TIDMKBE
RNS Number : 2126H
Kimberly Enterprises N.V.
15 August 2016
Kimberly Enterprises N.V.
('Kimberly' or 'the Company')
Results for the six month period ended 30 June 2016
Kimberly Enterprises N.V., the AIM-listed Central and Eastern
European property developer (AIM: KBE), announces its unaudited
results for the six month period ended 30 June 2016.
As Engel Resources and Development Ltd. ("ERD"), the parent
company of the Company's immediate parent company, Engel General
Developers Ltd. ("EGD"), is no longer required to publish quarterly
results on the Tel Aviv Stock Exchange, the Company will cease to
publish its results for the 1st Quarter and 3rd Quarter starting
the next quarter.
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
Financial Summary
For the year
For the six ended 31
months ended December
30 June 2016 2015
-------------- -------------
EUR'000 EUR'000
-------------- -------------
Net liabilities (43,740) (41,779)
NAV/share (Euro) (0.50) (0.48)
Revenue 2,932 1,756
Change in fair value of investment
property - (734)
Write-down of inventory (51) (118)
Gross loss (132) (913)
Other income 115 442
Operating loss (582) (1,245)
Net financing costs (2,381) (11,106)
Share of profit of equity-accounted
investments, net of tax 315 1,741
Loss before tax (2,648) (10,610)
Loss after tax (2,581) (10,403)
Loss per share (Euro) (0.028) (0.114)
Enquiries:
Kimberly Enterprises N.V.
Assaf Vardimon Tel: +31 (0) 20 778 4141
Cairn Financial Advisers LLP (Nomad)
Sandy Jamieson, James Caithie Tel: +44 (0) 207 148 7900
Financial Position - going concern
a. Breach of obligation to make finance lease payments
Since January 2011, Marina Dorcol D.o.o ("MD") (95% interest
subsidiary of the Company) has been in breach of its obligation to
make finance lease payments relating to the lease of plot of land,
Marina Dorcol, Belgrade, Serbia.
At 30 June 2016, MD was in breach of EUR 34.9 million of lease
payments. During the reporting period, management recognised an
expense of EUR 1,779 thousands as a result of the lease interest
and inflation on the unpaid overdue lease contracted payments.
Following the breach, the Directorate for City Building Land,
controlled by the Municipality of Belgrade ("the Municipality")
initiated several claims during recent and previous periods to
collect those debts.
On 3 June 2016, MD received from the Mayor of Belgrade, a notice
requesting the termination of the lease agreement MD has in respect
of the Marina Dorcol Project in Belgrade, Serbia ("notice").
Management believes that the notice that was received by MD
should not be considered as a valid termination of the lease from
legal point of view as at 30 June 2016; however, it indicated the
municipality's intention considering the overdue liability of the
Group as of the end of the reporting period.
On 22 July 2016, the Municipality delivered MD a unilateral
termination of the lease agreement over the Marina Dorcol Project
in Belgrade, Serbia ("termination letter").
As a result of the above, the Company reclassified the finance
lease liability in the amount of EUR 7,737 thousand, which was
presented as a non-current liability, as a current liability.
MD filed a dispute over the above termination letter, as based
on the legal advice it has received, according to which the
termination procedure has not been done according to the lease
agreement. Based on its lawyers' estimations, it is still premature
to determine the results of this dispute.
As the Company does not accept the reasons for the termination,
the Company should initiate a procedure before the Commercial Court
in Belgrade (or, potentially, to file investment claim to the
competent arbitration panel) for the determination of the validity
of the request for the termination and whether the request is based
on valid legal and commercial reasons.
Management expects that the final result of the termination
would be the restitution of the amounts paid by the Company in
respect of MD based on the agreements with the Municipality, less
the amount of compensation to the Municipality for usage of such
land for the period of duration of lease and for compensation of
damages which occurred to the Municipality, if any. The Group is
currently in the process of negotiation with the Municipality about
the amount and timing of the restitution.
Management expects that following the termination it would have
a net cash inflow from the above restitution, however, the net cash
flow and the timing to conclude the settlement with the
Municipality cannot be predicted at this stage with any
certainty.
Based on the interim financial statements as of 30 June 2016 and
excluding the net cash inflow that is expected to arise upon
termination, the Company's management estimates the impact on the
Group's financial position would be a decrease of the non-current
assets by EUR 25,459 thousands, a decrease of the liabilities by
EUR 44,982 thousands and an increase in the Group's profit or loss
and equity by EUR 19,523 thousands (before tax effect, if any).
b. Support from Engel Resources and Development Ltd.
In order to manage its financial situation, in previous periods
the Company approached ERD to provide additional financial
assistance to fund the Company's immediate liabilities.
As of 30 June 2016, the outstanding debt toward ERD is EUR
25,509 thousands and is due by 30 September 2016. During the
reporting period, ERD did not provide any additional bridge loans
to the Company.
In order to finance the Company's immediate liabilities and to
stabilise its financial position, management has acted to realise
several assets during the recent reporting periods.
ERD support is still needed in the form that it extends the
repayment date of its loans beyond 30 September 2016.
c. Conclusion
At 30 June 2016, the Group has current liabilities totalling EUR
77,350 thousand, which exceeds its current assets amounting to EUR
7,409 thousands and a negative equity which amounts to EUR 43,740
thousands.
The financial statements are prepared based on a going concern
basis. However, management believes that the above mentioned
conditions (i.e. breach of its obligation to make finance lease
payments and the requirement to extend the loans granted by ERD)
indicate the existence of material uncertainties which cast
significant doubt on the Group's ability to continue as a going
concern.
Should the going concern assumption not be appropriate,
adjustments would have to be made to reflect a situation where the
assets may need to be realised other than in the normal course of
business and at amounts which could differ significantly from the
amounts stated in the interim financial statements.
Trading Performance
a. On 26 January 2016, the Company sold its investment in its
wholly owned subsidiary, Davero Invest s.r.l ("Davero"). As a
consequence the Company no longer controls Davero, and has
therefore ceased consolidating Davero in its condensed consolidated
financial statements. The Company recognised income of EUR 115
thousands under "other income" in the condensed consolidated
statement of profit or loss on the sale of its investment in
Davero.
b. On 10 March 2016, the Company and its wholly owned
subsidiary, Eurobul Ltd. ("Eurobul") signed a loan agreement in the
total amount of EUR 2,164 thousands with Real Property Investment
(Guernsey) Limited ("RPIGL"). According to the contract with RPIGL,
the loan could only be used for the full repayment of the bank
loans granted by Bank Leumi Le-Israel Ltd. to Eurobul. In order to
secure the repayment of the loan the Company committed to use all
funds generated from the following cash distributions:
a. The net distribution generated from the sale of wholly owned
subsidiary Palace Engel Vokovice s.r.o. (see note d below).
During the reporting period, the Company paid RPIGL the funds
according to this clause in the total amount of EUR 750
thousands.
b. The net distribution generated from the sale of the two plots in Canada (see note below).
During the reporting period, the Company paid RPIGL the funds
according to this clause in the total amount of EUR 1,164
thousands.
c. 2/3 of the proceeds generated from the sale of any assets of
the Company and Eurobul will be paid to RPIGL as soon as funds are
available.
During the reporting period, the Company paid RPIGL the funds
according to this clause in the total amount of EUR 250
thousands.
The loan is denominated in EUR and carries no interest.
RPIGL holds 6.44% of the voting rights and issued share capital
of the Company. RPIGL is a related party of GBES Limited as they
are controlled by the same shareholder.
c. On 14 March 2016 and 16 March 2016, Eurobul Ltd. repaid two
outstanding bank loans in full, granted by Bank Leumi Le-Israel
Ltd. ("the lender bank"), totalling EUR 2,179 thousands. According
to the terms of the agreement with the lender bank, in the case of
full repayment of the two loans, the lender bank will waive the
third bank loan in full, totalling EUR 576 thousands.
The lender bank waived the loan on 16 March 2016 and the Company
recognised finance income totalling EUR 576 thousands.
d. On 16 December 2015, Arces signed a conditional agreement to
sell its shares and receivables in the wholly owned subsidiary
Palace Engel Vokovice s.r.o ("Vokovice s.r.o"). On 14 March 2016
the sale was completed. As the plot of land held by Vokovice s.r.o
was measured as of 31 December 2015 based on its net realisable
value which was determined based on the transaction price in the
conditional agreement the transaction did not generate any material
result in the profit or loss of the condensed consolidated interim
financial statements.
The proceeds have been used for the repayment of the loan
granted by Real Property Investment (Guernsey) Limited, see note b
above.
e. During the reporting period, the transfer of 2,871,460
ordinary shares ("Shares") in ERD held by advocates Yuri Nechushtan
and Eyal Neiger as receivers to GBES Limited ("GBES") has been
completed.
The ownership of the Shares was to be split between GBES and the
Gabay Group, an Israeli real estate group (the "Gabay Group"). As
an interim measure, during the first quarter of 2016, the Shares
were transferred to GBES that held 1,133,372 ordinary shares in ERD
in trust for the Gabay Group. As a result, GBES held 2,871,460
ordinary shares in ERD (representing 53.0% of the voting rights of
ERD) and the Gabay Group held 536,555 ordinary shares in ERD
(representing 9.9% of the voting rights of ERD).
During the second quarter of 2016, the ownership of 1,133,372
ordinary shares in ERD previously held in trust by GBES was
transferred to a company that is 100% owned by Mr Eli Gabay.
As a result, GBES holds 1,738,088 ordinary shares in ERD
(representing 32.1% of the voting right of ERD) and Gabay Group
(through two different entities) holds a total of 1,669,927
ordinary shares in ERD (representing 30.9% of the voting right of
ERD), including the 536,555 ordinary shares in ERD held by Gabay
Group prior to the splitting of the Shares.
ERD controls Engel General Developers Ltd., which holds 68.35%
of the issued share capital of the Company. Accordingly, GBES
currently holds a 21.9% economic interest in the Company and the
Gabay Group currently holds a 21.1% economic interest in the
Company.
In addition, Real Property Investment (Guernsey) Limited
("RPIGL") holds 6.4% of the voting rights and issued share capital
of the Company. The shares of RPIGL and GBES are held by a
discretionary settlement, of which certain members of the Morris
family are potential beneficiaries, and which therefore currently
has a combined economic interest in 28.3% of the Company.
f. On 15 July 2016, the Company sold its investment in the
wholly owned subsidiary, Arces International B.V. ("Arces") to a
third party for an immaterial amount. As a consequence the Company
will not control Arces, and will therefore cease to consolidate it
in its condensed consolidated financial statements.
The Company will recognise estimated income of EUR 3.7 million
mainly due to a liability which was recognised in Arces'
consolidated financial statements for a finance exposure with
respect to interest-bearing bank loans that financed the project in
Gyor, Hungary. The bank claims that the loan was additionally
guaranteed by Arces. Arces has disputed the validity of this
guarantee with the bank management; however, no official legal
claim has been filed by any of the parties. The Company did not
provide any guarantees for Arces' and its subsidiaries'
liabilities.
g. On 13 January 2016, MLP completed the sale of two plots of
land held for residential development purposes in Canada for a
total cash consideration of CAD 20,227 thousands (EUR 13,095
thousand).
MLP recognised a profit before income tax in the amount of EUR
2,815 thousands (the Company's share was EUR 563 thousands and it
was recognised under the "share of profit of equity-accounted
investments, net of tax"). The Company's expected share of the
distribution will be 20%, equalling to CAD 3,500 thousands.
During the reporting period the Company and Silverpeak agreed to
distribute funds generated from the above sales to the partners.
The share of ECG trust in the distribution was CAD 3,500 thousands
(EUR 2,434 thousand). The trustee agreed to distribute to the
Company an amount of CAD 1,716 thousands (EUR 1,193 thousand) and
the rest will be hold back till the final tax clearance from the
Canadian tax authorities. The hold back cash is being presented
under "Prepayments and other assets" in the condensed consolidated
statement of financial position.
The proceeds from the above distribution has been used for the
full repayment of the loan granted by Real Property Investment
(Guernsey) Limited, see note b above.
Based on prior agreements with ERD, all the net future proceeds
generated from the Company's assets in Canada will be used to repay
the outstanding debts of the Company to ERD.
Condensed consolidated statement of financial position
30 June 31 December
2016 2015
EUR'000
-----------------------
ASSETS
Cash and cash equivalents 1,664 652
Restricted bank deposit - 728
Trade receivables 118 185
Prepayments and other assets 1,201 12
Inventories of housing units and
land 4,364 8,259
Current tax assets 62 6
--------- ------------
Current assets 7,409 9,842
--------- ------------
Inventories of land 9,150 9,307
Investment property 17,212 17,450
Property and equipment 2 2
Deferred tax assets 26 58
Loans and amounts to related parties 46 2,044
Non-current assets 26,436 28,861
--------- ------------
Total assets 33,845 38,703
========= ============
LIABILITIES
Interest-bearing bank loans - 2,175
Current portion of finance lease
liability (see note 4.a) 44,982 35,621
Loans and amounts due to related
parties and joint ventures 25,901 25,576
Trade payables 279 294
Other payables 5,467 6,370
Provisions 457 492
Current tax liabilities 264 268
Current liabilities 77,350 70,796
--------- ------------
Interest-bearing bank loans - 1,408
Finance lease liability (see note
4.a) - 7,858
Deferred tax liabilities 235 420
--------- ------------
Non-current liabilities 235 9,686
--------- ------------
Total liabilities 77,585 80,482
--------- ------------
EQUITY
Share capital 878 878
Share premium 39,298 39,298
Accumulated losses (85,725) (83,258)
Reserves 3,282 2,688
--------- ------------
Equity attributable to owners of
the Company (42,267) (40,394)
Non-controlling interests (1,473) (1,385)
--------- ------------
Total equity (43,740) (41,779)
Total liabilities and equity 33,845 38,703
========= ============
Condensed consolidated statement of profit or loss
For the six months
ended 30 June
---------------------
2016 2015
EUR'000
---------------------
Revenue 2,932 71
Write down of inventory (51) -
Cost of sales excluding write down
of inventory (3,013) (107)
---------- ---------
Gross loss (132) (36)
Selling, general and administrative
expenses (565) (301)
Other income (see note 9.a) 115 425
---------- ---------
Operating profit (loss) (582) 88
Net foreign exchange loss (87) (2,806)
Finance income (see note 9.c) 576 206
Finance costs (2,870) (2,983)
---------- ---------
Net finance costs (2,381) (5,583)
---------- ---------
Share of profit of equity-accounted
investments, net of tax 315 932
---------- ---------
Loss before tax (2,648) (4,563)
Income tax benefit (expense) 67 (1)
---------- ---------
Loss for the period (2,581) (4,564)
========== =========
Loss attributable to:
Owners of the Company (2,467) (4,451)
Non-controlling interests (114) (113)
Loss for the period (2,581) (4,564)
========== =========
Loss per share:
Basic loss per share (Euro) (0.028) (0.051)
---------- ---------
Diluted loss per share (Euro) (0.028) (0.051)
---------- ---------
Condensed consolidated statement of comprehensive income
For the six months
ended 30 June
---------------------
2016 2015
---------- ---------
EUR'000
---------------------
Loss for the period (2,581) (4,564)
Other comprehensive income (loss):
Items that may be reclassified subsequently
to profit or loss
Foreign operations - foreign currency
translation differences 620 (142)
---------- ---------
Other comprehensive income (loss) 620 (142)
---------- ---------
Total comprehensive loss (1,961) (4,706)
========== =========
Total comprehensive loss attributable
to:
Owners of the Company (1,873) (4,588)
Non-controlling interests (88) (118)
Total comprehensive loss (1,961) (4,706)
========== =========
Condensed consolidated statement of changes in equity
Attributable to owners of
the Company
------------------------------------------------------------
Translation
Share Share and capital Accumulated Non-controlling Total
capital premium reserve losses Total interests equity
---------
EUR'000
-----------------------------------------------------------------------------------------
Balance at 1 January
2015 878 39,298 2,941 (73,256) (30,139) (1,007) (31,146)
Loss for the period - - - (4,451) (4,451) (113) (4,564)
Other comprehensive
loss for the period - - (137) - (137) (5) (142)
Disposal of subsidiaries
with non-controlling
interests - - - - - 12 12
Balance at 30 June
2015 878 39,298 2,804 (77,707) (34,727) (1,113) (35,840)
========= ========= ============= ============ ========= ================ =========
Balance at 1 January
2016 878 39,298 2,688 (83,258) (40,394) (1,385) (41,779)
Loss for the period - - - (2,467) (2,467) (114) (2,581)
Other comprehensive
income for the period - - 594 - 594 26 620
Balance at 30 June
2016 878 39,298 3,282 (85,725) (42,267) (1,473) (43,740)
========= ========= ============= ============ ========= ================ =========
Condensed consolidated statement of cash flows
For the six months
ended 30 June
---------------------
2016 2015
---------- ---------
EUR'000
---------------------
Cash flows from operating activities
Loss for the period (2,581) (4,564)
Adjustments for:
- Net finance costs 2,381 5,583
- Income tax expense (benefit) (67) 1
- Share of profit of equity-accounted
investments, net of tax (315) (932)
- Other income (115) (425)
- Write down of inventories 51 -
(646) (337)
Change in:
- Inventories of housing units 3,020 -
- Trade receivables 67 -
- Provisions (29) -
- Prepayments and other assets 3 15
- Trade payables (15) (314)
- Other payables (906) (118)
---------- ---------
Cash from (used in) operating activities 1,494 (754)
Interest paid (70) (192)
Interest received - 1,741
Income taxes paid (142) (1)
---------- ---------
Net cash from operating activities 1,282 794
---------- ---------
Cash flows from investing activities
Proceeds from sale of investment 812 -
Long term loans and amounts granted
to related parties - (15)
Short term loans and amounts repaid
by related parties 1,242 3,532
Change in restricted bank deposit 728 -
---------- ---------
Net cash from investing activities 2,782 3,517
---------- ---------
Cash flows from financing activities
Repayment of interest-bearing bank
loans (2,960) (133)
Loans and amounts received from
related parties and other 2,164 311
Loans and amounts repaid to related
parties and other (2,164) (3,835)
Payment of finance lease liability (90) -
Net cash used in financing activities (3,050) (3,657)
---------- ---------
Net increase in cash and cash equivalents 1,014 654
Cash and cash equivalents at 1
January 652 15
Effect of exchange rate fluctuations
on cash held (2) 2
---------- ---------
Cash and cash equivalents at 30
June 1,664 671
========== =========
Notes to the condensed consolidated interim financial
statements
NOTE 1 - REPORTING ENTITY
Kimberly Enterprises N.V. (the "Company") is a company domiciled
in the Netherlands. These condensed consolidated interim financial
statements ("interim financial statements") as at and for the six
months ended 30 June 2016 comprise the Company, its subsidiaries
(together referred to as the "Group") and the Group's interests in
an associate and a joint venture.
The Group is primarily involved in holding, developing and
selling real-estate assets in Eastern Europe.
The Company has been listed on the Alternative Investment Market
("AIM") of the London Stock Exchange, United Kingdom since 15
December 2005.
Copies of these consolidated financial statements of the Group
are available on the Company's website
(www.kimberly-enterprises.com) and upon request from the Company's
registered office.
NOTE 2 - BASIS OF ACCOUNTING
These interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the European Union and should be read in conjunction with the
Group's last annual consolidated financial statements as at and for
the year ended 31 December 2015 ("last annual financial
statements"). They do not include all the information required for
a complete set of IFRS financial statements. However, selected
explanatory notes are included to explain events and transactions
that are significant to an understanding of the changes in the
Group's financial position and performance since the last annual
financial statements.
These interim financial statements were authorised for issue by
the Company's Board of Directors on 11 August 2016.
NOTE 3 - USE OF JUDGEMENTS AND ESTIMATES
In preparing these interim financial statements, management has
made judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets and liabilities, income and expense. Actual results may
differ from these estimates.
The significant judgements made by management in applying the
Group's accounting policies and the key sources of estimation
uncertainty were the same as those that applied to the consolidated
financial statements as at and for the year ended 31 December
2015.
NOTE 4 - GOING CONCERN
a. Breach of obligation to make finance lease payments
Since January 2011, Marina Dorcol D.o.o ("MD") (95% interest
subsidiary of the Company) has been in breach of its obligation to
make finance lease payments relating to the lease of plot of land,
Marina Dorcol, Belgrade, Serbia.
At 30 June 2016, MD was in breach of EUR 34.9 million of lease
payments. During the reporting period, management recognised an
expense of EUR 1,779 thousands as a result of the lease interest
and inflation on the unpaid overdue lease contracted payments.
Following the breach, the Directorate for City Building Land,
controlled by the Municipality of Belgrade ("the Municipality")
initiated several claims during recent and previous periods to
collect those debts.
On 3 June 2016, MD received from the Mayor of Belgrade, a notice
requesting the termination of the lease agreement MD has in respect
of the Marina Dorcol Project in Belgrade, Serbia ("notice").
Management believes that the notice that was received by MD
should not be considered as a valid termination of the lease from
legal point of view as at 30 June 2016; however, it indicated the
municipality's intention considering the overdue liability of the
Group as of the end of the reporting period.
On 22 July 2016, the Municipality delivered MD a unilateral
termination of the lease agreement over the Marina Dorcol Project
in Belgrade, Serbia ("termination letter").
As a result of the above, the Company reclassified the finance
lease liability in the amount of EUR 7,737 thousands, which was
presented as a non-current liability, as a current liability.
MD filed a dispute over the above termination letter, as based
on the legal advice it has received, according to which the
termination procedure has not been done according to the lease
agreement. Based on its lawyers' estimations, it is still premature
to determine the results of this dispute.
As the Company does not accept the reasons for the termination,
the Company should initiate a procedure before the Commercial Court
in Belgrade (or, potentially, to file investment claim to the
competent arbitration panel) for the determination of the validity
of the request for the termination and whether the request is based
on valid legal and commercial reasons.
Management expects that the final result of the termination
would be the restitution of the amounts paid by the Company in
respect of MD based on the agreements with the Municipality, less
the amount of compensation to the Municipality for usage of such
land for the period of duration of lease and for compensation of
damages which occurred to the Municipality, if any. The Group is
currently in the process of negotiation with the Municipality about
the amount and timing of the restitution.
Management expects that following the termination it would have
a net cash inflow from the above restitution, however, the net cash
flow and the timing to conclude the settlement with the
Municipality cannot be predicted at this stage with any
certainty.
Based on the interim financial statements as of 30 June 2016 and
excluding the net cash inflow that is expected to arise upon
termination, the Company's management estimates the impact on the
Group's financial position would be a decrease of the non-current
assets by EUR 25,459 thousands thousand, a decrease of the
liabilities by EUR 44,982 thousands and an increase in the Group's
profit or loss and equity by EUR 19,523 thousands (before tax
effect, if any).
b. Support from Engel Resources and Development Ltd.
In order to manage its financial situation, the Company
approached in the previous periods Engel Resources and Development
Ltd. ("ERD"), the parent company of the Company's immediate parent
company, Engel General Developers Ltd. ("EGD"), to provide
additional financial assistance to fund the Company's immediate
liabilities.
As of 30 June 2016, the outstanding debt toward ERD is EUR
25,509 thousands and is due by 30 September 2016. During the
reporting period, ERD did not provide any additional bridge loans
to the Company.
In order to finance the Company's immediate liabilities and to
stabilise its financial position, management has acted to realise
several assets during the recent reporting periods.
ERD support is still needed in the form that it extends the
repayment date of its loans beyond 30 September 2016.
c. Conclusion
At 30 June 2016, the Group has current liabilities totalling EUR
77,350 thousands thousand, which exceeds its current assets
amounting to EUR 7,409 thousands and a negative equity which
amounts to EUR 43,740 thousands thousands.
The financial statements are prepared based on a going concern
basis. However, management believes that the above mentioned
conditions (i.e. breach of its obligation to make finance lease
payments and the requirement to extend the loans granted by ERD)
indicate the existence of material uncertainties which cast
significant doubt on the Group's ability to continue as a going
concern.
Should the going concern assumption not be appropriate,
adjustments would have to be made to reflect a situation where the
assets may need to be realised other than in the normal course of
business and at amounts which could differ significantly from the
amounts stated in the interim financial statements.
NOTE 5 - FINANCIAL RISK MANAGEMENT
All the aspects of the Group's financial risk management
objectives and policies are consistent with that disclosed in the
consolidated financial statements as at and for the year ended 31
December 2015.
a. Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Group's approach to managing liquidity is to
ensure, as far as possible, that it will have sufficient liquidity
to meet its liabilities when they are due, under both normal and
stressed conditions, without incurring unacceptable losses or
risking damage to the Group's reputation.
In order to handle the liquidity risk of the Company the
management decided to realise several assets during the reporting
period in Czech Republic and Canada. In addition the Company is
acting to minimise its operational costs.
See note 4 which includes the Group's going concern analysis and
describes the financial difficulties and liquidity risks.
b. Carrying amounts and fair values
The carrying amounts of certain short term financial assets and
liabilities expected to be settled within 12 months, including cash
and cash equivalents, trade payables and other payables were deemed
to be equal to their fair values.
The fair values of other financial assets and financial
liabilities, together with the carrying amounts shown in the
statement of financial position, are as follows:
31 December
30 June 2016 2015
------------------ ------------------
Carrying Fair Carrying Fair
amount value amount value
--------- ------- --------- -------
EUR'000
--------------------------------------
Total financial assets
Loans and amounts to related
parties 567 568 2,938 2,942
--------- ------- --------- -------
567 568 2,938 2,942
========= ======= ========= =======
Total financial liabilities
Interest-bearing loans
from banks - - 3,583 3,541
Loans and amounts due
to related parties and
joint ventures 25,901 25,758 25,576 25,805
Finance lease liability 44,982 44,228 43,479 42,716
--------- ------- --------- -------
70,883 69,986 72,638 72,062
========= ======= ========= =======
Reconciliation of the financial assets carrying amounts:
30 June 31 December
2016 2015
-------- ------------
EUR'000
----------------------
Loans and amounts to related parties 567 2,938
Impairment due to negative investment
in equity-accounted investment (521) (894)
Consolidated loans and amounts
to related parties 46 2,044
======== ============
The fair value of loans and amounts to related parties has been
calculated using market interest rate of 0.5% (31 December 2015:
0.5%) taking into consideration specific conditions (securities
provided, currency, etc.).
The fair value of loans and amounts due to related parties and
joint ventures has been calculated using market interest rate of
4.95% (31 December 2015: 6.95%) taking into consideration specific
conditions (securities provided, currency, etc.).
The fair value of the finance lease liability has been
calculated using market interest rate of 7% (31 December 2015:
7%).
NOTE 6 - RELATED PARTIES
a. Related party transactions
1. Support due to the Company's financial situation
As of 30 June 2016, the outstanding debt due to Engel Resources
and Development Ltd. ("ERD") is EUR 25,509 thousands and is due by
30 September 2016. During the reporting period, ERD did not provide
any additional bridge loans to the Company.
During the first quarter of 2016, ERD provided the Company a
support letter according to which ERD will support the Company in
its ongoing operations till 31 December 2016, with an accumulated
amount up to EUR 450 thousands.
After the reporting period the Company repaid part of the loan
granted by ERD to the amount of EUR 450 thousands.
2. Trading transactions
Finance income and finance costs
The Group recognised interest expense relating to the loans
granted by ERD in the total amount of EUR 641 thousands in the
profit or loss of the interim financial statements.
The Group recognised a profit of EUR 213 thousands in net
foreign exchange income in the interim financial statements (in
relation to loans received which are denominated in ILS) due to the
strengthening of the EUR against the ILS (0.9%) during the
reporting period.
b. Securities provided by and for the parent company
Interest-bearing bank loans granted to a wholly controlled
entity Eurobul Ltd. ("Eurobul") were secured by guarantees provided
by ERD.
During the first quarter of 2016 the Group fully repaid the bank
loans, and as a result ERD removed the guarantees it provided to
the lender bank. See also note 9.c.
The Company has pledged the shares of Marina Dorcol D.o.o to
ERD. As of 30 June 2016, the outstanding debt owed to ERD is EUR
25,509 thousands. For more details, see note 4.b.
c. Directors
As of 30 June 2016, the Company has 3 directors (31 December
2015: 2 directors).
During the reporting period, one new executive director was
appointed (Ms. Ayelet Naim-Levanon).
d. Resignation of the Company's CEO
During the reporting period, Mr. Liron Or who acted as Chief
Executive Officer of the Company resigned from his position in the
Company. In accordance with the terms of the agreement, Mr Or's
role at the Company ceased on 31 March 2016. As part of the
termination agreement with Mr Or, the Board of the Company agreed
to grant Mr. Or a discount of EUR 50 thousands for purchasing one
residential unit in the Veleslavin project in Prague, Czech
Republic. During the second quarter of 2016, Mr. Or completed the
purchase of the unit. The given discount was reflected at the
carrying amount of the inventories of housing units as of 31 March
2016.
NOTE 7 - OPERATING SEGMENTS
Basis of segmentation
The Group's CFO (the chief operating decision maker) considers
the whole operation as one operating segment while trying to ensure
sufficient liquidity to meet the liabilities when due. The
liquidity issues the Group and its joint ventures are currently
facing create a more general decision making process which is
different from a company or group of companies operating in a
liquid position, hence, the Group's CFO makes decisions about
resources and reviews operating results of business as one
operating segment.
The basis of segmentation is the same as that presented in the
annual consolidated financial statements for the year ended 31
December 2015.
NOTE 8 - EQUITY-ACCOUNTED INVESTMENT
At 30 June 2016 the Company holds interest in one joint venture,
Montreal Residential Holdings Master Limited Partnership
("MLP").
MLP is not a publicly listed entity and consequently does not
have published price quotation.
a. Details as per the investment and loan in equity-accounted investment
Montreal Residential Holdings Master Limited Partnership
Montreal Residential Holdings Master Limited Partnership ("MLP")
is a holding partnership domiciled in Canada. The Company owns ECG
Trust Canada Holding Trust ("ECG") (95% interest) which holds 20%
interest in future distributions of MLP (The Company owns 50% of
the voting rights in MLP).
The remaining 80% in future distributions is owned by Lehman
Brothers Real Estate Partners II ("Lehman Brothers") represented by
Silverpeak Real Estate Partners ("Silverpeak").
The following table summarises the financial statement of MLP as
included in its own consolidated financial statements (figures in
the table represent 100% of the joint venture consolidated
figures). The table also reconciles the summarised financial
statement to the carrying amount of the Group's interest in
MLP.
30 June 31 December
2016 2015
--------------------- -------------------
EUR'000
------------------------------------------
Percentage ownership interest 20% 20%
-------------------------------------- --------------------- -------------------
Current assets
(MLP does not have cash and
cash equivalent at 30 June
2016 and at 31 December 2015) 1,360 10,369
-------------------------------------- --------------------- -------------------
Non-current assets - -
-------------------------------------- --------------------- -------------------
Current liabilities
(including loans and amounts
due to related parties in
the amount of EUR 2,973 thousands
at 30 June 2016 and EUR 14,740
thousands at 31 December 2015) (3,963) (14,841)
-------------------------------------- --------------------- -------------------
Non-current liabilities - -
-------------------------------------- --------------------- -------------------
Net liabilities (100%) (2,603) (4,472)
Group's share of the net liabilities
(ii) - -
Net investment (i) - -
-------------------------------------- --------------------- -------------------
Loans granted by the Company,
net of impairment (i,ii) 46 2,044
-------------------------------------- --------------------- -------------------
Revenue (iv.1) 13,095 2,230
Cost of sales (iv.1) (10,257) (1,888)
Reverse of write down of inventory - 3,225
Selling, general and administrative
expenses (60) (387)
Net foreign exchange income 4 -
Income tax expense (848) -
Profit for the period (100%) 1,934 3,180
Other comprehensive income
(loss):
Foreign operations - foreign
currency translation differences (70) 335
--------------------- -------------------
Total comprehensive income
for the period (100%) 1,864 3,515
Profit allocated to loans
granted by the Company and
being part of the net investment
(i) 387 636
Impairment loss on loans given (72) -
Group's share of profit (loss)
(ii) - -
The Group's share of profit
of equity-accounted investment,
net of tax (*) 315 636
===================== ===================
Group's share of other comprehensive
income (loss) (14) 67
(*) See note 8.b for the reconciliation to the share of profit
of equity-accounted investments, net of tax, as presented in the
consolidated statement of profit or loss.
Comments in respect to the investment in MLP:
i. In the previous periods the joint venture continued to
accumulated losses and thus the Company recognised a loss related
to the loan given to MLP that was part of the net investment and
presented the loss as share of profit (loss) of equity-accounted
investment in the consolidated statement of profit or loss.
ii. The Company did not provide any guarantees for the joint
venture and has not incurred legal and constructive obligation on
behalf of the joint venture; therefore losses are accounted for to
the extent that the Company's interest is reduced to zero.
iii. Loans granted by the Company to joint venture -
-- Are denominated in CAD currency.
-- Bear no interest.
-- Have no set repayment date. Repayment is expected from the
proceeds of the sale of the related projects financed by the
loans.
iv. Significant events during the reporting period:
1. On 13 January 2016, MLP completed the sale of two plots of
land held for residential development purposes in Canada for a
total cash consideration of CAD 20,227 thousands (EUR 13,095
thousands thousand). MLP recognised a profit before income tax in
the amount of EUR 2,815 thousands (the Company's share was EUR 563
thousands and it was recognised under the "share of profit of
equity-accounted investments, net of tax"). The Company's expected
share of the distribution will be 20%, equalling to CAD 3,500
thousands.
During the reporting period the Company and Silverpeak agreed to
distribute funds generated from the above sales to the partners.
The share of ECG trust in the distribution was CAD 3,500 thousands
(EUR 2,434 thousands thousand). The trustee agreed to distribute to
the Company an amount of CAD 1,716 thousands (EUR 1,193 thousands
thousand) and that the rest would be held back until the final tax
clearance from the Canadian tax authorities had been received.
These amounts held back are presented under "Prepayments and other
assets" in the condensed consolidated statement of financial
position. The proceeds from the above distribution have been used
for the full repayment of the loan granted by Real Property
Investment (Guernsey) Limited, see note 9.b.
Based on prior agreements with ERD, all the net future proceeds
generated from the Company's assets in Canada will be used to repay
the outstanding debts of the Company due to ERD.
b. Details as per the Group's share of profit of equity-accounted investments
For the six months
ended 30 June
---------------------
2016 2015
---------- ---------
EUR'000
---------------------
Share of profit of MLP (see
note 8.a) 315 23
Share of profit of Arces International
B.V. (*) - 455
Share of profit of ENMAN B.V.
(*) - 454
----------
Share of profit of equity-accounted
investments, net of tax 315 932
========== =========
(*) The Company obtained control over these entities during
2015.
NOTE 9 - SIGNIFICANT EVENTS DURING THE REPORTING PERIOD
a. On 26 January 2016, the Company sold its investment in its
wholly owned subsidiary, Davero Invest s.r.l ("Davero"). As a
consequence the Company no longer controls Davero, therefore ceased
consolidating Davero in its condensed consolidated financial
statements. The Company recognised income of EUR 115 thousands
under "other income" in the condensed consolidated statement of
profit or loss on the sale of its investment in Davero.
The following table summarises the derecognised amounts of
assets and liabilities disposed at the date of the sale.
EUR'000
--------
Loans and amounts due to related parties (115)
--------
Total identifiable net liabilities
disposed (115)
Income on de-recognition 115
Cash and cash equivalents disposed
of -
Net cash inflow (outflow) -
========
b. On 10 March 2016, the Company and its wholly owned
subsidiary, Eurobul Ltd. ("Eurobul") signed a loan agreement
totalling EUR 2,164 thousands with Real Property Investment
(Guernsey) Limited ("RPIGL"). According to the contract with RPIGL,
the loan could only be used for the full repayment of the bank
loans granted by Bank Leumi Le-Israel Ltd. to Eurobul.
In order to secure the repayment of the loan the Company
committed to use all funds generated from the following cash
distributions:
a. The net distribution generated from the sale of wholly owned
subsidiary Palace Engel Vokovice s.r.o. (see note d below).
During the reporting period, the Company paid RPIGL the funds
according to this clause in the total amount of EUR 750
thousands.
b. The net distribution generated from the sale of the two plots in Canada (see note 8.a.iv.1).
During the reporting period, the Company paid RPIGL the funds
according to this clause in the total amount of EUR 1,164
thousands.
c. 2/3 of the proceeds generated from the sale of any assets of
the Company and Eurobul will be paid to RPIGL as soon as funds are
available.
During the reporting period, the Company paid RPIGL the funds
according to this clause in the total amount of EUR 250
thousands.
The loan is denominated in EUR and carries no interest.
RPIGL holds 6.44% of the voting rights and issued share capital
of the Company. RPIGL is a related party of GBES Limited as they
are controlled by the same shareholder.
c. On 14 March 2016 and 16 March 2016, Eurobul Ltd. repaid two
outstanding bank loans in full, granted by Bank Leumi Le-Israel
Ltd. ("the lender bank"), totalling EUR 2,179 thousands. According
to the terms of the agreement with the lender bank, in the case of
full repayment of the two loans, the lender bank will waive the
third bank loan in full, totalling EUR 576 thousands.
The lender bank waived the loan on 16 March 2016 and the Company
recognised finance income totalling EUR 576 thousands.
d. On 16 December 2015, Arces signed a conditional agreement to
sell its shares and receivables in the wholly owned subsidiary
Palace Engel Vokovice s.r.o ("Vokovice s.r.o"). On 14 March 2016
the sale was completed. As the plot of land held by Vokovice s.r.o
was measured as of 31 December 2015 based on its net realisable
value which was determined based on the transaction price in the
conditional agreement the transaction did not generate any material
result in the profit or loss of the condensed consolidated interim
financial statements.
The proceeds have been used for the repayment of the loan
granted by Real Property Investment (Guernsey) Limited, see note
9.b.
e. During the reporting period, the transfer of 2,871,460
ordinary shares ("Shares") in ERD held by advocates Yuri Nechushtan
and Eyal Neiger as receivers to GBES Limited ("GBES") has been
completed.
The ownership of the Shares was to be split between GBES and the
Gabay Group, an Israeli real estate group (the "Gabay Group"). As
an interim measure, during the first quarter of 2016, the Shares
were transferred to GBES that held 1,133,372 ordinary shares in ERD
in trust for the Gabay Group. As a result, GBES held 2,871,460
ordinary shares in ERD (representing 53.0% of the voting right of
ERD) and the Gabay Group held 536,555 ordinary shares in ERD
(representing 9.9% of the voting right of ERD).
During the second quarter of 2016, the ownership of 1,133,372
ordinary shares in ERD previously held in trust by GBES was
transferred to a company that is 100% owned by Mr Eli Gabay.
As a result, GBES holds 1,738,088 ordinary shares in ERD
(representing 32.1% of the voting right of ERD) and Gabay Group
(through two different entities) holds a total of 1,669,927
ordinary shares in ERD (representing 30.9% of the voting right of
ERD), including the 536,555 ordinary shares in ERD held by Gabay
Group prior to the splitting of the Shares.
ERD controls Engel General Developers Ltd., which holds 68.35%
of the issued share capital of the Company.
Accordingly, GBES currently holds a 21.9% economic interest in
the Company and the Gabay Group currently holds a 21.1% economic
interest in the Company.
In addition, Real Property Investment (Guernsey) Limited
("RPIGL") holds 6.4% of the voting rights and issued share capital
of the Company. The shares of RPIGL and GBES are held by a
discretionary settlement, of which certain members of the Morris
family are potential beneficiaries, and which therefore currently
has a combined economic interest in 28.3% of the Company.
NOTE 10 - SUBSEQUENT EVENT
On 15 July 2016, the Company sold its investment in the wholly
owned subsidiary, Arces International B.V. ("Arces") to a third
party for an immaterial amount.
As a consequence the Company will not control Arces, and will
therefore cease to consolidate it in its condensed consolidated
financial statements.
The Company will recognise estimated income of EUR 3.7 million
mainly due to a liability which was recognised in Arces'
consolidated financial statements for a finance exposure with
respect to interest-bearing bank loans that financed the project in
Gyor, Hungary. The bank claims that the loan was additionally
guaranteed by Arces. Arces has disputed the validity of this
guarantee with the bank management; however, no official legal
claim has been filed by any of the parties.
The Company did not provide any guarantees for Arces' and its
subsidiaries' liabilities.
***
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BXGDISUBBGLU
(END) Dow Jones Newswires
August 15, 2016 10:01 ET (14:01 GMT)
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