RNS Number : 4734E
Fabian Romania Limited
29 September 2008
29 September 2008
Fabian Romania Limited
Interim results for the period ended 30 June 2008
Fabian Romania Limited ("Fabian", "Fabian Romania" or the "Company"), the AIM quoted
dedicated Romanian real estate investor announces
its results for the period ended 30 June 2008. The Company's interim report and accounts will
be posted to Fabian Romania shareholders
shortly.
Highlights
* Secured three further development projects. One in Bucharest and two in western
Romania. Net equity investment over the period of
EUR4.4 million creating a portfolio of eleven projects in Romania. The Company's share of the
market value of these investments was EUR134.7
million at 30 June 2008, before deducting the outstanding non-recourse bank financing of
EUR62.3 million
* As at 30 June 2008 the Net Asset Value per share, calculated in accordance with the
Company's Articles of Association, was
EUR1.667 (2006: EUR1.548) an increase of 7.7 per cent. over the year
Jaroslav Kinach, Chairman of the Company, commented:
"These acquisitions are in line with the Company's strategy of investing in the Bucharest
office market and expanding its footprint
beyond the capital region of Bucharest to develop residential units in high growth cities
across the country. I am confident that the
Company will continue to drive growth by maximising the potential of its investments and
development projects."
Mark Holdsworth, Managing Director of Fabian Capital Limited, the Company's Investment
Manager commented:
"The acquisition of three further developments combined with the performance of the
existing investments has contributed to the NAV of
EUR1.667 per share, up 0.06 per cent. in the first half of the year which is a satisfactory
result in the current pan European economic
conditions. Although the residential market has slowed during the latter part of the period,
the office market continued to benefit from low
vacancy rates with rental levels continuing to move upward. The Company will continue its
strategy to develop the value of its portfolio by
capitalising on the attractive opportunities in the Romanian property market."
Contacts:
Fabian Romania Limited
Jaroslav Kinach Tel: +44 20 7499 9988
Fabian Capital Limited
Mark Holdsworth Tel: +44 20 7499 9988
Monument PR - Financial Public Relations to Fabian
Toby Moore Tel: +44 845 355 1178
Deloitte Corporate Finance - Nominated Adviser to
Fabian
James Lewis Tel: +44 20 7936 3000
KBC Peel Hunt - Joint Broker to Fabian
Capel Irwin Tel: +44 20 7418 8900
Shore Capital Stockbrokers Limited - Joint Broker to
Fabian
Dru Danford Tel: +44 20 7408 4090
Chairman's Statement
It gives me great pleasure to present the interim results of Fabian Romania Limited ("the
Company").
During the first half of 2008, Fabian Romania has secured three further development
projects; Romana, an office development in the
centre of Bucharest to be built on a fixed price contract which has commenced on schedule and
a 50/50 joint venture with the experienced
Hungarian developer SCD Group to develop residential units in Oradea and Satu Mare, both in
western Romania.
These acquisitions are in line with the Company's strategy of investing in the Bucharest
office market and expanding its footprint
beyond the capital region of Bucharest to develop residential units in high growth cities
across the country.
Overall, the Company's completed commercial properties are fully let other than the
smaller Evo Centre building with some vacant space.Construction of the commercial and residential development properties are progressing on
schedule and within budget. The Lakeview office
development is now fully pre-let or terms agreed and development is on schedule towards a
successful completion by the last quarter of 2009. Sales in our New Town residential development project in Bucharest are going to plan with the
first phase now near fully pre-sold and the
construction is progressing on schedule.
Fabian Romania has now fully invested or committed the funds previously raised totalling
EUR59.5 million and therefore future
investments will be funded by recycling the proceeds from the disposal of existing assets. In
view of prevailing market conditions, the
Company will not commit to any project unless it has sufficient funding to carry the project
through development towards a successful
completion. Funding of the current development projects will be met from existing undrawn bank
facilities and from the Company's cash
balances.
The Directors are confident that Fabian Romania advised by the Company's Investment
Manager, will continue its successful investment and
asset management activities by taking advantage of our growing experience and market
reputation to capitalise on opportunities in the
exciting Romanian real estate market.
We look forward with confidence to continuing to drive growth in net asset value per share
through maximising the potential of the
Company's current investment portfolio and by working with our development partners to build
out the Company's development projects.
Jaroslav Kinach
Chairman
Fabian Romania Limited
Investment Manager's Report
Fabian Romania is a property company whose activities are dedicated to Romania. The
Company's strategy is capital efficient profitable
growth as measured by net asset value per share achieved by serving three distinct groups of
customers active in the country's property
market. The Company, in conjunction with its co-investment development partners, builds both
Class A office buildings for sale to property
investing institutions and affordable residential apartments to the country's emerging middle
class. It also owns Class A office buildings,
which it rents to large foreign multinational and Romanian companies.
As part of this strategy, the Investment Manager seeks to secure investment opportunities
for the Board that meet both the above
mentioned needs of the Company's customers as well as the stringent financial return forecasts
on behalf of the Company's shareholders.
During the first half of this year, the Company acquired stakes in three further
development schemes to take the total number of
co-investment developments projects and fully let commercial buildings to eleven. The
Company's aim during the period has been to continue
to exploit the unmet needs of the Company's customers both in the residential and commercial
office building sub-sectors of the market. This
has also had the effect of maintaining a diversified portfolio both in type and location of
property, while continuing to focus on areas
where we have specific knowledge and experience.
The effect of this investment activity combined with the performance of the Company's
existing investments has been a flat NAV per share
up just 0.06 per cent. during the first half of this year to EUR1.667* (31 December 2007
restated: EUR1.666) and 7.7 per cent. in the last
twelve months (30 June 2007 restated: EUR1.548). This is a satisfactory result in the current
pan European economic conditions which have
begun to make themselves felt in the country during the period. The investment activities for
the first half of this year have created
further future development profit which is to be realised between 2010 and 2012 with DPNAV
growing 6.4 per cent. during the first half of
this year to EUR2.319* (31 December 2007 restated: EUR2.180) and 20.8 per cent. in the last
twelve months (30 June 2007 restated:
EUR1.920).
The Company's current portfolio consists of 21,239 square metres of income producing
commercial properties, 52,409 square metres of
commercial properties under development and 151,086 square metres of residential properties
under development, delivering 1,554 residential
units.
* The basis for calculating the value of the development projects was revised in the
second quarter to exclude the development profit
from the project valuation included in the NAV. Prior period valuations have been restated.
The Economy
Despite unsettled economic conditions elsewhere in Europe, the Romanian economy continues
to expand strongly. According to the National
Bank of Romania, GDP growth in 2008 is now expected to be 6.5 per cent. on the back of 6.0 per
cent. growth in 2007. With GDP growth of 7.9
per cent. in 2006 and 4.1 per cent. in 2005, Romania has been one of the fastest growing
economies in the European Union. The economy went
through two deep recessions in the 1990's but has now been continuously expanding at above 4
per cent. per annum since the end of 2000.
On the back of this strong GDP growth, together with high employment and a benign tax
environment, real wages grew by a staggering 21
per cent. in 2007 and 24.9 per cent. for the twelve month period to April this year. This
comes on the back of a 26 per cent. growth in
2006. This surge in real disposable income is having an impact on consumers with retail sales
showing a strong 9.7 per cent. growth for the
twelve months up to May of this year, which are in turn driving retailers' demand for new
retail space.
The combination of strong GDP growth and the rise in net wages, together with the
appreciation of the RON against the Euro since 2005,
has resulted in a consumption boom. This has ensured that the trade deficit has continued to
expand. The consensus forecast is for a 14 per
cent. current account deficit in 2008 with only half of the deficit expected to be covered by
foreign direct investment, with the balance
from portfolio inflows. The Central Bank has not been slow to respond to this and has
increased interest rates twice during the year to
reduce the trade imbalance and curb inflation. This has had some dampening effect on the
economy but not as much as anticipated. The
absolute level of the current account deficit remains a concern.
Financial Markets and Availability of Debt
The impact of the global credit crunch has been less visible in Romania than in Western
Europe. With the origin of the banks in the
market being Greek, Hungarian, Austrian, Italian and German rather than the UK or United
States, their outlook on the economy and their
perception of the credit crunch in their home market is somewhat more subdued.
Money market liquidity and the associated rise in euro denominated interest rates have
impacted the current Romanian banking market.However, as the banks become more sophisticated in terms of the financial structures
available, the total cost of financing has not
increased significantly. That said, loan to value ratios have started to reduce whilst margins
have risen. The Investment Manager has good
banking relationships but is aware that the availability of debt might be reduced further in
the future. Re-financing opportunities are
therefore being considered in order to avoid the need for refinancing at possibly less
advantageous times in the future.
The Residential Market
Demand in the residential market is being driven by the increased availability of
mortgages as more banks enter the mortgage market and
become more sophisticated in their offerings. The absolute level of wealth, combined with low
unemployment and the availability of this
mortgage finance, means that the emerging middle class are now able to afford new build
apartments of 75-100 square metres. The strong
growth in real wages has now also opened up the large regional cities of Romania as potential
cities for residential schemes. In
particular, the cities of western Romania, benefiting from their proximity to the Hungarian
border and being the recipients of considerable
foreign direct investment, look particularly attractive.
However, residential market demand has slowed in the latter part of the first half of
2008, mainly due to negative press created by
politicians highlighting the international credit crunch ahead of Presidential and
Parliamentary elections in November this year and by the
rise in mortgage rates to customers by some 200 basis points to around 9.5 per cent..
In the housing market, prices grew on average by 20 per cent. during 2007 according to
leading agent Colliers International. The
Investment Manager believes that the growth in prices is now slowing down and Colliers
International estimated house price growth in the
first half of 2008 at approximately 5 per cent.. Towards the end of the period, sales at the
New Town residential scheme began to slow,
reflecting the subdued nature of the overall residential market. Prior to this slowdown, we
were able to increase the prices at the New Town
development by 7 per cent. during the early part of the year.
The Investment Manager believes that the current low level of confidence in the Bucharest
housing market is a temporary phenomenon,
albeit one that is likely now to last into the first half of next year. Unlike other
residential markets in the region, Bucharest has had
relatively few modern apartments built for the emerging middle class to date. According to the
agents Colliers, 15,000 - 20,000 apartments
are due to be built between 2007 and 2010 out of total forecast demand of some 130,000 units.Anecdotal evidence suggests that as a result
of press speculation, many prospective buyers are waiting to buy apartments at completion
rather than 'off plan' thereby explaining the
slowdown in sales volumes for developers.
The Office Market
The office market continues to benefit from low vacancy rates which remain below 3 per
cent. according to DTZ Echinoz ("DTZ"). An inflow
of international companies looking for office space is still visible and the Company has not
yet seen any decrease in demand for space to
rent for well located schemes.
In 2007, a number of property agents forecast 300,000 square metres to be delivered during
the course of the year. However, only half of
this volume was actually delivered by the year end according to the same agents. Forecast
supply has for a number of years been consistently
overestimated. The constraints and the factors explaining this differentiation is that there
is a tendency to announce schemes on to the
market prior to the investor / developer having secured the title of the site, building
permit, financing or a contractor.
The Investment Manager believes that between 140,000 square metres and 170,000 square
metres of new office space will be delivered onto
the market by the end of 2008. Under such a scenario, and given the city's current total
Class A stock of around 1,000,000 square metres,
the Investment Manager believes that even if supply were to rise to around 250,000 square
metres for each of the next three years, Bucharest
will still have less Class A office space than Budapest's stock today of some 2,300,000 square
metres. It is likely that Bucharest will
remain undersupplied with office space for the coming 3-5 years as both international and
local developers are becoming more cautious and
scaling back their construction plans in the current financial climate. Given the forecast for
strong on-going GDP growth and tenant demand,
this bodes exceptionally well for owners of quality office space including the Company. The
Investment Manager continues to keep track of
the progress of current schemes and their respective prospects in the letting market.
According to local agents, rents continued their upwards move during the period to
EUR22-EUR24 per square metre per month, a rise of
some 10 per cent. on the fourth quarter of 2007. The Investment Manager is aware that city
centre rents of EUR27-28 have been achieved.Investment yields have moved out, although there is limited availability of deals to support
this view. Market participants believe that a
yield shift of some 50 basis points has occurred and that headline yields are now 6.25-6.5 per
cent.. For purchases and sales of completed
office buildings, the market has now shifted in favour of the buyer.
Investment Approach
The Company continues to be conservative in its approach to both financing and development
risk. The existing loan portfolio
incorporates a mix of fixed and floating loans, which is being actively managed to limit any
adverse impact on the Company from a sudden
deterioration in European interest rates. The Company's bank debt as at 30 June 2008 stood at
EUR40.8 million, secured against the
investment properties valued at EUR76.1 million, a gearing of 54 per cent..
The Company has always maintained a prudent policy of only buying into co-investment
development projects if it has the equity finance
to see the project through to completion. On current estimates, the Company does not require
any additional equity financing from
shareholders in order to build out its current development projects.
New Investments
In line with the Company's previously stated strategy, the Company made three further
investments during the first half of the year.
The acquisition of the Romana project, which was secured last year, was completed on 7
March 2008. The site is located in the centre of
Bucharest on Dacia Boulevard and will be developed to a standard targeted at attracting the
top end of the office rental market. The
prospective tenant(s) will be able to customise the fit-out of the building to meet its needs
and interest from tenants is already evident.The building will comprise a net lettable office area of around 2,480 square metres over 7
floors, together with 40 car parking spaces.
On 11 June 2008, the Company agreed to enter into a joint venture with SCD Group to
develop residential projects in western Romania.
The rationale behind the deal was to implement the strategy as one of the first residential
developers in the fast growing secondary cities
of Romania together with a strong partner. The joint venture partner SCD, based in Budapest,
is a young, dynamic and professional developer
with a proven track record of cost efficient developments. The joint venture will develop two
sites, the first of which is in Satu Mare and
comprises 6,700 square metres with a building permit for 165 apartments. The second site is in
Oradea comprising 33,862 square metres with
the intention to develop 388 apartments. Detailed planning and construction consents will be
required from local planners and are expected
to be received by the third quarter of 2008. Both projects are in the final stages of planning
and a sales strategy is being formulated.
Portfolio Update
The developments under construction are progressing on schedule without cost overruns or
delays. Lakeview, the office development in the
central north part of Bucharest is now 93 per cent. let with the remaining 7 per cent. under
heads of terms. Completion is anticipated by
the end of 2009. Cubic Centre, the office building in Pipera being constructed for the Company
by Kendama Limited, is on schedule with
anticipated practical completion in the first quarter of 2009. The first phase of New Town,
the residential scheme in Bucharest, will be
completed and handed-over to customers between January and March 2009. The overall scheme is
now 44 per cent. forward sold. The Orchard
residential project in Timisoara, western Romania, is at the final stages of planning and it
is hoped that a start on site will be achieved
by the end of this year.
The income producing buildings Banu, Baneasa, Cascades and Evo Centre are continuing to
see strong demand from tenants and rents are
continuing to rise. This has resulted in almost flat valuations of the buildings despite a
market influenced by upward pressure on yields.
Strategy and Outlook
Fabian Romania will continue to focus on serving the customers as it has done for the last
three years. All too often, Companies fail to
perform when management get distracted into diversification. The Investment Manager will
concentrate on co-investment developments in the
residential market in secondary cities and the office sector in Bucharest as well as income
producing office buildings in Bucharest.
Particular attention is being spent on the structuring and financing of projects to drive
returns in a prudent manner whilst it will
continue to offset construction risk by using strong specialised local and international
development partners. This strategy not only
mitigates construction risk, it helps the Company focus on its key skills.
The Investment Manager considers all of the Company's current investments as having
potential for further value growth but will
continually monitor each investment from a return perspective to evaluate the possibility to
sell buildings when it is appropriate to do so.Any potential sale proceeds from disposal of assets would be recycled for reinvestment in new
projects delivering attractive returns. Without doubt though, the best time to acquire property assets is when everyone is selling. The Investment Manager believes some
particularly attractive opportunities are likely to emerge over the next twelve months, in
particular from distressed sellers in the present
climate.
Risk will continue to be prudently managed. The Company, although focusing on enhancing
returns, will continue to mitigate risks and be
prudent in every investment decision in order to ensure successful completion of projects.
Innovation in financing structures will be important to drive returns. The Company is at
the forefront in this respect, both agreeing to
and introducing western structures to the market in order to further enhance the equity
efficiency. Continuity in discussions with banks
with a clear and deliberate strategy is one of the Investment Manager's and the Company's
competitive advantages.
The share price performance has been disappointing since the IPO in December 2006.However, the continuing progress of the Lakeview and
Romana projects, final planning of the Timisoara scheme and the near completion on the Cubic
Centre and New Town developments mark a
significant step towards the realisation of a substantial part of the future development
profit NAV of EUR2.319 per share.
We believe the delivery of realised profits from these development projects, forecast to
begin in 2009, will drive NAV per share, which
we believe sooner rather than later should be reflected in the Company's share price.
The Investment Manager is confident the Company will continue to develop the value of its
portfolio and that the Romanian property
market and Romania in general will continue to offer attractive opportunities for the
remainder of 2008 and beyond.
Mark Holdsworth & Jan-Olof Hansson
Fabian Capital Limited
26 September 2008
Finance Report
The Company has continued to produce strong financial results from its investments in
income producing properties, joint venture
projects and other property investments. At 30 June 2008, net assets were EUR65.2 million (31
December 2007: EUR66.4 million) of which
EUR13.8 million was cash remaining from the funds raised at listing but committed to
investments currently held. Any further investments
will therefore be funded by recycling the proceeds from the disposal of existing assets.
Financial Results
The loss before tax for the six months ended 30 June 2008 amounted to EUR1.3 million, a
decrease of EUR4.2 million from a profit of
EUR3.1 million for the same period to 30 June 2007. The decrease was the net effect of the
following:
* Operating revenues from rental income increased by EUR1.3 million from four office
properties for the whole year, compared to the
previous period when only two properties were income producing.
* The half year to 30 June 2007 benefited from negative goodwill of EUR1.6 million
arising on the acquisition of the Baneasa
Business Centre whereas no similar item arose in the half year to 30 June 2008.
* Fair value adjustments to the investment properties resulted in a reduction of
EUR0.7 million in their carrying value in the first
half of 2008 compared to a gain of EUR2.3 million at 30 June 2007.
* Operating expenses of EUR1.9 million, EUR0.3 million less than in the half year to
30 June 2007, reflected a reduction in external
advisors' fees as certain roles are now performed in house.
* Net financing costs were EUR0.6 million compared to finance income of EUR0.2 million
at 30 June 2008 as a result of increased
borrowings as well as lower cash holdings.
Financial Position
Total assets at 30 June 2008 were EUR116.5 million (31 December 2007: EUR115.9 million)
and principally comprised investment properties,
investments in joint ventures, other investments, loans receivable and cash. Total liabilities
were EUR51.3 million (31 December 2007:
EUR49.5 million) and were predominately borrowings secured against the value of the investment
properties, deferred tax arising on
differences in accounting and tax treatments and trade payables.
Net assets at 30 June 2008, prepared under IFRS, were EUR65.2 million, a decrease of
EUR1.2 million compared to the December 2007 year
end net assets of EUR66.4 million. In summary, net assets were made up as follows:
At 30 June 2008 At 31 December 2007
EUR'million EUR'million
Investment properties 75.4 71.8
Investment property under development 0.6 0.0
Loans receivable (including interest) 20.4 15.6
Investment in joint ventures 5.3 5.3
Cash at bank 13.8 22.5
Borrowings (40.8) (41.2)
Other assets / (liabilities) (9.5) (7.6)
Net assets 65.2 66.4
The increase in investment property was due to a re-valuation of the Cascades office
building and acquisition of the Romana site on
Dacia Boulevard, net of a de-valuation on the Banu Antonache, Baneasa Business Centre and Evo
Centre properties.
The increase in loans receivable arose from loans made to joint ventures in order to fund
further development work on the projects.
The decrease in the cash at bank was principally as a result of investments made of EUR4.0
million, net operating cash flows of EUR0.9
million and repayment of borrowings and interest of EUR3.8 million.
Gearing has decreased by 3.3 per cent. during the first half of this year due to the
increase in investment property values and
repayments of bank debt. Bank debt at 30 June 2008 amounted to EUR40.8 million secured over
investment properties held valued at EUR76.1
million resulting in a gearing of 54.1 per cent.
Net assets per share, prepared under IFRS, decreased slightly in the six month period to
30 June 2008 by 1.72 per cent. to EUR1.282 per
share from EUR1.304 per share.
Published NAV per share
The net assets per share prepared under IFRS ("IFRS NAV") differ from the amount
calculated in accordance with the Company's Articles of
Association and which is published quarterly ("Published NAV"). The differences arise as
adjustments to certain figures are made for the
Published NAV per share which are not recognised within the accounts under IFRS.
The Published NAV was EUR1.667 per share, a gain in the last six months of EUR0.001 per
share equating to an increase of 0.06 per cent..A break-down of the Published NAV is summarised below:
As at 30 June '08 Fabian's share of Net debt Net
Worth Net Equity Invested **
Market Value
EURm EURm
EURm EURm
Cascades 18.5 (9.1)
9.4 2.8
Banu 17.5 (8.7)
8.8 3.4
New Town * ^ 23.9 (10.5)
13.4 5.8
Lakeview *^ 15.6 (6.9)
8.7 5.3
Cubic Center 12.5 0.0
12.5 12.5
Baneasa Business Center 29.0 (19.3)
9.7 4.4
Timisoara * ^ 5.5 (2.3)
3.2 1.6
Evo Centre 6.0 (3.7)
2.3 1.8
Romana 3.1 0.0
3.1 2.9
Oradea * + 2.3 (1.6)
0.7 0.8
Satu Mare * + 0.8 (0.2)
0.6 0.7
Net Cash
10.4
Other assets / (liabilities)
1.9
Sub-total 134.7 (62.3)
84.7 42.0
Shares (ž)
50,831,130
NAVPS (EUR)
1.667
* represents Fabian Romania's share of the development
** net equity invested comprises the original acquisition equity less amounts repaid through
refinancing
^ includes development WIP less advance payments from customers
+ Net debt represents deferred acquisition costs
The adjustments to the IFRS NAV to arrive at the Published NAV include the revaluation of
joint venture investments, excess
consideration on acquisition of assets and liabilities, the exclusion of deferred tax arising
on property revaluations and the
capitalisation of the Company's share of losses in joint ventures.
A reconciliation between the IFRS NAV and the Published NAV is as follows:
EUR'million
Net assets, prepared under IFRS 65.2
Revaluation of joint venture investments 14.1
Excess consideration on acquisition of assets and liabilities (1.4)
Deferred tax not expected to crystallise 6.4
Share of loss of joint ventures 0.4
Net assets, per the Company's Articles of Association 84.7
Valuations of the New Town, Lakeview, Timisoara, Oradea and Satu Mare joint ventures, as
prepared by DTZ at 30 June 2008, have been
included in the Published NAV. These valuations were not applied to the IFRS accounts to
ensure compliance with IFRS.
Under IFRS the acquisition of the Romana office development is classified as an
acquisition of assets and liabilities and an excess of
EUR1.4million arose due to the fair value of the assets and liabilities acquired being less
than the consideration paid. The Published NAV
does not recognise this excess.
The deferred tax liability reported under IFRS of EUR6.4 million is primarily based on the
current fair market value of the investment
properties which is only applicable to asset sales. These deferred income tax liabilities are
not expected to become payable as, in the
event of a property sale, this will be effected through the sale of the shares of the relevant
holding SPV and not the property itself. For
the purposes of calculating the Published NAV the deferred tax liability is added back in
order to report a more representative figure of
the value which may be realised as the likelihood is that the deferred tax liability will
never crystallise.
Share of losses of joint ventures to date are written off under IFRS whereas when
preparing the Published NAV all costs are capitalised
in work in progress.
Future Development Profit
The Published NAV however, excludes the net present value of future profits that will be
generated from the development projects. In
order to provide transparency to shareholders as to the potential level of such future
development profits that may accrue to the Company,
DTZ has been asked to provide estimates of these development profits. Shareholders may then
choose to discount these profits to estimate
their net present value in today's terms based on current market conditions.
The forecast development profits were estimated at EUR33.2 million or EUR0.652 per share.If taken into account, the potential future
NAV ("Development Profit NAV" or "DPNAV") is expected to be EUR2.319 per share, an increase of
6.4 per cent. (31 December 2007 restated:
EUR2.180) in the half year to 30 June 2008.
A break-down of the future development profit at 30 June 2008 is summarised below:
Project Implied Fabian Romania's share of future Development Year
of Completion *
Profit (EURm)
Cubic Centre 4.3
2009
New Town 7.5
2009
Lakeview 9.0
2009
Timisoara 6.0
2010
Romana 1.3
2010
Satu Mare 1.5
2011
Oradea 3.6
2012
NAV contribution (EURm) 33.2
NAV contribution per share 0.652
(EUR)
* Fabian Romania estimates
The Company continues to monitor closely its current investments to ensure they reach
their full potential and all further investments
are assessed as to whether they meet the set determined return on equity requirements.
Anthony Foster
Fabian Capital Limited
26 September
Condensed consolidated interim income statement (unaudited)
For the six months ended 30 June 2008
Note Six months ended Six months ended Year
30 Jun 2008 30 Jun 2007 ended
EUR'000 EUR'000 31 Dec 2007
EUR'000
Net rental revenue 2,351 1,108 2,890
Fair value adjustment on 6 (730) 2,300 9,614
investment properties
Excess of net identifiable - 1,558 1,361
assets and liabilities over
consideration paid
Investment management fees (931) (698) (1,500)
Other operating expenses (989) (1,542) (2,764)
Total operating expenses (1,920) (2,240) (4,264)
(Loss)/profit from operating (299) 2,726 9,600
activities
Finance income 1,108 951 2,581
Finance expense (1,752) (732) (3,462)
Fair value gain/(loss) on 26 - (165)
financial instruments
Net finance (costs)/income (618) 219 (1,046)
Share of (loss)/profit of 9 (352) 183 (626)
equity accounted joint
ventures
(Loss)/profit before income (1,269) 3,128 7,928
tax
Income tax release/(expense) 12 131 (239) (1,847)
Net (loss)/profit for the
period attributable to equity (1,138) 2,889 6,081
holders of Fabian Romania
Limited
Basic and diluted earnings per 19 (0.02) 0.06 0.12
share (EUR)
As at 30 June 2008, 30 June 2007 and 31 December 2007 there is no difference between basic
and diluted earnings per share.
Condensed consolidated interim balance sheet (unaudited)
As at 30 June 2008
Note 30 Jun 2008 30 Jun 2007 31 Dec 2007
EUR'000 EUR'000 EUR'000
ASSETS
Property, plant and equipment - 14 -
Investment properties 6 75,410 58,300 71,770
Investment property under 7 646 - -
development 8 20,432 7,292 15,620
Other investments
Investment in joint ventures 9 5,253 5,738 5,276
Total non-current assets 101,741 71,344 92,666
Trade and other receivables 933 784 665
Income tax receivable 30 - -
Cash and cash equivalents 10 13,816 28,827 22,528
Total current assets 14,779 29,611 23,193
Total assets 116,520 100,955 115,859
SHAREHOLDERS' EQUITY
Share capital 1 1 1
Share premium 59,763 59,737 59,763
Retained earnings 5,622 3,568 6,760
Translation reserve (180) - (140)
Total equity attributable to 65,206 63,306 66,384
equity holders of the Company
LIABILITIES
Interest-bearing loans and 11 40,219 31,983 40,256
borrowings
Derivative financial instruments 140 - 166
carried at fair value
Deferred tax liabilities 12 6,367 4,438 6,514
Other non-current liabilities 13 3,446 271 888
Total non-current liabilities 50,172 36,692 47,824
Current portion of 11 621 - 904
interest-bearing loans and
borrowings
Income tax payable - 85 60
Trade and other payables 521 872 687
Total current liabilities 1,142 957 1,651
Total liabilities 51,314 37,649 49,475
Total equity and liabilities 116,520 100,955 115,859
Condensed consolidated interim statement of changes in equity (unaudited)
For the six months ended 30 June 2008
Share Capital Share Premium Retained Earnings Translation
Reserve Total
EUR'000 EUR'000 EUR'000
EUR'000 EUR'000
As at 1 January 2008 1 59,763 6,760
(140) 66,384
Loss for the period - - (1,138)
- (1,138)
Exchange losses on translation - - -
(40) (40)
As at 30 June 2008 1 59,763 5,622
(180) 65,206
For the six month period ended 30 June 2007
Share Capital Share Premium Retained Earnings Translation
Reserve Total
EUR'000 EUR'000 EUR'000
EUR'000 EUR'000
As at 1 January 2007 1 59,737 679
- 60,417
Profit for the period - - 2,889
- 2,889
As at 30 June 2007 1 59,737 3,568
- 63,306
For the year ended 31 December 2007
Share Capital Share Premium Retained Earnings Translation
Reserve Total
EUR'000 EUR'000 EUR'000
EUR'000 EUR'000
As at 1 January 2007 1 59,737 679
- 60,417
Profit for the year - - 6,081
- 6,081
Exchange losses on translation - - -
(140) (140)
Cost of share issue over - 26 -
- 26
accrued in 2006
As at 31 December 2007 1 59,763 6,760
(140) 66,384
Condensed consolidated interim cash flow statement (unaudited)
For the six months ended 30 June 2008
Note Six months ended Six months ended Year
30 Jun 2008 30 Jun 2007 ended
EUR'000 EUR'000 31 Dec 2007
EUR'000
Cash generated from operating 14 187 (1,103) (362)
activities
Income tax paid (106) - (625)
Net cash used in operating 81 (1,103) (987)
activities
Cash flows from investing
activities
Acquisition of subsidiary, net 68 (10,340) (15,799)
of cash acquired
Investments in non-current - (100) -
assets
Loans granted (4,368) (6,573) (15,831)
Loan repayments received - 4,727 4,721
Interest received 293 1,067 1,595
Acquisition of property and (646) (5) (87)
equipment
Net cash used in investing (4,653) (11,224) (25,401)
activities
Financing activities
Proceeds from borrowings - - 10,019
Repayment of borrowings (2,533) (122) (873)
Interest paid (1,385) (369) (1,723)
Payments of share issuance - (551) (614)
costs
Net cash (used in)/from (3,918) (1,042) 6,809
financing activities
Net decrease in cash and cash (8,490) (13,369) (19,579)
equivalents
Cash and cash equivalents at 1 22,528 42,196 42,196
January
Effect of foreign exchange
rates on cash and cash (222) - (89)
equivalents
Cash and cash equivalents at 13,816 28,827 22,528
end of period
Notes to the consolidated interim financial statements (unaudited)
For the six months ended 30 June 2008
1. Reporting entity
Fabian Romania Limited (the "Company") is a company domiciled in Jersey.
The condensed consolidated interim financial statements as at and for the six months ended 30
June 2008 comprise the Company and its
subsidiaries (together the "Group") and the Group's interest in joint ventures.
The Company's shares are listed on the Alternative Investment Market.
The consolidated financial statements of the Group for the period ended 30 June 2008 and
for the year ended 31 December 2007 are
available on the Company's website www.fabianromania.com.
2. Basis of preparation
These condensed consolidated interim financial statements have been prepared in accordance
with International Financial Reporting
Standard (IAS) 34 Interim Financial Reporting. They do not include all of the information
required for full annual financial statements and
should be read in conjunction with the consolidated financial statements of the Group as at
and for the year ended 31 December 2007.
The condensed consolidated interim financial statements are presented in Euro (EUR)
rounded to the nearest thousand.
3. Estimates
The preparation of interim financial statements requires management to make judgements,
estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and liabilities, income
and expenses. Actual results may differ from
those estimates.
In preparing these condensed consolidated interim financial statements, the significant
judgements in applying the Group's accounting
policies and the key sources of estimation uncertainty were the same as those that applied to
the consolidated financial statements as at
and for the year ended 31 December 2007.
4. Financial risk management
During the six month period ended 30 June 2008, the Group's objectives and policies in
respect of financial risk management were
consistent with that disclosed in the consolidated financial statements as at and for the year
ended 31 December 2007.
5. Accounting policies
The accounting policies applied by the Group in these condensed consolidated financial
statements were the same as those applied by the
Group in its consolidated financial statements as at and for the year ended 31 December 2007.
The following new standards, amendments to standards or interpretations are mandatory for
the first time for the financial year
beginning 1 January 2008 but are not currently relevant for the Group.
* IFRIC 11, 'IFRS 2 - Group and treasury share transactions'.
* IFRIC 12, 'Service concession arrangements'.
* IFRIC 14, 'IAS 19 - the limit on a defined benefit asset, minimum funding
requirements and their interaction'.
The following new standards, amendments to standards and interpretations have been issued
but are not yet effective for the financial
year beginning 1 January 2008 and have not been early adopted:
* IFRS 8, 'Operating segments', effective for annual periods beginning on or after 1
January 2009. The Standard requires segment
disclosure based on the components of the entity that management monitors in making decisions
about operating matters. Operating segments
are components of an entity about which separate financial information is available that is
evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing performance. There is no
expected impact from this standard.
* IAS 23 (amendment), 'Borrowing costs', effective for annual periods beginning on or
after 1 January 2009. The revised Standard
will require the capitalization of borrowing costs that relate to assets that take a
substantial period of time to get ready for use or
sale. The Group has early adopted this standard in its annual financial statements as of 31
December 2007.
* IFRS 2 (amendment) 'Share-based payment', effective for annual periods beginning on
or after 1 January 2009. There is no expected
impact from this standard.
* IFRS 3 (amendment), 'Business combinations' and consequential amendments to IAS 27,
'Consolidated and separate financial
statements', IAS 28, 'Investments in associates' and IAS 31, 'Interests in joint ventures',
effective prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after 1 July 2009. Group
management is currently assessing the impact of the new requirements regarding acquisition
accounting, consolidation and associates on the
Group consolidated financial statements.
* IAS 1 (amendment), 'Presentation of financial statements', effective for annual
periods beginning on or after 1 January 2009. The
revised Standard requires information in financial statements to be aggregated on the basis of
shared characteristics and introduces a
statement of comprehensive income. Items of income and expense and components of other
comprehensive income may be presented either in a
single statement of comprehensive income with subtotals, or in two separate statements (a
separate income statement followed by a statement
of comprehensive income). Group management is currently assessing the impact of this
standard.
* IAS 32 (amendment), 'Financial instruments: Presentation', and consequent amendments
to IAS 1, 'Presentation of financial
statements', effective for annual periods beginning 1 January 2009. The amendments introduce
an exemption to the principle otherwise applied
in IAS 32 for the classification of instruments as equity; the amendments allow certain
puttable instruments issued by an entity that would
normally be classified as liabilities to be classified as equity if and only if they meet
certain conditions. The amendments are not
relevant to the Group's financial statements as none of the Group entities have in the past
issued puttable instruments that would be
affected by the amendments.
* IFRIC 15 Agreements for the Construction of Real Estate (effective for annual
periods beginning on or after 1 January 2009). IFRIC
15 clarifies that revenue arising from agreements for the construction of real estate is
recognised by reference to the stage of completion
of the contract activity in the following cases:
1. the agreement meets the definition of a construction contract in accordance with IAS
11.3;
2. the agreement is only for the rendering of services in accordance with IAS 18 (e.g.,
the entity is not required to supply
construction materials); and
3. the agreement is for the sale of goods but the revenue recognition criteria of IAS
18.14 are met continuously as construction
progresses.
In all other cases, revenue is recognised when all of the revenue recognition criteria of
IAS 18.14 are satisfied (e.g., upon completion
of construction or upon delivery).
The Group has not yet completed its analysis of the impact of the new Interpretation as
this must be assessed on a contract by contract
basis.
* IFRIC 16 Hedges of a Net Investment in a Foreign Operation (effective for annual
periods beginning on or after 1 October 2008).The Interpretation explains the type of exposure that may be hedged, where in the group the
hedged item may be held, whether the method of
consolidation affects hedge effectiveness, the form the hedged instrument may take and which
amounts are reclassified from equity to profit
or loss on disposal of the foreign operation. The Group has not yet completed its analysis of
the impact of the new Interpretation.
6. Investment property
As at As at As at
30 Jun 30 Jun 31 Dec
2008 2007 2007
EUR' EUR' EUR'
000 000 000
At 1 January 71,770 28,400 28,400
Acquisitions during the period 4,370 27,600 33,670
Fair value (loss)/gain on investment property (730) 2,300 9,614
Additions - - 86
75,410 58,300 71,770
At 30 June 2008, the fair value of the investment properties is based on a valuation
performed by the appointed independent valuer, DTZ
Echinox. The valuation method applied is the capitalisation of rental income based on the
rents payable under the existing lease agreements
and average market rental values.
7. Investment property under development
As at As at As at
30 Jun 30 Jun 31 Dec
2008 2007 2007
EUR' EUR' EUR'
000 000 000
At 1 January - - -
Additions 646 - -
646 - -
8. Other investments
As at As at As at
30 Jun 30 Jun 31 Dec
2008 2007 2007
EUR' EUR' EUR'
000 000 000
Advance payment:
Cubic Centre Development SRL (1) 6,951 - 6,739
Loans receivable:
Coltex Invest Construct SRL (2) 1,750 1,000 1,730
Cubic Center Development SRL 5,000 5,000 5,000
SCD Fabian SRL (3) 1,497 - -
AIG/Lincoln Lakeview S.a.r.L (4) 4,282 1,199 1,736
Loan interest receivable:
Coltex Invest Construct SRL 97 - 49
Cubic Center Development SRL 413 61 238
SCD Fabian SRL 15 - -
AIG/Lincoln Lakeview S.a.r.L 427 32 128
20,432 7,292 15,620
The following loan advances were made during the six months ended 30 June 2008.
(1) No further advance to Cubic Centre Development SRL was made during the period. The
increase in the balance receivable relates to
interest receivable, which is accrued at the effective rate, as the advance payment is
recorded at amortised cost.
(2) The Group made payments to Coltex Invest Construct SRL under the existing loan
facility agreement of EUR2 million to fund working
capital. Amounts receivable are shown after the reversal of EUR10,188 impairment losses
previously recognised in the prior period (see note
9).
(3) The Group advanced loans to SCD Fabian SRL in order to fund the acquisition of
land. The loan bears interest at a rate of 7 per
cent. per annum and is repayable, plus any accrued interest, at maturity on 23 May 2011.Amounts receivable are shown after recognition of
impairment losses of EUR21,518 (see note 9).
(4) The Group advanced a further EUR2,840,000 to their joint venture entity AIG/Lincoln
Lakeview S.a.r.L in order to fund the on-going
development project. These advances were granted under the existing loan agreement. Amounts
receivable are shown after recognition of
impairment losses of EUR293,000 (see note 9).
9. Investments in joint ventures
The carrying value of joint venture arrangements is detailed below:
AIG/Lincoln Lakeview Phoenix Park S.R.L. Coltex Invest SCD
Fabian OSM S.A. Total
S.a.r.L Construct S.R.L.
EUR'000 EUR'000 EUR'000
EUR'000 EUR'000
As at 1 January 2008 - 5,276 -
- 5,276
Additions - - -
25 25
Group share of losses - (23) -
(25) (48)
As at 30 June 2008 - 5,253 -
- 5,253
In accordance with the Group's accounting policy on treatment of joint venture
arrangements, the Group's share of losses from joint
venture interests are firstly deducted from the cost of investment. Where the Group's share of
losses exceeds the cost of investment, any
subsequent losses are deducted from amounts receivable from the joint venture.
The Group's share of joint venture losses for the period ended 30 June 2008 have been
recognised as follows:
AIG/Lincoln Lakeview Phoenix Park
S.R.L. Coltex Invest SCD Fabian OSM S.A.
Total
S.a.r.L
Construct S.R.L.
EUR'000
EUR'000 EUR'000 EUR'000
EUR'000
Losses recognised against cost of investment -
(23) - (25)
(48)
Gains/(losses) recognised by impairment of amounts (293)
- 10 (21)
(304)
receivable
As at 30 June 2008 (293)
(23) 10 (46)
(352)
On 28 May 2008, the Company completed the acquisition of a 50 per cent. interest in a
joint venture, SCD Fabian OSM SA (incorporated in
Luxembourg).
The Group has 50 per cent. interests in joint ventures Phoenix Park S.R.L., AIG/Lincoln
Lakeview S.a.r.L, Coltex Invest Construct S.R.L.and SCD Fabian OSM SA whose principal activities are investment in development property, both
commercial and residential.
Summary financial information for equity accounted investees, not adjusted for the
percentage ownership held by the Group is presented
below:
As at
Six months
to
30 June 2008
30 June
2008
Non-Current Assets
Non-Current
EUR'000
Liabilities
EUR'000
Current Assets Total Assets Current
Liabilities Revenue
Expenses
EUR'000 EUR'000
EUR'000 EUR'000
EUR'000
Phoenix Park S.R.L. 2,346 40,606 42,952
255 33,157 -
45
AIG/Lincoln Lakeview S.a.r.L 1,883 22,158 24,041
728 25,223 -
585
Coltex Invest Construct S.R.L. 1,320 8,431 9,751
5 9,175 47
27
SCD Fabian OSM SA 538 6,204 6,742
3,794 3,082 -
93
The revenue and expense items for SCD Fabian were for the period from the date of
acquiring an interest on 28 May 2008 until the period
end on 30 June 2008.
10. Cash and cash equivalents
Included within cash and cash equivalents are restricted cash balances held on Escrow
accounts amounting to EUR3,375,000 (31 December
2007: EUR790,000).
11. Interest bearing loans and borrowings
As at As at As at
30 Jun 2008 30 Jun 31 Dec
EUR'000 2007 2007
EUR' EUR'
000 000
Loan from Investkredit Bank AG:
Non-current 40,219 31,983 40,256
Current 621 - 904
40,840 31,983 41,160
Movements in borrowings are analysed as follows:
As at
30 Jun 2008
EUR'000
At 1 January 41,160
Accrued interest at 30 June 2008 119
Acquisition of subsidiary 2,094
Repayment of borrowings (2,533)
Closing amount as at 30 June 2008 40,840
The Group has drawn upon all borrowing facilities in full.
12. Taxation
The Company is an "exempt company" for Jersey tax purposes so that its liability to Jersey
taxation is limited to a flat fee, currently
levied at £600 sterling per annum.
Tax on profits of the Group arising in Romania are computed using the tax rate of 16 per
cent. (2007: 16 per cent.), both for current
and deferred tax.
The total tax expense for the period is detailed below:
Six months ended Six months ended Year
30 Jun 2008 30 Jun 2007 ended
EUR'000 EUR'000 31 Dec 2007
EUR'000
Current income tax (16) 1 (316)
(expense)/credit for the
period
Deferred tax release/(expense) 147 (240) (1,531)
for period
Total income tax 131 (239) (1,847)
release/(expense) for the
period
Movements in the net deferred tax liability are summarized below:
Six months ended Six months ended Year
30 Jun 2008 30 Jun 2007 ended
EUR'000 EUR'000 31 Dec 2007
EUR'000
At 1 January 6,514 1,705 1,705
Deferred tax liability on - 2,493 3,278
acquisition of subsidiary
Deferred tax (release)/expense (147) 240 1,531
for period
Net deferred tax liability 6,367 4,438 6,514
13. Other non-current liabilities
As at As at As at
30 Jun 30 Jun 31 Dec
2008 2007 2007
EUR' EUR' EUR'
000 000 000
Amounts payable in respect of acquisition of 3,122 - 600
subsidiaries
Tenant rental deposits 324 271 288
3,446 271 888
14. Cash generated from operations
Reconciliation of operating profit/(loss) from continuing operations to net cash flow from
operating activities:
Six months ended Six months ended Year
30 Jun 2008 30 Jun 2007 ended
EUR'000 EUR'000 31 Dec 2007
EUR'000
Operating activities:
Net (loss)/profit for the (1,138) 2,889 6,081
period/year
Adjustments for:
Valuation loss/(gain) on 730 (2,300) (9,614)
investment properties
Excess of net identifiable - (1,558) (1,361)
assets and liabilities over
consideration paid
Interest expense 1,752 627 3,341
Interest revenue (1,108) (258) (2,581)
Foreign exchange losses and 82 66 287
other non-cash items
Share of losses/(profits) in 352 (183) 626
equity accounted investees
Income tax (release)/expense (131) 239 1,847
Changes in working capital (352) (625) 1,012
Cash generated from operating 187 (1,103) (362)
activities
15. Related party transactions
There is an investment management agreement between the Company and Fabian Capital Limited
for the day to day management of the Group.Mark Holdsworth is a Director of both Fabian Romania Limited and Fabian Capital Limited. An
investment management fee is payable to the
investment manager, Fabian Capital Limited. Investment Management fees are payable quarterly
in advance. The fee for the period 1 January
2008 to 30 June 2008 amounted to EUR931,288 (1 January 2007 to 30 June 2007: EUR698,046 and
year to 31 December 2007: EUR1,499,994).
During the period an agreement was entered into whereby the Investment Manager would be
reimbursed for services provided to the Company
in respect of the provision of management information, payment of a proportion of overheads
and reimbursement of salary costs of a member of
staff who works exclusively for the Group. Fees paid to the Investment Manager during the
period under this services agreement amounted to
EUR98,705 (1 January 2007 to 30 June 2007: EURnil and year to 31 December 2007: EURnil).
Fees paid to JTC Fund Services Limited, the Group's administrators, amounted to EUR119,866
for the period from 1 January 2008 to 30 June
2008 (1 January 2007 to 30 June 2007: EUR118,021 and year to 31 December 2007: EUR197,630)
and have been charged to the income statement.
Stephen Burnett, Nigel Le Quesne, Philip Henry Burgin and Nigel Charles Syvret are
directors of both the Company and Jersey Trust
Company. Directors' fees paid in the period were EUR77,087 (six months to 30 June 2007:
EUR30,000 and year to 31 December 2007:
EUR174,823).
16. Joint Venture Agreements
On 28 May 2008, the Company completed the acquisition of a 50 per cent.interest in a joint
venture, SCD Fabian OSM (incorporated in
Luxembourg), which acquired two sites known as Oradea and Satu Mare and located in western
Romania. The acquisition price of the two sites
amounts to EUR3,100,000.
17. Acquisition of assets and liabilities
On 7 March 2008, the Company completed the acquisition of 100 per cent. of the share
capital HIL Investitii & Constructii S.R.L which
has a site on Dacia Boulevard at an acquisition price for EUR2,537,126 of which EUR50,000 has
been paid to date. The acquisition note is set
out below.
Book Value Fair Value adjustment Fair Value
EUR'000 EUR'000 EUR'000
Net assets acquired
Investment property 2,950 1,420 4,370
Work in progress 108 - 108
Trade and other receivables 85 - 85
Cash and cash equivalents 68 - 68
Loans payable (2,094) - (2,094)
Total net assets 1,117 1,420 2,357
Excess in fair value over consideration paid (allocated to land - note 7) -
Total consideration 2,537
Satisfied by:
Cash 50
Deferred consideration 2,487
Net cash flow arising on
acquisition
Cash consideration (paid and 2,537
deferred)
Cash and cash equivalent (68)
acquired
2,469
As at the date of acquisition, HIL Investitii & Constructii was not a business as defined
by IFRS 3 and therefore the acquisition of 100
per cent. of the interest in the subsidiary was not considered a business combination, but
rather an acquisition of assets and liabilities.The excess of consideration payable over the net assets acquired has been allocated to the
land as detailed in note 6. No deferred tax has
been recognised for the above acquisition.
From the date of acquisition to 30 June 2008, the acquisition contributed an operating
loss of EUR226,000 after foreign exchange gains
and interest. If the acquisition had been made at the beginning of the financial year the
contribution towards operating losses would have
been the same as the company was inactive.
18. Commitments and contingencies
On 7 March 2008, the Company completed the acquisition of 100 per cent. of HIL Investitii
& Constructii S.R.L.. HIL Investitii &
Constructii is committed to meet development costs of EUR6,250,000 until construction is
complete, of which EUR646,000 has already been
paid.
Those commitments and contingencies which existed at 31 December 2007 remain unchanged.
19. Earnings per share
The calculation of basic and diluted earnings per share at 30 June 2008 was based on the
loss attributable to ordinary shareholders of
EUR1,138,000 (30 June 2007: profit of EUR2,889,000 and 31 December 2007: profit of
EUR6,080,000) and a weighted average number of shares of
50,831,130 (30 June 2007: 50,831,130 shares and 31 December 2007: 50,831,130 shares).
20. Subsequent events
In the opinion of the directors no events occurred after the balance sheet date which
require to be disclosed.
Availability of interim report
Copies of the Interim report will be available to the public free of charge from the
office of the Company's investment manager at
Fabian Capital Limted, 52 Berkeley Square, London W1J 5BT. A copy of the Interim statement
will also be made available on the Company's
website, www.fabianromania.com.
The directors of Fabian accept responsibility for the information contained in this
announcement. To the best of the knowledge and
belief of the directors of Fabian (who have taken all reasonable care to ensure that such is
the case) the information contained in this
announcement is in accordance with the facts and does not omit anything likely to affect the
import of such information.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR SEDFIMSASEFU
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