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RNS
Kimberly Enterprises N.V.  -  KBE   

Final Results

Released 11:33 07-Mar-2017

RNS Number : 7468Y
Kimberly Enterprises N.V.
07 March 2017
 

 

 

 

Kimberly Enterprises N.V.

 ("Kimberly" or the "Company")

 

Results for the year ended 31 December 2016

 

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 2016.

The audited annual accounts for the year ended 31 December 2016 will shortly be available on the Company's website: www.kimberly-enterprises.com.

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

 

Financial summary:

 

Year ended (figures in €'000)

31-Dec-16

31-Dec-15

 

 

 

Net liabilities

(23,165)

(41,779)

NAV/share (€)

(0.26)

(0.48)

Revenue

5,605

1,756

Change in fair value of investment property

-

(734)

Write down of inventory

(430)

(118)

Cost of sales excluding write down of inventory

(5,532)

(1,817)

Gross loss

(357)

(913)

Other income from lease termination

23,510

-

Other income

3,834

442

Operating profit (loss)

26,026

(1,245)

 

 

 

Net foreign exchange losses

(1,581)

(2,836)

Financial income

576

253

Financial costs

(4,439)

(8,523)

Net finance costs

(5,444)

(11,106)

 

 

 

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

310

1,741

 

 

 

Profit (loss) before tax

20,894

(10,610)

Profit (loss) for the year

21,173

(10,403)

Profit (loss) per share (€)

0.232

(0.114)

 
Financial Position

Total revenue for the year ended 31 December 2016 was €5.6 million compared to €1.8 million in 2015. The increase in 2016 is due to the revenue generated from the sale of housing units in the Veleslavin project, Prague, Czech Republic. The revenues in 2015 represent income from part of the year, i.e., from August 2015, the date the Company obtained control of ENMAN (the parent company of Veleslavin).

Total gross loss for 2016 was €0.4 million (2015: €0.9 million gross loss). The decrease in the loss was due to a negative investment property revaluation of €0.7 million for 2015 compared to nil in 2016.

The write-down of inventory relates to the plots and housing unit project located in Romania and the Czech Republic. 

General and administrative expenses increased to €1.0 million (2015: €0.8 million). The change is mainly caused as a result an income which was recognised in 2015 following settlement agreements with former employees and service providers for past open debts.

Other income from ceasing to consolidate certain subsidiaries increased to €3.8 million (2015: €0.4 million), mainly due to the income generated from sale of the wholly owned subsidiary Arces International B.V.

Following the lease termination in Serbia, the Company's subsidiary Marina Dorcol d.o.o ("MD") is no longer bound to make any further payments on the lease liabilities on one hand and has no rights over the leased land on the other hand, and consequently the management of the Group derecognised of the lease liability and related asset in the reporting period. As a consequence, non cash income of €23.5 million was recognised during 2016 under "other income".

Net financing costs decreased to €5.4 million (2015: €11.1 million). This reflects a decrease in the finance costs due to the finance lease in Serbia of €3.0 million (2015: €7.1 million) and an decease in foreign exchange losses to €1.6 million (2015: €2.8 million).

The share of profit of equity-accounted investments decreased to a profit of €0.3 million in 2016 compared to a profit of €1.7 million in 2015. This decrease is mainly due to the sales of plot in ENMAN which were executed during 2015 and the reversal of a previously recorded write down in Canada following the sale in 2016.

As a result of the above, the profit after tax for the year was €21.2 million compare to loss of €10.4 million in 2015.

 

General

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

As of 31 December 2016, the outstanding debt owed to ERD was €25.7 million (2015: €25.1 million) and is due by 30 April 2017, see note 13. 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, see notes 9.a.iv, 29.b, 29.c and 29.d.

ERD support is still required in the form extending the repayment date of its loans beyond 30 April 2017.

At 31 December 2016, the Group has current liabilities totalling €28.0 million, which exceeds its current assets amounting to €4.2 million, and a negative equity which amounts to €23.2 million.

The financial statements are prepared based on a going concern basis. However, the Directors believe that the above mentioned condition (i.e. the need to extend the repayment date of the loans granted by ERD) indicates the existence of material uncertainty 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.

 

Serbia

GDP growth in 2016 was 2.5 per cent and the rate of inflation was 1.1 per cent.

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

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

On 29 September 2016, MD notified the Municipality that it accepted the termination letter and wished to negotiate with the Municipality in order to determine the amount and timing of the compensation due to MD as a result of the above termination.

Based on the agreement with the municipality, management believes that the final result of the termination will be the restitution of the amounts paid by MD 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 Company and MD are currently in the process of negotiation with the Municipality about the amount and timing of the restitution.

Management expects that following the termination it will 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 certainty. Based on MD's advisers, the range of the restitution can be in the amount of RSD 337.5 million (approximately €2.7 million) to RSD 487.3 million (approximately €4.0 million).

As management has no certainty of the amount that MD will be able to collect from the Municipality, management did not record receivables at the Company's consolidated financial statements generated from the above mentioned restitution of the lease agreement.

As MD is no longer bound to make any further payments on the lease liabilities on one hand and has no rights over the leased land on the other hand, the management of the Group derecognised of the lease liability and related asset in the reporting period.

As a consequence, non cash income of €23.5 million was recognised in profit and loss under "other income" in the consolidated financial statements.

 

Czech Republic

GDP in 2016 was 2.5 per cent and the rate of inflation was 0.5 per cent.

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 book value of the plot of land held by Vokovice s.r.o as of 31 December 2015 was based on its net realisable value which was taken as the transaction price in the conditional agreement, the transaction did not generate any material result in the profit or loss of the consolidated financial statements.

The Company recorded revenue from the sale of housing units in the Veleslavin project, Prague, Czech Republic.

In 2016 the Company recorded revenue from disposing of 31 Veleslaven units (in 2015 for the period since acquiring the control over ENMAN, to 31 December 2015: 11 units).

 

Canada

GDP growth in 2016 was 1.2 per cent and the rate of inflation 1.6 per cent.

On 13 January 2016, Montreal Residential Holdings Master Limited Partnership ("MLP") completed the sale of two plots of land held for residential development purposes in Canada for a total cash consideration of CAD 20.2 million (€13.1 million).

MLP recognised a profit before income tax in the amount of €2.8 million (the Company's share was €0.6 million and it was recognised under the "share of profit of equity-accounted investments, net of tax").

During the reporting period the Company and its jont venture partner, Silverpeak Real Estate Partners, agreed to distribute funds generated from the above sales to the partners.

The 20% share of ECG trust in the distribution was CAD 3.5 million (€2.4 million). The trustee agreed to distribute to the Company an amount of CAD 1.7 million (€1.2 million) and that the rest would be held back until the final tax clearance from the Canadian tax authorities will be received. These amounts held back are being presented under "Prepayments and other assets" in the consolidated statement of financial position.

The net proceeds which have been received to date from the above distribution have been used for the repayment of the loan granted by Real Property Investment (Guernsey) Ltd., see note 30.c.3.

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.

 

The Netherlands

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 no longer controls Arces, therefore ceased consolidating Arces in its consolidated financial statements. The Company recognised income of €3.7 million under "other income" in profit or loss on the sale of its investment in Arces.

The income was mainly due to a recognised liability of Arces 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; 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.

 

For further information, please contact:

 

 

 

 

Kimberly Enterprises N.V.


 

Assaf Vardimon

+31 20 778 4141

 



 

Cairn Financial Advisers LLP (Nomad)


 

Sandy Jamieson, James Caithie

+44 207 213 0880

 



 

 

 

 

 


 

Consolidated statement of financial position

 

 

31 December

31 December

 

 

2016

2015

 

Note

Thousands Euro

ASSETS

 

 

 

Cash and cash equivalents

4

510

652

Restricted bank deposit

5

-

728

Trade receivables

19.b

554

185

Prepayments and other assets

6

1,331

12

Inventories of housing units and land

7

1,776

8,259

Current tax assets

 

35

6

Current assets

 

4,206

9,842

 

 

 

 

Inventories of land

7

698

9,307

Investment property

8

-

17,450

Property and equipment

 

1

2

Deferred tax assets

25

-

58

Loans and amounts to equity-accounted investment

9

43

2,044

Non-current assets

 

742

28,861

Total assets

 

4,948

38,703

 

 

 

 

LIABILITIES

 

 

 

Interest-bearing bank loans

11

-

2,175

Current portion of finance lease liability

12

-

35,621

Loans and amounts due to related parties, joint venture and other

13

26,265

25,576

Trade payables

 

211

294

Other payables

14

1,355

6,370

Provisions

15

146

492

Current tax liabilities

 

-

268

Current liabilities

 

27,977

70,796

 

 

 

 

Interest-bearing bank loans

11

-

1,408

Finance lease liability

12

-

7,858

Deferred tax liabilities

25

136

420

Non-current liabilities

 

136

9,686

Total liabilities

 

28,113

80,482





EQUITY

 

 

 

Share capital

16

878

878

Share premium

16

39,298

39,298

Reserves

 

330

2,688

Accumulated losses

 

(62,933)

(83,258)

Equity attributable to owners of the Company

 

(22,427)

(40,394)

Non-controlling interests

18

(738)

(1,385)

Total equity

 

(23,165)

(41,779)

Total liabilities and equity

 

4,948

38,703


Consolidated statement of profit or loss

 

 

For the year ended 31 December

 

 

2016

2015

 

Note

Thousands Euro

 

 

 

 

Revenue

19

5,605

1,756

Change in fair value of investment property

8

-

(734)

Write down of inventory

20

(430)

(118)

Cost of sales excluding write down of inventory

21

(5,532)

(1,817)

 

 

 

 

Gross loss

 

(357)

(913)

 

 

 

 

Selling, general and administrative expenses

22

(959)

(774)

Other income due to lease termination

29.a

23,510

-

Other income, net

23

3,834

442

 

 

 

 

Operating profit (loss)

 

26,028

(1,245)

 

 

 

 

Net foreign exchange losses

 

(1,581)

(2,836)

Finance income

 

576

253

Finance costs

 

(4,439)

(8,523)

Net finance costs

24

(5,444)

(11,106)

 

 

 

 

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

9

310

1,741

 

 

 

 

Profit (loss) before tax

 

20,894

(10,610)

 

 

 

 

Income tax benefit

25

279

207

 

 

 

 

Profit (loss)

 

21,173

(10,403)

 

 

 

 

Profit (loss) attributable to:

 

 

 

   Owners of the Company

 

20,325

(10,002)

   Non-controlling interests

18

848

(401)

Profit (loss)

 

21,173

(10,403)

 

 

 

 

Earnings (losses) per share

 

 

 

Basic earnings (losses) per share (Euro)

26

0.232

(0.114)

Diluted earnings (losses) per share (Euro)

26

0.232

(0.114)

 


Consolidated statement of comprehensive income

 

 

For the year ended 31 December

 

 

2016

2015

 

Note

Thousands Euro

 

 

 

 

Profit (loss)

 

21,173

(10,403)

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

Items that are or may be reclassified subsequently to profit or loss

 

 

 

   Foreign operations - foreign currency translation differences

 

(2,559)

(242)

Other comprehensive income (loss), net of tax

 

(2,559)

(242)

 

 

 

 

Total comprehensive profit (loss)

 

18,614

(10,645)

 

 

 

 

 

 

 

 

Total comprehensive profit (loss) attributable to:

 

 

 

   Owners of the Company

 

17,967

(10,255)

   Non-controlling interests

18

647

(390)

Total comprehensive profit (loss)

 

18,614

(10,645)

 

 


 

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

 

Thousands Euro

 

 

 

 

 

 

 

 

Balance at 1 January 2015

878

39,298

2,941

(73,256)

(30,139)

(1,007)

(31,146)

Loss

-

-

-

(10,002)

(10,002)

(401)

(10,403)

Other comprehensive income (loss)

-

-

(253)

-

(253)

11

(242)

Disposal of subsidiaries with non-controlling interests

-

-

-

-

-

12

12

Balance at 31 December 2015

878

39,298

2,688

(83,258)

(40,394)

(1,385)

(41,779)

 

 

 

 

 

 

 

 

Balance at 1 January 2016

878

39,298

2,688

(83,258)

(40,394)

(1,385)

(41,779)

Profit

-

-

-

20,325

20,325

848

21,173

Other comprehensive loss

-

-

(2,358)

-

(2,358)

(201)

(2,559)

Balance at 31 December 2016

878

39,298

330

(62,933)

(22,427)

(738)

(23,165)

 

 


Consolidated statement of cash flows

 

 

For the year ended 31 December

 

 

2016

2015

 

Note

Thousands Euro

Cash flows from operating activities

 

 

 

Profit (loss)

 

21,173

(10,403)

Adjustments for:

 

 

 

 - Depreciation


1

1

 - Net finance costs

24

5,444

11,106

 - Income tax benefit

25

(279)

(207)

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

9

(310)

(1,741)

 - Other income due to lease termination

29.a

(23,510)

-

 - Other income, net

23

(3,834)

(442)

 - Change in fair value of investment property

8

-

734

 - Write down of inventory

20

430

118

 

 

(885)

(834)

Change in:

 

 

 

 - Inventories of housing units

7

5,420

1,115

 - Trade receivables

 

(369)

(185)

 - Provisions

15

(36)

-

 - Prepayments and other assets

6

(119)

238

 - Trade payables

 

(75)

(323)

 - Other payables

14

(1,421)

(24)

Cash generated from (used in) operating activities

 

2,515

(13)

Interest paid

 

(70)

(232)

Interest received

 

-

1,863

Income taxes paid

 

(304)

(221)

Net cash from operating activities

 

2,141

1,397

 

Cash flows from investing activities

 

 

 

Proceeds from sale of investment

29.c

812

-

Acquisition of control in previous equity-accounted investments

 

-

663

Disposal of subsidiary

29.d

(28)

-

Long term loans and amounts granted to related parties

 

(2)

(23)

Short term loans and amounts repaid by related parties

 

1,259

3,470

Change in restricted bank deposit

5

729

(212)

Net cash from investing activities

 

2,770

3,898

 

 

 

 

Cash flows from financing activities

 

 

 

Repayment of interest-bearing bank loans

11

(2,960)

(1,088)

Loans and amounts received from related parties and other

13, 31.c.3

2,164

317

Loans and amounts repaid to related parties and other

13

(4,167)

(3,894)

Payment of finance lease liability

12

(90)

-

Net cash used in financing activities

 

(5,053)

(4,665)

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(142)

630

Cash and cash equivalents at 1 January

 

652

15

Effect of movements in exchange rates on cash held

 

-

7

Cash and cash equivalents at 31 December

4

510

652

 

 

 


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 joint venture (together referred to as the "Group").

 

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

The Company is 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 28 February 2017.

 

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 financial statements prepared in accordance with the Dutch Civil Code.

At the date of preparing these financial statements the Company had not yet filed consolidated financial statements for the year ended on 31 December 2016 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

 

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

 

As of 31 December 2016, the outstanding debt toward ERD is EUR 25,724 thousands (2015: EUR 25,081 thousands) and is due by 30 April 2017, see note 13. 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, see notes 9.a.iv, 29.b, 29.c and 29.d.

 

ERD support is still required in the form extending the repayment date of its loans beyond 30 April 2017.

 

At 31 December 2016, the Group has current liabilities totalling EUR 27,977 thousands, which exceeds its current assets amounting to EUR 4,206 thousands and a negative equity which amounts to EUR 23,165 thousands.


 

 

 

The financial statements are prepared based on a going concern basis. However, management believes that the above mentioned condition (i.e. the need to extend the repayment date of the loans granted by ERD) indicate the existence of material uncertainty 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.

 

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.

 

 

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.

 

Information about judgments made in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are presented as follows:

 

1.   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.

 

2.   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).



 

 

 

3.   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 2016, the only plot held by the Group, was valued by independent third party valuation services who estimated the plot with EUR 698, thousands, see note 7.

 

Accumulated write-downs from cost, at 31 December 2016, amounted to EUR 1,171 thousands and represent 32% of gross inventory balance.

 

4.   Consolidation of companies with troubled debts

 

Although the Company's subsidiary ENMAN B.V. ("ENMAN") owns the voting power rights of Engel-Lylia s.r.l ("Lylia") and Engel Crizantema s.r.l ("Crizantema"), ENMAN does not have control over these entities since 1 January 2013. The management re-assessed the control over the entities, and it still believes that the Company had no control over these investees as at 31 December 2016.

 

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 did 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.



 

 

 

On 29 June 2016, a receiver was appointed by a court in Romania on the shares of Engel Tulip s.r.l ("Tulip"). Tulip was the entity which held (before it was sold by the bank) the pledged plot to the lender bank and is being held by Crizantema.

 

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 and the appointment of receiver Engel Tulip s.r.l., 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 the parent company still has no control over Lylia and Crizantema, and therefore they should not be consolidated in the financial statements.

 

5.   Lease termination

 

Following the termination of lease agreement in Serbia (see note 29.a) management, based on its legal advisors, concluded that it is no longer bound to make any further payments on the lease liabilities and has no rights over the leased land and therefore derecognised the lease liability and related asset in the reporting period. Since these assets and liabilities represented substantially all the assets and liabilities of MD, this was considered in substance as the liquidation of MD and the related translation adjustment was reclassified to profit or loss.

 

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 currencies other than the company's functional and presentation currency (EUR) 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:

 



 

 

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: 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 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 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:

 

 

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:

 

 

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.

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.

 

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 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 as 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:

 

 

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.

 

2.   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.

 

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

 

2016

2015

 

Thousands Euro

Bank balances

509

651

Petty cash

1

1

Total

510

652

 

 

NOTE 5 - RESTRICTED BANK DEPOSIT

 

31 December

 

2016

2015

 

Thousands Euro

In Czech Crown

-

728

Total

-

728

 

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

The deposit carried no interest.

During 2016, the bank loan was fully repaid following which the pledge over the deposit was removed, see note 11.



 

NOTE 6 - PREPAYMENTS AND OTHER ASSETS

 

31 December

 

2016

2015

 

Thousands Euro

Advances to suppliers

-

-

VAT recoverable

203

6

Funds held in trust (a)

1,128

6

Total

1,331

12

 

(a)  On 31 December 2016, an amount of EUR 1,124 thousands represent the cash held by the Company's lawyer in Canada until the final tax clearance from the Canadian tax authorities will be received, see note 9.a.iv.1.

 

 

NOTE 7 - INVENTORIES OF HOUSING UNITS AND LANDS

 

a.   Reconciliation of carrying amount

 

31 December

 

2016

2015

 

Thousands Euro

Inventories of lands designated for sale

1,642

10,959

Inventories of housing units

2,003

7,445

 

3,645

18,404

Write-down of inventory

(1,171)

(838)

Total

2,474

17,566

 

 

 

Non-current

698

9,307

Current

1,776

8,259

Total

2,474

17,566

 

At 31 December 2016, inventory of housing units and lands comprises housing units and commercial areas in a project in Prague, Czech Republic (totalling EUR 1,776 thousands) and a plot designed for residential purposes in Romania (totalling EUR 698 thousands).

As the management does not predict the plot in Romania will be sold within the normal operating cycle it is classified as non-current inventory.

 

In 2016, inventories of EUR 5,459 thousands (2015: EUR 1,611 thousands) were recognised as an expenses during the year and included in "costs of sales", see note 21.

In 2016, inventories were written down to net realisable value in the amount of EUR 430 thousands (2015: EUR 118 thousands). This amount was recognised as an expenses in profit or loss, see note 20.

 

Refer to note 7.b.1 that describes the method used by the Company to determine the net realisable value of the plots.

 

On 29 September 2016, following the termination of the lease agreement in Serbia the management, based on its legal advisors, concluded that it is no longer bound to make any further payments on the lease liabilities and has no rights over the leased land and therefore derecognised the related land in the reporting period in the amount of EUR 8,293 thousands, see note 29.a.

 

At 31 December 2016 the inventories of housing units include capitalisation of borrowing costs in the amount of EUR 43 thousands (2015: EUR 129 thousands).



 

b.   Measurement of net realisable value

 

1.   General

 

The net realisable value of the inventory of housing units is based on the Group's best estimate of the expected selling price and costs of completion less selling expenses, in considering this management relied on recent transactions and current market conditions. In determining the expected selling price of the plot the Group used the services of external, independent valuation expert, having appropriate, recognised professional qualifications and recent experience in the location and category of the inventories being valued, see note 2.e.3

 

At 31 December 2016 the inventories of land balance consists of one plot located in Romania which is presented, at 31 December 2016, at net realisable value in the total net amount of EUR 698 thousands (2015: EUR 902 thousands).

 

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.

 

·   Valuation technique

 

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

 

·   Significant unobservable inputs

 

-    The valuer used "asking prices" with the adjustment of 15%.

-    The compared plots were in the range from sqm 5,000 to sqm 10,000. Due to the differences in the size of the compared plots to the valued plot, the valuer used an adjustment of (-10%) and (-15%), the subject plot size is 77,500 sqm.

-    The valuer compared plots in different locations and used adjustment up to (-5%).

-    The valuer compared plots with different accesses available level and used adjustment of (-5%)

-    The valuer compared plots with different market conditions and used an adjustment of (-5%) and (-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 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.

-    The valuer used lower (higher) adjustment range which relates to market conditions, e.g: the period the compared plot is being offered for sale in the market.



 

NOTE 8 - INVESTMENT PROPERTY

 

a.   Reconciliation of carrying amount

 

2016

2015

 

Thousands Euro

Balance at 1 January

17,450

18,280

Lease termination (a)

(17,218)

-

Change in fair value

-

(734)

Effect of movement in exchange rate (b)

(232)

(96)

Balance at 31 December

-

17,450

 

(a)  See note 29.a.

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

 

Until 29 September 2016, the Group leased one property under a finance lease from the municipality of Belgrade, Serbia. The Group classified the asset as investment property since management's intention was to hold the property for long term, for capital appreciation or to earn future rentals or both.

 

On 29 September 2016, following the termination of lease agreement in Serbia the management, based on its legal advisors, concluded that it is no longer bound to make any further payments on the lease liabilities and has no rights over the leased land and therefore derecognised the related investment property in the reporting period in the amount of EUR 17,218 thousands, see note 29.a.

 

In 2009 and 2011 the Group pledged the shares of Marina Dorcol d.o.o ("MD") which held the investment property to secure credit facilities granted to the Group by the parent company, see note 30.c.1.ii.

 

b.   Amounts recognised in profit or loss

 

For the year ended 31 December


2016

2015

 

Thousands Euro

Change in fair value of investment property

-

(734)

 

 

NOTE 9 - LOANS AND AMOUNTS TO EQUITY-ACCOUNTED INVESTMENT

 

At 31 December 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.

 

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)  2016

(b)  2015

 

Thousands Euro

Statement of financial position

 

 

Loans granted to joint venture

573

2,938

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)

(530)

(894)

Total (presented under loans and amounts to related

    parties and equity-accounted investment)

43

2,044

 

 

For the year ended 31 December

 

(a)  2016

(b)  2015

Statement of profit or loss

Thousands Euro

Share of profit of equity-accounted investments

    which relates to loans granted by the Company and

    are part of the net investment

310

567

Share of profit of equity-accounted investments, net of

    tax

-

678

Change in 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 of

    equity-accounted investments, net of tax)

310

1,741

 

 

 

Finance income

-

251

Total (presented under finance income)

-

251

 

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

(b)  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.

(c)  Total amount of EUR 530 thousands (2015: EUR 894 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.   Montreal Residential Holdings Master Limited Partnership

 

Montreal Residential Holdings Master Limited Partnership - 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 2015, MLP sold one parcel of land in Montreal, Quebec, Canada.

During 2016, MLP sold two parcels of land in Montreal, Quebec, Canada, see note 9.a.iv.1.



 

 

Set out below is a list of material subsidiaries of MLP at 31 December 2016:

 

a.   Trianon Sur Le Golf Quebec LP - 99.99% in the partnership rights - owned a land in Montreal, Canada, which was sold during 2015.

b.   Le Quartier Quebec LP - 99.99% in the partnership rights - owned a land in Montreal, Canada, which was sold during the reporting period, see note 9.a.iv.1.

c.   Le Chagall Quebec LP - 99.99% in the partnership rights - owned a land in Montreal, Canada, which was sold during the reporting period, see note 9.a.iv.1.

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

 

2016

2015

 

Thousands Euro

Statement of financial position

 

 

Loans granted to joint venture (iii)

573

2,938

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)

(530)

(894)

Total (presented under loans and amounts to related

    parties)

43

2,044

 

 

 

 

For the year ended 31 December

 

2016

2015

 

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 (i)

310

636

Share of profit of equity-accounted investments,

    net of tax (ii)

-

-

Total (presented under share of profit of

    equity-accounted investments, net of tax)

310

636

 

 

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



 

 

 

31 December

31 December

 

2016

2015

 

Thousands Euro

Percentage ownership interest

20%

20%

Current assets

(including no cash and cash equivalent at 31 December 2016 and at 31 December 2015)

1,376

10,369

Non-current assets

-

-

Current liabilities

(including loans and amounts due to related parties in the amount of EUR 3,007 thousands at 31 December 2016 and EUR 14,740 thousands at 31 December 2015)

(4,027)

(14,841)

Non-current liabilities

-

-

 

 

 

Net liabilities (100%)

(2,651)

(4,472)

Group's share of the net liabilities (20%) (ii)

-

-

Net investment (i)

43

2,044

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

43

2,044


 

 

Revenue

13,095

2,230

Cost of sales excluding reverse of write down of inventory

(10,257)

(1,888)

Reverse of write down of inventory

-

3,225

Selling, general and administrative expenses

(78)

(387)

Net foreign exchange income

4

-

Income tax expense

(848)

-

Profit (100%)

1,916

3,180

Other comprehensive income:

 

 

Foreign operations - foreign currency translation differences

(95)

335

Total comprehensive income (100%)

1,821

3,515

Profit allocated to loans granted by the Company and being part of the net investment (20%) (i)

383

636

Impairment loss on loans granted by the Company

(73)

-

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

310

636

 

 

 

Group's share of total comprehensive income (loss)

(19)

67



 

 

Comments in respect to the investment in MLP:

 

i. In previous periods the joint venture 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 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 not set a repayment date. Repayment is expected from the proceeds of the sale of the related projects financed by the loans.

·   During 2016, a total amount of EUR 1,242 thousands was repaid by MLP to the Company (2015: EUR 351 thousands).

 

iv.     Significant events during current 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 of equity-accounted investments, net of tax").

 

During the reporting period the Company and Silverpeak agreed to distribute funds generated from the above sales to the partners.

 

The 20% share of ECG trust in the distribution was CAD 3,500 thousands (EUR 2,434 thousands). The trustee agreed to distribute to the Company an amount of CAD 1,716 thousands (EUR 1,193 thousands) and that the rest would be held back until the final tax clearance from the Canadian tax authorities will be received. These amounts held back are being presented under "Prepayments and other assets" in the consolidated statement of financial position.

 

The net proceeds which were received till today from the above distribution have been used for the repayment of the loan granted by Real Property Investment (Guernsey) Ltd., see note 30.c.3.

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.   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 had investments mainly in the Czech Republic.

 

In August 2015 the Company acquired full control in Arces and began to consolidate the company in its condensed consolidated financial statements.

 

On 15 July 2016, the Company sold its investment in Arces, see note 29.d.



 

 

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

 

 

For the year ended 31 December 2015 (a)

 

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)

Change in 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 of equity-accounted investments,

     net of tax)

427

 

 

Finance income (b)

143

Total (presented under finance income)

143

 

(a)  Transactions with Arces which occurred until the date the Company obtained control over the entity.

(b)  Interest income on loans granted by the Company to Arces which bears interest of 15% per annum.

 

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

 

2015 (a)

 

Thousands Euro

Percentage ownership interest

50%

Revenue

1,757

Cost of sales

(1,618)

Selling, general and administrative expenses

(135)

Net foreign exchange income

64

Finance costs

(175)

Income tax expense

(17)

Loss (100%)

(124)

Other comprehensive income:

 

Foreign operations - foreign currency translation differences

8

Total comprehensive loss (100%)

(116)

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

(69)

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

496

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

427

 

 

Group's share of total comprehensive income

4

 

(a)  Transactions with Arces which occurred until the date the Company obtained control over the entity.

 

c.   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.

 

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.

 

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%.

 

In August 2015 the Company acquired full control in ENMAN and began to consolidate the company in its condensed consolidated financial statements.



 

 

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

 

For the year ended 31 December 2015 (a)

 

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

-

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

678

Total (presented under share of profit of equity-accounted investments, net

     of tax)

678

 

 

Finance income (b)

108

Total (presented under finance income)

108

 

The following table shows the summarised consolidated 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

 

2015 (a)

 

Thousands Euro

Percentage ownership interest

25%/50%

Revenue

12,359

Cost of sales

(11,535)

Selling, general and administrative expenses

(164)

Net foreign exchange income

1,302

Finance costs

(333)

Income tax expense

(68)

Profit (100%)

1,561

Other comprehensive loss:

 

Foreign operations - foreign currency translation differences

(1,165)

Total comprehensive income (100%)

396

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

-

Group's share of profit

678

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

678

 

 

Group's share of total comprehensive loss

(291)

 

(a)  Transactions with ENMAN occurred till August 2015 (date the Company obtained control over the entity).

(b)  Interest income on loans granted by the Company to ENMAN which bears interest of 8% per annum.



 

NOTE 10 - LIST OF SUBSIDIARIES

 

Set out below is a list of subsidiaries of the Company as of 31 December 2016:

 

1.    ENMAN B.V. - a wholly owned subsidiary - holding company, the Netherlands. See note 9.c as per the acquisition of the partner's share during 2015.

 

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

 

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

 

4.    Marina Dorcol D.o.o - 95% interest subsidiary - see note 29.a.

 

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

 

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

 

7.    6212964 Canada Inc. - 95% interest subsidiary - holding company, Canada.

 

8.    9152-8372 Quebec Inc. - a wholly owned subsidiary - management company, Canada - inactive.

 

9.    Palace Engel Wilanow 1 S.p. Z.o.o - a wholly owned subsidiary of ENMAN, Poland - inactive.

 

10.   Palace Engel Veleslavin a.s - wholly owned subsidiary of ENMAN - built the first stage of a residential project. During 2015 the entity (together with Palace Engel Villa s.r.o, which was liquidated during the reporting period) sold the plot designed for the second stage of the project in Prague, Czech Republic - see note 9.c.i.1.

 

 

NOTE 11 - INTEREST-BEARING BANK LOANS

 

The terms and conditions of outstanding loans are as follows:

 

 

 

 

31 December

 

 

Nominal

Year of

2016

2015

 

Currency

interest rate

maturity

Thousands Euro

 

 

 

 

 

Current liabilities

 

 

 

 

Secured loan

Euro

3m Libor + 3.68%

2016

-

281

Secured loan

Euro

3m Libor + 3.4%

2016

-

1,048

Secured loan

CZK

3m Pribor + 4 %

2016

-

846

 

 

 

 

-

2,175

Non-current liabilities

 

 

 

 

Secured loan

Euro

3m Libor + 3.5%

2019

-

574

Secured loan

Euro

3m Libor + 3.68%

2017-19

-

834

 

 

 

-

1,408

Total interest-bearing bank loans

 

-

3,583

 

The loan denominated in CZK currency was taken in respect of the Veleslavin project in Prague, Czech Republic. During 2016, the loan was fully repaid.



 

 

The loans denominated in EUR currency, were taken by a wholly controlled entity EURO-BUL Ltd. ("Eurobul") and were secured by guarantees provided by ERD, the indirect parent company of the Company (see note 30.c.1.i).

 

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 in the consolidated statements of comprehensive income

 

 

NOTE 12 - FINANCE LEASE LIABILITY

 

31 December

 

2016

2015

 

Thousands Euro

Current liabilities

 

 

Current portion of finance lease liability

-

2,334

Over-due amounts due to a municipality

-

33,287

 

-

35,621

Non-current liabilities

 

 

Finance lease liability

-

7,858

 

-

7,858

Total finance lease liability

-

43,479

 

As at 31 December 2015 the over-due amounts represented overdue instalments to the municipality in Serbia according to the finance lease agreement.

 

The balance consisted: 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.

 

On 29 September 2016 the lease agreement in Serbia was terminated; see note 29.a. and consequently, the lease liability has been derecognized in full.

 

 

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

 

The terms and conditions of outstanding loans are as follows:

 

 

 

31 December

 

 

Nominal interest rate

2016

2015

 

Currency

Thousands Euro

Engel Resources and Development Ltd. (a)

ILS

6%-6.5%

25,724

25,081

GBES Ltd. (b)

Euro

6%

255

244

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

Euro

0%

286

251

Total

 

 

26,265

25,576



 

 

(a)  The loans were received from Engel Resources and Development Ltd. ("ERD") and are due by 30 April 2017.

The interest conditions are as follows:

·   The amount of EUR 23,252 thousands (2015: EUR 22,871 thousands) bears interest of 6% per annum and linked to changes in the customer price index in Israel.

·   The amount of EUR 2,472 thousands (2015: EUR 2,210 thousands) bears interest of 6.5% per annum.

The loans are secured by the following guarantees (see note 30.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.

(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 30.

 

 

NOTE 14 - OTHER PAYABLES

 

31 December

 

2016

2015

 

Thousands Euro

Advances from customers

3

802

VAT payable

-

69

Expected future costs in relation with inventories

223

255

Retentions from constructors

-

406

Accruals

139

309

Payroll and related expenses

82

77

Provision for liquidated companies (a)

908

4,452

Total

1,355

6,370

 

(a)  See notes 28.b and 29.d.

 

 

NOTE 15 - PROVISIONS

 

2016

2015

 

Thousands Euro

Balance at 1 January

492

319

Provisions reversed during the year

(22)

-

Provisions used during the year

(14)

-

Classifications from other payables

-

36

Acquisition of control in previous equity-accounted investments

-

307

De-recognition of subsidiary (b)

(307)

(176)

Effect of movements in exchange rates

(3)

6

Balance at 31 December

146

492



 

 

(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.d.

 

 

NOTE 16 - CAPITAL AND RESERVES

 

a.   Share capital and share premium

 

2015 and 2016

 

Thousands Euro

 

 

Issued and fully paid:

 

In issue at 1 January (87,777,778 ordinary shares)

878

Changes during the year

-

In issue at 31 December (87,777,778 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.

 

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 and EUR 39,298 thousands was 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. See also note 2.e.5 regarding the termination lease agreement in Serbia and the effect on the related translation adjustment.

 

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.

 

Management do not expect to declare dividends at the upcoming periods.



 

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

 

2016

2015

 

Thousands Euro

Total liabilities

28,113

80,482

Less: cash and cash equivalents

(510)

(652)

Less: restricted bank deposit

-

(728)

Adjusted net debt

27,603

79,102

Total equity

(23,165)

(41,779)

Adjusted net debt to equity ratio

(1.19)

(1.89)

 

 

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 2016

 

Marina Dorcol D.o.o

Other individually immaterial subsidiaries

Total

 

Thousands Euro

NCI percentage

5%

 

 

Current assets

1

 

 

Non-current assets

-

 

 

Current liabilities (a)

(20,250)

 

 

Non-current liabilities

-

 

 

Net liabilities

(20,249)

 

 

Net liabilities attributed to NCI

(738)

-

(738)

 

 

 

 

Revenue

-

 

 

Profit

16,748

 

 

Other comprehensive income (b)

(4,019)

 

 

Total comprehensive income

12,729

 

 

Profit attributed to NCI

848

 

848

Other comprehensive income attributed to NCI

(201)

-

(201)



 

 

(a)  Mainly loans granted by the Company to Marina Dorcol D.o.o which being eliminated at the consolidation.

(b)  Mainly release of translation adjustment reserve (see note 2.e.5).

 

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

(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

 

 

NOTE 19 - REVENUE

 

 

For the year ended 31 December

 

2016

2015

 

Thousands Euro

Sale of housing units (a) (b)

5,605

1,630

Project management fees

-

126

Total

5,605

1,756

 

(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.

During 2016 the Company recorded revenue from handing over of 31 units (in 2015 for the period since acquiring the control over ENMAN, to 31 December 2015: 11 units).

(b)  Revenue from sales of housing units includes two units (2015: 1 unit) which were not fully paid although management believes that risks and rewards from the sale have been transferred to the buyers at the reporting date.

The amount EUR 554 thousands (2015: EUR 185 thousands) own to the Company by the buyers are being presented under "trade receivables" in the consolidated statement of financial position.

The above amounts were fully covered by the buyers after the reporting period.



 

NOTE 20 - WRITE-DOWN OF INVENTORY

 

 

For the year ended 31 December

 

2016

2015

 

Thousands Euro

Plot of land in Romania (a)

203

13

Plot of land in Czech Republic (b)

-

105

Housing units in Czech Republic (c)

227

-

Total

430

118

 

(a)  Write down of inventory to its net realisable value was performed based on an independent valuer's report.

(b)  Write down of inventory to its net realisable value was performed based on the value reflected in agreement to sell the entity which holds the plot which was signed with third party. See note 29.c, as per the sale of the land during the reporting period.

(c)  During 2016 the Group recognised a write-down of inventory related to the project Veleslavin, Czech Republic to its net realisable value.

 

Refer to note 2.e.3 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

 

2016

2015

 

Thousands Euro

Cost of sold housing units (a)

5,459

1,611

Payroll and related expenses

-

142

Maintenance

37

123

Taxes on lands

36

69

Write off expired retention from previous constructor

-

(136)

Other

-

8

Total

5,532

1,817

                                                         

(a)  The cost of sold housing units represents the cost generated from the sale of housing units in the Veleslavin project, Prague, Czech Republic.



 

NOTE 22 -          SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

 

For the year ended 31 December

 

2016

2015

 

Thousands Euro

Payroll and related expenses

345

359

Professional services

531

296

Depreciation

-

1

Travel and accommodation

14

36

Reversed provision for legal claim (a)

(22)

-

Maintenance

56

34

Taxes

30

44

Selling expenses and other

5

4

Total

959

774

 

(a)  See note 15.

 

 

NOTE 23 - OTHER INCOME, NET

 

 

For the year ended 31 December

 

2016

2015

 

Thousands Euro

Income due to de-recognition of subsidiaries (a)

3,836

454

Loss due to de-recognition of subsidiaries

(2)

(12)

Total

3,834

442

 

(a)  See notes 29.b and 29.d for main balances.



 

NOTE 24 - NET FINANCE COSTS

 

 

For the year ended 31 December

 

2016

2015

 

Thousands Euro

 

 

 

Interest on loans and amounts to related parties

-

(253)

Income from wavering of bank loan (a)

(576)

-

Finance income

(576)

(253)

 

 

 

 

 

 

Interest on interest-bearing bank loans

35

144

Interest on loans from related parties

1,405

1,291

Impairment loss on loans given to subsidiaries held by joint venture entities (b)

-

3

Adjustment of finance lease for inflation (c)

397

478

Interest on finance lease (d)

2,602

4,298

Loss of discount on finance lease (e)

-

2,309

Finance costs

4,439

8,523

 

 

 

Net foreign exchange losses (f)

1,581

2,836

 

 

 

Net finance costs recognised in profit or loss

5,444

11,106

 

(a)  See note 11.

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

(c)  The increases of the local retail price index in Belgrade, Serbia in the period till the termination of the lease in 2016 and in 2015 were 1.2% and 1.7%, respectively.

(d)  The overdue amounts carried an average penalty interest of 1.4% per month (average of 12.21% for the period till date of the termination of the lease agreement on 29 September 2016). The penalty sums to an amount of EUR 2,307 thousands (2015: EUR 3,435 thousands).

(e)  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 in 2015.

(f)  The net foreign exchange losses includes a loss in the amount of EUR 1,252 thousands (2015: EUR 2,726 thousands) due to the weakening of the EUR vs. the ILS on the loans granted to the Company by ERD, see note 30.d.(b).



 

NOTE 25 - INCOME TAXES

 

a.   Amounts recognised in profit or loss

 

For the year ended 31 December

 

2016

2015

 

Thousands Euro

Current year

79

145

Changes in estimations related to prior years

(132)

-

Deferred tax benefit

(226)

(352)

Income tax benefit

(279)

(207)

 

Tax expense excludes the Group's share of the tax expense of the Group's previous equity-accounted investments of EUR 848 thousands (2015: income tax benefit of EUR 85 thousands), which has been included in "share of profit of equity-accounted investments, net of tax".

 

Changes in estimations related to prior years relates to Veleslavin project in Prague, Czech Republic.

 

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

 

2016

2015

 

%

Thousands Euro

%

Thousands Euro

 

 

 

 

 

Profit (loss) before income tax

 

20,894

 

(10,610)

Tax using the Company's domestic tax rate

25%

5,224

25%

(2,653)

Effect of tax rates in foreign jurisdictions

-8%

(1,718)

-8%

820

Tax effect of:

 

 

 

 

Share of profit of equity-accounted

    investments reported net of tax

0%

(78)

4%

(435)

Current-year losses for which no deferred

    tax asset is recognised

1%

187

-22%

2,383

Recognition of previously unrecognised 

    deferred tax assets on tax losses utilised in

    the current period

-17%

(3,558)

1%

(139)

De-recognition of previously recognised

    deferred tax liabilities

-

-

2%

(170)

Changes in estimations related to prior years

-1%

(132)

-

-

Other differences, net

-1%

(204)

0%

(13)

Income tax benefit

-1%

(279)

2%

(207)



 

 

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 2015

Recognised in profit or loss

Effect of movement in exchange rate

Acquisition of control in previous equity-accounted investments

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)

 

 

Net balance at 1 January 2016

Recognised in profit or loss

Effect of movement in exchange rate

Net balance at 31 December 2016

 

Thousands Euro

Inventory

456

(596)

(37)

(177)

Investment property

(2,618)

2,570

48

-

Finance lease liability

1,641

(1,631)

(10)

-

Account receivables

(35)

(70)

-

(105)

Other payables

172

(47)

(1)

124

Provisions and other payables

22

-

-

22

Total

(362)

226

-

(136)

 

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

 

 

31 December

 

2016

2015

 

Thousands Euro

Deferred tax assets (non-current assets)

-

58

Deferred tax liabilities (non-current liabilities)

(136)

(420)

Net deferred tax liabilities

(136)

(362)



 

 

d.   Unrecognised deferred tax assets

 

Deferred tax assets have not been recognised in respect of tax losses carry forward amounting to EUR 37,973 thousands at 31 December 2016 (2015: EUR 36,735 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 clause e below.

 

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% (2015: 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.   Czech Republic

 

The corporation tax rate in the Czech Republic is 19 % in 2016 (2015: 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.



 

 

3.   Israel

 

The standard rate of company tax in Israel in 2016 is 25% (2015: 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.

 

4.   Poland

 

The corporation tax in Poland (including capital gains) is 19% in 2016 (2015: 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.

 

5.   Canada

 

The federal corporate tax rate of the subsidiaries incorporated in Canada (including capital gains) is 15% in 2016 (2015: 15%). The combined corporate and provincial tax rate is 26.5% (2015: 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.

 

6.   Romania

 

The corporation tax in Romania (including capital gains) is 16% in 2016 (2015: 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.

 

7.   Serbia

 

Corporate income tax is levied at a rate of 15% in 2016 (2015: 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 - EARNINIGS PER SHARE

 

Basic and diluted earnings per share

 

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

 

a.   Profit (loss) attributable to ordinary shareholders (basic and diluted)

 

 

For the year ended 31 December

 

2016

2015

 

Thousands Euro

 

 

 

Profit (loss) attributable to ordinary shareholders

20,325

(10,002)

 

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

 

 

31 December

 

2015 and 2016

 

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:

 

 

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.

 

ii.  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.

 

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

 

The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry and country in which customers operate.

 

The Group's exposure to credit risk 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.

 

iii. 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 realised several assets during the reporting periods in Czech Republic and Canada. In addition the Company is acting to minimise its operational costs.

 

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

 

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 2016

 

Contractual cash flows

 

Carrying amount

Total

Less than 1 year

1-2 years

2-5 years

More than 5 years

 

Thousands Euro

Loans and amounts due to related parties, joint venture and other

26,265

(28,337)

(28,337)

-

-

-

Trade payables

211

(211)

(211)

-

-

-

Other payables

1,355

(1,355)

(1,355)

-

-

-

Total financial liabilities

27,831

(29,903)

(29,903)

-

-

-

 

 

31 December 2015

 

Contractual cash flows

 

Carrying amount

Total

Less than 1 year

1-2 years

2-5 years

More than 5 years

 

 

Thousands Euro

Interest-bearing bank loans

3,583

(3,541)

(2,199)

(303)

(1,039)

-

Loans and amounts due to related parties, joint venture and other

25,576

(26,079)

(26,079)

-

-

-

Trade payables

294

(294)

(294)

-

-

-

Other payables

6,370

(6,370)

(6,370)

-

-

-

Finance lease liability

43,479

(81,394)

(35,720)

(517)

(1,551)

(43,606)

Total financial liabilities

79,302

(117,678)

(70,662)

(820)

(2,590)

(43,606)

 

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. It is not expected that the cash flows included in the maturity analysis for 31 December 2016 could occur significantly earlier, or at significantly different amounts.



 

 

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 holds entities which are based locally in a number of different countries including Romania, the Czech Republic, Serbia, Canada and Israel, 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 the 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 was also exposed to changes in the local retail price index in Belgrade on the finance lease payments of the property in Belgrade, Serbia; see note 12, clause a.iv under this note and note 29.a.

 

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 summary quantitative data about the Group's exposure to currency risk as reported to the management of the Group is as follows:

 

 

Functional currency - net exposure

 

Serbian Dinar

Polish Zloty

Czech Koruna

Romanian Leu

New Israeli Shekel

Canadian Dollar

 

Thousands Euro

31 December 2016

(19,757)

(1,910)

(1,610)

(3,176)

(25,788)

193

31 December 2015

(19,839)

(3,720)

(4,764)

(4,269)

(25,136)

(858)

 

Additionally the Company has exposure to changes in the customer price index in Israel on loans and amounts due to related parties that amounted to EUR 23,252 thousands at 31 December 2016 (2015: EUR 22,871 thousands).



 

 

The following significant exchange rates have been applied:

 

 

Average rate

Year-end spot rate

 

2016

2015

2016

2015

CAD / EUR

0.682

0.706

0.706

0.665

CZK / EUR

27.033

27.284

27.020

27.025

PLN / EUR

4.363

4.184

4.424

4.262

RON / EUR

4.491

4.445

4.541

4.525

RSD / EUR

123.101

120.850

123.472

121.626

ILS / EUR

4.250

4.312

4.044

4.247

 

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 2016

31 December 2015

 

Strengthening change

Effect on profit for the year and equity

Strengthening change

Effect on profit for the year and equity

 

%

Thousands Euro

%

Thousands Euro

Euro vs. RSD

3%

(504)

4%

(675)

Euro vs. PLN

7%

(108)

6%

(181)

Euro vs. CZK

1%

(13)

3%

(116)

Euro vs. RON

3%

(80)

3%

(108)

Euro vs. ILS

6%

(1,137)

11%

(2,032)

Euro vs. CAD

10%

16

13%

(95)

Customer price index - Israel

-0.3%

51

-0.9%

151

Local retail price index - Serbia

-

-

1.7%

(628)

 

At 31 December 2016, a weakening of the Euro and/or a change of the customer price and local retail price index to the opposite direction in Israel 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

 

2016

2015

 

Thousands Euro

Fixed-rate instruments

 

 

Financial assets

 

 

    Cash and cash equivalents

510

652

    Restricted bank deposit

-

728

    Prepayments and other assets

1,124

-

    Loans and amounts to equity-accounted investment

573

2,938

 

2,207

4,318

Financial liabilities

 

 

    Loans and amounts due to related parties, joint

    venture and other

2,727

2,454

     Finance lease liability

-

43,479

 

2,727

45,933

Variable-rate instruments

 

 

Financial liabilities

 

 

    Interest-bearing bank loans

-

3,583

    Loans and amounts due to related parties, joint

    venture and other

23,538

23,122

 

23,538

26,705



 

 

Sensitivity analysis for variable-rate instruments

 

Cash flow sensitivity analysis for variable-rate instruments

 

A reasonable possible change of 3 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss 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 2016

31 December 2015

 

 Increase (decrease) in basis points

 Effect on equity and profit or loss

 Increase (decrease) in basis points

 Effect on equity and profit or loss

Variable-rate interest of RON

-

-

58

(1)

Variable-rate interest of Euro

-

-

(45)

9

Variable-rate interest of ILS

3

(5)

14

(24)

 

Fair value sensitivity analysis for fixed-rate instruments

 

The Group does not account for any fixed-rate financial assets or financial liabilities at fair value through profit or loss, and the Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model. Therefore, a change in interest rates at the reporting date would not affect profit or loss.



 

 

b.   Fair values versus carrying amounts

 

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

 

31 December 2016

31 December 2015

 

Carrying

Fair

Carrying

Fair

 

amount

value

amount

value

 

Thousands Euro

Financial assets

 

 

 

 

Cash and cash equivalents

510

510

652

652

Restricted bank deposit

-

-

728

728

Prepayments and other assets

1,124

1,124

-

-

Trade receivables

554

554

185

185

Fixed rate on loans and amounts to equity-accounted investment

573

574

2,938

2,942

Total financial assets

2,761

2,762

4,503

4,507






Financial liabilities

 

 

 

 

Floating rate interest-bearing bank loans

-

-

3,583

3,541

Trade payables

211

211

294

294

Fixed rate loans and amounts due to related

    parties and joint venture

2,727

2,679

2,454

2,472

Floating rate loans and amounts due to related

    parties and joint venture

23,538

23,299

23,122

23,333

Finance lease liability

-

-

43,479

42,716

Total financial liabilities

26,476

26,189

72,932

72,356

 

The fair value of loans and amounts to related parties has been calculated using an estimated market interest rate of 0.5% (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 venture has been calculated using an estimated market interest rate of 4.95% (2015: 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.

 

 

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 or Serbian 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.



 

 

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, pursuant to the agreements to which the Company is a party to. 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 case:

 

In 2013, a receiver was appointed by a court in Hungary and the entity which holds the Ingatlan project entered into bankruptcy process, and consequently, it is not consolidated into these consolidated financial statements. The amount of the unpaid loan at the date of deconsolidation was EUR 6,099 thousands, part of the related interest and cost overrun was not paid before the bankruptcy (liquidation) process.

 

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

 

 

NOTE 29 - SIGNIFICANT EVENTS DURING THE REPORTING PERIODS

 

a. Termination of lease agreement in Serbia

 

On 30 March 2006 and 18 February 2008 Marina Dorcol d.o.o ("MD") (a 95% owned subsidiary of the Company) signed several lease agreements with the Directorate for City Building Land, controlled by the Municipality of Belgrade ("the Municipality").

Since January 2011, MD has been in breach of the obligation to make the lease payments, following which the Company recognised during the reporting period, an expense of EUR 2,580 thousands as a result of the lease interest and inflation on the unpaid overdue lease contracted payments.

 

Following the breach 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 of termination of the lease agreement MD has in respect of the Marina Dorcol Project in Belgrade, Serbia.

 

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

 

On 29 September 2016, MD notified the Municipality that it accepted the termination letter and wished to negotiate with the Municipality in order to determine the amount and timing of the compensation due to MD as a result of the above termination.



 

 

Based on the agreement with the municipality, management believes that the final result of the termination will be the restitution of the amounts paid by MD 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 Company and MD are currently in the process of negotiation with the Municipality about the amount and timing of the restitution.

 

Management expects that following the termination it will 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 certainty. Based on MD's advisers, the range of the restitution can be in the amount of RSD 337,507 thousands (approximately EUR 2,737 thousands) to RSD 487,316 thousands (approximately EUR 3,952 thousands).

 

As management has no certainty of the amount that MD will be able to collect from the Municipality, management did not record receivables at the Company's consolidated financial statements generated from the above mentioned restitution of the lease agreement.

 

As MD is no longer bound to make any further payments on the lease liabilities on one hand and has no rights over the leased land on the other hand, the management of the Group derecognised of the lease liability and related asset in the reporting period.

 

As a consequence, income of EUR 23,510 thousands was recognised in profit and loss under "other income" in the consolidated financial statements.

 

The following table summarises the derecognised amounts of assets and liabilities including the related translation adjustment at the date of accepting the termination letter:

 

 

Thousands Euro

Inventories of housing units and land

8,293

Investment property

17,218

Finance lease liability

(45,806)

Release of related translation adjustments

(3,215)

Total identifiable net liabilities disposed

(23,510)

Expected restitution amounts, net (*)

-

Total income on de-recognition, net

23,510

 

(*) As of the reporting period the amount cannot be predicted with certainty.



 

 

b. 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 consolidated financial statements. The Company recognised income of EUR 115 thousands under "other income" in the 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.

 

Thousands Euro

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)

-

 

c. 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 consolidated financial statements.

 

The proceeds have been used for the repayment of the loan granted by Real Property Investment (Guernsey) Ltd., see note 30.c.3.

 

d. 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 no longer controls Arces, therefore ceased consolidating Arces in its consolidated financial statements. The Company recognised income of EUR 3,711 thousands under "other income" in profit or loss on the sale of its investment in Arces.

 

The income was mainly due to a recognised liability of Arces' 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; 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.

 

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

 

Thousands Euro

Cash and cash equivalents

28

Loans and amounts to related parties

142

Trade payables

(9)

Other payables

(3,580)

Provisions

(307)

Total identifiable net liabilities disposed

(3,726)

Sale expenses

15

Income on de-recognition, net

3,711

Cash and cash equivalents disposed of

(28)

Net cash outflow

(28)



 

NOTE 30 - 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 2016, 68.35% of the Company's issued share capital. Engel Resources and Development Ltd. (incorporated in Israel) ("ERD") holds 100% of the share capital of EGD.

 

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 Ltd. ("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.

 

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) Ltd. ("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.

 

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. The pledges over these shares were granted to ERD as part of the loan agreement between Eurobul, the Company and ERD.



 

 

b.   Transactions with key management personnel

 

1.   Directors

 

At 31 December 2016, the Company has 2 directors (2015: 2 directors).

 

In January 2017 one additional director was appointed (Mr. Sagee Kadosh).

 

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

 

 

 

For the year ended 31 December

 

 

2016

2015

 Name

Position

Thousands Euro

Terry Roydon

Non-executive director

24

28

Marius van Eibergen Santhagens (a)

Non-executive director

28

28

Ayelet Naim-Levanon (b)

Former executive director

-

-

Oded Shamir (c)

Former executive director

-

-

Dov Luxenburg (d)

Former executive director

-

-

Total

 

52

56

 

(a)   The cost above includes VAT payable.

(b)   Appointed in February 2016 and resigned from her position in September 2016.

(c)   Resigned from his position in September 2015.

(d)   Resigned from his position in October 2015.

 

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

 

2.   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 annual cost of the CEO during 2016 is EUR 59 thousands (2015: EUR 223 thousands) which includes salary cost, bonus for selling assets, termination agreement cost and expenses return.

 

c.   Related party transactions

 

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

 

i. 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 11.



 

 

 

ii.  The Company has pledged the shares of Marina Dorcol D.o.o in the amount of EUR 23.7 million to ERD (amount which was determined prior to the cancellation of the lease agreement, see note 29.a and have not change following the cancelation).

 

iii. The Company has pledge the future proceeds from the Group's assets in Canada.

 

2.   Support due to the Company's financial situation

 

At 31 December 2016, the outstanding debt due to ERD is EUR 25,724 thousands and is due by 30 April 2017, see note 13.

 

During 2016, ERD did not provide any additional bridge loans to the Company (2015: EUR 304 thousands).

 

During 2016, the Company repaid part of the loans granted by ERD to the amount of EUR 2,000 thousands (2015: EUR 4,000 thousands).

 

After the reporting period the Company repaid part of the loan granted by ERD to the amount of EUR 500 thousands.

 

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, as of the signature date of the financial statements; the support letter has not been renewed.

 

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. During the years 2015-2016, the Company paid all the 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, the timing of payment is being coordinated and discussed with ERD.

 

 

3.   Transactions with one of the ultimate shareholders

 

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) Ltd. ("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, see note 11.

 

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 29.c).

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 9.a.iv.2).

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

Based on prior agreements with ERD, all the remaining net proceeds from the sale of the two plots in Canada will be used to repay the outstanding debts of the Company to ERD.

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 was denominated in EUR and carried no interest.

 

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

 

d.   Trading transactions

 

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.

 

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

 

For the year ended 31 December

 

2016

2015

 

Thousands Euro

Statement of profit or loss

 

 

Revenue (a)

-

126

Interest expense on loans granted by Engel Resources and Development Ltd.

(1,394)

(1,280)

Interest expense on loans granted by GBES Ltd.

(11)

(11)

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

(1,252)

(2,726)

Interest due on loans and amounts to related parties

-

253

Total

(2,657)

(3,638)



 

 

 

31 December

 

2016

2015

 

Thousands Euro

Statement of financial position

 

 

Loans and amounts to related parties

43

2,044

Due to Engel Resources and Development Ltd.

(25,724)

(25,081)

Due to GBES Ltd.

(255)

(244)

Due to subsidiaries held by current and previous jointly controlled entities

(286)

(251)

Total

(26,222)

(23,532)

 

(a) The revenue in 2015 comprises management fee charges to the previously held joint ventures' subsidiaries incurred before the Company obtained control of the entities. The related cost in 2015 was EUR 161 thousands and it is presented under cost of sales (see notes 19 and 21).

(b) The Group recognised a loss in the amount of EUR 1,252 thousands (2015: EUR 2,726 thousands) 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 (-4.8%) during the reporting period. (2015: -10.1% weakening of the EUR).

 

 

NOTE 31 - OPERATING SEGMENTS

 

a.   Basis of segmentation

 

The Group's CODM (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 require a general decision making process which is different from a company or group of companies operating in a liquid position.

 

b.   Geographical information

 

The geographic information analyses the Group's revenue and non-current assets by the Company's country of domicile and other countries. In presenting the geographic 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 2016

31 December 2015



Non- current


Non- current


Revenue

Assets

Revenue

Assets


Thousands Euro

Czech Republic

5,605

-

1,713

1

Poland

-

-

43

-

Serbia

-

-

-

25,855

Romania

-

698

-

902

Israel

-

1

-

1

Total

5,605

699

1,756

26,759

 

Non-current assets exclude financial instruments and deferred tax assets.



 

NOTE 32 - NEW IFRS PRONOUNCEMENTS

 

A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2016; however, the Group has not applied the following new or amended standards in preparing these consolidated financial statements.

 

a. IFRS 9 Financial Instruments (2014)

(Effective for annual periods beginning on or after 1 January 2018; to be applied retrospectively with some exemptions. The restatement of prior periods is not required, and is permitted only if information is available without the use of hindsight. Early application is permitted).

 

This Standard replaces IAS 39, Financial Instruments: Recognition and Measurement, except that the IAS 39 exception for a fair value hedge of an interest rate exposure of a portfolio of financial assets or financial liabilities continues to apply, and entities have an accounting policy choice between applying the hedge accounting requirements of IFRS 9 or continuing to apply the existing hedge accounting requirements in IAS 39 for all hedge accounting.

 

Although the permissible measurement bases for financial assets - amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit and loss (FVTPL) - are similar to IAS 39, the criteria for classification into the appropriate measurement category are significantly different.

 

A financial asset is measured at amortised cost if the following two conditions are met:

·   the assets is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and,

·   its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.

 

In addition, for a non-trading equity instrument, a company may elect to irrevocably present subsequent changes in fair value (including foreign exchange gains and losses) in OCI. These are not reclassified to profit or loss under any circumstances.

 

For debt instruments measured at FVOCI, interest revenue, expected credit losses and foreign exchange gains and losses are recognised in profit or loss in the same manner as for amortised cost assets. Other gains and losses are recognised in OCI and are reclassified to profit or loss on derecognition.

 

The impairment model in IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' model, which means that a loss event will no longer need to occur before an impairment allowance is recognised.

 

The Group does not expect IFRS 9 (2014) to have material impact on the consolidated financial statements. The classification and measurement of the financial instruments are not expected to change under IFRS 9 because of the nature of the Group's operations and the types of financial instruments that it holds. The Group believes that impairment losses are not likely to change for assets in the scope of expected credit loss impairment model. The Group has not yet finalised the impairment methodologies that it will apply under IFRS 9.



 

 

b. IFRS 15 Revenue from contracts with customers

(Effective for annual periods beginning on or after 1 January 2018. Earlier application is permitted).

Clarifications to IFRS 15 Revenue from Contracts with Customers is not yet endorsed by the EU but IFRS 15 Revenue from Contracts with Customers including Effective Date of IFRS 15 have been endorsed by the EU.

 

The new Standard provides a framework that replaces existing revenue recognition guidance in IFRS. Entities will adopt a five-step model to determine when to recognise revenue, and at what amount. The new model specifies that revenue should be recognised when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is recognised:

·   over time, in a manner that depicts the entity's performance; or

·   at a point in time, when control of the goods or services is transferred to the customer.

 

IFRS 15 also establishes the principles that an entity shall apply to provide qualitative and quantitative disclosures which provide useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer.

 

Management has not yet fully completed its initial assessment of the potential impact of IFRS 15 on the Group's consolidated financial statements, and has not yet prepared an analysis of the expected quantitative impact of the new standard. The Group currently plans to apply the full retrospective approach when it initially applies IFRS 15, to improve comparability across years.

 

c. IFRS 16 Leases

(Effective for annual periods beginning on or after 1 January 2019. Earlier application is permitted if the entity also applies IFRS 15). This pronouncement is not yet endorsed by the EU.

 

IFRS 16 supersedes IAS 17 Leases and related interpretations. The Standard eliminates the current dual accounting model for lessees and instead requires companies to bring most leases on-balance sheet under a single model, eliminating the distinction between operating and finance leases.

 

Under IFRS 16, a contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. For such contracts, the new model requires a lessee to recognise a right-of-use asset and a lease liability. The right-of-use asset is depreciated and the liability accrues interest. This will result in a front-loaded pattern of expense for most leases, even when the lessee pays constant annual rentals.

 

The new Standard introduces a number of limited scope exceptions for lessees which include:

·   leases with a lease term of 12 months or less and containing no purchase options, and

·   leases where the underlying asset has a low value ('small-ticket' leases).

 

Lessor accounting shall remain largely unaffected by the introduction of the new Standard and the distinction between operating and finance leases will be retained.

 

The Group does not expect that the new Standard, when initially applied, will have material impact on the financial statements because the Group is not party to a contractual arrangement that would be in the scope of IFRS 16.



 

 

d. Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions

(Effective for annual periods beginning on or after 1 January 2018; to be applied prospectively. Early application is permitted). This pronouncement is not yet endorsed by the EU.

 

The amendments clarify share-based payment accounting on the following areas:

·   the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments;

·   share-based payment transactions with a net settlement feature for withholding tax obligations; and

·   a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity settled.

 

The Group expects that the amendments, when initially applied, will not have a material impact on the presentation of the financial statements of the Group because the Group does not enter into share-based payment transactions.

 

e. Amendments to IAS 7 Disclosure Initiative

(Effective for annual periods beginning on or after 1 January 2017, to be applied prospectively. Early application is permitted). This pronouncement is not yet endorsed by the EU.

 

The amendments require new disclosures that help users to evaluate changes in liabilities arising from financing activities, including changes from cash flows and non-cash changes (such as the effect of foreign exchange gains or losses, changes arising for obtaining or losing control of subsidiaries, changes in fair value).

 

The Group has not yet prepared an analysis of the impact this might have on its consolidated financial statement.

 

f. Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses

(Effective for annual periods beginning on or after 1 January 2017; to be applied prospectively. Early application is permitted). This pronouncement is not yet endorsed by the EU.

 

The amendments clarify how and when to account for deferred tax assets in certain situations and clarify how future taxable income should be determined for the purposes of assessing the recognition of deferred tax assets.

 

The Group expects that the amendments, when initially applied, will not have a material impact on the presentation of the consolidated financial statements of the Group because it already measures future taxable profit in a manner consistent with the Amendments



 

 

g. Amendments to IAS 40 Transfers of Investment Property

(Effective for annual periods beginning on or after 1 January 2018; to be applied prospectively). This pronouncement is not yet endorsed by the EU.

 

The amendments reinforce the principle for transfers into, or out of, investment property in IAS 40 Investment Property to specify that such a transfer should only be made when there has been a change in use of the property. Based on the amendments a transfer is made when and only when there is an actual change in use - i.e. an asset meets or ceases to meet the definition of investment property and there is evidence of the change in use. A change in management intention alone does not support a transfer.

 

The Group does not expect that the amendments will have a material impact on the financial statements because the Group does not have any investment properties.

 

h. IFRIC 22 Foreign Currency Transactions and Advance Consideration

(Effective for annual periods beginning on or after 1 January 2018). This pronouncement is not yet endorsed by the EU.

 

The Interpretation clarifies how to determine the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration in a foreign currency. In such circumstances, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration.

 

The Entity does not expect that the Interpretation, when initially applied, will have material impact on the financial statements as the Entity uses the exchange rate on the transaction date for the initial recognition of the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration.

 

The Group does not expect that the Interpretation, when initially applied, will have material impact on the financial statements as the Group uses the exchange rate on the transaction date for the initial recognition of the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration.

 

 

***


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