Regulatory Story
Go to market news section View chart   Print
RNS
Kimberly Enterprises N.V.  -  KBE   

Final Results

Released 09:09 24-Mar-2016

RNS Number : 1678T
Kimberly Enterprises N.V.
24 March 2016
 

 

 

Kimberly Enterprises N.V.

 

("Kimberly" or the "Company")

 

Results for the year ended 31 December 2015

 

Kimberly Enterprises N.V. ("Kimberly" or "the Company"), the AIM listed Eastern European property developer (KBE.L), announces its consolidated audited results for the year ended 31 December 2015.

The audited annual accounts for the year ended 31 December 2015 will shortly be available on the Company's website: www.kimberly-enterprises.com.

 

Financial summary:

 

Year ended (figures in €'000)

31-Dec-15

31-Dec-14

 

 

 

Net liabilities

(41,779)

(31,146)

NAV/share (€)

(0.48)

(0.35)

Revenue

1,756

387

Change in fair value of investment property

(734)

(1,667)

Write down of inventory

(118)

(342)

Cost of sales excluding write down of inventory

(1,817)

(258)

Gross loss

(913)

(1,880)

Operating loss

(1,245)

(2,532)

 

 

 

Net foreign exchange losses

(2,836)

(1,347)

Financial income

253

515

Financial costs

(8,523)

(6,961)

Net finance costs

(11,106)

(7,793)

 

 

 

Share of profit (loss) of equity-accounted investments, net of tax

1,741

(55)

 

 

 

Loss before tax

(10,610)

(10,380)

Loss for the year

(10,403)

(10,381)

Loss per share (€)

(0.114)

(0.113)

 

Financial Position

Total revenue for the year ended 31 December 2015 was €1.8 million compared to €0.4 million in 2014.  The increase in 2015 is due to the revenue generated from the sale of housing units in the Veleslavin project, Prague, Czech Republic, from the date the Company obtained control in ENMAN (the parent company of Veleslavin).

Total gross loss for 2015 was €0.9 million (2014: €1.9 million gross loss). The decrease in the loss was due to a negative investment property revaluation of €0.7 million for 2015 compared to a negative investment property revaluation of €1.7 million in 2014.

The write-down of inventory relates to the plots located in Romania and the Czech Republic. The negative revaluation of the investment property relates to the commercial part of a plot located in Serbia (Marina Dorcol).

General and administrative expenses increased to €0.8 million (2014: €0.3 million). The change is mainly caused by reversal of previously booked provisions for legal claims (in the amount of €0.5 million) in 2014.

Net financing costs increased to €11.1 million (2014: €7.8 million). This reflects an increase in the finance costs due to the finance lease in Serbia of €7.1 million (2014: €5.4 million) and an increase in foreign exchange losses to €2.8 million (2014: €1.3 million).

The share of profit of equity-accounted investments increased to a profit of €1.7 million in 2015 compared to a loss of €0.1 million in 2014. This increase is mainly due to the sales of plots in ENMAN which were executed during 2015 and the reversal of a previously recorded write down in Canada (the Company's share was €0.6 million).

As a result of the above, the loss after tax for the year remained similar to 2014, €10.4 million compared to €10.4 million in 2014.

Equity-accounted investments and loans decreased to €2.0 million (2014: €7.7 million). The reason for the decrease is that during 2015 the Company acquired control over Arces International B.V. and ENMAN B.V. which were presented as equity-accounted investments in 2014.

 

General

The consolidated financial statements have been prepared on a going concern basis, which assumes that the Group will be able to raise funding to meet its obligations to the banks, its employees and service providers, as disclosed in note 27.a.iii.

During the reporting period, the Group reached settlement agreements with former employees and service providers for past open debts. As a result an income was recognised under general administrative expenses in the consolidated statement of comprehensive income.

Since January 2011, the Group has been in breach of the obligation to make the lease payments for Marina Dorcol. During the reporting period, management recognised an expense of €7,085 thousands as a result of the lease interest, inflation and loss of discount on the unpaid overdue lease contracted payments, see note 24.

At 31 December 2015, the Group was in breach of EUR33.3 million (2014: €21.6 million) of lease payments. After the reporting date, the Company further breached its obligation to pay by an additional amount of €0.1 million.

Following the above, the municipality initiated several claims during recent periods to collect those debts.

In the event that it does not settle the debt, the Company is exposed to the following sanctions and risks:

·    Termination of the lease contracts which will cause the loss of the right to use of land;

·    Should any party commence bankruptcy proceedings against Marina Dorcol, the Company would lose control of Marina Dorcol and would be exposed to uncertainty with respect to compensation from the bankruptcy estate, since the Company will be in the "last row of creditors".

In the event that the Serbian municipality decides to terminate the lease contract, it has to give to the Company written notice of its intention to do so and detail the reasons for the termination. The Company will have 90 days to remedy the breach in order to avoid the agreement termination (i.e. perform the payment obligation, and if it fails to do so the municipality is entitled to terminate the agreement).

In the event that the Company does not accept the reasons for the termination, they should initiate a procedure before the Commercial Court in Belgrade for the determination of the validity of the request for the termination and whether the request is based on valid legal and commercial reasons.

In the event of termination, the final result of termination would be the restitution of the amounts paid by the Group in respect of Marina Dorcol based on the agreements with the municipality, decreased by the amount of compensation for usage of such land for the period of duration of lease and for compensation of damages which occurred for the municipality, if any.

The Group is currently in the process of negotiation with the municipality of Belgrade to restructure the arrangement.

During the reporting period and in order to manage its financial situation, the Company approached Engel Resources and Development Ltd. ("ERD"), the parent company of the Company's immediate parent company, Engel General Developers Ltd. ("EGD"), to provide additional financial assistance to fund the Company's immediate liabilities.

During the first and second quarters of 2015, ERD provided several bridge loans for a total amount of €304 thousands (2014: €1 million). As of 31 December 2015, the outstanding debt toward ERD is €25.1 million (2014: €24.8 million) and is due by 30 April 2016, see note 13.

In order to finance the Company's immediate liabilities and to stabilise its financial position, management decided to realise several assets. During the reporting period, the Company realised several assets in Poland, Czech Republic and Canada (see below the effect on previous and current equity-accounted investments).

At 31 December 2015, the Group has current liabilities totalling €70,796 thousands, which exceeds its current assets amounting to €9,842 thousands and a negative equity which amounts to €41,779 thousands.

Management believes that the above mentioned conditions indicate the existence of material uncertainties which cast significant doubt on the Group's ability to continue as a going concern.

Should the going concern assumption not be appropriate, adjustments would have to be made to reflect a situation where the assets may need to be realised other than in the normal course of business and at amounts which could differ significantly from the amounts stated in the consolidated financial statements.

The notes to the consolidated financial statements (in particular see notes 27.a.iii and 12) disclose all the key risk factors, assumptions made and uncertainties of which the management of the Company are aware that are relevant to the Company's ability to continue as a going concern, including significant conditions and events.

During the reporting period, before acquiring controlling interest in the previous jointly controlled entities, Arces and ENMAN repaid part of the loans granted by the Company in the total amount of €4,705 thousands. The amount was generated from the sale of the plot in Troja (see note 9.b.ii.5) and sales of assets in Poland and the Czech Republic.

An amount of €4,000 thousands was used to repay part of the loans granted by ERD (see note 31.c.2) while the remainder was used to repay the overdue liabilities of the Company and to finance the Group's operational activity in the upcoming few months.

During the reporting period, the jointly controlled entity, MLP, repaid part of the loans granted by the Company in the total amount of €351 thousands. The amount was generated following the sale of Trianon plot in Montreal, Canada (see note 9.c.iv.2).

 

Serbia

GDP growth in 2015 was 0.5 per cent and the rate of inflation was 1.7 per cent. Forecast GDP growth for 2016 is 1.8 per cent.

Since January 2011, the Group has been in breach of the obligation to make the monthly lease payments for Marina Dorcol.

At 31 December 2015, the Group is in breach of €33.3 million (2014: €21.6 million) of lease payments in total. After the reporting date, the Company further breached its obligation to pay by an additional amount of €0.1 million, see note 2.b.

The Group is currently in the process of negotiation with the municipality of Belgrade to restructure the liability.

 

Czech Republic

GDP in 2015 was 3.9 per cent and the rate of inflation was 0.33 per cent. Forecast GDP growth for 2016 is 2.7 per cent.

On 30 July 2015, two wholly owned subsidiaries of ENMAN sold the residential plot designed for the second stage of the Veleslavin project, for a total cash consideration of CZK 63 million (€2.3 million). The net proceeds of the disposal were €1.8 million (the Company's share was €0.45 million). The profit in the amount of EUR 37 thousands (the Company's share is EUR 9 thousands) was recognised under the "share of profit (loss) of equity-accounted investments, net of tax" in the consolidated financial statements for the year ended 31 December 2015.

On 22 January 2015, a wholly owned subsidiary of ENMAN signed an agreement to sell a plot designed for residential purposes in Czech Republic ("Troja") for a total cash consideration of CZK 195 million (€7,113 thousands). As a result of the above, the Group has chosen to reverse a previously recorded write down in the total amount of €1,944 thousands in the consolidated financial statements for the year ended 31 December 2014. On 30 April 2015, the above mentioned sale agreement has been finalised following which the Company recognised a profit before tax on income in the amount of €0.5 million (and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax") in the consolidated financial statements for the year ended 31 December 2015. The net proceeds of the disposal were €5,890 thousands (the Company's share was €2,945 thousands) and were distributed to the joint venture's partners during the reporting period.

On 16 December 2015, Arces signed a conditional agreement to sell its shares and receivables in the wholly owned subsidiary Palace Engel Vokovice s.r.o ("Vokovice s.r.o"). After the reporting period, the agreement became binding and the sale was completed. As the plot of land held by Vokovice s.r.o is recorded as of 31 December 2015 based on its net realisable value, as determined in the conditional agreement the transaction will not generate any material result in the profit or loss at the condensed consolidated interim financial statements for the first quarter of 2016.

 

Hungary

GDP growth in 2015 was 3.0 per cent and the rate of inflation -0.06 per cent. Forecast GDP growth in 2016 is 2.5 per cent.

On 11 December 2015, a compulsory strike-off was ordered and registered by the Company Registry Court of Budapest in Burlington Hungary Kft. ("Burlington"). Based on the ruling of the Company Registry Court of Budapest, Burlington is declared to be dissolved. As a consequence the Company does not control Burlington, therefore ceased to consolidate it in its consolidated financial statements. The Company recognised an income in the amount of €17 thousands which is recognised under "other income (expense)" in the consolidated statements of profit or loss.

On 4 May 2015, a receiver was appointed by a court in Hungary due to a claim of the Hungarian tax authorities in the subsidiary, Turlington Kft. ("Turlington"). As a consequence the Company does not control Turlington, therefore ceased to consolidate it in its consolidated financial statements. Since the Company did not provide any guarantees for Turlington it recognised an income in the amount of €437 thousands which is recognised under "other income (expense)" in the consolidated statements of profit or loss.

 

Canada

GDP growth in 2015 was 1.0 per cent and the rate of inflation 1.13 per cent. Forecast GDP growth in 2016 is 1.9 per cent.

On 8 May 2015, MLP sold one of the plots in Montreal, Canada ("Trianon") for a total consideration of CAD 3,050 thousands (€2,230 thousands). MLP recognised a profit before tax on income in the amount of €342 thousands (the Company's share was €68 thousands and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax") in the consolidated financial statements for the year ended 31 December 2015. The Company's share in the net proceeds of the disposal was €351 thousands which were distributed to the Company during the reporting period.

On 16 September 2015, MLP reached a conditional agreement ("the agreement") to sell two plots of land held for residential development purposes in Canada for a total cash consideration of CAD 20,227 thousands (€13,095 thousands). The gross profit (before income tax expense) is expected to be CAD 9,418 thousands (€6,097 thousands). As a result of the above, the Group has chosen to reverse a previously recorded write down in the total amount of €3,225 thousands (the Company's share was €645 thousands) and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax" in the consolidated financial statements for the year ended 31 December 2015. The net cash proceeds of the disposals received by MLP (before income tax expense) are CAD 19,733 thousands (€12,775 thousands). The net cash proceeds of the disposals will be distributed by MLP after completion of the disposals and the approval of the Company's partner in MLP. The Company's expected share of the distribution will be 20%, equating to approximately CAD 3.5 million (€2.3 million). On 13 January 2016, the agreement became binding and the sale was completed.

Based on prior agreements with ERD, all the net future proceeds generated from the Company's assets in Canada will be used to repay the outstanding debts of the Company to ERD.

 

Board of Directors' statement

"During 2015 the main strategy of the Company was to reduce its obligations toward third parties. As of today, apart from the outstanding loans granted by its parent company Engel Resources and Development Ltd ("ERD"), the Company does not itself have any material obligations towards any creditors"

 

For further information, please contact:

 Kimberly Enterprises N.V. 

 

Assaf Vardimon

Tel: +31 20 778 4141

 

 

 

Cairn Financial Advisers LLP (Nomad)

 

Sandy Jamieson/Avi Robinson

Tel: +44 207 148 7900

 

 

Consolidated statement of financial position

 

 

 

31 December

31 December

 

 

2015

2014

 

Note

Thousands Euro

ASSETS

 

 

 

Cash and cash equivalents

4

652

15

Restricted bank deposit

5

728

-

Trade receivables

 

185

-

Prepayments and other assets

6

12

161

Inventories of housing units and land

7

8,259

-

Current tax assets

 

6

-

Current assets

 

9,842

176

 

 

 

 

Inventories of land

7

9,307

9,375

Investment property

8

17,450

18,280

Property and equipment

 

2

3

Deferred tax assets

25

58

-

Equity-accounted investment

9

-

104

Loans and amounts to related parties

9

2,044

7,546

Non-current assets

 

28,861

35,308

Total assets

 

38,703

35,484

 

 

 

 

LIABILITIES

 

 

 

Interest-bearing bank loans

11

2,175

1,284

Current portion of finance lease liability

12

35,621

27,158

Loans and amounts due to related parties and joint ventures

13

25,576

25,474

Trade payables

 

294

624

Other payables

14

6,370

613

Provisions

15

492

319

Current tax liabilities

 

268

7

Current liabilities

 

70,796

55,479

 

 

 

 

Interest-bearing bank loans

11

1,408

1,668

Finance lease liability

12

7,858

9,483

Deferred tax liabilities

25

420

-

Non-current liabilities

 

9,686

11,151

Total liabilities

 

80,482

66,630

 

 

 

 

EQUITY

 

 

 

Share capital

16

878

878

Share premium

16

39,298

39,298

Accumulated losses

 

(83,258)

(73,256)

Reserves

 

2,688

2,941

Equity attributable to owners of the Company

 

(40,394)

(30,139)

Non-controlling interests

18

(1,385)

(1,007)

Total equity

 

(41,779)

(31,146)

Total liabilities and equity

 

38,703

35,484

 

 

 

Consolidated statement of profit or loss


 

 

For the year ended 31 December

 

 

2015

2014

 

Note

Thousands Euro

 

 

 

 

Revenue

19

1,756

387

Change in fair value of investment property

8

(734)

(1,667)

Write down of inventory

20

(118)

(342)

Cost of sales excluding write down of inventory

21

(1,817)

(258)

 

 

 

 

Gross loss

 

(913)

(1,880)

 

 

 

 

Selling, general and administrative expenses

22

(774)

(332)

Other income (expense)

23

442

(320)

Operating loss

 

(1,245)

(2,532)

 

 

 

 

Net foreign exchange losses

 

(2,836)

(1,347)

Finance income

 

253

515

Finance costs

 

(8,523)

(6,961)

Net finance costs

24

(11,106)

(7,793)

 

 

 

 

Share of profit (loss) of equity-accounted investments, net of tax

9

1,741

(55)

 

 

 

 

Loss before tax

 

(10,610)

(10,380)

 

 

 

 

Income tax benefit (expense)

25

207

(1)

 

 

 

 

Loss for the year

 

(10,403)

(10,381)

 

 

 

 

Loss attributable to:

 

 

 

   Owners of the Company

 

(10,002)

(9,952)

   Non-controlling interests

18

(401)

(429)

 

 

(10,403)

(10,381)

 

 

 

 

Loss per share

 

 

 

Basic loss per share (Euro)

26

(0.114)

(0.113)

Diluted loss per share (Euro)

26

(0.114)

(0.113)

 

 

 

 

Consolidated statement of comprehensive income


 

 

 

For the year ended 31 December

 

 

2015

2014

 

Note

Thousands Euro

 

 

 

 

Loss for the year

 

(10,403)

(10,381)

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

 

   Foreign operations - foreign currency translation differences

 

(242)

1,566

Total comprehensive loss

 

(10,645)

(8,815)

 

 

 

 

 

 

 

 

Total comprehensive loss attributable to:

 

 

 

   Owners of the Company

 

(10,255)

(8,456)

   Non-controlling interests

18

(390)

(359)

 

 

(10,645)

(8,815)

 

 

 

 

 

Consolidated statement of changes in equity


 

 

 

 

Attributable to owners of the Company

 

 

 

Share capital

Share premium

Translation reserve

Accumulated losses

Total

Non-controlling interests

Total equity

 

 

Note

Thousands Euro

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2014

 

878

39,298

1,445

(63,304)

(21,683)

(648)

(22,331)

 

Loss for the year

 

-

-

-

(9,952)

(9,952)

(429)

(10,381)

 

Other comprehensive income

 

-

-

1,496

-

1,496

70

1,566

 

Balance at 31 December 2014

 

878

39,298

2,941

(73,256)

(30,139)

(1,007)

(31,146)

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2015

 

878

39,298

2,941

(73,256)

(30,139)

(1,007)

(31,146)

 

Loss for the year

 

-

-

-

(10,002)

(10,002)

(401)

(10,403)

 

Other comprehensive income (loss)

 

-

-

(253)

-

(253)

11

(242)

 

Disposal of subsidiaries with non-controlling interests

30.c

-

-

-

-

-

12

12

 

Balance at 31 December 2015

 

878

39,298

2,688

(83,258)

(40,394)

(1,385)

(41,779)

 

 

 

 

 

 

 

 

 

Consolidated statement of cash flows

 

 

 

For the year ended 31 December

 

 

2015

2014

 

Note

Thousands Euro

Cash flows from operating activities

 

 

 

Loss for the year

 

(10,403)

(10,381)

Adjustments for:

 

 

 

 - Depreciation


1

9

 - Net finance costs

24

11,106

7,793

 - Income tax expense (benefit)

25

(207)

1

 - Share of loss (profit) of equity-accounted investments, net of tax

9

(1,741)

55

 - Other income

23

(442)

(8)

 - Change in fair value of investment property

8

734

1,667

 - Write down of inventory

20

118

342

 

 

(834)

(522)

Change in:

 

 

 

 - Inventories of housing units

7

1,115

-

 - Trade receivables

 

(185)

-

 - Provisions

15

-

(548)

 - Prepayments and other assets

6

238

64

 - Trade payables

 

(323)

31

 - Other payables

14

(24)

98

Cash used in operating activities

 

(13)

(877)

Interest paid

 

(232)

(14)

Interest received

 

1,863

152

Income taxes paid

 

(221)

(1)

Net cash from (used in) operating activities

 

1,397

(740)

 

 

 

 

For the year ended 31 December

 

 

2015

2014

 

Note

Thousands Euro

Cash flows from investing activities

 

 

 

Proceeds from sale of property and equipment

 

-

8

Acquisition of control in previous equity-accounted investments

29

663

-

Long term loans and amounts granted to related parties

 

(23)

(349)

Short term loans and amounts repaid by related parties

 

3,470

303

Change in restricted bank deposit

5

(212)

-

Net cash from (used in) investing activities

 

3,898

(38)

 

 

 

 

Cash flows from financing activities

 

 

 

Repayment of interest-bearing bank loans

11

(1,088)

(257)

Loans and amounts received from related parties and other

13

317

1,031

Loans and amounts repaid to related parties and other

13

(3,894)

-

Net cash from (used in) financing activities

 

(4,665)

774

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

630

(4)

Cash and cash equivalents at 1 January

 

15

19

Effect of movements in exchange rates on cash held

 

7

-

Cash and cash equivalents at 31 December

4

652

15

 

 

Notes to the consolidated financial statements

 

 

NOTE 1 - REPORTING ENTITY

 

Kimberly Enterprises N.V. (the "Company") is domiciled in The Netherlands. The Company's registered office is at Laurierstraat 71, 1016 PJ Amsterdam, Netherlands.

 

These consolidated financial statements comprise the Company, its subsidiaries and the Group's interests in associates and joint ventures (together referred to as the "Group").

 

The Group is primarily involved in holding and selling real estate assets in Eastern Europe.

The Company has been listed on the Alternative Investment Market ("AIM") of the London Stock Exchange, United Kingdom since 15 December 2005.

 

Copies of these consolidated financial statements of the Group are available on the Company's website (www.kimberly-enterprises.com) and upon request from the Company's registered office.

 

 

NOTE 2 - BASIS OF ACCOUNTING

 

a.   Statement of compliance

 

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("EU IFRS"). They were authorised for issue by Company's board of directors on 8 March 2016.

 

Details of the Group's accounting policies are included under note 3.

 

These consolidated financial statements are not intended for statutory filing purposes. The Company is required to file consolidated financial statements prepared in accordance with the Dutch Civil Code.

 

At the date of preparing these consolidated financial statements the Company had not yet filed consolidated financial statements for the year ended on 31 December 2015 in accordance with the Dutch Civil Code, however the management expects to file the report on the determined schedule.

 

b.   Going concern basis of accounting

 

The consolidated financial statements have been prepared on a going concern basis, which assumes that the Group will be able to raise funding to meet its obligations to the banks, its employees and service providers, as disclosed in note 27.a.iii.

 

During the reporting period the Group reached settlement agreements with former employees and service providers for past open debts. As a result an income was recognised under general administrative expenses in the consolidated statement of comprehensive income.

 

Since January 2011, the Group has been in breach of the obligation to make the lease payments for Marina Dorcol. During the reporting period, management recognised an expense of EUR 7,085 thousands as a result of the lease interest, inflation and loss of discount on the unpaid overdue lease contracted payments, see note 24.

 

At 31 December 2015, the Group was in breach of EUR 33.3 million (2014: EUR 21.6 million) of lease payments. After the reporting date, the Company further breached its obligation to pay by an additional amount of EUR 0.1 million.

 

Following the above, the municipality initiated several claims during recent periods to collect those debts.

 

In the event that it does not settle the debt, the Company is exposed to the following sanctions and risks:

 

· Termination of the lease contracts which will cause the loss of the right to use of land;

· Should any party commence bankruptcy proceedings against Marina Dorcol, the Company would lose control of Marina Dorcol and would be exposed to uncertainty with respect to compensation from the bankruptcy estate, since the Company will be in the "last row of creditors".

 

In the event that the Serbian municipality decides to terminate the lease contract, it has to give to the Company written notice of its intention to do so and detail the reasons for the termination. The Company will have 90 days to remedy the breach in order to avoid the agreement termination (i.e. perform the payment obligation, and if it fails to do so the municipality is entitled to terminate the agreement).

 

In the event that the Company does not accept the reasons for the termination, they should initiate a procedure before the Commercial Court in Belgrade for the determination of the validity of the request for the termination and whether the request is based on valid legal and commercial reasons.

 

In the event of termination, the final result of termination would be the restitution of the amounts paid by the Group in respect of Marina Dorcol based on the agreements with the municipality, decreased by the amount of compensation for usage of such land for the period of duration of lease and for compensation of damages which occurred for the municipality, if any.

 

The Group is currently in the process of negotiation with the municipality of Belgrade to restructure the arrangement.

 

During the reporting period and in order to manage its financial situation, the Company approached Engel Resources and Development Ltd. ("ERD"), the parent company of the Company's immediate parent company, Engel General Developers Ltd. ("EGD"), to provide additional financial assistance to fund the Company's immediate liabilities.

During the first and second quarters of 2015, ERD provided several bridge loans for a total amount of EUR 304 thousands (2014: EUR 1 million). As of 31 December 2015, the outstanding debt toward ERD is EUR 25.1 million (2014: EUR 24.8 million) and is due by 30 April 2016, see note 13.

 

In order to finance the Company's immediate liabilities and to stabilise its financial position, management decided to realise several assets. During the reporting period, the Company realised several assets in Poland, Czech Republic and Canada (see below the effect on previous and current equity-accounted investments).

 

At 31 December 2015, the Group has current liabilities totalling EUR 70,796 thousands, which exceeds its current assets amounting to EUR 9,842 thousands and a negative equity which amounts to EUR 41,779 thousands.

 

Management believes that the above mentioned conditions indicate the existence of material uncertainties which cast significant doubt on the Group's ability to continue as a going concern.

 

Should the going concern assumption not be appropriate, adjustments would have to be made to reflect a situation where the assets may need to be realised other than in the normal course of business and at amounts which could differ significantly from the amounts stated in the consolidated financial statements.

 

The notes to the consolidated financial statements (in particular see notes 27.a.iii and 12) disclose all the key risk factors, assumptions made and uncertainties of which the management of the Company are aware that are relevant to the Company's ability to continue as a going concern, including significant conditions and events.

 

During the reporting period, before acquiring controlling interest in the previous jointly controlled entities, Arces and ENMAN repaid part of the loans granted by the Company in the total amount of EUR 4,705 thousands. The amount was generated from the sale of the plot in Troja (see note 9.b.ii.5) and sales of assets in Poland and the Czech Republic.

 

An amount of EUR 4,000 thousands was used to repay part of the loans granted by ERD (see note 31.c.2) while the remainder was used to repay the overdue liabilities of the Company and to finance the Group's operational activity in the upcoming few months.

 

During the reporting period, the jointly controlled entity, MLP, repaid part of the loans granted by the Company in the total amount of EUR 351 thousands. The amount was generated following the sale of Trianon plot in Montreal, Canada (see note 9.c.iv.2).

 

c.   Basis of measurement

 

The consolidated financial statements have been prepared on the historical cost basis except for the following item, which is measured on an alternative basis on each reporting date.

 

·   Investment property - measured at fair value.

 

d.   Functional and presentation currency

 

These consolidated financial statements are presented in Euro (EUR), which is the Company's functional currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.

 

e.   Use of judgments and estimates

 

In preparing these consolidated financial statements, management has made judgments, estimates and assumptions that affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

 

1.   Judgments

 

Information about judgments made in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are included in note 33.



 

2.   Measurement of fair values

 

A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

 

The Group has an established control framework with respect to the measurement of fair values. The Company reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the Company assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

 

Significant valuation issues are reported to the Group's Audit Committee.

 

When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

 

·   Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

·   Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

·   Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

 

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

 

Further information about the assumptions made in measuring fair values is included in the following notes:

 

·   Note 8 - Investment property.

 

f.    Operating cycle

 

The Group is involved in projects some of which may take 5-6 years to complete. The cost of inventory and loans which finance residential development projects are presented as current assets and liabilities, unless they are not expected to be realised within the normal operating cycle in which case they are classified as non-current.

 

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

 

The Group has consistently applied the following accounting policies to all the periods presented in these consolidated financial statements.

 

a.   Basis of consolidation

 

1.   Business combinations

 

The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

 

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

 

Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, the contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

 

If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree's employees (acquiree's awards), then all or a portion of the amount of the acquirer's replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree's awards and the extent to which the replacement awards relate to pre-combination service.

 

2.   Subsidiaries

 

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

 

3.   Non-controlling interests

 

Non-controlling interests are measured at their proportionate share of the acquiree's identifiable net assets at the date of acquisition.

 

Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

 

4.   Loss of control

 

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interests and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

 

5.   Interest in equity-accounted investments

 

The Group's interests in equity-accounted investments comprise interests in associates and joint ventures.

 

Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

 

Interests in associates and joint ventures are accounted for using the equity method. They are recognised initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group's share of the profit or loss and other comprehensive income of equity-accounted investments, until the date on which significant influence or joint control ceases.

 

6.   Transactions eliminated on consolidation

 

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investments are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

 

b.   Foreign currency

 

1.   Foreign currency transactions

 

Transactions in foreign currencies are translated to the respective functional currencies of Group companies at exchange rates at the dates of the transactions.

 

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss.

 

However, foreign currency differences arising from the translation of the following items are recognised in other comprehensive income:

 

·   available-for-sale equity investments (except on impairment, in which case foreign currency differences that have been recognised in other comprehensive income are reclassified to profit or loss);

·   a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; and

·   qualifying cash flow hedges to the extent that the hedges are effective.

 

2.   Foreign operations

 

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into Euro at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into Euro at the exchange rates at the dates of the transactions.

 

Foreign currency differences are recognised in other comprehensive income and accumulated in the translation reserve, except to the extent that the translation difference is allocated to non-controlling interests.

 

When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

 

The functional currencies of the Group entities are: Hungarian Forint ("HUF"), Czech Koruna ("CZK"), Polish Zloty ("PLN"), Canadian Dollar ("CAD"), Romanian Leu ("RON"), New Israeli Shekel ("ILS"), Serbian Dinar ("RSD") and Euro ("EUR").

 

c.   Revenue

 

1.   Sale of housing units and land

 

Revenue from the sale of housing units and plots of land is recognised when the risks and rewards of ownership have been transferred to the buyer provided that the Group has no further substantial acts to complete under the contract.

 

Contract expenses are recognised as incurred unless they create an asset related to future contract activity. An expected loss on a contract is recognised immediately in profit or loss.

 

2.   Investment property and rental income

 

Rental income from investment property is recognised as revenue on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

 

3.   Other revenue

 

Other revenues, including project management fees, are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided, and are measured at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, net of VAT and other sales related taxes.

 

No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or continuing management involvement with the assets.

 

d.   Employee benefits

 

Short-term employee benefits

 

Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

 

e.   Finance income and finance costs

 

The Group's finance income and finance costs include:

·   interest income;

·   interest expense;

·   changes in the local retail price index in Belgrade, Serbia on finance lease and changes in the customer price index in Israel on loans received from related parties;

·   the foreign currency gain or loss on financial assets and financial liabilities;

·   impairment losses recognised on financial assets (other than trade receivables).

 

Interest income or expense is recognised using the effective interest method.

 

Borrowing costs are capitalised if they are directly attributable to the acquisition or construction of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalisation of borrowing costs may continue until the assets are substantially ready for their intended use. If the resulting carrying amount exceeds the qualifying assets recoverable amount, an impairment loss is recognised. The capitalisation rate is arrived at by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of the development cost financed out of general funds, to the average rate.

 

Borrowing costs that are not directly attributable to the acquisition or construction of a qualifying asset are recognised in profit or loss using the effective interest method.

 

f.    Income tax

 

Income tax expense comprises current and deferred tax. It 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.

 

1.   Current tax

 

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.

 

Current tax assets and liabilities are offset only if certain criteria are met.



 

2.   Deferred tax

 

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 the investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and 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 assets are recognised for unused tax losses, unused 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 used. 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; such reductions are reversed when the probability of future taxable profits improves.

 

Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.

 

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

 

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. For this purpose, the carrying amount of investment property measured at fair value is presumed to be recovered through sale, and the Group has not rebutted this presumption.

 

Deferred tax assets and liabilities are offset only if certain criteria are met.

 

g.   Inventories

 

Inventories are measured at the lower of cost and net realisable value. The cost of inventories includes direct materials, direct labour costs, subcontracting costs and those direct overheads which have been incurred in bringing the inventories to their present condition.

 

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

 

Borrowing costs are capitalised if they are directly attributable to the acquisition or construction of a qualifying asset.

 

The Group is involved in projects some of which may take several years to complete. The cost of inventory and loans which finance residential development projects are presented as current assets and liabilities, unless they are not expected to be realised within the operating cycle of 5-6 years and then they are classified as non-current.

 

 

h.   Property and equipment

 

1.   Recognition and measurement

 

Items of property and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses.

 

If significant parts of an item of property and equipment have different useful lives, then they are accounted for as separate items (major components) of property and equipment.

 

Any gain or loss on disposal of an item of property and equipment is recognised in profit or loss.

 

2.   Depreciation

 

Depreciation is calculated to write off the cost of items of property and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.

 

The estimated useful lives of property and equipment are as follows:

 

·   Furniture, office equipment and other assets                  3-15 years

 

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

 

i.    Investment property

 

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at cost on initial recognition and subsequently at fair value with any change therein recognised in profit or loss.

 

Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self-constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs.

 

An external, independent valuation company, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the Group's investment property. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably.

 

In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property or by a method where the property is being valued by the residual method; the appraiser estimated an expected selling price of the completed development based on external evidence.

 

A market yield is applied to the estimated rental value to arrive to the gross property value. When actual rents differ materiality from the estimated rental value, adjustments are being made to reflect actual rents.

 

Any gain or loss on disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss. When investment property that was previously classified as property and equipment is sold, any related amount included in the revaluation reserve is transferred to retained earnings.

 

j.    Financial instruments

 

The Group classifies non-derivative financial assets into the following categories: loans and receivables and available-for-sale financial assets.

 

The Group classifies non-derivative financial liabilities into the trade and other financial liabilities category.

 

1.   Non-derivative financial assets and financial liabilities - recognition and de-recognition

 

The Group initially recognises loans and receivables issued on the date when they are originated. All other financial assets and financial liabilities are initially recognised on the trade date when the entity becomes a party to the contractual provisions of the instrument.

 

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset or liability.

 

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.

 

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

 

2.   Non-derivative financial assets - measurement

 

The Group classifies non-derivative financial assets into the following categories: cash and cash equivalents, cash in escrow, restricted bank deposit, loans and receivables.

 

Cash and cash equivalents

In the statement of cash flows, cash and cash equivalents includes bank overdrafts that are repayable on demand and form an integral part of the Group's cash management.

 

Loans and receivables

These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method.

 

3.   Non-derivative financial liabilities - measurement

 

Non-derivative financial liabilities are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.

 

k.   Share capital

 

Ordinary shares

 

Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognised as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12.

 

l.    Impairment

 

1.   Non- derivative financial assets

 

Financial assets not classified at fair value through profit or loss, including an interest in an equity-accounted investment, are assessed at each reporting date to determine whether there is objective evidence of impairment.

 

Objective evidence that financial assets are impaired includes:

 

·   default or delinquency by a debtor;

·   restructuring of an amount due to the Group on terms that the Group would not consider otherwise;

·   indications that a debtor or issuer will enter bankruptcy;

·   adverse changes in the payment status of borrowers or issuers;

·   the disappearance of an active market for a security; or

·   observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets.

 

For an investment in an equity security, objective evidence of impairment includes a significant or prolonged decline in its fair value below its cost. The Group considers a decline of 20% to be significant and a period of nine months to be prolonged.

 

Financial assets measured at amortised cost

 

The Group considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics.

 

In assessing collective impairment, the Group uses historical information on the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends.

 

An impairment loss is calculated as the difference between an asset's carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss.

 

Equity-accounted investments

 

An impairment loss in respect of an equity-accounted investment is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognised in profit or loss, and is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

 

1.   Non-financial assets

 

At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than investment property, inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.

 

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units ("CGU").

 

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

 

An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.

 

Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill (if exists) allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.

 

An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

m.  Provisions

 

Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

 

Warranties

 

Provision for warranty costs is recognised at the date of sale of housing units, at the Company's best estimate of the expenditure required to settle the Group's liability. Such estimates take into consideration warranties given to the Group by subcontractors.

 

n.   Leases

 

1.   Determining whether an arrangement contains a lease

 

At inception of an arrangement, the Group determines whether the arrangement is or contains a lease.

 

At inception or on reassessment of an arrangement that contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Group's incremental borrowing rate.

 

2.   Leased assets

 

Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset.

 

3.   Lease payments

 

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

 

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

 

 

NOTE 4 - CASH AND CASH EQUIVALENTS

 

31 December

 

2015

2014

 

Thousands Euro

Bank balances

651

15

Petty cash

1

-

Total

652

15

 

 

NOTE 5 - RESTRICTED BANK DEPOSIT

 

31 December

 

2015

2014

 

Thousands Euro

In Czech Crown

728

-

Total

728

-

 

The Group pledged all restricted bank deposit to secure the credit facility granted to the Group by a bank in the Czech Republic, see note 11.

The deposit carries no interest.

 

 

NOTE 6 - PREPAYMENTS AND OTHER ASSETS

 

31 December

 

2015

2014

 

Thousands Euro

Advances to suppliers

-

6

VAT recoverable

6

155

Other

6

-

Total

12

161

 

 

NOTE 7 - INVENTORIES OF HOUSING UNITS AND LANDS

 

a.   Reconciliation of carrying amount

 

31 December

 

2015

2014

 

Thousands Euro

Inventories of lands designated for sale

10,959

10,115

Inventories of housing units (a)

7,445

-

 

18,404

10,115

Write-down of inventory (b)

(838)

(740)

Total

17,566

9,375

 

 

 

Non-current

9,307

9,375

Current

8,259

-

Total

17,566

9,375

 

 

 

(a)  At 31 December 2015 the inventories of housing units include capitalisation of borrowing costs in the amount of EUR 129 thousands.

 

(b)  Write-down of inventory - represents the adjustment of the lands to their net realisable value when estimated lower than cost. Refer to note 7.b.1 as per the way the Company determine the net realisable value of the plots.

During 2015, inventory of EUR 118 thousands was written down to its net realisable value (2014: EUR 342 thousands), see note 20.

 

The Group's intention is to sell the plots and to continually examine the possibilities to do so. Except for two plots which the management does not predict to be sold within the normal operating cycle and thus classified as non-current inventory, other inventories are classified as current inventories.

 

The Group has pledged the shares of the entity which holds the inventory in Serbia having a carrying amount of EUR 8,405 thousands (2014: EUR 8,451 thousands) to secure credit facilities granted to the Group by the parent company, see note 31.c.1.ii.

 

b.   Measurement of net realisable value

 

1.   General

 

The net realisable value of the inventory is based on the Group's best estimation of the expected selling price and costs of completion less selling expenses. In determining the expected selling price of the plot the Group used the services of external, independent valuation companies, having appropriate, recognised professional qualifications and recent experience in the location and category of the inventories being valued, see note 33.d.

 

At 31 December 2015 the inventories of land balance consists of three plots:

 

1.   A plot located in Romania which is presented, at 31 December 2015, at net realisable value in the total net amount of EUR 902 thousands (2014: EUR 924 thousands).

The management used the services of an external independent valuer ("DTZ") in order to determine the plot's net realisable value.

2.   A plot located in the Czech Republic which is presented, at 31 December 2015, at net realisable value in the total net amount of EUR 814 thousands.

The management based its estimation on the plot's net realisable value as agreed in a conditional agreement, which was signed during the reporting period, to sell the entity which holds the plot (Palace Engel Vokovice s.r.o). The sale was finalised after the reporting period, see note 34.b.

3.   An amount of EUR 8,405 thousands (2014: EUR 8,451 thousands) relates to a part of the plot in Serbia planned for developing residential units. This part of plot was valued by an independent valuer ("CBRE D.o.o") which estimated its fair value in the amount of EUR 12,840 thousands at 31 December 2015 (2014: EUR 13,320 thousands). The fair value concluded by the valuer was used as indication of the plot's net realisable value.

 

2.   Valuation technique and significant unobservable inputs

 

The following information shows the valuation technique used in measuring the net realisable value of the plot of land in Romania, as well as the significant unobservable inputs used. For the valuation technique and the significant unobservable inputs used in measuring the net realisable value of the plot of land in Serbia, please refer to note 8.b.3.

 

·   Valuation technique

 

Market comparison approach: In estimating the property value in Romania the valuer used the comparison approach, and estimated the value of the plot compared to three similar plots.

 

·   Significant unobservable inputs

 

-    The valuer used "asking prices" with the adjustment of 10%.

-    The compared plots were in the range from sqm 10,000 to sqm 30,000. Due to the differences in the size of the compared plots to the valued plot, the valuer used an adjustment of (-5%) and (-10%).

-    The valuer compared plots in different locations and used adjustment between (-25%) to 20%.

-    The valuer compared plots with different accesses available level and used adjustment between (-20%) to 10%.

 

·   Inter-relationship between key unobservable inputs and measurement of net realisable value

 

The estimated net realisable value would increase (decrease) if:

-    The valuer used lower (higher) adjustment on the used "asking prices".

-    The valuer used lower (higher) adjustment on the compared plot size in the case of smaller plots than the subject property.

-    The valuer used lower (higher) adjustment range which relates to superior/inferior location.

-    The valuer used lower (higher) adjustment range which relates to superior/inferior accesses available to the plot.

 

 

NOTE 8 - INVESTMENT PROPERTY

 

a.   Reconciliation of carrying amount

 

2015

2014

 

Thousands Euro

Balance at 1 January

18,280

21,000

Change in fair value

(734)

(1,667)

Effect of movement in exchange rate (a)

(96)

(1,053)

Balance at 31 December

17,450

18,280

 

(a)  The functional currency of the subsidiary which holds the investment property ("Marina Dorcol D.o.o") is Serbian Dinar ("RSD").

During 2015, the EUR has strengthened vs. the RSD in the rate of 0.55% (2014: 5.22%) following which the Group has recognised in the reporting period a loss in the amount of EUR 96 thousands in the equity under translation reserve (2014: EUR 1,053 thousands, loss).

 

At 31 December 2015, the Group holds one plot in Serbia partly for purposes of commercial development.

 

The Group classified the asset as investment property since management's intention is to hold the property for long term, for capital appreciation or to earn future rentals or both.

 

The change in fair values is recognised as loss in the consolidated statement of profit or loss and included under "change in fair value of investment property".

 

b.   Measurement of fair value

 

1.   General

 

The fair value of the investment property was determined by an external, independent property valuer, holding appropriate, recognised and relevant professional qualifications and having recent experience in the location and category of the property being valued, see note 33.c.

 

2.   Fair value hierarchy

 

The fair value measurement for investment property in the amount of EUR 17,450 thousands has been categorised as a Level 3 fair value based on the inputs to the valuation technique used.

 

3.   Valuation technique and significant unobservable inputs

 

The following information shows the valuation technique used in measuring the fair value of investment property, as well as the significant unobservable inputs used.

 

·   Valuation technique

 

Residual method: In estimating the property value in Serbia using the residual method, the appraiser estimated an expected selling price of the completed development based on external evidence such as current prices for similar developed properties in a similar location and condition adjusted for future price changes. The cost of development was also estimated based on construction projections by the Group and market estimates of construction costs taking into consideration an IRR of 16.8% (2014: 17.1%). Under the residual method the fair value of the land is calculated as the difference between the estimated selling price of the developed property and the sum of the estimated cost of construction of the commercial structures and the developer's profit.

 

·   Significant unobservable inputs

 

-    Urbanistic project for 76,000 sqm building area.

-    Sales price per sqm of gross building area in the range from EUR 2,150 (for residential apartments) to EUR 2,400 (for business apartments).

-    4% annual growth is expected in sales prices for apartments, office space and underground parking, starting from 2018.

Yield of 9.25% for office segment and 8.25% for retail segment.

-    Construction cost per sqm of gross building area in the range from EUR 575 (for apartments in the second phase) to EUR 850 (for business apartments) with an increase of 2% each year.

-    Interest rate of 7% on 80% of the total funds financing of the project.

-    Developer's profit is estimated at 22.5%.

 

·   Inter-relationship between key unobservable inputs and fair value measurement

 

The estimated fair value would increase (decrease) if:

 

-    Urbanistics project for gross building area will be higher than 76,000 sqm.

-    Expected sales price per sqm of gross building area will be higher (lower).

-    Expected annual growth for sales prices for apartments, office space and underground parking will be higher (lower).

-    Yield for office segment and retail segment will be higher (lower).

-    Expected construction cost per sqm will be lower (higher).

-    Interest rate of 7% will be lower (higher).

-    Developer's profit will be lower (higher).

 

c.   Information regarding ownership right for the investment property

 

The Group leases the investment property under a finance lease from the municipality of Belgrade, Serbia. The end of the lease period, at 31 December 2015, is 90 years (will expire in 2105).

 

Further information about the finance lease terms and conditions are included under notes 12 and 27.a.iii.2.

 

The Group has pledged the shares of the entity which holds the investment property to secure credit facilities granted to the Group by the parent company, see note 31.c.1.ii.

 

d.   Amounts recognised in profit or loss

 

For the year ended 31 December


2015

2014

 

Thousands Euro

Change in fair value of investment property

(734)

(1,667)

 

 

NOTE 9 - INVESTMENT IN AND LOANS TO EQUITY-ACCOUNTED INVESTMENTS

 

At 31 December 2015 the Company holds interest in one joint venture, Montreal Residential Holdings Master Limited Partnership ("MLP").

 

MLP is not a publicly listed entity and consequently does not have published price quotation.

 

Until August 2015 the Company also held interests in the following joint ventures:

a. Arces International B.V. ("Arces").

b. ENMAN B.V. ("ENMAN").

 

On 31 July 2015 the Company reached an agreement with its previous joint venture partner and as a result acquired control in Arces and ENMAN (a process which was completed during August 2015) and began to consolidate both companies in its consolidated financial statements, see note 29.

 

The following trading transactions and balances with equity-accounted investments are included in the consolidated financial statements:

 

31 December

 

(a)  2015

(b)  2014

 

Thousands Euro

Statement of financial position

 

 

Accumulated share of profit of equity-accounted

    investment

-

104

Loans granted to joint ventures

2,938

9,715

Accumulated share of loss of equity-accounted

    investments which relates to loans granted by the

    Company and considered as a part of the net

    investment (c)

(894)

(2,678)

Loans and amounts granted to subsidiaries of joint

    ventures

-

509

Total (presented under loans and amounts to related

    parties and equity-accounted investment)

2,044

7,650

 

 

For the year ended 31 December

 

(a)  2015

(b)  2014

Statement of profit or loss

Thousands Euro

Share of profit (loss) of equity-accounted investments

    which relates to loans granted by the Company and

    are part of the net investment

567

(159)

Share of profit of equity-accounted investments, net of

    tax

678

104

Change in the Group's share in previously recognised

    losses due to repayment of the loan that was part of

    the net investment

496

-

Total (presented under share of profit (loss) of

    equity-accounted investments, net of tax)

1,741

(55)

 

 

 

Finance income

251

515

Total (presented under finance income)

251

515

 

(a)  The statement of financial position includes balances with MLP.

The statement of profit or loss includes transactions with Arces and ENMAN which occurred before the Company obtained control over these entities and transactions with MLP.

 

(b)  The statement of financial position and the statement of profit or loss include balances and transactions with Arces, ENMAN and MLP.

 

(c)  Total amount of EUR 894 thousands (2014: EUR 2,678 thousands) was recognised as a loss with respect to equity-accounted investments relating to loans granted by the Company which management considers as being part of the net investment.

 

a.   Arces International B.V.

 

Arces International B.V. ("Arces") - a holding company domiciled in The Netherlands. Until August 2015, the Company and HCEPP II Luxembourg Master S.à r.l ("Heitman") each held 50% of Arces' issued share capital.

Arces was incorporated with the purpose of investment in real estate development project companies in Eastern Europe. Arces has investments mainly in the Czech Republic.

 

The following trading transactions and balances with Arces are included in the consolidated financial statements of the Group:

 

31 December

 

2015

2014

 

Thousands Euro

Statement of financial position

 

 

Loans granted to joint venture (i)

-

2,207

Accumulated share of loss of equity-accounted

    investments which relates to loans granted by the

    Company and considered as a part of the net

    investment

-

(1,081)

Total (presented under loans and amounts to related

    parties)

-

1,126

 

 

 

For the year ended 31 December

 

(a) 2015

2014

 

Thousands Euro

Statement of profit or loss

 

 

Share of loss of equity-accounted investments which

    relates to loans granted by the Company and are part

    of the net investment

(69)

(406)

Change in the Group's share in previously recognised

    losses due to repayment of the loan that was part of

    the net investment

496

-

Total (presented under share of profit (loss) of

    equity-accounted investments, net of tax)

427

(406)

 

 

 

Finance income (i)

143

302

Total (presented under finance income)

143

302

 

(a) Including transactions with Arces which occurred until the date the Company obtained control of the entity.

 

The following table summarises the financial information of Arces as included in its own consolidated financial statements (figures in the table represent 100% of the consolidated figures of Arces). The table also reconciles the summarised financial information to the carrying amount of the Group's interest in Arces.

 

31 December

31 December

 

(a) 2015

2014

 

Thousands Euro

Percentage ownership interest

50%

50%

Current assets

(including cash and cash equivalent in the amount of EUR 2,559 thousands at 31 December 2014)

-

4,780

Non-current assets

-

4

Current liabilities

(including loans and amounts due to related parties in the amount of EUR 2,903 thousands at 31 December 2014)

-

(6,947)

Non-current liabilities

-

-

 

 

 

Net liabilities (100%)

-

(2,163)

Group's share of the net liabilities

-

-

Loans granted by the Company, net of impairment (i)

-

1,126

Net investment and loans

-

1,126


 

 

Revenue

1,757

787

Cost of sales excluding write down of inventory

(1,618)

(627)

Write down of inventory (ii.3)

-

(315)

Selling, general and administrative expenses

(135)

(597)

Other income (ii.1, ii.2)

-

448

Net foreign exchange income (loss)

64

(126)

Finance costs

(175)

(400)

Income tax benefit (expense)

(17)

19

Loss for the year (100%)

(124)

(811)

Other comprehensive income:

 

 

Foreign operations - foreign currency translation differences

8

81

Total comprehensive loss for the year (100%)

(116)

(730)

Loss relating to loans granted by the Company and being part of the net investment

(69)

(406)

Change in the Group's share in previously recognised losses due to repayment of the loan that was part of the net investment

496

-

The Group's share of profit (loss) of equity-accounted investments, net of tax

427

(406)

 

 

 

Group's share of other comprehensive income

4

41

 

(a) Including transactions with Arces which occurred until the date the Company obtained control of the entity.

 

Comments in respect to the investment in Arces:

 

i. Loans granted by the Company to the previously held joint venture -

·        Denominated in Euro currency.

·        The loan bears interest of 15% per annum.

·   Until the acquisition date of Arces (see note 29), a total amount of EUR 1,700 thousands was repaid by Arces to the Company.

·   The finance income described above refers to the period till the acquisition date of Arces by the Company.

 

ii.     Significant events during the current and the comparative reporting periods:

 

1.  In 2014, a receiver was appointed by a court in Hungary due to an appeal of one of the creditors in the subsidiary, Engel Sun Palace Kft. ("Sun Palace"), which built the Sun Palace project in Hungary.

 

As a consequence Arces does not control Sun Palace, therefore ceased to consolidate Sun Palace in its consolidated financial statements for the year ended 31 December 2014 and recognised an income in the amount of EUR 509 thousands (the Company's share was EUR 256 thousands and it was recognised under "share of profit (loss) of equity-accounted investments, net of tax", in the consolidated financial statements for the year ended 31 December 2014).

 

The following table summarises the derecognised amounts of assets and liabilities in the 2014 consolidated financial statements of Arces       due to the loss of control of Sun Palace (the amounts below present the Company's share):

 

 

Thousands Euro

Prepayments and other assets

12

Loans and amounts to related parties

33

Loans and amounts due to related parties

(111)

Trade payables

(69)

Other payables

(121)

Total identifiable net liabilities disposed

(256)

Income on disposal

256

Cash and cash equivalents disposed of

-

Net cash inflow (outflow)

-

 

2.  In 2014, a compulsory strike-off was ordered and registered by the Company Registry Court of Budapest in Engel HAZ Kft. ("Haz"). Based on the ruling of the Company Registry Court of Budapest, Haz is declared to be dissolved.

 

As a consequence Arces does not control Haz, therefore ceased to consolidate Haz in its consolidated financial statements for the year ended 31 December 2014 and recognised a loss in the amount of EUR 61 thousands (the Company's share was EUR 30 thousands and it was recognised under "share of profit (loss) of equity-accounted investments, net of tax", in the consolidated financial statements for the year ended 31 December 2014).

 

The following table summarises the derecognised amounts of assets and liabilities in the 2014 consolidated financial statements of Arces       due to the loss of control of Haz (the amounts below present the Company's share):

 

 

Thousands Euro

Loans and amounts to related parties

34

Loans and amounts due to related parties

(1)

Trade payables

(1)

Other payables

(2)

Total identifiable net assets disposed

30

Loss on disposal

(30)

Cash and cash equivalents disposed of

-

Net cash inflow (outflow)

-

 

3.  During 2014, following management reassessment of the project future proceeds, the Group recognised a write-down of inventory in the     amount of EUR 315 thousands related to the project Emilii Plater, Poland (the Company's share was EUR 158 thousands and it was recognised under "share of profit (loss) of equity-accounted investments, net of tax", in the consolidated financial statements for the year ended 31 December 2014).

 

4.  In 2012, one of the Group project's previous contractors issued a lien against Arces' bank account, for the total amount of EUR 0.4 million (the Company's share was EUR 0.2 million).

During 2015, the high court in Hungary accepted the Group's appeal, rejected the claim following which the Company succeeded in removing the lien against Arces' bank account.

In 2014, an additional sub-contractor of the Group's previous project filed a claim against Arces.

Provision for this claim was initially recognised by Arces and has been included in "share of profit (loss) of equity-accounted investments, net of tax" in the consolidated financial statements for the year ended 31 December 2014, see note 15 and note 29.

 

 

b.   ENMAN B.V.

 

ENMAN B.V. ("ENMAN") - a holding company domiciled in The Netherlands. Until August 2015, the Company and HEPP III Luxembourg Master S.à r.l. ("Heitman") each held 50% of ENMAN's issued share capital.

 

In July 2010 the Company signed an amendment to its joint venture agreement with Heitman according to which the Company's share in profit distributions from ENMAN is 25% and the Company's share in profit distributions from "Troja" project in the Czech Republic is 50% (the percentage of shares holding remained unchanged, until the date of the Company's acquisition, see note 29.).

 

ENMAN was incorporated with the purpose of investment in real estate development project companies in Eastern Europe. ENMAN has investments mainly in the Czech Republic.

 

The following trading transactions and balances with ENMAN are included in the consolidated financial statements of the Group:

 

31 December

 

2015

2014

 

Thousands Euro

Statement of financial position

 

 

Accumulated share of profit of equity-accounted

    investments

-

104

Loans granted to joint venture (i)

-

4,031

Total (presented under loans and amounts to related

    parties and equity-accounted investment)

-

4,135

 

 

 

 

For the year ended 31 December

 

(a) 2015

2014

 

Thousands Euro

Statement of profit or loss

 

 

Share of profit of equity-accounted investments

    which relates to loans granted by the Company and

    are part of the net investment

-

307

Share of profit of equity-accounted investments, net of

    tax

678

104

Total (presented under share of profit of

    equity-accounted investments, net of tax)

678

411

 

 

 

Finance income (i)

108

211

Total (presented under finance income)

108

211

 

(a) Including transactions with ENMAN which occurred until the date the Company obtained control of the entity.

 

The following table summarises the financial information of ENMAN as included in its own consolidated financial statements (figures in the table represent 100% of the consolidated figures of ENMAN). The table also reconciles the summarised financial information to the carrying amount of the Group's interest in ENMAN.

 

31 December

31 December

 

(a) 2015

2014

 

Thousands Euro

Percentage ownership interest

25%/50%

25%/50%

Current assets

(including cash and cash equivalent in the amount of EUR 1,149 thousands at 31 December 2014)

-

20,174

Non-current assets

-

202

Current liabilities

(including interest-bearing bank loan and loans and amount due to related parties in the amount of EUR 12,542 thousands at 31 December 2014)

-

(15,877)

Non-current liabilities

-

(954)

 

 

 

Net assets (100%)

-

3,545

Group's share of the net assets

-

104

Loans granted by the Company, net of impairment (i)

-

4,031

Net investment and loans

-

4,135


 

 

Revenue

12,359

4,222

Cost of sales excluding reverse of write down of inventory

(11,535)

(3,671)

Reverse of write down of inventory (ii.1, ii.4, ii.5)

-

1,815

Selling, general and administrative expenses

(164)

(186)

Net foreign exchange income (loss)

1,302

(186)

Finance costs

(333)

(542)

Income tax expense

(68)

(289)

Profit for the year (100%)

1,561

1,163

Other comprehensive income (loss):

 

 

Foreign operations - foreign currency translation differences

(1,165)

102

Total comprehensive income for the year (100%)

396

1,265

Profit relating to loans granted by the Company and being part of the net investment

-

307

Group's share of profit

678

104

The Group's share of profit of equity-accounted investments, net of tax

678

411

 



Group's share of other comprehensive income (loss)

(291)

13

 

(a) Including transactions with ENMAN occurred till the date the Company obtained control of the entity.

 

Comments in respect to the investment in ENMAN:

 

i. Loans granted by the Company to the previously held joint venture -

·        Denominated in Euro currency.

·        The loans bear interest of 8% per annum.

·   Until the acquisition date of ENMAN (see note 29), a total amount of EUR 3,005 thousands was repaid by ENMAN to the Company.

·   The finance income described above refers to the period till the acquisition date of ENMAN by the Company.

 

ii.      Significant events during the current and the comparative reporting periods:

 

1.   On 4 July 2014, Palace Engel Wilanow 1 S.p. Z.o.o, a wholly owned subsidiary of ENMAN sold the plot in Wilanow district in Warsaw, Poland, for a total cash consideration of EUR 1,200 thousands. In order to reflect the plot's realisable value, ENMAN recognised a write down of inventory in the amount of EUR 46 thousands (the Company's share was EUR 12 thousands and it was recognised under "share of profit (loss) of equity-accounted investments, net of tax") in the consolidated financial statements for the year ended 31 December 2014.

 

2.   At the beginning of 2013, following the adoption of IFRS 10, the Group has re-examined the existence of control at Engel-Lylia s.r.l ("Lylia"), a subsidiary held by ENMAN, and determined that ENMAN no longer controlled Lylia. As a consequence, ENMAN ceased to consolidate Lylia in its consolidated financial statements for the year ended 31 December 2013.

See note 33.e.1, regarding management's reassessment and judgment of having control as of 31 December 2015.

 

3.   At the beginning of 2013, following the adoption of IFRS 10, the Group has re-examined the existence of control at Engel Crizantema s.r.l ("Crizantema") (which holds Engel Tulip s.r.l ("Tulip")), a subsidiary held by ENMAN and determined that ENMAN no longer controlled Crizantema. As a consequence ENMAN ceased to consolidate Crizantema in its consolidated financial statements for the year ended 31 December 2013.

 

See note 33.e.1, regarding management's reassessment and judgment of having control as of 31 December 2015.

 

4.   During 2014, a residential plot designed for the second phase of the Veleslavin project in Prague, Czech Republic was written down to its net realisable value. The recognised write down amounted to EUR 83 thousands (the Company's share is EUR 21 thousands and it was recognised under "share of profit (loss) of equity-accounted investments, net of tax") in the consolidated financial statements for the year ended 31 December 2014.

 

On 30 July 2015, two wholly owned subsidiaries of ENMAN sold the residential plot designed for the second stage of the Veleslavin project, for a total cash consideration of CZK 63 million (EUR 2.3 million).

 

The net proceeds of the disposal were EUR 1.8 million (the Company's share was EUR 0.45 million). The profit in the amount of EUR 37 thousands (the Company's share is EUR 9 thousands) was recognised under the "share of profit (loss) of equity-accounted investments, net of tax" in the consolidated financial statements for the year ended 31 December 2015.

 

5.   On 22 January 2015, a wholly owned subsidiary of ENMAN, signed an agreement to sell a plot designed for residential purposes in Czech Republic ("Troja") for a total cash consideration of CZK 195 million (EUR 7,113 thousands). As a result of the above, the Group has chosen to reverse a previously recorded write down in the total amount of EUR 1,944 thousands in the consolidated financial statements for the year ended 31 December 2014.

 

On 30 April 2015, the above mentioned sale agreement has been finalised following which the Company recognised a profit before tax on income in the amount of EUR 0.5 million (and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax") in the consolidated financial statements for the year ended 31 December 2015.

 

The net proceeds of the disposal were EUR 5,890 thousands (the Company's share was EUR 2,945 thousands) and were distributed to the joint venture's partners during the reporting period.

 

c.   Montreal Residential Holdings Master Limited Partnership

 

Montreal Residential Holdings Master Limited Partnership ("MLP") - a holding partnership domiciled in Canada.

 

The Company owns ECG Trust Canada Holding Trust ("ECG") (95% interest) which holds 20% interest in future distributions of MLP. The Company owns 50% of the voting rights in MLP.

 

The remaining 80% in future distributions is owned by Lehman Brothers Real Estate Partners II ("Lehman Brothers") represented by Silverpeak Real Estate Partners ("Silverpeak").

 

During the reporting period, MLP sold one parcel of land in Montreal, Quebec, Canada, see note 9.c.iv.2.

At the end of the reporting period, MLP holds two parcels of land in Montreal, Quebec, Canada which are designed for residential purposes. After the reporting period, both plots were sold, see note 9.c.iv.3.

 

Set out below is a list of material subsidiaries of MLP at 31 December 2015:

 

a.   Trianon Sur Le Golf Quebec LP - 99.99% in the partnership rights - owned a land in Montreal, Canada, which was sold during the reporting period, see note 9.c.iv.2.

b.   Le Quartier Quebec LP - 99.99% in the partnership rights - owns a land in Montreal, Canada, which was sold after the reporting period, see note 9.c.iv.3.

c.   Le Chagall Quebec LP - 99.99% in the partnership rights - owns a land in Montreal, Canada, which was sold after the reporting period, see note 9.c.iv.3.

d.   Le Quartier Parisien Inc. - 99.99% in the share capital - beneficial title holder company, Canada

e.   Trianon Sur Le Golf Inc. - 99.99% in the share capital - beneficial title holder company, Canada.

f.    Le Chagall Condominiums Inc. - 99.99% in the share capital - beneficial title holder company, Canada.

 

The following trading transactions and balances with MLP are included in the consolidated financial statements of the Group:

 

31 December

 

2015

2014

 

Thousands Euro

Statement of financial position

 

 

Loans granted to joint venture (iii)

2,938

3,477

Accumulated share of loss of equity-accounted

    investments which relates to loans granted by the

    Company and considered as a part of the net

    investment (i)

(894)

(1,597)

Total (presented under loans and amounts to related

    parties)

2,044

1,880

 

 

 

 

For the year ended 31 December

 

2015

2014

 

Thousands Euro

Statement of profit or loss

 

 

Share of profit (loss) of equity-accounted investments

    which relates to loans granted by the Company and

    are part of the net investment (i)

636

(60)

Share of profit (loss) of equity-accounted investments,

    net of tax (ii)

-

-

Total (presented under share of profit (loss) of

    equity-accounted investments, net of tax)

636

(60)

 

The following table summarises the financial information of MLP as included in its own consolidated financial statements (figures in the table represent 100% of the consolidated figures of MLP). The table also reconciles the summarised financial information to the carrying amount of the Group's interest in MLP.

 

31 December

31 December

 

2015

2014

 

Thousands Euro

Percentage ownership interest

20%

20%

Current assets

(including no cash and cash equivalent at 31 December 2015 and at 31 December 2014)

10,369

9,587

Non-current assets

-

-

Current liabilities

(including loans and amounts due to related parties in the amount of EUR 14,740 thousands at 31 December 2015 and EUR 17,565 thousands at 31 December 2014)

(14,841)

(17,569)

Non-current liabilities

-

-

 

 

 

Net liabilities (100%)

(4,472)

(7,982)

Group's share of the net liabilities (ii)

-

-

Loans granted by the Company, net of impairment (i, iii)

2,044

1,880

Net investment and loans

2,044

1,880


 

 

Revenue

2,230

-

Cost of sales

(1,888)

-

Reverse of write down of inventory (iv.3)

3,225

-

Selling, general and administrative expenses

(387)

(300)

Profit (loss) for the year (100%)

3,180

(300)

Other comprehensive income (loss):

 

 

Foreign operations - foreign currency translation differences

335

(335)

Total comprehensive income (loss) for the year (100%)

3,515

(635)

Profit (loss) relating to loans granted by the Company and being part of the net investment (i)

636

(60)

Group's share of profit (loss) (ii)

-

-

The Group's share of profit (loss) of equity-accounted investments, net of tax

636

(60)

 

 

 

Group's share of other comprehensive income (loss)

67

(67)

 

 

Comments in respect to the investment in MLP:

 

i. Due to the joint venture continuing to accumulate losses the Company recognised a loss related to given loan to MLP that is part of the net investment and presents the loss as share of profit (loss) of equity-accounted investments in the consolidated statement of profit or loss.

ii.      The Company did not provide any guarantees for the joint venture and has not incurred legal and constructive obligation on behalf of the joint venture; therefore losses are accounted only until the Company's interest is reduced to zero.

iii.     Loans granted by the Company to joint venture -

·        Denominated in CAD currency.

·        The loans bear no interest.

·   No repayment date has been set. Repayment is expected from the proceeds of the sale of the related projects financed by the loans.

·   During the reporting period, a total amount of EUR 351 thousands was repaid by MLP to the Company.

 

iv.     Significant events during and after the reporting period:

 

1.     The Company and MLP were in a legal proceeding with a minority shareholder who was employed as technical manager for the Canadian projects and was dismissed by the Company. The amount of the claim was CAD 13 million (approximately EUR 9.4 million).

According to the court past decision, disposal of assets in Canada will require the approval of the court.

 

In 2013, the trial in regard to the above legal procedure was held in the Canadian court.

In August 2014, the Canadian court delivered a verdict which dismissed the claims of the plaintiff. The plaintiff filed an appeal on the above verdict, which was rejected by the court during 2015.

 

Following the above verdicts, the courts ordered the plaintiff to pay the Company an aggregate amount of CAD 148 thousands (approximately EUR 98) plus interest and expenses return.

 

2.     On 8 May 2015, MLP sold one of the plots in Montreal, Canada ("Trianon") for a total consideration of CAD 3,050 thousands (EUR 2,230 thousands).

 

MLP recognised a profit before tax on income in the amount of EUR 342 thousands (the Company's share was EUR 68 thousands and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax") in the consolidated financial statements for the year ended 31 December 2015.

 

The Company's share in the net proceeds of the disposal was EUR 351 thousands which was distributed to the Company during the reporting period.

 

Based on prior agreements with ERD all the net future proceeds generated from the Company's assets in Canada will be used to repay the outstanding debts of the Company to ERD. As of the reporting period the net proceeds were not transferred to ERD.

 

3.     On 16 September 2015, MLP reached a conditional agreement ("the agreement") to sell two plots of land held for residential development purposes in Canada for a total cash consideration of CAD 20,227 thousands (EUR 13,095 thousands).

 

The gross profit (before income tax expense) is expected to be CAD 9,418 thousands (EUR 6,097 thousands). As a result of the above, the Group has chosen to reverse a previously recorded write down in the total amount of EUR 3,225 thousands (the Company's share was EUR 645 thousands) and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax" in the consolidated financial statements for the year ended 31 December 2015.

 

The net cash proceeds of the disposals received by MLP (before income tax expense) are CAD 19,733 thousands (EUR 12,775 thousands).

 

The net cash proceeds of the disposals will be distributed by MLP after completion of the disposals and the approval of the Company's partner in MLP. The Company's expected share of the distribution will be 20%, equating to approximately CAD 3.5 million (EUR 2.3 million).

On 13 January 2016, the agreement became binding and the sale was completed.

 

Based on prior agreements with ERD all the net future proceeds generated from the Company's assets in Canada will be used to repay the outstanding debts of the Company to ERD.

 

 

NOTE 10 - LIST OF SUBSIDIARIES

 

Set out below is a list of subsidiaries of the Company as of 31 December 2015:

 

1.    Arces International B.V. - a wholly owned subsidiary - holding company, the Netherlands. See note 29 as per the acquisition of the partner's share during the reporting period.

 

2.    ENMAN B.V. - a wholly owned subsidiary - holding company, the Netherlands. See note 29 as per the acquisition of the partner's share during the reporting period.

 

3.    Engel Management s.r.o - a wholly owned subsidiary - management company, Czech Republic.

 

4.    Engel Management S.p. Z.o.o - a wholly owned subsidiary - management company, Poland.

 

5.    Marina Management D.o.o - a wholly owned subsidiary - management company, Serbia.

 

6.    Marina Dorcol D.o.o - 95% interest subsidiary - plans to build mix-use project with a majority of residential in Belgrade, Serbia.

 

7.    Engel-Rose s.r.l - a wholly owned subsidiary - holds a plot for residential project in Bucharest, Romania.

 

8.    Davero Invest s.r.l ("Davero") - a wholly owned subsidiary - management company, Romania. The Company sold its investment in Davero after the reporting period, see note 34.a.

 

9.    EURO-BUL Ltd. - a wholly owned subsidiary - administration services company, Israel.

 

10.  Palace Engel Troja a.s - a wholly owned subsidiary, Czech Republic - inactive.

 

11.  6212964 Canada Inc. - 95% interest subsidiary - Canada.

 

12.  9152-8372 Quebec Inc. - a wholly owned subsidiary - management company, Canada - inactive.

 

13.  Palace Engel Dejvice s.r.o - through its wholly owned subsidiary Palac Engel Safranka s.r.o (a wholly owned subsidiary of Arces) - built a residential project in Prague, Czech Republic.

 

14.  Palace Engel Estate s.r.o - a wholly owned subsidiary of Arces - built a residential project in Prague, Czech Republic.

 

15.  Palace Engel Vokovice s.r.o ("Vokovice s.r.o") - a wholly owned subsidiary of Arces - holds a plot designed for the third residential building in the project Vokovice in Prague, Czech Republic. Arces sold its investment in Vokovice s.r.o after the reporting period, see note 34.b.

 

16.  Engel-Apartmenty Emilii Plater S.p. Z.o.o - a wholly owned subsidiary of Arces - built a residential project in Warsaw, Poland, see note 9.a.ii.3.

 

17.  Palace Engel Wilanow 1 S.p. Z.o.o - a wholly owned subsidiary of ENMAN - see note 9.b.ii.1.

 

18.  Palace Engel Veleslavin a.s and Palace Engel Villa s.r.o - wholly owned subsidiaries of ENMAN - built the first stage of a residential project. During the reporting period the entities sold the plot designed for the second stage of the project in Prague, Czech Republic - see note 9.b.ii.4.

 

19.  Troja Gardens s.r.o ("Troja") - a wholly owned subsidiary of ENMAN - held a plot for residential project in Prague, Czech Republic, which was sold during the reporting period - see note 9.b.ii.5.

 

 

NOTE 11 - INTEREST-BEARING BANK LOANS

 

The terms and conditions of outstanding loans are as follows:

 

 

 

 

31 December

 

 

Nominal interest rate

Year of maturity

2015

2014

 

Currency

Thousands Euro

Current liabilities

 

 

 

 

 

Secured loan

Euro

3m Libor + 3.68%

2016

281

273

Secured loan

Euro

3m Libor + 3.4%

2016

1,048

1,011

Secured loan

CZK

3m Pribor + 4 %

2016

846

-

 

 

 

 

2,175

1,284

Non-current liabilities

 

 

 

 

Secured loan

Euro

3m Libor + 3.5%

2019

574

553

Secured loan

Euro

3m Libor + 3.68%

2017-19

834

1,115

 

 

 

1,408

1,668

Total interest-bearing bank loans

 

3,583

2,952

 

The loan denominated in the CZK currency, has been taken in respect of the Veleslavin project in Prague, Czech Republic. The security for the loan is a first ranking lien on the assets of the project company. The first ranking lien includes: lien on the rights for the land and the projects for which the loans were received and lien on rights, including by way of assignment of rights, to the receivables from customers.

The loan was fully repaid after the reporting period.

 

The loans denominated in the EUR currency, were taken by a wholly controlled entity EURO-BUL Ltd. ("Eurobul") and are secured by guarantees provided by ERD, the indirect parent company of the Company (see note 31.c.1.i).

 

In September 2014, ERD and Eurobul reached an agreement ("agreement") with the lender bank to restructure the overdue loan granted to Eurobul.

According to the agreement, the overdue loan was replaced by three new loans which their terms are as follows:

 

1.    Loan 1("loan 1") - a loan in the amount of EUR 1.4 million, which carries an annual interest of 3m Libor + 3.68%. The loan is repaid in quarterly instalments till 2019. As of the reporting date, the loan was paid at the agreed timeline.

2.    Loan 2 ("loan 2") - a loan in the amount of EUR 1 million, which carries an annual interest of 3m Libor + 3.5% (the annual interest was adjusted during 2015 to 3m Libor + 3.4%). The loan is extended on a quarterly basis till 31 December 2015.

3.    Loan 3 ("loan 3") - a loan in the amount of EUR 0.5 million, which carries an annual interest of 3m Libor + 3.5%. The maturity year of the loan is 2019. In case the above two loans will be fully repaid by the Company, the lender bank agrees to forgive this loan to the Company.

 

During the reporting period, as part of the above agreement with the lender bank, the Company and ERD repaid an amount of EUR 320 thousands. The amount repaid by ERD (EUR 80 thousands) was recognised as additional loan provided by ERD.

 

The above three interest-bearing bank loans are being secured by guarantees provided by ERD to the lender bank.

 

After the reporting period the Company fully repaid loan 1 and loan 2 (see note 34.c). Based on the terms agreed with the lender bank loan 3 has been fully forgiven, as a result the Company will recognise a finance income in the profit or loss at the condensed consolidated interim financial statements for the first quarter of 2016.

 

NOTE 12 - FINANCE LEASE LIABILITY

 

31 December

 

2015

2014

 

Thousands Euro

Current liabilities

 

 

Current portion of finance lease liability

2,334

5,561

Over-due amounts due to a municipality (a)

33,287

21,597

 

35,621

27,158

Non-current liabilities

 

 

Finance lease liability

7,858

9,483

 

7,858

9,483

Total finance lease liability

43,479

36,641

 

(a)  At 31 December 2015, the amount represents overdue instalments to the municipality in Serbia according to the finance lease agreement.

The balance consists of: overdue monthly rent instalments, an amount which is under disagreement with the municipality, overdue instalments according to the finance lease agreement and penalty interest. The classification between current and non-current lease liability follows the contractual due dates.

 

a.   Terms and repayment schedule

 

The terms and conditions of the outstanding finance lease liability are as follows:

 

 

 

 

 

31 December

 

 

 

 

2015

2014

 

 

Nominal interest rate

Year of maturity (a)

Thousands Euro

 

Currency

Face value

Carrying amount

Face value

Carrying amount

Finance lease liability

RSD

6.34%

2105

48,107

10,192

53,373

15,044

Over-due amounts (b)

RSD

14.18%

-

33,287

33,287

19,673

19,673

Over-due amounts (c)

RSD

-

-

-

-

1,924

1,924

Total finance lease liability


 

81,394

43,479

74,970

36,641

 

(a)  The financial lease liability relates to a project in Serbia where the Group is obliged to pay monthly rent for land for 99 years (the end of the lease period is 90 years and will expire in 2105).

(b)  The overdue amounts carry an average penalty interest of 1.2% per month, average interest of 14.18% for the year 2015 (2014: 16.83%).

(c)  During 2015, the municipality began to charge penalty interest on the overdue monthly rent instalments.

 

The value of the finance lease and its payments are adjusted on a monthly basis by the local retail price index in Belgrade, Serbia. The increases of the local retail price index in Belgrade, Serbia during 2015 and 2014 were 1.7% and 1.9% respectively.

 

b.   Finance lease liability - contractual cash flows

 

Finance lease liability is payable as follows:

 

 

Future minimum lease

payments

Interest

Present value of minimum lease payments

 

2015

2014

2015

2014

2015

2014

 

Thousands Euro

Less than one year

35,720

27,399

99

241

35,621

27,158

Between one and five years

2,068

3,946

239

426

1,829

3,520

More than five years

43,606

43,625

37,577

37,662

6,029

5,963

Total

81,394

74,970

37,915

38,329

43,479

36,641

 

c.   Breach in requirements

 

Since January 2011, the Group has been in breach of the obligation to make the monthly lease payments for Marina Dorcol.

At 31 December 2015, the Group is in breach of EUR 33.3 million (2014: EUR 21.6 million) of lease payments in total. After the reporting date, the Company further breached its obligation to pay by an additional amount of EUR 0.1 million, see note 2.b.

The Group is currently in the process of negotiation with the municipality of Belgrade to restructure the liability.

 

 

NOTE 13 - LOANS AND AMOUNTS DUE TO RELATED PARTIES AND JOINT VENTURE

 

The terms and conditions of outstanding loans are as follows:

 

 

 

31 December

 

 

Nominal interest rate

2015

2014

 

Currency

Thousands Euro

Engel Resources and Development Ltd. (a)

ILS

6%-6.5%

25,081

24,772

GBES Ltd. (b)

Euro

6%

244

233

Subsidiaries held by current and previous jointly controlled entities (c)

Euro

0%

251

469

Total

 

 

25,576

25,474

 

(a)  The loans were received from Engel Resources and Development Ltd. ("ERD") and are due by 30 April 2016.

The interest conditions are as follows:

·   The amount of EUR 22,871 thousands (2014: EUR 22,907 thousands) bears interest of 6% per annum and linked to changes in the customer price index in Israel.

·   The amount of EUR 2,210 thousands (2014: EUR 1,865 thousands) bears interest of 6.5% per annum.

The loans are secured by the following guarantees (see note 31.c):

·   Pledge over the shares of Marina Dorcol D.o.o in the total value of EUR 23.7 million.

·   The future proceeds from the Group's assets in Canada. The Company will provide guarantee in the amount which will be double from the loan provided by ERD.

(b)  The loans received from GBES Ltd. ("GBES") were due on 31 December 2014 and are overdue as of the date of the consolidated financial statements.

(c)  No repayment dates have been set with regard to the loans and advances granted by the subsidiaries held by currently and previously held jointly controlled entities.

 

For more details about related parties transactions, see note 31.

 

 

NOTE 14 - OTHER PAYABLES

 

31 December

 

2015

2014

 

Thousands Euro

Advances from customers

802

-

VAT payable

69

74

Provision for expected costs of completion of housing units

255

-

Retentions from constructors

406

-

Accruals

309

229

Payroll and related expenses

77

234

Provision for liquidated companies (a)

4,452

-

Deferred revenue

-

45

Related parties

-

21

Other

-

10

Total

6,370

613

 

(a)  See note 28.b.

 

 

NOTE 15 - PROVISIONS

 

2015

2014

 

Thousands Euro

Balance at 1 January

319

887

Provisions reversed during the year

-

(548)

Classifications from other payables

36

-

Acquisition of control in previous equity-accounted investments (b)

307

-

De-recognition of subsidiary (c)

(176)

-

Effect of movement in exchange rates

6

(20)

Balance at 31 December

492

319

 

(a)  The Group estimated provisions in respect of its legal claims, based on the management's estimations following consulting its legal advisors.

(b)  See note 29.

(c)  See note 30.b.

 

 

NOTE 16 - CAPITAL AND RESERVES

 

a.   Share capital and share premium

 

2014 and 2015

 

Thousands Euro

 

 

Issued and fully paid:

 

In issue at 1 January (87,777,777 ordinary shares)

878

Changes during the year

-

In issue at 31 December (87,777,777 ordinary shares)

878

 

 

Authorised:

 

120,000,000 ordinary shares of par value EUR 0.01

1,200

 

All ordinary shares rank equally with regard to the Company's residual assets.

 

b.   Ordinary shares

 

Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All rights attached to the Company's shares held by the Group are suspended until those shares are reissued.

 

On 15 December 2005, the Company initially offered its shares in the AIM stock exchange market in London ("the IPO"). The proceeds from the IPO were 30,000,000 British Pounds and 27,777,778 shares were issued, accordingly EUR 39,298 thousands were recognised as share premium.

 

c.   Translation reserve

 

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations to Euro.

 

d.   Dividends

 

Dividends are declarable based on the retained earnings presented in the Company's financial statements prepared in accordance with The Dutch Civil Code and not from the retained earnings presented in these consolidated financial statements.

 

 

NOTE 17 - CAPITAL 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 stockholders and to maintain an optimal capital structure to reduce the cost of capital.

Due to the current financial position of the Group, the aim of the management is to enable the Group to continue and to operate as a going concern. Currently no specific target of return on capital was determined. There were no changes in the Group's approach to capital management during the year.

 

There are no externally imposed capital requirements on the Company.

 

 

31 December

 

2015

2014

 

Thousands Euro

Total liabilities

80,482

66,630

Less: cash and cash equivalents

(652)

(15)

Less: restricted bank deposit

(728)

-

Adjusted net debt

79,102

66,615

Total equity

(41,779)

(31,146)

Adjusted net debt to equity ratio

(1.89)

(2.14)

 

 

NOTE 18 - NON-CONTROLLING INTRESTS

 

The following table summarises the information relating to the Group's subsidiary that has material non-controlling interests ("NCI"), before any intra-group eliminations.

The tables represent 100% of the financial figures of the subsidiary.

 

31 December 2015

 

Marina Dorcol D.o.o

Other individually immaterial subsidiaries

Total

 

Thousands Euro

NCI percentage

5%

 

 

Current assets

1,173

 

 

Non-current assets

24,907

 

 

Current liabilities

(55,758)

 

 

Non-current liabilities

(7,858)

 

 

Net liabilities

(37,536)

 

 

Net liabilities attributed to NCI

(1,373)

(12)

(1,385)

 

 

 

 

Revenue

-

 

 

Loss for the year

(8,014)

 

 

Other comprehensive income

214

 

 

Total comprehensive loss

(7,800)

 

 

Loss attributed to NCI

(401)

-

(401)

Other comprehensive income attributed to NCI

11

-

11

 

 

31 December 2014

 

Marina Dorcol D.o.o

Other individually immaterial subsidiaries

Total

 

Thousands Euro

NCI percentage

5%

 

 

Current assets

506

 

 

Non-current assets

26,452

 

 

Current liabilities

(47,210)

 

 

Non-current liabilities

(9,483)

 

 

Net liabilities

(29,735)

 

 

Net liabilities attributed to NCI

(984)

(23)

(1,007)

 

 

 

 

Revenue

-

 

 

Loss for the year

(8,572)

 

 

Other comprehensive income

1,408

 

 

Total comprehensive loss

(7,164)

 

 

Loss attributed to NCI

(429)

-

(429)

Other comprehensive income attributed to NCI

70

-

70

 

From 1 January 2010 the Group has applied the revised IAS 27 Consolidated and Separated Financial statements (2008) in accounting for acquisitions of non-controlling interests. The share of the non-controlling interests in the losses till the application date summed to EUR 503 thousands.

 

 

NOTE 19 - REVENUE

 

 

For the year ended 31 December

 

2015

2014

 

Thousands Euro

Sale of housing units (a)

1,630

-

Project management fees

126

377

Other

-

10

Total

1,756

387

 

(a)  The revenue from the sale of housing units represents the revenue generated from the sale of housing units in the Veleslavin project, Prague, Czech Republic, from the date the Company obtained control in ENMAN (its parent company).

 

NOTE 20 - WRITE-DOWN OF INVENTORY

 

 

For the year ended 31 December

 

2015

2014

 

Thousands Euro

Plot of land in Romania

13

342

Plot of land in Czech Republic

105

-

Total

118

342

 

Write down of inventory to its net realisable value was performed based on an independent valuer's report (in case of the plot in Romania) and based on the value reflected at a conditional agreement to sell the entity which holds the plot, that was signed with a third party during the reporting period (in case of the plot in Prague, Czech Republic). 

See note 34.b, as per the sale of the land in Czech Republic after the reporting period.

Refer to note 33.d regarding critical accounting estimations and judgments and note 7.b.1 as per the way the Company determines the net realisable value of the plots.

 

 

NOTE 21 -          COST OF SALES EXCLUDING WRITE-DOWN OF INVENTORY

 

 

For the year ended 31 December

 

2015

2014

 

Thousands Euro

Cost of sold housing units (a)

1,611

-

Payroll and related expenses

142

206

Maintenance

123

44

Professional services

1

6

Taxes on lands

69

-

Write off retention

(136)

-

Other

7

2

Total

1,817

258

                                                         

(a)  The cost of sold housing units represents the cost generated from the sale of housing units in the Veleslavin project, Prague, Czech Republic, from the date the Company obtained control in ENMAN (its parent company).

 

NOTE 22 -          SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

 

For the year ended 31 December

 

2015

2014

 

Thousands Euro

Payroll and related expenses

359

423

Professional services

296

345

Depreciation

1

9

Travel and accommodation

36

24

Reversed provision for legal claim (a)

-

(548)

Maintenance

34

36

Taxes

44

43

Selling expenses and other

4

-

Total

774

332

(a)  See note 15.

 

NOTE 23 - OTHER INCOME (EXPENSE)

 

 

For the year ended 31 December

 

2015

2014

 

Thousands Euro

Expenses due to doubtful debts (a)

-

(328)

Income on sale of property and equipment

-

8

Income due to de-recognition of subsidiary (b)

442

-

Total

442

(320)

 

(a)  See note 31.b.2.

(b)  See notes 30.a, 30.b and 30.c

 

 

NOTE 24 - NET FINANCE COSTS

 

 

For the year ended 31 December

 

2015

2014

 

Thousands Euro

 

 

 

Interest on loans and amounts to related parties

(253)

(515)

Finance income

(253)

(515)

 

 

 

 

 

 

Interest on interest-bearing bank loans

144

223

Interest on loans from related parties

1,291

1,365

Impairment loss on loans given to subsidiaries held by joint ventures entities (a)

3

4

Adjustment of finance lease for inflation (b)

478

560

Interest on finance lease (c)

4,298

3,278

Loss of discount on finance lease (d)

2,309

1,531

Finance costs

8,523

6,961

 

 

 

Net foreign exchange losses

2,836

1,347

 

 

 

Net finance costs recognised in profit or loss

11,106

7,793

 

(a)  Relates to loans given directly to project entities and being not part of the net investment due to different terms and priorities of repayments.

(b)  The increases of the local retail price index in Belgrade, Serbia in 2015 and 2014 were 1.7% and 1.9% respectively.

(c)  The overdue amounts carry an average penalty interest of 1.2% per month (average of 14.18% for the year 2015). The penalty for the year 2015 sums to an amount of EUR 3,435 thousands (2014: EUR 2,254 thousands).

(d)  According to the revised lease agreement which was signed on 30 August 2010, the lease instalments which were due after the signature date of the agreement were postponed to the years 2014-2016 and carried a discount of 30% in case the Company would pay them on time (similar terms to the original agreement which was signed in 2006).

Since the Group did not pay the instalments which were due, the Company recognised a loss of discount in the amount of EUR 2,309 thousands (2014: EUR 1,531 thousands).

 

NOTE 25 - INCOME TAXES

 

a.   Amounts recognised in profit or loss

 

For the year ended 31 December

 

2015

2014

 

Thousands Euro

Current year

145

1

Deferred tax benefit

(352)

-

Income tax expense (benefit)

(207)

1

 

Tax expense excludes the Group's share of the tax expense of the Group's previous equity-accounted investments of EUR 85 thousands (2014: income of EUR 270 thousands), which was included in "share of profit (loss) of equity-accounted investments, net of tax".

 

The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience.

 

b.   Reconciliation of effective tax rate

 

For the year ended 31 December

 

2015

2014

 

%

Thousands Euro

%

Thousands Euro

 

 

 

 

 

Loss before income tax

 

(10,610)

 

(10,380)

Tax using the Company's domestic tax rate

25%

(2,653)

25%

(2,595)

Effect of tax rates in foreign jurisdictions

-8%

820

-9%

890

Tax effect of:

 

 

 

 

Share of profit (loss) of equity-accounted

    investments reported net of tax

4%

(435)

0%

14

Current-year losses for which no deferred

    tax asset is recognised

-21%

2,244

-16%

1,691

De-recognition of previously recognised

    deferred tax liabilities

2%

(170)

 

 

Other differences, net

0%

(13)

0%

1

Income tax expense (benefit)

2%

(207)

0%

1

 

c.   Movement in deferred tax balances

 

The following are the deferred tax assets and liabilities recognised by the Group before off-sets, and the movements thereon, during the current and prior reporting periods (positive balances are deferred tax assets and negative balances are deferred taxes liabilities):

 

 

Net balance at 1 January 2014

 Recognised in profit or loss

Effect of movement in exchange rate

Net balance at 31 December 2014

 

Thousands Euro

Inventory

2,453

(198)

(123)

2,132

Investment property

(3,150)

250

158

(2,742)

Finance lease liability

666

(45)

(33)

588

Provisions and other payables

31

(7)

(2)

22

Total

-

-

-

-

 

 

Net balance at 1 January 2015

Recognised in profit or loss

Effect of movement in exchange rate

Acquisition of control in previous equity-accounted investments (a)

Net balance at 31 December 2015

 

Thousands Euro

Inventory

2,132

(916)

(6)

(754)

456

Investment property

(2,742)

110

14

-

(2,618)

Finance lease liability

588

1,063

(10)

-

1,641

Account receivables

-

(40)

-

5

(35)

Other payables

-

135

2

35

172

Provisions and other payables

22

-

-

-

22

Total

-

352

-

(714)

(362)

 

(a)  See note 29.

 

The following table sets out the Group's deferred tax assets and liabilities, net of off-sets:

 

 

31 December

 

2015

2014

 

Thousands Euro

Deferred tax assets (non-current assets)

58

-

Deferred tax liabilities (non-current liabilities)

(420)

-

Net deferred tax liabilities

(362)

-

 

d.   Unrecognised deferred tax assets

 

Deferred tax assets have not been recognised in respect of losses carry forward amounting to EUR 36,735 thousands at 31 December 2015 (2014: EUR 28,771 thousands), because it is not probable that future taxable profit will be available against which the Group can use the benefits therefrom.

 

As per the limitation of the accumulated tax losses per each country, see note 25.e.

 

e.   Main tax laws

 

The main tax laws to which the Group companies are subject in their countries of residence are as follows:

 

1.   The Netherlands

 

Companies resident in the Netherlands are subject to corporate income tax at the general rate of 25% (2014: 25%). The first EUR 200,000 of profits is taxed at a rate of 20%. Tax losses may be carried back for one year and carried forward for nine years. As part of the measures to combat the consequences of the economic crisis, taxpayers can elect for an extension of the loss carry back period to three years (instead of one year). The election is only available for losses suffered in the taxable years 2009, 2010 and 2011. If a taxpayer makes use of the election, two additional limitations apply: (i) the loss carry forward period for the taxable years 2009, 2010 and/or 2011 will be limited to a maximum of six years (instead of nine years); and (ii) the maximum amount of loss that can be carried back to the second and third year preceding the taxable year will be limited to EUR 10 million per year. The amount of loss that can be carried back to the year directly proceeding the taxable year for which the election is made will remain unrestricted. As of the taxable year 2012, the election for extended loss carry back is not available anymore and the regular loss carry back and carry forward limitations apply.

 

Under the participation exemption rules, income (including dividends and capital gains) derived by Netherlands companies in respect of qualifying investments in the nominal paid up share capital of resident or non-resident investee companies, is exempt from Netherlands corporate income tax provided the conditions as set under these rules have been satisfied. Such conditions require, among others, a minimum percentage ownership interest in the investee company and require the investee company to satisfy at least one of the following tests:

·    Motive Test, the investee company is not held as passive investment;

·  Tax Test, the investee company is taxed locally at an effective rate of at least 10% (calculated based on Dutch tax accounting standards);

·  Asset Test, the investee company owns (directly and indirectly) less than 50% low taxed passive assets.

 

2.   Hungary

 

The corporation tax rate in Hungary is 10/19% in 2015 (the first HUF 500 million is taxed at 10% and any excess over HUF 500 million at 19%)). (2014: 10/19%). Since 2007 capital gains can be considered exempted income provided that certain criteria are fulfilled. Losses accumulated till 2014 can be carried forward till 2025, subject to certain limitations. Losses from 2015 can be carried forward up to five years. In 2012 the losses carry forward rules changed significantly (e.g. transformation, change in ownership limitation implemented and only of 50% of the profit of the current year could be covered by past losses). According to the rules effective in these financial years, losses incurred in the year of establishment and in the following 3 years may be carried forward for an unlimited period of time.

 

3.   Czech Republic

 

The corporation tax rate in the Czech Republic is 19 % in 2015 (2014: 19%). Capital gain could be tax exempted under certain circumstances. Tax losses can be carried forward up to five years to offset future taxable income, under certain circumstance (e.g. no significant change in the business, ownership). Dividends paid out of net income are subject to a withholding tax of 15%/35%, subject to the relevant double taxation treaty or EU regulations.

 

4.   Israel

 

The standard rate of company tax in Israel in 2015 is 26.5% (2014: 26.5%). Companies with a beneficial or approved or preferred enterprise are taxed at a reduced tax rate that varies depending on the circumstances. Capital gains are subject to the standard corporate tax rate. Dividends from foreign sources are subject to a 25% tax with a credit for foreign withholding tax, and in certain circumstances, at the standard corporate tax rate on the "grossed up dividend" with a credit granted on all foreign taxes paid by the direct and second tier subsidiary on the dividend and the income from which it is distributed.

 

5.   Poland

 

The corporation tax in Poland (including capital gains) is 19% in 2015 (2014: 19%).Tax losses can be carried forward for five years and only 50% of a the current year profit could be cover by past losses. Dividends paid out of net income are subject to a withholding tax of 19%, subject to the relevant double taxation treaty or EU regulations.

 

6.   Canada

 

The federal corporate tax rate of the subsidiaries incorporated in Canada (including capital gains) is 15% in 2015 (2014: 15%). The combined corporate and provincial tax rate is 26.5% (2014: 26.5%). Non-capital tax losses can be carried back three years and carried forward up to 20 years for losses arising in 2006 and later, 10 years for losses arising in taxation years ending after 22 March, 2004 and before 2006, 7 years for losses arising in taxation years ending before 23 March 2004. Capital tax losses can be carried back three years and carried forward indefinitely against other capital gains. Dividends paid out of net income are subject to a withholding tax of 25%, subject to the relevant double taxation treaty.

 

7.   Romania

 

The corporation tax in Romania (including capital gains) is 16% in 2015 (2014: 16%). Dividends paid out of net income are subject to a withholding tax of 16%, subject to the relevant double taxation treaty or EU regulations. Tax losses can be carried forward and deducted from taxable profits in the following 7-year period (the carry forward period for losses recorded up to 31 December 2008 is 5 years), on a first-in-first-out basis.

 

8.   Serbia

 

Corporate income tax is levied at a rate of 15% in 2015 (2014: 15%). Capital gains are taxable at the rate of 15%. Losses may be carried forward for 5 years (capital loss could be carried forward separately); losses generated in the period 2003-2009 may be carried forward for 10 years. No carry-back of losses is permitted. Dividends paid outside the country are subject to a withholding tax of 20% subject to the relevant double taxation treaty.

 

 

NOTE 26 - LOSS PER SHARE

 

Basic and diluted loss per share

 

The calculation of basic and diluted loss per share has been based on the following loss attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding.

 

a.   Loss attributable to ordinary shareholders (basic and diluted)

 

 

For the year ended 31 December

 

2015

2014

 

Thousands Euro

 

 

 

Loss attributable to the owners of the Company

(10,002)

(9,952)

 

b.   Weighted-average number of ordinary shares (basic and diluted)

 

 

31 December

 

2014 and 2015

 

Thousands shares

 

 

Issued ordinary shares at 1 January

87,778

Changes during the year

-

Weighted-average number of ordinary shares at 31 December

87,778

 

There are no dilutive factors.

 

 

NOTE 27 - FINANCIAL INSTRUMENTS - FAIR VALUE AND RISK MANAGEMENT

 

a.   Financial risk management

 

The Group has exposure to the following risks arising from financial instruments:

 

·   Credit risk;

·   Liquidity risk; and

·   Market risk.

 

i.   Risk management framework

 

The Company's board of directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The board of directors is responsible for developing and monitoring the Group's risk management policies.

 

The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

 

The Group Audit Committee oversees how management monitors compliance with the Group's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

 

i.    Credit risk

 

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers and investments in debt securities.

 

The carrying amount of financial assets represents the maximum credit exposure.

 

There are no significant concentrations of credit risk. The Group's exposure to credit risk in most of the countries of activity is minimised by the requirement for customers to pay most of the amount due on purchased housing units and/or sold plots prior to their handover.

 

The Group limits its exposure to credit risk arising from bank deposits by transacting only with reputable bank counterparties that have a credit rating higher than that of the Group. Additionally, the Group reduces its exposure to credit risk by depositing its financial funds in different and independent bank institutions.

 

ii.   Liquidity risk

 

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

 

The Group relies on external funding to finance its current and future development projects. Future acquisitions of investment properties and land designated for residential projects and the ability of the Group to expand its operations is partly dependent on its ability to obtain future bank financing. The Group intends to repay its existing bank loan from its operating activity (mainly sales of housing units and undeveloped plots).

 

See note 2.b which includes the Group's going concern analysis and describes the financial difficulties and liquidity risks.

 

Lease agreement

 

Since January 2011, the Group has been in breach of the obligation to make the monthly lease payments for Marina Dorcol. During 2015, management recognised an expense of EUR 7,085 thousands as a result of the lease interest, inflation and loss of discount from unpaid overdue lease contracted payments, see note 24.

 

At 31 December 2015, the Group is in breach of EUR 33.3 million (2014: EUR 21.6 million) of lease payments in total. After the reporting date, the Company further breached its obligation to pay by an additional amount of EUR 0.1 million.

 

Exposure to liquidity risk

 

The following are the remaining contractual maturities of the financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments and exclude the impact of netting agreements.

 

31 December 2015

 

Contractual cash flows

 

Less than 1

1-2

2-5

More than 5

 

Carrying

 

year

years

years

years

Total

amount

 

Thousands Euro

Interest-bearing bank loans

2,199

303

1,039

-

3,541

3,583

Loans and amounts due to related parties and joint ventures

26,079

-

-

-

26,079

25,576

Trade payables

294

-

-

-

294

294

Other payables

6,370

-

-

-

6,370

6,370

Finance lease liability

35,720

517

1,551

43,606

81,394

43,479

Total financial liabilities

70,662

820

2,590

43,606

117,678

79,302

 

31 December 2014

 

Contractual cash flows

 

Less than 1

1-2

2-5

More than 5

 

Carrying

 

year

years

years

years

Total

amount

 

Thousands Euro

Interest-bearing bank loans

1,320

302

1,296

-

2,918

2,952

Loans and amounts due to related parties and joint ventures

25,966

-

-

-

25,966

25,474

Trade payables

624

-

-

-

624

624

Other payables

613

-

-

-

613

613

Finance lease liability

27,399

2,413

1,533

43,625

74,970

36,641

Total financial liabilities

55,922

2,715

2,829

43,625

105,091

66,304

 

The interest payments on variable interest rate loans and finance lease liability in the table above reflect market forward interest rates at the reporting date and these amounts may change as market interest rates change.

 

iv.  Market risk

 

Market risk is the risk that changes in market prices - such as foreign exchange rates, interest rates and equity prices - will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

 

·                  Currency and inflation risk

 

The Group presents its consolidated financial statements in Euro. However, the Group's operations are based locally in a number of different countries including Hungary, Romania, the Czech Republic, Serbia, Canada, Israel and Poland, and therefore the Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities, primarily the Euro. The Group's financial results could, therefore, be adversely affected by fluctuations in the exchange rates between the Euro and the local currencies. The Group mitigates its foreign exchange risk by financing development projects through financial liabilities that are denominated in the currency of the country the project is located in and in which revenues from the projects will be generated.

 

The Group is exposed to changes in the customer price index in Israel and to the change in the exchange rates of the New Israeli Shekel on the loans granted by ERD, see note 13 and clause a.iv under this note.

 

The Group is exposed to changes in the local retail price index in Belgrade, Serbia, on the future and overdue finance lease payments of the property in Belgrade, Serbia, see note 12 and clause a.iv under this note.

 

The Group does not currently engage in hedging or use any other financial arrangement to minimise currency exchange and inflation risks or the translation risk related to foreign operations.

 

Exposure to currency and inflation risks

 

The tables below summarise the foreign exchange exposure on the net monetary position of each currency that is denominated in a currency other than the functional currency, expressed in the Group's presentation currency:

 

 

Functional currency - net exposure

 

Serbian Dinar

Hungarian Forint

Polish Zloty

Czech Koruna

Romanian

Leu

New Israeli Shekel

Canadian Dollar

 

Thousands Euro

31 December 2015

(19,839)

-

(3,720)

(4,764)

(4,269)

(25,136)

(858)

31 December 2014

(19,653)

(1,249)

(488)

(832)

(4,232)

(23,844)

(911)

 

Additionally the Company has exposure to changes in the local retail price index in Belgrade, Serbia on a finance lease liability that amounted to EUR 43,479 thousands at 31 December 2015 (2014: EUR 36,641 thousands), and to changes in the customer price index in Israel on loans and amounts due to related parties that amounted to EUR 22,871 thousands at 31 December 2015 (2014: EUR 22,907 thousands).

 

The following significant exchange rates have been applied:

 

 

Average rate

Year-end spot rate

 

2015

2014

2015

2014

CAD / EUR

0.706

0.682

0.665

0.712

CZK / EUR

27.284

27.534

27.025

27.725

HUF / EUR

309.904

308.677

313.120

314.890

PLN / EUR

4.184

4.185

4.262

4.262

RON / EUR

4.445

4.445

4.525

4.482

RSD / EUR

120.850

117.801

121.626

120.958

ILS / EUR

4.312

4.747

4.247

4.725

 

Sensitivity analysis

 

A reasonably possible strengthening (weakening) of the Euro against the below currencies and possible changes of the customer price and the local retail price indexes in Israel and Serbia at 31 December would have affected the measurement of financial instruments denominated in a foreign currency and affected profit or loss and equity by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

 

31 December 2015

31 December 2014

 

Strengthening rate

Effect on profit for the year and equity

Strengthening rate

Effect on profit for the year and equity

 

%

Thousands Euro

%

Thousands Euro

Euro vs. RSD

4%

(675)

4%

(668)

Euro vs. HUF

7%

-

7%

(79)

Euro vs. PLN

6%

(181)

5%

(20)

Euro vs. CZK

3%

(116)

2%

(13)

Euro vs. RON

3%

(108)

3%

(107)

Euro vs. ILS

11%

(2,032)

6%

(1,052)

Euro vs. CAD

13%

(95)

8%

(62)

Customer price index - Israel

-0.9%

151

-0.1%

17

Local retail price index - Serbia

1.7%

(628)

1.9%

(592)

 

At 31 December 2015, a 3% - 13% weakening of the Euro and/or (-0.9%) - 1.7% changes of the customer price and local retail price index in Israel and Serbia would have had the equal, but opposite effect on the profit for the year and equity to the amount shown above on the basis that all other variables remain constant.

 

·                  Interest rate risk

 

The Group's interest rate risk arises mainly from short-term borrowings. Borrowings issued at variable rates expose the Group to cash flows interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group does not currently engage in hedging or use any other financial arrangement to minimise the exposure to these risks.

 

Exposure to interest rate risk

 

The interest rate profile of the Group's interest-bearing financial instruments as reported to the management of the Group is as follows:

 

 

Carrying amounts at

 

31 December

 

2015

2014

 

Thousands Euro

Fixed-rate instruments

 

 

Financial assets

 

 

     Cash and cash equivalents

652

15

     Restricted bank deposit

728

-

     Loans and amounts to related parties

2,938

9,715

 

4,318

9,730

Financial liabilities

 

 

     Loans and amounts due to related parties and joint

     ventures

2,454

2,098

     Finance lease liability

43,479

36,641

 

45,933

38,739

Variable-rate instruments

 

 

Financial assets

 

 

     Loans and amounts to related parties

-

509

 

-

509

Financial liabilities

 

 

     Interest-bearing bank loans

3,583

2,952

     Loans and amounts due to related parties and joint

     ventures

23,122

23,376

 

26,705

26,328

 

Sensitivity analysis for variable-rate instruments

 

A reasonable possible change of (-45) till 58 basis points in interest rates at the reporting date would have increased (decreased) profit or loss and equity by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant.

There is no impact on the Group's equity, except of the profit or loss.

 

 

 31 December 2015

31 December 2014

 

 Increase in basis points

 Effect on profit for the year and equity

 Increase in basis points

 Effect on profit for the year and equity

Variable-rate interest of HUF

27

-

26

-

Variable-rate interest of CZK

3

-

3

-

Variable-rate interest of PLN

20

-

23

-

Variable-rate interest of RON

58

(1)

102

(1)

Variable-rate interest of Euro

(45)

9

4

(1)

Variable-rate interest of ILS

14

(24)

19

(32)

 

a.   Fair values versus carrying amounts

 

The following table shows the carrying amounts and the fair values of financial assets and financial liabilities.

 

31 December 2015

31 December 2014

 

Carrying

Fair

Carrying

Fair

 

amount

value

amount

value

 

Thousands Euro

Financial assets

 

 

 

 

Cash and cash equivalents

652

652

15

15

Restricted bank deposit

728

728

-

-

Trade receivables

185

185

-

-

Fixed rate loans and amounts to related parties

2,938

2,942

9,715

6,969

Floating rate loans and amounts to related parties

-

-

509

509

Total financial assets

4,503

4,507

10,239

7,493






Financial liabilities

 

 

 

 

Floating rate interest-bearing bank loans

3,583

3,541

2,952

2,918

Trade payables

294

294

624

624

Fixed rate loans and amounts due to related

    parties and joint ventures

2,454

2,472

2,098

2,113

Floating rate loans and amounts due to related

    parties and joint ventures

23,122

23,333

23,376

23,571

Finance lease liability

43,479

42,716

36,641

35,853

Total financial liabilities

72,932

72,356

65,691

65,079

 

The fair value of loans and amounts to related parties has been calculated using an estimated market interest rate of 0.5% (2014: 0%) taking into consideration the specific loans conditions (securities provided, currency, etc.).

 

The fair value of floating rate interest-bearing bank loans has been calculated using an estimated market interest rate of 3.55% (2014: 3.81%) taking into consideration the specific loans conditions (securities provided, currency, etc.).

 

The fair value of loans and amounts due to related parties and joint ventures has been calculated using an estimated market interest rate of 6.95% (2014: 6.95%) taking into consideration the specific loans conditions (securities provided, currency, etc.).

 

The fair value of short term receivables and payables expected to be settled within 12 months was deemed to be equal to their carrying amounts.

 

The fair value of the finance lease liability has been calculated using an estimated market interest rate of 7% (2014: 7%).

 

 

NOTE 28 - CONTINGENT LIABILITIES AND COMMITMENTS

 

a.   Warranties and guarantees

 

In case of the Group entities which are engaged in the construction and sale of residential housing units, the entities provide and/or will provide their customers with performance and quality guarantees in accordance with the Czech, Polish, Romanian, Serbian, or Hungarian civil codes. The entities require from the sub-contractors building the housing units, performance and quality guarantees in the form of bank guarantees and of funds held in retention. At the end of the reporting period given guarantees do not represent a significant amount and are covered by contractor guarantee or retention.

 

b.   Guarantees on loans granted to previous jointly controlled entities

 

The loans granted to the previous jointly controlled entities have been provided to individual entities and each loan has been granted in respect of a specific project. In each case, the security for the loan is a first ranking lien on the assets of the project company. The first ranking liens include: liens on rights for the land and the projects for which the loans were received and liens on rights, including by way of assignment of rights, pursuant to the agreements to which the Company is a party (including establishment contracts and lease, operating and management agreements). Further, loans that these companies have received from their shareholders and/or every existing or future right of the holders of the rights in those companies are subordinated to the loans received from the banks. In addition, in most cases payments to the shareholders from the entities (including dividend payments but excluding amounts in respect of project management) are not allowed, until the interest-bearing bank loan has been repaid.

 

The Group has not provided any securities in respect of the interest-bearing bank loans granted to its subsidiaries and previous joint ventures, except the following cases:

 

·   ENMAN B.V. ("ENMAN"), the Company's subsidiary (see note 29), provided guarantees for interest payments and costs overruns, to the bank which financed the Ingatlan project in Budapest, Hungary.

 

In 2013, a receiver was appointed by a court in Hungary and the entity which holds the Ingatlan project entered into bankruptcy process, following which it ceased to be consolidated into ENMAN consolidated financial statements. The amount of the unpaid loan at the disposal date was EUR 6,099 thousands, part of the related interest and cost overrun was not paid before the liquidation process.

 

A liability was recognised in ENMAN's consolidated financial statements according to management's best estimation.

 

·   Arces International B.V. ("Arces"), the Company's subsidiary (see note 29), has a finance exposure with respect to interest-bearing bank loans that financed the project in Gyor, Hungary in the amount of EUR 12,648 thousands. The bank management claims that the loan was additionally guaranteed by Arces International B.V. The Company has disputed the validity of this guarantee with the bank management; however, no official legal claim has been filed by any of the parties.

 

In 2011, following a liquidation process, the joint venture Arces International B.V. ceased to consolidate the Hungarian subsidiary (Engel-Projekt Kft.) which held the project in Gyor in its consolidated financial statements.

 

A liability was recognised in Arces's consolidated financial statements according to management's best estimation.

 

 

NOTE 29 - ACQUISITION OF CONTROL IN PREVIOUS EQUITY-ACCOUNTED INVESTMENTS

 

On 31 July 2015 the Company reached an agreement with Heitman and as a result acquired control in Arces and ENMAN (a process which was completed during August 2015). According to the agreement the Company waived its share of distributions from Arces and ENMAN amounting to EUR 1.1 million (consists of EUR 0.9 million dividends and EUR 0.2 loans repayments) which will instead be paid to Heitman (out of an aggregate distribution of EUR 3.5 million, which was fully repaid during August 2015). In return Heitman will transfer to the Company all its rights in Arces and ENMAN.

 

Following the transaction the Company owns 100% of both Arces and ENMAN. In August 2015 the Company acquired control in Arces and ENMAN and began to consolidate both companies in its consolidated financial statements. As the two transactions are linked, the difference between the consideration paid and the fair value of the net assets acquired was calculated as a single amount for the two companies together.

 

As a result of the transaction which was done on a fair value basis, the effect of the transaction in the profit or loss is nil.

 

The following table summarises the fair value of assets and liabilities that were recognised in the consolidated financial statements due to the full acquisition of Arces and ENMAN.

The table represents 100% of the consolidated figures of Arces and ENMAN.

 

 

 

Arces

Enman

Total


Thousands Euro

Cash and cash equivalents

138

525

663

Restricted bank deposit

-

507

507

Prepayments and other assets

6

83

89

Loans to related parties

144

383

527

Inventories of housing units and land

919

8,316

9,235

Interest-bearing bank loan

-

(1,646)

(1,646)

Loans and amounts due to related parties and joint ventures

(383)

 (366)

(749)

Trade payables

(9)

 (7)

(16)

Other payables (a)

(3,603)

(1,990)

(5,593)

Provisions

(307)

-

(307)

Current tax liabilities

(10)

(351)

(361)

Deferred tax liabilities

(173)

(541)

(714)

Net identifiable assets and liabilities acquired

(3,278)

4,913

1,635

Loans granted by the Company, net of impairment

-

(1,635)

(1,635)

Results following the acquisition



-

Paid consideration satisfied in cash (b)



-

Cash and cash equivalents acquired



663

Net cash inflow



663

 

Comments in respect to the above table:

 

(a)   See note 28.b referring guarantees on loans granted to previous jointly controlled entities.

(b)   The amount excludes the waiver of the Company of its share of distributions from Arces and ENMAN amounting to EUR 0.5 million and EUR 0.6 million respectively (consist of dividends and loans repayments).

 

 

NOTE 30 - SIGNIFICANT EVENTS DURING THE REPORTING PERIOD

 

a. On 11 December 2015, a compulsory strike-off was ordered and registered by the Company Registry Court of Budapest in Burlington Hungary Kft. ("Burlington"). Based on the ruling of the Company Registry Court of Budapest, Burlington is declared to be dissolved.

 

As a consequence the Company does not control Burlington, therefore ceased to consolidate it in its consolidated financial statements. The Company recognised an income in the amount of EUR 17 thousands which is recognised under "other income (expense)" in the consolidated statements of profit or loss.

 

The following table summarises the derecognised amounts of assets and liabilities in the consolidated financial statements of due to the loss of control of Burlington:

 

 

Thousands Euro

Loans and amounts due to related parties

(17)

Total identifiable net liabilities disposed

(17)

Income on de-recognition

17

Cash and cash equivalents disposed of

-

Net cash inflow (outflow)

-

 

b. On 4 May 2015, a receiver was appointed by a court in Hungary due to a claim of the Hungarian tax authorities in the subsidiary, Turlington Kft. ("Turlington").

 

As a consequence the Company does not control Turlington, therefore ceased to consolidate it in its consolidated financial statements. Since the Company did not provide any guarantees for Turlington it recognised an income in the amount of EUR 437 thousands which is recognised under "other income (expense)" in the consolidated statements of profit or loss.

 

The following table summarises the derecognised amounts of assets and liabilities in the consolidated financial statements of due to the loss of control of Turlington:

 

 

Thousands Euro

Loans and amounts due to related parties

(135)

Trade payables

(23)

Other payables

(96)

Provisions

(176)

Current tax liabilities

(7)

Total identifiable net liabilities disposed

(437)

Income on de-recognition

437

Cash and cash equivalents disposed of

-

Net cash inflow (outflow)

-

 

c. On 1 May 2015, a liquidator was appointed to the subsidiaries Palace Engel s.r.o ("Prokopsky") and Palace Engel Development s.r.o ("Barandov"), the Company holds a 64% interest in each of these subsidiaries.

 

As a consequence the Company does not control Prokopsky and Barandov, therefore ceased to consolidate them in its consolidated financial statements and recognised a loss in the amount of EUR 12 thousands which is recognised under the "other income (expense)" in the consolidated statements of profit or loss.

 

 

NOTE 31 - RELATED PARTIES

 

a.   Parent and ultimate controlling party

 

The main shareholder of the Company is Engel General Developers Ltd. (incorporated in Israel) ("EGD") which owns, at 31 December 2015, 68.35% of the Company's issued share capital.

 

On 7 July 2010, GBES Ltd. (incorporated in Cyprus) signed an agreement with Engel Resources and Development Ltd. (incorporated in Israel) ("ERD"), the parent company of EGD, and with EGD, to invest capital of approximately EUR 9.2 million for 53% of the enlarged share capital of ERD and to provide an additional credit line of approximately EUR 10.2 million to ERD.

 

During 2011, the agreement was signed and approved by the court and the bondholders following which GBES holds 53% of the issued share capital of ERD.

 

ERD owns 100% of the issued share capital of EGD, which in turn owns 68.35% of the issued share capital of the Company. GBES therefore indirectly has an aggregate equitable interest of 36.25% of the issued share capital in the Company.

 

In 2014, 2.87 million ordinary shares held by GBES Ltd. in ERD, representing 53% of the voting rights and issued share capital of ERD, were transferred to the attorneys Yuri Nechustan and Eyal Neiger who have been appointed by the Israeli District court as a receivers to these shares which had been pledged as security under a loan agreement that GBES had entered into.

See also note 34.d which describe subsequent event after the reporting period.

 

In 2014, ERD has reached an agreement with its bondholders to restructure the terms of its bonds. As part of the agreement, EGD granted to the bondholders security over the 60 million shares in the Company held by EGD (represent 68.35% of the issued share capital of the Company). In addition, ERD has pledged to the bondholders all future loan repayments such as made by the Company and Eurobul to ERD and assigned the pledges over the shares held by the Company in Marina Dorcol D.o.o ("MD"), which owns the Marina Dorcol project in Serbia. The pledges over MD shares were granted to ERD as part of the loan agreement between Eurobul, the Company and ERD.

 

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.

 

b.   Transactions with key management personnel

 

1.   Directors

 

At 31 December 2015, the Company has 2 directors (2014: 4 directors).

 

During 2015, two of the Company's directors resigned from their position.

 

After the reporting period, one new executive director was appointed (Ms. Ayelet Naim-Levanon).

 

The annual salary cost and expenses return of the directors is as follows:

 

 

 

For the year ended 31 December

 

 

2015

2014

 Name

Position

Thousands Euro

Terry Roydon

Non-executive director

28

28

Marius van Eibergen Santhagens (a)

Non-executive director

28

28

Oded Shamir (b)

Former executive director

-

-

Dov Luxenburg (c)

Former executive director

-

-

Gad Raveh (d,e)

Former CEO and executive director

-

110

Moshe Naveh (e)

Former executive director

-

-

Total

 

56

166

 

(a)   The cost above includes VAT payable.

(b)   Appointed in June 2014 and resigned from his position in September 2015.

(c)   Appointed in June 2014 and resigned from his position in October 2015.

(d)   The fees include payments as the Company's CEO.

(e)   Resigned from his position in June 2014.

 

Excluding the amounts above there are no additional employee benefits, requirements to provide post-employment benefits, termination benefits etc. in relation to the Company's directors.

 

2.   Transactions with former CEO

 

Mr Gad Raveh, who acted as the Company's Executive Director and CEO until June 2014 has withdrawn from the Company during 2013 and 2014 a total amount of EUR 531 thousands.

 

Mr Raveh presented to the Company that these amounts were required for the purposes of: loan repayment to GBES, fund raising and restructuring the Company's ownership and debts ("transaction costs").

 

The Company's Board of Directors ratified such withdrawals subject to the condition (which was accepted by Mr Raveh) that if for any reason the above fund raising and restructuring of the Company's ownership and debts did not succeed, Mr Raveh will be obligated personally to repay the Company all the above transaction costs.

 

The said financing and restructuring never materialised and the Company is investigating the purpose and the actual use of these transaction costs.

 

At the reporting date, the transaction costs have not been repaid by Mr Raveh to the Company following which the Company began legal actions in order to collect the transaction costs.

 

Following the above, the Group recognised a provision in the amount EUR 328 thousands in the consolidated statement of profit or loss under "other income (expense)" in the consolidated financial statements for the year ended 31 December 2014.

 

2.   Appointment of new CEO

 

In June 2014, the Company's board of directors appointed a new Chief Executive Officer.

 

The annual cost of the new CEO during 2015 is EUR 223 thousands (2014: EUR 103 thousands) which includes salary cost, provision for bonus for selling assets, provision for adjustment period and expenses return.

 

After the reporting period, Mr. Liron Or who acted as Chief Executive Officer of the Company resigned from his position in the Company. In accordance with the terms of the agreement, Mr Or's role at the Company will cease on 31 March 2016.

 

c.   Related party transactions

 

1.   Securities provided/received by parent company and related parties

 

i.  At 31 December 2015, interest-bearing bank loans in the total amount of EUR 2,737 thousands (2014: EUR 2,952 thousands), granted to a wholly controlled entity EURO-BUL Ltd., are being secured by guarantees provided by ERD.

ii. The Company pledged the shares of Marina Dorcol D.o.o in the value of EUR 23.7 million to ERD.

iii.         In 2013, the Company agreed to pledge the future proceeds from the Group's assets in Canada. The Company will provide guarantee in the amount which will be double from the loan provided by ERD.

 

Based on the actual loans granted by ERD to the Group on the one hand and the net future proceeds generated from the Company's assets in Canada on the other hand, the Company predicts that all the future cash flow generated from the sale of the properties in Canada will be used to repay the outstanding debts of the Company to ERD.

 

2.   Support due to the Company's financial situation

 

During the reporting period, ERD provided several bridge loans for a total amount of EUR 304 thousands.

 

At 31 December 2015, the outstanding debt of the Company toward ERD is EUR 25,081 thousands, see note 13.

 

On 14 May 2015, the Company, ERD and Eurobul signed a new amendment to the agreements which were signed on 30 July 2009 with the following below main clauses:

·   The Company agreed to repay ERD a total amount of EUR 4,000 thousands from the recent distributions generated from Arces and ENMAN, the amount was fully paid on 15 May 2015.

·   The Company agreed to set a repayment framework of an additional EUR 1,300 thousands which will be repaid from future proceeds which the Company will be entitled to. As of the date of the accounts the Company did not pay ERD any funds according to this clause.

·   All future repayments are subject to keeping the necessary funds in the Company and Eurobul which will allow the companies to meet their obligations to employees and service providers as they fall due.

·   The parties agree that all the net future proceeds generated from the Company's assets in Canada will be used to repay the outstanding debts of the Company and Eurobul to ERD. As of the date of the accounts the Company did not pay ERD any funds according to this clause.

 

After the reporting date, ERD provided the Company a support letter according to which ERD will support the Company in its ongoing operations till 31 December 2016, with an accumulated amount of EUR 450 thousands.

 

d.   Trading transactions

 

The following trading transactions and balances with related parties are included in the consolidated financial statements:

 

For the year ended 31 December

 

2015

2014

 

Thousands Euro

Statement of profit or loss

 

 

Revenue (a)

126

377

Interest expense on loans from Engel Resources and Development Ltd.

(1,280)

(1,353)

Interest expense on loans from GBES Ltd.

(11)

(12)

Net foreign exchange loss on loans from Engel Resources and Development Ltd. (b)

(2,726)

(278)

Interest due on loans and amounts to related parties (c)

253

515

Total

(3,638)

(751)

 

 

 

 

 

31 December

 

2015

2014

 

Thousands Euro

Statement of financial position

 

 

Loans and amounts to related parties (c)

2,044

7,546

Due to Engel Resources and Development Ltd. (d)

(25,081)

(24,772)

Due to GBES Ltd. (d)

(244)

(233)

Due to subsidiaries held by current and previous jointly controlled entities (d)

(251)

(469)

Due to other payables

-

(21)

Total

(23,532)

(17,949)

 

(a) The revenue in the amount of EUR 126 thousands in the profit or loss of the consolidated financial statement comprises management fee charges to the previously held joint ventures' subsidiaries incurred before the Company obtained control of the entities. The related cost in the amount of EUR 161 thousands is presented under cost of sales (see notes 19 and 21).

(b) The Group recognised a loss in the amount of EUR 2.7 million under net foreign exchange loss in the profit or loss of the consolidated financial statements, due to the weakening of the EUR vs. the ILS (-10.1%) during the reporting period.

(c) See note 9 and 24.

(d) See note 13.

 

 

NOTE 32 - OPERATING SEGMENTS

 

a.   Basis of segmentation

 

Following the disposal of a Polish subsidiary in 2013 which held a plot of land designated for commercial development (previously classified as investment property), the Company's management reassessed its segment reporting requirements and concluded that the former reporting of segments which was based on commercial and residential segments are no longer relevant, and hence no information about operating segments is disclosed on this basis.

 

The Group's CEO (the chief operating decision maker) considers the whole operation as one operating segment while trying to ensure sufficient liquidity to meet the liabilities when due. The liquidity issues the Group is currently facing create a more general decision making process which is different from a company or group of companies operating in a liquid position, hence, the Group's CEO no longer makes decisions about resources and reviews operating results of business activities based on the previous separation of segments.

 

b.   Geographical information

 

The geographic information below analyses the Group's revenue and non-current assets by the Company's country of domicile and other countries. In presenting the following information, segment revenue has been based on the geographic location of customers and segment assets were based on the geographic location of the assets.

 


31 December 2015

31 December 2014



Non- current


Non- current


Revenue

Assets (a)

Revenue

Assets (a)


Thousands Euro

Czech Republic

1,713

1

369

1

Poland

43

-

18

-

Serbia

-

25,855

-

26,731

Romania

-

902

-

924

Israel

-

1

-

2

Total

1,756

26,759

387

27,658

 

(a) Non-current assets exclude financial instruments and deferred tax assets.

 

 

NOTE 33 - ACCOUNTING ESTIMATES AND JUDGMENTS

 

a.   Going concern basis of accounting

 

The consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue as a going concern in the foreseeable future, for at least twelve months.

 

However, market conditions the Company face, as discussed in details in note 2.b, indicate the existence of material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.

 

b.   Tax expenses

 

The Group is subject to taxes in numerous jurisdictions. Significant judgment is required in determining the provision for income taxes and the recoverability of deferred tax assets. Where estimates are revised or the final tax outcome of these matters is different from the amounts that were previously recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made (see note 25).

 

c.   Investment property

 

The values attributed to the investment property are subject to considerable estimation uncertainty: the risk that the investment property will not be appropriately evaluated exists, since factors not known to the valuer or to the Company might affect the value of the asset (see note 8).

 

d.   Inventory

 

Inventories are measured at the lower of cost and net realisable value. Estimates of net realisable values for the excess amounts are made at each reporting period (see note 7 for the net realisable value sensitivity analysis).

 

The determination of net realisable values of inventories is subject to considerable estimation uncertainty: the risk that inventory net realisable value will not be appropriately evaluated exists, since factors not known to the valuer or to the Company might affect the net realisable value of the inventory (see note 7).

 

Management is responsible for determining the net realisable value of the Group's inventories. In determining net realisable value of the vast majority of inventories, management utilises the services of an independent third party recognised as a specialist in valuation of properties. The independent valuation service utilises market prices of same or similar properties whenever such prices are available. Where necessary, the independent third party valuation service uses models employing techniques such as discounted cash flow analyses. The assumptions used in these models typically include assumptions for rental levels, residential units sale prices, cost to complete the project, developers profit on costs, financing costs and capitalisation yields, utilising observable market data, where available. On an annual basis, the Company reviews the valuation methodologies used for each property. At 31 December 2015, the majority of the inventories were valued by independent third party valuation services.

 

Determining net realisable value is inherently subjective as it requires estimates of future events and takes into account special assumptions in the valuations, many of which are difficult to predict. Actual results could be significantly different than our estimates and could have a material effect on our financial results. This evaluation becomes increasingly difficult as it relates to estimates and assumptions for projects in the preliminary stage of development.

 

Accumulated write-downs from cost, at 31 December 2015, amounted to EUR 838 thousands and represent 5% of gross inventory balance.

 

e.   Consolidation of companies with troubled debts

 

1.   Engel-Lylia s.r.l and Engel Crizantema s.r.l

 

Although ENMAN B.V. ("ENMAN") owns the voting power rights of Engel-Lylia s.r.l ("Lylia") and Engel Crizantema s.r.l ("Crizantema"), the management re-assessed the control over the entities in accordance with IFRS 10 controlling model, and it still believes that ENMAN has no control over these investees, commencing the period starting 1 January 2013 (following the early adoption of the new set of accounting standards).

 

Management evaluated the rights obtained by the lending bank in terms of how pervasive they are in the context of the Lylia and Crizantema and whether they are mitigated by other factors. Since Lylia and Crizantema are in breach of the loan agreements, the relevant activity of the entities is to maximise the sales proceeds from selling the asset and by doing so to maximise the recovery of the interest-bearing bank loans.

 

In the case of Crizantema the lender bank succeeded to sell the asset but the loan liability has not been extinguished as the bank will not waive the remaining loan amount. The bank has a pledge over the shares of the Crizantema. Assuming that the bank has a currently exercisable right to take or sell the shares without the company's consent and without the need for the involvement of an administrator which the bank does not control, the bank has power over the company. Assuming that an administrator is needed to be involved in the legal procedure to take or sell the shares and the bank does not control the procedure and the administrator, the bank does not have power over the entity, but the administrator's rights are sufficient to prevent the parent company having control.

 

In the case of Lylia the lender bank has initiated several auctions in order to sell the asset without any success.                .       

 

The Group, ENMAN and the investees do not have the resources to repay the loans or to finance the development of the plot, and they are currently not in advanced negotiation with the banks to modify the terms of the loan, while the market is not expected to recover in the foreseeable future. These factors also indicate that the bank's rights are substantive.

 

Based on the factors above, management believes that the bank's rights are very significant to the entities' activities and can affect significantly the economic circumstances of the entities, which lead management to conclude that ENMAN still has no control over Lylia and Crizantema, and therefore they should not be consolidated in the financial statements of ENMAN.

 

1.   Marina Dorcol D.o.o

 

At the beginning of 2013, following the early adoption of a set of accounting standards including IFRS 10, management re-assessed its control over the subsidiary Marina Dorcol D.o.o ("MD") based on the control model introduced by IFRS 10 and considered the following factors:

- MD is in breach of the finance lease agreement with the municipality (see note 2.b).

- The management still believes that development of the project will be economically feasible and profitable once the market recovers.

- Although the Group currently has no funds, it is actively searching for investors and once finance is secured, it intends to restructure the lease terms with the municipality.

- The Group still has the right to accept the municipality's previous offer to restructure the lease or continue to utilise the property as long as the lease agreement is not terminated and the liquidation procedure is not initiated by the municipality. In case of termination notice, the company will have 90 days to remedy the overdue lease payment, after that period the municipality will need to initiate a new tender, a procedure which is likely take significant amount of time.

- The shares of MD are not part of the guarantees provided to secure the lease payments.

- Management is examining the possibility of selling MD shares and believes it can generate significant proceeds.

 

Due to the above, management believes that it should continue to consolidate the subsidiary MD in its consolidated financial statements at 31 December 2015 as the Company has control over MD.

 

NOTE 34 - SUBSEQUENT EVENTS

 

a. On 26 January 2016, the Company sold its investment in the wholly owned subsidiary, Davero Invest s.r.l ("Davero"), following which it will recognise a profit in the amount of EUR 0.1 million which will be recognised in the condensed consolidated interim financial statements for the first quarter of 2016.

 

b. On 16 December 2015, Arces signed a conditional agreement to sell its shares and receivables in the wholly owned subsidiary Palace Engel Vokovice s.r.o ("Vokovice s.r.o").

 

After the reporting period, the agreement became binding and the sale was completed.

 

As the plot of land held by Vokovice s.r.o is recorded as of 31 December 2015 based on its net realisable value, as determined in the conditional agreement the transaction will not generate any material result in the profit or loss at the condensed consolidated interim financial statements for the first quarter of 2016.

 

c. On 10 March 2016, the Company and is wholly owned subsidiary, Eurobul Ltd. signed a loan agreement in the total amount of EUR 2,164 thousands with Real Property Investment (Guernsey) Limited ("RPIGL").

According to the contract with RPIGL, the loan can be used only for the full repayment of the bank loans granted by Bank Leumi Le-Israel Ltd. to Eurobul Ltd.

In order to secure the repayment of the loan the Company commits to use all funds generated from the following cash distributions:

a.   The net distribution generated from the sale of wholly owned subsidiary Palace Engel Vokovice s.r.o. (see note b above).

As of the date of the accounts the Company pay RPIGL the funds according to this clause in the total amount of EUR 750 thousands.

b.   The net distribution generated from the sale of the two plots in Canada (see note 9.c.iv.3).

c.   2/3 of the proceeds generated from the sale of any assets of the Company and Eurobul Ltd. will be paid to RPIGL as soon as funds are available.

As of the date of the accounts the Company pay RPIGL the funds according to this clause in the total amount of EUR 250 thousands.

 

The loan is nominated in EUR and carries no interest.

RPIGL holds 6.44% of the voting rights and issued share capital of the Company. RPIGL is a sister company of the 100% shareholder of GBES Limited.

 

d. After the reporting period, the transfer of 2,871,460 ordinary shares ("Shares") in ERD held by advocates Yuri Nechushtan and Eyal Neiger as receivers to GBES Limited ("GBES") has been completed.

The ownership of the Shares will be split between GBES and the Gabay Group Limited, an Israeli real estate company, and its subsidiaries (the "Gabay Group").

As a result of the splitting of the Shares, GBES will hold 1,738,088 ordinary shares in ERD (representing 32.1% of the voting right of ERD) and the Gabay Group will hold a total of 1,669,927 ordinary shares in ERD (representing 30.9% of the voting right of ERD), including 536,555 ordinary shares in ERD held by the Gabay Group prior to the splitting of the Shares. The transfer of shares to GBES has taken place, and the transfer of shares to the Gabay Group is yet to be completed.

ERD controls Engel General Developers Limited, which holds 68.35% of the issued share capital of the Company.

Accordingly, GBES will hold a 21.9% economic interest in the Company and the Gabay Group will hold a 21.1% economic interest in the Company.

In addition, Real Property Investment (Guernsey) Limited ("RPIGL") holds 6.44% of the voting rights and issued share capital of the Company. The shares of RPIGL and GBES are held by a discretionary settlement, of which certain members of the Morris family are potential beneficiaries, and which therefore has a combined economic interest in 28.34% of the Company.

 

 

NOTE 35 - NEW IFRS PRONOUNCEMENTS

 

A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2015; however, the Group has not applied the following new or amended standards in preparing these consolidated financial statements.

 

1.   Amendments to IAS 19 - Defined Benefit Plans: Employee Contributions

(Effective for annual periods beginning on or after 1 February 2015. The amendments apply retrospectively. Earlier application is permitted).

The amendments are relevant only to defined benefit plans that involve contributions from employees or third parties meeting certain criteria. Namely that they are:

· set out in the formal terms of the plan;

· linked to service; and

· independent of the number of years of service.

When these criteria are met, a company is permitted (but not required) to recognise them as a reduction of the service cost in the period in which the related service is rendered.

The Group does not expect the Amendment to have any impact on the financial statements since it does have any defined benefit plans that involve contributions from employees or third parties.

 

2.   Amendments to IFRS 11 - Accounting for Acquisitions of Interests in Joint Operations

(Effective for annual periods beginning on or after 1 January 2016; to be applied prospectively. Early application is permitted).

These Amendments require business combination accounting to be applied to acquisitions of interests in a joint operation that constitutes a business.

Business combination accounting also applies to the acquisition of additional interests in a joint operation while the joint operator retains joint control. The additional interest acquired will be measured at fair value. The previously held interests in the joint operation will not be remeasured.

The Group does not expect the Amendment to have any impact on the financial statements since it does not have any interest in joint operation.

 

3.   Amendments to IAS 1

(Effective for annual periods beginning on or after 1 January 2016. Early application is permitted).

The Amendments to IAS 1 include the following five, narrow-focus improvements to the disclosure requirements contained in the standard.

The guidance on materiality in IAS 1 has been amended to clarify that:

· Immaterial information can detract from useful information.

· Materiality applies to the whole of the financial statements.

· Materiality applies to each disclosure requirement in an IFRS. The guidance on the order of the notes (including the accounting policies) have been amended, to:

· Remove language from IAS 1 that has been interpreted as prescribing the order of notes to the financial statements.

· Clarify that entities have flexibility about where they disclose accounting policies in the financial statements.

It is expected that the Amendments, when initially applied, will not have a material impact on the disclosure of the financial statements.

                                                                

4.   Amendments to IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and Amortisation

(Effective for annual periods beginning on or after 1 January 2016; to be applied prospectively. Early application is permitted).

· Revenue-based depreciation banned for property, plant and equipment:

The amendments explicitly state that revenue-based methods of depreciation cannot be used for property, plant and equipment.

· New restrictive test for intangible assets:

The amendments introduce a rebuttable presumption that the use of revenue-based amortisation methods for intangible assets is inappropriate. This presumption can be overcome only when revenue and the consumption of the economic benefits of the intangible asset are 'highly correlated', or when the intangible asset is expressed as a measure of revenue.

The Group does not expect the Amendment to have any impact on the financial statements since it does not apply revenue-based depreciation or amortisation method.

 

5.   Amendments to IAS 16 Property Plant and Equipment and IAS 41 Agriculture

(Effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted).

These amendments result in bearer plants being in the scope of IAS 16 Property, Plant and Equipment, instead of IAS 41 Agriculture, to reflect the fact that their operation is similar to that of manufacturing.

The Group does not expect the Amendment to have any impact on the financial statements since it does not have any bearer plants.

 

6.   Annual Improvements to IFRSs 2010-2012 and 2012-2014

The improvements introduce ten amendments to ten standards and consequential amendments to other standards and interpretations. These amendments are applicable to annual periods beginning on or after either 1 February 2015 or 1 January 2016, with earlier adoption permitted.

None of these amendments are expected to have a significant impact on the financial statements of the Group.

 

Changes in accounting policies

 

The Group has consistently applied the accounting policies set out in note 2 to all periods presented in these consolidated financial statements. There was no significant change in the accounting policies applied during the period.

 

 

***


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR SEISULFMSESD
Close


London Stock Exchange plc is not responsible for and does not check content on this Website. Website users are responsible for checking content. Any news item (including any prospectus) which is addressed solely to the persons and countries specified therein should not be relied upon other than by such persons and/or outside the specified countries. Terms and conditions, including restrictions on use and distribution apply.

 


Final Results - RNS