16th Mar 2007 08:11
Mirland Development Corporation PLC16 March 2007 16 March 2007 MirLand Development Corporation plc ("MirLand" / "Company") PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2006 MirLand Development Corporation, one of the leading residential and commercialproperty developers in Russia today announces preliminary results for the yearended 31 December 2006. The Company successfully raised net proceeds of US$293 million in its IPO on theAIM market of the London Stock Exchange in December 2006. Highlights: • Profit after tax for the year ended 31 December 2006 increased to US$29.9 million (10 November 2004 to 31 December 2005: US$3 million) • Income for the year ended 31 December 2006 increased to US$40.1 million (10 November 2004 to 31 December 2005: US$4.8 million) • Increase in total assets to US$475.5 million as at 31 December 2006 (31 December 2005: US$49.9 million) • Portfolio market value of US$853 million as at 30 September 2006, of which the Company's share has been valued at US$764.6 million • Eight significant ongoing projects which, on completion, will include approximately 1.2 million sq m of office, shop and residential property • US$15.9m of the IPO proceeds already utilized for the acquisition of the Company's skyscraper project in Moscow • Practical completion of Company's shopping centre mall in Yaroslavl, with opening scheduled for April 2007. The asset is currently 97% pre-let to Russian and international tenants • Company in advanced negotiations to secure five additional pipeline projects. Nigel Wright, Chairman, Commented: "In line with our strategy and vision, we continue to develop our existingassets, secure the acquisition of pipeline assets and work towards expanding ourinvestment portfolio with additional high yielding assets. "MirLand has a great opportunity before it in its chosen markets. With sound andexpert management, a solid financial base and an exceptional portfolio ofopportunities in hand, we approach the future with considerable optimism. I amconfident that the Company will achieve its goals and become firmly establishedas one of the leading development companies in the Russian real estate market." -ends- For further information, please contact: MirLand Development Corporation Financial Dynamics Roman Rozental Stephanie Highett/Adam Leviton Tel: +7 495 130 109 Tel: +44 (0)20 7831 3113 CHAIRMAN'S STATEMENT I am honoured to be writing my first statement on behalf of the board of MirLandDevelopment Corporation plc since the successful flotation of the Company on theAlternative Investment Market of the London Stock Exchange in December 2006. Iwould like to take this early opportunity to thank all those involved in thateffort, Directors, Staff and Advisors alike, for their considerable andsuccessful efforts on the Company's behalf throughout that exercise. With the closing of the IPO in December we achieved our first goal. Net proceedsof the issue were approximately US$293 million (including the exercise of theGreen Shoe option) and MirLand now has a sound financial base which will enableus both to develop our existing portfolio and complete the acquisition of anumber of pipeline projects. It is also appropriate that I should welcome our new shareholders. We valuetheir participation in MirLand and the Board takes great pride in theirinvolvement in this enterprise. We take our obligation to our shareholders, newand old alike, very seriously and intend to devote all our energies tosuccessfully growing the value of MirLand on their behalf. We are fortunate to have assembled a highly experienced Board to take theCompany forward and I pay tribute to my colleagues who have and continue to showconsiderable expertise and dedication to building on our existing soundfoundations. Our management and employees have not been diverted from thecritical aspects of running the business and moving it forward despite the veryconsiderable distractions surrounding our recent flotation and fundraising. We are committed to sound Corporate Governance and my new Non-Executive Boardcolleagues bring wise counsel and extensive experience in the key areas ofproperty, accounting, finance and business in Russia. Strategic direction MirLand's key objective is to become one of the leading developers of bothresidential and commercial real estate in Russia. Our business is, and will continue to be, the development of residential andcommercial projects throughout Russia. This encompasses land acquisition,planning, construction or renovation, rental and sale and MirLand manages thisprocess from start to finish. We see a great opportunity in the rapidly growing and improving Russian realestate market, not simply in Moscow and St. Petersburg, but importantly in thelarger regional cities where populations exceed half a million inhabitants.Demand in such locations continually exceeds supply and this fact, combined withthe relative absence of substantial, high quality, experienced and soundlyfinanced development companies, gives MirLand an exceptional opportunity. Results Total assets as at 31 December 2006 amounted to US$475.5m in comparison withUS$49.9m as at 31 December 2005. The main reasons for the increase were thegrowth of our investments in land, properties and construction; a prepayment fora purchase of a company which owned a land plot; the revaluation of our assets;and the net proceeds of US$257.2m from the IPO undertaken on 13 December 2006. Subsequent to the balance sheet date, the exercise of a Green Shoe option by theinvestment banks contributed additional gross proceeds of US$33.2m to theCompany. The Company's real estate assets were valued as at 30 September 2006 at US$853m(for 100% ownership) by an external independent appraiser (Cushman & WakefieldStiles & Riabokobylko), in accordance with International Valuation Standards.The Company's share in these assets is US$764.6m. The Company's policy is torevalue its assets twice each year, ordinarily on 30 June and 31 December.However, given the proximity of the valuation produced for the Company's IPO,the board did not revalue the real estate assets as at 31 December 2006 but havereceived confirmation from Cushman & Wakefield that their valuation has notdecreased since 30 September 2006. Net profit for the year ended 31 December 2006 was US$29.9m, in comparison withUS$3m for the comparative period of 10 November 2004 to 31 December 2005. Thisincrease is largely due to an uplift in the revaluation of the Company's assets. Portfolio progress I am pleased to report that US$15.9m of the IPO proceeds have already beenutilized to acquire the Moscow skyscraper project and we are moving aheadpositively. Of this US$15.9m, US$4.5m were used in January, subsequent to thebalance sheet date. Our current portfolio comprises eight substantial ongoingprojects which, when completed, will comprise circa 1.2 million sq. m. ofoffice, shop and residential property. We are also pleased to announce today that the first shopping mall developed bythe Company has reached practical completion and will be officially opened inApril 2007 in Yaroslavl. This project contains 32,000 sq. m. of retail space andis 97% pre-let to a range of Russian and international tenants. In addition, MirLand currently has two office premises under renovation inMoscow, which are currently income yielding, and we expect rents tosignificantly increase during 2007. Our other development assets are proceedingin line with expectations. Dividend Policy As explained in the Company's Admission Document, the Company has adopted adividend policy that will reflect long-term earnings and cash flow potentialwhile at the same time maintaining both prudent dividend cover and adequatecapital resources within the business. Subject to these factors and where it is otherwise appropriate to do so, theCompany intends to declare a dividend of 2% of adjusted net asset value,measured at the end of 2008 and 7% of adjusted net asset value at the end of2009, with a view thereafter to increasing the level of dividend payments inline with the Company's cash flow growth. Outlook In line with our strategy and vision, we continue to develop our existingassets, secure the acquisition of pipeline assets and work towards expanding ourinvestment portfolio with additional high yielding assets. In conclusion, MirLand has a great opportunity before it in its chosen markets.With sound and expert management, a solid financial base and an exceptionalportfolio of opportunities in hand, we approach the future with considerableoptimism. I am confident that the Company will achieve the goals outlined aboveand become firmly established as one of the leading development companies in theRussian real estate market Nigel Wright Chairman 15 March 2007 CHIEF EXECUTIVE'S REVIEW MirLand is mainly involved in the acquisition, development, construction,renovation, rental and sale of Russian residential and commercial real estate.MirLand focuses its efforts on Moscow and St. Petersburg, as well as on regionalcities with large populations exceeding 500,000 inhabitants, in which it hasidentified a significant shortage of residential and commercial properties. We develop our commercial assets in order to generate rental revenue, but saleswill be considered depending on market conditions and if good opportunitiesexist for more effective recycling of our capital. Residential projects will besold both during and after construction. The Company also acquires income-yielding properties with the intention of usingits development expertise to upgrade the building through redevelopment orrefurbishment activities which we consider to have the potential tosignificantly increase the value and yield of the property. For its commercial properties, the Company also pre-lets its commercial space,with a preference toward securing stable long-term leases with strong anchortenants. The Company will also consider short-term leases with local companiesto benefit from rapidly increasing rental rates. In each location that MirLand operates, it forms a local dedicated managementteam which is responsible for developing and/or managing the property. The localteams are controlled and closely monitored by MirLand's senior centralmanagement. MirLand's strategy entails: • Actively marketing all of its commercial projects during theirdevelopment so that they are income producing on completion. The Company willcontinue to reassess whether to retain yielding properties or to realize theirmarket value through disposal; • Selling the residential properties and reinvesting the proceeds inthe business or distributing it to shareholders. The Company's strategy is tosecure partial pre-sales of residential units in the early stages ofconstruction with phased payments during the development process; • Acquiring attractive sites in targeted locations for the developmentof office, retail, other commercial use, mixed use and residential projects. Thefocus is on high quality developments which the Company anticipates will resultin significantly higher yields than those achieved by investing in completedprojects; • Optimising capital structure. The Company's existing borrowing isdone at the projects level and, currently, the Company's level of financing atthe corporate level is only 20%. As the Russian credit market develops, theCompany intends to take advantage of available financing to enhance returns onequity. • Maintaining a diversified property portfolio to maximise investmentopportunities and reduce risks with regard to geographical location, sector andvarying stages of development; O Geographical location: the Company intends to spread its investmentsequally between Moscow and St. Petersburg and other opportunities in selectedlarge regional cities with populations of over 500,000 people. It will also makeassessments on the basis of economic and demographic data, anticipated demandand where the supply of properties meeting international standards is less thanthe prevailing demand. Potential projects in such cities will be evaluated onthe basis of their estimated rates of return on capital; O Sector: the Company will continue to invest in a balanced mix ofresidential, retail and office properties and will consider other sectorsincluding logistics, hotels and mixed-use projects as appropriate. Eachdevelopment site will be evaluated for its most attractive use and highestpotential return; and O The Company's portfolio includes projects which are of varying duration,phasing, and anticipated completion. The Company intends to hold a balancedportfolio of yielding and development properties to obtain a relatively balancedspread in the use of working capital and management attention while at the sametime generating an income flow from sales and yielding properties. Potential areas of activity The Company is currently evaluating two new potential target areas to expand itsactivities in 2007: • Logistics centres: The growth of the Russian economy, the increase in consumer spending and manynational and international retail companies expanding their activities intoMoscow, St Petersburg and the developing regions means that there is growingrequirement for high quality modern logistics property. At present, mostlogistic centres are concentrated around Moscow, but demand is rising for modernclass A logistic centres in the regions as well. The Company looks forward toapplying its management strong track record of developing logistics centreselsewhere in the world to the Russian market where attractive opportunitiesarise. • Hotels: There is a significant shortage in hotel rooms matching first classinternational standards in Moscow, St. Petersburg and large regional cities. TheCompany is assessing entering the hotels development sector in a joint venturewith a hotel specialist. Russian Economy and Real Estate Market General economic trends in Russia over the last five years have been positive,with strong Gross Domestic Product (''GDP'') growth, greater domestic liquidity,declining interest rates and increasing investment flow into the country. Thosefactors were recognised by major credit rating agencies which have conferred aninvestment grade credit rating on Russia. The dynamic development of thecountry's economy has stimulated disposable income and retail turnover growth. On the back of strong economic growth in Russia, Russian real estate marketshave developed significantly. Investment tripled from 2005 to over US$4.3billion of equity investments in real estate in 2006, of which 60% made byforeign investors (source: Cushman & Wakefield). Russia continues to be adynamic market, offering development opportunities as well as income-producingassets. The legal framework is also improving, giving greater comfort to foreigninvestors. Attractive development yields and the increasing sophistication of tenants havespurred demand for new international standard real estate, whereas the influx ofcore investment capital and the improving local lending terms with an increasingnumber of foreign banks and financial institutions have led to the compressionof current yields for existing properties. Office Sector While still fairly new, Moscow's and St. Petersburg's modern office markets arequickly maturing, both in terms of size and quality. Both virtually non-existenta decade ago, Moscow's market is now one of Europe's most dynamic markets,showing high volumes of new construction and take-up, with the St. Petersburgmarket displaying the same trends. While the stock of international standard office space has more than doubledsince 2000, the market still remains under-supplied, with demand far exceedingsupply. The lack of high quality office space induces tenants to pre-let largerpremises in incomplete buildings to secure sufficient office space forthemselves and to allow for future growth, while average vacancy rates for ClassA and B offices are amongst the lowest in European cities. The St. Petersburg office market is currently concentrated in the historiccentre, a phenomenon that directly relates to the early stage of the market'sevolution. As the office market develops further, it is expected that modernoffice space will be built outside the historic centre. Capitalisation rates for prime office space are expected to continue to compressover the next three to four years, due to Russia's improved credit rating, theincrease in the number of investment-grade buildings, the perception of fallingpolitical and economic risk levels, the increasing availability and an expectedlower cost of debt finance. Retail Sector With personal incomes steadily growing, retail continues to be one of the mostdynamic and fast-evolving sectors of the country's economy. The modern,international standard shopping centres appearing across Moscow are evidence ofthis trend. While shopping centre stock has more than doubled since 2003, thereis still undersupply of modern shopping space. The average size of shop units isalso growing consistently and vacancies at international-standard shoppingcentres remain very low, at roughly 1 per cent. With very few above-ground sites suited for the construction of new shoppingcentres remaining in central Moscow, development is expected to be largelyconcentrated in less central locations. Retail is expected to continue toflourish, and Moscow's shopping centre stock is expected to double by 2009. While there are some international developers operating in St. Petersburg,retail development in the city continues to be dominated by local companies,with international standard, modern shopping centres still a relatively recentevolution. The country also has numerous regional cities with populations of over 500,000people, with none or very little modern real estate stock and the primarydevelopment activity coming from small local developers. Retail constitutes themost attractive segment of this market, stimulated by the growing purchasingpower in Russia's regions and little or poor quality retail stock - even in someof the country's largest regional cities. That is why both Russian andinternational retailers continue to look towards the regions as an attractivegrowth opportunity. Residential Sector The market for residential property in Russia is characterised by low supply percapita and ageing stock, with some 35 per cent. of Russia's housing stock inneed of renovation or replacement. Since 1990, the volume of housing stock inMoscow city and the Moscow region has almost doubled. One of the reasons for thegrowth in demand is the expansion of western enterprises and the subsequentincrease in employees needing housing. After a slowdown in 2004, the Moscowresidential property market rebounded strongly in 2005, with healthy growth inprice and demand in 2006 as well. In St. Petersburg, the residential real estate market has been experiencing thefastest rate of development over the past couple of years. Housing stock in St.Petersburg has grown more or less continuously over the last three centuries.Local residential specialists estimate that, each year, approximately onemillion square metres of new residential space is coming to the market. Since many of the old buildings in St. Petersburg's centre are of low qualityand land is relatively scarce, modern, high quality residential developments onthe city's outskirts have become more attractive in recent years. Residentialreal estate prices in St. Petersburg have shown relatively stable growth overthe last few years with average growth rates of between five and 15 per cent.per year. The Company's portfolio The Company has a diversified portfolio in terms of its operations, geographyand timing which we believe will be of strong benefit to our shareholders as westrive to create and enhance value. MirLand's current portfolio comprises amixture of developments and refurbishments across the office, retail andresidential sectors in Moscow, St. Petersburg, Yaroslavl and Saratov. TheCompany intends to expand and further diversify its portfolio by investing inother large regional cities with populations exceeding 500,000 people and byexamining opportunities in the logistics and the hotel sectors. The Company's investment opportunities have arisen from a variety of sources,including the Company's existing business relationships and those of its localpartners and third parties such as financial institutions, real estate investorsand, to a lesser extent, professional advisers. Finally, direct approaches fromthird party owners have presented additional investment opportunities. The Company believes that its portfolio and its investment opportunities provideit with the flexibility to source opportunities with attractive returns whilespreading sector and geographic risk exposure within Russia. The Company's portfolio has been valued by Cushman & Wakefield at US$853.3m, asat 30 September 2006, with a proportional value attributable to the Company ofUS$764.6m, based on the Company's ownership interest. The details of its key existing projects are shown in the table below: Asset C&W Value % from Sqm Ownership Value (project's Total (Company 100%) value share) US$ US$ St. Petersburg - Residential 331,134,610 38.81% 670,000 100% 331,134,610Skyscraper 135,254,595 15.85% 91,900 100%* 135,254,595Techagrocom 107,319,913 12.58% 174,000 50% 53,659,957Perkushkovo 66,122,143 7.75% 56,580 100% 66,122,143Yaroslavl - Phase 1 51,556,613 6.04% 32,299 49%** 25,262,740Yaroslavl - Phase 2 11,450,404 1.34% 50,000 49%** 5,610,698Mag 44,526,085 5.22% 19,450 100% 44,526,085Hydromashservice 38,386,431 4.50% 20,200 100% 38,386,431St. Petersburg - Commercial 38,195,923 4.48% 90,000 100% 38,195,923Saratov 29,342,139 3.44% 28,000 90% 26,407,925 Total 853,288,856 100.00% 1,232,429 764,561,107 * As announced on 3 January 2007, the Company has completed the first sharepurchase agreement to acquire the entire issued share capital of a Cypriotcompany that holds a 58 per cent interest in a Russian company that has theleasehold rights in land to be used for the Company's skyscraper developmentproject in Moscow. The consideration under this agreement is a total of US$13m.The Company acquired an effective further 21% interest in the Russian companyreferred to above for a consideration of US$4.5m. The Company intends to closean agreement to acquire the remaining 21% interest for a further US$4.5m subjectto the satisfaction of certain conditions that mainly include obtaining ofconstruction permits. **Common control The Company's key projects are as follows: Hydromashservice (''Hydro''), Moscow - office and retail development Phased renovation of class B office complex, located in the north part ofMoscow's Novoslobodsky Business District. The site benefits from very goodtransport links and excellent access with 350 parking places shared with the MAGdevelopment outlined below. The project is already yielding US $330,000 permonth, a figure is anticipated to grow significantly when renovation iscompleted. • Land area - 1.2 ha • Rentable area - 20,200 sqm • Expected Completion - Mar 2008 • Ownership (%) - 100 MAG, Moscow - office and retail development Phased renovation of a class B office complex adjacent to the Hydromashservisproject in a very accessible location near the 3rd Ring of Moscow and sharescar-parking facilities with the Hydromashservis scheme. The project is alreadyyielding $150,000 per month and will grow significantly once the renovation iscompleted. • Land area - 2.3 ha • Rentable area - 19,450 sqm • Expected Completion - Apr 2007 • Ownership (%) - 100 Dmitrovskoye Shosse, Moscow - Skyscraper Building of a 48 storey class A office and retail skyscraper, with undergroundparking, in a prime Moscow location with excellent accessibility near thecrossing of two main traffic routes, metro and train stations. The agreement to purchase the asset was entered in December 2006. The Companyeffectively owns 79% of the rights in the asset and, upon completion of certainconditions by the seller, the remaining 21% will be acquired. If the sellerdoes not complete his obligations to achieve all construction permits during aperiod of 36 months, our share will increase automatically to 100% withoutadditional cost. • Land area - 1 ha • Rentable area - 92,000 sqm • Commencement Date - Mar 2008 • Expected Completion - Dec 2010 • Parking Spaces - 1,500 • Ownership (%) - 100 Techagrocom, Moscow Region - business park Three-phase development of a modern business park of 174,000 sqm with 100,000sqm of office space and a retail complex of 74,000 sqm over two floors. Thecomplex is ideally located near the Leninskiy district near Moscow's 4th Ring. • Land area - 22 ha • Rentable area - 174,000 sqm • Expected Completion - Jun 2011 • Parking Spaces - 4,000 • Ownership (%) - 50 Perkhushkovo, Moscow Region - residential complex Development of 155 townhouse and cottage residential units in the prestigiouswestern outskirts of Moscow. This project is targeting the growing segment ofwell-to-do professionals who seek to improve their standards of living • Land area - 22.5 ha • Sellable area - 56,580 sqm • Expected Completion - Sep 2008 • Ownership (%) - 100 St. Petersburg - residential and trade centre The Company's flagship project - the development of a complete residentialneighbourhood of approximately 9,000 apartments with good accessibility near amajor road connecting St. Petersburg and its airport. The project also includescommercial areas (office & retail) with underground parking, a commercialcentre, kindergartens, school and parks. The project consists of five phases and will be executed over eight years. • Total land area - 41 ha • Sellable/Rentable area: • 9,000 apartments with sellable area of 670,000 sqm • 30,000 sqm of commercial area • 60,000 sqm of office space • 40,000 sqm of community buildings • 7,500 parking spaces • Construction of phase 1 is scheduled to begin in summer 2007 Yaroslavl - shopping centre - First phase Development of a western standard single floor shopping centre in Yaroslavl. Theproject is located at the entrance road to Yaroslaval from Moscow, and isscheduled to open in April 2007 with 97% of the asset already let. • Land area - approx. 13 ha • Rentable area - 32,000 sqm • Expected Completion - Apr 2007 • Parking Spaces - 1,450 • Ownership (%) - 49 Yaroslavl - Big box complex - Second phase Development of a large retail park complex adjacent to the project's first phase • Land area - approx. 17 ha • Rentable area - 50,000 sqm. • Commencement Date - Sep 2008 • Expected Completion - Apr 2010 • Ownership (%) - 49 Saratov - retail and entertainment centre The project will be the first modern multi-storied retail and entertainmentcentre in Saratov. The complex is ideally located near the historical citycentre on a well-known and important retail avenue in the city. • Land area - 2.2 ha • Rentable area - 28,000 sqm. • Expected Completion - Aug 2008 • Ownership (%) - 90 Pipeline Projects Our current pipeline comprises several assets in different stages ofnegotiations: Ufa - a logistics centre of 180,000 sqm (30ha) Rostov - two land plots designated for a single floor shopping centre withground level parking located on western side of the city with good accessibility (4.4 ha) Novosibirsk • Shopping centre located in major retail corridor connecting two parts of the city (12 ha) • Class A logistics centre on a major highway (16 ha) Moscow - three sites for the construction of 205,000 sqm of residential area and55,000 sqm of commercial space (20.6ha). The Company's existing assets and its seed portfolio leave us stronglypositioned to deliver enhanced value to our shareholders as we continue todevelop and actively manage our strategy. Moshe Morag Chief Executive 15 March 2007 FINANCIAL REVIEW Accounting Policy The Company's financial statements are prepared in accordance with InternationalFinancial Reporting Standards as adopted by the European Union (EU) andInternational Financial Reporting Standards as issued by the InternationalAccounting Standards Board (IASB) and the requirements of the Cyprus CompaniesLaw, Cap 113. Income Statement Income for 2006 grew to $40.1m in comparison to $4.8m during the period from 10November 2004 to 31 December 2005. The Company's revenue consists of two main items: income from investmentproperties and revaluation gains. Income from investment properties grew due tothe purchase of a yielding asset (MAG) on February 2006, and the ongoing processof replacing tenants and raising rental rates in the renovated space in thisasset and its adjacent project (Hidromashservis). In accordance with IAS 40 theCompany has revalued its ''investment properties'' for the financial periodended 31 December 2006 and recognised the resulting movement in valuationthrough its income statement as ''gain from revaluation of investmentproperty''. This amount of US$35.9m has been determined based on the valuationsof the Company's Hidromashservis and MAG projects undertaken by an independentappraiser (Cushman & Wakefield Stiles & Riabokobylko), in accordance withInternational Valuation Standards. The principal operating expenses of the Company are property maintenance andmanagement costs which rose from US$0.2m to US$0.9m due to the increase innumber of properties. The Company's general and administrative expenses for the period rose to US$8.8mcompared to US$1.1m for the period of 10 November 2004 to 31 December 2005,mainly due to the provision to management services for MAG and Hydromashservisby an external management company entitled to receive a one-time payment equalto 10% of the profit of the companies, subject to certain adjustments detailedin note 20 of the financial statement, and salaries for the employees, includingoptions plan. Interest expenses for the period were US$5.2m, out of which US$4m wascapitalised for properties under construction. Additional financial income ofUS$3.2m was generated from depreciation of US$ loans in the Russian subsidiariesand deposits of the IPO proceeds. Tax expenditure in 2006 was US$2.8m. MirLand is resident in Cyprus for taxpurposes and is subject to a 10 per cent tax rate. MirLand's subsidiaries inRussia are subject to 24 per cent. tax rate. For additional details see the note10 of the financial statement. Net profit for the period of 2006 was US$29.9m, in comparison with US$3m for theperiod of 10 November 2004 to 31 December 2005. This increase is largely due tothe revaluations of the assets. Balance Sheet Total assets as at 31 December 2006 amounted to US$475.5m in comparison withUS$49.9m as at 31 December 2005. The main reasons for the increase were thegrowth of our investments in land, properties and construction; a prepayment forthe purchase of a company which owned a land plot; the revaluation of ourassets; and the net proceeds of US$257.2m from the IPO undertaken on 13 December2006. Subsequent to the balance sheet date, the exercise of a Green Shoe option by theinvestment banks contributed additional gross proceeds of US$33.2m to theCompany. Equity and Liabilities Equity as at 31 December 2006 increased to US$366.5m from US$6.7m on 31 December2005. Equity grew substantially mainly due to the issuance of shares on 13December 2006 for the net amount of US$257.2m, as well as from thecapitalisation of shareholders' loans to equity to the amount of US$62.2m andthe net profit of the Company for 2006 which was US$29.9m. Subsequent to thebalance sheet date, exercise of the Green Shoe option by the investment bankscontributed additional gross proceeds of US$33.2m to the Company. Long term liabilities as at 31 December 2006 were US$99.1m compared to US$40.5mfor 31 December 2005. Major changes were the capitalisation of shareholders'loans to equity to the sum of US$62.2m; the receipt of approximately US$71.4m inloans from banks; a loan received by a subsidiary of the Company (held by 49%)for the amount of US$21.6m; and other liabilities for management services asdescribed above. NAV The Company's real estate assets were valued on 30 September 2006 at US$853m(for 100% ownership) by an external independent appraiser (Cushman & WakefieldStiles & Riabokobylko), in accordance with International Valuation Standards.The Company's policy is to revalue its assets twice each year, ordinarily on 30June and 31 December. However, given the proximity of the valuation producedfor the Company's IPO, the board did not revalue the real estate assets as at 31December 2006 but have received confirmation from Cushman & Wakefield that theirvaluation has not decreased since 30 September 2006. The following table demonstrates the calculation of Adjusted Net Asset Valuebased on the Cushman & Wakefield valuation report and the Company's financialstatements: As at 31/12/2006 US$M Market value of the Company's beneficial share in the Properties 764.6Non-property non-current assets 7.0Non-current liabilities (99.1)Current assets less current liabilities 268.2Exercise price to purchase two companies which own 100% interest in Moscow land (20.4)Adjustment for minority interests and other third party sales (4.1)obligations in respect of the Cushman & Wakefield valuationAdjusted Net Asset Value 916.2 Cash Flow During 2006, the Company used US$90.2m for investment in subsidiaries and realestate properties. Cash flow from financing activity amounted to US$356.4m,mainly generated from the receiving of approximately US$71.4m in loans frombanks; a loan received by a subsidiary of the Company (held by 49%) for theamount of US$21.6m; and proceeds from issuance of shares by the Company whichamounted to US$257.2m. The IPO proceeds were deposited with London financial institutions with aninterest rate of 5.22-5.32%. Financial Strategy To date, the Company's activities have primarily been financed with equity,shareholder loans and bank financing. The Directors anticipate that the debtmarket in Russia will continue to develop, making Russian bank debt anattractive financing option which the Company may take advantage of in thefuture. The financing opportunities open to the Company will be reviewed on acase-by-case basis, and will vary between market segments. The Company's policyis to limit its leverage to 66 per cent. of the gross value of the Company'sassets, including all development, trading and investment properties. As Russian real estate finance continues to develop, it is expected that theassociated development costs of the Company's commercial projects will be, inoptimal circumstances, up to 70 per cent. debt financed. On completion, theCompany anticipates that its properties will be refinanced on entering theyielding phase, at up to 60 per cent. of the relevant property's valuation. Residential projects, on the other hand, are expected to be principally financedwith equity as the financing market for residential projects remains relativelyundeveloped in Russia. Accordingly, residential projects are constructed inphases, primarily using the capital from pre-sales to finance upcoming phases ofdevelopment. The Directors anticipate that the Company will finance its projectsby obtaining bank loans in US Dollars. Wherever possible the Company will seek to acquire finance on a non-recoursebasis to minimise risk. The Company is negotiating with several banks for thefinancing of its ongoing construction activities and has signed two term sheets,one of which has been approved by the European Bank for Reconstruction andDevelopment for the Company's project in Saratov and the second with the IMB forthe MAG and Hidromashservis projects. The Company is in the process of agreeingthe formal loan agreements. Outlook In the following years, MirLand will continue to expand its portfolio, by usingthe cash proceeds of the IPO in order to acquire and develop more assets. Fixedassets are anticipated to grow during 2007 as a result of investment inproperties and lands which will be financed by bank loans and the Company'saccumulated cash. In addition, the Company's revenues are anticipated to growthis year as a result of the opening of our first shopping centre project inYaroslavl, the leasing of existing and newly renovated space in MAG andHidromashservise, and cash proceeds projected also from the first pre-sales ofapartments in advance of the completion of construction of the Company'sresidential projects. CONSOLIDATED STATEMENTS OF OPERATIONS Period from 10 November Year ended 2004 *) to 31 December 31 December Note 2006 2005 U.S. dollars in thousands Rental income from investment properties 3,707 732 Revenues from managing fees 533 - Fair value adjustments of investment properties 12 35,878 4,114 Total income 40,118 4,846 Expenses Operating expenses 7 (863) (168) General and administrative expenses 8 (8,839) (1,162) Financial income (costs), net 9 2,330 (148) Profit before tax expense 32,746 3,368 Tax expense 10 2,797 368 Profit for the period 29,949 3,000 Earnings per share 11 Basic 0.341 0.451 Diluted 0.34 0.451 *) Date of inception. See Note 2. The accompanying notes are an integral part of the financial statements. CONSOLIDATED BALANCE SHEETS 31 December Note 2006 2005 U.S. dollars in thousands ASSETS NON-CURRENT ASSETSInvestment properties 12 65,709 12,863Investment properties under construction 13 46,930 11,358Inventories of land 14 76,193 24,736Advance on acquisition of subsidiary 15 1,600 -Equipment 1,082 104Long-term receivables and prepayments 5,958 - 197,472 49,061CURRENT ASSETSTrade and other receivables 10,157 204Cash and cash equivalents 267,916 664 278,073 868 Total assets 475,545 49,929 EQUITY AND LIABILITIES EQUITYEquity attributable to equity holders of the parent:Share capital 16 1,000 7Share premium 327,828 3,717Options 2,348 -Retained earnings 32,949 3,000Currency translation reserve 2,402 (95) 366,527 6,629Minority interest 25 25 Total equity 366,552 6,654 NON-CURRENT LIABILITIESLong-term loans from shareholders 17 - 39,564Long-term loans from banks 19 93,049 -Other long-term liability 20 4,313 582Deferred taxes 10 1,755 301 99,117 40,447CURRENT LIABILITIESShort-term loan from affiliated company - 460Income tax payable 1,207 57Accounts payable and accruals 18 8,669 2,311 9,876 2,828 Total liabilities 108,993 43,275 Total equity and liabilities 475,545 49,929 The accompanying notes are an integral part of the financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Period from 10 November Year ended 2004 *) to 31 December 31 December 2006 2005 U.S. dollars in thousandsCash flows from operating activities:Profit before the tax expense 32,746 3,368Adjustments for:Interest payable 2,901 284Fair value adjustments of investment properties (35,878) (4,114)Depreciation of equipment 8 4Profit on sale of investment property - (2)Increase in trade and other receivables (4,475) (176)Increase in accounts payable and accruals 10,060 352Income taxes paid (1,465) (8) Net cash flows provided by (used in) operating activities 3,897 (292) Cash flows from investing activities:Prepayments (2,315) -Purchase of equipment (892) (106)Purchase of investment properties (4,031) (825)Purchase of investment properties under construction (16,333) (9,332)Interest capitalized in investment properties under construction (3,658) (1,220)Purchase of inventories of land ' (48,235) (24,700)Interest capitalized in inventories of land (373) -Advance on acquisition of subsidiary (1,600) -Payment of amount due in respect of purchase of subsidiaries (1,250) -Net proceeds from disposal of investment property - (46)Acquisition of joined ventures, net of cash acquired (12,875) -Acquisition of subsidiaries, net of cash acquired (5,959) (7,766) Net cash flows used in investing activities (97,521) (43,995) Cash flows from financing activities:Proceeds from issuance of shares by the Company 259,222 7Proceeds from issuance of shares by subsidiaries included in pooling - 3,063Proceeds from (repayment of) short-term borrowings from related parties, net (460) 460Proceeds from long-term borrowings 87,153 -Proceeds from long-term borrowings from related parties 19,286 39,696Repayment of long-term borrowings from related parties (8,812) - Net cash flows provided by financing activities 356,389 43,226 Increase (decrease) in cash and cash equivalents 262,765 (1,061)Net foreign exchange differences on cash and cash equivalents 5,815 1,725Cash and cash equivalents at beginning of period 664 - Cash and cash equivalents at end of period 267,916 664 Non-cash transactions:Payables included for investment properties under construction 2,481 843Acquisition of subsidiaries accounted for under the pooling method (Note 4) - 654Capitalization of shareholders loans to equity 62,192 -Grant of options (Note 16) 2,348 -Issuance of bonus shares (Note 16) 683 - *) Date of inception. See Note 2. The accompanying notes are an integral part of the financial statements. NOTE 1:- General a. MirLand Development Corporation plc ("the Company") (formerly:"Bastwick Investments Limited") was incorporated in Cyprus on 10 November 2004under the Cyprus Companies Law, Cap. 113 as a private company limited by shares.Its registered office is located at Thessalonikis Street, Nicolaou PentadromosCentre, 10th floor, office 1002, Limassol 3025, Cyprus. b. The principal activities of the Company and its subsidiaries ("theGroup") are real estate investment and development in Russia. On 18 December 2006, the Company issued 30 million shares in an initial publicoffering and all of its shares were admitted for trading on AIM. See Note 16 fordetails. NOTE 2:- Basis of preparation: The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRSs) as issued by the International AccountingStandards Board (IASB). In addition, the financial statements have been preparedin accordance with the requirements of the Cyprus Companies Law, Cap. 113. Thefinancial statements are drawn up under the historical cost convention. The consolidated financial statements have been prepared on a historical costbasis, except for investment properties and options for shares which aremeasured at fair value. The consolidated financial statements are presented in US dollars and allamounts are rounded to the nearest thousand ($ 000) except when otherwiseindicated. The activities of the Company for the period from the date of inception (10November 2004) to 31 December 2004 were immaterial, and therefore, thestatements of operations, changes in equity and cash flows for that period havenot been presented separately. Note 3:- Business combinationS AND JOINT VENTURES a. In June 2005, the Company acquired "Hydromashservice LLC." for aconsideration of US$8,950,000. Hydromashservice is a private company based inRussia which owns a commercial rental property in Moscow. The carrying value andthe fair value of the identifiable assets and liabilities of Hydromashservice atthe date of acquisition is as follows: Fair Carrying value value U.S. dollars in thousands Investment property 8,980 1,076Receivables 43 43Cash and cash equivalents 34 34Payables (107) (107) Net assets 8,950 1,046 Cash paid 7,800Amount due 1,150 8,950 b. In February 2006, the Company acquired "Mashinostroenie & HydravlikaOJSC" ("MAG") for a consideration of US$ 6,431,000, of which US$ 400,000 is tobe paid in four equal annual installments commencing in July 2006. MAG is aprivate company based in Russia which owns a commercial rental property inMoscow. The carrying value and the fair value of the identifiable assets andliabilities of MAG at the date of acquisition (presented in present values) isas follows: Fair Carrying value value U.S. dollars in thousands Investment property 6,239 462Receivables 1,326 -Cash and cash equivalents 72 72Payables (840) (840)Deferred tax (436) (436) Net assets (liabilities) 6,361 (742) Cash paid 6,031Amount due (at present value) 330 6,361 The financial statements of MAG were initially consolidated in the reportedperiod. The net profits of MAG included in the consolidated statement ofoperations, for the period from February 2006 to December 2006 amounted to US$22,116,000. The effect on profit and loss of the Company had the acquisition ofMAG been effected on 1 January 2006, is immaterial. c. In October 2006, the Company acquired a 50% interest in "I.W.W. AstraEstate & Co." ("Astra") in consideration of US$ 12,875,000 in cash. Astra is acompany in Cyprus which owns 100% of the share capital of "Technogorcom2"("Techno") which owns a freehold interest in land intended for development of amixed-use trade and business park. The land is in a preliminary stage ofconstruction. NOTE 4:- ACQUISITION OF BUSINESS FROM COMPANIES UNDER COMMON CONTROL On 1 April 2006, the Company, then wholly-owned by JEC, signed an agreement withJEC, IBC and Darban, companies under common control, pursuant to which shares ofthe Company would be issued to IBC and Darban in consideration for cash andbusinesses such that JEC would own 40%, IBC would own 40% and Darban would own20% of the Company's shares. The closing of the agreement was subject to receiptof various approvals, including the approval of shareholders of the companiesunder common control. On 30 September 2006, following the receipt of all necessary approvals andpursuant to the above agreement, Darban invested approximately US$ 2,869,000 inthe Company's equity, in consideration of the issuance of 3,555 Ordinary sharesof the Company. Also, in accordance with the agreement, IBC, in consideration ofthe issuance of 7,110 Ordinary shares of the Company, invested approximately US$822,000 in cash and transferred to the Company its holdings in four companiesthat represented its business activities in Russia. The parties to the agreementalso contributed shareholder loans pro rata to their ownership interests in theCompany. The details of the four companies acquired by the Company from IBC are asfollows: Name of company Rate of Business activities Date on which the holding companies were acquired by IBC Creative Com LLC 100% Owns undeveloped land in Perkhuskovo, October 2005 Moscow, intended for construction of 97 vacation homes Inverton Enterprises 49% *) Mall under construction in Yaroslavl. March 2005Limited Mall Project Co. Limited 90% Property under construction in Saratov, October 2005 intended for construction of a mall. Petra8 LLC 100% Owns land in St. Petersburg, intended for February 2006 construction of residential apartments and commercial centre. *) Jointly controlled entity. As this transaction represents the acquisition of businesses from companiesunder common control, the Company accounted for the transaction in accordancewith the pooling of interests method. On 13 September 2006, as part of the above transactions, the Company acquiredfrom IBC and Hechevra Lepituach Hamlacha Ltd. the share capital of FelixtoweHoldings Ltd. for US$ 1,600,000 in cash (advance on acquisition of subsidiaryreferred to in Note 15). On 13 September 2006, as part of the above transactions, the Company acquiredfrom IBC and Hechevra Lepituach Hamlacha Ltd. (a subsidiary of IBC) the sharecapital of Dunchoille Holdings Ltd. for US$ 10,000. As of 31 December 2006, thiscompany has no activity. NOTE 5:- SEGMENT INFORMATION The segment reporting format is determined to be business segments as theGroup's risks and rates of return are affected predominately by differences inthe use of real-estate assets of the Company. Commercial segment leases real estate for commercial purposes, the residentialsegment develops real estate assets to sale for residential purposes. The following tables present revenue and profit and certain assets and liabilityinformation regarding the Group's business segments. Year ended 2006 Year ended 2005 Commercial Residential Eliminations Total Commercial Residential Total U.S. dollars in thousands Revenue Rental income frominvestment properties 3,707 - - 3,707 732 - 732 Revenue from managementfees 533 - - 533 - - - Fair value adjustments ofinvestment properties 35,878 - - 35,878 4,114 - 4,114 Inter segment income 203 - (203) - - - - 40,321 - (203) 40,118 4,846 - 4,846 Segment results 33,289 (289) - 33,000 4,123 (290) 3,833 Unallocated expenses (2,584) (97) Net finance income (costs) 2,330 (368) Profit before income tax 32,746 3,368 Tax expense 2,797 368 Profit for the year 29,949 3,000 Assets and liabilities Segment assets 109,433 98,978 208,411 25,134 24,736 49,870 Unallocated assets - - 267,134 - - 59 Total assets 475,545 49,929 Segment liabilities 8,477 2,743 2,743 5,404 - 5,404 Unallocated liabilities 106,250 37,871 Total liabilities 108,993 43,275 Other segment information: Capital additions 25,660 48,608 74,268 12,220 24,700 36,920 Depreciation 8 8 4 4 NOTE 6:- JOINTLY CONTROLLED ENTITY The Company acquired a 49% interest in Inverton Enterprises Limited and a 50%interest in Techno, jointly controlled entities which are consolidated in theCompany's financial statements using the proportionate consolidation method. The Company's share of assets and liabilities of the entities included in theconsolidated balance sheets are as follows: 31 December 2006 2005 U.S. dollars in thousands Current assets 1,924 58 Non-current assets 42,630 3,643 Current liabilities 1,163 234 Non-current liabilities 22,056 3,447 The Company's share of income and expenses included in the consolidatedstatements of operations: Period from 10 November Year ended 2004 to 31 December 31 December 2006 2005 U.S. dollars in thousands Income 103 265 Note 7:- OPERATING EXPENSES Maintenance of property 1) 774 102Land lease payments 49 36Fee to management company 40 30 863 168 1) Including maintenance of managed buildings 201 - NOTE 8:- GENERAL AND ADMINISTRATIVE EXPENSES Period from 10 November Year ended 2004 to 31 December 31 December 2006 2005 U.S. dollars in thousands Office maintenance 85 133Professional fees 1,096 336Salaries (1) 3,152 16Depreciation of equipment 8 4Write-down of advance on account of investment (2) 129 -Provision to service provider (see Note 20) 3,588 581Other costs 778 92 8,836 1,162 (1) 2006 - Included expense in the amount of US$ 2,348,000 in respect ofissuance of options to employees, see Note 16. (2) The Company paid US$ 129,000 as an advance on account of investment in aRussian company, which owns land in Nijnii Novgorod. The advance is notrefundable. The Company decided to cease the negotiations concerning thepurchase of the Russian company. Therefore, the advance on account of theinvestment was written off. The fee in consideration of the audit is in the amount of approximately $305,000. The fee to directors is approximately US$ 28,000 (the yearly fee isapproximately US$ 70,000). Note 9:- FINANCIAL INCOME (COSTS), NET Period from 10 November Year ended 2004 to 31 December 31 December 2006 2005 U.S. dollars in thousands Total interest cost (5,257) (1,220)Less - amounts capitalized 4,031 936 Interest cost, net (1,226) (284)Income from interest on cash in bank (1) 399 -Other (principally exchange rate differences) 3,157 136 Financial income (costs), net 2,330 (148) (1) The money received from IPO is invested in short-term deposits. Theinterest accrued on the deposit in presented together with the deposit in cashand cash equivalents. Note 10:- Taxation a. Tax expense: Period from 10 November Year ended 2004 to 31 December 31 December 2006 2005 U.S. dollars in thousands Current taxes 1,901 9Deferred taxes 896 359 Tax expense in statement of operations 2,797 368 b. A reconciliation between the tax expense in the statements ofoperations and the product of profit before tax multiplied by the current taxrate can be explained as follows: Period from 10 November Year ended 2004 to 31 December 31 December 2006 2005 U.S. dollars in thousands Profit before tax expense 32,746 3,368 Tax at the statutory tax rate in Cyprus (10%) 3,275 369Increase (decrease) in respect of:Temporary differences in respect of which no (8,611) (847) deferred tax was recorded *)Effect of different tax rate in Russia (24%) and 5,220 494 Hungary (16%)Effect of change in tax law in Russia 1,289 -Prior year expenses 908 -Losses for which deferred tax assets were not 403 208 recordedOther 313 144 Income tax expense 2,797 368 *) The fair value adjustments of the investment properties result in atemporary difference between the carrying value of the properties and their taxbasis. Since it is the intention of management to sell the companies holdingthese properties rather than the properties themselves, deferred taxes on theabove differences have not been recorded. See Note 12. Taxation in Russia The taxation of companies under the Russian Federation is as follows: Income tax - 24% of profits; VAT - 18% of sales; Asset tax - 2.2% of the net book value of fixed assets. Taxation in Cyprus The Company is resident in Cyprus for tax purposes. The taxation ofcompanies is based on tax residence and all companies are taxed at the rate of10%. A special levy of 10% is imposed on interest received and deemed interestincome in certain cases. Dividend income and profits from the sale of shares andother titles of companies are exempt from taxation. There is no withholding taxon payments of dividends to non-resident shareholders or shareholders that arecompanies resident in Cyprus. Payments of dividend to shareholders that arephysical persons resident in Cyprus are subject to a 15% withholding tax.Companies, which do not distribute 70% of their profits after tax, as defined bythe relevant tax law within two years after the end of the relevant tax year,will be deemed to have distributed as dividends 70% of these profits. A speciallevy at 115% will be payable on such deemed dividends to the extent that theshareholders (companies and individuals) are Cyprus tax residents. The amount ofdeemed distribution is reduced by any actual dividends paid out of the profitsof the relevant year during the following two years. This special levy ispayable for the account of the shareholders. c. Deferred taxes: 31 December 2006 2005 U.S. dollars in thousands Opening balance 301 -Additions from purchase of subsidiaries 436 -Charged to the statement of operations 896 359Exchange rate differences 122 (58) Closing balance 1,755 301 NOTE 11:- EARNINGS PER SHARE Period from 10 November Year ended 2004 to 31 December 31 December 2006 2005 U.S. dollars in thousands Weighted average number of Ordinary shares used for 87,827,563 6,648,717computing basic earnings per share *) Weighted average number of Ordinary shares used for 87,975,799 6,648,717computing diluted earnings per share *) *) Retrospectively adjusted for the pooling of interests (see Note 4) and for the share subdivision (see Note 16). Note 12:- Investment propertIES U.S. dollars in thousands At 10 November 2004 -Additions from acquisition of subsidiary 8,980Additions for the period 825Disposals for the period (44)Fair value adjustment 4,114Exchange rate differences (1,012) At 31 December 2005 12,863Addition from acquisition of subsidiaries 6,239Additions for the period 4,031Fair value adjustments 35,878Exchange rate differences 6,689 At 31 December 2006 65,709 The investment properties are stated at fair value, which has been determinedbased on valuations performed by independent appraisers (Cushman & WakefieldStiles & Riabokobylko and Cushman & Wakefield). The fair value represents theamount at which the assets could be exchanged between a willing buyer andwilling seller in an arm's length transaction at the date of valuation, afterproper marketing wherein the parties had each acted knowledgeably, prudently andwithout compulsion, in accordance with International Valuation Standards. Thevaluations are based on the income approach. In the case of completed andoperating buildings, this approach involves a direct capitalization of the netincome and, in respect of buildings under renovation, a discounted cash flowanalysis. The fair value adjustments of the investment properties result in a temporarydifference between the carrying value of the properties and their tax basis.Since it is the intention of management to sell the companies holding theseproperties rather than the properties themselves, deferred taxes on the abovedifferences have not been recorded. However, the fair values of the propertieshave been reduced in 2006 and 2005 by US$ 17,202,000 and US$ 3,442,000,respectively, to reflect the fair values of the deferred tax liabilities thatthe Company would transfer to a buyer upon the sale of the companies owning theproperties. The reduction was calculated based on the 24% income tax rate inRussia. The Company's management believes that the actual amount of thereduction might be substantially lower due to economic benefits that the buyerwill be entitled to, based upon the differences arising from the method ofdisposal, i.e. direct asset sale or share sale NOTE 13:- INVESTMENT PROPERTIES UNDER CONSTRUCTION U.S. dollars in thousands At 10 November 2004 -Additions for the period 10,175Capitalized interest 1,220Exchange rate differences (37) At 31 December 2005 11,358Additions from purchase of joint ventures 12,875Additions for the period 17,971Capitalized interest 3,658Exchange rate differences 1,068 At 31 December 2006 46,930 Investment properties under construction are presented at cost. NOTE 14:- INVENTORIES OF LAND U.S. dollars in thousands At 10 November 2004 -Additions for the period 24,700Exchange rate differences 36 At 31 December 2005 24,736Additions for the period 48,235Capitalized interest 373Exchange rate differences 2,849 At 31 December 2006 76,193 Inventories of land are intended for construction of residential apartments andvacation homes that are to be sold, and are presented at cost. Note 15:- ADVANCE ON ACQUISITION OF SUBSIDIARY During the year 2006, the Company paid US$ 1,600,000, in consideration ofentering into a framework agreement relating to the purchase of the entireissued share capital of a Cypriot Company that holds a 58 per cent interest in aRussian company that has the leasehold rights in land to be used for theCompany's skyscraper development project in Moscow. On 28 December 2006, the Company signed the framework agreement. The closing of the framework agreement was subsequent to the balance sheet date. Note 16:- SHARE CAPITAL 31 December 2006 2005 Number of shares Authorized, issued and fully paid shares of US$ 0.01 par 1,000,000 711,000value each The Company was incorporated with an issued share capital of C£ 5,000, dividedinto 5,000 Ordinary shares of C£ 1 par value each. On 10 October 2005, theCompany's authorized share capital was subdivided into 7,110 Ordinary shares ofUS$ 1 par value each and was paid. The changes in share capital of the Companyin the year 2006 are as follows: Date Nature of Change Number of Number of issued and fully Share Value Authorized paid shares capital par Shares (in thousands) value after the change Before the The After the change change change Issues of shares in 17,775 7,110 10,665 17,775 17 US$ 112 August respect of pooling2006 of interests (see Note 4) 13 August Subdivision of share 1,777,500 - - 1,777,500 17 US$ 0.012006 capital 13 August Increase in 70,000,000 - - - 17 US$ 0.012006 authorized share capital 19 November Issuance of bonus 70,000,000 1,777,500 68,222,500 70,000,000 700 US$ 0.012006 shares 19 November Increase in 1,200,000 - - 70,000,000 700 US$ 0.012006 authorized share capital 19 November Issuance of shares 1,200,000,000 70,000,000 5 70,000,005 700 US$ 0.012006 in consideration of capitalization of loans 18 December Issue of shares 1,200,000,000 70,000,005 30,000,000 100,000,005 1,000 US$ 0.012006 On 18 December 2006, the Company issued 30,000,000 Ordinary shares at a price ofGBP 4.78 per share in an initial public offering ("IPO"), and all of itsOrdinary shares were submitted for trading in AIM, a market operated by theLondon Stock Exchange. The proceeds received from the IPO amounted to US$259,222,000, net of issuance expenses of US$ 20,378,000. Dividend policy The Company adopted a dividend policy which reflects the long-term earnings andcash flow potential of the Company, taking into account the Company's capitalrequirements, while at the same time maintaining an appropriate level ofdividend cover. Subject to these factors, and where it is otherwise appropriateto do so, the Company intends to declare a dividend of 2% of the Adjusted NAV onAdmission (taking into account the net proceeds of the Placing) for thefinancial year 2008, and 7% of the Adjusted NAV on Admission (market value ofcompany's property assets, as determined by a third party valuation, adjusted toreflect the percentage interests held by the Group, plus its non-property assetsminus its total liabilities minus assumed amounts payable under certainmanagement services agreements with Senior Managers) for the financial year2009, with a view to increasing the dividend in line with the Company's cashflow growth in the future. Share option scheme The Company has two share option plans, the Share Option Scheme, which wasadopted by the Company on 19 November 2006 ("the Adoption Date"), one foroptions immediately vested and the second is for options vested in three years. In the issuance that took place on 18 December 2006, options to purchase1,871,658 Ordinary shares were granted under the Share Option Scheme toemployees ("Options to employees"). The exercise price of the Options toemployees will be equivalent to the price in the proposed placing of theOrdinary shares (GBP 4.78 per share). The Options to employees will vest overthree years from the Grant Date, in equal tranches from the anniversary of theGrant Date. Termination of employment renders the options that are not yetvested expired. The options are to be exercised within five years from the GrantDate, otherwise they expire. An option also expires within three months from thedate on which employment is terminated. Also, in the issuance that took place on 18 December 2006, options to purchase1,497,326 Ordinary shares were granted under the Share Option Scheme to officersof subsidiary companies of the Company ("Options to officers"). The terms of half of the Options to officers are the same as the terms ofoptions to employees. The Options to officers will vest over three years fromthe Grant Date, in equal tranches from anniversary of the Grant Date.Termination of employment renders the options that are not yet vested expired. Half of the options to officers are vested on the Grant Date. The options are tobe exercised within five years from the Grant Date otherwise they expire. Details on equity-settled share-based payment transaction: 2006 2005 U.S. dollars in thousands Fair value of the options 8,823 -Less - recognised on expense in the statements of (2,348) -operations Expense to be recognised in the future 6,475 - Note 17:- Related parties a. Transactions with related parties: Period from 10 November Year ended 2004 to 31 December 31 December 2006 2005 U.S. dollars in thousands Interest expense to shareholders *) 4,498 1,220 Interest expense to affiliated company - 12 *) Includes amounts capitalized 3,626 936 b. Balances with related parties: 31 December 2006 2005 U.S. dollars in thousands Loans from shareholders - 39,564 Short-term loan from affiliated company - 460 Terms and conditions of loans: The loans were partly repaid and partly converted to equity, see Note 16. c. Compensation of key management personnel of the Group 31 December 2006 2005 U.S. dollars in thousands Salaries (1) 40 -Share-based payments 101 - Total compensation paid to key management personnel 141 - (1) Key personnel were appointed at the end of the year 2006. Note 18:- Accounts payable and accruals 31 December 2006 2005 U.S. dollars in thousands Trade payables 2,385 932Prepayments 783 -Rent received in advance - 181Payment due on account of purchase of subsidiary (Note 3) 300 1,150Other creditors in connection with IPO 3,413 -Accrued expenses and other payables 1,788 48 8,669 2,311 NOTE 19:- LONG-TERM LOANS FROM BANKS In October 2006, the Company received approximately US$ 71.4 million in loansfrom banks guaranteed by shareholders. The bank loans bear annual interest atrates of LIBOR plus 1.1% to 1.25%. The repayments will begin in 2008 and thematurities are in 2011. A subsidiary of the Company is engaged into a loan of about US$ 21 million (asof 31 December 2006, the fair value of the loan is US$ 22,855,000) that bearsinterest at an annual rate of 12%. The repayments of the loan will begin in2008, and the maturity is in 2011. The long-term loans are repayable in the following years starting 2008: U.S. dollars in thousands 2008 47,0392009 17,3182010 17,3182011 11,374 93,049 NOTE 20:- OTHER LONG-TERM LIABILITY U.S. dollars in thousandsAt 10 November 2004:Provision to service provider 581Exchange rate differences 1 582At 31 December 2005:Provision to service provider 3,588Exchange rate differences 143 At 31 December 2006 4,313 According to the management services agreement between MAG, Hydromash serviceLLC ("the companies") and FIN LLC ("the service provider"), the service providershall be entitled to receive a one-time payment equal to 10% of the net profit(as defined below) of the companies from the sale of properties, if they aresold to a third party. The net profit in relation to these properties is calculated as: the price ofthe property paid by the third party, less any expenses that the companiesincurred as a result of such sale, less repayments of any external debt of thecompanies, and only after the balance of any outstanding shareholder loans plusan annual interest of 10% have been repaid in full to the relevant shareholderand/or repayment of any other third party financing relating to said property.The amounts paid for the acquisition of the companies at the date of acquisitionand thereafter will be treated as shareholders loans to the Company for thepurposes therein. The company has accounted for this payment as an interest in the profits of MAGand Hydromashservice. Accordingly, a liability measured at fair value has beenrecorded based on the fair value of the properties as recorded in the financialstatements at each balance sheet date. Note 21:- SIGNIFICANT EVENTS SUBSEQUENT TO BALANCE SHEET DATE (UNAUDITED) a. As for a change in share capital - see Note 16. b. On 3 January 2007, the Company completed the first share purchaseagreement to acquire the entire issued share capital of Gasconade Holding Ltd.,a Cypriot company that holds 58% interest in Real Estate LLC, a Russian companythat has the leasehold rights in land to be used for the Company's skyscraperdevelopment project in Moscow. The consideration under this agreement is a totalof US$ 13,000,000 (US$ 1,600,000 of which has already been paid by the Company).In addition, the Company has entered into an additional share purchase agreementto acquire an effective further 21% interest in the Russian company referred toabove for a consideration of US$ 4,500,000. The Company intends to close thisadditional agreement and also acquire the remaining 21% interest for a furtherUS$ 4,500,000 subject to the satisfaction of certain conditions. c. On 3 January 2007, the Company announced that, in connection with itsinitial public offering of Ordinary shares ("the Placing"), Merrill LynchInternational, as stabilizing manager, gave notice that it is exercising theover-allotment option in respect of 3,558,000 Ordinary shares in the Company("the Over-allotment Shares"). The Over-allotment Shares were issued at theoffer price of 478 pence per Over-allotment Share ("the Offer Price"). Theseshares were issued on 8 January 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
MLD.L