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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| East Balkan | LSE:EBP | London | Ordinary Share | GB00B0QB4K42 | ORD EUR0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 6.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMEBP
RNS Number : 8615A
East Balkan Properties PLC
05 April 2012
EAST BALKAN PROPERTIES plc
FULL YEAR RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2011
East Balkan Properties Plc ("EBP" / "Company" / "Group") announces today its final results for the year ended 31 December 2011.
Highlights for the Year 2011
-- Net Asset Value per share of EUR 0.38, an increase 5.6% (2010: EUR 0.36) -- Total assets of EUR 89.4 million (2010: EUR 89.4 million) -- Total net debt of EUR 31.6 million (2010: EUR 31.7 million) -- Gearing ratio of 37% on capital of EUR 53.2 million (2010: 38% gearing on EUR 51.0 million) -- Full year pre-tax gain of EUR 2.1 million (2010: pre-tax loss of EUR 14.7 million) -- Group cash balance of EUR 2.6 million (2010: EUR 3.3 million)
-- Net rental income of EUR 2.7 million (2010: EUR 4.3 million) reflecting deconsolidation of Vitantis and Moldova Mall
-- All interest payment obligations met on all bank loans -- Strategy in progress for recovery and realisation of value from the Company's portfolio
Commenting on the results, James Ede-Golightly, Non-executive Chairman of EBP, said:
"In 2011, EBP focused on operational performance and opportunities to realize value from the Company's property assets. While our operational efforts helped defend asset value in a tough economic environment, we were unable to improve significantly on occupancy levels and many of our tenants remain under pressure. Our efforts to realize value through disposals resulted in meaningful discussions, but sales have been hampered by the extreme scarcity of acquisition financing in the region.
In 2012 we expect continued economic challenges among our tenant base with resultant pressure on asset performance. Our priorities are to focus on continued operational progress, to sustain working capital, and to realize value via sales."
For further information please contact:
East Balkan Properties:
Graham Smith
Tel: +44 1624 681 250
Michael Uhler
Tel: +49 172 183 3194
Westhouse Securities:
Nomad and Broker
Richard Johnson
Tel: +44 20 7601 6100
CHAIRMAN'S STATEMENT
Introduction
In December 2005 EBP joined the AIM market and raised approximately EUR 200 million (GBP 140 million) to invest in commercial property in South Eastern Europe. In July 2008 the shareholders passed an EGM to implement a revised strategy that is focused on realizing value. EBP has since rationalised its portfolio and reduced costs.
The table below summarizes EBP's asset base since 2008:
Hot Features
Premium
Total Attributable Shareholder Equity Liabilities as % of Assets
Date Assets
------------------ ---------- -------------------------------- ----------------------------
31 December 2008 EUR 273 m EUR 132 m 52%
31 December 2009 EUR 187 m EUR 58 m 69%
31 December 2010 EUR 89 m EUR 51 m 43%
31 December 2011 EUR 89 m EUR 53 m 40%
------------------ ---------- -------------------------------- ----------------------------
The stabilisation of the asset base between 2010 and 2011 reflects the completion of our portfolio optimization efforts which ended with the non-consolidation of our non-controlling holding in Vitantis and Moldova Mall and the sale of the highly indebted Apollo development site in Belgrade.
The company has now consolidated the portfolio around a core group of assets that are generally well performing and have low holding costs which do not unduly burden Group cash balances. Given our low overhead expenses and modest cash balances, the Company is stable in the near term which will give our team the time needed to facilitate an orderly realization for the remaining assets.
EBP's portfolio (not including cash deposits and other working capital in the holding companies) as at 31 December 2011 can be summarised as follows:
NAV
Project Use Country Ownership Contribution
------------------- -------------------- -------------------------- ---------- --------------
1 Glorient Portfolio 13 Land / 35 Retail Bulgaria 40% EUR 35.7 m
2 Equest Logistics 3 Warehouses Romania 100% EUR 8.4 m
3 Domenii / Cartex 4 Offices Romania 100% (EUR 0.6 m)
4 Other 6 Land / 1 Retail Romania /Serbia /Slovakia Various EUR 8.3 m
------------------- -------------------- -------------------------- ---------- --------------
The Group's efforts to realise shareholder value through disposals in current market conditions may result in values significantly lower than the valuations adopted in the Financial Statements and reflected the above table.
Outlook
According to CBRE, "the single biggest perceived threat to property market recovery is still investors' inability to source new debt and this is significantly affecting investment activity in Europe, particularly outside prime/core markets. Further, the banks which are lending remain focused on prime assets in key markets and terms on offer often vary widely depending on the borrower." In the Balkan region, the financing shortage is chronic for all asset classes, except for stable prime assets in the healthiest submarkets of capital cities. Even then, the terms available to borrowers can vary significantly.
New business lending margins are significantly above the current average of 175 basis points paid in the EBP portfolio. Since the Group faces several refinancing deadlines in 2012 and early 2013, we expect the interest burden to increase assuming term prolongations can be negotiated. We have begun discussions with our existing lenders but those banks report capital constraints so achieving new financing commitments will be a priority for the team.
Glorient
Glorient's current NAV contribution to the Group is EUR 35.7 million. The portfolio consists of 30 lease contracts of which 20 are retail stores leased to K&K Electronics EOOD, four leases for Technomarket ("TMD") corporate headquarters, primary goods warehouses, and a repair facility and six leases to food retailers and DIY operators. About 70% of the rental income is paid by Technomarket making concentration risk a genuine concern given the competitive electronics marketplace.
In 2011, Billa vacated 1 store at Pleven at a rent loss of EUR 0.267 million per annum and five stores are built to shell and core status yet remain vacant. Weak trading continues to put pressure on tenants despite average rents which were long considered to be below market rates.
In a recovery scenario, the board believes the portfolio could offer good growth potential. Glorient owns land near several Technomarket stores and could develop stronger multi-tenant retail parks if demand recovers. Also, the existing empty stores could add EUR 0.433 million of net rental income if let at modest rents. Income growth from a more diverse tenant base continues to be an operational goal despite adverse market conditions.
In 2011, we engaged Raiffeisen Investments (Sofia) to market our non-controlling shareholding in Glorient Investments BG. While negotiations continue, a sale would be contingent upon a bidder finding new mortgage debt. If no sale is completed in 2012, the Board will attempt to agree a higher dividend payout with the other shareholders in Glorient.
The funding environment in the region remains challenging and the board can only progress negotiations after prospective purchasers demonstrate the acceptable level of funding certainty.
The Board believes that if a sale cannot be achieved at a reasonable price in the near term, the best strategy will be to take a distribution from refinancing proceeds whenever lenders return to the region.
At year end 2011, the Glorient portfolio was valued by CBRE at EUR 101.2 million using a net initial yield of 9.42% on net income of EUR 9.7 million. EBP recognised a EUR 2.1 million contribution to its result from Glorient through associate income before fair value adjustments. Glorient amortized EUR 6.2 million in 2011 and has commitments to amortize even more in 2012.
The table below shows the major tenants in the Glorient portfolio. Nearly all leases were signed for an original 10 year term in 2005 and 2006. At 31 December 2011, the weighted average lease duration for the Technomarket stores was 5.1 years at an average rent of EUR 5.50 per sqm per month.
No of Total Percent
Tenant Name Stores Area (m(2)) of Premises WAL
------------------------------ -------- ------------- ------------- ----
Technomarket 20 89,989 58% 5.1
Other TMD Related Properties 4 22,953 15% 4.4
Billa, Praktiker, Baumax,
KFC, Roda, Bart 5 33,369 22% 6.7
Vacant Units 6 8,119 5% NA
------------------------------ -------- ------------- ------------- ----
Total 35 154,430 100%
------------------------------ -------- ------------- ------------- ----
At Glorient, no financial covenants are in breach though the high amortization obligation means nearly all cash flow is required for debt service. In 2011, Glorient upstreamed EUR 0.4 million for Group purposes.
Equest Logistic Center
Equest Logistics SRL contributes EUR 8.4 million to Group NAV. This investment consists of three modern logistics warehouses with 56,630 sqm of premises of which 14% is for office use. These buildings are situated in the Bucharest West industrial park along the A1 highway near Bucharest.
The facilities contain 40 warehouse bays of which 29 are leased. We leased 3 bays in 2011 and extended or amended lease contracts involving 4 other tenants, however market rents have been falling and demand for office premises is negligible even at discounted levels.
Our largest tenants are DOMO (Romania) with 8 bays and DHL with 7 bays. Overall occupancy stands at 65% due to low demand for the mezzanine office space, which comprises 13.7 % of the total space.
The Group has EUR 17.6m mortgage debt facilities secured at the local company level and without any performance or payment guarantees from the Group. The board will continue to monitor rental arrears and low occupancy that may adversely impact on the risk of financial covenants.
In 2011, we engaged Knight Frank to market the asset for sale. Pricing levels suggested sub 9% returns achievable on core income while the value on vacant premises varied widely. In any event, no sale was concluded due to a lack of acquisition financing. The Board continues to favour a market sale upon achieving stabilized occupancy in the near future.
Domenii/Cartex
This portfolio of four Class A and B office buildings, most with on-site parking, has been held as a "core holding" since the May 2008 strategic review. The buildings have achieved 90% overall occupancy, in part due to several leases at Casa Mosilor. The assets are cash flow positive after debt service but the cash is trapped at the SPV level due to a continued breach of the LTV covenant.
In 2011, rental income stabilised and non-recoverable service charges are minimal. Meeting debt service obligations was easier in 2011 after we paid down the swap contract in March 2011.
Deutsche Pfandbriefbank AG has signalled an unwillingness to extend their financing which expires in September 2012 and has requested that we market these assets for sale. The Group has EUR 15.0m mortgage debt facilities secured at the local company level and without any performance or payment guarantees from the Group. In the event of a financing default, Deutsche Pfandbriefbank AG only has recourse to the local company borrower and cannot seek recourse from the Company. In a distress situation, to limit the financial damage to the Group, underperforming assets could be released back to the lender, or sold for a nominal value, as was the case with Vitantis and Moldova Mall.
At current valuations, these assets contribute a negative EUR 0.6 million to Group NAV. As at 31 December EUR 605,000 (2010: EUR 1,303,000) was restricted cash held as collateral by the bank (see note 14).
Marketing efforts will begin in the 2(nd) quarter of 2012 though we cannot assess the probability of a transaction at or near the debt levels.
These assets are self-funding and the holding cost for continued ownership is minimal.
Other Assets
The remaining assets comprise diverse land holdings and one small retail shop. Collectively, the assets contribute EUR 8.3 million to Group NAV. In 2011, we engaged local brokers to market these assets for sale but no offers were received at acceptable levels. Vacant land is the least liquid real estate asset class. There is no debt on these assets.
Further, our sales efforts are complicated by changes in local laws regarding long term land leases and disputes with our former partners.
-- Ploesti, a 39,200 square meter (sqm) site, is part of a larger assemblage for which development plans have been suspended. Once valued at about EUR 154 per square meter, the site is being marketed for sale at EUR 70 per square meter.
-- Simanovci, a 310,900 sqm (76.8 acre) parcel surrounded by rural farmland located west of Belgrade, beyond the airport. In 2011, the local authorities announced a new Bosch automobile parts supply facility as well as other new submarket entrants. We expect stronger investor interest in 2012 and we are working with the local development authority to better showcase our assemblage.
-- Plot 34, a corner position retail site measuring 5,500 sqm with flat topography situated along a major arterial roadway in New Belgrade. The site is suitable for a small retail and office scheme and is being marketed for sale at EUR 1.6 million. Changes in the local laws may require us to convert ownership status from a long term lease from the city to full ownership. The conversion process is both expensive and uncertain so we continue to conduct legal due diligence on the options available.
-- Eurosalon, a 33,700 sqm (8.3 acre) retail site in Zemun, a northern suburb of Belgrade, for big box retail use.
-- Krusevac is 1,600 sqm of retail premises in a small retail building anchored by a supermarket. The local population is ca 140,000 residents and the town is 100 km south of Belgrade toward Nis. The store was leased to Technomarket Serbia which filed for insolvency in 2011 and is now rented as a discount market for Chinese wares. Collection efforts against the prior tenant continue to proceed in the court system but collection appears unlikely in the near term.
-- Bratislava is a 26,700 sqm site adjacent to a Carrefour anchored shopping center which is suitable for up to 7,000 sqm of retail premises. This is one of the few development sites available in Petrasalka and we do expect investor interest to return once the market improves.
-- Kosice is an 8,600 sqm outparcel contiguous to a Carrefour anchored shopping center which can be improved with a 3,630 sqm retail building. This corner location site has excellent visibility and Kosice is Slovakia's second largest city so we expect demand to return when the market recovers.
Disposals
In June 2011, our associate IBN SRO completed the sale of a retail store on Krasovskava Straa in Bratislava and fully repaid the related bank debt from sales proceeds. The sales price equated to EUR 1,350 per sqm for the 520 sqm premises which was below the appraised value of EUR 1,653 per sqm. This store had been rented to Technomarket Slovakia which had filed for insolvency and had abandoned their lease.
In March 2011, we engaged Knight Frank to market for sale the Equest Logistic Center. Over 50 potential investors were contacted and intense negotiations followed with two candidates. Unfortunately, despite an agreement on pricing, this sale did not progress to completion when the preferred bidder was unable to secure adequate financing. This sale is now on hold.
Our non-controlling shareholding in Glorient Investments BG has also been marketed for sale by Raiffeisen Investments (Sofia). While negotiations continue, a sale would be contingent upon a bidder finding new mortgage debt.
Financial Results
NAV is EUR 0.38 per share, up from EUR 0.36 per share at 31 December 2010.
In the twelve months to 31 December 2011 the Company made a pre tax gain of EUR 2.1 million (31 December 2010: pre-tax loss EUR 14.7 million), including a revaluation gain of EUR 1.3 million (31 December 2010: revaluation loss EUR 30.7 million) equating to a basic gain per share of EUR 0.01 (31 December 2010: loss per share EUR 0.11).
Costs and Liquidity
As the year end figures indicate, we held central administrative costs to EUR 1.1 million, to include asset management fees not paid at the SPV level and excluding bad debts recognized in the period. This compares to EUR 2.8 million in 2010. While costs are budgeted to decline further in 2012, the majority of the savings available have already been realised.
By agreement with our lenders, from 2011 onwards, asset management fees are largely recoverable from SPV level working capital even when that cash is trapped from distribution to shareholders. In Serbia, we can only cover about one half of the ownership costs from rental revenues. In Slovakia, administrative costs are paid from cash reserves.
While the Group has returned to profitability in 2011, the threshold of performance cannot yet be called a recovery. Most of the local companies returned to nominal profitability in 2011 because of lower interest service expenses and modest gains in net rental income. Pressure on asset performance could easily erode these nominal gains in 2012.
Financing
In 2011, the subsidiary and associate companies met all interest and amortization obligations and due to moratoriums on covenants, these companies did not technically breach any financial covenants.
We have met with our banks to discuss term extensions for the existing debts as maturities begin in September 2012 for the office portfolio, and March 2013 for Equest Logistic Center. In the period since year end, we still are waiting on decisions from the banks' respective credit committees. Given the prevailing lending restrictions known to limit Austrian banks, we expect sizeable margin increases in exchange for rolling one year term extensions.
Going Concern
The Group continues to adopt a going concern basis for the preparation of these financial statements.
The Directors believe the Group will be able to manage its business risks for the foreseeable future despite continued challenging economic conditions. After making enquiries and examining major areas which could give rise to significant financial exposures, the Board has a reasonable expectation that the Company and the Group have adequate resources to continue their operations. The Group has primarily mortgage debt facilities secured at the local company level and without any performance or payment guarantees from the Group. In the event of a financing default, each lender only has recourse to the local company borrower and cannot seek recourse from the Company. In a distress situation, to limit the financial damage to the Group, underperforming assets could be released back to the appropriate lender, or sold for a nominal value.
With respect to the Company's cash position, the Board has a reasonable expectation that sufficient liquidity will be available to meet current expenses from a combination of existing cash reserves, net sales proceeds arising from the disposal program, and cash flow from normal operations.
Please refer to note 1 (c) for a full disclosure of the uncertainties and mitigating factors considered by the Directors before concluding that the Group shall continue to adopt a going concern basis for the preparation of the financial statements.
Financial Statements
Please refer to the accompanying financial statements and the notes for the details on the financial position of the Group. In addition, we provide an analysis of the Group's objectives and policies for managing its capital, its debt facilities and hedging positions, and its exposure to credit and liquidity risk.
James Ede-Golightly
Non-executive Chairman
3 April 2012
DIRECTORS' REPORT
The Directors of the Company present their report and financial statements for the year ended 31 December 2011.
Principal Activity and Incorporation
The Company is a closed-end investment company, incorporated on 4 November 2005 in the Isle of Man. The Company's ordinary shares were admitted to trading on 14 December 2005 on the AIM Market as operated by the London Stock Exchange Group Plc.
Investment Policy
At the EGM in July 2009, shareholders voted to adopt an investment policy as follows:
-- The Company may invest in a portfolio of real estate assets in the commercial, retail and industrial property sectors within the target region of the Balkans, principally limited to Romania, Bulgaria and Serbia.
-- It intends to hold 100% ownership in the majority of its investments, or a significant non-controlling position where it may exert significant control. The Company may make single investments that represent (by gross value) more than 25% of the Company's total gross assets.
-- There is no limit on the level of borrowing that the Company may take on, but will exercise prudent judgement of the portfolio's ability to service debt and honour lending covenants.
-- The Company intends to dispose of the majority of its existing investment and development properties to realise the value in such holdings, and focus on a much reduced number of development opportunities within the target region. Disposal of its investments will take place as and when the local market conditions permit.
-- The Company will seek to return capital to shareholders as and when disposals create sufficient liquidity, subject to the requirements of a prudent capital management policy.
Results and Dividends
The Group's results for the year ended 31 December 2011 are set out in the Consolidated Statement of Comprehensive Income.
A review of the Group's activities is contained within the Chairman's Statement.
No dividend has been declared for the year ended 31 December 2011 (2010: nil).
Directors
The current Directors, all of whom are non-executive, and those who held office throughout the year are as below:
Name Date of Appointment ----------------------------------- -------------------- James Ede-Golightly (Chairman from 9 November 2009 30 June 2010) Charles Jillings 4 April 2008 Graham Smith 12 October 2009 Pradeep Verma 12 October 2009
The Chairman received remuneration at the rate of EUR 40,000 per annum up to May 2011, reduced to EUR 35,000 per annum from June 2011. Each of the other directors received remuneration of EUR 30,000 per annum up to May 2011, reduced to EUR 25,000 per annum from June 2011.
Company Secretary
The secretary of the Company throughout the period and as at the date of this report is Philip Scales.
Directors' Interests in Shares of the Company
Save as disclosed below none of the Directors nor any member of their respective immediate families nor any person connected with the Directors had any interest, whether beneficial or non-beneficial, in any share capital of the Company.
Name Number of Percentage
Ordinary Shareholding
Shares
--------------------- ---------- --------------
James Ede-Golightly 40,000 0.03%
James Ede-Golightly is a Director of ORA Capital Partners Ltd., and has an indirect interest in the Company through ORA (Guernsey) Ltd a subsidiary of ORA Capital Partners Ltd, which owns 26.2 million shares in the Company (representing 18.7% of its share capital).
Charles Jillings is an employee of, and up to 1 March 2012 was a Director of Utilico Emerging Markets Limited, which owns 34.3 million shares in the Company (representing 24.5% of its share capital).
Governance
Although the Company is not obliged by the listing rules to do so, the Board intends, where appropriate for a Company of its size, to comply with the main provisions of the principles of good governance and code of best practice set out in the Combined Code ('the Code').
The Directors recognise the value of the Principles of Good Governance and Code of Best Practice as set out in the Combined Code and they will take appropriate measures to ensure that the Company complies with the Combined Code to the extent appropriate taking into account the size of the Company and the nature of its business.
Responsibilities of the Board
The Board of Directors is responsible for the determination of the investment policy of the Company and for its overall supervision via the investment policy and objectives that it has set out. The Board is also responsible for the Company's day-to-day operations; however, since the Board members are all non-executive, in order to fulfil these obligations, the Board has delegated operations through arrangements with local third party property managers and with external consultants.
At each of the quarterly Board meetings, the financial performance of the Company is reviewed. In addition, a committee of the Board meets monthly to receive regular reports from the managers and consultants. The materials discussed include the valuation of the Company's assets, asset and fund level operational performance reports, compliance and shareholders reports, and management accounts.
Share Capital
As at the date of this report, the Company has 140,000,000 ordinary shares of Euro 0.01 each in issue. The Company's ordinary shares are traded on AIM, a market operated by the London Stock Exchange plc in Pound Sterling. However the Company's reporting currency is the Euro to reflect the underlying assets and liabilities in the Balkan region.
At the 2011 Annual General Meeting of the Company, the Company's shareholders approved a resolution to permit the Board of Directors to undertake market purchases of the Company's own shares up to a maximum number of 21,000,000 ordinary shares (representing 15 percent of the Company's issued share capital) at a minimum price of Euro 0.01 per ordinary share and a maximum price per ordinary share equal to 105 percent of the average of the mid-market quotation for an ordinary share as derived from the Daily Official List of the London Stock Exchange plc for the five business days immediately proceeding the day on which the ordinary shares are contracted to be purchased. As at the date of this report, no ordinary shares have been bought back under this authority and at present the Company does not hold any ordinary shares in treasury. The above authority remains valid until the conclusion of the 2012 Annual General Meeting unless renewed prior to such time.
Substantial Shareholdings
In so far as is known to the Company each of the following persons has at the date of this report, directly or indirectly, an interest in 3% or more of the issued ordinary shares in the capital of the Company:
Name Percentage
Shareholding
--------------------------- --------------
Utilico Emerging Markets
Limited 24.5%
ORA (Guernsey) Limited 18.7%
Carrousel Capital 14.1%
UNIQA Financial Services 9.7%
Weiss Capital LLC 5.8%
Carmignac Gestion 5.1%
Barnard Nominees Limited 4.1%
Share Options
The Company does not operate any employee share option schemes and no options to subscribe for ordinary shares in the Company have been granted.
Audit Committee
The audit committee, which comprises James Ede-Golightly, Charles Jillings and Pradeep Verma, meets at least twice each year. The committee monitors the integrity of the financial statements of the Company and any formal announcements relating to the Company's financial performance. It also reviews regular reports from management and the external auditors on accounting and internal control matters. Where appropriate, the committee monitors the progress of action taken in relation to such matters.
The audit committee also recommends the appointment of, and reviews the fees and performance of the external auditors.
Auditors
Following a competitive tendering process, Grant Thornton resigned as auditors and KPMG Audit LLC were appointed on 5 December 2011 in their place. KPMG Audit LLC, being eligible, have expressed their willingness to continue in office.
Company Website
To provide a portal for investor information and in accordance with the requirements of AIM, the Company maintains a website at: www.ebp-plc.com
On behalf of the Board,
Graham Smith
Director
3 April 2012
Statement of Directors' Responsibilities in Respect of the Directors' Report and the Financial Statements
The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations. In addition, the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards.
The financial statements are required to give a true and fair view of the state of affairs of the Group and Parent Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with International Financial Reporting Standards; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business.
The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time its financial position. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation governing the preparation and dissemination of financial statements may differ from one jurisdiction to another.
Graham Smith
Director
3 April 2012
Report of the Independent Auditors, KPMG Audit LLC, to the members of East Balkan Properties Plc
We have audited the financial statements of East Balkan Properties plc for the year ended 31 December 2011 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Financial Position, the Consolidated and Company Statements of Changes in Equity and the Consolidated and Company Statements of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs).
This report is made solely to the Company's members, as a body. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors' Responsibilities Statement, the Directors are responsible for the preparation of financial statements that give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.
Opinion on the financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Group's and Parent Company's affairs as at 31 December 2011 and of the Group's profit for the year then ended; and
-- have been properly prepared in accordance with IFRSs.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
3 April 2012
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2011
Note 2011 2010
EUR '000 EUR '000
Revenue 4,228 9,352
Property operating expenses (1,627) (5,038)
Net rental and related income 4 2,601 4,314
--------------------------------------------------------------- -------- ---------------- --------------
Net gain/(loss) from fair value adjustment on property assets 9,10,15 1,313 (30,729)
Share of profit from associate:
Current year profit before fair value adjustment 13 2,108 1,300
(Loss)/gain from fair value adjustment on property
assets 13 (1,724) 632
Prior year adjustment to property valuations 13 - 2,275
Profit on sale of a subsidiary - 10,387
Administrative expenses 5 (1,113) (2,812)
--------------------------------------------------------------- -------- ---------------- --------------
Operating profit/(loss) 3,185 (14,633)
--------------------------------------------------------------- -------- ---------------- --------------
Finance income 6 436 21,558
Finance costs 6 (1,536) (21,624)
Profit/(loss) before tax 2,085 (14,699)
--------------------------------------------------------------- -------- ---------------- --------------
Income tax expense 7 - (785)
--------------------------------------------------------------- -------- ---------------- --------------
Profit/(loss) for the year 2,085 (15,484)
--------------------------------------------------------------- -------- ---------------- --------------
Other comprehensive income
Realisation of reserves on sale of subsidiary - 7,116
Exchange differences on translating foreign operations 128 1,170
Other comprehensive income for the year 128 8,286
--------------------------------------------------------------- -------- ---------------- --------------
Total comprehensive income/(loss) for the year 2,213 (7,198)
--------------------------------------------------------------- -------- ---------------- --------------
Earnings/(loss) per share - basic and diluted 0.01 (0.11)
--------------------------------------------------------------- -------- ---------------- --------------
The directors consider all results derive from continuing activities.
The notes below are an integral part of these financial statements.
CONSOLIDATED AND COMPANY STATEMENTS OF FINANCIAL POSITION
AS AT 31 DECEMBER 2011
Note Group Group Company Company
2011 2010 2011 2010
EUR '000 EUR '000 EUR '000 EUR '000
ASSETS
Non-current assets
Investment property 9 39,772 40,885 - -
Development property 10 - 1,960 - -
Other property, plant and equipment 11 - 2 - -
Investment in subsidiaries 12 - - 29,379 29,379
Investment in associates 13 24,882 24,498 - -
Loans and receivables 12,13 12,092 11,925 22,012 20,635
76,746 79,270 51,391 50,014
------------------------------------- ------ --------- --------- --------- ---------
Current assets
Trade and other receivables 14 2,252 3,402 - 16
Land held for sale 15 7,778 3,400 - -
Cash and cash equivalents 2,632 3,285 943 1,237
12,662 10,087 943 1,253
------------------------------------- ------ --------- --------- --------- ---------
Total assets 89,408 89,357 52,334 51,267
------------------------------------- ------ --------- --------- --------- ---------
EQUITY
Share capital 21 1,400 1,400 1,400 1,400
Retained earnings 61,014 58,929 50,800 49,727
Translation reserve (9,175) (9,303) - -
Total equity 53,239 51,026 52,200 51,127
------------------------------------- ------ --------- --------- --------- ---------
Liabilities
Non-current liabilities
Bank borrowings 16 16,706 32,666 - -
Deposits 276 243 - -
Other long term loans 17 259 1,489 - -
17,241 34,398 - -
------------------------------------- ------ --------- --------- --------- ---------
Current liabilities
Trade and other payables 1,616 2,227 134 140
Interest rates swaps 19 - 876 - -
Bank borrowings 16 15,870 830 - -
Other loans 17 1,442 -
18,928 3,933 134 140
------------------------------------- ------ --------- --------- --------- ---------
Total liabilities 36,169 38,331 134 140
------------------------------------- ------ --------- --------- --------- ---------
Total equity and liabilities 89,408 89,357 52,334 51,267
------------------------------------- ------ --------- --------- --------- ---------
The notes below are an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board of Directors on 3 April 2012 and were signed on their behalf by:
James Ede-Golightly Graham Smith Chairman Director
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2011
GROUP
------------------------------------------------- -------------- ------------------ -------------------- ---------
Share Capital Retained Earnings Translation Reserve Total
EUR '000 EUR '000 EUR '000 EUR '000
Balance at 1 January 2010 1,400 74,413 (17,589) 58,224
------------------------------------------------- -------------- ------------------ -------------------- ---------
Loss for the year - (15,484) - (15,484)
Other comprehensive income:
Realisation of reserves on sale of subsidiary - - 7,116 7,116
Exchange differences on translating foreign
operations - - 1,170 1,170
------------------------------------------------- -------------- ------------------ -------------------- ---------
Total comprehensive income/(loss) - (15,484) 8,286 (7,198)
Balance at 31 December 2010 1,400 58,929 (9,303) 51,026
------------------------------------------------- -------------- ------------------ -------------------- ---------
Profit for the year - 2,085 - 2,085
Other comprehensive income:
Exchange differences on translating foreign
operations - - 128 128
Total comprehensive income - 2,085 128 2,213
Balance at 31 December 2011 1,400 61,014 (9,175) 53,239
------------------------------------------------- -------------- ------------------ -------------------- ---------
COMPANY
------------------------------------------------- -------------- ------------------ -------------------- ---------
Share Capital Retained Earnings Translation Reserve Total
EUR '000 EUR '000 EUR '000 EUR '000
Balance at 1 January 2010 1,400 64,122 - 65,522
------------------------------------------------- -------------- ------------------ -------------------- ---------
Loss for the year - (14,395) - (14,395)
Balance at 31 December 2010 1,400 49,727 - 51,127
------------------------------------------------- -------------- ------------------ -------------------- ---------
Profit for the year - 1,073 - 1,073
Balance at 31 December 2011 1,400 50,800 - 52,200
------------------------------------------------- -------------- ------------------ -------------------- ---------
The notes below are an integral part of these financial statements.
CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
Group Group Company Company
2011 2010 2011 2010
EUR '000 EUR '000 EUR '000 EUR '000
Cashflows from operations
----------------------------------------------------------------- --------- --------- --------- ---------
Profit/(loss) for the year 2,085 (14,699) 1,073 (14,395)
Adjustments for:
- share of profit in associate (384) (4,207) - -
- net (gain)/loss from fair value adjustment on property assets (1,313) 30,729 - -
- finance income (436) (21,558) (1,654) (4,655)
- finance costs 1,202 17,082 - -
- foreign exchange loss 483 5,153 - -
- (profit)/loss on sale of subsidiaries - (10,387) - -
- depreciation of property, plant and equipment 2 68 - -
- impairment of loans/investments - - - 18,000
- fair value movement on interest rate swaps (276) (611) - -
- bad debt provision 383 458 - -
Changes in working capital:
- increase in receivables 293 (627) 16 15
- decrease in payables (592) (471) (6) (392)
----------------------------------------------------------------- --------- --------- --------- ---------
Cash inflow/(outflow) from operations 1,447 930 (571) (1,427)
----------------------------------------------------------------- --------- --------- --------- ---------
Finance costs paid (1,202) (5,480) - -
Tax paid - 25 - -
----------------------------------------------------------------- --------- --------- --------- ---------
Net cash inflow/(outflow) from operating activities 245 (4,525) (571) (1,427)
----------------------------------------------------------------- --------- --------- --------- ---------
Cash flow from investing activities
Proceeds on sale of investment property - 1,400 - 1,049
Purchase of other property, plant and equipment - (25) - -
Loans advanced to associates 200 - - -
Loans repaid from /(advanced to) subsidiaries - - 148 (2,418)
Acquisition of subsidiaries, net of cash acquired - 588 - -
Net cash flows attributable to sold subsidiaries - (970) - -
Interest received 436 30 129 -
----------------------------------------------------------------- --------- --------- --------- ---------
Net cash inflow /(outflow) from investing activities 636 1,023 277 (1,369)
----------------------------------------------------------------- --------- --------- --------- ---------
Cash flows from financing activities
Repayment of borrowings (920) (1,248) - -
Proceeds from borrowing and other loans - 5,118 - -
SWAP settlements (614) (3,628) - -
----------------------------------------------------------------- --------- --------- --------- ---------
Net cash (outflow) / inflow from financing activities (1,534) 242 - -
----------------------------------------------------------------- --------- --------- --------- ---------
Net (decrease) in cash and cash equivalents (653) (3,260) (294) (2,796)
----------------------------------------------------------------- --------- --------- --------- ---------
Cash and cash equivalents at beginning of year 3,285 6,543 1,237 4,033
Foreign exchange gains on cash and cash equivalents - 2 - -
----------------------------------------------------------------- --------- --------- --------- ---------
Cash and cash equivalents at end of year 2,632 3,285 943 1,237
----------------------------------------------------------------- --------- --------- --------- ---------
The notes below are an integral part of these financial statements.
STATEMENT OF ACCOUNTING POLICIES
For the year ended 31 December 2011
General information
East Balkan Properties plc ("the Company") and its subsidiaries (together "the Group") are a property group with a portfolio of development property and investment property assets in South East Europe.
The principal accounting policies are set out below.
Basis of preparation
These financial statements have been prepared in accordance with the Isle of Man Companies Acts 1931-2004, International Financial Reporting Standards ("IFRS") and IFRIC interpretations. The consolidated financial statements have been prepared on a going concern basis and on a historical cost basis as amended by the revaluation of investment property, development property, land held for resale and financial assets and financial liabilities at fair value through profit or loss. Comparative information for the Group and Company financial statements is presented for the year ended 31 December 2010.
In accordance with the provisions of Section 3 of the Isle of Man Companies Act 1982, no separate statement of comprehensive income has been presented for the Company. The amount of the Company's profit for the year recognised in the Statement of Comprehensive Income is EUR 1,073,000 (2010: loss EUR 14,395,000).
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 financial statements are disclosed in Note 1.
Specifically, the Directors have prepared the consolidated financial statements on a going concern basis. This is a key judgement of the Board, and is discussed further in Note 1(c).
Future changes in accounting policies
IASB (International Accounting Standards Board) and IFRIC (International Financial Reporting Interpretations Committee) have issued the following standards and interpretations with an effective date after the date of these financial statements:
New/Revised International Financial Reporting Effective date
Standards (IAS/IFRS) (accounting periods
commencing on
or after)
-------------------------------------------------------- ---------------------
IAS 1 Presentation of Financial Statements - Amendments 1 July 2012
to revise the way other comprehensive income is
presented (June 2011)
IAS 12 Income Taxes - Limited scope amendment
(recovery of underlying assets) (December 2010) 1 January 2012
IAS 19 Employee Benefits - Amendment resulting
from the Post-Employment Benefits and Termination 1 January 2013
Benefits projects (as amended in June 2011)
IAS 27 Consolidated and Separate Financial Statements 1 January 2013
- Reissued as IAS 27 Separate Financial Statements
(as amended in May 2011)
IAS 28 Investments in Associates - Reissued as 1 January 2013
IAS 28 Investments in Associates and Joint Ventures
(as amended in May 2011)
IAS 32 Financial Instruments Presentation - Amendments 1 January 2014
to application guidance on the offsetting of financial
assets and financial liabilities (December 2011)
IFRS 7 Financial Instruments: Disclosures - Amendments 1 July 2011
enhancing disclosures about transfers of financial
assets (October 2010)
IFRS 7 Financial Instruments: Disclosures - Amendments 1 January 2013
enhancing disclosures about offsetting of financial
assets and financial liabilities (December 2011)
IFRS 7 Financial Instruments: Disclosures - Amendments 1 January 2015
requiring disclosures about the initial applicable
of IFRS 9 (December 2011)
IFRS 9 Financial Instruments - Classification 1 January 2015
and measurement of financial assets (as amended
in December 2011)
IFRS 9 Financial Instruments - Accounting for 1 January 2015
financial liabilities and derecognition (as amended
in December 2011)
IFRS 10 Consolidated Financial Statements (May 1 January 2013
2011)
IFRS 11 Joint Arrangements (May 2011) 1 January 2013
IFRS 12 Disclosure of Interests in Other Entities 1 January 2013
(May 2011)
IFRS 13 Fair Value Measurement (May 2011) 1 January 2013
-------------------------------------------------------- ---------------------
IFRIC Interpretation
IFRIC 20 Stripping Costs in the Production Phase 1 January 2013
of a Surface Mine
The Directors do not expect the adoption of the standards and interpretations to have a material impact on the Group's financial statements in the period of initial application.
Basis of consolidation
(a) Subsidiaries
Subsidiaries are all 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 de-consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group, except for certain acquisitions that do not meet the definition of a business combination under IFRS 3. These are accounted for as asset acquisitions. The cost of an acquisition is to be measured as the fair value of the assets given, equity instruments issued, and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of an acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the profit or loss. Investments in subsidiaries are carried at cost less any provision for permanent impairment in the value in the Company's statement of financial position.
Inter-company transactions, balances, and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
(b) Transactions with non-controlling interests
The Group applies a policy of treating transactions with non-controlling interests as transactions with parties external to the Group. Disposals to non-controlling interests result in gains and losses for the Group that are recorded in the profit or loss. Purchases from non-controlling interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.
(c) Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group's investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss.
The Group's share of its associates' post-acquisition profits or losses is recognised in the profit or loss, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
Accounting policies of associates have been reviewed to ensure consistency with the policies adopted by the Group.
Segment reporting
The Directors are of the opinion that the Group is engaged in a single segment of business, being property investment business, in one geographical area, being South East Europe. This is consistent with the internal reporting provided to the chief operating decision-makers. The chief operating decision-makers, who are responsible for the allocating resources and assessing performance of the operating segment, have been identified as the Directors that make strategic decisions.
Foreign currency translation
(a) Functional and presentationcurrency
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The consolidated financial statements are presented in Euros, which is the Company's presentational currency. The functional currency of each entity within the Group is a key judgement of management and the Directors. This judgement prioritises primary factors, such as the source of competitive forces and the denomination of sales prices and input costs, over secondary considerations such as the source of financing, in accordance with IAS21. These considerations indicate that the functional currencies of the Balkan trading entities are Romanian New Lei, Serbian Dinar, Bulgarian Lev, Slovakian Koruna and the functional currency of the holding companies is the Euro.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. 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 profit or loss. Non-monetary items carried at fair value, which are denominated in foreign currencies, are translated at the rates prevailing at the date when the fair value was determined, and the gain or loss is recognised in the profit or loss.
(c) Foreign operations
The results and financial position of all the foreign entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
(i) assets and liabilities are translated to Euro at exchange rates at the reporting date;
(ii) 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 dates of the transactions); and
(iii) all resulting exchange differences are recognised as a separate component of Other Comprehensive Income.
When a foreign operation is sold, such exchange differences are recognised in the statement of comprehensive income as part of the gain or loss on sale.
Investment property
Property that is held for rental yields or for capital appreciation or both is classified as investment property. Investment property comprises freehold land, freehold buildings, and land held under operating leases. Investment property is measured initially at its cost, including related transaction costs and subsequently at fair value with any change therein recognised in profit or loss.
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.
Development property
Property that is being constructed or developed for future use as investment property is classified as development property. The Group has elected to use the fair value model to measure development property after initial recognition. Development property is revalued to fair value.
Upon completion, development property to be held for long-term rental income and capital appreciation is transferred to investment property classification in the Statement of Financial Position.
Leasing
(a) A group company is the lessee
Leases in which a significant portion of the risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.
(b) A group company is the lessor
Properties leased out under operating leases are included in investment property in the statement of financial position. Lease income is recognised over the term of the lease on a straight-line basis.
Impairment of assets
Assets including goodwill that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
Financial assets
The Group classifies its financial assets into the following categories: at fair value through profit or loss and loans and receivables. The Group has not classified any of its financial assets as held to maturity or as assets available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
Unless otherwise indicated, the carrying amounts of the Group's financial assets are a reasonable approximation of their fair value.
(a) Financial assets at fair value through profit or loss
Financial assets at fair value through the profit or loss comprise only in-the-money derivatives (see financial liabilities policy for out-of-the money derivatives), which are measured initially at fair value, with changes in fair value recognised in the statement of comprehensive income in finance income or finance costs.
Fair value hierarchy of financial instruments
The financial assets measured at fair value are disclosed using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurements, as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Those involving inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).
Level 3 - Those inputs for the asset or liability that are not based on observable market data (unobservable inputs).
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after 31 December 2011. These are classified as non-current assets. Loans and receivables are classified as trade and other receivables, cash and cash equivalents or loans and receivables in the statement of financial position.
Loans and receivables are initially recognised at fair value, plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest method, less impairment.
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are not subject to a significant risk of changes in value.
Trade receivables
Trade receivables are non-derivative financial assets with fixed or determinable payment terms that are not quoted in an active market. The carrying value of trade receivables approximates their fair values. A provision for impairment of trade 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 receivables.
Land assets held for resale
Land assets held for resale are stated at fair value.
Investments in subsidiaries
Parent company investment in subsidiary undertakings are stated at cost less any provision for impairment.
Equity and reserves
Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. The revaluation reserve within equity comprises gains and losses due to the revaluation of property, plant and equipment, investment property, development property and acquired building rights. Foreign currency translation differences arising on the translation of the Group's foreign entities are included in the translation reserve. Retained earnings include all current and prior period retained profits.
Financial liabilities
The Group classifies its financial liabilities into the following categories: at fair value through profit or loss and other financial liabilities.
Unless otherwise indicated, the carrying amounts of the Group's financial liabilities are a reasonable approximation of their fair value.
(a) Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through the profit or loss comprise only out-of-the-money derivatives (see financial assets policy for in-the-money derivatives), which are measured initially at fair value, with changes in fair value recognised in the statement of comprehensive income in finance income or finance costs.
(b) Other financial liabilities
Other financial liabilities include borrowings and trade and other payables, which are measured initially at fair value, and subsequently at amortised cost using the effective interest method.
Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.
Trade payables and other payables
Trade payables and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Taxation
Income tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:
-- temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
-- temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and
-- taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Revenue recognition
Revenue includes rental income and service charges from properties.
Rental income from operating leases is recognised in income on a straight-line basis over the lease term. When the Group provides incentives to its customers, the cost of incentives are recognised over the lease term, on a straight line basis, as a reduction of rental income.
Service charges are recognised in the accounting period in which the services are rendered. When the Group is acting as an agent, the commission, rather than gross income, is recorded as revenue.
Finance income
Finance income is accrued on a time basis by reference to the outstanding principal and the effective interest rate applicable.
Interest expense
Interest expense for borrowings is recognised within finance costs in the statement of comprehensive income using the effective interest rate method. The effective interest rate method is a method of calculating the amortised cost of a financial liability and of allocating the interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments throughout the expected life of the financial instrument, or a shorter period where appropriate, to the net carrying amount of the financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options). The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Expenses
Expenses are accounted for on an accruals basis. The Group's property operating expenses, administration fees, finance costs and all other expenses are charged to the profit or loss. Transaction costs directly attributable to the purchase of investment property are included within the cost of the property.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2011
1 Critical accounting estimates and judgements
In the process of applying the Group's accounting policies, the Directors have made the following estimates and judgements that have had the most significant effect on these financial statements.
(a) Classification of property as investment, development, and land held for sale
Investment property is property held for rental income and capital appreciation. Development property is property that does not earn rental income and that is being developed for future use as investment property. Development property is transferred to the category of investment property when construction is completed and the property starts earning rental income. Land assets held for resale are recognised for properties owned by the Group specifically to be sold.
(b) Estimate of fair value of investment and development properties
The best evidence of fair value is current prices in an active market for similar lease and other contracts. In the absence of such information, the Group determines the amount within a range of reasonable, fair value estimates. In making its judgement, the Group engages independent valuers its properties. These are completed in accordance with the appropriate sections of the current Practice Statements contained in the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards, 6th Edition (the "Red Book"). This is an internationally accepted basis of valuation.
In completing these valuations the valuer considers the following:
- current prices in an active market for properties of a different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences;
- recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and
- discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts and (where possible) from external evidence such as current market rents 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.
(c) Going concern
In assessing the going concern basis of preparation of the consolidated financial statements for the year ended 31 December 2011, the Directors have prepared cash-flow forecasts, and stress-tested the assumptions in those forecasts. The conclusion reached is that while there will always remain inherent uncertainty within the cash flow forecasts, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future, and for a period of at least 12 months from the date of signing of these financial statements. Accordingly they continue to adopt the going concern basis in preparing the consolidated financial statements for the year ended 31 December 2011.
(d) Functional currency
Functional currency is a key judgement by management and the Board, discussed further within the Statement of Accounting Policies.
2 Financial risk management 2.1 Financial risk factors
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, price risk, cash flow and fair value interest rate risk), credit risk, and liquidity risk. The financial risks relate to the following financial instruments: trade receivables, loans and receivables, derivatives, cash and cash equivalents, trade and other payables and borrowings.
Risk management is carried out by the Board of Directors with advice from external consultants.
(a) Market risk
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Romanian New Lei (RON) and Serbian Dinar (RSD) and to a lesser extent to the Slovakian Koruna (SKK), Pound Sterling (GBP), and the Bulgarian Lev (BGN) which is currently pegged against the Euro.
The following tables summarise the Group's net financial assets by foreign currency. The Group's financial assets and liabilities at carrying amounts are included in the table, categorised by the currency at their carrying amount.
EUR RON RSD Total
-----------------------------------------
31 December 2011 EUR '000 EUR '000 EUR '000 EUR '000
----------------------------------------- --------- ------------- --------------- ---------
FINANCIAL ASSETS
Non-current financial assets
Loans and receivables 12,092 - - 12,092
Total non-current financial assets 12,092 - - 12,092
----------------------------------------- --------- ------------- --------------- ---------
Current financial assets
Trade and other receivables 188 2,018 46 2,252
Cash and cash equivalents 2,380 247 5 2,632
Total current financial assets 2,568 2,265 51 4,884
----------------------------------------- --------- ------------- --------------- ---------
Total financial assets 14,660 2,265 51 16,976
----------------------------------------- --------- ------------- --------------- ---------
FINANCIAL LIABILITIES
Non-current financial liabilities
Bank borrowings 16,706 - - 16,706
Deposits - 276 - 276
Other long term loans 147 112 - 259
Total non-current financial liabilities 16,853 388 - 17,241
----------------------------------------- --------- ------------- --------------- ---------
Current financial liabilities
Trade and other payables 712 842 62 1,616
Bank borrowings 15,870 - - 15,870
Other long term loans - 1,442 - 1,442
----------------------------------------- --------- ------------- --------------- ---------
Total current liabilities 16,582 2,284 62 18,928
----------------------------------------- --------- ------------- --------------- ---------
Total liabilities 33,435 2,672 62 36,169
----------------------------------------- --------- ------------- --------------- ---------
Net financial liabilities by currency (18,775) (407) (11) (19,193)
----------------------------------------- --------- ------------- --------------- ---------
EUR RON RSD Total
-----------------------------------------
31 December 2010 EUR '000 EUR '000 EUR '000 EUR '000
----------------------------------------- ------------ ---------- --------- ---------
FINANCIAL ASSETS
Non-current financial assets
Loans and receivables 11,925 - - 11,925
Total non-current financial assets 11,925 - - 11,925
----------------------------------------- ------------ ---------- --------- ---------
Current financial assets
Trade and other receivables 372 2,658 372 3,402
Cash and cash equivalents 2,172 1,043 70 3,285
Total current financial assets 2,544 3,701 442 6,687
----------------------------------------- ------------ ---------- --------- ---------
Total financial assets 14,469 3,701 442 18,612
----------------------------------------- ------------ ---------- --------- ---------
FINANCIAL LIABILITIES
Non-current financial liabilities
Bank borrowings 32,666 - - 32,666
Deposits - 243 - 243
Other long term loans 139 1,350 - 1,489
Total non-current financial liabilities 32,805 1,593 - 34,398
----------------------------------------- ------------ ---------- --------- ---------
Current financial liabilities
Trade and other payables 301 1,873 53 2,227
Interest rates swaps 876 - - 876
Bank borrowings 830 - - 830
Total current liabilities 2,007 1,873 53 3,933
----------------------------------------- ------------ ---------- --------- ---------
Total liabilities 34,812 3,466 53 38,331
----------------------------------------- ------------ ---------- --------- ---------
Net financial liabilities by currency (20,343) 235 389 (19,719)
----------------------------------------- ------------ ---------- --------- ---------
The Company does not have any significant concentration of foreign exchange risk. The Group's property assets are valued in Euro, rental income is linked to the Euro, and borrowings are denominated in Euro.
The sensitivity analyses below are based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur and changes in some of the assumptions may be correlated - for example, change in interest rate, and change in foreign currency rates. The Group manages foreign currency risk on an overall basis.
The sensitivity analysis shown below by management for foreign currency risk illustrates that changes in the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
If the Euro weakened/strengthened by 10% against the Romanian Lei with all other variables held constant, post-tax loss for the year would have been EUR 4,195,000 lower and EUR 3,368,000 higher (2010: post-tax profit for the year would have been EUR 3,068,000 lower and EUR 2,510,000 higher).
If the Euro weakened/strengthened by 10% against the Serbian Dinar with all other variables held constant, post-tax loss for the year would have been EUR 710,000 lower and EUR 858,000 higher (2010: post-tax profit for the year would have been EUR 544,000 lower, and EUR 445,000 higher).
(ii) Price risk
The Group is exposed to property price and property rentals risk. The Company does not have any significant concentration of price risk as the assets or asset owning companies can be sold individually and at the full discretion of the Group. The potential impact of future value reductions will be mitigated by the moratorium on loan to value covenants offered as part of the debt restructurings.
(iii) Cash flow and fair value interest rate risk
The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows, as the Group's cash is deposited in interest bearing accounts at floating rates. The Group manages interest rate risk on these assets by monitoring interest rates offered by the market.
The Group's interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.
The Group may mitigate its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long-term borrowings at floating interest rates and swaps them into fixed rates.
The Group's cash flow and fair value interest rate risk is periodically monitored by the Board with input from consultants. During 2011, the Company cancelled the existing interest rate swaps as part of the loan restructuring in respect of Domenii and Cartex as described in note 19.
Trade and other receivables and payables are interest-free and have settlement dates within one year.
The sensitivity analysis below reflects the sensitivity of loan interest (on unswapped loans only), and the sensitivity of the fair value of interest rate swaps, to changes in interest rates.
An increase in 100 basis points in Euribor interest rate would result in an decrease in the post-tax profit for the year of EUR 326,000 (2010: profit EUR 113,500). A decrease in 100 basis points in Euribor interest rate would result in an increase in the post-tax profit for the year of EUR 326,000 (2010: EUR 113,500.
The Company does not have any significant concentration of cash flow and fair value interest rate risk.
(b) Credit risk
Credit risk arises from cash and cash equivalents as well as credit exposures with respect to rental customers, including outstanding receivables. It has policies in place to ensure that where possible rental contracts are made with customers with an appropriate credit history. Cash transactions are limited to high-credit-quality financial institutions.
Trade receivables are monitored monthly and litigation is used actively to enforce collection efforts. The Group has significant concentration risk with respect to entities of Technomarket Domo in Bulgaria and Romania, but this company has continued to meet all its rental obligations. For other tenants, limited provisions have been made at the local company level for bad debts incurred in 2011. The Directors have not made a Group level adjustment in excess of these amounts.
The cash flow forecast for the going concern evaluation includes consideration of future bad debts. The assumption for 2012 and 2013 is that new bad debts will not materially exceed the amount of bad debts from 2011 that will be collected through enforcements efforts.
(c) Liquidity risk
Prudent liquidity risk management implies conserving cash balances. The Group is active in minimising costs, operational and administrative, controlling or delaying discretionary capital expenditures, and actively collecting rental invoices. Non-discretionary expenditures are also being monitored by the Board.
The maturity of existing loans has been extended to September 2012 and April 2013. The Group has no committed or undrawn mortgage debt facility and will rely on operational cash flows and cash reserves to meet its liquidity requirements.
The effective interest rate on bank borrowings not repaid or otherwise retired during the period at 31 December 2011 was 3.7% (2010: 4.78%).
The fair value of these fixed and floating-rate borrowings approximated their carrying values at 31 December 2010 and 2011. All bank borrowings are denominated in Euro. The Group has no undrawn fixed rate borrowings (2010: none).
A summary table with maturity of financial liabilities presented below shows the liquidity risks as at 31 December 2011 and 31 December 2010.
Group Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years
EUR '000 EUR '000 EUR '000 EUR '000
------------------------------- ----------------- ---------------------- ---------------------- -------------
2011
Cartex loan finance 4,800 - - -
Domenii loan finance 10,150 - - -
Equest Logistics loan finance 920 16,706 - -
Other loans payable 1,442 - 259 -
Trade and other payables 1,616 - - -
Total 18,928 16,706 259 -
2010
Cartex loan finance - 4,951 - -
Domenii loan finance - 10,470 - -
Equest Logistics loan finance 920 18,275 - -
Other loans payable - - 1,489 -
Trade and other payables 1,666 - - -
Other non-current liabilities 151 220 197 1,747
------------------------------- ----------------- ---------------------- ---------------------- -------------
Total 2,737 33,916 1,686 1,747
------------------------------- ----------------- ---------------------- ---------------------- -------------
The above schedule has, in accordance with IFRS7 Financial Instruments: Disclosures, been presented in line with the conditions present at 31 December 2011, with regards to the contractual maturities of financial liabilities held by the Group.
2.2 Capital risk management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including bank loans and loans from non-controlling investors), and other long term loans as shown in the consolidated statement of financial position, less cash and cash equivalents. Total capital is calculated as equity, as shown in the consolidated statement of financial position, plus net debt.
2011 2010
EUR '000 EUR '000
--------------------------------- --------- ---------
Total borrowings 32,576 33,496
Other loans 1,701 1,489
Less: cash and cash equivalents (2,632) (3,285)
--------------------------------- --------- ---------
Net debt 31,645 31,700
--------------------------------- --------- ---------
Total equity 53,239 51,026
Total capital 84,884 82,726
--------------------------------- --------- ---------
Gearing ratio 37.3% 38.3%
3 Summary of financial assets and liabilities by category
All financial instruments held at fair value are Level 2 in the fair value hierarchy.
The carrying amounts of the Group's financial assets and liabilities as recognised are categorised as follows.
31 December 2011 Financial assets and Loans and receivables Financial liabilities Total
liabilities at fair value measured at amortised
through profit or loss cost
EUR '000 EUR '000 EUR '000 EUR '000
--------------------------- -------------------------- ---------------------- -------------------------- ---------
FINANCIAL ASSETS
Non-current financial
assets
Loans and receivables - 12,092 - 12,092
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total non-current
financial assets - 12,092 - 12,092
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Current assets
Trade and other
receivables - 2,252 - 2,252
Cash and cash equivalents - 2,632 - 2,632
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total current financial
assets - 4,884 - 4,884
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total financial assets - 16,976 - 16,976
--------------------------- -------------------------- ---------------------- -------------------------- ---------
FINANCIAL LIABILITIES
Non-current financial
liabilities
Bank borrowings - - 16,026 16,026
Deposits - - 276 276
Other long term loans - - 259 259
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total non-current
financial liabilities - - 16,561 16,561
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Current financial
liabilities
Trade and other payables - - 1,616 1,616
Interest rates swaps - - - -
Bank borrowings - - 16,550 16,550
Other short term loans - - 1,442 1,442
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total current financial
liabilities - - 19,608 19,608
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total financial
liabilities - - 36,169 36,169
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Financial assets and Financial liabilities
liabilities at fair value measured at amortised
31 December 2010 through profit or loss Loans and receivables cost Total
EUR '000 EUR '000 EUR '000 EUR '000
--------------------------- -------------------------- ---------------------- -------------------------- ---------
FINANCIAL ASSETS
Non-current financial
assets
Loans and receivables - 11,925 - 11,925
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total non-current
financial assets - 11,925 - 11,925
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Current assets
Trade and other
receivables - 3,402 - 3,402
Cash and cash equivalents - 3,285 - 3,285
Total current financial
assets - 6,687 - 6,687
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total financial assets - 18,612 - 18,612
-------------------------- ---------------------- -------------------------- ---------
FINANCIAL LIABILITIES
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Non-current financial
liabilities
Bank borrowings - - 32,666 32,666
Deposits - - 243 243
Other long term loans - - 1,489 1,489
Other non-current
liabilities - - - 0
Total non-current
financial liabilities - - 34,398 34,398
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Current financial
liabilities
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Trade and other payables - - 2,227 2,227
Interest rates swaps 876 - - 876
Bank borrowings - - 830 830
Other short term loans - - - 0
Total current financial
liabilities 876 - 3,057 3,933
--------------------------
Total financial
liabilities 876 - 37,455 38,331
--------------------------- -------------------------- ---------------------- -------------------------- ---------
The carrying amounts of the Company's financial assets and liabilities as recognised at the respective year-ends are categorised as follows.
31 December 2011 Financial assets and Loans and receivables Financial liabilities Total
liabilities at fair value measured at amortised
through profit or loss cost
EUR '000 EUR '000 EUR '000 EUR '000
--------------------------- -------------------------- ---------------------- -------------------------- ---------
FINANCIAL ASSETS
Non-current financial
assets
Loans and receivables - 22,012 - 22,012
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total non-current
financial assets - 22,012 - 22,012
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Current assets
Trade and other - - - -
receivables
Cash and cash equivalents - 943 - 943
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total current financial
assets - 943 - 943
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total financial assets - 22,955 - 22,955
--------------------------- -------------------------- ---------------------- -------------------------- ---------
FINANCIAL LIABILITIES
Non-current financial
liabilities
Bank borrowings - - - -
Deposits - - - -
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total non-current - - - -
financial liabilities
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Current financial
liabilities
Trade and other payables - - 134 134
Interest rates swaps - - - -
Bank borrowings - - - -
Total current financial
liabilities - - 134 134
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total financial
liabilities - 22,955 134 23,089
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Financial assets and Financial liabilities
liabilities at fair value measured at amortised
31 December 2010 trough profit or loss Loans and receivables cost Total
EUR '000 EUR '000 EUR '000 EUR '000
--------------------------- -------------------------- ---------------------- -------------------------- ---------
FINANCIAL ASSETS
Non-current financial
assets
Loans and receivables - 20,635 - 20,635
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total non-current
financial assets - 20,635 - 20,635
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Current assets
Trade and other
receivables - 16 - 16
Cash and cash equivalents - 1,237 - 1,237
Total current financial
assets - 1,253 - 1,253
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total financial assets - 21,888 - 21,888
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Current financial
liabilities
Trade and other payables - - 140 140
Bank borrowings - - - -
Other short term loans - - - -
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total current financial
liabilities - - 140 140
--------------------------- -------------------------- ---------------------- -------------------------- ---------
Total financial
liabilities - - 140 140
--------------------------- -------------------------- ---------------------- -------------------------- ---------
4 Net rental and related income
Group 2011 Group 2010
EUR '000 EUR '000
------------------------------- --------------- -----------------
Gross rental income 3,405 7,420
Service charge income 817 1,163
Other property income 6 769
Property operating expenses (1,627) (5,038)
Net rental and related income 2,601 4,314
------------------------------- --------------- -----------------
Net rental and related income analysed by geographical location:
2011 Romania Serbia Total
EUR '000 EUR '000 EUR '000
------------------------------- --------- --------- ---------
Revenue 4,138 90 4,228
Property operating expenses (1,509) (29) (1,538)
-------------------------------
Net rental and related income 2,629 61 2,690
------------------------------- --------- --------- ---------
2010 Romania Serbia Total
EUR '000 EUR '000 EUR '000
------------------------------- --------- --------- ---------
Revenue 9,352 - 9,352
Property operating expenses (5,026) (12) (5,038)
------------------------------- --------- --------- ---------
Net rental and related income 4,326 (12) 4,314
------------------------------- --------- --------- ---------
Future rental income
At 31 December 2011, the Group had contracted with tenants for the following future minimum non-cancellable operating lease payments:
Group 2011 Group 2010
EUR '000 EUR '000
--------------------------------------------- ----------- -----------
No later than 1 year 3,903 3,418
Later than 1 year and no later than 5 years 4,916 8,743
Later than 5 years - -
Total 8,819 12,161
--------------------------------------------- ----------- -----------
5 Administration expenses
Group 2011 Group 2010
EUR '000 EUR '000
--------------------------------- ----------- -----------
Audit fees 104 163
Management fees 66 686
Other professional expenses** 337 1,255
Directors' fees 124 186
Bad debts 383 458
Reversal of provision* (380) (100)
Other administration expenses** 479 164
Total 1,113 2,812
--------------------------------- ----------- -----------
*The provision was set up as part of the sale process of City Centre Sofia in 2009 in order to cover potential warranty claims to the extent that it has been agreed with the purchaser of City Center Sofia that no warranty claims are due, the provision has been reversed.
**Some expenses have been reclassified from other processional expenses to other administration expenses.
6 Finance income and finance costs
Finance income and finance costs include all finance-related income and expenses. The following amounts have been included in the statement of comprehensive income line for the reporting periods presented:
Group 2011 Group 2010
EUR '000 EUR '000
-------------------------------------------- ----------- -----------
Interest on short-term bank deposits 30 30
Other finance income* 406 21,528
----------- -----------
Finance income 436 21,558
-------------------------------------------- ----------- -----------
Fair value movement on interest rate swaps (276) (611)
Interest expense on borrowings 1,202 3,947
Net foreign exchange losses 483 5,153
Bank charges 32 49
Other finance expenses* 95 13,086
Finance costs 1,536 21,624
-------------------------------------------- ----------- -----------
* - The Other finance income and Other finance expenses in the prior year period consist primarily of the restructuring of the loans to Vitantis and Moldova Mall, as a result of which the original loan liabilities were replaced by liabilities under which the repayment amount would depend on future proceeds. The release from the original liability is recognised as income, and the fair value of the new liability as expense.
7 Income tax expense
Group 2011 Group 2010
EUR '000 EUR '000
------------------------------------ ------------ -----------
Current tax - 25
Deferred tax
Movement in deferred tax liability - -
Movement in deferred tax asset - (810)
- (785)
------------------------------------------------- -----------
The tax on the Group's loss before tax differs from the theoretical amount that would arise using the weighted average rate of the applicable profits of the consolidated companies as follows:
Group 2011 Group 2010
EUR '000 EUR '000
Profit/(loss) before tax 2,548 (14,699)
---------------------------------------------------------------------------------------- ----------- -----------
Tax calculated at the domestic rate in the Isle of Man of 0% (2010: 0%) - -
Tax calculated at domestic tax rates applicable to profits in the respective countries - 25
Timing differences arising and not deductible for tax purposes - (810)
Tax credit - (785)
---------------------------------------------------------------------------------------- ----------- -----------
There have been no changes in the applicable tax rates in any of the countries in which the Group operates.
8 Earnings/ (loss) per share
The basic earnings per ordinary share is calculated by dividing the net profit attributable to the ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the year.
Group
2011 Group 2010
Profit/(loss) attributable to ordinary shareholders of the Company (EUR '000) 2,085 (15,484)
Weighted average number of ordinary shares in issue ('000) 140,000 140,000
Basic earnings/(loss) per share in Euros 0.01 (0.11)
------------------------------------------------------------------------------- --------- -----------
The Company has no dilutive potential ordinary shares; the diluted profit per share is the same as the basic profit per share.
9 Investment property
Group Group
2011 2010
EUR '000 EUR '000
---------------------------------------------------------------- --------- ----------
Beginning of year 40,885 112,390
Reclassification to land held for sale (note 15) (2,400) -
Disposals - (38,325)
Exchange differences (40) (1,699)
Gain/(loss) from fair value adjustments on investment property 1,327 (31,481)
End of year 39,772 40,885
---------------------------------------------------------------- --------- ----------
Investment property analysed by geographical location at their carrying amount:
Romania Serbia Total
EUR '000 EUR '000 EUR '000
---------------------------- --------- --------- ---------
Investment property - 2011 38,942 830 39,772
Investment property - 2010 36,785 4,100 40,885
---------------------------- --------- --------- ---------
The Group's investment properties were revalued at 31 December 2011 and 2010 by independent professionally qualified valuers. Valuations were prepared in accordance with the RICS Appraisal and Valuation Standards. Valuations of investment properties were determined using a number of valuation techniques including current prices in active markets.
The exchange differences in the above table arise from the translation of investment property from each subsidiary's functional currency to the Group's presentational currency.
10 Development property
Group Group
2011 2010
EUR '000 EUR '000
---------------------------------------------------------- --------- ---------
Beginning of year 1,960 24,502
Reclassification to land held for sale (note 15) (1,960) -
Disposals - (21,762)
Exchange differences - (1,941)
Gain from fair value adjustments on development property - 1,161
End of year - 1,960
---------------------------------------------------------- --------- ---------
The development property at the end of 2010 consisted of the land holding at Ploiesti in Romania, but development plans are now on hold and it has instead been reclassified as land held for sale.
The Group's development properties were revalued by independent professionally qualified valuers. Valuations were prepared in accordance with the RICS Appraisal and Valuation Standards. Valuations of development properties were determined using a number of valuation techniques including the residual method.
These properties are held for future development for use as investment properties and are accounted for under IAS 40 Investment Property (Amended).
11 Other property, plant and equipment
Group 2011 Group 2010
EUR '000 EUR '000
--------------------------------------------------- ----------- -----------
Beginning of year
Cost 4 454
Accumulated depreciation (2) (152)
----------- -----------
Net book amount 2 302
--------------------------------------------------- ----------- -----------
Year ending 31 December
Opening net book amount 2 302
Additions - 25
Cost of assets in disposed subsidiaries - (422)
Accumulated depreciation in disposed subsidiaries - 165
Depreciation charge (2) (68)
Exchange difference - -
----------- -----------
End of year - 2
--------------------------------------------------- ----------- -----------
At 31 December
Cost 4 4
Accumulated depreciation (4) (2)
----------- -----------
Net book amount - 2
--------------------------------------------------- ----------- -----------
The Company has no property, plant, and equipment (2010: nil).
12 Investments in subsidiaries
Significant subsidiaries held by the Group are listed in the table below. The investments in subsidiaries are not directly held by the Company but via intermediate holding companies.
Name of significant subsidiary % of ordinary share capital and voting rights held Country of incorporation
2011 2010
-------------------------------- -------------------------- ------------------------- -------------------------
Cartex Construct SRL 100% 100% Romania
Domenii Imobiliare SRL 100% 100% Romania
Equest Logistic SRL 100% 100% Romania
Modul Linea SRL 70% 70% Romania
Europroject DOO 100% 100% Serbia
T-Property Plot 34 DOO 100% 100% Serbia
Retail Stores DOO 100% 100% Serbia
All subsidiary undertakings are included in the consolidation. The Company's carrying value of investment in subsidiaries at 31 December 2011 was EUR 29,379,000 (2010: EUR 29,379,000). The loans are interest bearing and do have not have fixed term repayments.
Movement in investments in subsidiaries is as follows:
Company Company
2012 2011
EUR '000 EUR '000
Balance as at 1 January 29,379 47,379
Provision for impairment - (18,000)
--------------------------- --------- ---------
Balance as at 31 December 29,379 29,379
--------------------------- --------- ---------
In addition to the investments in subsidiaries, the Company has loans with its direct subsidiaries. At 31 December 2011 loans and receivables due from subsidiaries was EUR 22,012,000 (2010: EUR 20,635,000).
13 Associates
Investments in associates
Group 2011 Group 2010
EUR '000 EUR '000
----------------------------------------------------------- ----------- -----------
Beginning of year 24,498 20,836
Reclassification of investment in Forum Serdika COOP - (545)
Current year profit before fair value adjustment 2,108 1,300
(Loss)/gain from fair value adjustment on property assets (1,724) 632
Prior year adjustment to property valuations - 2,275
----------------------------------------------------------- ----------- -----------
End of year 24,882 24,498
----------------------------------------------------------- ----------- -----------
Summary financial information for equity accounted investees, adjusted for the percentage ownership held by the Group:
Assets Liabilities Revenues Profit/(loss) after tax Interest held
Name of associate EUR '000 EUR '000 EUR '000 EUR '000 %
---------------------------------- --------- ------------ --------- ------------------------ --------------
2011
Balkan Properties Cooperatief UA 19,823 (31,458) (2,777) 691 49
IBN SRO 1,764 (2,744) 57 (570) 37
Glorient Investment BG 42,348 (17,467) 8,715 384 40
---------------------------------- --------- ------------ --------- ------------------------ --------------
63,935 (51,669) 5,995 505
---------------------------------- --------- ------------ --------- ------------------------ --------------
2010
Balkan Properties Cooperatief UA 20,265 (28,154) (3,190) (4,904) 49
IBN SRO 2,010 (2,992) (40) (180) 37
Glorient Investment BG 44,437 (19,939) (3,858) 1,932 40
---------------------------------- --------- ------------ --------- ------------------------ --------------
66,712 (51,085) (7,088) (3,152)
---------------------------------- --------- ------------ --------- ------------------------ --------------
As the fair value net assets of IBN SRO and Balkan Properties Cooperatief UA were negative at 31 December 2011, the Group does not recognise its share of such negative assets in accordance with the accounting policy for Associates.
During 2011 the Group acquired the interest in Forum Serdika Cooperatief UA which it did not previously control, and it is therefore consolidated as a wholly owned subsidiary at the year-end. Forum Serdika Cooperatief UA did not hold any investment assets.
Loans to associates
Loans to associates consist EUR 12,092,000 (2010: EUR 11,925,000) which is included within non-current assets. These loans are unsecured and bear an effective interest at 3.8% per annum.
Group 2011 Group 2010
EUR '000 EUR '000
------------------- ----------- -----------
Beginning of year 11,925 11,519
Additions 154 -
Interest charged 454 406
Repayments (441) -
End of year 12,092 11,925
------------------- ----------- -----------
14 Trade and other receivables
Group Group Company Company
2011 2010 2011 2010
EUR '000 EUR '000 EUR '000 EUR '000
------------------------------------------- --------- --------- --------- ---------
Trade receivables 1,030 1,367 - -
Other accrued income and prepaid expenses 340 732 - 16
Other receivables 882 1,303 - -
Trade and other receivables 2,252 3,402 - 16
------------------------------------------- --------- --------- --------- ---------
The Group impaired receivables of EUR 383,000 during the year ended 31 December 2011 (2010: EUR 458,000). Trade receivables that are less than three months past due are not considered impaired. These relate to a number of independent customers for whom there is no recent history of default. The Company has no trade receivables.
Included in other receivables is EUR 605,000 (2010: EUR 1,303,000) restricted cash held as collateral by lending banks .
15 Land assets held for resale
Group Group
2011 2010
EUR '000 EUR '000
------------------------------------------------------ --------- ------------
Balance as at 1 January 2011 3,400 4,194
Reclassification from investment property (note 9) 2,400 -
Reclassification from development property (note 10) 1,960 -
Gain/(loss) from fair value adjustments 32 (409)
Exchange difference (14) (385)
Balance as at 31 December 2011 7,778 3,400
------------------------------------------------------ --------- ------------
The Group's land was valued at 31 December 2011 by independent professionally qualified valuers. Valuations were prepared in accordance with the RICS Appraisal and Valuation Standards.
16 Bank borrowings
The Group's borrowings are at floating and fixed rates of interest. Interest costs may increase or decrease as a result of changes in the prevailing market interest rates.
Group Group
2011 2010
EUR '000 EUR '000
------------------ --------- ---------
Non-current
Bank borrowings 16,706 32,666
Current
Bank borrowings 15,870 830
Total borrowings 32,576 33,496
------------------ --------- ---------
The above borrowings are secured by way of floating charges over certain of the Group's assets, including property assets, which have a fair value of at 31 December 2011 of EUR 38,942,000 (2010: EUR 36,785,000).
The maturity of non-current borrowings is as follows:
Group Group
2011 2010
EUR '000 EUR '000
----------------------- --------- ---------
Before 1 year 15,870 -
Between 1 and 2 years 16,706 830
Between 2 and 5 years - 32,666
32,576 33,496
----------------------- --------- ---------
The effective interest rate on bank borrowings at 31 December 2011 was 3.7% (2010: 4.78%).
The fair value of these fixed and floating-rate borrowings approximated their carrying values at 31 December 2010 and 2011. All bank borrowings are denominated in Euro. The Group has no undrawn fixed rate borrowings (2010: nil).
The Company has no borrowings (2010: nil).
17 Other loans
Group Group
2011 2010
EUR '000 EUR '000
------------------- --------- ---------
Non-current
Long term loans 259 1,489
Current
Short term loans 1,442 -
Total other loans 1,701 1,489
------------------- --------- ---------
The effective interest rate on other loans at 31 December 2011 was 7% (2010: 7%). The loans are unsecured.
18 Trade and other payables
Group Group Company Company
2011 2010 2011 2010
EUR '000 EUR '000 EUR '000 EUR '000
--------------------------- --------- --------- --------- ---------
Trade payables 292 480 134 140
Other payables 641 887 - -
Rents received in advance 366 356 - -
Interest payable 121 122 - -
Accrued expenses 196 382 - -
At 31 December 1,616 2,227 134 140
--------------------------- --------- --------- --------- ---------
Trade payables are interest free and have settlement dates within one year. Other payables include the provision of warranty claims as described in note 5.
19 Interest rate swaps
Group Group
2011 2010
EUR '000 EUR '000
---------------- ---------- -------------------
At 31 December - 876
---------------- ---------- -------------------
During the year, EUR 614,000 was used to cancel the swap contracts related to Cartex and Domenii that was outstanding in 2010. Gains and losses on interest swap contract are recognised in the statement of comprehensive income within finance income and costs.
20 Net asset value per share
Group 2011 Group 2010
EUR '000 EUR '000
----------------------------------------------------------------- ----------- -----------
Net assets attributable to ordinary shareholders of the Company 53,239 51,026
Number of ordinary shares outstanding 140,000 140,000
Basic net assets per share EUR 0.38 EUR 0.36
----------------------------------------------------------------- ----------- -----------
Net asset value per share is calculated by dividing the net assets attributable to the ordinary shares of the Company by the number of ordinary shares in issue at 31 December 2011 and 2010.
21 Share capital
The total number of authorised and issued ordinary shares of the Company at 31 December 2011 and 2010 together with their rights are explained below.
Number of shares Ordinary shares Total
Company '000 EUR '000 EUR '000
----------------------------------------------------------------- ----------------- ---------------- ---------
Authorised shares of EUR0.01 each at 31 December 2011 and 2010 300,000 3,000 3,000
Issued shares of EUR0.01 each at 31 December 2011 and 2010 140,000 1,400 1,400
----------------------------------------------------------------- ----------------- ---------------- ---------
All shares are fully paid and each ordinary share carries one vote on a poll vote.
22 Commitments
The Group has no capital commitments as at 31 December 2011 (2010: nil).
23 Related party transactions
Graham Smith is a Director of the Company and the Administrator, IOMA Fund and Investment Management Limited, ("IOMAFIM"). During the year, IOMAFIM received fees of EUR 180,000 (2010: EUR 180,000). The amount outstanding as at year end is EUR 52,500 (2010: EUR 45,000).
24 Subsequent events
There are no significant subsequent events.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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