Final Results

RNS Number : 1927O

Metro Baltic Horizons PLC

24 June 2010

 

Metro Baltic Horizons plc

 Results for the Year ended 31 December 2009

 

Overview

·; Unprecedented macroeconomic correction in Group's target markets, with Latvia in particular suffering steep declines and in 2009 ranking amongst the worst performing property markets worldwide. Some recent early evidence of market stabilisation now emerging, with Estonia and Russia already showing a return to modest growth, although any consequent increase in capital values likely to lag.

 

·; Net asset value per share (NAV) after deferred tax liabilities declined by 44% to €0.39 (31 December 2008:€0.69). The NAV is derived from the Group's Russian (64%), Estonian (33%) and Latvian (3%) assets, after pro-rating central liabilities.

 

·; Loss after tax of €7.9 million (2008: loss of €25 million).

 

 

·; Total gross property portfolio (including minority interests) valued at €35.8 million (31 December 2008: €42.5 million).

 

·; At year end, the Group had a total of €20.3 million of asset-level bank debt, of which approximately €14 million related to the Metro Plaza development in Tallinn.

 

·; €1.9 million of secured, high-yield bonds also issued during the year. This has been increased to c.€2.6 million since year end.

 

·; Continued progress at Metro Plaza with currently 88% of the available space under lease. Highest rents in Tallinn being achieved and strong covenants in place. The development has now achieved positive operating cash flow.

 

·; €1.0 million debt equity swap completed relating to the Group's Metro Plaza development.

 

·; Working capital pressures continue and various strategic and financing alternatives, including the raising of funds through the placement of additional equity capital are under active consideration.

 

 Robin James, Chairman of MBH, commented:

 

"The unprecedented depth, breadth and speed of economic contraction over 2009 had a major impact on the Group. Continuing market turbulence in the euro zone in particular, triggered by the recent Greek crisis, provides more challenges to our business. Although we have made solid operational progress, particularly in our Metro Plaza development, the outlook for two of our four investments is less certain and shareholder value in those assets may ultimately be negligible. Each investment is non-recourse to the Group. However, there are some early indications of the market having bottomed out, particularly in Estonia and Russia and we are cautiously optimistic for clearer evidence of recovery emerging before year end and this creating the opportunity for some recovery in shareholder value."

 

For further information,please contact:

Metro Group James Kenny [email protected] MartHabakuk [email protected]
Fairfax I.S. PLC (Nominated Adviser and Broker) James King/Andrew Cox Tel: +44 (0) 20 7598 5368

Notes to Editors

Metro Baltic Horizons (ticker code: MET.L) is a property investment Group targeting development opportunities in the cities of St Petersburg, Russia and Riga and Tallinn, the capitals of Latvia and Estonia respectively.

The Group's Investment Manager is a member of the Metro Capital Management Group, an experienced property asset manager and developer with offices in Tallinn, Riga and St Petersburg. It has a team of 18 experienced professionals managing a portfolio of 21 projects across the region where it has been active since 2001.

 

Chairman's Statement

Introduction

Set out below are my comments on the Group's results for the year ended 31 December 2009. Starting in mid-2008, the global economy has experienced a market correction of a scale, depth and speed not previously witnessed and which is now widely considered to be the worst financial crisis since the Great Depression of the 1930s. Initially triggered by an insolvent US banking system, it has resulted in the collapse of large financial institutions, the bailout of banks and national governments and dramatic downturns in stock markets worldwide.

In many regions, including those in which the Group operates, the shock to the property market was momentous having witnessed asset values increase for several years supported by large inflows of foreign funds, low interest rates and widespread availability of cheap credit. When the financial markets imploded, the contagion inevitably fed through to the property markets and, in turn, the values of securities tied to property investment and development plummeted. While we believe that our core business plan was well-structured, we have experienced, as have many others, that with no control over macro economic conditions the impact can be, in financial terms, catastrophic. Despite this , we have continued to manage the Group's assets in the best manner possible and in our Estonian Metro Plaza development in particular, we have made excellent progress and have recently achieved the significant milestone of the development achieving positive cash flow. We have continued to reduce our costs where possible, stretched our working capital and sought to reshape our development and investment plans to reflect the new economic paradigm.

However, the challenges to our business and the wider market remain and, as previously indicated, we believe that it is appropriate to keep all strategic and financing alternatives under active review including the raising of additional equity funds. In this latter regard, we anticipate an equity fundraising may be considered in the near term and, if undertaken, would most likely be priced relative to the Group's prevailing market value at that time, rather than the net asset value of the Group's shares.

Financial Performance

The Group's audited net asset value per share after deferred tax liabilities at 31 December 2009 was €0.39 (£0.35) and before deferred tax liabilities was €0.49 (£0.44). This represents a decrease in net asset value per share since 31 December 2008 of 44% and 42% in Euro terms, after and before deferred tax liabilities, respectively.

At 31 December 2009, the gross value of the Group's property portfolio was €35.8 million. It is should be noted that the valuation of the Group's assets in part utilises discounted cash flow based calculations which, in the current market environment, do not necessarily reflect the almost total absence of both credit for and buyers of such assets.

During the year, the Group recorded a loss after tax attributable to equity holders in the parent of € 7.9 million.

At the year-end the Group had bank and other borrowings of €24.4 million, an increase of €2.7 million in the period principally related to financing the fit out of the Metro Plaza development and other working capital requirements of the Group. Total bank debt at the year-end amounted to €20.3 million (excluding €1.9 million of mezzanine loans/bonds) (2008:€17.7m), all of which was held at asset level and of which, approximately €14 million related to the Group's Metro Plaza development in Tallinn.

Investment Overview

In common with many other property investment companies, 2009 was an incredibly challenging year with the full effects of the global recession manifesting itself in the disappearance of credit, the collapse in capital values and rent levels and the almost total absence of buyers for any class of property in our investment region. The impact in small, open economies such as the Baltic States was, in many ways, more pronounced as the long period of high, credit-fueled economic growth came to an abrupt end. Furthermore, the fact that much of the Baltic banking system is controlled by principally Scandinavian banks meant that the decision to withdraw from the Baltic market was driven as much by their internal corporate considerations as the domestic economic environment.

This dramatic reversal in the property market as evidenced particularly by falling rents and rising vacancy rates and yields, has made our investment and development plans largely redundant and requires us to reconsider our core investment strategy. While we have continued to make good letting progress at our Metro Plaza development (www.metroplaza.eu), which is now 88% under lease and achieving amongst the highest rents in the city, the outlook for our other assets, particularly in Latvia, remains considerably more challenging. As previously announced, active consideration was given to utilising certain legal protection provisions available under Latvian law for the Group's Latvian subsidiary (established to hold the Group's Krasta 99 asset) following the breach last year of certain loan covenants contained in the non-recourse, asset level loan provided by SEB/Danske Bank. This protection was ultimately secured and has had the positive effect of fully protecting the Group's interest in Krasta 99, for a two year period without the need for any interest or capital repayments. This protection is in place for a further 15 month period, during which alternative financing and/or restructuring scenarios will be explored. In St Petersburg, despite securing planning approval for Bolshaya Pushkarskaya project, the collapse in Class A office rents by up to 50% and the significant increase in office vacancy rates in the city over the last 18 months, made the proposed development of a new Class A office complex on the site uneconomic. We continue to work with the project architects to explore alternative site uses including the development of a residential scheme, which sector appears to have greater depth and resilience in the current market conditions. The Group's Pirita Road site in Tallinn (80% owned by the Group) is now increasingly marginal. Originally financed at a relatively conservative 50% gearing level, the collapse in land values in Tallinn by up to 80% indicates that there may now be little or no equity value remaining and the matter and the outlook for the Group's investment is under constant consideration by the Board.

Further details on the Group's investment portfolio are contained in the Investment Manager's report.

Financing

The Board continues to review all realistic, albeit limited, strategic and financing alternatives available to the Group. As previously reported, the principal financing initiative undertaken in the period, due primarily to the very restricted availability of traditional bank credit, was the raising of a circa €1.9 million short-term mezzanine loan facility. This loan, which matures in October 2010 , carries an annual coupon of 20% and is secured over the Group's St Petersburg property. This facility has been increased to €2.6 million since year-end and, while expensive (2010 tranche carries a lower interest of 18% p.a.) and relatively short-term, it remains one of the few financing alternatives open to the Group in the current banking and equity market environment. With the Group's investment markets, particularly in Estonia and Russia, showing some early signs of stabilisation and a return to growth, the Board believes it may be appropriate to now consider an equity placement to allow the refinancing of the mezzanine facility and also to provide a minimum level of working capital for the Group. Asset sales and joint ventures may also be considered where possible and where offers realistically reflect the underlying asset values.

Investment Management Agreement

As an externally managed vehicle, the largest element of the Group's cost is the management fees paid to its advisers. Last year the Group successfully restructured its fee arrangements with the Investment Manager in order to reduce costs and allow the Group flexibility to preserve its very limited working capital reserves. As part of the arrangement, the Investment Manager agreed to accrue up to 100% of its management fees subject to the working capital position of the Group. All fees so accrued by the Group were subject to a 12% per annum interest charge. Under the terms of the revised management agreement, the Investment Manager can elect to receive its management fee in shares in the Group when such fees are not paid as due and are accrued. In light of the continuing financial and other challenges faced by the Group, the Board has sought to further restructure and reduce management fees payable. I am pleased to report that in recognition of the Group's difficult financial position, the Investment Manager has agreed to reduce its management fees and accrued interest owing from 2009 by 30%. In addition, the Investment Manager has also agreed to waive the full interest accrued in 2010 for the 2009 management fees. The reduced management fees for 2009 are expected to be settled by the Group through the issue of new ordinary shares in the Group, such shares being issued per the agreement, at the historic 30-day average closing price for the shares prior to the end of the quarter to which such accruals relate. This is expected to result in the issue to the Investment Manager a total of 2,936,952 new ordinary shares in the Group and for which application will be made by the Group for admission to listing as appropriate. In keeping with the AIM Rules, the Transaction with the Investment Manager is deemed to be a related party transaction. The Board can confirm, having consulted with its Nominated Adviser, that the terms of the Transaction are fair and reasonable insofar as its shareholders are concerned.

Last year I indicated that the Board was considering the implementation of a revised performance fee arrangement for the Investment Manager which was likely to involve the rebasing of the performance hurdle rate and/or the annual performance criteria. However, on balance such a proposal was not seen by the Board as appropriate in the circumstances and, no revised arrangements have been agreed nor are currently under active discussion with the Investment Manager. Further consideration may be given to this matter in the current year if appropriate.

Outlook

Although the Board and the Investment Manager remain fully committed to protecting and recovering shareholder value where possible, market conditions continue to be extremely challenging. The financial objectives as set out at the time of the Group's listing in December 2006 are, unfortunately, no longer achievable in the economic and financial market conditions in which we are now operating. We do, however, see opportunities to deploy smaller amounts of capital in our target markets, particularly in St Petersburg, and in investments which display compelling risk/reward parameters. One strategy which potentially may be considered involves the disposal of our existing St Petersburg site and, in keeping with the Group's investment policy, applying the proceeds across a number of smaller projects in the city in order to provide better asset diversification and higher return potential for shareholders.

In order to allow the refinancing of the Group's mezzanine funding and to provide the Group with a minimum level of working capital, we are currently considering an equity placing. While this may be dilutive for some shareholders, it is considered appropriate and necessary in the circumstances given the lack of realistic financing alternatives available to the Group. We have continued to reduce our costs and operational overheads assisted principally by the significant reduction in management fees paid to the Investment Manager as detailed above. We also constantly monitor and review the potential sale or joint venture of all investment assets, although we are cognizant of needing to achieve fair value in all market circumstances. While we are disappointed by the further decline in net asset value over the last 12 months, we believe markets have bottomed and, barring unforeseen events, we are hopeful of a recovery emerging in our target markets later in the year and, with that, an improvement in the Group's fortunes.

 

Robin James

Chairman

23 June 2009

 

Investment Manager's Report

Introduction

Metro Capital Management AS ('Metro Group') acts as Investment Manager to the Group. Metro Group is an experienced property asset manager and developer with 18 professionals operating out of offices in St Petersburg, Tallinn and Riga. Metro Group has been involved in property development and asset management in the region since 2001 and manages a portfolio of 21 projects for some 200 institutional and private investors.

Economic Environment

Estonia

After seven years of high economic growth averaging 7%, Estonia started to slow down in 2007 and moved clearly into recession in 2008. The global economic downturn, the disappearance of credit, falling property prices and a sharp fall in exports (down by circa 22% in the first half of 2009 alone) exacerbated the problem and contributed to Estonia suffering a 14.1% GDP contraction in 2009, amongst the highest in Europe. Unemployment reached 13% at year-end, up from just 4.5% at the start of 2009. However a strong policy response, including stimulus measures, and the improvement in the economic outlook for Estonia's main trading partners generated a modest recovery in exports by year-end and a slowing in the quarterly economic contraction down to 9.4% in Q4 2009. In 2010 there are some early signs that the recession is easing although indicators such as retail sales and industrial output, which are down 28% and 32.5% respectively from their February 2008 peak, show there is a long way to go. The recent upgrading of the outlook for Estonia by Moodys and the recent confirmation of Estonia's expected Euro membership in 2011 provides further evidence of an improving macroeconomic climate. Furthermore the fact that Estonia was able to meet all the Maastricht criteria under such difficult circumstances has widely been recognized as endorsing the creditworthiness of Estonia and should provide further impetus to economic recovery. Estonia will become only the third former communist state after Slovenia and Slovakia to join the eurozone.

Latvia

After a sustained period of economic growth reaching double-digits in 2005-2007, Latvia entered a deep recession in 2008. The recession started with domestic demand contraction and was fueled by a global downturn in the second half of 2008 and the contagion effect of the banking crisis. In 2009, the Latvian economy contracted by a staggering 18% which was the most severe decline amongst the EU 27. The scale of the correction and the handling of the crisis by the Latvian Government saw the worst civil unrest since the collapse of the Soviet Union, with a number of street protests in Riga. In February 2009, the Latvian Government asked the International Monetary Fund and the European Union for an emergency loan of €7.5 billion and was obliged to pursue a drastic range of austerity measures in order to address the crisis. Latvia's credit was downgraded to BB+ or 'junk', its worst-ever rating and there was an expectation that a devaluation of the Lat was inevitable. However the Latvian Government has bravely chosen to pursue an 'internal' devaluation while maintaining the exchange rate peg with the euro and this appears to have been successful. Although there has been some stabilisation in recent months, the principal economic indicators in Latvia have been, and remain, largely negative with, for example, unemployment increasing by threefold to over 17%, which is now the highest rate in EU. In 2010 there have been some tentative signs of stabilisation with a current account surplus achieved in February, suggesting that the internal devaluation may be having some effect and caused Standard & Poor to recently raise its outlook on Latvian sovereign debt from negative to 'stable'. However, Latvia did record the largest fall in Q1 2010 GDP (-5.1%) amongst all EU member states although this was still an increase of 0.3% compared to Q4 2009 and confirms the bottoming of the economic contraction.

Although significant challenges remain and forecasting is difficult, if the global recovery continues through 2010 and the Baltics can maintain their course of economic recovery, it is possible that a return to modest growth sometime in 2011 can be achieved. However, we expect that, due to structural factors, Estonia will recover ahead of Latvia which, more realistically, will not see any meaningful recovery before 2012.

Russia

Russia's boom was driven by rising oil prices and capital inflows. The economic crisis in Russia was exacerbated by a crisis in the Russian financial markets, political fears emanating from the conflict with Georgia, the falling price of Urals heavy crude oil which fell by some 70% from its record peak of $147 in July 2008 and a reversal of capital flows. Although Russia's strong short-term macroeconomic fundamentals and foreign exchange reserves, which reached $386 billion in mid-2008, allowed it cope better with the financial crisis than many emerging economies, its structural weaknesses and over- dependence on commodities, amplified the impact. After a steep decline in H1 2009, the gradual devaluation of the rouble, higher oil prices and massive monetary and fiscal stimulus had an effect and the economy returned to growth in Q3 2009 after only two quarters of contraction. Although GDP for 2009 overall contracted by 7.9%, growth forecasts for 2010 range from 3 to 5%.With increased and improving capital inflows and rising commodity prices, Russia is now expected to experience continued medium-term economic growth although concerns about structural inadequacies and the overdependence of the economy on oil remain. As the rouble has strengthened and commodity prices recovered, foreign exchange reserves have been replenished and at $450 billion leaves Russia well placed to counter further economic shocks which may occur.

Russia still has the world's third largest financial reserves, is the world's largest energy producer and the world's most important metals producer. Geographically well-positioned and with Europe's largest population, there appears to be a strong political commitment to move forward with economic and legislative reform both at federal and regional levels.

Property Market Review

Tallinn, Estonia

After the office market in Tallinn was flooded in 2008 with more than 100,000 sqm of new office space only 30,000 sqm was brought to the market in 2009. Supply significantly outweighed demand and most new office space remains vacant with citywide vacancy rates estimated at in excess of 25%. Consequently, rents for Class A offices fell by some 35% with median rents now in the €9-12 per sqm range. No new office developments projects were started in 2009. Some investor interest has recently returned to the market and transactions in the 8-9% yield range are reported under consideration. The anticipated euro entry by Estonia in 2011 is expected to have a positive impact on transaction activity and provide a possible stimulus for yield compression as the economy continues its recovery.

A total of 54,000 sqm of new retail space came to the market in 2009. Tallinn now has 1.32 sqm of retail space per capita which is the highest in the Baltic States. Although vacancy rates in major shopping centers remains close to zero, vacancy rates in smaller centers is up to 20% and approximately 5% in city centre locations. With retail sales dropping by up to 30%, there remains pressure on rents, although levels have largely been flat with indexed rental growth often being waived by landlords.

In the residential sector there has also been a major market correction with average prices having peaked at €1,614 per sqm in April 2007 and falling by some 53% to an average of €753 per sqm by December 2009. Only 100 new apartments were completed in 2009 with some 1300 unsold units estimated in Tallinn. No meaningful new supply is expected in 2010 (200-300 units) although further destocking and recovery in the economy may stimulate new developments in those more attractive areas of the city.

Land prices continued to experience the most dramatic price decline, with sites without planning falling in value by up to 80% from peak to trough. Even at these heavily discounted levels, demand is virtually absent with the market saturated with offers and no finance available for prospective purchasers.

 Riga, Latvia

In the office sector developers completed 62,000 sqm of Class A and B offices although take up was only 25,000 sqm. Rents declined by nearly 50% to an average of €7-12 per sq m and vacancy rates are estimated at 30%.No new projects are expected in 2010 due to the severe economic correction being experienced, the surplus of vacant space available at below construction/replacement cost and the withdrawal of bank finance for speculative developments.

50,000 sqm of retail space was added to the market and the vacancy rate in some centers increased up to 20% and 25% on the high street. The dramatic decline in retail sales also lead to an estimated 50% decline in rent levels in city centre locations.

In the residential market prices fell by 35-45% depending on location and age of unit with the greatest decline seen in Soviet-era buildings. Only 1800 apartments were brought onto the market in 2009 although the overhang in the market is estimated at approximately 2000 at the start of 2010.

Prices of land in Riga, similar to Tallinn, experienced the most dramatic declines falling by 30% after a fall of 60% in 2008. The market is flooded with offers as the absence of end buyers, construction finance and declining capital values creates no incentive for construction. It is unlikely that any recovery will be seen in this market in the foreseeable future.

St Petersburg, Russia

Similar to trends seen in other major European cities, St Petersburg's property market experienced a significant downturn in 2009 best evidenced by the statistic that the total deal values completed across the city in 2009 were for an aggregate consideration of circa $300 million. Only one of those market transactions was public with the balance sold off market between Russian counterparties. Prime yields remain in the 13-14% range. Supply in the Class A office sector increased by 43% to 350,000 sqm and with absorption rates low, vacancy rates pushed out to approximately 30% by year-end. Similarly rents have declined significantly since late 2008 when the slow-down accelerated and by end 2009 had fallen by up to 50% in US dollar terms. Although there has been a noticeable shift in to short-term lease contracts and rouble-denominated rents, there is now some stability emerging in the market and demand growth is forecast.

In the retail sector vacancy rates in shopping centers increased to circa 10% and there was a trend towards lease contracts with rental rates based on a percentage of sales. After more limited new supply in 2009, approximately 300,000 sqm of new supply is expected in 2010. In prime retail areas, including Nevsky Prospekt and Bolshoy Prospekt, rents have been reduced by up to 50%.

Current Investment Portfolio

The investment portfolio comprises four assets in St Petersburg, Riga and Tallinn.

Bolshaya Pushkarskaya 10, St Petersburg, Russia (100% interest)

The site is located on Bolshaya Pushkarskaya, a prominent street in central St Petersburg, in the Petrogradski district. The investment comprises a 100% interest in an office complex on a now privatised, freehold site of 0.72 hectares. The site runs parallel to Bolshoi Prospekt, one of St Petersburg's main shopping and business streets, and is about 4 km from the Winter Palace. Currently, there are six existing buildings on the site which has approximately 150 metres of direct street frontage. After a lengthy design and consultative process with St Petersburg authorities, planning and other attendant approvals were procured for a development of a Class A office complex on the site. Unfortunately the market correction in this subsector has been dramatic with vacancy rates at year-end reaching 30%, up from an average of nearer 5% in the 2004-2008 period, combined with a fall in class A rents of circa 35% this substantially undermines the economics of the project and consequently a decision has been taken to potentially reconfigure the project as a high-end residential scheme. Given that many of the planning and other attendant approvals for the planned office development on the site will also be applicable for a residential development, we do not anticipate any undue delay in constructing such a scheme should a decision be made to proceed.

The residential market in St Petersburg is relatively immature, but pricing has proven resilient during the recent downturn and a sale price level of €3000 sqm is considered achievable in this location. We continue to investigate this alternative residential development strategy in a deliberate and cost-effective manner and hope to be in a position to make a development decision when property markets and the St Petersburg construction finance environment improve.

At 31 December 2009, Bolshaya Pushkarskaya 10 (100%) was valued by GVA Sawyer at €10.7 million on an open market basis.

Krasta 99, Riga, Latvia (80% interest)

This asset is a prominently located land plot of 1.7 hectares situated approximately 5 km from Riga Old Town at the intersection of a major inner-city highway (Krasta Street) and the new Riga South Bridge which opened in 2009. The site was regarded as well-suited for a modern office development, with high visibility, extensive onsite parking and easy access to the City. Planning permission had been secured for the construction of approximately 50,000 sqm of gross office space in three towers. However property valuations have continued to drop sharply in Latvia, which in 2009 was reported to have been the worst performing property market worldwide. As a result of the steep decline in property values and economic conditions and, as previously reported, the breach by the Group of certain loan covenants relating to the project, the Group sought in 2009 to take advantage of certain legal provisions available in Latvia to protect the Group's interest in the Krasta 99 site. As a result Krasta is now under formal legal protection which protects the Group's interest in the site from foreclosure or otherwise being disposed of without the consent of the Group until September 2011. The project currently has no cash flow and short-term bank loans outstanding amounting to €2.6 million (interest accruing at 6% p.a. and payable after coming out of legal protection in 18 months). Project costs have been reduced to a minimum and are estimated at circa €100,000 per annum while under protection and principally comprise land tax of circa €38,000 and administrators fees relating to the legal protection of circa €32,000. The loan is secured solely on the Krasta 99 asset, is fully non-recourse and as such will have no broader impact on any other assets or borrowings of the Group.

At December 31 2009, Krasta 99 (100%) was valued by Colliers at €3.1 million on an open market basis which represents a fall in value of nearly 70% over the 2008-2009 period which is comparable with market trends.

Metro Plaza, Viru Square, Tallinn, Estonia (80.7% interest)

The property is the Group's most advanced asset, which on acquisition comprised a run-down historic building on a 2,200 sqm land plot located on a high profile square in the centre of Tallinn on the very edge of Tallinn Old Town. Construction of the development was completed on schedule and on budget in January 2009. The building now comprises 8,900 sqm of gross retail and office floor space (7,300 sqm net area), as well as underground parking for 78 cars. The estimated total gross development cost (acquisition, construction and finance) for Metro Plaza is approximately €25 million.

At present, long-term lease agreements have been signed for 88% of the total rentable area. The rental levels so far achieved average €14 per sqm and are amongst the highest of any mixed scheme in Tallinn. The tenant profile of Metro Plaza is excellent and principally comprises Trigon Capital (circa 30% of total leased area), Regus (15%), Sampo Life (7%) and Hansaworld (7%). Other tenants include MiniCredit and the Embassy of Georgia. A further circa €0.3 million will be required to be invested to complete the fit out of the unleased and some central areas. Although the development reached positive operating cash flow in Q1 2010, taking into account budgeted fit out costs for the remaining vacant areas will result in the project being cash flow neutral in 2010. It is expected that after rent holidays and other initial lease incentives expire annual net operating income for Metro Plaza will reach circa €1.6 million per annum for 2011.

The development has been financed by Group equity and a 10-year non-recourse senior loan facility (20 year amortisation), of which €14 million was drawn down at year end. This loan carries an interest charge of Euribor plus 2.5%. Although there has been very little investment activity in the Estonian market over the last 18 months, with the economy now showing some early signs of recovery, Metro Plaza is well- placed to benefit from any improvement in market conditions and investor sentiment. Evidence of potential investor interest has visibly improved in recent weeks.

In February 2010, the Group announced that it had concluded an agreement for the conversion ofcertain, non-bank current liabilities totalling €0.97 million in Focus Kinnisvara OU ('Focus'), Metro's wholly-owned subsidiary whose principal asset is the Metro Plaza development in Tallinn, into a 19.3% shareholding in Focus. This agreement was effective from 31 December 2009.

At December 31 2009, Metro Plaza (100%) was valued at €17.9 million on an open market basis.

Pirita Road, Tallinn, Estonia (80% interest)

This asset is a 1.3 hectare prime site located approximately 3km from the city centre, adjacent to the President's Castle and overlooking the Bay of Tallinn and is zoned for residential development.

The Group had been developing plans and pursuing approval for an elite/luxury residential development comprising an eight storey luxury apartment building (circa 7,000 sqm saleable area). As sales prices for comparable completed schemes have fallen very considerably and as such, with a view to minimising costs, the speed of design and planning approval have been deliberately slowed. We propose to closely monitor market conditions, which are improving, and will ensure that all project documentation, approvals, etc are available when market conditions support the project's construction or disposal.

As described above, land prices in Tallinn has fallen in value by up to 80% over the past 18 months and as such the prospects for the Pirita Road site in Tallinn are at this time quite marginal. Originally financed on a single security, non-recourse basis at a relatively conservative gearing level of 50%, the collapse in land values in Tallinn indicates that there may be little or no equity value remaining for shareholders in this project in the absence of a continued improvement in market conditions. The existing non-recourse loan facility in Pirita in the amount of €3.8 million expires in November 2010.

As at 31 December 2009, the Pirita site (100%) was valued by Colliers at €4.1 million on an open market basis

Valuation

A valuation of all of the Group's property assets held as at 31 December 2009 was undertaken to determine their fair market value and, in turn, the net asset value (NAV) of the Group. The valuation was undertaken by GVA Sawyer in St Petersburg and by Colliers International in Tallinn and Riga. GVA Sawyer has been established in Russia since 1993 and is part of a group with over 70 offices worldwide and Colliers International is also a leading real estate consultant with a network of 256 offices worldwide. The valuation was carried out in accordance with relevant international standards. The Group's policy is to independently revalue its assets twice per year, on 30 June and 31 December. The Group's property portfolio (before deduction of minority interests) was valued at €35.8 million at 31 December 2009.

 

Metro Group

 

23 June 2010

 

Directors' Report

 

The Directors present their report and audited financial statements for the year ended 31 December 2009.

 

Principal activities

 

The principal activity of the Group is investing in and developing land and buildings in the Baltic States and in the St. Petersburg area of Russia.

Business Review

 

A review of the business during the year is contained in the Chairman's Statement.

Results for the period

 

The loss attributable to the shareholders in the parent for the year ended 31 December 2009 was €7.9m (Loss for the period ended 31 December 2008 €25.1m). The results for the year are set out in the consolidated statement of comprehensive income on page 20.

Dividend

 

The Directors have not declared any dividends in the year ended 31 December 2009. (2008:Nil)

Directors

 

The Directors who served during the year were Gunnar Okk (Resigned 30 June 2009), Kristel Meos and Robin James (Chairman).

 

Directors interests

 

None of the Directors had a beneficial interest in the shares of the Group and Company. The Group and Company has not awarded any options or warrants to any of the Directors.

Secretaries

 

The secretary who served during the year was Philip Scales.

Substantial Holdings Shares held Perc. of total

 

PERSHING INTERNATIONAL NOMINEES LIMITED	10,770,724	41.11%
EUROCLEAR NOMINEES LIMITED	3,345,295	12.77%
PERSHING NOMINEES LIMITED	2,775,000	10.59%
GOLDMAN SACHS SEC. (NOMINEES) LIMITED	1,809,775	6.91%
VIDACOS NOMINEES LIMITED	1,443,522	5.51%
SECURITIES SERVICES NOMINEES LIMITED	1,310,000	5.00%

 

The board and subcommittees

 

The board considers all directors, including the chairman, to be independent. All the Directors are non-executive. The Group and Company has an audit committee consisting of all the board members.

 

Directors' Responsibility Statement

 

The Directors are responsible for preparing this report and the financial statements in accordance International Financial Reporting Standards (IFRS) as issued by the international Accounting Standards Board (IASB).

The Directors are required to prepare financial statements for each financial period which present fairly the financial position of the Group and Company and the financial performance and cash flows of the Group for that period. In preparing those financial statements the directors are required to:

 

·; Select suitable accounting policies and then apply them consistently;

·; Make judgements and estimates that are reasonable and prudent;

·; State whether all applicable accounting standards have been followed; and

·; Prepare the financial statements on the going concern basis unless it is inappropriate to assume that the Group will continue in business.

 

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and of the Group and enable them to ensure that the financial statements comply with the Companies Acts 1931 to 2004. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

By Order of the Board

 

P Scales

Secretary

23 June 2010

 

Independent Auditors' Report

To the members of Metro Baltic Horizons plc

 

We have audited the Group's financial statements for the year ended 31 December 2009 which comprise the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated cash flow statement, company statement of financial position, company statement of changes in equity, company cash flow statement and the related notes 1 to 26. These financial statements have been prepared on the basis of the accounting policies set out therein.

 

This report is made solely to the company's members, as a body, pursuant to Section 15 of the Companies Act 1982. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group and the Group's members as a body for our audit work, for this report or for the opinions we have formed.

 

Respective responsibilities of directors and auditors

As described in the statement of directors' responsibilities, the Company's directors are responsible for the preparation of the financial statements in accordance with applicable Isle of Man law and appropriate accounting standards.

 

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK & Ireland).

 

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Acts 1931 to 2004. We also report whether in our opinion the information given in the directors' report, chairman's statement and investment manager's review is consistent with the financial statements.

 

In addition we also report if, in our opinion, the Group has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and transactions with the Group is not disclosed.

 

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK & Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's circumstances, consistently applied and adequately disclosed.

 

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion

In our opinion:

 

·; the financial statements give a true and fair view, in accordance with International Financial Reporting Standards, of the state of affairs of the company and of the Group as at 31 December 2009 and of the loss of the Group for the year then ended;

 

·; the financial statements have been properly prepared in accordance with the Companies Acts 1931 to 2004; and

 

·; the information given in the directors' report, chairman's statement and investment manager's review is consistent with the financial statements.

 

Ernst & Young LLC

Chartered Accountants

Isle of Man

23 June 2010

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2009

 

	Note	31 December 2009   €'000	31 December 2008 €'000
Continuing operations   Rental income		1,520	790
Rental and related expenses		(701)	(685)
		_______	_______
Net rental and related income		819	105
Administrative expenses	3	(1,068)	(1,455)
Changes in value of investment property	7	(8,520)	(26,616)
Changes in value of property, plant and equipment	8	-	(3,604)
Net foreign currency gain		16	26
		_______	_______
Net operating loss before tax and finance income and expense		(8,753)	(31,544)
Finance income	4	65	119
Finance expense	4	(1,455)	(202)
		_______	_______
Loss before tax		(10,143)	(31,627)
Income tax credit	5	1,518	3,942
		_______	_______
Loss for the year		(8,625)	(27,685)
		======	======

 

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2009

	Note		31 December 2009   €'000		31 December 2008 €'000
Other comprehensive income
Loss for the year			(8,625)		(27,685)
Exchange differences on translation of foreign operations			-		(168)
Revaluation of land and buildings Income tax effect	5		- -		(2,388) 573
			_______		_______
Other comprehensive income for the year, net of tax			-		(1,983)
			_______		_______
Total comprehensive loss for the year, net of tax			(8,625)		(29,668)
			======		======
Profit attributable to:
Equity holders of the parent		(7,912)		(25,129)
Non-controlling interest		(713)		(2,556)
		_______		_______
		(8,625)		(27,685)
		======		======
Total Comprehensive Income attributable to:
Equity holders of the parent		(7,912)		(27,112)
Non-controlling interest		(713)		(2,556)
		_______		_______
		(8,625)		(29,668)
		======		======
Earnings per share for continuing operations
basic, loss for the year attributable to ordinary equity holders of the parent	6		(30.20)		(95.91)
diluted, loss for the year attributable to ordinary equity holders of the parent	6		(27.16)		(95.91)

 

 

Consolidated Statement of Financial Position

As at 31 December 2009

 

	Note	31 December 2009 €'000	31 December 2008  €'000
Assets
Non-current assets
Investment property	7	35,790	31,050
Property, plant and equipment	8	-	11,434
Other assets		7	19
		______	______
Total non-current assets		35,797	42,503
Current assets
Trade and other receivables	10	985	742
Other current assets		139	92
Cash and cash equivalents	11	490	708
Restricted cash	11	114	259
		_______	_______
Total assets		37,525	44,304
		======	======

Consolidated Statement of Financial Position

As at 31 December 2009

	Note	31 December 2009 €'000	31 December 2008  €'000
Equity
Issued capital	16	262	262
Distributable reserves	18	36,186	36,186
Retained earnings		(25,994)	(18,082)
Foreign exchange movements		(354)	(354)
		________	________
Total equity attributable to equity holders of the parent		10,100	18,012
Non-controlling interest		(505)	(2,363)
		________	________
Total equity		9,595	15,649
		======	======
Liabilities
Non-current liabilities
Interest bearing loans  - Bank loans	12	16,085	11,027
- Other loans	13	2,219	3,485
Deferred tax liabilities	5	2,558	4,064
		_______	_______
Total Non Current Liabilities		20,862	18,576
Current liabilities
Trade and other payables	14	896	2,931
Deferred revenue	15	26	-
Interest bearing loans
- Bank loans	12	4,218	6,719
- Other loans	13	1,870	409
Income tax payable		58	20
		_______	_______
Total current liabilities		7,068	10,079
Total liabilities		27,930	28,655
		_______	_______
Total equity and liabilities		37,525	44,304
		======	======
Net asset value per ordinary share - basic (cents)	17	0.39	0.69
Net asset value per ordinary share - diluted (cents)	17	0.39	0.69

 

Approved by the Board of Directors and authorised for issue on 23 June 2010 and signed on its behalf by:

Robin James Kristel Meos

Director Director

 

The notes on pages 29 to 68 form part of these financial statements

Company Statement of Financial Position

As at 31 December 2009

	Note	31 December 2009 €'000	31 December 2008 €'000
Assets
Non-current assets
Investment in subsidiaries	20	12,938	35,298
Current assets
Trade and other receivables	10	-	-
Amounts due from other Group companies	10	-	3,103
Cash and cash equivalents	11	5	29
		_______	_______
Total current assets		5	3,132
		_______	_______
Total assets		12,943	38,430
		======	======
Equity
Issued capital	16	262	262
Distributable reserves	18	36,186	36,186
Retained earnings		(23,520)	1,942
		_______	_______
Total equity		12,928	38,390
		======	======
Liabilities
Current liabilities
Trade and other payables	14	15	40
		_______	_______
Total liabilities		15	40
		_______	_______
Total equity and liabilities		12,943	38,430
		======	======

 

Approved by the Board of Directors and authorised for issue on 23 June 2010 and signed on its behalf by:

 

Robin James Kristel Meos

Director Director

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2009

 

	Attributable to the equity holders of the parent
	Issued Capital €'000	Distributable Reserves €'000	Revaluation Reserve €'000	FX Gains or Losses €'000	Retained Earnings €'000	Total €'000	Non-Controlling Interest €'000	Total Equity €'000
As at 1 January 2009	262	36,186	-	(354)	(18,082)	18,012	(2,363)	15,649
Loss for the year	-	-	-	-	(7,912)	(7,912)	(713)	(8,625)
	_____	_______	_______	______	_______	______	______	______
Total comprehensive income	-	-	-	-	(7,912)	(7,912)	(713)	(8,625)
Non-controlling interest arising from change in ownership (Note 20)	-	-	-	-	-	-	2,571	2,571
	______	_________	_________	_______	_______	_______	_______	______
As at 31 December 2009	262	36,186	-	(354)	(25,994)	10,100	(505)	9,595
	=====	=======	=======	======	======	======	======	======

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2008

 

	Attributable to the equity holders of the parent
	Issued Capital €'000	Distributable Reserves €'000	Revaluation Reserve €'000	FX Gains or Losses €'000	Retained Earnings €'000	Total €'000	Non- Controlling Interest €'000	Total Equity €'000
As at 1 January 2008	262	36,186	2,388	(186)	6,474	45,124	193	45,317
Loss for the year	-	-	-	-	(25,129)	(25,129)	(2,556)	(27,685)
Other comprehensive income	-	-	(2,388)	(168)	573	(1,983)	-	(1,983)
	______	_________	_________	_______	_______	_______	_______	______
Total comprehensive income	-	-	(2,388)	(168)	(24,556)	(27,112)	(2,556)	(29,668)
	______	_________	_________	_______	_______	_______	_______	______
As at 31 December 2008	262	36,186	-	(354)	(18,082)	18,012	(2,363)	15,649
	=====	=======	=======	======	======	======	======	======

Company Statement of Changes in Equity

For the year ended 31 December 2009

 

 

Issued Distributable Retained

Capital Reserves Earnings Total

€'000 €'000 €'000 €'000

 

At 1 January 2008 262 36,186 1,746 38,194

 

 

Profit for the year - - 196 196

____ ____ ____ ____

Total income and expenses

for the year - - 196 196

_______ ______ _______ _______

 

At 31 December 2008 262 36,186 1,942 38,390

====== ===== ====== ======

 

 

 

 

At 1 January 2009 262 36,186 1,942 38,390

 

 

Loss for the year - - (25,462) (25,462)

____ ____ ____ ______

 

Total income and expenses 

for the year - - (25,462) (25,462)

 

_______ ______ _______ _______

 

Total 262 36,186 (23,520) 12,928

====== ===== ====== ======

 

 

 

 

Consolidated Statement of Cash Flows

For the year ended 31 December 2009

	Note	31 December 2009 €'000	31 December 2008 €'000
Cash flows from operating activities
Loss before tax		(10,143)	(31,627)
Non-cash adjustment to reconcile profit before tax to net Cash flows
Finance income		(65)	(119)
Finance cost		1,455	202
FX (loss)/gain		(12)	39
Changes in value of investment property		8,520	26,616
Changes in value of property plant and equipment		-	3,604
Working capital adjustments:
(Decrease)/increase in creditors		(1,038)	(446)
Decrease/(increase) in debtors		(290)	(295)
		_______	_______
Net cash flows from operating activities		(1,573)	(2,026)
Cash flows from investing activities
Capital expenditure on investment properties and property, plant and equipment		(1,827)	(9,058)
Finance Income		65	123
		_______	_______
Net cash used in investing activities		(1,762)	(8,935)
Cash flows from financing activities
Finance Expense		(1,455)	(410)
Proceeds from non-controlling interest loans		-	611
Repayments of non-controlling interest loans		-	(720)
Proceeds from borrowings		4,427	9,035
		_______	_______
Net cash generated from financing activities		2,972	8,516
Decrease/ (Increase) in restricted cash		145	(259)
		_______	_______
Net (decrease)/increase in cash and cash equivalents		(218)	(2,704)
Cash and cash equivalents at the beginning of the year	11	708	3,412
		_______	_______
Cash and cash equivalents at the end of the year	11	490	708
		======	======

Company Statement of cash flows

For the year ended 31 December 2009

 

	Note	31 December 2009 €'000	31 December 2008 €'000
Cash flows from operating activities
(Loss)/Profit before tax		(25,462)	1,728
Non-cash adjustment to reconcile profit before tax to net cash flows Impairment adjustment		27,522	-
Finance income		(2,173)	(2,094)
Working capital adjustments
(Decrease)/increase in creditors		(25)	(42)
Decrease/(increase) in debtors		-	18
		_______	_______
Net cash used in from operating activities		(138)	(390)
Cash flows from investing activities
Interest received		-	3
Loans repaid by subsidiaries		114	65
		_______	_______
Net cash generated from investing activities		114	68
		_______	_______
Net decrease in cash and cash equivalents		(24)	(322)
Cash and cash equivalents at the beginning of the year		29	351
		_______	_______
Cash and cash equivalents at the end of the year		5	29
		======	======

 

 

1. General Information

 

The Company was incorporated in the Isle of Man on 18 September 2006 as Metro Baltic Hermitage plc. On 13 November 2006 the Company passed a special resolution to change its name to Metro Baltic Horizons plc. The Company invests in and develops property in the Baltic States and in the St. Petersburg area of Russia.

 

This report of the Company for the year ended 31 December 2009 comprises the Company and its subsidiaries (together referred to as the "Group").

 

The Company's registered address is IOMA House, Hope Street, Douglas, Isle of Man.

 

The Company was admitted to the AIM of the London Stock Exchange and commenced operations on 11 December 2006.

 

2. Principal Accounting Policies

 

A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below:

2.1 Basis of preparation

The financial statements are prepared on an historic cost basis, except for investment properties and land and buildings that have been measured at fair value. The consolidated and Company financial statements are presented in euros and all values are rounded to the nearest thousand (€000) except when otherwise indicated.

The financial statements are prepared on a going concern basis. This is deemed appropriate as the Group has taken steps to ensure that sufficient funding is available to the Group to meet anticipated costs for the foreseeable future. These steps include extending the expiry date on current loans, extending a rolling bond facility managed by the Investment Adviser, agreement with the Investment Manager to defer payment of management fees and a subsequent agreement with the Investment Manager to take payment of the 2009 fee in ordinary shares in the Company and delaying expenditure on selected projects in line with available resources.

The Group is in discussions with the lenders to its Pirita project which has loans that mature in November 2010 for which it has recently secured a six month extension. In addition, the Group has sought and received legal protection in respect of its Latvian subsidiary, DTilts, which provides legal protection from its creditors until 2 October 2011. In the event the Pirita loan is not refinanced or extended and/ or the legal protection in respect of the Group's

Latvian subsidiary expires or falls away, all bank financing facilities in the group are at asset level and non-recourse to the Group and, as such, in a worst case scenario the subsidiaries affected can default without a material impact on the Group as a going concern.

 

The Group's Bolshaya Pushkarskaya site in St. Petersburg has significant equity value and limited gearing. The Board and Investment Manager are confident that this asset can be refinanced, however, as there is considerable equity value in this asset and the St. Peterburg property market has recovered significantly, this asset could be sold and generate significant positive cashflow for the group.

 

The Group's principal cashflow generating asset is Metro Plaza. Metro Plaza has a positive equity value and operating cashflow. This asset is 80% let, and is expected to generate increasing cashflows as tenants exit reduced or rent free initial letting periods. These cashflows will help the group to manage operating cashflow from the latter part of 2010 onwards, with the expectation that during 2011 no further external funding will be required to assist in meeting the groups operating cashflows. The financing on this asset does not mature until 2017.

 

2.2 Basis of consolidation

 

The consolidated financial statements incorporate the financial statements of the Company and the subsidiaries controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefit from its activities.

 

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation. A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. Losses are attributed to the non-controlling interest even if that results in a deficit balance.

 

If the Group loses control over a subsidiary, it:

·; Derecognises the assets (including goodwill) and liabilities of the subsidiary

·; Derecognises the carrying amount of any non -controlling interest

·; Derecognises the cumulative translation differences, recorded in equity

·; Recognises the fair value of the consideration received

·; Recognises the fair value of any investment retained

·; Recognises any surplus or deficit in profit or loss

·; Reclassifies the parent's share of components previously recognised in the other comprehensive income to profit or loss.

 

2.3 Statement of Compliance

 

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the international Accounting Standards Board (IASB).

 

 

2.4 Changes in accounting policy and disclosures

 

The Group has adopted the following new and amended IFRS as of 31 December 2009:

 

IFRS 2 Share-based Payment Vesting Conditions and Cancellations - effective 1 January 2009

IFRS 7 Financial Instruments: Disclosures - effective 1 January 2009

IFRS 8 Operating Segments - effective 1 January 2009

IAS 1 Presentation of Financial Statements (Revised) - effective 1 January 2009

IAS 23 - Borrowing Costs (Revised) - effective 1 January 2009

 

When the adoption of the standard or interpretation is deemed to have an impact on the financial statements or performance of the Group its impact is described below:

 

IFRS 2 Share-based Payment (Revised)

The IASB issued an amendment to IFRS 2 which clarifies the definition of vesting conditions and prescribes the treatment for an award that is cancelled. The Group adopted this amendment as of 1 January 2009. It did not have an impact on the financial position or performance of the Group.

IFRS 7 Financial Instruments: Disclosures

The amended standard requires additional disclosures about fair value measurement and liquidity risk. Fair value measurements related to items recorded at fair value are to be disclosed by source of inputs using a three level fair value hierarchy, by class, for all financial instruments recognised at fair value. In addition, a reconciliation between the beginning and ending balance for level 3 fair value measurements is now required, as well as significant transfers between levels in the fair value hierarchy. The amendments also clarify the requirements for liquidity risk disclosures with respect to derivative transactions and assets used for liquidity management. The fair value measurement disclosures are presented in Note 19. The liquidity risk disclosures are not significantly impacted by the amendments and are presented in Note 19.

 

IFRS 8 Operating Segments

IFRS 8 replaces IAS 14 Segment Reporting upon its effective date. IFRS 8 disclosures are shown in Note 9, including the related comparative information. See Note 2.5(j)

 

IAS 1 Presentation of Financial Statements

The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented in a reconciliation of each component of equity. In addition, the standard introduces the statement of comprehensive income: it presents all items of income and expense, either in one single statement, or in two linked statements. The Group has elected to present a single statement. The application of this revised standard had no impact on the comparative statement of financial position.

 

IAS 23 Borrowing Costs

The revised IAS 23 requires capitalisation of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. The adoption of this standard had no affect on the Group as borrowing costs were capitalised in previous years.

The following new and amended IFRS and IFRIC interpretations were not effective and not early adopted as of 31 December 2009:

 

IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended): applicable for annual periods commencing 1 July 2009 including consequential amendments to IFRS 7 and IAS 21.

IFRS 2 Share-based Payment: Group Cash-settled Share-based Payment Transactions effective 1 January 2010.

 

IAS 24 (Revised 2009) Related Party Disclosures: applicable retrospectively for annual periods beginning on or after 1 January 2011.

Classification of Rights issues: applicable for annual periods commencing 1 February 2010.

 

IAS 40 Investment Property (Amended): IAS 40 has been amended to bring within its scope investment property under construction. Consequently such property is measured at fair value when completed investment properties are measured at fair value. The Group has amended its policy accordingly. The policy has been applied prospectively from 1 January 2009. The application of this standard had no impact on the income statement for the year ended 31 December 2009.

 

Improvements to IFRS

·; Amendment to IAS 1 Presentation of Financial Statements is applicable for annual periods beginning on or after 1 January 2010.

·; Amendment to IAS 7 Statement of Cash Flows is applicable for annual periods beginning on or after 1 January 2010.

·; Amendment to IAS 17 Leases is applicable for annual periods beginning on or after 1 January 2010.

 

 

2.5 Summary of significant accounting policies

 

a). Revenue recognition

 

Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of revenue can be measured reliably.

 

Rental income

Rental revenues are typically received in advance and are accounted for on a deferred basis. Rent is then allocated to the appropriate period.

 

Interest income

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Interest income is included in finance income in the Statement of Comprehensive Income.

 

b). Investment property

 

Property held to earn rentals and/or for capital appreciation and that is not occupied by the companies in the Group, is classified as investment property. Investment property is initially measured at cost including transaction costs. Subsequent to initial recognition investment property is carried at fair value and adjustments to fair value are reflected in the Statement of Comprehensive Income.

 

Properties held by the Group are derecognised when either they have been disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. Any gains or losses on the retirement or disposal of a property are recognised in the Statement of Comprehensive Income in the year of retirement or disposal.

 

Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

 

Transaction costs directly attributable to the purchase of the investment properties are included within the cost of the property.

 

c). Property, plant and equipment

 

Property, plant and equipment comprise of land and buildings. Land and buildings are carried at fair value net of accumulated depreciation and/or accumulated impairment losses, if any. Valuations are performed frequently to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

Any revaluation surplus is credited to the assets revaluation reserve included in the equity section of the Statement of Financial Position, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the Statement of Comprehensive Income, in which case the increase is recognised in the Statement of Comprehensive Income. A revaluation deficit is

recognised in the Statement of Comprehensive Income, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve.

 

An annual transfer from the asset revaluation reserve to retained earnings is made for the difference between depreciation based on the revalued carrying amount of the assets and depreciation based on the assets original cost. No depreciation is applied to the property plant and equipment as it is revalued on a semi annual basis.

 

d). Borrowing costs

 

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

 

e). Expenses

 

Expenses are accounted for on an accruals basis. Fees payable to the Property Adviser are calculated with reference to the cost or valuation of the underlying properties held by the Group.

 

Development costs of investment property are also included within the cost of the property. Borrowing costs that are directly attributable to the construction of investment property are capitalised as incurred.

 

All other administration expenses are charged through the Statement of Comprehensive Income.

 

f). Cash and cash equivalents

 

Cash and cash equivalents consist of cash in hand and short-term deposits which are short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

 

g). Income tax and deferred tax

 

Income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the Group operates and generates taxable income.

Deferred tax

Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except:

 

- Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

 

- In respect of taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

 

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

 

- Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

- In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

 

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.

 

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

 

h). Business combinations

 

Business combinations from 1 January 2009

There were no business combinations during the year ended 31 December 2009 or in the prior year.

 

Business combinations prior to 31 December 2008

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed and any equity instruments issued by the Group in exchange of control of the acquiree, plus any contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair values at the acquisition date.

 

The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree's identifiable net assets.

 

Goodwill is initially measured at cost being the excess of the consideration transferred over the Group's net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

 

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

 

i). Foreign currency translation

 

Functional and presentation currency

 

Items included in the financial statements of each of the Group entities are measured in the currency of the primary economic environment in which the entity operates (the "functional currency"). Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group has elected to recycle the gain or loss that arises from the direct method of consolidation, which is the method the Group uses to complete its consolidation.

 

The consolidated financial statements are presented in Euro which is the Company's functional and presentation currency.

 

Transactions and balances

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income.

 

Non monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when fair value is determined.

 

Group companies

 

The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

 

(i) assets and liabilities are translated at the closing rate at the date of the statement of financial position;

(ii) income and expenses are translated at the average exchange rate prevailing in the period and gains or losses are dealt with in the Statement of Comprehensive Income.

 

The exchange differences arising on the translation are taken directly to other comprehensive income. On disposal of a foreign entity, the component of other comprehensive income relating to that particular foreign operation is recognised in the Statement of Comprehensive Income.

 

j). Operating segments

 

The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are reviewed regularly by the chief operating decision maker in order to allocate resources and to assess their performance. The group has four operating segments relating to its four projects. In previous financial years the Group did not report Operating Segments separately on the basis that the Directors considered the business to operate in one segment, the property development business and in a single geographic area, the Baltic region.

 

k) Share-based payment transactions

 

The Investment Manager may receive part of its performance fee in the form of a share based payment whereby the Investment Manager renders services as consideration for equity instruments "equity settled transactions".

 

From 1 January 2009 the investment management agreement was amended to provide the Investment Manager a choice of whether the entity settles the management fee in cash or by way of shares ("Share based payments with cash alternatives"). This liability is treated as cash settled as a liability has been incurred.

 

In situations where equity instruments are issued and some or all of the goods or services received by the entity as consideration cannot be specifically identified, the unidentified goods or services received (or to be received) are measured as the difference between the fair value of the share-based payment transaction and the fair value of any identifiable goods or services received at the grant date. This is then capitalised or expensed as appropriate.

 

Equity-settled transactions

The cost of equity-settled transactions is measured by reference to the fair value at the date on which they are granted.

 

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest.

 

The income statement expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

 

No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. Where the terms of an equity-settled transaction award are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.

 

Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. All cancellations of equity-settled transaction awards are treated equally.

 

Cash-settled transactions

The cost of cash-settled transactions is measured initially at fair value at the grant date. This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to and including the settlement date with changes in fair value recognised in expenses

 

l) Financial assets

 

All financial assets are recognised initially at fair value. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the group commits to purchase of sell the asset.

 

Financial assets at fair value through profit or loss

 

Financial assets at fair value through profit or loss includes financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss.

 

Financial assets classified in this category are those that have been designated by management on initial recognition. The Company may only designate an instrument as fair value through the profit and loss upon initial recognition when the following criteria are met, and designation is determined on an instrument by instrument basis:

 

The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognising gains or losses on them on a different basis; or

 

The assets and liabilities are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.

 

Financial assets at fair value through profit or loss are recorded in the statement of financial position at fair value. Changes in fair value are recorded in the Statement of Comprehensive Income.

 

The Company has designated loans and capital contributions made to its subsidiaries as financial assets upon initial recognition as at fair value through profit or loss.

 

m) Financial liabilities

 

Initial recognition and measurement

 

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs. The Group's financial liabilities include trade and other payables and loans and borrowings.

 

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

 

 

Loans and borrowings

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in finance cost in the income statement.

 

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

 

2.5 Significant accounting judgments, estimates and assumptions

 

(i) Judgements

 

In the preparation of the Group's consolidated financial statements, management is required to make certain judgements and estimates that affect the reported amounts of its assets and liabilities, revenues and expenses at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities. Significant areas requiring management's judgement include assessment of the fair value of investment properties and properties under construction and also the determination of deferred tax.

 

Deferred tax assets / liabilities

 

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits. Further details are contained in Note 5.

 

The basis for determination of deferred tax assets/ liabilities is outlined in Note 5 of these financial statements.

 

(ii) Estimates and assumptions

 

Revaluation of property, plant and equipment and investment properties

 

The Group carries its investment properties at fair value, with changes in fair value being recognised in the Statement of Comprehensive Income. In addition, it measures land and buildings at revalued amounts with changes in fair value being recognised in other comprehensive income. The Group engaged independent valuation specialists to determine fair value as at 31 December 2009.

 

The basis for valuation of investment properties and property plant and equipment is discussed further in Note 7 and Note 8, respectively, of these financial statements.

Impairment of non-financial assets

 

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of the asset's fair value less the cost of selling the asset and its value in use. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the Company relies on independent valuers.

 

 

3. Administrative Expenses

 

Administrative expenses include the following

31 December 31 December

2009 2008

Group Group

€'000 €'000

 

 

Investment management fees 495 727

Directors remuneration 34 77

Auditors' remuneration audit services 45 49

Other administrative expenses 494 602

_______ _______

1,068 1,455

====== ======

Management fees are 1.5% per annum of gross assets under management in Russia and 1% per annum of all other gross assets. The management fees are calculated and charged quarterly based on the gross assets of the Group at the end of the quarter. During the period the Investment Manager agreed to defer to collection of fees and to charge 12% interest on the outstanding balance (see Related Party Transactions Note 22) and subsequent to the year end the Investment Manager agreed to take payment of the outstanding 2009 management fees and interest in new ordinary shares in the Group (see Subsequent Events Note 25).

 

Performance fees are calculated based on the audited net asset value at 31 December each year and are payable annually. The performance fee is calculated as 25% of the increase in the net asset value of the Group in excess of a hurdle rate of 12% over the period. As the net asset value at 31 December 2009 is below the hurdle rate no performance fee is payable in respect of the year. As detailed in Note 2, the Investment Manager is required to use a portion of any performance fee to purchase new shares in the Group if the shares are trading at a level in excess of the net asset value. As the share price was trading below net asset value when the performance fee was paid in respect of 31 December 2007 the manager was required to use that portion of the proceeds to acquire shares in the market. There is no such requirement in relation to the year ended 31 December 2009 and 31 December 2008 as no performance fee arose. Based on these events, no share-based payments arose in the current or prior year.

 

The Directors also agreed to a reduction in fees from 1 January 2009.

4. Finance Income and Expense

31 Dec 31 Dec

2009 2008

Group Group

€'000 €'000

 

Interest received on deposits 65 119

______ ______

 

Finance Income 65 119

===== =====

 

31 Dec 31 Dec

2009 2008

Group Group

€'000 €'000

 Interest paid on bank

 and other loans 1,455 202

______ ______

 

Finance Expense 1,455 202

 

===== =====

5. Income Tax

31 Dec 31 Dec

2009 2008

Group Group

€'000 €'000

Other tax

Levy on unpaid up share capital

 & rental income (28) -

 

Deferred tax

Comprehensive income 1,546 3,942

Other comprehensive income - 573

 

______ _______ 

Tax credit for the year/ period 1,518 4,515

 

===== =====

Deferred tax principally relates to capital gains tax or equivalent that would be payable on the disposal of investment or other property assets at their current fair market value based on their carrying tax value.

 

Group Deferred tax asset and liability	2009 Assets	2009 Liabilities	2009 Combined	2008 Assets	2008 Liabilities	2008 Combined
	€'000	€'000	€'000	€'000	€'000	€'000
Opening Deferred tax assets	99	-	(99)	45	-	(45)
Opening Deferred tax liabilities	-	4,163	4,163	-	8,624	8,624
	99	4,163	4,064	45	8,624	8,579
Consolidated Statement of Comprehensive Income
Revaluation of land & property
- Tax charge	-	(1,558)	(1,558)	-	(3,888)	(3,888)
- Other comp income tax effect	-	-	-	-	(573)	(573)
Other items	(12)	-	12	54	-	(54)
	(12)	(1,558)	(1,546)	54	(4,461)	(4,515)
Consolidated Statement of financial position
Foreign Exchange and other items	(11)	29	18	-	-	-
	(11)	29	18	-	-	-
Closing Deferred tax assets	76	-	(76)	99	-	(99)
Closing Deferred tax liabilities	-	2,634	2,634	-	4,163	4,163
	76	2,634	2,558	99	4,163	4,064

 

 

 

  

The Company is resident in the Isle of Man. Its activities in the Isle of Man are liable to tax at a 0% tax rate.

 

Tax payable at 31 December 2009 and 31 December 2008 relates to taxes payable as a result of deductions from employee salaries and a Special Defence Contribution levy charged in Cyprus on certain activities.

 

The Group has income tax losses of €3.4m (2008: €2.5m). The deferred tax asset associated with these losses are €506k (2008: €375k) of which €422k (2008: €68k) has not been recognised in the accounts as there is no expectation that the Group will earn taxable profits sufficient to utilise them.

 

The deferred tax liability has arisen based on the tax that would be payable by the Group if property assets held by it were sold at the current valuation based on the current tax rates in the appropriate jurisdiction and the current tax carrying value.

 

6. Earnings Per Share

 

The calculation of basic earnings per share at 31 December 2009 was based on the loss attributable to shareholders of €7,912k (2008: €25,129k) and on the weighted average number of ordinary shares in issue during the year ended 31 December 2009 of 26,200,270 (2008: 26,200,270).

 

Diluted earnings per share amounts are calculated by dividing the net profit attributable to the ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all dilutive potential ordinary shares into ordinary shares.

 

31 Dec 31 Dec

2009 2008

Group Group

€'000 €'000

Basic earnings per share

 

Loss attributable to

equity holders of the parent (7,912) (25,129)

_______ _______

 

Weighted average number of ordinary shares 26,200,270 26,200,270

in issue during the year

 

Basic earnings per share(expressed as cents

per share) (30.20) (95.91)

 

Diluted earnings per share

 

Weighted average no' of shares over the year 2,936,952 -

Respect of the 2009 Management fee

Diluted average no' of ordinary shares 29,137,222 26,200,270

in issue during the year

Diluted earnings per share (27.16) (95.91)

(Expressed as cents per share)

 

 

7. Investment Property

 

	Investment Property €'000
At 1 January 2008	46,424
Fair value adjustment	(26,616)
Additions	11,242
	________
Total	31,050
	=======
At 1 January 2009	31,050
Reclassification of Property as Investment Property	11,434
Fair value adjustment	(8,520)
Additions	1,826
	________
Total	35,790
	=======

 

Investment properties are stated at fair value. The Group has appointed various independent and internationally recognised valuers with significant experience in the region to prepare valuations on a semi-annual basis (as at 30 June and at 31 December). Valuations are undertaken in accordance with International Valuation Standards published by the International Valuations Standards Committee. The fair value adjustment includes foreign exchange differences on conversion of the Russian assets from US dollar to Euro.

 

The valuation method inter alia considers profit, cost, and market approaches as appropriate. The valuations consider the value of the property based on the expected sale value at completion less any expenditure required to realise this value. The valuations consider the expected rent roll rental yields for similar properties. The valuation method also considers comparative deals, to the extent that any relevant transactions have occurred, in the market at the time of the valuation.

 

Capitalised borrowing costs

The amount of borrowing costs capitalised for the year ended 31 December 2009 was €147k (2008: €939k). The weighted average rate used to determine the amount of borrowing costs eligible for capitalisation was 4.6% in 2009 (2008: 6%).

 

8. Property, Plant and Equipment

 

 

Property held for construction and development.

 

	Development Property €'000
At 1 January 2008	17,412
Fair value adjustment	(3,604)
Reversal of revaluation reserve	(2,388)
Additions	14
	________
Total	11,434
	=======
At 1 January 2009	11,434
Reclassification of Property as Investment Property	(11,434)
	________
Total	-
	=======

 

The Group has reclassified assets from Property, Plant and Equipment to Investment Property as assets meet the definition of Investment Property under IAS 40 (amended).

 

Revaluation of land and buildings

Fair value is determined by reference to market based evidence. The Group has appointed various independent and internationally recognised valuers with significant experience in the region to prepare valuations on a semi-annual basis. Valuations are undertaken in accordance with International Valuation Standards published by the International Valuations Standards Committee.

9. Operating Segment Information

 

For management purposes, the Group is organised into business units based on their products and services and has four reportable operating segments as follows:

 

- Metro Plaza, Tallinn, Estonia

- Krasta 99, Riga, Latvia

- Pirita Road, Tallinn, Estonia

- Bolshaya Pushkarskaya, St Petersburg, Russia

 

No operating segments have been aggregated to form the above reportable operating segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements.

 

At 31 Dec 2009	Metro Plaza	Krasta 99	Pirita Road	Bolshaya Pusharskaya	Group*	Total
	€'000	€'000	€'000	€'000	€'000	€'000
Revenue
Net rental income	729	-	43	47	-	819
Results
Changes in value of investment and other property	141	(1,868)	(528)	(6,265)	-	(8,520)
Administrative expenses	(184)	(74)	(19)	(38)	(753)	(1,068)
Finance income	1	2	14	44	4	65
Finance expense	(904)	(1,003)	(410)	(148)	1,010	(1,455)
Other	-	-	-	-	16	16
	_______	______	______	______	______	_______
Segment loss	(217)	(2,943)	(900)	(6,360)	277	(10,143)
	======	=====	=====	=====	=====	======
Non-current assets	17,900	3,100	4,100	10,697	-	35,797
	======	=====	=====	=====	=====	======
Operating Liabilities	(13,906)	(9,341)	(8,350)	(4,016)	7,683	(27,930)
	======	=====	=====	=====	=====	======

 

 

At 31 Dec 2008	Metro Plaza	Krasta 99	Pirita Road	Bolshaya Pusharskaya	Group*	Total
	€'000	€'000	€'000	€'000	€'000	€'000
Revenue
Net rental income	-	-	50	55	-	105
Results
Changes in value of investment property	(6,244)	(11,988)	(3,697)	(8,291)	-	(30,220)
Administrative expenses	(38)	(50)	(32)	(102)	(1,233)	(1,455)
Finance income	32	3	24	-	60	119
Finance expense	-	(950)	(474)	-	1,222	(202)
Other	-	-	-	-	26	26
Segment loss	(6,250)	(12,985)	(4,129)	(8,338)	75	(31,627)
	====	====	====	====	====	====
Non-current assets	16,100	4,970	4,600	16,833	-	42,503
	====	====	====	====	====	====
Operating liabilities	(22,151)	(16,663)	(8,119)	(5,360)	23,638	(28,655)
	====	====	====	====	====	====

 

* The operating segment described as Group in the tables above is a balancing figure and does not represent a unique operating segment.

Geographic information

 

	31 Dec 2009 €'000	31 Dec 2008 €'000
Net rental income
Estonia	772	50
Latvia	-	-
Russia	47	55
	____	____
Rental income per statement of comprehensive income	819	105
	====	====

 

 

	31 Dec 2009 €'000	31 Dec 2008 €'000
Non-current assets
Estonia	22,000	20,700
Latvia	3,100	4,970
Russia	10,697	16,833
	____	____
Total non-current assets	35,797	42,503
	====	====

 

 

 

	31 Dec 2009 €'000	31 Dec 2008 €'000
Net Asset Value attributable to shareholders in the parent
Estonia	4,277	2,881
Latvia	335	1,883
Russia	8,355	13,263
Group	(2,867)	(15)
	______	______
Total non-current assets	10,100	18,012
	=====	=====

 

 

10. Trade and Other Receivables and Amounts Due from Group Companies

 

31 Dec 31 Dec 31 Dec 31 Dec

2009 2009 2008 2008

Group Company Group Company

€'000 €'000 €'000 €'000

 

Accrued interest income - - 3 -

Prepayments 12 - -

Trade receivables 617 - 211 -

VAT receivable 356 - 528 -

_______ _______ _______ ______

 

Total trade and

other receivables 985 - 742 -

 

====== ====== ===== =====

 

Interest due from

Group companies - 5,275 - 3,103

Impairment of interest

due (Note 20) - (5,275) - -

 

_______ _______ _______ _______

 

Amounts due from

 Group companies - - - 3,103

 

====== ====== ====== ======

 

 

As at 31 December, the ageing analysis of trade receivables of the Group is as follows:

 

Aging of past due
	31 Dec 2009 €'000	31 Dec 2008 €'000
0 - 90 days	51	211
>90 days	566	-
	___	____
Total	617 ===	211 ===

 

 

11. Cash and Cash Equivalents & Restricted Cash

 

31 Dec 31 Dec 31 Dec 31 Dec

2009 2009 2008 2008

Group Company Group Company

€'000 €'000 €'000 €'000

 

Sterling cash 3 1 23 23

Euro cash 203 4 187 6

Rouble cash 92 - 77 -

Estonian cash 170 - - -

Latvian cash - - 2 -

Euro deposits - - 291 -

Estonian deposits - - 128 -

Dollar cash 21 - - -

______ _______ ______ _______

Total cash and

cash equivalents 490 5 708 29

====== ====== ===== ======

 

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise the following:

 

31 Dec 31 Dec 31 Dec 31 Dec

2009 2009 2008 2008

Group Company Group Company

€'000 €'000 €'000 €'000

 

Cash at banks 490 5 289 29

and on hand

Short-term deposits - - 419 -

____ ____ ____ ____

490 5 708 29

=== === === ===

 

 

Restricted cash

 

____ ____ ____ ____

Restricted deposit 114 - 259 -

==== ==== ==== ====

 

Included within restricted cash is €114k (2008: €259k) deposits which is held by banks against loans they have provided. These amounts cannot be used by the Group until those loans are repaid. These amounts

 

 

 

12. Interest Bearing Bank Loans

31 Dec 31 Dec

2009 2008

Group Group

€'000 €'000

At beginning of year 17,746 8,711

Accrued interest 240 -

New bank loans 2,317 9,035

_______ _______

 

At end of year 20,303 17,746

 

====== ======

Group interest bearing bank loans at 31 December 2009

Current

Loan Amount Interest Rate Maturity

€'000

Danska Bank, EUR Euribor +2.5% 3/10/2017* 438

Unicredit bank, EUR Euribor +5.67% 19/5/2010** 3,780

______

 

4,218

=====

* Current portion of non-current Danska Bank facility

** Subsequently extended to November 2010

 

Non-current

Loan Interest Rate Maturity

€'000

Danska Bank, EUR Euribor +2.5% 3/10/2017 13,275

SEB Latvijas Unibanka, EUR 6% 2/10/2011* 1,285

 Danska Bank, EUR 6% 2/10/2011* 885

SEB Latvijas Unibanka, EUR 6% 2/10/2011* 400

Accrued interest 2/10/2011* 240

______

16,085

=====

* SIA D Tilts Holdings (D.Tilts) (an 80% owned subsidiary of the Group) has loans of €2.57m outstanding to a Latvian commercial bank. These loans were in breach of covenant during the year and D.Tilts was unable to reach agreement with the bank on the terms of a restructuring. D.Tilts therefore sought and was granted legal protection from its creditors for a period of two years from 2 October 2009. During that time D.Tilts is protected from its creditors, provided that it meets the requirements of the insolvency protection plan.

 

The Group had undrawn facilities of €270k (2008: €3.1m) at the year end available from Danska Bank, EUR in relation to the completion of Metro Plaza.

 

These loans are secured on the land and property assets of Focus Kinnisvara OU, SIA El Mart and OU Pirita tee 26, with carrying value of €25,100k

 

Group interest bearing and non-interest bearing bank loans at 31 December 2008

 

Current

Loan Interest Rate Maturity €'000

 

Danska Bank, EEK 5.75% 1/3/2009 186

Unicredit Bank, EUR Euribor +1.5% 20/11/2009 3,780

Danska Bank, EUR Euribor +1.0% 3/10/2017 235

SEB Latvijas Unibanka, EUR Euribor +3.0% 15/01/2009 1,300

Danska Bank, EUR Euribor +3.0% 15/01/2009 900

SEB Latvijas Unibanka, EUR Libor + 3.0% 15/01/2009 318

______

 

6,719

=====

Non-current

 Loan amount Interest rate Maturity €'000

Danska Bank, EUR Euribor +1.0% 3/10/2017 11,027

______

11,027

=====

 

These loans are secured on the land and property assets of Focus Kinnisvara OU, SIA El Mart and OU Pirita tee 26, with carrying value of €25,670k

 

13. Other Loans

Maturity 31 Dec 31 Dec

Date 2009 2008

Group Group

Non-current Loans

Non-controlling interest loans Jul 2011/Aug 2011 2,219 3,485

 

_______ _______

 

2,219 3,485

====== ======

 

Current loans

Investment adviser loans - 409

BAP Holding Oct 2010 1,870 -

_______ _______

1,870 409

====== ======

Metro Baltic Horizons holds less than 100% of the issued share capital in certain subsidiaries. These subsidiaries are part funded by loans from all shareholders including the non-controlling interest shareholders. These loans are made on similar terms to the intercompany loans with no interest payable and accumulating at 6.0%. The loans are not callable by the non-controlling interest shareholders. Further details provided in Note 22. Certain of these loans were converted to equity during the year, details are provided in Note 20.

 

In addition the Investment Adviser made an unsecured loan to the Group in 2008; details are provided in Note 22. Loans from BAP holdings are due in October 2010 and have in interest rate of 20%; details are provided in Note 22. BAP Holding loans are secured on Bolshaya Pushkarskaya in St. Petersburg.

 

 

14. Trade and Other Payables

 

31 Dec 31Dec 31 Dec 31 Dec

2009 2009 2008 2008

Group Company Group Company

€'000 €'000 €'000 €'000

 

Directors' fees 8 8 19 19

Management fees 538 - 154 -

Other trade payables 230 7 2,722 21

Other accruals 120 - 36 -

_______ _______ _______ _______

 

Total trade and 896 15 2,931 40

other payables

 

====== ====== ====== ======

 

 

Terms and conditions of the above financial liabilities:

 

Directors fees are non-interest bearing and are normally settled on 30-day terms. Management fees are interest bearing at a rate of 12% and are expected to be settled in shares (Note 22). Other trade payables are non-interest bearing and are normally settled on 30-day terms. Other accruals are non-interest bearing and are normally settled on 30-day terms.

 

The group entered an agreement with its main contractor involved in the construction of Metro Plaza property, held in Focus Kinnisvara OU groups subsidiary as of 31 December 2009 under which the contractor agreed to convert a trade debt of €0.97m owed to it by Focus Kinnisvara OU into a stake of 19.3% in Focus Kinnisvara OU (See Note 20).

 

15. Deferred revenue

 

	2009	2008
	€'000	€'000
At 1 January	-	-
Deferred during the year	98	-
Released to the Statement of Comprehensive Income	(72)	-
	___	___
At 31 December	26	-
	===	===

 

Deferred revenue refers to rent paid in advance by tenants.

 

 

16. Issued Capital	31 December 2009		31 December 2008
	Number of shares	€'000	Number of shares	€'000
Authorised
Ordinary shares of €0.01	250,000,000	2,500	250,000,000	2,500
	=========	=======	=========	=======
Issued and fully paid
Ordinary shares of €0.01	26,200,270	262	26,200,270	262
	=========	=======	=========	=======

 

Two shares were issued on 18 September 2006 on incorporation. 26,200,268 shares were issued on 11 December 2006 for the total proceeds of €38,775k. The ordinary shares carry the right to receive, and shall participate in, any dividends or other distributions out of the profits of the Company available for dividend and resolved to be distributed in respect of any accounting period. In August 2009 the shareholders of the Company passed a resolution allowing for shares to be issued at a price below Net Asset Value.

 

17. Net Asset Value Per Share

31 Dec 31 Dec

2009 2008

Group Group

€'000 €'000

 

Net Asset Value attributable to ordinary 10,100 18,012

shareholders

 

Deferred tax 2,634 4,064

______ ______

Net Asset Value excluding deferred tax 12,734 22,076

===== =====

Diluted ordinary shares in issue at the end

of the period* 26,200,270 26,200,270

 

Net Asset Value per share (cents per share) 0.39 0.69

 

Diluted Net Asset Value per share (cents per share)* 0.39 0.69

 

NAV excluding deferred tax (cents per shares) 0.49 0.84

* Excludes shares to be issued to the investment manager in respect of management fees (See Note 25)

 

 

18. Share Premium and Distributable Reserves

€'000

Share premium on ordinary shares issued 38,513

Issue costs paid on ordinary share issued (2,327)

Transfer to distributable reserves (36,186)

_______

 At 31 December 2007 -

======

 

 

By virtue of a special resolution passed on 5 December 2006 with confirmation of the High Court of the Isle of Man on 13 August 2007, the amount standing to the credit of the Share Premium Account was transferred to a Distributable Reserve and the share premium account was cancelled.

 

 

19. Financial Instruments

 

The Group holds cash and has received interest bearing loans from external parties, it also has trade debtors in respect of rent from tenants.

 

The main risks arising from the Group's financial instruments are credit risk, liquidity risk, foreign exchange risk and interest risk.

 

The board regularly reviews and agrees policies for managing each of these risks and these are summarised below.

 

Capital management

 

The Group is not subject to any external capital management requirements. The Group is primarily focused on its Net Asset Value per share to manage its equity and as a key measure of performance. The Net Asset Value is however affected by market movements, particularly changes in the value of investment properties whose value changes are affected by factors outside the Groups control. The Group uses gearing in the normal course of its business and thus the total assets of the business deviate from the value of its net assets. Management considers the gearing ratios to be within acceptable limits

 

31 Dec 31 Dec

2009 2008

€'000 €'000

Total Assets 37,525 44,304

Total Liabilities 27,930 28,655

Working capital is managed in each subsidiary on a standalone basis.

 

Collateral and guarantees

 

The Group has given mortgages over land and buildings in various subsidiaries as collateral to providers of finance. These mortgages are given in the normal course of business.

 

Mortgages have been provided over the following properties:

Property Property Value Mortgage Value

€'000 €'000

Metro Plaza 17,900 13,713

Krasta 99* 3,100 2,570

Bolshaya Pushkarskaya 10,690 1,870

Pirita 4,100 3,780

 

Total 35,790 21,933

===== =====

* This mortgage is also secured on the shares of SIA El Mart a subsidiary of SIA D Tilts Holdings and the owner of the Krasta 99 property.

 

Credit risk

 

Credit risk is the risk that an issuer or counter party will be unable or unwilling to meet a commitment that it has entered into with the Group. In the event of a default by an issuer or a counterparty the Group may suffer losses.

 

The Group has trade debtors relating to the rents at some of its properties. The credit risk associated with these tenants is managed by ensuring rents are payable in advance and ensuring through initial due diligence that tenants are of sufficiently high quality that the risk of default is considered low. The Group's maximum exposure to credit risk and aging of debtors is provided in Trade and other receivables and amounts due from Group companies Note 10.

 

The Company is exposed to credit risk on its loans to subsidiaries and capital contributions to subsidiaries. Credit risk is managed through monitoring changes in the Net Asset Value of its subsidiaries. This is principally affected by changes in the value of the underlying properties which are re-valued bi-annually. See Note 20.

 

Liquidity risk

 

Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments.

 

Investments in property are relatively illiquid, however, the Group has tried to mitigate this risk by investing in properties in good locations. The Group's objective is to maintain a balance between continuity of funding and flexibility through use of long term borrowing to finance the acquisition of properties.

 

2009 < 3 Months 3-12 Months 1-5 Years >5Years Total

Bank loans 110 4,696 4,828 14,557 24,190

Other loans - 2,182 2,219 - 4,401

Trade and other 922 - - - 922

payables

_____

29,513

=====

 

< 3 Months 3-12 Months 1-5 Years >5Years Total

2008

Bank loans - 7,510 1,551 12,481 21,543

Other loans - 429 - 3,485 3,914

Trade and other 2,931 - - - 2,931

payables

_____

28,388

=====

The amounts above are inclusive of estimated interest cost and therefore will not agree to the loan balances as set out elsewhere in the accounts.

 

The Group is managing its liquidity by seeking to extend the maturity date on bank loans, using alternative funding sources such as the BAP loan (Note 22) and seeking to minimise costs in the business. The Group may also consider the sale or part sale of individual properties or an equity fundraising in due course.

 

Foreign exchange risk

 

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. In all of the regions in which the Group operates, with the exception of Russia, assets and liabilities are denominated in Euro or currencies with fixed exchange rates to the Euro. In Russia the assets and income are typically denominated in US dollars. To mitigate the foreign exchange risk the Group will typically arrange its bank funding in the same currency in which the assets are denominated. At this point the Group has decided not to engage in foreign currency hedging or other derivative instruments to further reduce this risk.

Change in US$ / Euro Rate Effect on Profit

% Change Before Tax

€'000

2009 +10% 1,188

-10% (972)

 

2008 +10% 1,868

-10% (1,529)

Fair value of financial instruments

 

The Directors have determined that the fair value of financial instruments is an approximation of the carrying amounts as disclosed in the Statement of Financial Position.

 

Interest rate risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The group's exposure to the risk of changes in market interest rates relates primarily to the groups long-term debt obligations which have floating interest rates. The group does not use interest rate swaps or other hedging instruments to manage this risk.

 

The interest rate profile of the Group at 31 December 2009 was as follows:

 

Total Fixed Variable Non-interest Weighted

Rate Rate Bearing Avg. Rate

€'000 €'000 €'000 €'000 %

Cash and cash

equivalents 490 - 490 - 0.1%

Bank loans 20,303 2,570 17,733 - 4.4%

BAP holdings loan 1,870 1,870 - - 20.0%

Non-controlling

interest loans 2,219 133 - 2,219 6%*

______ ______ ______ ______

24,882 4,440 18,223 2,219

====== ====== ====== ======

* Non controlling interest loans are nominally interest bearing however their repayment is dependent on the value achieve on the disposal of certain properties. As the value of those properties is currently below the level required to result in interest actually being paid the effective interest rate for the purposes of this note is Nil. Further details in Note 20.

 

The interest rate profile of the Group at 31 December 2008 was as follows:

 

Total Fixed Variable Non-interest Weighted

Rate Rate Bearing Avg. Rate

€'000 €'000 €'000 €'000 %

Cash and cash 967 - 967 - 2.4%

eqivalents

Bank loans 17,746 186 17,560 - 4.3%

Non-controlling

interest loans 3,894 - - 3,894 -

______ ______ ______ ______

22,607 186 18,527 3,894

====== ====== ====== ======

 

Impact of a 1% rise in the Euro floating rate

 

Effect on Profit

% Change Before Tax

€'000

 

2009 +1% 170

-1% (174)

 

2008 +1% 166 - 1% (166)

 

20. Subsidiaries and Non-Controlling Interest

 

Investments in subsidiaries

31 Dec 31 Dec

2009 2008

Company Company

€'000 €'000

 

Share capital of subsidiaries - -

Loans to subsidiaries 35,149 35,298

Impairment of loans to subsidiaries (22,211) -

Capital contributions to subsidiaries 35 1,532

Impairment of capital contributions (35) (1,532)

to subsidiaries

_______ _______

 

Total investments in subsidiaries 12,938 35,298

====== ======

The Company has made loans and capital contributions to subsidiaries whose net asset value have fallen below the value of the loans granted. The Board has decided therefore to write down the value of the loans, capital contributions and any accrued interest on those loans to bring the value into line with the cash that would be available to repay them if the asset of the subsidiaries were disposed of at their book value and their exiting liabilities repaid. This has been done through an impairment charge against the accrued interest (Note 10) of €5.3m and an impairment charge of €22.2m.

 

 

 

Subsidiaries and non-controlling interest (cont'd)

 

The following were the companies in the Group at 31 December 2009:

Name	Securities in issue	Principal activity	Country of incorporation	Beneficial interest
				2009	2008

 

Metro Baltic Guernsey ltd.

2 shares of €1 each

Intermediate holding company

Guernsey

100%

100%

 

Pedragon Investments ltd.	2,000 shares of €1 each	Intermediate holding company	Cyprus	100%	100%
Metro Baltic Netherlands B.V.	18,000 shares of €1 each	Non-trading	Netherlands	100%	100%
Goldbrick Investments ltd.	4,417,288 shares of €1 each	Development company	Cyprus	100%	100%
Focus Kinnisvara OU	1 share of EEK 80,700 & 1 share of EEK 19,300	Development company	Estonia	80.70%	100%
OOO Gruppa Kub	1 share of RUB 10,000	Non-trading	Russia	100%	100%
SIA D Tilts Holdings	100 shares of LVL 56,251 each	Intermediate holding company	Latvia	80%	80%
SIA El Mart	20 shares of LVL 100 each	Development company	Latvia	80%	80%
OU Pirita tee 26	1 share of 8,000 EEK and 1 of 32,000 EEK	Development company	Estonia	80%	80%

 

 

There has been no change in the Group companies during the year.

 

The Company's holding in Focus Kinnisvara OU has been reduced from 100% as of 31 December 2008 to 80.3% as of 31 December 2009 as a result of an agreement with its main contractor involved in the construction of Metro Plaza property, held in Focus Kinnisvara OU groups subsidiary as of 31 December 2009 under which the contractor agreed to convert a trade debt of €971k owed to it by Focus Kinnisvara OU into a stake of 19.3% in Focus Kinnisvara OU (See Note 14).

 

During the year shareholder loans of €8,000k were converted into equity in SIA D Tilts. The shareholders converted loans in proportion with their shareholdings thus the Non-Controlling Interest loans of €1,600k and intergroup loans of €6,400k were converted. As shareholding proportions remained unchanged the increase in equity was achieved by increasing the par value of the shares from 27 LVL to 56,251 LVL.

 

The total value of liabilities converted to minority equity during the year was €2,571k.

 

 

21. Employees

 

At 31 December 2009 the Group had 47 (2008: 42) employees. The average number of employees for the year ended 31 December 2009 was 47 (2008: 38).

 

 

31 Dec 31 Dec

2009 2008

Group Group

€'000 €'000

Wages and salaries 207 258

Social security cost 51 51

________ ________

258 309

________ ________

 

 

22. Related Party and Key Management Transactions

 

Transactions between the Company and its subsidiaries which are related parties have been eliminated on consolidation and are not disclosed in this note.

 

Key management comprises the Investment Manager, Investment Adviser and Directors. Transactions with key management are detailed below.

 

As disclosed in note 3 the Investment Managers management fee of the year ended 31 December 2009 was €495k (2008: €727k). During the year the Investment Manager agreed not to seek payment of its fees until further notice. Since the year end the Investment Manager and the Group have agreed a share-based payment in respect of the outstanding 2009 management fees. See the Subsequent Events Note.

 

There is no performance fee expense and performance fee payable for the year ended 31 December 2009 (2008: Nil).

 

Investments made by Non Controlling Interests into SIA D Tilts Holdings and OU Pirita tee 26 have been made through vehicles managed by the Investment Adviser.

 

The Directors agreed reduce their Directors fees from 1 January 2009. Directors' fees expense for the year ended 31 December 2009 amounted to €34k (2008: €77k). Directors' fees payable at the year ended 31 December 2009 amounted to €8k (2008: €19k).

 

In the financial year ended 2008 the Group arranged a loan from BAP Holding OÜ, a special purpose vehicle established and part-funded by the Investment Adviser to raise funds for the Group. This facility matures on 15 October 2010. The balance is collateralised by a mortgage over Bolshaya Pushkarskaya (See Financial Instruments note 19). The balance outstanding at 31 December 2009 was €1.87m (2008: Nil). The Group has extended the use of this facility in the financial year 2009 and subsequent to the year end (See the Subsequent Events Note 25).

 

23. Commitments

 

The Group has entered into a number of construction related contracts through a number of its operating subsidiaries. The total commitments under existing contracts at 31 December 2009 are estimated as follows:

 

Subsidiary	Total	0-12 Months	13-24 Months	>24 Months
Focus Kinnisvara OU	€0.4m	€0.4m	-	-
Total	€0.4m	€0.4m	-	-

 

At 31 December 2008 the total commitments under existing contracts were estimated as follows:

 

Subsidiary	Total	0-12 Months	13-24 Months	>24 Months
Focus Kinnisvara OU	€3.5m	€3.5m	-	-
Total	€3.5m	€3.5m	-	-

 

Commitments related to loans and overdrafts are disclosed in notes 12, 13 and the collateral paragraph of note 19.

 

24. Share Based Payments

 

From 1 January 2009 the investment management agreement was amended to provide the Investment Manager a choice of whether the Company settles any deferred management fee in cash or by way of shares. The fair value of the Investment Managers fee was measured at market price for those services. The carrying amount of the liability and the expense arising as at 31 December 2009 are disclosed in Note 22 and Notes 3 respectively.

 

The Investment Manager is also entitled to receive up to 100% (but not less than 25%) of the performance fee (if any) in new Ordinary Shares of Metro Baltic Horizons plc under certain circumstances (the "Performance Fee Shares").

 

The price of the Performance Fee Shares to be issued to the Manager, if any, are calculated by reference to the average closing price of the Ordinary Shares for the last 20 days of trading in the accounting period to which the Performance Fee is payable, provided that, if such average price when calculated is lower than the most recently published Net Asset Value per Ordinary Share, Performance Fee Shares shall not be issued but the relevant part of the Performance Fee shall be paid to the Manager in cash and the Manager shall apply such cash in acquiring (within 30 days, to the extent reasonably practicable and having used reasonable endeavours so to do) Ordinary Shares in the market having an aggregate value equal to such relevant part of the Performance Fee, provided further that, if within such 30 day period, the Manager is unable to buy such number of Ordinary Shares as equals, at the purchase price, the full amount of such relevant part of the Performance Fee, the Company shall issue to the Manager, in respect, of the balance, Performance Fee Shares at the Net Asset Value per Ordinary Share as most recently published immediately before the end of such 30 day period.

 

As disclosed in Note 3 there is no Performance Fee payable to the Investment Manager based on the Net Asset Value at 31 December 2009.

 

 

25. Subsequent Events

 

Since the year end the Investment Manager has agreed to take a reduction of 30% in its management fees due for 2009 and to take settlement of those fees in new shares in the Company. The management fee is calculated and due quarterly and consequently the price for the issue of those shares has been agreed, for each quarterly fee as the average closing price for the 20 trading days to the end of the relevant quarter. The number of shares to be issued in respect of the 31 December 2009 management fee is 2.937m.

 

In January 2010 and April 2010 the Group raised a further €350k and €380k respectively from BAP Holding OÜ, a special purpose vehicle established and part funded by the Investment Adviser to raise funds for the Group (See Related Party note 22).

 

 

26. Approval of Financial Statements

 

The financial statements were approved by the board of directors on 23 June 2010.