that $40m be used on current projects and $50m
for new investment projects. No new projects were commenced in 2010 and as a result the Company’s cash
balance remains at $55m as at 31st December 2010.

Regrettably, at the date of the publication of this report, RGI was engaged in several legal disputes with
Synergy, further details of which can be found in the Directors’ Report.

Financial Summary

The Company made a net profit for the year of $30m which is a welcome turnaround from the last two years
when, after impairment adjustments, RGI made losses of $34m in 2009.

In the run up to and during the financial crisis, RGI managed its balance sheet carefully and this, combined
with the proceeds from share issue received in May and July 2010, has left the Company’s balance sheet in a
sound position, with cash of $55m and an equity to loan ratio of 2.1 to 1. During the year, the Company invested
$73m in projects compared to investments in 2009 of $35m.

The value of our portfolio continues to grow and as per DTZ’s independent report dated 31 December 2010, the
value of 100% ownership in RGI’s projects increased from $729m at 31st December 2009 to $840m at 31st
December 2010.

Move to the Main Market

The Company is committed to using its best endeavors to obtain a listing on the Main Market of the London
Stock Exchange. Substantial progress was made during the year, with much of the documentation required by
the LSE taken to an advanced stage by the year–end.

However, as announced on 18th February 2011, the ‘free float’ in the Company’s shares has now fallen below
25% of the Company’s total number of ordinary shares in issue. The Listing Rules require an applicant to the
main market to have a minimum 25% of issued share capital in "public hands”. The Company remains
committed to seeking admission of its shares to the Main Market, but admission will not be possible until such
time as the Company is able to comply with "free float" eligibility requirement as required by the UKLA under
the Listing Rules. We are continuing discussions in order to achieve a main listing.

In the event that admission on the Main Market fails to take place by 30th June 2011, Synergy will, pursuant to
the terms agreement and, subject to certain exceptions, have the right to sell back to the Company or any of its
subsidiaries, up to a maximum of 36.0 million ordinary shares, for US$2.50 per ordinary share together with
interest paid at a rate of 16% per annum, to be paid on or before 21 May 2012. This clause is not enforceable in
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                                                                    R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


certain specific circumstances where the Company has used its best endeavors but has been prevented from
achieving the full listing for reasons outside the Company’s control.

Dividend Policy

The Company has not paid any dividends since its incorporation. The Company’s developments have initially
been highly capital intensive and will continue to be, given the early stage nature of the Company’s portfolio. It
is the intention of the Company to pay a dividend as soon as sufficient profits and cash are generated from its
projects.

People

It is the Board’s belief that the Company should invest in high calibre people according to the needs of the
business and the prospects for the wider market in which it operates. The Board is of the view that the Company
must now strengthen its operational resources in order to achieve its strategic goals. This process began with
two important management appointments, a new Project Manager for its Kingston project and in 2011 the
appointment of a new experienced CFO.

There have been a number of changes to Board personnel during the year. In June 2010, I moved from an
executive to a non-executive role as Chairman. Two non-executive directors, Rafael Eldor and Glenn
Aaronson, resigned each after four years each of service. Petr Shura joined the Board in August 2010 in a non-
executive capacity as the representative of Synergy.

Since the year end Petra Shura has been removed from the Board by the directors the other board directors
exercising their powers under the Articles of Incorporation of the Company. In addition, the Company has
announced the appointment of two new independent non-executive directors.

Reginald Webb, an experienced former partner at PricewaterhouseCoopers Central and Eastern Europe, has
joined the Board. Mr. Webb now sits on the Nomination, Remuneration and Audit Committees, and has
replaced Rafael Eldor in chairing the Audit committee.

Mark Holdsworth, a private equity and real estate professional with previous experience as a managing director
of ING Barings Russian, EMEA and Latin American equities businesss and current experience as a PLC board
director, has also joined as a non-executive director. Mark Holdsworth has been appointed chairman of the
Nominations and Remuneration committees. Further information on Board roles and responsibilities, together
with a description of the Company’s corporate governance policies and structures, can be found in the
Directors’ report

Outlook

The outlook for real estate turned a corner in 2010. Looking ahead to the current year and into 2012 a
sustainable recovery is now in place, although different sectors of real estate will move at different speeds. With
the economic picture improving, we see grounds for optimism for the retail sector and expect the completed
Tsvetnoy department store to move into profitability by the end of the year. We expect residential to offer
investors the best returns as the structural supply shortage in Moscow and the surrounding region begins to
reassert itself and consumers feel more confident. Rising levels of mortgage approvals reinforce the picture of
recovery in residential. RGI is very well placed to benefit from this recovery. In the Kingston development, it
has a large-scale project that can tap into this demand, offering homebuyers something different to the standard
economy class housing that is prevalent in Moscow. Pre-sales of the first phase of this development begins in
Q4 and we are confident of substantial demand for the apartments. We are actively looking for new projects to
build our pipeline but will continue to be prudent in assessing opportunities.
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                                                                  R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


Chief Executive’s Review
Market Update

The real estate market in Russia and particularly Moscow has turned the corner into recovery phase during
2010. Investments in real estate are now approaching pre-crisis levels after dropping by approximately 50% in
2009. Investment is set to continue growing in 2011 with several economic forecasts predicting an increase of
30% over 2010 levels, mainly from domestic investors. Foreign investment is also set to increase in 2011, and
on current trends is set to reach pre-crisis levels again by mid-2012. Capital is once again seeking out
opportunities in a real estate market where a stable economy and fundamental supply-side shortages offer
attractive growth.

Residential sales will be a significant driver of this growth. Residential completions in Russia fell in 2010 by
2.9%1 but are expected to stay at the same level in 2011, thereafter increasing by 6 to 7% per annum. Moscow
completions are expected to jump by 38% in 2010 and further in 2011. In the elite class of housing, sales
transactions in the overall (primarily central) Moscow market increased by 35%. A big driver here has been the
recovery in the mortgage market with mortgage deals in Moscow increasing 23%1. Mortgage rates have fallen
to 10% interest rates with a 10% deposit qualification level, bringing more consumers within the demand pool
for residential purchases. This increased availability of credit has allowed more consumers to enter the market
increasing the available pool for residential purchasers. Reflecting this increase in demand, prices have also
recovered in some segments of the market. The highest growth has been seen in the elite market, where space is
now being valued at between $10,000 to $15,000 per sq. meter, taking valuations back above 2008 levels.

In 2010 real disposable income increased by 4.2% versus a fall in 2009 of 2.8%. This improvement in real
incomes will further support demand. VTB have calculated that 77% of the income base in Moscow earn
between $1,844 and $2,604 per month which puts them in a position to afford to purchase an apartment. The
average size of an apartment sold in 2010 was 81m2 with an average Ruble price of $4,321 per m2. The average
purchase price was therefore $350,000 and this price level is expected to grow by 15% in 2011 then slow down
over further years to inflationary levels. This income level and price range fits very well within RGI’s business
model. RGI is well placed to take advantage of this growing market opportunity with the Kingston
development where pre-selling is expected to begin by the last quarter of 2011.

In the retail sector the market saw retailers absorbing 460,000 m2 of space in 2010 which is double the level in
2008 and 2009. There is a medium term undersupply which will enable retail rentals to be improved over the
next 2 to 3 years.

The office sector is also improving with reductions in vacancy rates and a more balanced market between
supply and demand. Office rental rates are stable to growing. In Moscow rental rates are expected to grow
higher than the market average in the short term but then gradually decreasing towards inflation levels. This
segment is lagging the residential recovery and RGI will therefore stay out of this market in the near term.




1
    Federal Service for State Registrations
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                                                                    R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


RGI Strategy

RGI was created to build on the track record of its management for developing real estate of outstanding quality
capable of delivering superior returns to shareholders. The Company’s strategy upon its IPO was to complete
the construction of five development projects and one pipeline project, representing a mix of residential, retail
and office, while at the same time sourcing new projects for the future.

With the onset of the financial crisis in 2008, the Company was forced to revise its strategy and align it to the
new economic reality. Management moved quickly to significantly reduce RGI’s cost base and focus resources
on two projects, the Tsvetnoy department store and the Kingston residential project.

During the year under review, RGI was able for the first time since the crisis to plan further than the immediate
short-term and re-orientate its strategy towards growth. This manifested itself in the raising of $90m in share
issue proceeds to strengthen the Company’s balance sheet and provide additional funding for existing and new
projects. During the second half of 2010, we completed the Tsvetnoy department store project and, with a
tangible improvement in credit market conditions underway, moved ahead to the construction stage for the
Kingston project.

With a sustainable economic recovery now in place, the primary strategic objective of the Company is to
develop projects in the residential sector, the economic fundamentals of which offer the most attractive returns
for shareholders post the financial crisis. RGI will distinguish itself from other developers by building homes
that offer a superior living experience, whether in the premium economy, elite or super elite segments of the
market. In the first instance, this strategy will be pursued by advancing with the 77 hectare Kingston
development, where construction work began in March 2011 and pre-sales will begin in the second half of 2011.

RGI will also look to build a pipeline of new premium economy and elite residential projects; in February 2011
for example, the Company made its first land acquisition since the crisis, buying a site neighboring the Kingston
development for approximately $9m. This project joins the Khilkov, Ostozhenka, Chelsea and Victory Park
developments already in the Company’s residential pipeline. Management’s reputation was built on acquiring
attractive land plots and developing and selling a series of elite class residential buildings in Moscow. It is this
experience and unique skill base that will drive the Company’s success in the residential sector moving forward.

In the retail sector, RGI took the decision during the financial crisis to complete the Tsvetnoy department store
and operate it as a trading subsidiary, rather than selling the building at an unattractive valuation. The store
opened in 2010 and management’s strategy is to continue operating the store during 2011, establishing it as a
leading retail destination in Moscow generating revenue and EBITDA growth. The Company does not currently
intend to develop any more standalone retail projects.

RGI does not intend to pursue any developments in the office sector, where there continues to be excess
capacity and management believes the recovery will be slow.

Financial Strategy

The Company’s financial strategy is to maintain a strong balance sheet and a cautious view on valuations in
order to avoid any future impairment issues. The current debt/equity ratio is 1 to 2.1 and the Company will not
allow this to deteriorate beyond a 1 to 2 debt to equity ratio. In addition the Company intends to maintain a
healthy cash balance.
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                                                                   R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


Portfolio Review

Completed developments

The Tsvetnoy Development

Gross Area              36,522 sq.m.
Gross Leasable Area     15,097 sq.m.
Net Leasable Area       11,421 sq.m.
Market Value            $225m


The Tsvetnoy Development (“Tsvetnoy”) is a retail development located at the historic site of the old market on
Tsvetnoy Boulevard, in central Moscow. The Group has designed and is operating Tsvetnoy as a Western-style
tenancy department store offering a varied shopping experience with high street and niche designer fashion,
accessories, food hall, fresh market, cafés, bars and a rooftop restaurant with views of Moscow.

RGI’s strategy for Tsvetnoy is to market it as a tenancy department store and to operate it through a self-owned
management company. The Company’s vision for Tsvetnoy is to turn it into the central hub for shopping,
culture, exploring, relaxing and a meeting destination in Moscow offering attractive and affordable product mix
and inviting atmosphere. A key factor in Tsvetnoy’s strategy is to work closely with brands and operators to
achieve a selection of the most relevant, exciting and innovative brands, both international and Russian.

RGI has entered into two types of agreement with suppliers of the merchandise to be sold in the Tsvetnoy
department store. The majority of the merchandise is sold pursuant to concession agreements entered into
between RGI and individual suppliers ("Unit Operators"). Pursuant to the terms of such concession agreements,
RGI provides the Unit Operators with retail space, centralized cash management services and facilities such as
changing rooms and cash tills. The Unit Operators offer merchandise for sale in designated units within the
Tsvetnoy department store and retain ownership of their own inventory until the point of purchase. At the point
of purchase the relevant goods are legally transferred to RGI for sale to the customer. RGI then transfers the
proceeds from such sales to the relevant unit operator after first deducting a fee-commission for the services it
provides. A small number of operators, including Industria de Diseño Textil, S.A. ("Inditex"), the owner of the
Zara fashion chain which is represented in the Tsvetnoy department store with its new accessories brand
Uterque, and Ginza Project have subleased the retail space required to conduct their operations. Accordingly,
these operators do not use the central cash management services provided to Unit Operators but instead operate
their businesses within the Tsvetnoy department store separately pursuant to long term sublease agreements
entered into with RGI. These subtenants sell their own inventory directly to customers and pay an additional
turnover-linked fee.

The Company intends that approximately 75% of the net sales rea in Tsvetnoy will be either allocated to third
party Unit Operators under concession agreements or subleased to subtenants under long term sub lease
agreements as set out above. The remaining retail space will be operated by RGI, which will offer its own
inventory for sale. By operating within the Tsvetnoy department store, the Group retains the flexibility to adjust
the mix of brands available within the store in response to consumer demand. In addition, such an approach
allows the Group to offer a wider range of brands within the store than if it were to rely solely on independent
Unit Operators and subtenants.

The Tsvetnoy department store was opened to the public on 9 December 2010 although certain areas in the
store, representing approximately 17% of the Net Sellable Area (‘NSA”) (including the Food Market and the All
Saints store) opened later in December and early January and an additional area, representing approximately
18% of the NSA (including the restaurant on the 6th floor and the Mens’ store on the 4th floor), opened in
March. Finally, the top floor restaurant/club with an approximately 1,000 sq. m of NSA is scheduled to open
later in Q3 2011.
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                                                                   R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


As of the date of this report, 77% of the NSA is occupied by Unit Operators and subtenants that fit our current
merchandising criteria while 24% of the NSA is occupied by temporary/seasonal brands/products and 9% of the
NSA is still not open to the public. The Group’s plan for 2011 is that by the end of the year, 98% of the NSA
will be occupied by Unit Operators and subtenants that fit our merchandising criteria (including 25% that will
be occupied by the Group). As part of managing the Tsvetnoy department store, the Group intends to
continuously review the performance of the Unit Operators and subtenants against both performance criteria and
overall merchandising strategy and adjust their location and NSA in the store accordingly.

Financial Projections

The DTZ valuation of $225m was arrived at by looking at the trading use of space by the different retail types,
e.g. cosmetics, catering, food, fashion and assigning a market rental for the type of space used. The rental was
adjusted to reflect the quality fit out undertaken by the landlord which is normally payable by the retailer. This
was then discounted over the first two years to reflect the startup of the new concept and then adjusted in future
years by inflation and discounted back to 2010 values.

Developments under construction

Kingston

Gross Area                      1,336,345 sq.m.
Apartments                      8,124
Parking Spaces                  9,678
Market Value (100%)             $398m
Value on completion (100%)      $2bn


The Kingston development is currently the largest development within the RGI portfolio and is expected to
generate revenue for the group from 2012 onwards. The project fits exactly with the Company strategy and
meets growing demand from the consumer for more comfortable modern apartments suitable for families in a
community with open spaces, shops, churches, kindergartens, schools and the security of a police station. It is in
one of the most attractive parts of Moscow, near the MKAD and will have good access to major retail
developments and hospitals for both adults and children.

RGI’s current design for the Kingston Development involves the construction of a modern residential
community with a gross buildable area of 1,336,345 sq. m comprising 629,983 sq. m of apartments, 89,951 sq.
m of commercial space on the first and ground floors of buildings and two separate shopping centers and 9,678
parking spaces. The current value on completion as per DTZ is $2bn.

The planning and layout of the apartments is one of the strongest competitive advantages of the project. The
functionality of each apartment together with the small scale common areas forms a unique product for this
market. Efficient space planning allows us to accommodate all necessary functions in a smaller space and
to generate per apartment price lower than similar products from competitors. The project includes 4 types
of apartments: 1-bedroom (36.4 / 38.0 m2), 2 bedrooms (58.1 / 63.9 m2), 3-bedrooms (74.6 / 75.9 m2) and 4-
bedrooms (98.7 / 104.0 m2). The project will have a higher proportion of 2 and 3 bedroom apartments than any
other comparable development as it is targeted at families. The target consumers are;

    ·   Young married couples who seek for reasonable prices and convenient small flats to start their life
        together.
    ·   Families with children who value convenient layout of apartments and effective use of space,
        intelligent infrastructure with schools, kindergarten, and recreation areas and entertainment.
    ·   Older people who seek the ability to live close to their children and grandchildren.
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                                                                  R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


    ·   Young and active people from the regions who will enjoy developed social infrastructure, easy access
        to transportation and possibility to keep their jobs in Moscow.

Following the year end, $164m of financing was secured from Sberbank for the first of seven phases and
construction commenced in March 2011. The first phase will comprise 1,193 apartments, which will be offered
for sale by Q4 2011.

The Company plans a substantial marketing campaign in Q3 2011 to support the pre-selling in Q4 2011. The
marketing campaign is anticipated to be revolutionary in concept for Moscow with a mixture of PR events
supported by digital marketing and a sales office opening on site in September with computer aided facilities to
envisage the apartments and styles on offer never before seen in Moscow.

Valuation

The Kingston development is valued on the 31st December 2010 in the balance sheet at $298m and the current
valuation by DTZ as at 31st December 2010 for 100% shareholding is $398m.

Pipeline Projects

Khilkov

Building Type:                         Residential, ultra high-end apartments
Gross Area:                            27,258 m2
Year of Completion:                    2013
Sale price for residential area        $22,200 per m2
Sale price for retail area             $14,000 per m2
Market Value (100%)                    $144m
Value on completion (100%)             $337m

The Khilkov Development is a proposed ultra-high-end residential building located in the most exclusive
residential neighborhood in the center of Moscow on Khilkov lane in the Ostozhenka area, commonly known as
Moscow’s Golden Mile. Currently, the site comprises a small park and an old residential building which will be
demolished as part of the redevelopment. There are three main tourist attractions nearby including the Cathedral
of Christ the Savior, Gorky Park and the Kremlin, all within walking distance.

RGI’s current design for the Khilkov Project entails a gross buildable area of 27,258 m2 including 13,000 m2 of
residential and 1,470 m2 of retail space and 173 parking lots. The remaining area is expected to consist of
common areas, ancillary and maintenance areas. Khilkov will have a high quality fit-out and finish with all
materials and amenities being of the highest quality, and a unique modern architectural design unique among
residential buildings in Moscow.

The proposed development plan for Khilkov is based on RGI’s possession of an Investment Contract and
ownership over the existing building. The investment contract expired on 31st January 2011 and the Company
has applied for this to be reviewed. It is still awaiting a decision from the Moscow Government. The Company
has recently completed buyout of the remaining apartments, the next step being approval of the City of Moscow
for the General Plan of the Land Plot (GPZU) and a land lease agreement together with completing design Stage
‘P’ and passing MosGosExpertiza in 2011. The current Moscow administration has questioned the investment
contract as it has done with over 700 investment contracts in Moscow. The Khilkov project has many social and
infrastructure benefits and management believe that the project will still receive its GPZU. However, RGI can
still deliver the planned project but some delay may been incurred. At worst the Company owns the current
building and land and can develop this profitably if necessary at higher values than the current cost and market
valuation.
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                                                                    R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010




The Chelsea Development

Building Type:                           Residential, high-end apartments with some ground-level retail
Gross Area:                              5,473 m2
Year of Completion:                      2014
Sale price for residential area          $17,100 m2
Market Value                             $17m
Value on completion                      $49m


The Chelsea Development is a proposed mixed use development comprising residential and retail area. Chelsea
is located to the east of Tsvetnoy Boulevard approximately 2 kilometers north of the Kremlin within the Garden
Ring. The Sretenka district, in which the Chelsea Development is located, is part of the heart of the historical
city-center and has a large number of quiet lanes and churches. The historical richness of one of the oldest
districts in Moscow combined with modern development, both commercial and residential, make this area one
of the most attractive in the city.

RGI’s current design for the Chelsea Development entails the reconstruction of three existing buildings, the
majority of which are owned by the Company. The project involves demolition of buildings occupying the site
followed by construction of new multi-functional block with apartments and some retail space.

The Company is currently working on completing design and obtaining permission for the development with a
gross buildable area of 5,473 m2 comprising 2,103 m2 of residential space and 1,102 m2 of retail space and 33
parking lots.

The current proposed development plan for the Chelsea Development is based on the Company’s development
rights secured through ownership over the two non-residential existing buildings and the virtual completion of
relocation and privatization process for the existing residential premises on the site with one apartment left to be
relocated. The existing property is being rented out and forms a source of income for the Company.

The Victory Park Development

Building Type:                           4-5 star hotel and residential apartments
Gross Area:                              25,000 m2
Year of Completion:                      2013
Sale price for residential area          $10,900 m2
Current Hotel ADR                        $145
Market Value                             $41m
Value on completion                      $134m



The Victory Park Development is a proposed high-end hotel and residential building located opposite to Victory
Park across the river from Moscow City Development, a new major commercial district located approximately
seven kilometers to the west of the Kremlin. The site of the Victory Park development itself is located in a high-
end residential area. Victory Park is located close to one of the city’s main traffic routes, Kutuzovsky Prospect,
which continues west directly to Moscow's most prestigious suburbs situated along Rublyovo-Uspenskoye and
Mozhayskoe highways.
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                                                                     R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


RGI’s current design for the Victory Park Development entails a new 10-storey hotel and residential building
with a gross area of 25,000 m2, comprised of 200 hotel rooms and 8,000 m2 of sellable residential space with
approximately 133 parking spaces.

The current proposed development plan for Victory Park is based on RGI’s ownership of the building currently
occupying the site and the possession of a long-term land lease. The project is currently in the pre-design stage.

The Ostozhenka Development

Building Type:                    Residential, ultra high-end single family townhouse
Gross Area:                                1,000 m2
Year of Completion:                        2013
Sale price for residential area            $25,000 m2
Market Value                               $13m
Value on completion                        $25m



The Ostozhenka Development is a proposed ultra-high-end single-family townhouse located in the most
exclusive residential neighborhood in the center of Moscow at the intersection of Ostozhenka and Khilkov
streets. The area is commonly known as Moscow’s Golden Mile.

The site is located in a conservation area that has special construction requirements to ensure that new building
developments blend in with existing structures in order to preserve the look and feel of the neighborhood.

RGI’s current design for Ostozhenka has a gross area of 1,000 m2 comprising five levels, including two
underground levels, and an attic. The lower underground floor would be used for a parking garage with four
spaces, ancillary and technical facilities, and a home theatre. The upper underground floor would comprise an
entrance hall, a swimming pool and a winter garden. A drawing room, a dining room and a study would be
located on the first floor, with bedrooms on the second floor. The attic would contain a library and a studio and
a terrace would be included on part of the roof.

The proposed development plan for Ostozhenka is based on RGI’s ownership of the existing building on the site
and the possession of a long-term land lease. The Company’s next step is to finalize and approve the concept
design with the authorities.

New Projects

RGI will continue to seek new opportunities in major projects that will deliver significant profits in the future.
Since the end of 2010 the Company has purchased an area of land next to its Kingston project which is 17.1
hectares for estimated construction of 150,000 m2 gross buildable area for $9.4m which we believe is an
excellent investment for the Company.

In addition the Company will seek new projects and joint ventures during 2011 to fit within the overall strategy
of the Group.

Boris Kuzinez

Chief Executive Officer
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                                                                  R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010




Financial Review
Highlights

    ·   Pre Tax profits of $36m versus loss in 2009 of $60m

    ·   Total Assets increased to $755m from $613m in 2009 whilst total liabilities rose by $115m.

    ·   Equity increases to $457m with an equity to debt ratio of 2.1 to 1

    ·   Market value of development portfolio determined by DTZ, an independent valuer, is estimated
        to be higher than its carrying value by $118m.

    ·   Cash Balance of $55m available for new projects and working capital.

Income Statement

The income in 2010 derives from the net gain of $45.8m from fair value adjustments in respect of the Kingston
Development in relation to the retail developments plus the revaluation gain on the Tsvetnoy project before it
opened on the 9th December 2010. The residential apartments will be sold on completion and are treated as
Properties developed for sale whilst the retail building in case of Tsvetnoy project are held as Property, plant
and equipment and the retail premises in case of the Kingston project are held as Investment properties as at 31
December 2010.

The other revenues consist of the confirmation by the court to repay construction costs of a previous investment
$6.8m plus revenues from the sale of apartments previously held by the Company with a net gain of $2.09m

General and administrative costs total $10.1m. The expenses also include the legal services associated with the
proceeds from share issue of $90m from Synergy Classic Limited plus other legal costs incurred as a result of
legal claims against the Company.

Balance Sheet

The total assets are $755m of which $55m relates to cash and the majority of the balance relates to property at
various stages of development. During the year the Tsvetnoy Central Market was completed and commenced
trading on the 9th December. The accounting treatment was therefore changed and the assets treated at as
Property, Plant and Equipment. The total cost at 31st December 2010 was $217.9m of which $206.3m related to
property and $11.6m related to Fixtures and Fittings. The DTZ valuation for the property is $225m at the 31st
December 2010.

The Kingston property treatment has also changed in 2010 as the construction permit was received and the value
of the residential part of the development is now treated as Property developed for sale and totals $241.7m. The
retail element is held as investment property under construction totaling $56.3m at the 31st December 2010.

In addition the Company has a number of smaller investments held in the balance sheet under property
development rights that total $64.5m plus it holds a 50% investment in the Khilkov development that is in the
balance sheet at an investment of $60.5m.
                                                                                                                          12
                                                                     R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


 The total Liabilities in the Balance Sheet are $297.5m of which the major part is the loan from Sberbank total
 $99.7m which is secured on the Tsvetnoy property and is repayable in March 2012. The other significant
 liability is the put option agreement debt $96.9m which is raised from proceeds from shares issue. The bonds
 issued in Israel of which certain re-purchases were made in 2010 as per Note 16 of the accounts and the total
 liability including accrued interest is $18.1m.

 Net Asset Value

 After two years of impairment reductions the market is now reversing the decline and the net asset value of the
 RGI portfolio has increased by approximately 2% to $562m.

 The table below specifies the Net Asset Value of the Company which includes Company’s shares in individual
 projects values based on DTZ valuation and net other assets:

DEVELOPMENT                                                         Net Asset Value
                                                                 31 31 DECEMBER                                 31
                                                          DECEMBER             2009                      DECEMBER
                                                               2008           US$ m                           2010
                                                              US$ m                                          US$ m
Developed properties
   Tsvetnoy                                                        116.8                 161.1                     225.5
Properties held for development
  Kingston                                                         191.1                 299.4                     326.6
  Khilkov                                                           75.8                  65.3                      72.3
  Victory Park                                                      40.0                  39.6                      40.6
  Ostozhenka                                                        14.3                  14.8                      13.4
  Chelsea                                                          131.6                  17.6                      17.3
  Zemlianoy                                                         16.2                  N/A                       N/A
  Media City                                                        12.4                  N/A                       N/A
  Dream                                                             34.4                  N/A                       N/A
  Maya                                                              10.8                  N/A                       N/A
Total Fair Value of properties                                     643.4                 597.8                     695.7
Add net other assets                                              (51.6)               (46.2)                   (133.7)
Total NAV                                                          591.8                551.6                     562.0
No. of issued shares2                                       125,786,978          125,786,978               125,786,978
NAV per share in US$                                                4.70                 4.39                      4.47


 Further growth in Net Asset Value will occur particularly as the construction in Kingston gathers pace plus the
 other investments reach their construction phase.

 Cash Flow

 In 2010 $16m proceeds were generated from the sale of other assets. Further funding was provided by the
 proceeds from share issue of $90m and loans of $19m. A total of $73m was invested in current projects
 compared to $35m in 2009. The Company did re-purchase a number of bonds totaling $7.7m in the year.


 2
     No. of issued shares excludes shares hold by Synergy Classic Limited, which are treated as debt.
                                                                                                                        13
                                                                   R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010




Financial Strategy

The Company’s financial strategy is to maintain a strong balance sheet and a cautious view on valuations in
order to avoid any future impairment issues. The current equity to debt ratio is 2.1 to 1 and the Company will
not allow this to deteriorate beyond a 2 to 1 equity to debt ratio. In addition the Company has intention to
healthy cash balance to protect itself from sudden liquidity crisis.

The Company will only pursue projects that fit within its published strategy and will seek to deliver an above
average margin. The Company’s reputation is to deliver quality projects at good margins and this will not be
compromised to seek faster growth. In addition the Company has a reputation for completing projects and this is
in demand in the Moscow market which will allow us opportunities which carry less debt risk.

The Company currently has sufficient funding for its projects and working capital requirements but intends to
seek new longer term funding in 2012.

Proceeds from shares issue

In the Company's Consolidated Statement of Financial Position, the investment by Synergy of $90m is
recognized as debt. Under the subscription and option agreement entered into between the Company and
Synergy on 21 May 2010 (the "SOA"), Synergy was granted a put option (the "Put Option") whereby, should
the Company not achieve a standard listing on the Main Market of the London Stock Exchange by the 30th June
2011, Synergy may, under certain conditions, sell up to 36 million shares in RGI to a subsidiary of the Company
at a price of $2.50 per share plus interest at 16% per annum. If the Put Option were to be successfully exercised,
therefore, a subsidiary of the Company would be required to purchase up to 36 million shares for $90 million
plus 16% interest per annum. RGI management is confident that the Company has taken, or will take, all
reasonable steps required to comply with its obligations under the SOA such that the Put Option will not be
exercisable. In addition, RGI's management is optimistic that if Synergy were successfully able to exercise the
Put Option, RGI would be able to sell the relevant shares to other investors in due course. If Synergy were to
exercise the Put Option and the Company chose to accept the Put Option as validly exercised, the Company has
until 21 May 2012 to repay the amount due to Synergy.

Managing Risk

The Group’s activities expose it to a variety of financial risks: market risk (foreign exchange risk, fair value
interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk
management program focuses on the unpredictability of financial markets and seeks to minimize potential
adverse effects on the Group’s financial performance.

Group treasury identifies and evaluates financial risks in close co-operation with the Group’s operating units.
The board provides principles for overall risk management, as well as instructions covering specific areas, such
as foreign exchange risk, interest rate risk, credit risk and use of derivative financial instruments.
                                                                                                                      14
                                                                 R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


Market risk

The functional currency of the Group is the Russian Ruble. Foreign exchange risk is the risk that the value of
financial instruments will fluctuate due to changes in foreign currency exchange rates. At 31 December 2010,
the Group was exposed to foreign exchange risks arising from currency exposures, primarily in respect of US
dollars. A foreign exchange risk arises from recognized monetary assets and liabilities. The Group’s policy is
not to enter into any currency hedging transactions in respect of these risks. However, since the majority of
expenditure and revenues of the Group are denominated in both RUR and US dollars, the Directors allocate the
Group’s cash resources based on the forecasted currency outflows.




Alan Hibbert

Chief Financial Officer
                                                                                                                                                    16
                                                                                               R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                                                                                      2010                       2009
                                                                                   NOTE                           USD’000                   USD’000
Revenue from sale of Butikovsky Project                                                                                  -                     76,815
Cost incurred on sale of Butikovsky Project                                                                              -                   (23,501)
Other operating income                                                                   19                         10,797                     85,962
Impairment loss on property development rights                                                                           -                  (185,331)
Net gain from fair value adjustment                                                     5, 6                        45,843                     14,539
General and administrative expenses                                                      20                        (10,115)                   (17,661)
Impairment of other assets available for sale                                            12                           (265)                    (6,321)
Operating profit/(loss)                                                                                              46,260                   (55,498)
Finance income                                                                           21                          16,473                     30,532
Finance costs                                                                            21                        (26,234)                   (28,672)
Share in result of jointly controlled entity                                              8                           (537)                    (6,318)
Profit/(loss) before income tax                                                                                      35,962                   (59,956)
Income tax (expense)/benefit                                                             10                         (6,228)                     26,096
Profit/(loss) for the year                                                                                           29,734                   (33,860)
Other comprehensive loss for the year:
Currency translation difference                                                                                     (3,395)                   (21,621)
Other comprehensive (loss)/profit for the year, net of tax                                                          (3,395)                   (21,621)

Total comprehensive profit/(loss) for the year:                                                                      26,339                   (55,481)

Profit/(loss) is attributable to:
    - Owners of the Company                                                                                          25,918                   (24,732)
    - Non-controlling interest                                                                                        3,816                    (9,128)
Profit/(loss) for the year                                                                                           29,734                   (33,860)

Total comprehensive profit/(loss) is attributable to:
    - Owners of the Company                                                                                          22,777                   (39,917)
    - Non-controlling interest                                                                                        3,562                   (15,564)
Total comprehensive profit/(loss) for the year                                                                       26,339                   (55,481)


Earnings per share for profit attributable to the owners of
the Company during the year (expressed in USD per
share):

Basic and Diluted                                                                        22                             0.18                     (0.20)




The notes on pages 19 to 64 are an integral part of these consolidated financial statements.
                                                                                                                                                                                                                    17
                                                                                                                                                              R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010



CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                                                                                                ATTRIBUTABLE TO OWNERS OF THE COMPANY:
                                                             NOTE           SHARE                 SHARE     SHARE-BASED     RETAINED       TRANSLATION             TOTAL                NON-             TOTAL
                                                                           CAPITAL              PREMIUM        PAYMENT      EARNINGS           RESERVE                          CONTROLLING             EQUITY
                                                                                                                                                                                    INTEREST
                                                                          USD’000                USD’000       USD’000      USD’000           USD’000           USD’000               USD’000         USD’000
      Balance at 1 January 2010                                                 1                 456,524          810        91,235          (149,007)          399,563                31,342         430,905
      Total comprehensive profit/(loss) for                                     -                       -            -        25,918            (3,141)           22,777                 3,562          26,339
      the year:
      Profit/(loss) for the year                                                     -                  -             -       25,918                  -            25,918                  3,816         29,734
      Other comprehensive loss                                                       -                  -             -            -            (3,141)            (3,141)                 (254)         (3,395)
      Transactions with owners in their
      capacity as owners:                                                           -                   -            70            -                  -                70                      -             70
      Share based payment                                                           -                   -            70            -                  -                70                      -             70
      Balance at 31 December 2010                                                   1             456,524           880      117,153          (152,148)           422,410                 34,904        457,314



                                                                                               ATTRIBUTABLE TO OWNERS OF THE COMPANY:
                                                            NOTE           SHARE                  SHARE     SHARE-BASED     RETAINED         TRANSLATION              TOTAL              NON-               TOTAL
                                                                          CAPITAL               PREMIUM        PAYMENT      EARNINGS             RESERVE                          CONTROLLING              EQUITY
                                                                                                                                                                                     INTEREST
                                                                         USD’000                USD’000         USD’000      USD’000             USD’000           USD’000               USD’000         USD’000
      Balance at 1 January 2009                                                1                 456,524          5,730        115,967           (133,822)           444,400                69,112         513,512
      Total comprehensive loss for the                                         -                       -              -       (24,732)            (15,185)          (39,917)              (15,564)        (55,481)
      year:
      Loss for the year                                                             -                  -                -     (24,732)                   -          (24,732)               (9,128)        (33,860)
      Other comprehensive loss                                                      -                  -                -            -            (15,185)          (15,185)               (6,436)        (21,621)
      Transactions with owners in their                                             -                  -          (4,920)            -                   -           (4,920)              (22,206)        (27,126)
      capacity as owners:
      Share based payment                                                           -                  -          (4,920)              -                  -          (4,920)                     -         (4,920)
      Transactions with minority                                19                  -                  -                -              -                  -                -              (22,206)        (22,206)
      shareholders
      Balance at 31 December 2009                                                   1            456,524             810       91,235            (149,007)          399,563                 31,342        430,905


The notes on pages 19 to 64 are an integral part of these consolidated financial statements.
                                                                                                                                                    18
                                                                                               R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010



CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                                                                            2010                2009
                                                                                                           NOTE          USD’000             USD’000
Cash flows from operating activities before working capital changes
Profit/ (loss) before income tax                                                                                            35,962            (59,956)
Revenue from sale of Butikovsky Project                                                                                          -            (76,815)
Costs incurred on sale of Butikovsky Project                                                                                     -              23,501
Impairment loss on property development rights                                                                                   -             185,331
Net gain from value adjustment                                                                                 5, 6       (45,843)            (14,539)
Transactions with minority shareholders                                                                                          -            (77,406)
Share in result of jointly controlled entity                                                                      8            537                6,318
Other non-cash operating items                                                                                               5,605                (971)
Net cash outflow from operating activities before working capital changes                                                  (3,739)            (14,537)
Change in trade and other payables                                                                                         (5,253)                  655
Change in receivables and prepayments                                                                                     (12,393)              (1,366)
Cash used in operations                                                                                                   (21,385)            (15,248)
Income tax paid                                                                                                               (60)                (108)
Net cash used in operating activities                                                                                     (21,445)            (15,356)
Cash flows from investing activities
Investment in jointly controlled entity                                                                                    (3,183)               (577)
Investments in current projects                                                                                           (69,351)            (34,632)
VAT refunds                                                                                                                 15,295                   -
Selling of other assets                                                                                                     16,017              27,448
Net cash used in investing activities                                                                                     (41,222)             (7,761)
Cash flows from financing activities
Proceeds from issue of additional shares                                                                        18          90,000                    -
Repayment of bonds                                                                                              16         (7,728)                (578)
Derivative payment                                                                                                           (837)                (639)
Proceeds from construction loans                                                                                            18,873              36,537
Interest paid, net                                                                                                        (10,335)              (7,777)
Net cash generated from financing activities                                                                                89,973              27,543
Effect of exchange rate changes on cash and cash equivalents                                                                   514                (284)
Net increase in cash and cash equivalents                                                                                   27,820                4,142
Cash and cash equivalents, beginning of the year                                                                            27,490              23,348
Cash and cash equivalents, end of the year                                                                      14          55,310              27,490




The notes on pages 19 to 64 are an integral part of these consolidated financial statements.
                                                                                                                        19
                                                                   R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010



NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS


1.      THE R.G.I. INTERNATIONAL LIMITED GROUP

These consolidated financial statements of R.G.I. International Limited (“RGI” or the “Company”) and its
subsidiaries and the Group’s interest in a jointly controlled entity (together referred to as the “Group”) for the
year ended 31 December 2010 were authorized for issue in accordance with a resolution of the directors on
22ndJune 2011.

The Company was incorporated in Guernsey on 14 March 2006 as a limited liability company.

The Company’s registered address is Frances House, Sir William Place, St. Peter Port, Guernsey, GY1 4HQ.

The principal office of the Group’s Russian operations is Korobeynikov Lane, 1, Moscow 119034, Russia.

The principal business activity of the Group is property development and property management in the Russian
Federation, with its core business being the development and management of high-end office and retail business
and luxury residential, mid-market family-oriented retail properties and economy class residential properties in
central Moscow and the surrounding areas.

2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set
out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1     Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and with the requirements of the
Companies (Guernsey) Law, 2008 under the historical cost convention, as modified by the revaluation of
financial assets and liabilities at fair value through profit or loss and the revaluation of Investment property.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgment in the process of applying the Group’s
accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions
and estimates are significant to the consolidated financial statements are disclosed in Note 4.

Changes in accounting policy and disclosures

(a) New and amended standards adopted by the Group

The following new standards and amendments to standards are mandatory for the first time for the financial year
beginning 1 January 2010.
                                                                                                                         20
                                                                    R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


§   IFRS 3 (revised), ‘Business combinations’, and consequential amendments to IAS 27, ‘Consolidated and
    separate financial statements’, IAS 28, ‘Investments in associates’, and IAS 31, ‘Interests in joint ventures’,
    are effective prospectively to business combinations for which the acquisition date is on or after the
    beginning of the first annual reporting period beginning on or after 1 July 2009.

    The revised standard continues to apply the acquisition method to business combinations but with some
    significant changes compared with IFRS 3. For example, all payments to purchase a business are recorded
    at fair value at the acquisition date, with contingent payments classified as debt subsequently remeasured
    through the statement of comprehensive income. There is a choice on an acquisition-by-acquisition basis to
    measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s
    proportionate share of the acquiree’s net assets. All acquisition-related costs are expensed.

    IAS 27 (revised) requires the effects of all transactions with non-controlling interests to be recorded in
    equity if there is no change in control and these transactions will no longer result in goodwill or gains and
    losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity
    is re-measured to fair value, and a gain or loss is recognised in profit or loss. IAS 27 (revised) has had no
    impact on the current period, as none of the non-controlling interests have a deficit balance; there have been
    no transactions whereby an interest in an entity is retained after the loss of control of that entity, and there
    have been no transactions with non-controlling interests.

(b) New and amended standards, and interpretations mandatory for the first time for the financial year
    beginning 1 January 2010 but not currently relevant to the Group (although they may affect the accounting
    for future transactions and events).

The following standards and amendments to existing standards have been published and are mandatory for the
Group’s accounting periods beginning on or after 1 January 2010 or later periods, but the Group has not early
adopted them.

§   IFRIC 17, ‘Distribution of non-cash assets to owners’ (effective on or after 1 July 2009). The
    interpretation was published in November 2008. This interpretation provides guidance on accounting for
    arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of
    reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for
    distribution only when they are available for distribution in their present condition and the distribution is
    highly probable.

§   IFRIC 18, ‘Transfers of assets from customers’, effective for transfer of assets received on or after 1 July
    2009 (effective in EU for annual periods starting in or after 31 October 2009). This interpretation clarifies
    the requirements of IFRSs for agreements in which an entity receives from a customer an item of property,
    plant and equipment that the entity must then use either to connect the customer to a network or to provide
    the customer with ongoing access to a supply of goods or services (such as a supply of electricity, gas or
    water). In some cases, the entity receives cash from a customer that must be used only to acquire or
    construct the item of property, plant, and equipment in order to connect the customer to a network or
    provide the customer with ongoing access to a supply of goods or services (or to do both).

§   IFRIC 9, ‘Reassessment of embedded derivatives and IAS 39, Financial instruments: Recognition and
    measurement’(not adopted by the European Union), effective 1 July 2009. This amendment to IFRIC 9
    requires an entity to assess whether an embedded derivative should be separated from a host contract when
    the entity reclassifies a hybrid financial asset out of the ‘fair value through profit or loss’ category. This
    assessment is to be made based on circumstances that existed on the later of the date the entity first became
                                                                                                                          21
                                                                     R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


    a party to the contract and the date of any contract amendments that significantly change the cash flows of
    the contract. If the entity is unable to make this assessment, the hybrid instrument must remains classified as
    at fair value through profit or loss in its entirety.

§   IFRIC 16, ‘Hedges of a net investment in a foreign operation’ effective 1 July 2009. This amendment
    states that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments may be
    held by any entity or entities within the group, including the foreign operation itself, as long as the
    designation, documentation and effectiveness requirements of IAS 39 that relate to a net investment hedge
    are satisfied. IAS 38 (amendment), ‘Intangible assets’, effective 1 January 2010. The amendment clarifies
    guidance in measuring the fair value of an intangible asset acquired in a business combination and permits
    the grouping of intangible assets as a single asset if each asset has similar useful economic lives.

§   IAS 1 (amendment), ‘Presentation of financial statements’. The amendment clarifies that the potential
    settlement of a liability by the issue of equity is not relevant to its classification as current or non-current.
    By amending the definition of current liability, the amendment permits a liability to be classified as non-
    current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other
    assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be
    required by the counterparty to settle in shares at any time.

§   IAS 36 (amendment), ‘Impairment of assets’, effective 1 January 2010. The amendment clarifies that the
    largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of
    impairment testing is an operating segment, as defined by paragraph 5 of IFRS 8, ‘Operating segments’
    (that is, before the aggregation of segments with similar economic characteristics).

§   IFRS 2 (amendments), ‘Group cash-settled share-based payment transactions’, effective from 1
    January 2010. In addition to incorporating IFRIC 8, ‘Scope of IFRS 2’, and IFRIC 11, ‘IFRS 2 – Group and
    treasury share transactions’, the amendments expand on the guidance in IFRIC 11 to address the
    classification of group arrangements that were not covered by that interpretation.

§   IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’. The amendment
    clarificaties that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal
    groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of
    IAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of
    estimation uncertainty) of IAS 1.

§   Eligible Hedged Items – Amendment to IAS 39, Financial Instruments: Recognition and
    Measurement (effective with retrospective application for annual periods beginning on or after
    1 July 2009). The amendment clarifies how the principles that determine whether a hedged risk or portion
    of cash flows is eligible for designation should be applied in particular situations. The amendment did not
    have a material impact on these consolidated financial statements.

§    IFRS 9, Financial Instruments Part 1: Classification and Measurement (not adopted by the European
     Union). IFRS 9 issued in November 2009 replaces those parts of IAS 39 relating to the classification and
     measurement of financial assets. IFRS 9 was further amended in October 2010 to address the classification
     and measurement of financial liabilities. Key features of the standard are as follows:
    - Financial assets are required to be classified into two measurement categories: those to be measured
        subsequently at fair value, and those to be measured subsequently at amortized cost. The decision is to
        be made at initial recognition. The classification depends on the entity’s business model for managing
        its financial instruments and the contractual cash flow characteristics of the instrument.
                                                                                                                      22
                                                                 R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


-   An instrument is subsequently measured at amortized cost only if it is a debt instrument and both (i) the
    objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii)
    the asset’s contractual cash flows represent only payments of principal and interest (that is, it has only
    “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss.
-   All equity instruments are to be measured subsequently at fair value. Equity instruments that are held
    for trading will be measured at fair value through profit or loss. For all other equity investments, an
    irrevocable election can be made at initial recognition, to recognize unrealized and realized fair value
    gains and losses through other comprehensive income rather than profit or loss. There is to be no
    recycling of fair value gains and losses to profit or loss. This election may be made on an instrument-
    by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on
    investment.
-   Most of the requirements in IAS 39 for classification and measurement of financial liabilities were
    carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the
    effects of changes in own credit risk of financial liabilities designated as at fair value through profit or
    loss in other comprehensive income.

    While adoption of IFRS 9 is mandatory from 1 January 2013, earlier adoption is permitted. The Group is
    considering the implications of the standard, the impact on the Group and the timing of its adoption by
    the Group.

§   Disclosures - Transfers of Financial Assets – Amendments to IFRS 7 (issued in October 2010 and
    effective for annual periods beginning on or after 1 July 2011) (not adopted by the European Union).
    The amendment requires additional disclosures in respect of risk exposures arising from transferred
    financial assets. The amendment includes a requirement to disclose by class of asset the nature, carrying
    amount and a description of the risks and rewards of financial assets that have been transferred to
    another party yet remain on the entity's balance sheet. Disclosures are also required to enable a user to
    understand the amount of any associated liabilities, and the relationship between the financial assets and
    associated liabilities. Where financial assets have been derecognised but the entity is still exposed to
    certain risks and rewards associated with the transferred asset, additional disclosure is required to enable
    the effects of those risks to be understood. The Group is currently assessing the impact of the amended
    standard on disclosures in its financial statements.

§   Recovery of Underlying Assets – Amendments to IAS 12 (issued in December 2010 and effective for
    annual periods beginning on or after 1 January 2012) (not adopted by the European Union). The
    amendment introduced a rebuttable presumption that an investment property carried at fair value is
    recovered entirely through sale. This presumption is rebutted if the investment property is held within a
    business model whose objective is to consume substantially all of the economic benefits embodied in
    the investment property over time, rather than through sale. SIC-21, Income Taxes – Recovery of
    Revalued Non-Depreciable Assets, which addresses similar issues involving non-depreciable assets
    measured using the revaluation model in IAS 16, Property, Plant and Equipment, was incorporated into
    IAS 12 after excluding from its scope investment properties measured at fair value. The Group does not
    expect the amendments to have any material effect on its financial statements.
                                                                                                                           23
                                                                      R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


(c) New standards, amendments and interpretations issued but not effective for the financial year beginning 1
    January 2010 and not early adopted

The Group assessment of the impact of these new standards and interpretations is set out below.

§   IFRS 9, ‘Financial instruments’ (not adopted by the European Union), issued in November 2009. This
    standard is the first step in the process to replace IAS 39, ‘Financial instruments: recognition and
    measurement’. IFRS 9 introduces new requirements for classifying and measuring financial assets and is
    likely to affect the Group’s accounting for its financial assets. The standard is not applicable until 1 January
    2013 but is available for early adoption. However, the standard has not yet been endorsed by the EU. The
    Group is yet to assess IFRS 9’s full impact.

§   Revised IAS 24 (revised), ‘Related party disclosures’, issued in November 2009. It supersedes IAS 24,
    ‘Related party disclosures’, issued in 2003. IAS 24 (revised) is mandatory for periods beginning on or after
    1 January 2011. Earlier application, in whole or in part, is permitted. However, the standard has not yet been
    endorsed by the EU.

    The revised standard clarifies and simplifies the definition of a related party and removes the requirement
    for government-related entities to disclose details of all transactions with the government and other
    government-related entities. The Group will apply the revised standard from 1 January 2011. When the
    revised standard is applied, the Group will need to disclose any transactions between its subsidiaries and its
    associates.

§   ‘Classification of rights issues’ (amendment to IAS 32), issued in October 2009. The amendment applies
    to annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment
    addresses the accounting for rights issues that are denominated in a currency other than the functional
    currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity
    regardless of the currency in which the exercise price is denominated. Previously, these issues had to be
    accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8
    ‘Accounting policies, changes in accounting estimates and errors’. The Group will apply the amended
    standard from 1 January 2011.

§   IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’, effective 1 July 2010. The
    interpretation clarifies the accounting by an entity when the terms of a financial liability are renegotiated
    and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the
    financial liability (debt for equity swap). It requires a gain or loss to be recognised in profit or loss, which is
    measured as the difference between the carrying amount of the financial liability and the fair value of the
    equity instruments issued. If the fair value of the equity instruments issued cannot be reliably measured, the
    equity instruments should be measured to reflect the fair value of the financial liability extinguished. The
    Group will apply the interpretation from 1 January 2011, subject to endorsement by the EU. It is not
    expected to have any impact on the Group’s financial statements.

§   ‘Prepayments of a minimum funding requirement’ (amendments to IFRIC 14). The amendments
    correct an unintended consequence of IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum
    funding requirements and their interaction’. Without the amendments, entities are not permitted to recognise
    as an asset some voluntary prepayments for minimum funding contributions. This was not intended when
    IFRIC 14 was issued, and the amendments correct this. The amendments are effective for annual periods
    beginning 1 January 2011. Earlier application is permitted. The amendments should be applied
                                                                                                                            24
                                                                       R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


      retrospectively to the earliest comparative period presented. The Group will apply these amendments for the
      financial reporting period commencing on 1 January 2011.


§      IFRS 1, First-time Adoption of International Financial Reporting Standards (following an amendment
       in December 2008, effective for the first IFRS financial statements for a period beginning on or after 1 July
       2009). The revised IFRS 1 retains the substance of its previous version but within a changed structure in
       order to make it easier for the reader to understand and to better accommodate future changes. The revised
       standard did not have a material impact on these consolidated financial statements.

§      Additional Exemptions for First-time Adopters – Amendments to IFRS 1, First-time Adoption of
       IFRS (effective for annual periods beginning on or after 1 January 2010). The amendments exempt entities
       using the full cost method from retrospective application of IFRSs for oil and gas assets and also exempt
       entities with existing leasing contracts from reassessing the classification of those contracts in accordance
       with IFRIC 4, 'Determining Whether an Arrangement Contains a Lease' when the application of their
       national accounting requirements produced the same result. The amendments did not have a material
       impact on these consolidated financial statements.

    § Improvements to International Financial Reporting Standards (issued in April 2009; amendments to
      IFRS 2, IAS 38, IFRIC 9 and IFRIC 16 are effective for annual periods beginning on or after 1 July 2009;
      amendments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 and IAS 39 are effective for annual periods
      beginning on or after 1 January 2010). The improvements consist of a mixture of substantive changes and
      clarifications in the following standards and interpretations: clarification that contributions of businesses in
      common control transactions and formation of joint ventures are not within the scope of IFRS 2;
      clarification of disclosure requirements set by IFRS 5 and other standards for non-current assets (or
      disposal groups) classified as held for sale or discontinued operations; requiring to report a measure of total
      assets and liabilities for each reportable segment under IFRS 8 only if such amounts are regularly provided
      to the chief operating decision maker; amending IAS 1 to allow classification of certain liabilities settled by
      entity’s own equity instruments as non-current; changing IAS 7 such that only expenditures that result in a
      recognized asset are eligible for classification as investing activities; allowing classification of certain long-
      term land leases as finance leases under IAS 17 even without transfer of ownership of the land at the end of
      the lease; providing additional guidance in IAS 18 for determining whether an entity acts as a principal or
      an agent; clarification in IAS 36 that a cash generating unit shall not be larger than an operating segment
      before aggregation; supplementing IAS 38 regarding measurement of fair value of intangible assets
      acquired in a business combination; amending IAS 39 (i) to include in its scope option contracts that could
      result in business combinations, (ii) to clarify the period of reclassifying gains or losses on cash flow
      hedging instruments from equity to profit or loss for the year and (iii) to state that a prepayment option is
      closely related to the host contract if upon exercise the borrower reimburses economic loss of the lender;
      amending IFRIC 9 to state that embedded derivatives in contracts acquired in common control transactions
      and formation of joint ventures are not within its scope; and removing the restriction in IFRIC 16 that
      hedging instruments may not be held by the foreign operation that itself is being hedged. In addition, the
      amendments clarifying classification as held for sale under IFRS 5 in case of a loss of control over a
      subsidiary published as part of the Annual Improvements to International Financial Reporting Standards,
      which were issued in May 2008, are effective for annual periods beginning on or after 1 July 2009. The
      amendments did not have a material impact on these financial statements.

§      Improvements to International Financial Reporting Standards (issued in May 2010 and effective from
       1 January 2011). The improvements consist of a mixture of substantive changes and clarifications in the
       following standards and interpretations: IFRS 1 was amended (i) to allow previous GAAP carrying value to
                                                                                                                        25
                                                                   R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


    be used as deemed cost of an item of property, plant and equipment or an intangible asset if that item was
    used in operations subject to rate regulation, (ii) to allow an event driven revaluation to be used as deemed
    cost of property, plant and equipment even if the revaluation occurs during a period covered by the first
    IFRS financial statements and (iii) to require a first-time adopter to explain changes in accounting policies
    or in the IFRS 1 exemptions between its first IFRS interim report and its first IFRS financial statements;
    IFRS 3 was amended (i) to require measurement at fair value (unless another measurement basis is required
    by other IFRS standards) of non-controlling interests that are not present ownership interest or do not
    entitle the holder to a proportionate share of net assets in the event of liquidation, (ii) to provide guidance
    on acquiree’s share-based payment arrangements that were not replaced or were voluntarily replaced as a
    result of a business combination and (iii) to clarify that the contingent considerations from business
    combinations that occurred before the effective date of revised IFRS 3 (issued in January 2008) will be
    accounted for in accordance with the guidance in the previous version of IFRS 3; IFRS 7 was amended to
    clarify certain disclosure requirements, in particular (i) by adding an explicit emphasis on the interaction
    between qualitative and quantitative disclosures about the nature and extent of financial risks, (ii) by
    removing the requirement to disclose carrying amount of renegotiated financial assets that would otherwise
    be past due or impaired, (iii) by replacing the requirement to disclose fair value of collateral by a more
    general requirement to disclose its financial effect, and (iv) by clarifying that an entity should disclose the
    amount of foreclosed collateral held at the reporting date and not the amount obtained during the reporting
    period; IAS 1 was amended to clarify the requirements for the presentation and content of the statement of
    changes in equity (this amendment was early adopted by the Group); IAS 27 was amended by clarifying
    the transition rules for amendments to IAS 21, 28 and 31 made by the revised IAS 27 (as amended in
    January 2008); IAS 34 was amended to add additional examples of significant events and transactions
    requiring disclosure in a condensed interim financial report, including transfers between the levels of fair
    value hierarchy, changes in classification of financial assets or changes in business or economic
    environment that affect the fair values of the entity’s financial instruments; and IFRIC 13 was amended to
    clarify measurement of fair value of award credits. The Group does not expect the amendments to have any
    material effect on its financial statements.

§   Limited exemption from comparative IFRS 7 disclosures for first-time adopters - Amendment to
    IFRS 1 (effective for annual periods beginning on or after 1 July 2010) (not adopted by the European
    Union). Existing IFRS preparers were granted relief from presenting comparative information for the new
    disclosures required by the March 2009 amendments to IFRS 7, Financial Instruments: Disclosures. This
    amendment to IFRS 1 provides first-time adopters with the same transition provisions as included in the
    amendment to IFRS 7. The Group does not expect the amendments to have any effect on its financial
    statements.

§   Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters – Amendments to IFRS 1
    (issued in December 2010 and effective for annual periods beginning on or after 1 July 2011) (not adopted
    by the European Union). The amendment regarding severe hyperinflation creates an additional exemption
    when an entity that has been subject to severe hyperinflation resumes presenting or presents for the first
    time, financial statements in accordance with IFRS. The exemption allows an entity to elect to measure
    certain assets and liabilities at fair value; and to use that fair value as the deemed cost in the opening IFRS
    statement of financial position. The IASB has also amended IFRS 1 to eliminate references to fixed dates
    for one exception and one exemption, both dealing with financial assets and liabilities. The first change
    requires first-time adopters to apply the derecognition requirements of IFRS prospectively from the date of
    transition, rather than from 1 January 2004. The second amendment relates to financial assets or liabilities
    where the fair value is established through valuation techniques at initial recognition and allows the
    guidance to be applied prospectively from the date of transition to IFRS rather than from 25 October 2002
    or 1 January 2004. This means that a first-time adopter may not need to determine the fair value of certain
                                                                                                                          26
                                                                     R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


      financial assets and liabilities at initial recognition for periods prior to the date of transition. IFRS 9 has
      also been amended to reflect these changes. The Group does not expect the amendments to have any effect
      on its financial statements.

§     IFRS 10, Consolidated financial statements (issued in May 2011 and effective for annual periods
      beginning on or after 1 January 2013), replaces all of the guidance on control and consolidation in IAS 27
      “Consolidated and separate financial statements” and SIC-12 “Consolidation - special purpose entities”.
      IFRS 10 changes the definition of control so that the same criteria are applied to all entities to determine
      control. This definition is supported by extensive application guidance.

§     IFRS 11, Joint arrangements (issued in May 2011 and effective for annual periods beginning on or after
      1 January 2013), replaces IAS 31 “Interests in Joint Ventures” and SIC-13 “Jointly Controlled Entities—
      Non-Monetary Contributions by Ventures”. Changes in the definitions have reduced the number of “types”
      of joint arrangements to two: joint operations and joint ventures. The existing policy choice of
      proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting is
      mandatory for participants in joint ventures.

§     IFRS 12, Disclosure of interest in other entities (issued in May 2011 and effective for annual periods
      beginning on or after 1 January 2013), applies to entities that have an interest in a subsidiary, a joint
      arrangement, an associate or an unconsolidated structured entity; it replaces the disclosure requirements
      currently found in IAS 28 “Investments in associates”. IFRS 12 requires entities to disclose information
      that helps financial statement readers to evaluate the nature, risks and financial effects associated with the
      entity’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. To
      meet these objectives, the new standard requires disclosures in a number of areas, including significant
      judgments and assumptions made in determining whether an entity controls, jointly controls or significantly
      influences its interests in other entities, extended disclosures on share of non-controlling interests in group
      activities and cash flows, summarized financial information of subsidiaries with material non-controlling
      interests, and detailed disclosures of interests in unconsolidated structured entities.

§     IFRS 13, Fair value measurement (issued in May 2011 and effective for annual periods beginning on or
      after 1 January 2013), aims to improve consistency and reduce complexity by providing a precise definition
      of fair value, and a single source of fair value measurement and disclosure requirements for use across
      IFRSs.

Unless otherwise described above, the new standards and interpretations are not expected to significantly affect
the Group’s financial statements.

2.2      Consolidation

(a) Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern
the financial and operating policies generally accompanying a shareholding of more than one half of the voting
rights. The existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from
the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The Group uses the acquisition method of accounting to account for business combinations. The consideration
transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred
                                                                                                                          27
                                                                     R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or
liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as
incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination
are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the
Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling
interest’s proportionate share of the acquiree’s net assets.

The excess of the consideration transferred the amount of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share
of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets
of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the
statement of comprehensive income.

Inter-company transactions, balances and unrealized gains on transactions between Group companies are
eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by the Group.

(b) Purchases and sales of non-controlling interests.

The Group applies the economic entity model to account for transactions with owners of non-controlling
interest. Any difference between the purchase consideration and the carrying amount of non-controlling interest
acquired is recorded as a capital transaction directly in equity. The Group recognises the difference between
sales consideration and carrying amount of non-controlling interest sold as a capital transaction in the statement
of changes in equity.

2.3     Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker (CODM). The chief operating decision-maker who is responsible for allocating
resources and assessing performance of the operating segments, has been identified as the Chief Executive
Officer, who makes strategic decisions.

2.4     Foreign currency translation

(a) Functional and presentation currency

The Group operates in a Russian Ruble (“RUR”) economic environment. Accordingly, the functional currency
of each of the Group’s entities is the RUR. The Group’s consolidated financial statements have been presented
in US dollars (“USD”), as the Directors believe that this presentation is more appropriate for the users of these
financial statements.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated statement of
income.
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                                                                        R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the
consolidated statement of comprehensive income within ‘finance profit/ (loss)’.

(c) Group companies

The results and financial position of all the Group entities that have a functional currency different from the
presentation currency are translated into the presentation currency as follows:

      ·    assets and liabilities for each statement of financial position are translated at the closing rate at the end
           of the respective reporting period;
      ·    income and expenses are translated at average exchange rates (unless this average is not a reasonable
           approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case
           income and expenses are translated at the rate on the dates of the transactions);
      ·    components of equity are translated at the historic rate and
      ·    all resulting exchange differences are recognized in other comprehensive income.

When control over a foreign operation is lost, the previously recognized exchange differences on translation to a
different presentation currency are reclassified from other comprehensive income to profit or loss for the year as
part of the gain or loss on disposal. On partial disposal of a subsidiary without loss of control, the related portion
of accumulated currency translation differences is reclassified to non-controlling interest within equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and
liabilities of the foreign entity and translated at the closing rate.

At 31 December 2010, the principal rate of exchange used for translating foreign currency balances was
USD1=RUR 30.4769 (At 31 December 2009 USD1=RUR 30.2442). The principal average rate of exchange
used for translating income and expenses was USD1=RUR 30.3640 (2009: USD1=RUR 31.8256).

2.5       Property development rights and costs

(a) Property development rights

Property development rights represent the rights owned by the Group to either lease land plots, based on land
lease contracts entered into with the Moscow City Government (“land use rights”) or where an investment
contract or co-investment agreement has been entered into with the Moscow City Government providing the
rights for the development of a project site (“investment contract”).

Land use rights and investment contracts are stated at cost less provisions for impairment, where required. The
cost of property development rights held by acquired subsidiaries or jointly controlled entities is recorded at fair
value as at the date of acquisition of the subsidiary or jointly controlled entity.

(b) Property development costs

Property development costs represent capitalized costs directly attributable to the construction of properties,
including interest and foreign currency movements on borrowings during the construction period to the extent
they are regarded as an adjustment to interest, and other costs associated with the acquisition and development
of real estate. Property development costs are carried at cost less provision for impairment where required and
are not depreciated. Cost includes borrowing costs incurred on specific or general funds borrowed to finance
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                                                                     R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


construction of qualifying assets. Property development costs are not depreciated until the asset is available for
use.

If any indication of impairment exists, the Directors estimate the recoverable amount, which is determined as
the higher of an asset’s fair value less costs to sell and its value in use. The impairment loss, if any, is
recognized in the statement of comprehensive income in order to reduce the carrying amount to the recoverable
amount.

Upon determination of development concept of the project, property development rights and costs are
transferred at their carrying amount to investment property, if the asset is intended to be held by the Group for
capital appreciation or for rental; or to property developed for sale, if the asset is intended to be sold.

2.6       Investment property

Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by
the companies in the consolidated Group, is classified as investment property. As from 1 January 2009,
investment property also includes property that is being constructed or developed for future use as investment
property.

Investment property is measured initially at its cost, including related transaction costs and borrowing costs.
Borrowing costs incurred for the purpose of acquiring, constructing or producing a qualifying investment
property are capitalized as part of its cost. Borrowing costs are capitalized while acquisition or construction is
actively underway and cease once the asset is substantially complete, or suspended if the development of the
asset is suspended.

After initial recognition, investment property is carried at fair value. Fair value is based on active market prices,
adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this
information is not available, the Group uses alternative valuation methods, such as recent prices on less active
markets or discounted cash flow projections. Valuations are performed as of the end of the reporting period by
professional valuer who holds recognized and relevant professional qualifications and have recent experience in
the location and category of the investment property being valued. These valuations form the basis for the
carrying amounts in the financial statements. Investment property that is being redeveloped for continuing use
as investment property or for which the market has become less active continues to be measured at fair value.

Fair value measurement on property under construction is only applied if the fair value is considered to be
reliably measurable.

It may sometimes be difficult to determine reliably the fair value of the Investment property. In order to evaluate
whether the fair value of an Investment property can be determined reliably, management considers the
following factors, among others:

      •   The provisions of the construction contract.
      •   The stage of completion.
      •   Whether the project/property is standard (typical for the market) or non-standard.
      •   The level of reliability of cash inflows after completion.
      •   The development risk specific to the property.
      •   Past experience with similar constructions.
      •   Status of construction permits.
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                                                                     R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


The fair value of investment property reflects, among other things, assumptions about rental income from future
leases in the light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows
that could be expected in respect of the property.

Subsequent expenditure is capitalized to the asset’s carrying amount only when it is probable that future
economic benefits associated with the expenditure will flow to the Group and the cost of the item can be
measured reliably. All other repairs and maintenance costs are expensed when incurred.

The fair value of investment property does not reflect the related future capital expenditure that will enhance the
property and does not reflect the related future benefits from this future expenditure other than those a rational
market participant would take into account when determining the value of the property.

Changes in fair values are recognized in the consolidated statement of income. Investment properties are
derecognised either when they have been disposed of or when the investment property is permanently
withdrawn from use and no future economic benefit is expected from its disposal.

Where the Group disposes of a property at fair value in an arm’s length transaction, the carrying value
immediately prior to the sale is adjusted to the transaction price, and the adjustment is recorded in the
consolidated statement of income within net gain from fair value adjustment on investment property.

Following the adoption of IAS 40 (revised), investment properties under construction have been transferred
from property development rights and costs to investment properties at 1 January 2009 at their carrying amount.
They have subsequently been fair valued at the reporting date. All fair value gains or losses, including those
unrecognized fair value gains and losses (if the losses have not already been recognized through impairment)
that arose prior to 1 January 2009, have been recognized in the profit or loss for the year as fair value gains or
losses.

If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment. Its fair
value at the date of reclassification becomes its cost for subsequent accounting purposes.

If an item of owner-occupied property becomes an investment property because its use has changed, any
difference resulting between the carrying amount and the fair value of this item at the date of transfer is treated
in the same way as a revaluation under IAS 16. Any resulting increase in the carrying amount of the property is
recognized in the profit or loss to the extent that it reverses a previous impairment loss, with any remaining
increase recognized in other comprehensive income and increases directly to revaluation surplus within equity.
Any resulting decrease in the carrying amount of the property is initially charged in other comprehensive
income against any previously recognized revaluation surplus, with any remaining decrease charged to profit or
loss.

Where an investment property undergoes a change in use, evidenced by commencement of development with a
view to sale, the property is transferred to inventories. A property’s deemed cost for subsequent accounting as
inventories is its fair value at the date of change in use.

2.7     Investment in jointly controlled entities

A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other
entity in which each venturer has an interest. The entity operates in the same way as other entities, except that a
contractual arrangement between the venturers establishes joint control over the economic activity of the entity.
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                                                                     R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


Investments in jointly controlled entities are accounted for using the equity method of accounting, based upon
the percentage of ownership held by the Group. When the Group’s share of losses exceeds its interest in an
equity accounted investee, the carrying amount of the interest is reduced to nil and recognition of further losses
is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the
investee.

Unrealized gains arising from transactions with jointly controlled entities are eliminated to the extent of the
Group’s interest in the entity.

2.8     Acquisition of new projects

(a) Acquisition of new projects through acquisition of subsidiaries

Subsidiaries are those companies and other entities (including special purpose entities) in which the Group,
directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to govern
the financial and operating policies so as to obtain benefits. The existence and effect of potential voting rights
that are presently exercisable or presently convertible are considered when assessing whether the Group controls
another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group
(acquisition date) and are deconsolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries other than those
acquired from parties under common control. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the
extent of any non-controlling interest.

The Group measures non-controlling interest on a transaction by transaction basis, either at: (a) fair value, or (b)
the non-controlling interest's proportionate share of net assets of the acquiree.

Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration
transferred for the acquiree, the amount of non-controlling interest in the acquiree and fair value of an interest in
the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill”) is
recognized in profit or loss, after management reassesses whether it identified all the assets acquired and all
liabilities and contingent liabilities assumed and reviews appropriateness of their measurement.

The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity
instruments issued and liabilities incurred or assumed, including fair value of assets or liabilities from
contingent consideration arrangements but excludes acquisition related costs such as advisory, legal, valuation
and similar professional services. Transaction costs incurred for issuing equity instruments are deducted from
equity; transaction costs incurred for issuing debt are deducted from its carrying amount and all other
transaction costs associated with the acquisition are expensed.

Intercompany transactions, balances and unrealized gains on transactions between group companies are
eliminated; unrealized losses are also eliminated unless the cost cannot be recovered. The Company and all of
its subsidiaries use uniform accounting policies consistent with the Group’s policies.

Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests
which are not owned, directly or indirectly, by the Company. Non-controlling interest forms a separate
component of the Group’s equity.
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                                                                       R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


(b) Acquisition of new projects through acquisition of joint ventures

The accounting policy for acquisition of subsidiaries representing businesses is also applied to the acquisition of
jointly controlled entities, to the extent that the Group’s share of the separately identifiable assets, liabilities and
contingent liabilities acquired is compared to the consideration paid to determine the goodwill or negative
goodwill arising on the transaction. Such goodwill is included in the carrying value of the investments in the
jointly controlled entities accounted for using the equity method. Negative goodwill is recognized immediately
in the Group’s share in profit of the jointly controlled entity.

2.9       Property, plant and equipment

Land and buildings comprise mainly retail outlets and offices. Land and buildings are shown at fair value, based
on annual valuations by external independent valuer, less subsequent depreciation for buildings. Any
accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset,
and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment is
stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the
acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the Group and the
cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other
repairs and maintenance are charged to the consolidated statement of income during the financial period in
which they are incurred.

Increases in the carrying amount arising on revaluation of land and buildings are credited to other
comprehensive income and shown as other reserves in shareholders’ equity. Decreases that offset previous
increases of the same asset are charged in other comprehensive income and debited against other reserves
directly in equity; all other decreases are charged to the consolidated statement of income. Each year the
difference between depreciation based on the revalued carrying amount of the asset charged to the consolidated
statement of income, and depreciation based on the asset’s original cost is transferred from ‘other reserves’ to
‘retained earnings’.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their
cost or revalued amounts to their residual values over their estimated useful lives, as follows:

      ·   Buildings 25-40 years
      ·   Machinery 10-15 years
      ·   Vehicles 3-5 years
      ·   Furniture, fittings and equipment 3-8 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount.

When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings.
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                                                                     R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


2.10    Accounts receivables and prepayments

Accounts receivables are recorded inclusive of Value Added Tax (“VAT”) and are carried at amortized cost, net
of provisions for impairment, if any. A provision for impairment of receivables is established when there is
objective evidence that the Group will not be able to collect all amounts due according to the original terms of
the receivables. The amount of the provision is the difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the
provision is recognized in the consolidated statement of comprehensive income.

Prepayments are carried at cost less provision for impairment. A prepayment is classified as non-current when
the goods or services relating to the prepayment are expected to be obtained after one year, or when the
prepayment relates to an asset which will itself be classified as non-current upon initial recognition. Prepayment
to acquire assets are transferred to the carrying amount of the asset once the Group has obtained control of the
asset and it is probable that future economic benefits associated with the assets will flow to the Group. Other
prepayments are written off to the consolidated statement of comprehensive income when the goods or services
relating to the prepayments are received. If there is an indication that the assets, goods or services relating to a
prepayment will not be received, the carrying value of the prepayment is written down accordingly and a
corresponding impairment loss is recognized in profit or loss for the year.

Non-current receivables represent amounts of VAT related to development projects, which is either to be
recovered in the future from the Government Budget or included in property development costs after completion
of each projects, if such recovery is not deemed possible.

Trade receivables are amounts due from customers for services performed in the ordinary course of business. If
collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are
classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the
effective interest method, less provision for impairment.

2.11    Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out
(FIFO) method. The cost of inventories includes design costs, raw materials, direct labor, other direct costs and
related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realizable
value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

2.12    Property developed for sale

Property developed for sale is defined as projects in which the Group participates as a contractor or as a
promoter, and which include construction work with the intention to sell the entire building as a whole or parts
thereof. Each project represents one building or a group of buildings.

A group of buildings is considered one project when the buildings at the same building site are being
constructed according to one building plan and under one building license, and are offered for sale at the same
time. Property developed for sale includes cost of land or of rights to the land that constitutes the relative portion
of the area, on which the construction work on projects is performed, plus the cost of the work executed on the
projects as well as other costs allocated thereto, less the cumulative amounts recognized in profit or loss as cost
of property developed for sale sold up to the end of the reported period.
                                                                                                                          34
                                                                     R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


Where the estimated expenses for a building project indicate that a loss is expected, an appropriate provision is
set up. Buildings that are under construction are classified as Property developed for sale on the face of the
statement of financial position.

2.13    Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at
call with banks, other short-term highly liquid investments with original maturities of three months or less and
bank overdrafts. Cash and cash equivalents are carried at amortized cost using the effective interest method.

2.14    Share capital

Ordinary shares are classified as equity. Mandatorily redeemable preference shares are classified as liabilities.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a
deduction, net of tax, from the proceeds.

Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration
paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity
attributable to the Company’s owners until the shares are cancelled or reissued. Where such ordinary shares are
subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs
and the related income tax effects, is included in equity attributable to the Company’s owners.

2.15    Trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of
business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year
or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current
liabilities.

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the
effective interest method.

2.16    Loans and Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently
carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption
value is recognized in the consolidated statement of income over the period of the borrowings using the
effective interest method.

Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that
it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-
down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn
down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility
to which it relates.

Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The
dividends on these preference shares are recognized in the consolidated statement of income as interest expense.
                                                                                                                          35
                                                                     R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


2.17    Current and deferred income tax

Income taxes have been provided for in the financial statements in accordance with legislation of Guernsey,
Cyprus, Israel and the Russian Federation enacted or substantively enacted by the end of the reporting period.
The tax expense for the period comprises current and deferred tax. Tax is recognized in the consolidated
statement of income, except to the extent that it relates to items recognized in other comprehensive income or
directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity,
respectively.

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable
tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,
deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income
tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by
the statement of end of the reporting period and are expected to apply when the related deferred income tax
asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates,
except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled
by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income
taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where
there is an intention to settle the balances on a net basis.

2.18    Bonds

Bonds issued are recognized initially at fair value of the liability determined by proceeds from the issuance, net
of transaction costs incurred. In subsequent periods, bonds are stated at amortized cost using the effective
interest method; any difference between the amount at initial recognition and the redemption amount is
recognized as interest expense over the period of the borrowings.

2.19    Share-based payment

The Group operates an equity-settled share-based compensation plan under which the Group receives services
from employees as consideration for equity instruments of the Group. The fair value of the employee services
received in exchange for the grant of the equity instruments is recognized as an expense. The total amount to be
expensed is determined on the grant date by reference to the fair value of the equity instruments granted,
including the impact of the market performance vesting condition and excluding the impact of the non-market
vesting condition. For compensation plans with the non-market vesting condition, this condition is included in
                                                                                                                        36
                                                                   R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


assumptions about the number of equity instruments that are expected to vest. The total amount expensed is
recognized over the vesting period, which is the period over which all of the specified vesting conditions are to
be satisfied. At each statement end of the reporting period, the Group revises its estimates of the number of
equity instruments that are expected to vest based on the non-market vesting conditions, if any, in the
consolidated statement of income, with a corresponding adjustment to equity. For compensation plans linked to
the market performance vesting conditions, the assumption reflecting the probability of meeting this condition is
incorporated in the initial valuation of the grant. The resulting expense is recognized over the vesting period,
irrespective of whether the market condition is satisfied.

2.20    Provisions

Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. They are
accrued when the Group has a present legal or constructive obligation as a result of past events, it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable
estimate of the amount of the obligation can be made.

2.21    Derivatives

Derivative financial instruments are carried as trading assets and liabilities at their fair value. All derivative
instruments are carried as assets when fair value is positive and as liabilities when fair value is negative.
Changes in the fair value of derivative instruments are included in consolidated statement of comprehensive
income. The Group does not apply hedge accounting.

2.22    Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services
in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and
discounts and after eliminating sales within the group.

The Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future
economic benefits will flow to the entity and when specific criteria have been met for each of the Group’s
activities as described below. The Group bases its estimates on historical results, taking into consideration the
type of customer, the type of transaction and the specifics of each arrangement.

(a) Sale of property developments

Revenue from the sale of property developments is recognized at the point of transfer of risks and rewards of
ownership and effective control.

No revenues are recognized if there are significant uncertainties regarding recovery of consideration due, the
cost incurred or to be incurred cannot be reliably measured, there is a risk of return, or there is continuing
management involvement to the degree usually associated with ownership. Transfer of rights and rewards varies
depending on the individual terms of the contract of sale.

Deferred income is reflected in the statement of financial position as a receivable or, if paid in advance, as a
liability.
                                                                                                                            37
                                                                       R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


(b) Sales of goods – retail

Sales of goods are recognized when a Group entity sells a product to the customer. Retail sales are usually in
cash or by credit card.

(c) Sales of services

Revenue from contracts for services is generally recognized in the period the services are provided, using a
straight-line basis over the term of the contract.

If circumstances arise that may change the original estimates of revenues, costs or extent of progress toward
completion, estimates are revised. These revisions may result in increases or decreases in estimated revenues or
costs and are reflected in income in the period in which the circumstances that give rise to the revision become
known by management.

(d) Interest income

Interest income is recognized using the effective interest method. When a loan and receivable is impaired, the
Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted
at the original effective interest rate of the instrument, and continues unwinding the discount as interest income.
Interest income on impaired loan and receivables are recognized using the original effective interest rate.

2.23    Employee benefits

Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual
leave and sick leave, bonuses, awards in accordance with the Long Term Incentive Plan (“LTIP”), and non-
monetary benefits (such as health services) are accrued in the year in which the associated services are rendered
by the employees of the Group. The Group has no legal or constructive obligation to make pension or similar
benefit payments beyond the unified social tax.

2.24    General and Administrative Expenses

All General and Administrative expenses are recognized in the period when they are incurred. The expenses that
are directly related to the Group activity in respect of the certain project are capitalized as the cost of the project.
The expenses that are not attributable to the projects are reflected in the statement of comprehensive income.

2.25    Offsetting

Financial assets and liabilities are offset and the net amount reported in the statement of financial position only
when there is a legally enforceable right to offset the recognized amounts, and there is an intention to either
settle on a net basis, or to realize the asset and settle the liability simultaneously.

2.26    Value added tax

Output value added tax related to sales is payable to tax authorities on the earlier of (a) collection of receivables
from customers or (b) delivery of goods or services to customers. Input VAT is generally recoverable against
output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement of VAT on a net basis.
VAT related to sales and purchases is recognized in the statement of financial position on a gross basis and
disclosed separately as an asset and liability. Where provision has been made for impairment of receivables,
impairment loss is recorded for the gross amount of the debtor, including VAT.
                                                                                                                       38
                                                                  R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


2.27    Earnings per share

Earnings per share are determined by dividing the profit or loss attributable to owners of the Company by the
weighted average number of participating shares outstanding during the reporting year.

2.28    Amendment of the consolidated financial statements after issue

Any changes to these consolidated financial statements after issue require approval of the Board of Directors of
the Group.
                                                                                                                       39
                                                                  R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


3.      FINANCIAL RISK MANAGEMENT

The Group’s activities expose it to a variety of financial risks: market risk (foreign exchange risk, fair value
interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk
management programme focuses on the unpredictability of financial markets and seeks to minimize potential
adverse effects on the Group’s financial performance.

The Treasury department of the Group identifies and evaluates financial risks in close co-operation with the
Group’s operating units. The Board of Directors provides principles for overall risk management, as well as
instructions covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and use of
derivative financial instruments.

Market risk

Foreign exchange risk

The functional currency of the Group is the Russian Ruble (“RUR”). Foreign exchange risk is the risk that the
value of financial instruments will fluctuate due to changes in foreign currency exchange rates. At 31 December
2010, the Group was exposed to foreign exchange risks arising from currency exposures, primarily in respect of
US Dollar (“USD”). A foreign exchange risk arises from recognized monetary assets and liabilities. The
Group’s policy is not to enter into any currency hedging transactions in respect of these risks. However, since
the majority of expenditure and revenues of the Group are denominated in both RUR and USD, the Directors
allocate the Group’s cash resources based on the forecasted currency outflows.

Had the US dollar exchange rate on 31 December 2010 changed by 10% the change in the carrying value of the
dollar-denominated financial assets and liabilities and the impact on profit before tax and equity would be as
follows:

                                                CARRYING               CARRYING                       CARRYING
                                                 AMOUNT           AMOUNT AFTER                    AMOUNT AFTER
                                                                 10% INCREASE IN                10% DECREASE IN
                                                                  USD EXCHANGE                    USD EXCHANGE
                                                                            RATE                            RATE
                                                    USD’000              USD’000                         USD’000
USD denominated financial assets                       66,804               73,484                          60,124
USD denominated financial liabilities*              (215,127)            (236,640)                       (193,614)
USD denominated financial assets net                (148,323)            (163,156)                       (133,490)
Net impact on profit and loss before tax                                  (14,833)                          14,833
Net impact on equity                                                      (11,866)                          11,866

As at 31 December 2009:

                                                CARRYING               CARRYING                       CARRYING
                                                 AMOUNT           AMOUNT AFTER                    AMOUNT AFTER
                                                                 10% INCREASE IN                10% DECREASE IN
                                                                  USD EXCHANGE                    USD EXCHANGE
                                                                            RATE                            RATE
                                                    USD’000              USD’000                         USD’000
USD denominated financial assets                       18,788               20,667                          16,909
USD denominated financial liabilities*              (109,595)            (120,554)                        (98,636)
USD denominated financial assets net                 (90,807)             (99,887)                        (81,727)
Net impact on profit and loss before tax                                   (9,080)                           9,080
Net impact on equity                                                       (7,264)                           7,264
                                                                                                                            40
                                                                       R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


* Including New Israeli Shekels (“NIS”) denominated bonds linked to Israeli CPI in the amount of equivalent to
USD 18,090,000 (2009: USD 26,343,000). Since the Group entered into cross-currency interest rate swap
contracts (see Note 16) for the purposes of managing foreign exchange risk the Directors consider these bonds
to be US dollar denominated liabilities.

The table below summarizes the Group’s exposure to foreign currency exchange rate risk at the statement of end
of the reporting period :

                              31 DECEMBER 2010                                        31 DECEMBER 2009
                                                                Net                                                       Net
               Monetary       Monetary                    statement    Monetary      Monetary                        statemen
                financial      financial                          of    financial     financial                            t of
                   assets     liabilities   Derivatives    financial       assets    liabilities     Derivatives     financial
                                                            position                                                  position
                                                            position                                                  position
                USD’000       USD’000         USD’000      USD’000     USD’000        USD’000          USD’000       USD’000
Russian
Rubles               37,764     (7,118)               -      30,646       45,576        (4,478)                  -       41,098
US Dollars           66,804   (197,037)               -   (130,233)       18,788       (83,252)                  -     (64,464)
EUR                     242       (100)               -         142        4,050          (122)                  -        3,928
New Israeli
Shekels              696       (18,133)           (340)    (17,777)          630       (26,439)           (1,175)      (26,984)
                 105,506      (222,388)           (340)   (117,222)       69,044      (114,291)           (1,175)      (46,422)

Interest rate risk

The Group’s interest rate risk arises from long-term borrowings and bonds. The Sberbank loan, issued at
variable rates exposes the Group to cash flow interest rate risk. The Bonds issued expose the Group to fair value
interest rate risk due to changes in CPI. The Group is also exposed to variations in interest rates in relation to the
interest earned on cash deposits and loans issued. Reductions in interest rates would reduce the level of income
earned by the Group on the surplus cash assets within the Group.

The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into
consideration refinancing, renewal of existing positions, alternative financing and hedging.

For the Sberbank loan the Group is exposed to changes in 6 month USD LIBOR. As at 31 December 2010 an
increase of 100 basis points in 6 month USD LIBOR would result in insignificant increase in interest expense
(2009: USD 838,000).

Fair Value of Financial Instruments

The Group’s financial assets consist of cash and cash equivalents and current and non-current receivables. The
Group’s financial liabilities consist of bonds, loans, derivative instruments, liabilities under put option
agreement and other payables. All of the Group’s financial assets and liabilities, except for the cross-currency
swap contract (see Note 16), are measured at amortized cost which approximates fair value. The swap contract
is presented at its fair value. The fair value for the swap contract was determined based on valuation techniques
with inputs observable in markets. The fair value of other financial assets and liabilities approximates to their
amortized value included in the consolidated statement of financial position.
                                                                                                                         41
                                                                    R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


Credit risk

The Group is exposed to credit risk, which is the risk that a counterparty will not be able to pay all amounts in
full when due. Financial assets, which potentially subject the Group to credit risk, consist principally of
accounts receivable, long-term loans and cash and cash equivalents.

The carrying amount of accounts receivable, loans and balances with banks represents the maximum amount
that the Group is exposed to credit risk, which in 2010 was USD 100,752,000 (2009: USD 55,432,000).

54% of the above total credit exposure is related to cash and cash equivalents (2009: 50%).

Cash and cash equivalents are placed in high credit quality financial institutions, which are considered at the
time of the deposit to have a minimal risk of default. The Directors believe the risk of default of these
institutions is low, but will continue to monitor future placing of deposits in order to minimize credit risk
exposure. 60% of cash balances are held with Morgan Stanley Funds, 21% with UniCredit Bank, 10% with
UBS AG Bank, 5% with ING Bank NV, 2% with Sberbank and 2% with First International Bank of Israel.
(2009: 29% of cash balances are held with UniCredit Bank, 23% with UBS AG Bank, 21% with Morgan
Stanley Funds, 14% with ING Bank NV and 13% with First International Bank of Israel).

29% of the above total credit exposure is related to the loans issued to the jointly controlled venture (see Note 8)
(2009: 44%). The Directors consider the credit risk associated with this balance to be low since the Group is
able to jointly control the joint venture.

The remaining credit risk exposure is associated with trade and other receivables. Although collection of
receivables could be influenced by economic factors, the Directors believe that there is no significant risk of loss
to the Group beyond any provision already recorded.

As at 31 December 2010 and 31 December 2009 there were neither past due or impaired financial assets.

Though there are no formal objectives, policies and processes for management of credit risk at the level of the
Company, credit risk is managed at the shareholder level.

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities. The Group is exposed to daily calls on its available cash resources. Management monitors monthly
rolling forecasts of the Group’s cash flows.

Management estimates that the liquidity portfolio comprising cash and bank deposits can be realized in cash in
order to meet unforeseen liquidity requirements. The Group’s liquidity position is monitored and regular
liquidity stress testing under a variety of scenarios covering both normal and more severe market conditions is
performed by the management.

The liquidity management of the Group requires considering the level of liquid assets necessary to settle
obligations as they fall due; maintaining access to a range of funding sources; maintaining funding contingency
plans; and monitoring statement of financial position liquidity ratios.
                                                                                                                      42
                                                                 R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


The maturity dates of the Group’s financial assets and liabilities at 31 December 2010 are presented below. The
amounts disclosed in the table are contractual undiscounted cash flows.

                                                            MATURITY DATE
                                      NOTE         2011           2012                       NOT              TOTAL
                                                                                         DEFINED
                                               USD’000            USD’000                 USD’000            USD’000
Financial assets:
Input VAT                                         3,325                     -                 1,429              4,754
Loans to jointly controlled entity         8          -                29,284                     -             29,284
Current receivables                              10,691                     -                     -             10,691
Cash and cash equivalents                 14     55,310                     -                     -             55,310
Total financial assets                           69,326                29,284                 1,429            100,039
Financial liabilities:
Bonds                                            10,619             10,323                         -            20,942
Loans                                            11,197             99,724                         -           110,921
Put option agreement                                  -            114,934                         -           114,934
Trade and other payables                  17      7,947                  -                         -             7,947
Total financial liabilities                      29,763            224,981                         -           254,744

The maturity dates of the Group’s financial assets and liabilities at 31 December 2009 are presented below. The
amounts disclosed in the table are contractual undiscounted cash flows.

                                                               MATURITY DATE
                                      NOTE         2010        2011     2012                 NOT              TOTAL
                                                                                         DEFINED
                                               USD’000     USD’000        USD’000         USD’000            USD’000
Financial assets:
Input VAT                                         2,052       12,610                 -        1,002             15,664
Loans to jointly controlled entity         8      3,595            -            20,971            -             24,566
Current receivables                                 454            -                 -            -                454
Cash and cash equivalents                 14     27,490            -                 -            -             27,490
Total financial assets                           33,591       12,610            20,971        1,002             68,174
Financial liabilities:
Bonds                                            10,385        7,270            12,908              -           30,563
Loans and borrowings                              7,255        7,255            86,653              -          101,163
Trade and other payables                  17      8,516            -                 -              -            8,516
Total financial liabilities                      26,156       14,525            99,561              -          140,242
                                                                                                                       43
                                                                  R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


4.  CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING
ACCOUNTING POLICIES

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates
and judgments are continually evaluated and are based on the Directors’ experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. The Directors also
make certain judgments, apart from those involving estimations, in the process of applying the accounting
policies. Judgments that have the most significant effect on the amounts recognized in the consolidated financial
statements and which could cause a significant adjustment to the carrying amount of assets and liabilities within
the next financial year include:

Valuation of the development rights and costs, property developed for sale and investment property

The Group has obtained a report from an international valuation company, DTZ Debenham Zadelhoff Limited’s
(“DTZ”), setting out the estimated market values for the Group’s development rights, investment property and
property developed for sale (‘assets’) in their current state as at 31 December 2010, based on the assumption as
to use of each property by a typical local developer in Russia. Had a different assessment been made of the
assumptions underlying the valuation report the estimated fair values of the assets would have been higher or
lower as at the above mentioned date.

The development projects’ recoverable amount was determined based on reliable estimates of future cash flows,
supported by the terms of any existing lease and other contracts and by external evidence such as current market
prices for similar properties in the same location and condition, and using discount rates that reflect current
market assessments of the uncertainty in the amount and timing of the cash flows.

Management has reviewed the appraisers’ assumptions underlying discounted cash flow models used in the
valuation, and confirmed that factors such as the discount rate applied have been appropriately determined
considering the market conditions at the end of the reporting period. Notwithstanding the above, management
considers that the valuation of its investment properties under construction is currently subject to an increased
degree of judgement and an increased likelihood that actual proceeds on a sale may differ from the carrying
value.

The principal assumptions underlying the market value of the Group’s development portfolio in respect of the
Group’s five projects in course of development such as the Kingston Development, the Khilkov Development,
the Victory Park Development, the Ostozhenka Development and the Chelsea Development taken at 100% of
ownership are those related to current market level of: the projected sale and rent prices per square meter; the
construction costs per square meter; the size of the projects; the developer profit required and the level of
financing and other costs. The principal assumptions made, and the impact on the aggregate valuations by
changing these assumptions is as follows:

·   sale prices from USD 3,100 to USD 25,000 per square meter and rent of USD 1,100 per square meter per
    annum. If these values were to differ by 10% from management’s estimates, the fair value of the
    development projects would be an estimated USD 180 million lower or higher;
·   construction costs, between USD 943 and USD 2,500 per square meter. If these values were to differ by
    10% from management’s estimates, the fair value of the development projects would be an estimated USD
    146 million lower or USD 144 million higher;
·   gross buildable area is assumed to be 1.4 million square meters. If this value was to differ by 10% from
    management’s estimates, the fair value of the development projects would be an estimated USD 50 million
    lower or higher;
                                                                                                                       44
                                                                  R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


·   development profit, between 23% and 45% per project. If these values were to differ by 10% from
    management’s estimates, the fair value of the development projects would be an estimated USD 39 million
    lower or USD 40 million higher;
·   cost of finance approximates to 15%. If this value were to differ by 10% from management’s estimates, the
    fair value of the development projects would be an estimated USD 7 million lower or higher;
·   yield achieved on commercial or retail space of 12%. If this value was to differ by 10% from management’s
    estimate, the fair value of the development projects would be an estimated USD 0.6 million lower or USD
    0.8 million higher;
·   completion dates of properties held for development between 2013 and 2017. A one year delay in
    completion across all properties held for development would result in an estimated decrease of the fair value
    of the development projects of USD 74 million.

Significant management involvement in operations of Tsvetnoy project

Management had a significant involvement in operations of entire Tsvetnoy project as at 31 December 2010 and
has intention to keep the significant involvement at least for the period up to 31 December 2011 over the entire
building. The operations of Tsvetnoy project includes the Group’s own retail operations, the third parties retail
operations, restaurant business, gourmet business and underground parking. The degree of the Group’s
management involvement depends on the type of business and is the highest in retail business, however is
significant in other type of businesses. The nature of significant management involvement in the operations of
Tsvetnoy projects relates to the daily involvement of management in monitoring activities of all parts of the
businesses in accordance with the strategy developed by management for this project, such as design of
premises, marketing and promotion actions, range of goods and services, customer relations, staff trainings and
control, logistics and other areas.

Valuation of the Tsvetnoy Development

Property with the significant management involvement is stated at fair value based on reports prepared by the
valuation company DTZ. The fair value of the property is estimated based on the income capitalization method,
where the value is estimated from the expected market rental income streams and capitalization yields. The
method considers net income generated by comparable property, capitalized to determine the value for property
which is subject to the valuation.

The principal assumptions underlying the estimation of the fair value are those related to the possible market
rentals and appropriate discount rates. The impact on the aggregate valuations of reasonably possible changes in
these assumptions, with all other variables held constant, is as follows:

·   discount rate of 12% for rental inflow and 20% for fit-out reimbursement. If these values differ by 10%
    from management’s estimates, the market value would be an estimated USD 16 million lower or USD 17
    million higher;
·   yield of 11% to differ by 10% from management’s estimates would result in the market value an estimated
    USD 8 million lower or USD 9 million higher;
·   market rental rates were assumed to be from 900 to 5,000 USD per square meter per annum depending on
    the retail type. Should these rental rates differ by 10% from management’s estimates, the market value
    would be an estimated USD 22 million lower or higher.
                                                                                                                       45
                                                                  R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


Deferred income tax asset recognition

The recognized deferred tax asset represents income taxes recoverable through future deductions from taxable
profits and is recorded in the statement of financial position. Deferred income tax assets are recorded to the
extent that realization of the related tax benefit is probable. The future taxable profits and the amount of tax
benefits that are probable in the future are based on the current management expectations regarding the Group’s
future performance.

Going concern

Management prepared these financial statements on a going concern basis. In making this judgment
management considered the Group’s financial position, current intentions, profitability of operations and access
to financial resources, and analyzed the potential impact of recent financial crisis on future operations of the
Group.
                                                                                                                      46
                                                                 R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


5.     PROPERTY DEVELOPMENT RIGHTS AND COSTS

The Group is involved in the development of the following projects:

         NAME OF PROJECT             TYPE OF PROJECT                         GROUP’S INTEREST

                                                                      2010                   2009
         Jointly controlled
         Khilkov (1)                 Residential                      50%                    50%
         Consolidated
         Kingston (2)                Residential                      82%                    82%
         Tsvetnoy (3)                Retail                           100%                   100%
         Victory Park                Mixed Use                        100%                   100%
         Chelsea                     Mixed Use                        100%                   100%
         Ostozhenka                  Residential                      100%                   100%

        (1) Refer to Note 8 for further information
        (2) Refer to Note 6, 13 for further information
        (3) Refer to Note 6, 9 for further information
                                                                                                                                                                         47
                                                                                                                    R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010



In respect of the Group’s current development portfolio, the following property development rights and property development costs are held:




                                                   KINGSTON        TSVETNOY         VICTORY PARK            CHELSEA        OSTOZHENKA                 OTHERS             TOTAL
                                                      USD’000         USD’000             USD’000            USD’000            USD’000               USD’000            USD’000
At 1 January 2009                                      261,730         114,084              39,978            131,625             9,740                 95,106            652,263
Additions in property development costs                  3,493          33,195                   45                 60               75                    172             37,040
Reclassification from property development cost              -               -              (1,069)            (7,525)                -                      -             (8,594)
(Note 12)
Impairment of property development rights                     -               -                      -         (97,358)                      -          (87,973)        (185,331)
Valuation gain                                                -          14,539                      -                -                      -                 -           14,539
Reclassification to Investment property (Note 6)              -       (161,055)                      -                -                      -                 -        (161,055)
Translation difference                                  (7,293)           (763)                (1,196)          (9,241)                  (272)           (7,305)         (26,070)
At 31 December 2009                                     257,930               -                37,758            17,561                  9,543                   -        322,792
Additions in property development costs                  15,693               -                    95                 -                    117                   -         15,905
Reclassification to investment property (Note 6)       (29,987)               -                     -                 -                      -                   -       (29,987)
Reclassification to property developed for sale       (242,619)               -                     -                                                            -      (242,619)
(Note 13)
Translation difference                                  (1,017)               -                 (288)             (254)                   (74)                   -         (1,633)
At 31 December 2010                                           -               -                37,565            17,307                  9,586                   -         64,458

Management has utilized appraisal reports prepared by DTZ as at 31 December 2010 to support their assessment of the market value of these assets in order to
perform the impairment tests. Refer to the Note 4 for assumptions used by management. There were no indicators of impairment identified during 2010.
                                                                                                                             48
                                                                        R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


The Group, through its Russian subsidiaries, has access to develop its projects through investment contracts
with the Moscow City Government or through land use rights.

The land lease agreements held are detailed below:

                                                                               ACQUISITION             PERIOD OF THE
                                                                               DATE OF                 LEASE FROM
 NAME OF SUBSIDIARY THAT HAS ENTITLEMENT                                       LAND USE                THE DATE OF
 TO THE LEASE AGREEMENT                                                        RIGHTS                  ACQUISITION
 LLC Ostozhie – Ostozhenka Project                                             30 June 2006            19 years
 LLC Central Market –Tsvetnoy Project                                          30 June 2006            46 years
 LLC Jevosset – Kingston Project                                               27 June 2007            48 years
 LLC Tolling –Victory Park Project                                             19 March 2007           5 years
 LLC Forum – Chelsea Project (part)                                            22 February 2008        21 years

6.      INVESTMENT PROPERTY

The Tsvetnoy Development was re-classified from investment property to buildings (Note 9) as owner –
occupied property held for use in supply of goods and services after its soft opening in December 2010.

The Kingston Development was re-classified from property development rights and cost to Investment property
in part of its commercial premises based on starting construction works and finishing the concept.

The appraisal report prepared by DTZ as of December 2010 was used to support the management assessment of
the fair value of the Investment property and to determine the retail part of the total project value.


                                                                                TSVETNOY                         KINGSTON
                                                                                   USD’000                          USD’000
At 1 January 2009                                                                           -                              -
Re-classification from property development rights and costs (Note 5)                161,055                               -
At 31 December 2009                                                                  161,055                               -
Additional construction costs                                                         46,617                               -
Reclassification to property, plant and equipment (Note 9)                         (225,540)                               -
Reclassification from property development rights and costs (Note 5)                        -                         29,987
Fair value adjustment                                                                 19,342                          26,501
Translation difference                                                                (1,474)                          (209)
At 31 December 2010                                                                         -                         56,279



Interest capitalized into the development costs amounted to USD 8,064,846 in 2010 (USD 5,633,354 in 2009).

7.      SEGMENT INFORMATION

Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker (CODM). The chief operating decision-maker who is responsible for allocating
resources and assessing performance of the operating segments, has been identified as the Chief Executive
Officer, who makes strategic decisions. With the opening of Tsvetnoy Project this property will be held as
Property, Plant and Equipment and due to the nature of trading will be managed separately from the other
activities. Tsvetnoy has its own management team who report to the CEO and have the objective of increasing
rental and other revenues from the Tsvetnoy investment. In 2010, as the investment was opened on the 9th
December, it is treated as Property, Plant and Equipment and the values are highlighted in Note 9. The trading
performance from the 9th December was not significant and material to the results of RGI in 2010. In future
years the revenues from Tsvetnoy are expected to be substantial and therefore Tsvetnoy will be reported as a
separate business segment.
                                                                                                                        49
                                                                   R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


8.      INVESTMENT IN JOINTLY CONTROLLED ENTITY

The Group’s investment in a jointly controlled entity relates to its 50% interest in Lafar Management
Limited, which holds a 100% interest in LLC Stolichnoe Podvorie, an entity involved in the development of
a luxury residential development at 3 Khilkov Lane, Moscow, Russian Federation.

The following table sets out the assets and liabilities of the joint venture, and the Group’s share thereof. In
addition, the table presents the Group’s share of the results of the joint venture as presented for 2010 and
2009:

                                                                      31 DECEMBER                 31 DECEMBER
                                                                               2010                        2009
                                                                            USD’000                     USD’000
ASSETS
Non-current assets
Property development rights and costs                                            138,904                    130,743
Receivables                                                                           18                         22
Deferred income tax assets                                                         1,365                      1,298
Total non-current assets                                                         140,287                    132,063
Current assets
Debtors and prepayments                                                              347                        336
Cash and cash equivalents                                                             58                         16
Total current assets                                                                 405                        352
Total assets                                                                     140,692                    132,415
LIABILITIES
Non-current liabilities
Deferred income tax liability                                                     19,613                      19,138
Borrowings                                                                        59,609                      50,256
Total non-current liabilities                                                     79,222                      69,394
Current liabilities
Trade and other payables                                                               33                          31
Total current liabilities                                                              33                          31
EQUITY
Share capital                                                                           1                          1
Retained earnings                                                                 74,225                      86,861
Loss of current year                                                              (1,074)                   (12,636)
Translation reserve                                                             (11,715)                    (11,236)
Total equity                                                                      61,437                      62,990
Total liabilities and equity                                                     140,692                     132,415
Investment in jointly controlled entity (50%)                                     30,719                      31,495
Loans to jointly controlled entity                                                29,284                      24,566
Additional investment in jointly controlled entity                                    539                        428
Total investment in jointly controlled entity                                     60,542                      56,489

SHARE OF RESULT OF JOINTLY CONTROLLED ENTITY                                        (537)                    (6,318)

The loss for the year of USD 1,074,000 in 2010 (2009: USD 12,636,000) includes expenses of USD
1,074,000 (2009: income USD 8,728,000 and expenses USD 21,364,000).
                                                                                                                            50
                                                                       R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


    Loans to the jointly controlled entity at 31 December 2010 are detailed below:

                                                                                       NOMINAL
                                                                  INTEREST                    2010       OUTSTANDING
                                                      ORIGINAL        RATE           REPAYMENT               AMOUNT
                                                     CURRENCY      ON LOAN                  DATE                  2010
    BORROWER                                           OF LOAN           %                USD’000             USD’000
    LLC Stolichnoe Podvorie                                RUR           10            30 Sep 2012               3,281
    Lafar Management Limited                               USD            6            31 Dec 2012              25,834
    Lafar Management Limited                               USD            -            31 Dec 2012                 169
    Total loans to jointly controlled entity                                                                    29,284

    Loans to the jointly controlled entity at 31 December 2009 are detailed below:

                                                                                    NOMINAL
                                                                  INTEREST                 2009          OUTSTANDING
                                                      ORIGINAL        RATE        REPAYMENT                  AMOUNT
                                                     CURRENCY      ON LOAN               DATE                     2009
    BORROWER                                           OF LOAN           %             USD’000                USD’000
    LLC Stolichnoe Podvorie                                RUR      CBR*1.1         31 Dec 2010                  3,522
    LLC Stolichnoe Podvorie                                RUR      CBR*1.1         31 Dec 2012                 15,974
    Lafar Management Limited                               USD            6         31 Dec 2012                  4,837
    Lafar Management Limited                               USD            -         31 Dec 2012                    160
    Lafar Management Limited                               USD            6         31 Dec 2010                     73
    Total loans to jointly controlled entity                                                                    24,566




    9.      PROPERTY, PLANT AND EQUIPMENT

                                        LAND AND       FURNITURE,       OFFICE OFFICE AND MOTOR                          TOTAL
                                        BUILDING         FITTINGS     PREMISES COMPUTER VEHICLES
                                                              AND              EQUIPMENT
                                                       EQUIPMENT
                                                  TSVETNOY
                                               USD’000     USD’000     USD’000            USD’000         USD’000       USD’000
Cost at 1 January 2009                               -           -       11,204                653             381        12,238
Accumulated depreciation                             -           -        (496)              (132)           (168)         (796)
Carrying amount at 1 January 2009                    -           -       10,708                521             213        11,442
Disposals                                            -           -        (478)                 (4)           (67)         (549)
Depreciation                                         -           -        (377)               (48)            (56)         (481)
Translation reserve                                  -           -        (350)               (18)            (12)         (380)
Cost at 31 December 2009                             -           -       10,381                630             299        11,310
Accumulated depreciation                             -           -        (878)              (179)           (221)       (1,278)
Carrying amount at 31 December 2009                  -           -        9,503                451              78        10,032
Reclassification
from investment property                        225,540           -              -                  -               -    225,540
(Note 6)
Additions                                             -      11,638             3                  93            122      11,856
Depreciation                                          -           -         (428)               (29)            (95)        (552)
Translation reserve                                   -           -          (71)                 (4)             (1)        (76)
Cost at 31 December 2010                        225,540      11,638       10,304                 718             418     248,618
Accumulated depreciation                              -           -       (1,297)              (207)           (314)      (1,818)
Carrying amount at 31 December 2010             225,540      11,638         9,007                511             104     246,800
                                                                                                                       51
                                                                  R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


10.     INCOME TAX

Differences between IFRS and statutory taxation regulations in Russia and other countries give rise to
temporary differences between the carrying amount of assets and liabilities for financial purposes and their tax
bases. The tax effect of the movements in these temporary differences is detailed below and is recorded at the
rate of 20% (2009: 20%).

In the context of the Group’s current structure, tax losses and current tax assets of different Group companies
may not be offset against current tax liabilities and taxable profits of other Group companies and, accordingly,
taxes may accrue even when there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are
offset only when they relate to the same taxable entity.

The tax effect of the movements in the temporary differences for the year ended 31 December 2010 are:

                                                         RECOGNIZED IN
                                                    CONSOLIDATED STATEMENT
                                                           OF INCOME
                                      1 JANUARY     VALUATION          OTHER         TRANSLATION         31 DECEMBER
                                             2010         GAIN      CHANGES           DIFFERENCE                  2010
                                          USD’000      USD’000        USD’000              USD’000             USD’000
Tax effect of deductible
temporary difference:
Tax losses carried forward                 3,537              -            1,802                (34)               5,305
Other                                        248              -             (38)                 (2)                 208
Gross deferred tax assets                  3,785              -            1,764                (36)               5,513
Less deferred tax liability                (248)              -               38                   2               (208)
amount offset with deferred
tax assets
Recognized deferred tax                    3,537              -            1,802                (34)               5,305
asset

Tax effect of taxable
temporary difference:
Development projects                    (66,726)        (5,300)          (2,507)                 540           (73,993)
Investment in joint controlled             (128)              -                -                   1              (127)
entity profit
Other                                      (613)              -            (217)                    5             (825)
Gross deferred tax liability            (67,467)        (5,300)          (2,724)                 546           (74,945)
Less deferred tax liability                  248              -             (38)                  (2)               208
amount offset with deferred
tax assets (as above)
Recognized deferred tax                 (67,219)        (5,300)          (2,762)                 544           (74,737)
liability

As at 31 December 2010 the Group had accumulated recognized potential deferred tax assets in respect of
unused tax loss carry forwards of USD 26,525,000 (31 December 2009: USD 17,685,000).
                                                                                                                           52
                                                                      R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


The tax effect of the movements in the temporary differences for the year ended 31 December 2009 are:

                                                 RECOGNIZED IN CONSOLIDATED STATEMENT
                                                                             OF INCOME
                                1 JANUARY                        VALUATION       OTHER         TRANSLATION                31
                                      2009         IMPAIRMENT         GAIN    CHANGES           DIFFERENCE        DECEMBER
                                                                                                                        2009
                                   USD’000             USD’000      USD’000        USD’000            USD’000        USD’000
Tax effect of deductible
temporary difference:
Tax losses carried forward                   -               -            -          3,361                 176           3,537
Other                                        -               -            -            236                  12             248
Gross deferred tax assets                    -               -            -          3,597                 188           3,785
Less deferred tax liability                  -               -            -          (236)                (12)           (248)
amount offset with
deferred tax assets
Recognized deferred tax                      -               -            -          3,361                 176           3,537
asset

Tax effect of taxable
temporary difference:
Development projects              (93,472)              26,851      (2,908)        (1,063)               3,866        (66,726)
Investment in joint                  (132)                   -            -              -                   4           (128)
controlled entity profit
Other                                 (65)                   -                       (522)                (26)           (613)
Gross deferred tax                (93,669)              26,851      (2,908)        (1,585)               3,844        (67,467)
liability
Less deferred tax liability                  -               -            -            236                  12             248
amount offset with
deferred tax assets (as
above)
Recognized deferred tax           (93,669)              26,851      (2,908)        (1,349)               3,856        (67,219)
liability

The income tax expense comprises the following:

                                                                          2010                                         2009
                                                                       USD’000                                      USD’000
Current tax:
Current tax charge on profits for the year                                    29                                          182
Adjustments in respect of prior years                                       (61)                                        (323)
Total current tax                                                           (32)                                        (141)
Total deferred tax charge/(credit)                                         6,260                                     (25,955)
Income tax/(credit) for the year                                           6,228                                     (26,096)

The Group operates in four tax jurisdictions and the Company and its subsidiaries are subject to tax at the rates
in force in their respective countries of tax residence, the Island of Guernsey, the Republic of Cyprus, the
Russian Federation or Israel.

The Company is a Guernsey incorporated entity, which is registered with the Administrator of Income Tax in
Guernsey in order to obtain an exempt status. It is not anticipated that any income, other than bank interest
income, will arise in Guernsey and therefore the Company will not be subject to tax in Guernsey.

The tax rates for the Group’s subsidiaries are currently 10% in Cyprus, 20% in the Russian Federation and 26%
in Israel (2009: 10% in Cyprus, 20% in the Russian Federation and 26% average in Israel).

Under certain conditions for the Cypriot subsidiaries interest may be subject to defence contribution at the rate
of 10%. In such cases 50% of the same interest will be exempt from corporation tax thus having an effective tax
rate burden of approximately 15%. In certain cases dividends received from abroad may be subject to defence
contribution at the rate of 15%.
                                                                                                                            53
                                                                       R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


A reconciliation between the expected and the actual taxation charge is provided below:

                                                                                                 2010                    2009
                                                                                             USD’000                 USD’000
Profit/(loss) before taxation                                                                  35,962                 (59,956)
Theoretical tax charge at the applicable statutory rate of 20%                                  7,192                 (11,991)
Tax effect of items not deductible or assessable for taxation purposes:
Loss earned in tax free jurisdictions                                                             2,818                  1,186
Income which is exempt from taxation:                                                           (5,238)               (27,128)
    - Revenue from sale of Butikovsky Project                                                         -               (10,663)
    - Fair value adjustments                                                                    (3,868)                      -
    - Transactions with minority shareholders                                                         -               (15,481)
    - Income from compensations related to written off projects                                 (1,370)                      -
    - Share-based payment                                                                             -                  (984)
Non-deductible expenses:                                                                          1,456                 11,837
    - Impairment of property development costs                                                        -                  9,309
    - Unrealized financial losses                                                                 1,349                  1,265
    - Share in result of jointly controlled entity                                                  107                  1,263
Income tax charge/(credit) for the year                                                           6,228               (26,096)




11.     RECEIVABLES AND PREPAYMENTS

                                                                                31 DECEMBER                 31 DECEMBER
                                                                                          2010                       2009
                                                                                      USD’000                     USD’000
Written off project costs reimbursement                                                  7,554                          -
Prepayments                                                                              5,467                        870
Tax reimbursement                                                                        2,587                        126
Receivables                                                                                550                        328
Total receivables and prepayments                                                       16,158                      1,324




12.     OTHER ASSETS AVAILABLE FOR SALE

                                                   APARTMENTS                  OFFICE            OTHERS                TOTAL
                                                                                             INVENTORIES
                                                           USD’000             USD’000            USD’000             USD’000
At 1 January 2009                                             30,867              6,218                  -               37,085
Transferred from property development costs                    7,525                  -                  -                7,525
Disposal through sale                                       (20,630)            (4,300)                  -             (24,930)
Impairment                                                   (4,272)            (2,049)                  -              (6,321)
Translation difference                                         1,717                131                  -                1,848
At 31 December 2009                                           15,207                  -                  -               15,207
Additions                                                          -                  -             2,302                 2,302
Disposal through sale                                       (13,550)                  -              (164)             (13,714)
Impairment                                                     (265)                  -                  -                (265)
Translation difference                                          (65)                  -                (9)                 (74)
At 31 December 2010                                            1,327                  -             2,129                 3,456

This category is identical to the inventories category used previously by the Group.
                                                                                                                             54
                                                                        R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


13.     PROPERTY DEVELOPED FOR SALE

The Kingston project was re-classified as trading property under construction for part of its residential premises
based on starting construction works after receiving Construction permit and finishing the concept. The
reclassification was made in accordance with IAS 2 as for the property in the process of construction for future
sale.

                                                                                                                  KINGSTON
                                                                                                                     USD’000
At 1 January 2010                                                                                                           -
Re-classification from property development rights and costs (Note 5)                                                 242,619
Translation difference                                                                                                  (899)
At 31 December 2010                                                                                                   241,720




14.     CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash in hand, current accounts and amounts placed on deposit, as detailed
below:

                                                                    31 DECEMBER                              31 DECEMBER
                                                                              2010                                     2009
                                                                          USD’000                                  USD’000
Non-interest bearing accounts (in RUR)                                       1,401                                      175
Non-interest bearing accounts (mainly in USD)                                2,689                                      271
Short-term deposit (in USD)                                                 38,228                                   13,618
Short-term deposit (in EUR)                                                    202                                    3,979
Short-term deposit (in NIS)                                                    620                                      531
Short-term deposit (in RUR)                                                 12,170                                    8,916
Total cash and cash equivalents                                             55,310                                   27,490

Current accounts held in RUR, and mainly in USD, are non-interest bearing accounts. Interest is earned on the
amounts on deposit at market interest rates (at rates between 0.03% per annum on short term deposits in U.S.
Dollar – 4% per annum on short term deposits in Russian Rubles).

The Directors intend to continue placing surplus cash resources on deposits and with various money market
funds with international financial institutions until such time as required by the business operations.




15.     LOANS

On 26 March 2008, the Group’s subsidiary LLC Central Market entered into a loan facility of USD 100,000,000
with JSC “Commercial Savings Bank of the Russian Federation” (“Sberbank”), the largest bank in Russia. The
loan is secured against the proprietary rights to the Tsvetnoy Development, the share capital of LLC Central
Market and the right of a long term land lease on which Tsvetnoy project has been built. The loan facility has no
recourse to the Company.

The loan is being used to fund the construction of the Tsvetnoy Project.
                                                                                                                       55
                                                                  R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


The loan agreement that is in place as at 31 December 2010 is set out below:

LENDER              ORIGINAL             TOTAL               NOMINAL           REPAYMENT            OUTSTANDING
                   CURRENCY             AMOUNT               INTEREST               DATE                NOMINAL
                     OF LOAN            OF LOAN                  RATE                                    AMOUNT
                                       FACILITY                                                               2010
                                         USD’000                                                          USD’000
Sberbank                    USD           100,000     LIBOR+PREMIUM             25 March 2012               99,480
Total loans                                                                                                 99,480

As at 31 December the current portion of loan in amount of USD 2,490,000 includes interest payable of USD
270,000 (31 December 2009: current portion of loan is nil, interest payables is USD 214,000).

The Loan’s fair value as at 31 December 2010 does not differ significantly from its carrying value.

The loan agreement that was in place as at 31 December 2009 is set out below:

LENDER              ORIGINAL             TOTAL               NOMINAL           REPAYMENT            OUTSTANDING
                   CURRENCY             AMOUNT               INTEREST               DATE                NOMINAL
                     OF LOAN            OF LOAN                  RATE                                    AMOUNT
                                       FACILITY                                                               2009
                                         USD’000                                                          USD’000
Sberbank                    USD           100,000     LIBOR+PREMIUM             25 March 2012               80,607
Total loans                                                                                                 80,607




16.     BONDS

During 2007 and 2008 the Group completed an unsecured private Series A Bonds (“the Bonds”) placement in
Israel of NIS 180,681,000 (USD 48,520,639) and began repurchasing some of its Bonds. As at 31 December
2009, a total of NIS 88,231,000 (USD 23,071,582) of the Bonds were repurchased, for a total consideration of
NIS 74,224,781 (USD 19,428,315). As a result of the repurchasing activity, the total outstanding CPI adjusted
amount of the Bonds as at 31 December 2009 was NIS 101,337,000 (USD 26,343,000).

On 29 November 2010 NIS 30,817,000 (USD 7,728,000) of the Bonds were repurchased. As a result of the
repurchasing activity, the total outstanding CPI adjusted amount of the Bonds (including interest) as at 31
December 2010 was NIS 70,114,993 (USD 18,090,000).

The Bonds are linked to the Israeli consumer price index (“CPI”). Accordingly, amortized cost is updated for
the change in the CPI. The linkage difference is included in the consolidated statement of comprehensive
income as finance cost.

As at 31 December 2010 and 31 December 2009 there were cross-currency interest swap agreements with First
International Bank of Israel in order to protect the Group from possible NIS/USD exchange rate fluctuations.

As at 31 December 2010, the aggregate fair value of the cross-currency interest swap agreements was negative
340,000 (as at 31 December 2009: negative of USD 1,175,000). These amounts were included into trade and
other payables (Note 17).
                                                                                                                        56
                                                                   R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


                                                                                 BONDS                           BONDS
                                                                                 NIS’000                        USD’000
At 1 January 2009                                                                 100,248                         25,540
Total proceeds from the re-purchasing issue                                        (2,240)                          (578)
Discount                                                                             (560)                          (138)
Re-purchasing capital amount                                                       (2,800)                          (716)
Consumer Price Index adjustments                                                     3,889                          1,036
Translation difference                                                                   -                            483
At 31 December 2009                                                               101,337                         26,343
Re-purchasing capital amount                                                     (30,817)                         (7,728)
Consumer Price Index adjustments                                                     (929)                          (240)
Translation difference                                                                   -                          (420)
At 31 December 2010                                                                69,591                         17,955

As at 31 December 2010, the CPI adjusted amount of accrued interest is NIS 524,000 (USD 135,000). As at 31
December 2009, the CPI adjusted amount of accrued interest is NIS 33,000 (USD 9,000).

As at 31 December 2010, the current portion of CPI adjusted amount of Bonds is NIS 35,320,000 (USD
9,113,000). As at 31 December 2009, the current portion of CPI adjusted amount of Bonds was nil.

17.      TRADE AND OTHER PAYABLES

                                                                            31 DECEMBER                 31 DECEMBER
                                                                                     2010                        2009
                                                                                  USD’000                     USD’000
Trade payables                                                                      5,694                       4,286
Guarantee deposits                                                                    875                           -
Staff payables                                                                        343                       2,430
Bonds interest accrued                                                                  -                           9
Cross - currency interest swap                                                        340                       1,175
Interest to Sberbank                                                                    -                         214
Tax payables                                                                          695                         402
Total trade and others payables                                                     7,947                       8,516

18.      SHARE CAPITAL

Share capital

The Company’s share capital is denominated in British pounds (“GBP”). The Company’s shares are stated at
their par (nominal) value.

                                                                                      NOMINAL               CARRYING
                                                                 NUMBERS             AMOUNT IN               VALUE IN
                                                                OF SHARES           ACTUAL GBP                   USD
Share capital as at 31 December 2008                             125,786,978               0.51                  1.01
Share capital as at 31 December 2009                             125,786,978               0.51                  1.01
Issued and fully paid ordinary shares with a nominal value of     36,000,000               0.14                  0.22
0.000000004 GBP each during 2010
Share capital as at 31 December 2010                             161,786,978                     0.65                  1.23

The share capital of the Company comprises only ordinary shares, all of which bear voting rights and the right
to dividends as approved at the General Meeting of the Company. No other additional rights or preferences are
attached to this class of shares.
                                                                                                                       57
                                                                  R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


The shareholding structure as at 31 December 2010 was as follows:

                                                                                                      OWNERSHIP
                                                                               TOTAL             IN THE COMPANY
SHAREHOLDERS                                                             SHARES HELD                           %
D.E.S. Commercial Holdings Limited                                           65,063,393                     40.22
Synergy Classic Limited                                                      36,000,000                     22.25
SSF III Fathers Holdings limited                                             10,675,599                      6.60
Prosperity Capital Management Limited                                         9,120,561                      5.64
Kensington Gore Limited                                                       8,702,137                      5.38
Lansdowne Partners International Limited                                      7,696,898                      4.76
Other (none individually greater than 3%)                                    24,528,390                     15.15
Total                                                                       161,786,978                    100.00

The shareholding structure as at 31 December 2009 was as follows:

                                                                                                      OWNERSHIP
                                                                               TOTAL             IN THE COMPANY
SHAREHOLDERS                                                             SHARES HELD                           %
D.E.S. Commercial Holdings Limited                                           65,063,393                     51.73
SSF III Fathers Holdings limited                                             10,675,599                      8.49
Kensington Gore Limited                                                       8,702,137                      6.92
Lansdowne Partners International Limited                                      5,849,094                      4.65
Other (none individually greater than 3%)                                    35,496,755                     28.21
Total                                                                       125,786,978                    100.00


Share premium

The share premium represents the excess of contributions received over the nominal value of the shares issued.

During 2010, the Company issued 36,000,000 additional ordinary shares, which were acquired by Synergy, a
company incorporated under the laws of the British Virgin Islands, for a total consideration of USD 90,000,000,
which were paid fully in July 2010. In accordance with the Subscription and Option Agreement signed between
Synergy and the Company, due to a number of conditions the amount received is recognized as liability.

                                                                                                                2010
                                                                                                            USD’000
Proceeds from issue of additional shares                                                                      90,000
Interest expenses during 2010                                                                                  6,944
Total put option liability                                                                                    96,944




19.     OTHER OPERATING INCOME

                                                                                 2010                              2009
                                                                              USD’000                          USD’000
Gain arising on cancellation of co-investment agreement and                         -                            55,200
restructuring purchase consideration payable
Transactions with minority shareholders                                               -                           22,206
Income from compensations related to written off projects                         6,852                                -
Income from other assets available for sale                                       2,085                            2,464
Rental income                                                                     1,035                            1,103
Other operating income                                                              825                            4,989
Total other operating income                                                     10,797                           85,962
                                                                                                                       58
                                                                  R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


In 2010 the Group obtained a court decision regarding the rights for compensation from the government for part
of the costs relating to cancellation of investment contract for the Dream project in 2009 in amount of USD
6,852,000.

In 2009 gain arising on cancellation of co-investment agreement and restructuring purchase consideration
payable is the result of releasing Group’s obligations to transfer 3,000 square meters of premises within the
Chelsea Project. Transaction with minority shareholders for the same period is the result of transferring 9% of
the issued share capital of Sucreti Holdings Limited.

20.     GENERAL AND ADMINISTRATIVE EXPENSES

                                                                                 2010                              2009
                                                                             USD’000                           USD’000
Wages and salaries                                                              3,290                             8,731
Consulting and other professional services                                      4,521                             5,014
Representation and office consumables expenses                                    925                             2,833
Property tax                                                                      507                               521
Depreciation                                                                      138                               481
Other                                                                             734                                81
Total general and administrative expenses                                      10,115                            17,661




21.     FINANCE INCOME AND COSTS


                                                                                  2010                              2009
Finance income                                                                USD’000                           USD’000
Interest income                                                                  1,550                             1,924
Foreign exchange gain                                                           14,467                            27,895
Bank interest                                                                      428                               575
Gain on re-purchase of bonds                                                         -                               138
Derivative transaction                                                              28                                 -
Total finance income                                                            16,473                            30,532




                                                                                  2010                              2009
Finance costs                                                                 USD’000                           USD’000
Foreign exchange loss                                                           15,937                            24,990
Bank charges                                                                       220                               318
Interest expenses                                                                9,422                             1,997
Derivative transaction                                                               -                               331
Consumer Price Index adjustments on bonds                                          655                             1,036
Total finance costs                                                             26,234                            28,672



22.     EARNINGS PER SHARE

The basic and diluted earnings per share have been calculated by dividing the net loss attributable to the owners
of the Company by the weighted average number of ordinary shares outstanding during the period.
                                                                                                                           59
                                                                     R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


                                                                         RESULT           SHARES        PER SHARE
                                                                         USD’000                              USD
Profit attributable to ordinary owners of the Company for the year
ended 31 December 2010                                                      25,918
Weighted average number of ordinary shares outstanding during
the year ended 31 December 2010                                                        142,594,721
Basic and diluted earnings per share for the loss attributable to
the owners of the Company during the year
(expressed in USD per share)                                                                                        0.18

The basic and diluted earnings per share for 2009 are presented below:

                                                                         RESULT           SHARES        PER SHARE
                                                                         USD’000                              USD
Loss attributable to ordinary owners of the Company for the year
ended 31 December 2009                                                    (24,732)
Weighted average number of ordinary shares outstanding during
the year ended 31 December 2009                                                        125,786,978
Basic and diluted earnings per share for the loss attributable to
the owners of the Company during the year
(expressed in USD per share)                                                                                      (0.20)

23.     CONTINGENCIES, COMMITMENTS AND OPERATING RISKS

Legal proceedings

English court proceedings brought against Synergy Classic Limited ("Synergy"). In May 2010, the
Company entered into a subscription and option agreement (the “SOA”) with Synergy Classic Limited
(“Synergy”) pursuant to which Synergy subscribed for 36 million Shares between May and June 2010. In
addition, Synergy entered into a shareholders’ agreement (the “SHA”) with D.E.S. Commercial Holdings
Limited (“DES”), the Company’s largest shareholder.

In October 2010, Mr Shura and Synergy issued a public announcement criticising the management of the
Company. In particular, Mr Shura and Synergy criticised the Company’s corporate governance procedures and
the influence of DES on the Company. Simultaneously, Synergy also sought to exercise a put option under the
SOA pursuant to which Synergy claimed a right to sell 1.8 million Shares to a member of the Group for US$99
million as a result of an alleged breach of the SOA by the Company for failure to allot and issue certain Shares
to Synergy by a required deadline.

In turn, the Company and DES commenced litigation in the High Court of Justice (England and Wales) against
Synergy on 29 October 2010 for a breach of the SOA and the SHA. In particular, the Company alleges that the
purported exercise of the put option by Synergy is invalid and is seeking a declaration from the Court that no
right to exercise such put option has arisen. In addition, both the Company and DES allege that Synergy has
breached its obligations of confidentiality under the SOA and the SHA and may breach those obligations in the
future and that Synergy has acted to impede Admission, through the disclosure of confidential information and
through publicly questioning the Company’s plans for Admission. Specifically, the Company alleges that
Synergy and Mr Shura have wrongfully disclosed confidential information, both to shareholders and to the
press, causing harm to the perception, reputation and brand of the Company, its various business ventures and
its interactions with banks, lenders, and other third parties. The reliefs sought are an injunction restraining any
further breach of confidence, an injunction to restrain Synergy from any actions that would impede Admission,
damages and an account of profits. Where damages are claimed these have not yet been quantified. In order to
advance resolution of this matter, RGI has proposed to Synergy that the validity of the exercise of the put option
be determined by the Court as a preliminary matter. However, Synergy has rejected this approach and the matter
remains unresolved.

By way of Defence and Counterclaim filed on 8 November 2010, Synergy pleaded that the exercise of the put
option is valid (and Synergy is entitled to specific performance of the such put option) and that any breach of
confidence was permitted and/or reasonably required. Synergy also denies impeding Admission. In addition,
                                                                                                                         60
                                                                    R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


Synergy has claimed that the Company has misapplied the proceeds of Synergy’s $90m investment, contrary to
the terms of the SOA. Synergy is seeking damages for breach of contract in an unspecified amount, along with a
declaration and an order restraining the Company, DES and additional defendants from misapplying the
proceeds of Synergy’s investment in RGI.

The Company has denied all of Synergy’ allegations and intends to proceed with its claims against Synergy and
to defend the counterclaim made by Synergy.

Having consulted extensively with internal and external legal counsel on this matter management has concluded
that no material losses will be incurred and accordingly no provision has been made in these consolidated
financial statements.

Arbitration proceedings brought against Petr Olegovich Shura ("Mr Shura"). The Company
commenced Arbitration proceedings, under the London Court of International Arbitration Rules, against Mr
Shura on 29 October 2010. The seat of the Arbitration is London. As is the case with proceedings conducted
under the London Court of International Arbitration Rules this matter is confidential to the parties. The
proceedings concern alleged breaches of Mr. Shura’s letter of appointment as a non-executive Director of the
Company. The proceedings are continuing, no defence has yet been filed by Mr. Shura and no hearing date has
been set.

From time to time and in the normal course of business, claims against the Group are received. On the basis of
its own estimates and both internal and external professional advice, the Directors are of the opinion that no
material losses will be incurred in respect of claims received.

Tax legislation

The Company has exempt tax status in Guernsey. The Directors manage the Group in such a manner that this is
not expected to change. The Group also operates in the Cypriot, Israeli and Russian tax jurisdictions.

Russian tax and customs legislation is subject to varying interpretations and changes, which can occur
frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the
Group may be challenged by the relevant authorities.

The Russian tax authorities may be taking a more assertive position in their interpretation of the legislation and
assessments, and it is possible that transactions and activities that have not been challenged in the past may be
challenged.

Russian transfer pricing legislation that was introduced on 1 January 1999 allows the tax authorities to make
transfer pricing adjustments and impose additional tax liabilities in respect of all controllable transactions,
provided that the transaction price differs from the market price by more than 20%.

Controllable transactions include transactions with interdependent parties, as determined under the Russian Tax
Code, all cross-border transactions (irrespective of whether they performed between related or unrelated
parties), transactions where the price applied by a taxpayer differs by more than 20% from the price applied in
similar transactions by the same taxpayer within a short period of time and barter transactions. There is no
formal guidance as to how these rules should be applied in practice. The arbitration court practice in this respect
is contradictory.

Tax liabilities arising from intercompany transactions are determined using actual transaction prices. It is
possible with the evolution of the interpretation of the transfer pricing rules in the Russian Federation and the
changes in the approach of the Russian tax authorities, that such transfer prices could potentially be challenged
in the future.
                                                                                                                          61
                                                                     R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


The Group considers it has met the organizational, legal, tax filing and other obligations of the countries in
which the Company and its subsidiaries are incorporated. The Directors believe that their interpretation of the
relevant legislation is appropriate and the Group tax, currency legislation and customs positions will be
sustained. Accordingly, at 31 December 2010 no provision for tax liabilities was recorded.

Capital expenditure commitments

At 31 December 2010, the Group had contractual capital expenditure commitments in respect of property
development totaling USD 25,268,039 (2009: USD 24,558,000).

Guarantees

During the reporting period the Group has not granted or provided collateral to third parties, except for the deal
with Sberbank in relation to the Tsvetnoy Project (See Note 15).

Insurance policies

The Group holds insurance policies in relation to its assets, operations, or in respect of public liability or other
insurable risk. The total insurance coverage is USD 76,811,310 (2009: USD 91,056,439).

Environmental matters

The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture
of government authorities is continually being reconsidered. The Group periodically evaluates its obligations
under environmental regulations. As obligations are determined, they are recognized immediately. Potential
liabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot
be estimated but could be material. Under existing legislation, the Directors believe that there are no significant
liabilities for environmental damage.

Operating environment of the Group

The Russian Federation displays certain characteristics of an emerging market, including relatively high
inflation and high interest rates. The tax, currency and customs legislation within the Russian Federation are
subject to varying interpretations and frequent changes, and other legal and fiscal impediments contribute to the
challenges faced by entities currently operating in the Russian Federation. The recent global financial crisis has
had a severe effect on the Russian economy and the financial situation in the Russian financial and corporate
sectors significantly deteriorated since mid-2008. In 2010, the Russian economy experienced a moderate
recovery of economic growth. The recovery was accompanied by a gradual increase of household incomes,
lower refinancing rates, stabilisation of the exchange rate of the Russian Rouble against major foreign
currencies, and increased liquidity levels in the banking sector. The future economic direction of the Russian
Federation is largely dependent upon the effectiveness of economic, financial and monetary measures
undertaken by the government, together with tax, legal, regulatory, and political developments. Management is
unable to predict all developments in the economic environment which could have an impact on the Group’s
operations and consequently what effect, if any, they could have on the financial position of the Group.

The market in Russia for many types of real estate has been severely affected by the volatile global financial
markets. As such the carrying value of the property development portfolio has been updated to reflect market
conditions at the end of the reporting period. However, in certain cases, the absence of reliable market-based
data has required the Group to amend its valuation methodologies. Management is unable to reliably determine
the effects on the Group’s future financial position of any further deterioration in the liquidity of the financial
markets and the increased volatility in the currency and equity markets. Management believes it is taking all the
                                                                                                                        62
                                                                  R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


necessary measures to support the sustainability and growth of the Group’s business in the current
circumstances.

Management determined impairment provisions by considering the economic situation and outlook at the end of
the reporting period. Provisions for trade receivables are determined using the ‘incurred loss’ model required by
the applicable accounting standards. These standards require recognition of impairment losses for receivables
that arose from past events and prohibit recognition of impairment losses that could arise from future events, no
matter how likely those future events are.

24.     RELATED PARTY TRANSACTIONS

Parties are generally considered to be related if the parties are under common control or if one party has the
ability to control the other party or can exercise significant influence or joint control over the other party in
making financial and operational decisions. In considering each possible related party relationship, attention is
directed to the substance of the relationship, not merely the legal form.

The nature of the related party relationships for those related parties with whom the Group entered into
significant transactions or had significant balances outstanding as of 31 December 2010 are detailed below:

Loans

Loans issued and related interest during 2010:
                                                                                LAFAR              STOLICHNOE
                                                                          MANAGEMENT                 PODVORIE
                                                                              LIMITED                      LLC
                                                                               USD’000                  USD’000
Total outstanding loans and accrued interest due from related parties
on 1 January 2010                                                                       5,070                  19,496
Loans issued to/repaid by related parties during the year                              19,504                (16,164)
Interest income during 2010                                                             1,429                      98
Translation difference                                                                      -                   (149)
Total outstanding loans and accrued interest due from related parties
on 31 December 2010                                                                    26,003                   3,281
Loans issued and related interest during 2009:
                                                                             LAFAR                  STOLICHNOE
                                                                MANAGEMENT LIMITED                    PODVORIE
                                                                            USD’000                        LLC
                                                                                                        USD’000
Total outstanding loans and accrued interest due
from related parties on 1 January 2009                                                     3,303               18,105
Loans issued to related parties during the year                                            1,574                   76
Interest income during 2009                                                                  193                1,735
Translation difference                                                                         -                (420)
Total outstanding loans and accrued interest due
from related parties on 31 December 2009                                                   5,070               19,496

Lafar Management Limited is a jointly controlled entity in which the Group holds an economic interest of 50%.
Litonor Financial Limited holds the remaining 50% of the voting shares of Lafar Management Limited. Lafar
Management Limited holds 100% of the share capital of its Russian subsidiary, LLC Stolichnoe Podvorie.

Key management remuneration

In the reporting period, the Directors of the Group received compensation in the form of salary and other
benefits classified as short-term in accordance with IAS 19 “Employee Benefits”. The total remuneration and
benefits accrued to the Directors was USD 4,515,220 (2009: USD 4,190,702). There are no other individuals
who are not members of the Board of Directors who are considered to be key management in the Group.
                                                                                                                      63
                                                                 R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


DIRECTORS’ REMUNERATION AND BENEFITS                                            2010                          2009
                                                                             USD’000                       USD’000
Boris Kuzinez, Chief Executive Officer                                         1,841                         1,875
Jacob Kriesler, Non-Executive Chairman                                         1,602                         1,250
Emanuel Kuzinez, Director                                                        509                           625
Yoram Evan, Chief Financial Officer                                              505                           381
Timothy Fenwick, Non-Executive                                                    29                            30
Rafael Eldor, Non-Executive                                                       29                            30
Total remuneration and benefits accrued on 31 December2010                     4,515                         4,191

As at 31 December 2010 the remaining part of awards which were granted to executive Directors as a part of its
Long Term Incentive Plan is 1,450,000 shares. The total executive Directors’ award value was estimated at
USD 2,370,000, with the portion amortized in the 2010 year being USD 387,582.

Other transactions with related parties during 2010:

                                                                 TRANSACTIONS                    OUTSTANDING
                                                                        VALUE                   BALANCES AT 31
                                                                       DURING                       DECEMBER
                                                                          2010                            2010
                                                                       USD’000                         USD’000
Construction agreements (expenditure for the Group)                          -                             357
Rent contracts (revenue for the Group)                                       8                               -
Service contracts (expenditure for the Group)                              120                               -

All of the transactions listed above are with parties beneficially owned by the Group’s founder, Chief
Executive and major shareholder, Boris Kuzinez. The amounts relate to rent and development services in
accordance with rental, construction and design agreements between those entities and the Group.

Transactions with related parties during 2009 were as follows:

                                                                  TRANSACTIONS                   OUTSTANDING
                                                                         VALUE                  BALANCES AT 31
                                                                        DURING                      DECEMBER
                                                                           2009                           2009
                                                                        USD’000                        USD’000
Construction agreements (revenue for the Group)                             174                              -
Construction agreements (expenditure for the Group)                          64                            355
Rent contracts (revenue for the Group)                                       13                              -
Service contracts (expenditure for the Group)                               120                              -

25.     EVENTS SUBSEQUENT TO THE STATEMENT

Acquisition of New Development Site

On 1 February 2011 the Group acquired 100% of the shares in Naltadis Limited, Cyprus, for a purchase
consideration of $9.39 million. At the acquisition date Naltadis Limited was the sole shareholder of LLC
Kvazar, which held development rights for the newly acquired development site.

The New Project is a proposed green field residential and retail development, comprising two land plots of
10 and 7.1 hectares, located in the Moscow region close to the Kingston Development. The aggregate
permitted gross buildable area of the new project is estimated to be circa 150,000 sq.m., bringing the
aggregate area of RGI's development portfolio to approximately 2,230,000 sq.m.

RGI may act as sole developer of the site, using construction loans as the primary source of funding, or
develop the project in partnership with a third party. RGI intends to develop the residential part of the
                                                                                                                      64
                                                                 R.G.I. International Limited ANNUAL FINANCIAL REPORT 2010


development and will explore various possibilities regarding the retail part once the general design is
completed.

The acquisition is in line with RGI's strategy to acquire new development sites where there is an attractive
economic opportunity to develop new residential and retail properties. The new project provides RGI with
an excellent opportunity to enlarge the scale and potential returns from the premium economy residential
model which is pioneering at the neighboring Kingston site.

Khilkov Development

The proposed development plan for Khilkov is based on RGI’s possession of an Investment Contract and
ownership over the existing building. The investment contract expired on 31st January 2011 and the Group
has applied for this to be reviewed. RGI is awaiting a decision from the Moscow Government.

Financing obtained for Kingston development

On 25 May 2011 the Group signed a loan agreement with Sberbank of Russia for RUR 4.922 m,
approximately US$175m, to finance construction of the first phase of the Kingston residential community
development. The loan was obtained with an interest rate of 12.5% p.a. and is repayable not later than 23
May 2014.

				
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