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RNS
Kimberly Enterprises N.V.  -  KBE   

1st Quarter Results

Released 11:53 25-May-2016

RNS Number : 2855Z
Kimberly Enterprises N.V.
25 May 2016
 

Kimberly Enterprises N.V.

('Kimberly' or 'the Company')

 

Results for the three month period ended 31 March 2016

 

 

Kimberly Enterprises N.V., the AIM-listed Central and Eastern European property developer (KBE: L), announces its unaudited consolidated results for the three month period ended 31 March 2016.

 

Financial summary

 

For the three months ended 31 March 2016

For the year ended 31 December 2015

 

€'000

Net liabilities

(41,824)

(41,779)

NAV/share (Euro)

(0.48)

(0.48)

Revenue

1,512

1,756

Change in fair value of investment property

-

(734)

Write-down of inventory

(51)

(118)

Gross loss

(92)

(913)

Other income

115

442

Operating loss

(305)

(1,245)

Net financing costs

(561)

(11,106)

Share of profit of equity-accounted investments, net of tax

394

1,741

Loss before tax

(472)

(10,610)

Loss after tax

(464)

(10,403)

Loss per share (Euro)

(0.005)

(0.114)

 

  

  

Enquiries:

 

Kimberly Enterprises N.V.

 

Assaf Vardimon 

Tel: +31 (0) 20 778 4141

 

 

Cairn Financial Advisers LLP (Nomad)

 

Sandy Jamieson, James Caithie

Tel: +44 (0) 207 148 7900

 


 

Financial position

 

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 803 thousands as a result of the lease interest and inflation on the unpaid overdue lease contracted payments.

 

At 31 March 2016, the Group was in breach of EUR 33.9 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 a 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.

 

In order to manage its financial situation, the Company approached in the previous periods 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.

 

As of 31 March 2016, the outstanding debt toward ERD is EUR 25,024 thousands and is due by 30 June 2016. During the reporting period, ERD did not provide any additional bridge loans to the Company.

 

In order to finance the Company's immediate liabilities and to stabilise its financial position, management has acted to realise several assets during the recent reporting periods however ERD support is still needed to extend the repayment date of its loans beyond 30 June 2016.

 

At 31 March 2016, the Group has current liabilities totalling EUR 69,412 thousands, which exceeds its current assets amounting to EUR 6,713 thousands and a negative equity which amounts to EUR 41,824 thousands.

 

The financial statements are prepared based on a going concern basis. However, 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 interim financial statements.

 

Trading performance

 

1.   On 13 January 2016, MLP completed the sale of 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).

 

MLP recognised a profit before income tax in the amount of EUR 2,815 thousands (the Company's share was EUR 563 thousands and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax").

 

The Company's expected share of the distribution will be 20%, equating to approximately CAD 3.5 million (EUR 2.3 million).

 

After the reporting period a total amount of EUR 1,193 thousands has been distributed to the Company, the proceeds has been used for the full repayment of the loan granted by Real Property Investment (Guernsey) Limited, see note 9.b.

 

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.

 

2.   On 26 January 2016, the Company sold its investment in the wholly owned subsidiary, Davero Invest s.r.l ("Davero").

 

As a consequence the Company does not control Davero, therefore ceased to consolidate it in its condensed consolidated financial statements. The Company recognised income of EUR 115 thousands under "other income" in the condensed consolidated statement of profit or loss.

 

3.   On 10 March 2016, the Company and its wholly owned subsidiary, Eurobul Ltd. ("Eurobul") 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 could only be used for the full repayment of the bank loans granted by Bank Leumi Le-Israel Ltd. to Eurobul.

 

In order to secure the repayment of the loan the Company committed 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 d below).

During the reporting period, the Company paid 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 8.a.iv.1).

After the reporting period, the Company paid RPIGL the funds according to this clause in the total amount of EUR 1,164 thousands.

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

During the reporting period, the Company paid RPIGL the funds according to this clause in the total amount of EUR 250 thousands.

The loan is denominated in EUR and carries no interest.

RPIGL holds 6.44% of the voting rights and issued share capital of the Company. RPIGL is a related party of GBES Limited as they are controlled by the same shareholder.

 

4.   On 14 March 2016 and 16 March 2016, Eurobul repaid two outstanding bank loans, granted by Bank Leumi Le-Israel Ltd. ("the lender bank"), in a total amount of EUR 2,179 thousands.

 

According to the terms of the agreement with the lender bank, in the case of full repayment of the two loans, the lender bank will waive the third bank loan in the total amount of EUR 576 thousands.

 

The lender bank waived the loan on 16 March 2016 and the Company recognised a finance income in the profit or loss in the total amount of EUR 576 thousands.

 

5.   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").

 

On 14 March 2016 the sale was completed. As the plot of land held by Vokovice s.r.o was measured as of 31 December 2015 based on its net realisable value which was determined based on the transaction price in the conditional agreement the transaction did not generate any material result in the profit or loss of the condensed consolidated interim financial statements.

 

The proceeds have been used for the repayment of the loan granted by Real Property Investment (Guernsey) Limited, see note 9.b.

 

6.   During 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 is to be split between GBES and the Gabay Group Limited, an Israeli real estate company, and its subsidiaries (the "Gabay Group").  As an interim measure, the Shares have been transferred to GBES, who are holding 1,133,372 ordinary shares in ERD in trust for the Gabay Group.  As a result, GBES currently holds 2,871,460 ordinary shares in ERD (representing 53.0% of the voting right of ERD) and the Gabay Group currently holds 536,555 ordinary shares in ERD (representing 9.9% of the voting right of ERD). 

 

Once the splitting of the Shares has taken place, 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 the Gabay Group is yet to be completed.

 

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

 

Accordingly, GBES currently holds a 36.2% economic interest in Kimberly and the Gabay Group currently holds a 6.8% economic interest in Kimberly.

 

In addition, Real Property Investment (Guernsey) Limited ("RPIGL") holds 6.4% 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 currently has a combined economic interest in 42.6% of Kimberly.

 

 

Condensed consolidated statement of financial position

 

 

31 March

31 December

 

2016

2015

 

€'000

ASSETS

 

 

Cash and cash equivalents

810

652

Restricted bank deposit

-

728

Trade receivables

-

185

Prepayments and other assets

13

12

Inventories of housing units and land

5,890

8,259

Current tax assets

-

6

Current assets

6,713

9,842

 

 

 

Inventories of land

9,228

9,307

Investment property

17,266

17,450

Property and equipment

2

2

Deferred tax assets

-

58

Loans and amounts to related parties

2,490

2,044

Non-current assets

28,986

28,861

Total assets

35,699

38,703

 

 

 

LIABILITIES

 

 

Interest-bearing bank loans

-

2,175

Current portion of finance lease liability

36,209

35,621

Loans and amounts due to related parties and joint ventures

26,574

25,576

Trade payables

286

294

Other payables

5,615

6,370

Provisions

468

492

Current tax liabilities

260

268

Current liabilities

69,412

70,796

 

 

 

Interest-bearing bank loans

-

1,408

Finance lease liability

7,782

7,858

Deferred tax liabilities

329

420

Non-current liabilities

8,111

9,686

Total liabilities

77,523

80,482

 

 

 

EQUITY

 

 

Share capital

878

878

Share premium

39,298

39,298

Accumulated losses

(83,672)

(83,258)

Reserves

3,087

2,688

Equity attributable to owners of the Company

(40,409)

(40,394)

Non-controlling interests

(1,415)

(1,385)

Total equity

(41,824)

(41,779)

Total liabilities and equity

35,699

38,703

 

 

Condensed consolidated statement of profit or loss

 

 

For the three months ended 31 March

 

2016

2015

 

€'000

 

 

 

Revenue

1,512

33

Write down of inventory

(51)

-

Cost of sales excluding write down of inventory

(1,553)

(53)

 

 

 

Gross loss

(92)

(20)

 

 

 

Selling, general and administrative expenses

(328)

(190)

Other income (see note 9.a)

115

-

 

 

 

Operating loss

(305)

(210)

 

 

 

Net foreign exchange income (loss)

35

(2,418)

Finance income (see note 9.c)

576

130

Finance costs

(1,172)

(1,305)

Net finance costs

(561)

(3,593)

 

 

 

Share of profit of equity-accounted investments, net of tax

394

55

 

 

 

Loss before tax

(472)

(3,748)

 

 

 

Income tax benefit

8

-

 

 

 

Loss for the period

(464)

(3,748)

 

 

 

Loss attributable to:

 

 

   Owners of the Company

(414)

(3,690)

   Non-controlling interests

(50)

(58)

Loss for the period

(464)

(3,748)

 

 

 

Loss per share:

 

 

Basic loss per share (Euro)

(0.005)

(0.048)

Diluted loss per share (Euro)

(0.005)

(0.048)

 

 

Condensed consolidated statement of comprehensive income

 

 

For the three months ended 31 March

 

2016

2015

 

€'000

 

 

 

Loss for the period

(464)

(3,748)

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

   Foreign operations - foreign currency translation differences

419

(308)

Other comprehensive income (loss)

419

(308)

 

 

 

Total comprehensive loss

(45)

(4,056)

 

 

 

 

 

 

Total comprehensive loss attributable to:

 

 

   Owners of the Company

(15)

(3,988)

   Non-controlling interests

(30)

(68)

Total comprehensive loss

(45)

(4,056)

 

 

Condensed consolidated statement of changes in equity

 

 

Attributable to owners of the Company

 

 

Share capital

Share premium

Translation and capital reserve

Accumulated losses

Total

Non-controlling interests

Total equity

 

€'000

 

 

 

 

 

 

 

 

Balance at 1 January 2015

878

39,298

2,941

(73,256)

(30,139)

(1,007)

(31,146)

Loss for the period

-

-

-

(3,690)

(3,690)

(58)

(3,748)

Other comprehensive loss for the period

-

-

(298)

-

(298)

(10)

(308)

Balance at 31 March 2015

878

39,298

2,643

(76,946)

(34,127)

(1,075)

(35,202)

 

 

 

 

 

 

 

 

Balance at 1 January 2016

878

39,298

2,688

(83,258)

(40,394)

(1,385)

(41,779)

Loss for the period

-

-

-

(414)

(414)

(50)

(464)

Other comprehensive income for the period

-

-

399

-

399

20

419

Balance at 31 March 2016

878

39,298

3,087

(83,672)

(40,409)

(1,415)

(41,824)

 

 

Condensed consolidated statement of cash flows

 

 

For the three months ended 31 March

 

2016

2015

 

€'000

Cash flows from operating activities

 

 

Loss for the period

(464)

(3,748)

Adjustments for:

 

 

 - Net finance costs

561

3,593

 - Income tax benefit

(8)

-

 - Share of profit of equity-accounted investments, net of tax

(394)

(55)

 - Other income

(115)

-

- Write down of inventories

51

-

 

(369)

(210)

Change in:

 

 

 - Inventories of housing units

1,481

-

 - Trade receivables

185

-

 - Provisions

(22)

-

 - Prepayments and other assets

(1)

17

 - Trade payables

(8)

12

 - Other payables

(756)

(34)

Cash from (used in) operating activities

510

(215)

Interest paid

(70)

(13)

Income taxes paid

(25)

-

Net cash from (used in) operating activities

415

(228)

 

 

 

Cash flows from investing activities

 

 

Proceeds from sale of investment

812

-

Long term loans and amounts granted to related parties

-

(10)

Short term loans and amounts repaid by related parties

-

51

Change in restricted bank deposit

728

-

Net cash from investing activities

1,540

41

 

 

 

Cash flows from financing activities

 

 

Repayment of interest-bearing bank loans

(2,960)

(67)

Loans and amounts received from related parties and other

2,164

259

Loans and amounts repaid to related parties and other

(1,000)

-

Net cash from (used in) financing activities

(1,796)

192

 

 

 

Net increase in cash and cash equivalents

159

5

Cash and cash equivalents at 1 January

652

15

Effect of exchange rate fluctuations on cash held

(1)

-

Cash and cash equivalents at 31 March

810

20

 

 

Notes to the condensed consolidated interim financial statements

 

NOTE 1 - REPORTING ENTITY

Kimberly Enterprises N.V. (the "Company") is a company domiciled in The Netherlands. These condensed consolidated interim financial statements ("interim financial statements") as at and for the three months ended 31 March 2016 comprise the Company, its subsidiaries (together referred to as the "Group") and the Group's interests in an associate and a joint venture.

 

The Group is primarily involved in holding, developing 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

These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2015 ("last annual financial statements"). They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual financial statements.

 

These interim financial statements were authorised for issue by the Company's Board of Directors on 17 May 2016.

 

NOTE 3 - USE OF JUDGEMENTS AND ESTIMATES

In preparing these interim financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2015.

 

NOTE 4 - GOING CONCERN

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 803 thousands as a result of the lease interest and inflation on the unpaid overdue lease contracted payments.

 

At 31 March 2016, the Group was in breach of EUR 33.9 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 a 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.

 

In order to manage its financial situation, the Company approached in the previous periods 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.

 

As of 31 March 2016, the outstanding debt toward ERD is EUR 25,024 thousands and is due by 30 June 2016. During the reporting period, ERD did not provide any additional bridge loans to the Company.

 

In order to finance the Company's immediate liabilities and to stabilise its financial position, management has acted to realise several assets during the recent reporting periods however ERD support is still needed to extend the repayment date of its loans beyond 30 June 2016.

 

At 31 March 2016, the Group has current liabilities totalling EUR 69,412 thousands, which exceeds its current assets amounting to EUR 6,713 thousands and a negative equity which amounts to EUR 41,824 thousands.

 

The financial statements are prepared based on a going concern basis. However, 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 interim financial statements.

 

 

NOTE 5 - FINANCIAL RISK MANAGEMENT

 

All the aspects of the Group's financial risk management objectives and policies are consistent with that disclosed in the consolidated financial statements as at and for the year ended 31 December 2015.

 

a.   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.

 

See note 4 which includes the Group's going concern analysis and describes the financial difficulties and liquidity risks.

 

b.   Carrying amounts and fair values

 

The carrying amounts of certain short term financial assets and liabilities expected to be settled within 12 months, including cash and cash equivalents, trade payables and other payables were deemed to be equal to their fair values.

 

The fair values of other financial assets and financial liabilities, together with the carrying amounts shown in the statement of financial position, are as follows:

 

31 March 2016

31 December 2015

 

Carrying

Fair

Carrying

Fair

 

amount

value

amount

value

 

€'000

Total financial assets

 

 

 

 

Loans and amounts to related parties

2,988

2,997

2,938

2,942

 

2,988

2,997

2,938

2,942

 

 

 

 

 

Total financial liabilities

 

 

 

 

Interest-bearing loans from banks

-

-

3,583

3,541

Loans and amounts due to related parties and joint ventures

26,574

26,638

25,576

25,805

Finance lease liability

43,991

43,238

43,479

42,716

 

70,565

69,876

72,638

72,062

 

Reconciliation of the financial assets carrying amounts:

 

31 March

2016

31 December 2015

 

€'000

Loans and amounts to related parties

2,988

2,938

Impairment due to negative investment in equity-accounted investments

(498)

(894)

Consolidated loans and amounts to related parties

2,490

2,044

 

The fair value of loans and amounts to related parties has been calculated using market interest rate of 0.5% (31 December 2015: 0.5%) 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 market interest rate of 6.95% (31 December 2015: 6.95%) taking into consideration the specific loans conditions (securities provided, currency, etc.).

 

The fair value of the finance lease liability has been calculated using market interest rate of 7% (31 December 2015: 7%).

 

NOTE 6 - RELATED PARTIES

a.    Related party transactions

 

1.    Support due to the Company's financial situation

 

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

 

As of 31 March 2016, the outstanding debt toward ERD is EUR 25,024 thousands and is due by 30 June 2016. During the reporting period, ERD did not provide any additional bridge loans to the Company.

 

During the reporting period, 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.

 

2.    Trading transactions

 

Finance income and finance costs

Loans granted to the Group by ERD:

-     The Group recognised interest expense relating to the loans granted by ERD in the total amount of EUR 169 thousands in the profit or loss of the interim financial statements.

 

-     The Group recognised a profit in the amount of EUR 226 thousands in net foreign exchange income in the profit or loss of the interim financial statements in relation with loans received which are denominated in ILS and due to the strengthening of the EUR against the ILS (0.9%) during the reporting period.

 

b.    Securities and support provided by parent company

 

Interest-bearing bank loans granted to a wholly controlled entity EURO-BUL Ltd. ("Eurobul") were secured by guarantees provided by ERD. See note 9.c in regard to the full repayment of these bank loans.

 

c.    Directors

 

As of 31 March 2016, the Company has 3 directors (31 December 2015: 2 directors).

 

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

 

d.    Resignation of the Company's CEO

 

During 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 ceased on 31 March 2016.

 

As part of the termination agreement with Mr Or, the Board of the Company agreed to grant Mr. Or a discount of EUR 50 thousands for purchasing a residential unit in the Veleslavin project in Prague, Czech Republic. After the reporting period, Mr. Or completed the purchase of the unit. The given discount was reflected at the carrying amount of the inventories of housing units as of 31 March 2016.

 

 

NOTE 7 - OPERATING SEGMENTS

Basis of segmentation

 

The Group's CFO (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 and its joint ventures are 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 CFO makes decisions about resources and reviews operating results of business as one operating segment.

 

The basis of segmentation is the same as that presented in the annual consolidated financial statements for the year ended 31 December 2015.

 

NOTE 8 - INVESTMENT AND LOANS IN EQUITY-ACCOUNTED INVESTMENT

 

At 31 March 2016 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.

 

a.    Details as per the investment and loan in equity-accounted investment

 

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").

 

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

 

31 March

31 December

 

2016

2015

 

€'000

Percentage ownership interest

20%

20%

Current assets

(MLP does not have cash and cash equivalent at 31 March 2016 and at 31 December 2015)

13,494

10,369

Non-current assets

-

-

Current liabilities

(including loans and amounts due to related parties in the amount of EUR 14,993 thousands at 31 March 2016 and EUR 14,740 thousands at 31 December 2015)

(15,983)

(14,841)

Non-current liabilities

-

-

 

 

 

Net liabilities (100%)

(2,489)

(4,472)

Group's share of the net liabilities (ii)

-

-

Net investment (i)

-

-

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

2,490

2,044

 

 

 

Revenue (iv.1)

13,095

2,230

Cost of sales (iv.1)

(10,257)

(1,888)

Reverse of write down of inventory

-

3,225

Selling, general and administrative expenses

(23)

(387)

Net foreign exchange income

4

-

Income tax expense

(848)

-

Profit for the period (100%)

1,971

3,180

Other comprehensive income:

 

 

Foreign operations - foreign currency translation differences

10

335

Total comprehensive income for the period (100%)

1,981

3,515

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

394

636

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

-

-

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

394

636

 

 

 

Group's share of other comprehensive profit

2

67

 

 

(*) See the reconciliation to the consolidated statement of comprehensive income in note 8.b.

 

Comments in respect to the investment in MLP:

i.    In the previous periods the joint venture continued to accumulate losses and thus the Company recognised a loss related to given loan to MLP that was part of the net investment and presented 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 for to the extent that 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.

 

iv.   Significant events during and after the reporting period:

 

1.   On 13 January 2016, MLP completed the sale of 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).

 

MLP recognised a profit before income tax in the amount of EUR 2,815 thousands (the Company's share was EUR 563 thousands and it was recognised under the "share of profit (loss) of equity-accounted investments, net of tax").

 

The Company's expected share of the distribution will be 20%, equating to approximately CAD 3.5 million (EUR 2.3 million).

 

After the reporting period a total amount of EUR 1,193 thousands has been distributed to the Company, the proceeds has been used for the full repayment of the loan granted by Real Property Investment (Guernsey) Limited, see note 9.b.

 

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.

 

b.    Details as per the Group's share of profit (loss) of equity accounted investments

 

 

For the three months ended 31 March

 

2016

2015

 

€'000

Share of profit (loss) of MLP (see note 8.a)

394

(23)

Share of profit of Arces International B.V.

-

5

Share of profit of ENMAN B.V.

-

73

Share of profit of equity accounted investments, net of tax

394

55


 

NOTE 9 - SIGNIFICANT EVENTS DURING THE REPORTING PERIOD

a.   On 26 January 2016, the Company sold its investment in the wholly owned subsidiary, Davero Invest s.r.l ("Davero").

 

As a consequence the Company does not control Davero, therefore ceased to consolidate it in its condensed consolidated financial statements. The Company recognised an income in the amount of EUR 115 thousands under "other income" in the condensed consolidated statement of profit or loss.

 

The following table summarises the derecognised amounts of assets and liabilities disposed at the date of the sale.

 

 

€'000

Loans and amounts due to related parties

(115)

Total identifiable net liabilities disposed

(115)

Income on de-recognition

115

Cash and cash equivalents disposed of

-

Net cash inflow (outflow)

-

 

b.   On 10 March 2016, the Company and is wholly owned subsidiary, Eurobul Ltd. ("Eurobul") 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 could only be used for the full repayment of the bank loans granted by Bank Leumi Le-Israel Ltd. to Eurobul.

 

In order to secure the repayment of the loan the Company committed 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 d below).

During the reporting period, the Company paid 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 8.a.iv.1).

After the reporting period, the Company paid RPIGL the funds according to this clause in the total amount of EUR 1,164 thousands.

 

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

During the reporting period, the Company paid 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 related party of GBES Limited as they are controlled by the same shareholder.

 

c.   On 14 March 2016 and 16 March 2016, Eurobul repaid two outstanding bank loans, granted by Bank Leumi Le-Israel Ltd. ("the lender bank"), in a total amount of EUR 2,179 thousands.

According to the terms of the agreement with the lender bank, in the case of full repayment of the two loans, the lender bank will waive the third bank loan in the total amount of EUR 576 thousands.

 

The lender bank waived the loan on 16 March 2016 and the Company recognised a finance income in the profit or loss in the total amount of EUR 576 thousands.

 

d.   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").

 

On 14 March 2016 the sale was completed. As the plot of land held by Vokovice s.r.o was measured as of 31 December 2015 based on its net realisable value which was determined based on the transaction price in the conditional agreement the transaction did not generate any material result in the profit or loss at the condensed consolidated interim financial statements.

The proceeds has been used for the repayment of the loan granted by Real Property Investment (Guernsey) Limited, see note 9.b.

 

e.   During 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 is to be split between GBES and the Gabay Group Limited, an Israeli real estate company, and its subsidiaries (the "Gabay Group").  As an interim measure, the Shares have been transferred to GBES, who are holding 1,133,372 ordinary shares in ERD in trust for the Gabay Group.  As a result, GBES currently holds 2,871,460 ordinary shares in ERD (representing 53.0% of the voting right of ERD) and the Gabay Group currently holds 536,555 ordinary shares in ERD (representing 9.9% of the voting right of ERD). 

 

Once the splitting of the Shares has taken place, 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 the Gabay Group is yet to be completed.

 

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

 

Accordingly, GBES currently holds a 36.2% economic interest in Kimberly and the Gabay Group currently holds a 6.8% economic interest in Kimberly.

 

In addition, Real Property Investment (Guernsey) Limited ("RPIGL") holds 6.4% 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 currently has a combined economic interest in 42.6% of Kimberly.

 

***

 

 

 

 

 

 

 


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