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

Half-year Report

Released 15:01 15-Aug-2016

RNS Number : 2126H
Kimberly Enterprises N.V.
15 August 2016
 

 

Kimberly Enterprises N.V.

('Kimberly' or 'the Company')

 

Results for the six month period ended 30 June 2016

 

Kimberly Enterprises N.V., the AIM-listed Central and Eastern European property developer (AIM: KBE), announces its unaudited results for the six month period ended 30 June 2016.

 

As Engel Resources and Development Ltd. ("ERD"), the parent company of the Company's immediate parent company, Engel General Developers Ltd. ("EGD"), is no longer required to publish quarterly results on the Tel Aviv Stock Exchange, the Company will cease to publish its results for the 1st Quarter and 3rd Quarter starting the next quarter.

 

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

 

Financial Summary


For the six months ended 30 June 2016

For the year ended 31 December 2015


€'000

€'000

Net liabilities

(43,740)

(41,779)

NAV/share (Euro)

(0.50)

(0.48)

Revenue

2,932

1,756

Change in fair value of investment property

-

(734)

Write-down of inventory

(51)

(118)

Gross loss

(132)

(913)

Other income

115

442

Operating loss

(582)

(1,245)

Net financing costs

(2,381)

(11,106)

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

315

1,741

Loss before tax

(2,648)

(10,610)

Loss after tax

(2,581)

(10,403)

Loss per share (Euro)

(0.028)

(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 - going concern

 

a.   Breach of obligation to make finance lease payments

 

Since January 2011, Marina Dorcol D.o.o ("MD") (95% interest subsidiary of the Company) has been in breach of its obligation to make finance lease payments relating to the lease of plot of land, Marina Dorcol, Belgrade, Serbia.

 

At 30 June 2016, MD was in breach of EUR 34.9 million of lease payments. During the reporting period, management recognised an expense of EUR 1,779 thousands as a result of the lease interest and inflation on the unpaid overdue lease contracted payments.

 

Following the breach, the Directorate for City Building Land, controlled by the Municipality of Belgrade ("the Municipality") initiated several claims during recent and previous periods to collect those debts.

 

On 3 June 2016, MD received from the Mayor of Belgrade, a notice requesting the termination of the lease agreement MD has in respect of the Marina Dorcol Project in Belgrade, Serbia ("notice"). 

 

Management believes that the notice that was received by MD should not be considered as a valid termination of the lease from legal point of view as at 30 June 2016; however, it indicated the municipality's intention considering the overdue liability of the Group as of the end of the reporting period.

 

On 22 July 2016, the Municipality delivered MD a unilateral termination of the lease agreement over the Marina Dorcol Project in Belgrade, Serbia ("termination letter").

 

As a result of the above, the Company reclassified the finance lease liability in the amount of EUR 7,737 thousand, which was presented as a non-current liability, as a current liability.

 

MD filed a dispute over the above termination letter, as based on the legal advice it has received, according to which the termination procedure has not been done according to the lease agreement. Based on its lawyers' estimations, it is still premature to determine the results of this dispute.

 

As the Company does not accept the reasons for the termination, the Company should initiate a procedure before the Commercial Court in Belgrade (or, potentially, to file investment claim to the competent arbitration panel) for the determination of the validity of the request for the termination and whether the request is based on valid legal and commercial reasons.

 

Management expects that the final result of the termination would be the restitution of the amounts paid by the Company in respect of MD based on the agreements with the Municipality, less the amount of compensation to the Municipality for usage of such land for the period of duration of lease and for compensation of damages which occurred to the Municipality, if any. The Group is currently in the process of negotiation with the Municipality about the amount and timing of the restitution.

 

Management expects that following the termination it would have a net cash inflow from the above restitution, however, the net cash flow and the timing to conclude the settlement with the Municipality cannot be predicted at this stage with any certainty.

 

Based on the interim financial statements as of 30 June 2016 and excluding the net cash inflow that is expected to arise upon termination, the Company's management estimates the impact on the Group's financial position would be a decrease of the non-current assets by EUR 25,459 thousands, a decrease of the liabilities by EUR 44,982 thousands and an increase in the Group's profit or loss and equity by EUR 19,523 thousands (before tax effect, if any).

 

b.   Support from Engel Resources and Development Ltd.

 

In order to manage its financial situation, in previous periods the Company approached ERD to provide additional financial assistance to fund the Company's immediate liabilities.

 

As of 30 June 2016, the outstanding debt toward ERD is EUR 25,509 thousands and is due by 30 September 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.

 

ERD support is still needed in the form that it extends the repayment date of its loans beyond 30 September 2016.

 

c.   Conclusion

 

At 30 June 2016, the Group has current liabilities totalling EUR 77,350 thousand, which exceeds its current assets amounting to EUR 7,409 thousands and a negative equity which amounts to EUR 43,740 thousands.

 

The financial statements are prepared based on a going concern basis. However, management believes that the above mentioned conditions (i.e. breach of its obligation to make finance lease payments and the requirement to extend the loans granted by ERD) 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

a.   On 26 January 2016, the Company sold its investment in its wholly owned subsidiary, Davero Invest s.r.l ("Davero"). As a consequence the Company no longer controls Davero, and has therefore ceased consolidating Davero 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 on the sale of its investment in Davero.

 

b.   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 below).

During 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.

 

c.  On 14 March 2016 and 16 March 2016, Eurobul Ltd. repaid two outstanding bank loans in full, granted by Bank Leumi Le-Israel Ltd. ("the lender bank"), totalling 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 full, totalling EUR 576 thousands.

 

The lender bank waived the loan on 16 March 2016 and the Company recognised finance income totalling 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 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 b above.

 

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 was to be split between GBES and the Gabay Group, an Israeli real estate group (the "Gabay Group"). As an interim measure, during the first quarter of 2016, the Shares were transferred to GBES that held 1,133,372 ordinary shares in ERD in trust for the Gabay Group. As a result, GBES held 2,871,460 ordinary shares in ERD (representing 53.0% of the voting rights of ERD) and the Gabay Group held 536,555 ordinary shares in ERD (representing 9.9% of the voting rights of ERD).

 

During the second quarter of 2016, the ownership of 1,133,372 ordinary shares in ERD previously held in trust by GBES was transferred to a company that is 100% owned by Mr Eli Gabay.

As a result, GBES holds 1,738,088 ordinary shares in ERD (representing 32.1% of the voting right of ERD) and Gabay Group (through two different entities) holds a total of 1,669,927 ordinary shares in ERD (representing 30.9% of the voting right of ERD), including the 536,555 ordinary shares in ERD held by Gabay Group prior to the splitting of the Shares.

 

ERD controls Engel General Developers Ltd., which holds 68.35% of the issued share capital of the Company. Accordingly, GBES currently holds a 21.9% economic interest in the Company and the Gabay Group currently holds a 21.1% economic interest in the Company.

 

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 28.3% of the Company.

 

f.   On 15 July 2016, the Company sold its investment in the wholly owned subsidiary, Arces International B.V. ("Arces") to a third party for an immaterial amount. As a consequence the Company will not control Arces, and will therefore cease to consolidate it in its condensed consolidated financial statements.

 

The Company will recognise estimated income of EUR 3.7 million mainly due to a liability which was recognised in Arces' consolidated financial statements for a finance exposure with respect to interest-bearing bank loans that financed the project in Gyor, Hungary. The bank claims that the loan was additionally guaranteed by Arces. Arces has disputed the validity of this guarantee with the bank management; however, no official legal claim has been filed by any of the parties. The Company did not provide any guarantees for Arces' and its subsidiaries' liabilities.

 

g.   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 thousand).

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 of equity-accounted investments, net of tax"). The Company's expected share of the distribution will be 20%, equalling to CAD 3,500 thousands.

 

During the reporting period the Company and Silverpeak agreed to distribute funds generated from the above sales to the partners. The share of ECG trust in the distribution was CAD 3,500 thousands (EUR 2,434 thousand). The trustee agreed to distribute to the Company an amount of CAD 1,716 thousands (EUR 1,193 thousand) and the rest will be hold back till the final tax clearance from the Canadian tax authorities. The hold back cash is being presented under "Prepayments and other assets" in the condensed consolidated statement of financial position.

 

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

 

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.

 

 

Condensed consolidated statement of financial position


 

30 June

31 December

 

2016

2015

 

€'000

ASSETS

 

 

Cash and cash equivalents

1,664

652

Restricted bank deposit

-

728

Trade receivables

118

185

Prepayments and other assets

1,201

12

Inventories of housing units and land

4,364

8,259

Current tax assets

62

6

Current assets

7,409

9,842




Inventories of land

9,150

9,307

Investment property

17,212

17,450

Property and equipment

2

2

Deferred tax assets

26

58

Loans and amounts to related parties

46

2,044

Non-current assets

26,436

28,861

Total assets

33,845

38,703




LIABILITIES

 

 

Interest-bearing bank loans

-

2,175

Current portion of finance lease liability (see note 4.a)

44,982

35,621

Loans and amounts due to related parties and joint ventures

25,901

25,576

Trade payables

279

294

Other payables

5,467

6,370

Provisions

457

492

Current tax liabilities

264

268

Current liabilities

77,350

70,796




Interest-bearing bank loans

-

1,408

Finance lease liability (see note 4.a)

-

7,858

Deferred tax liabilities

235

420

Non-current liabilities

235

9,686

Total liabilities

77,585

80,482




EQUITY

 

 

Share capital

878

878

Share premium

39,298

39,298

Accumulated losses

(85,725)

(83,258)

Reserves

3,282

2,688

Equity attributable to owners of the Company

(42,267)

(40,394)

Non-controlling interests

(1,473)

(1,385)

Total equity

(43,740)

(41,779)

Total liabilities and equity

33,845

38,703

 

 

Condensed consolidated statement of profit or loss


 

For the six months ended 30 June

 

2016

2015

 

€'000

 

 

 

Revenue

2,932

71

Write down of inventory

(51)

-

Cost of sales excluding write down of inventory

(3,013)

(107)

 

 

 

Gross loss

(132)

(36)

 

 

 

Selling, general and administrative expenses

(565)

(301)

Other income (see note 9.a)

115

425

 

 

 

Operating profit (loss)

(582)

88

 

 

 

Net foreign exchange loss

(87)

(2,806)

Finance income (see note 9.c)

576

206

Finance costs

(2,870)

(2,983)

Net finance costs

(2,381)

(5,583)

 

 

 

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

315

932

 

 

 

Loss before tax

(2,648)

(4,563)

 

 

 

Income tax benefit (expense)

67

(1)

 

 

 

Loss for the period

(2,581)

(4,564)

 

 

 

Loss attributable to:

 

 

   Owners of the Company

(2,467)

(4,451)

   Non-controlling interests

(114)

(113)

Loss for the period

 

 

 

Loss per share:

 

 

Basic loss per share (Euro)

(0.028)

(0.051)

Diluted loss per share (Euro)

(0.028)

(0.051)

 

 

 

 

Condensed consolidated statement of comprehensive income


 

For the six months ended 30 June

 

2016

2015

 

€'000

 

 

 

Loss for the period

(2,581)

(4,564)

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

   Foreign operations - foreign currency translation differences

620

(142)

Other comprehensive income (loss)

620

(142)

 

 

 

Total comprehensive loss

(1,961)

(4,706)

 

 

 

 

 

 

Total comprehensive loss attributable to:

 

 

   Owners of the Company

(1,873)

(4,588)

   Non-controlling interests

(88)

(118)

Total comprehensive loss

 

 

 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

-

-

-

(4,451)

(4,451)

(113)

(4,564)

Other comprehensive loss for the period

-

-

(137)

-

(137)

(5)

(142)

Disposal of subsidiaries with non-controlling interests

-

-

-

-

-

12

12

Balance at 30 June 2015

878

39,298

2,804

(77,707)

(34,727)

(1,113)

(35,840)

 

 

 

 

 

 

 

 

Balance at 1 January 2016

878

39,298

2,688

(83,258)

(40,394)

(1,385)

(41,779)

Loss for the period

-

-

-

(2,467)

(2,467)

(114)

(2,581)

Other comprehensive income for the period

-

-

594

-

594

26

620

Balance at 30 June 2016

878

39,298

3,282

(85,725)

(42,267)

(1,473)

(43,740)

 

  

 

 

Condensed consolidated statement of cash flows

 

For the six months ended 30 June

 

2016

2015

 

€'000

Cash flows from operating activities

 

 

Loss for the period

(2,581)

(4,564)

Adjustments for:

 

 

 - Net finance costs

2,381

5,583

 - Income tax expense (benefit)

(67)

1

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

(315)

(932)

 - Other income

(115)

(425)

- Write down of inventories

51

-

 

(646)

(337)

Change in:

 

 

 - Inventories of housing units

3,020

-

 - Trade receivables

67

-

 - Provisions

(29)

-

 - Prepayments and other assets

3

15

 - Trade payables

(15)

(314)

 - Other payables

(906)

(118)

Cash from (used in) operating activities

1,494

(754)

Interest paid

(70)

(192)

Interest received

-

1,741

Income taxes paid

(142)

(1)

Net cash from operating activities

1,282

794




Cash flows from investing activities

 

 

Proceeds from sale of investment

812

-

Long term loans and amounts granted to related parties

-

(15)

Short term loans and amounts repaid by related parties

1,242

3,532

Change in restricted bank deposit

728

-

Net cash from investing activities

2,782

3,517




Cash flows from financing activities

 

 

Repayment of interest-bearing bank loans

(2,960)

(133)

Loans and amounts received from related parties and other

2,164

311

Loans and amounts repaid to related parties and other

(2,164)

(3,835)

Payment of finance lease liability

(90)

-

Net cash used in financing activities

(3,050)

(3,657)




Net increase in cash and cash equivalents

1,014

654

Cash and cash equivalents at 1 January

652

15

Effect of exchange rate fluctuations on cash held

(2)

2

Cash and cash equivalents at 30 June

1,664

671

 


 

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 six months ended 30 June 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 11 August 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

 

a.   Breach of obligation to make finance lease payments

 

Since January 2011, Marina Dorcol D.o.o ("MD") (95% interest subsidiary of the Company) has been in breach of its obligation to make finance lease payments relating to the lease of plot of land, Marina Dorcol, Belgrade, Serbia.

 

At 30 June 2016, MD was in breach of EUR 34.9 million of lease payments. During the reporting period, management recognised an expense of EUR 1,779 thousands as a result of the lease interest and inflation on the unpaid overdue lease contracted payments.

 

Following the breach, the Directorate for City Building Land, controlled by the Municipality of Belgrade ("the Municipality") initiated several claims during recent and previous periods to collect those debts.

 

On 3 June 2016, MD received from the Mayor of Belgrade, a notice requesting the termination of the lease agreement MD has in respect of the Marina Dorcol Project in Belgrade, Serbia ("notice"). 

 

Management believes that the notice that was received by MD should not be considered as a valid termination of the lease from legal point of view as at 30 June 2016; however, it indicated the municipality's intention considering the overdue liability of the Group as of the end of the reporting period.

 

On 22 July 2016, the Municipality delivered MD a unilateral termination of the lease agreement over the Marina Dorcol Project in Belgrade, Serbia ("termination letter").

 

As a result of the above, the Company reclassified the finance lease liability in the amount of EUR 7,737 thousands, which was presented as a non-current liability, as a current liability.

 

MD filed a dispute over the above termination letter, as based on the legal advice it has received, according to which the termination procedure has not been done according to the lease agreement. Based on its lawyers' estimations, it is still premature to determine the results of this dispute.

 

As the Company does not accept the reasons for the termination, the Company should initiate a procedure before the Commercial Court in Belgrade (or, potentially, to file investment claim to the competent arbitration panel) for the determination of the validity of the request for the termination and whether the request is based on valid legal and commercial reasons.

 

Management expects that the final result of the termination would be the restitution of the amounts paid by the Company in respect of MD based on the agreements with the Municipality, less the amount of compensation to the Municipality for usage of such land for the period of duration of lease and for compensation of damages which occurred to the Municipality, if any. The Group is currently in the process of negotiation with the Municipality about the amount and timing of the restitution.

 

Management expects that following the termination it would have a net cash inflow from the above restitution, however, the net cash flow and the timing to conclude the settlement with the Municipality cannot be predicted at this stage with any certainty.

 

Based on the interim financial statements as of 30 June 2016 and excluding the net cash inflow that is expected to arise upon termination, the Company's management estimates the impact on the Group's financial position would be a decrease of the non-current assets by EUR 25,459 thousands thousand, a decrease of the liabilities by EUR 44,982 thousands and an increase in the Group's profit or loss and equity by EUR 19,523 thousands (before tax effect, if any).

 

b.   Support from Engel Resources and Development Ltd.

 

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 30 June 2016, the outstanding debt toward ERD is EUR 25,509 thousands and is due by 30 September 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.

 

ERD support is still needed in the form that it extends the repayment date of its loans beyond 30 September 2016.

 

c.   Conclusion

 

At 30 June 2016, the Group has current liabilities totalling EUR 77,350 thousands thousand, which exceeds its current assets amounting to EUR 7,409 thousands and a negative equity which amounts to EUR 43,740 thousands thousands.

 

The financial statements are prepared based on a going concern basis. However, management believes that the above mentioned conditions (i.e. breach of its obligation to make finance lease payments and the requirement to extend the loans granted by ERD) 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.

 

In order to handle the liquidity risk of the Company the management decided to realise several assets during the reporting period in Czech Republic and Canada. In addition the Company is acting to minimise its operational costs.

 

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:

 

 

30 June 2016

31 December 2015

 

Carrying

Fair

Carrying

Fair

 

amount

value

amount

value

 

€'000

Total financial assets

 

 

 

 

Loans and amounts to related parties

567

568

2,938

2,942

 

567

568

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

25,901

25,758

25,576

25,805

Finance lease liability

44,982

44,228

43,479

42,716

 

70,883

69,986

72,638

72,062

 

Reconciliation of the financial assets carrying amounts:

 

30 June

2016

31 December 2015

 

€'000

Loans and amounts to related parties

567

2,938

Impairment due to negative investment in equity-accounted investment

(521)

(894)

Consolidated loans and amounts to related parties

46

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 specific 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 4.95% (31 December 2015: 6.95%) taking into consideration specific 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

 

As of 30 June 2016, the outstanding debt due to Engel Resources and Development Ltd. ("ERD") is EUR 25,509 thousands and is due by 30 September 2016. During the reporting period, ERD did not provide any additional bridge loans to the Company.

 

During the first quarter of 2016, 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 up to EUR 450 thousands.

 

After the reporting period the Company repaid part of the loan granted by ERD to the amount of EUR 450 thousands.

 

2.   Trading transactions

 

Finance income and finance costs

 

The Group recognised interest expense relating to the loans granted by ERD in the total amount of EUR 641 thousands in the profit or loss of the interim financial statements.

 

The Group recognised a profit of EUR 213 thousands in net foreign exchange income in the interim financial statements (in relation to loans received which are denominated in ILS) due to the strengthening of the EUR against the ILS (0.9%) during the reporting period.

 

b.   Securities provided by and for the parent company

 

Interest-bearing bank loans granted to a wholly controlled entity Eurobul Ltd. ("Eurobul") were secured by guarantees provided by ERD.

 

During the first quarter of 2016 the Group fully repaid the bank loans, and as a result ERD removed the guarantees it provided to the lender bank. See also note 9.c.

 

The Company has pledged the shares of Marina Dorcol D.o.o to ERD. As of 30 June 2016, the outstanding debt owed to ERD is EUR 25,509 thousands. For more details, see note 4.b.

 

c.   Directors

 

As of 30 June 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 one residential unit in the Veleslavin project in Prague, Czech Republic. During the second quarter of 2016, 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 - EQUITY-ACCOUNTED INVESTMENT

 

At 30 June 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") is 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.

 

 

30 June

31 December

 

2016

2015

 

€'000

Percentage ownership interest

20%

20%

Current assets

(MLP does not have cash and cash equivalent at 30 June 2016 and at 31 December 2015)

1,360

10,369

Non-current assets

-

-

Current liabilities

(including loans and amounts due to related parties in the amount of EUR 2,973 thousands at 30 June 2016 and EUR 14,740 thousands at 31 December 2015)

(3,963)

(14,841)

Non-current liabilities

-

-




Net liabilities (100%)

(2,603)

(4,472)

Group's share of the net liabilities (ii)

-

-

Net investment (i)

-

-

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

46

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

(60)

(387)

Net foreign exchange income

4

-

Income tax expense

(848)

-

Profit for the period (100%)

1,934

3,180

Other comprehensive income (loss):

 

 

Foreign operations - foreign currency translation differences

(70)

335

Total comprehensive income for the period (100%)

1,864

3,515

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

387

636

Impairment loss on loans given

(72)

-

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

-

-

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

315

636


 

 

Group's share of other comprehensive income (loss)

(14)

67

(*) See note 8.b for the reconciliation to the share of profit of equity-accounted investments, net of tax, as presented in the consolidated statement of profit or loss.

 

Comments in respect to the investment in MLP:

 

i. In the previous periods the joint venture continued to accumulated losses and thus the Company recognised a loss related to the loan given to MLP that was part of the net investment and presented the loss as share of profit (loss) of equity-accounted investment 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 -

·   Are denominated in CAD currency.

·   Bear no interest.

·   Have no set repayment date. Repayment is expected from the proceeds of the sale of the related projects financed by the loans.

 

iv.       Significant events during 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 thousand). 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 of equity-accounted investments, net of tax"). The Company's expected share of the distribution will be 20%, equalling to CAD 3,500 thousands.

 

During the reporting period the Company and Silverpeak agreed to distribute funds generated from the above sales to the partners. The share of ECG trust in the distribution was CAD 3,500 thousands (EUR 2,434 thousands thousand). The trustee agreed to distribute to the Company an amount of CAD 1,716 thousands (EUR 1,193 thousands thousand) and that the rest would be held back until the final tax clearance from the Canadian tax authorities had been received. These amounts held back are presented under "Prepayments and other assets" in the condensed consolidated statement of financial position. The proceeds from the above distribution have 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 due to ERD.

 

b.   Details as per the Group's share of profit of equity-accounted investments

 

 

For the six months ended 30 June

 

2016

2015

 

€'000

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

315

23

Share of profit of Arces International B.V. (*)

-

455

Share of profit of ENMAN B.V. (*)

-

454

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

315

932

 

                        (*) The Company obtained control over these entities during 2015.

 



 

NOTE 9 - SIGNIFICANT EVENTS DURING THE REPORTING PERIOD

 

a. On 26 January 2016, the Company sold its investment in its wholly owned subsidiary, Davero Invest s.r.l ("Davero"). As a consequence the Company no longer controls Davero, therefore ceased consolidating Davero 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 on the sale of its investment in Davero.

 

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 its wholly owned subsidiary, Eurobul Ltd. ("Eurobul") signed a loan agreement totalling 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).

During 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.

 

c. On 14 March 2016 and 16 March 2016, Eurobul Ltd. repaid two outstanding bank loans in full, granted by Bank Leumi Le-Israel Ltd. ("the lender bank"), totalling 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 full, totalling EUR 576 thousands.

 

The lender bank waived the loan on 16 March 2016 and the Company recognised finance income totalling 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 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.

 

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 was to be split between GBES and the Gabay Group, an Israeli real estate group (the "Gabay Group"). As an interim measure, during the first quarter of 2016, the Shares were transferred to GBES that held 1,133,372 ordinary shares in ERD in trust for the Gabay Group. As a result, GBES held 2,871,460 ordinary shares in ERD (representing 53.0% of the voting right of ERD) and the Gabay Group held 536,555 ordinary shares in ERD (representing 9.9% of the voting right of ERD).

 

During the second quarter of 2016, the ownership of 1,133,372 ordinary shares in ERD previously held in trust by GBES was transferred to a company that is 100% owned by Mr Eli Gabay.

As a result, GBES holds 1,738,088 ordinary shares in ERD (representing 32.1% of the voting right of ERD) and Gabay Group (through two different entities) holds a total of 1,669,927 ordinary shares in ERD (representing 30.9% of the voting right of ERD), including the 536,555 ordinary shares in ERD held by Gabay Group prior to the splitting of the Shares.

 

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

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

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 28.3% of the Company.

 

 

NOTE 10 - SUBSEQUENT EVENT

 

On 15 July 2016, the Company sold its investment in the wholly owned subsidiary, Arces International B.V. ("Arces") to a third party for an immaterial amount.

 

As a consequence the Company will not control Arces, and will therefore cease to consolidate it in its condensed consolidated financial statements.

 

The Company will recognise estimated income of EUR 3.7 million mainly due to a liability which was recognised in Arces' consolidated financial statements for a finance exposure with respect to interest-bearing bank loans that financed the project in Gyor, Hungary. The bank claims that the loan was additionally guaranteed by Arces. Arces has disputed the validity of this guarantee with the bank management; however, no official legal claim has been filed by any of the parties.

 

The Company did not provide any guarantees for Arces' and its subsidiaries' liabilities.

 

 

 

 

 

***


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
IR BXGDISUBBGLU
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.

 


Half-year Report - RNS