11th Mar 2008 07:02
Engel East Europe N.V.11 March 2008 Engel East Europe N.V Results for the year ended 31 December 2007 TUESDAY, 11 Mar 2008 -- Engel East Europe N.V. ('Engel' or 'the Company') theAIM-listed Central and Eastern European residential property developer (EEE:L),today announces its results for the year ended 31 December 2007. Financial summary Year ended (figures in •'000) 31 Dec 2007 31 Dec 2006 Net assets 47,041 55,881NAV/share (•) 0.54 0.64Revenues 17,019 24,961Revaluation of an investment property 2,295 4,704Write-down in respect of discontinued projects (3,858) -Gross Profit 3,442 18,770Operating profit/(loss) (1,848) 16,573Net financing costs 2,145 1,229Profit (loss) before tax (4,020) 15,373Profit (loss) after tax (4,611) 14,686Earnings (losses) per share (•) (0.053) 0.167 Sam Salman, Chairman, said: "The Board expects the number of completions to grow significantly in 2008although it is too early to predict the timing of sales. Nevertheless, we are confident that we have established a solid platform forfuture development and that our strategy of focusing on high-end projects willresult in positive results in the current year." Enquiries:Engel East Europe N.V.Eitan Padan Tel: +972 (9) 970 7004Sam Salman Tel: +1 (646) 214-2000Samuel Hibel Dawnay, Day Corporate Finance Limited Tel: +44 (0) 20 7509 4570Gerald Raingold or Nick Lovering Bankside Consultants Tel: +44 (0) 20 7367 8888Simon Bloomfield or Andy Harris Chairman's Statement New management The year ended 31 December 2007 saw major changes at Engel East Europe and are-focusing of strategy following the appointment of a new executive team. Having joined the Board as a non-executive director in June 2007, I wasappointed Chairman with effect from 1 September 2007 after founder and Chairman,Jacob Engel, stepped down. Eitan Padan joined the Board in August 2007 andbecame Chief Executive Officer with effect from 1 October 2007 when Clair Satchistepped down. Samuel Hibel was appointed Chief Financial Officer and joined theBoard in November 2007, replacing Nir Netzer. Strategic review Once in place, the new team undertook a comprehensive strategic, business andfinancial review of the company which has now been completed. I am delighted to report that, as a result of this review, the Board hasconfirmed its belief that the Company maintains a growth-orientated operatingplatform and has a high quality portfolio of development assets in its coremarkets of Central and Eastern Europe. A key element of the review was to assess the potential returns of all projectsand to determine a strategy for maximising the company's operational resourcesas well as generating a strong return on equity in the light of expected marketconditions in each country. The factors which the Board has taken into accountwhen making this assessment included: - types of development and locations available and whether these offerabove-average growth opportunities and are underpinned by favourable real estatemarket, changing consumer preferences and socio-economic trends, as well asforeign investor participation; - whether particular countries have the legal framework and sufficientlylarge markets that will enable the Company to source, take ownership of, anddevelop attractive opportunities on a sustainable basis; and - whether the Company has sufficient human and financial capitalresources to execute its current and future pipeline. The Board has decided that the Company should focus its management and financialresources on high-end projects in Central and Eastern Europe as the potentialreturns are high, risk is manageable and sales are relatively insensitive to theavailability of mortgage finance. As part of the move to high-end projects, theCompany will consider mixed-use projects as well as residential developments. Entering into joint ventures remains a key element of our strategy and we valueour relationships with our existing joint venture partners whose high qualityand continued participation will be important to the future of the Company. In line with its new strategic focus, in December 2007 the Company completed the€5 million purchase of 9,000 square metres of land in Troja, Prague, for 100luxury apartments. The project will be part of the Company's 50 per cent jointventure with Heitman for certain developments. The Company is actively reviewingand seeking other high-end development opportunities. Following the re-focusing of our strategy, we have taken a number of steps tostrengthen our country management teams as well as recruiting people withexperience in high-end projects. Disposal of non-core projects The Company has also decided to discontinue non-core projects and those offeringlow returns, and to dispose of the related assets as soon as practicable. As theCompany indicated in its pre-close trading update of 25 January 2008, it will bedisposing of its land holdings in Canada and Germany which it expects will be atprices below book value, resulting in a provision in the 2007 accounts of €3.9million. Other disposals are planned in 2008 but these are expected to be atprices in excess of book value. The decision to dispose of non-core assets, which include projects where MOUs(but not definitive agreements) had been signed with potential partners, isreflected in the stated number of units and potential sales value of theCompany's portfolio. Current portfolio In order to provide a clearer picture and allow for improved benchmarking, theCompany has decided to adopt new policies for the quantification of itsportfolio. In future, published data will focus on projects where the land isowned by the Company; if relevant where definitive agreements have been signedby joint venture partners; and where units have either been pre-sold or whereunits are expected to be sold within three to four years. Estimated numbers ofunits and sales values relating to MOUs will no longer be included. On thisbasis, the estimated value of the Company's portfolio after the disposal ofnon-core assets is €690 million. After deducting the proportion of projectsowned by joint venture partners, the estimated value of the portfolio is €457million. Financial results & position Revenues for the year were • 17 million (2006: €25 million) reflecting a lack ofincome from Joint Venture partners which also impacted profitability. The lossbefore tax for 2007 of €4.0 million (2006: €15.4 million profit) was after totalone-off provisions of €3.9 million. At 31 December 2007, the total number of units sold in projects which are underconstruction was 1,627 of which 847 were sold in 2007. During 2008, the Company expects to complete approximately 1,000 units and to start construction on a further 2,000 units. In view of management's expansion plans, in terms of both site acquisitions anddevelopment capacity, the Board is examining a range of options for ensuringthat the Company has access to the capital it will require in the future. The Board has also decided that the Company should focus financial resources onfunding growth and consequently will not be recommending the payment of adividend in respect of 2007. On 3 July 2007, the Company paid a final grossdividend in respect 2006 of €0.053 per share. Current Trading & Outlook The Board expects the number of completions to grow significantly in 2008although it is too early to predict the timing of sales. The Board also expectsfurther acquisitions in line with the new focus on high-end and mixed-useprojects. In developing the business during 2007, the Company has been able to draw on theresources and expertise of the Boymelgreen organisation, for example in theinvestment in April 2007 in the Krakow project. The Company intends to continueto leverage the extensive product experience of the Boymelgreen organisation tocapitalise on high-end developments and mixed-use opportunities. As such, thisconstructive relationship with our parent company will be of significant valueto the Company as we execute our strategy. We are confident that we have established a solid platform for futuredevelopment and that our strategy of focusing on high-end projects will resultin positive results in the current year. Chief Executive's Review Poland The Polish economy continues to be strong, with GDP growth (6.5 per cent in2007) expected to continue through 2008 and 2009, although the rate of inflationis expected to increase from 2.6 per cent in 2007 to 3.6 per cent in 2008.Demand for property has exceeded supply with falling interest rates resulting inaffordable mortgage finance although property prices are now stabilising. Despite the slow-down, Poland continues to offer attractive developmentopportunities and remains an important market for the Company. Currently it has4 projects, for a total of 1,271 units with an estimated sales value of €175million, of which the majority are 50 per cent owned with a joint venturepartner. These include a €6.9 million investment, made in April 2007, in aproject in Krakow for 303 units on which construction is expected to beginduring the second half of 2008. Hungary GDP growth for Hungary in 2007 was approximately 2 per cent and this is expectedto increase steadily over the next two years. At the same time, inflation isexpected to fall from 7.8 per cent in 2007 to 3.4 per cent in 2009 with the OECDanticipating that interest rates will reflect a monetary easing in the middle of2008. In Hungary, the Company has projects for a total of 1,200 units, with anestimated sales value of €106 million, with construction being largely completedby the end of 2008. Heitman is a Joint Venture partner for all projects inHungary. Czech Republic Heitman is a 50 per cent joint venture partner for all the Company's projects inthe Czech Republic, The Company has projects in Prague for a total of 856 unitswith an estimated sales value of €147 million of which 521 units at the Safrankaproject is expected during 2008. In December 2007, the Company and Heitman completed the purchase for €5 millionof land in Troja, Prague, for 100 high-end units with an estimated sales valueof €25 million. Construction of these units is scheduled to begin in the secondhalf of 2008. Bulgaria Bulgaria's GDP growth of 6.5 per cent in 2007 is expected to slow to 4.5 percent in 2008 with inflation in 2007 running at 12 per cent. The Company has projects in Sofia for a total of 694 units with an estimatedsales value of €66 million with approximately half of the projects being ownedwith a joint venture partner. Completion of 264 units is expected by the end of2008 with construction of the other 430 units scheduled to start in the secondhalf of the year. Romania Romania's GDP growth of 6.3 per cent in 2007 was matched by inflation of 6.6 percent. GDP growth is expected to slow to 5.7 per cent in 2008 and interest ratesare set to rise from the current level of 8 per cent. In June 2007, the Company decided to discontinue discussions in respect of theMOU announced in July 2006 because it was not possible to secure acceptablereturns for shareholders. Construction of 392 units, owned with a joint venture partner and with anestimated sales value of €48 million in the Sisest area of Bucharest, will beginduring 2008. The company has also decided to sell its land holdings, with a total book valueof €7 million, in the Pipera district of Bucharest and in Bragadiru (a southernsuburb of Bucharest). Serbia GDP growth in Serbia was 7.5 per cent in 2007 compared to 5.8 per cent in 2006although the impact of recent elections in Kosovo is not yet clear. The Company's Marina Dorcol project in Belgrade is a mixed used project with anestimated sales value of €234 million. Despite the uncertainties, Serbia is an important, strategic market where theCompany is actively seeking to establish long-term relationships withhigh-quality partners. Financial Review Total revenues for the year ended 31 December 2007 of was €17.0 million comparedto €25 million in 2006, reflecting sales of housing units and land of €16.2million in 2007 (2006: €13 million). The gross margin on the sale of housing units and land, including managementfees, was €5 million (29.4 per cent) in 2006 compared to €3.2 million (22.5 percent) in 2006. Total gross profit for 2007 was €3.4 million (2006: €18.8 million). Thisreflected the lack of income from Joint Venture partners compared to €10.3million in the previous year, a lower contribution from the change in fair valueof investment property to €2.3 million (2006:• 4.7million) and a one-offinventory write-down in 2007 of €3.9 million. The one-off write down of inventory of €3.9 million is relating to the disposalof land holdings in Canada and Germany which the Board believes will be at lessthan book value. As a result of decrease with the total revenue ( increase in certain costs andthe inclusion of one-off provisions, the loss before tax for the year was €4.0million (2006: €15.4 million profit). Selling, general and administrative expenses of €5.3 million (2006: €2.2million) include a one-off provision of €1 million for 2007 in respect of legalcharges. Net financing costs increased to €2.1 million (2006: €1.2 million) reflectingthe investments made during the year. Inventories at 31 December 2007 were up to €74.9 million from €52 million at 31December 2006. Net bank debt (liabilities to the bank offset by restricted bank deposits andcash in escrow) was €33 million at 31 December 2007 compared to net cash of €6.1million at 31 December 2006. Engel East Europe N.V. Consolidated balance sheet 31 December ------------------- 2007 2006 ----------- ----------- Note Thousands Euro ----- -------------------ASSETSCurrent assetsCash and cash equivalents 2 11,564 17,354Restricted bank deposits and cash in escrow 3 12,588 6,489Trade accounts receivable 4 1,165 1,180Prepayments and other assets 5 3,066 1,918Loans to joint venture entities 6 7,549 2,346Inventories of housing units 7 74,931 52,046 ----------- -----------Total current assets 110,863 81,333 ----------- -----------Non-current assetsInvestment property under development 8 - 391Investment property 8 27,936 24,333Property and equipment 9 414 339Investment in associate 12 24 51 ----------- -----------Total non-current assets 28,374 25,114 ----------- -----------Total assets 139,237 106,447 =========== ===========LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilitiesInterest-bearing loans from banks 13 45,588 12,625Current portion of finance lease liability 24 1,634 3,681Loans and amounts due to related parties and other 14 4,722 8,669Trade accounts payable 7,416 2,748Other liabilities 15 16,734 7,202Provisions 31 1,079 -Income tax payable 334 405 ----------- -----------Total current liabilities 77,507 35,330 ----------- -----------Non-current liabilitiesFinance lease liability 24 14,549 14,794Deferred tax liabilities 10 140 442 ----------- -----------Total non-current liabilities 14,689 15,236 ----------- -----------EquityShare capital 16 878 878Share premium 39,298 39,298Capital reserves (328) (326)Retained earnings 6,745 16,172Accumulated translation adjustment 211 (214) ----------- -----------Total equity attributable to equity holders of theparent 46,804 55,808Minority interest 237 73 ----------- -----------Total equity 47,041 55,881 ----------- -----------Total liabilities and equity 139,237 106,447 =========== =========== 5 March, 2008Sam Salman Eitan Padan Terry RoydonChairman CEO Chairman of the Audit Committee The notes are an integral part of these consolidated financial statements. Engel East Europe N.V. Consolidated income statement For the year ended 31 December --------------------- 2007 2006 ----------- ----------- Note Thousands Euro ----- --------------------- Revenues 17 17,019 24,961Change in fair value of investment property 8 2,295 4,704Inventory write-down 18 (3,858) -Cost of revenues 19 (12,014) (10,895) ----------- -----------Gross profit 3,442 18,770 Selling, general and administrative expenses 20 (5,290) (2,197) ----------- -----------Operating (loss) profit (1,848) 16,573 Foreign exchange gain (loss) 328 (223)Financial income 2,775 1,423Financial expenses (5,248) (2,429) ----------- -----------Net financing costs 21 (2,145) (1,229) Share of profit (loss) of associate 12 (27) 29 ----------- -----------Profit (loss) before tax (4,020) 15,373Income tax expense 22 (591) (687) ----------- -----------Profit (loss) for the year (4,611) 14,686 =========== =========== Attributable to:Equity holders of the parent (4,775) 14,770Minority interest 164 (84) ----------- ----------- (4,611) 14,686 =========== =========== Earnings per share:Basic earnings (losses) per share (Euro) 23 (0.053) 0.167 ----------- -----------Diluted earnings (losses) per share (Euro) 23 (0.053) 0.167 ----------- ----------- The notes are an integral part of these consolidated financial statements. Engel East Europe N.V. Consolidated statement of changes in shareholders' equity Attributable to equity holders of the parent Company ---------------------------------------------------------------------------- Share Share Capital Translation Retained Total Minority Total capital premium reserve reserve earnings interest equity ------ ------- ------ -------- ------- ------ ------- ------ Note Thousands Euro ----- ---------------------------------------------------------------------------- Balance at 1January 2006 878 39,298 - (325) 3,842 43,693 8 43,701Foreigncurrencytranslationadjustment - - - 111 - 111 - 111Profit for theyear - - - - 14,770 14,770 (84) 14,686 ------- ------- -------Totalrecognisedincome andexpense 14,881 (84) 14,797Additionalinvestment insubsidiaries 26.e - - (340) - - (340) 182 (158)Dividends toshareholders(*) 16 - - - - (2,440) (2,440) - (2,440)Dividends tominorityshareholders - - - - - - (33) (33)Share basedpayments - - 14 - - 14 - 14 ------ ------- ------ -------- ------- ------- ------- -------Balance at 31December 2006 878 39,298 (326) (214) 16,172 55,808 73 55,881 ====== ======= ====== ======== ======= ======= ======= =======Foreigncurrencytranslationadjustment - - - 425 - 425 - 425Loss for theyear - - - - (4,775) (4,775) 164 (4,611) ------- ------- -------Totalrecognisedincome andexpense - - - - - (4,350) 164 (4,186)Dividends toshareholders(*) 16 - - - - (4,652) (4,652) - (4,652)Share basedpayments - - (2) - - (2) - (2) ------- ------- ------- -------- ------- ------- ------- -------Balance at 31December 2007 878 39,298 (328) 211 6,745 46,804 237 47,041 ======= ======= ======= ======== ======= ======= ======= ======= (*) DividendsThe following dividend were declared and paid by the Group:For the year ended 31 December 2007 2006 --------- ---------€0.0068 per qualifying ordinary share 16 - 597€0.021 per qualifying ordinary share 16 - 1,843€0.053 per qualifying ordinary share 16 4,652 - --------- --------- 4,652 2,440 --------- --------- The notes are an integral part of these consolidated financial statements. Engel East Europe N.V. Consolidated statement of cash flows For the year ended 31 December ------------------ 2007 2006 Thousands Euro ------------------ Cash from (used in) operating activitiesNet (loss) profit for the year (4,611) 14,686Adjustment necessary to reflect cash flows from (used in) operating activities:Depreciation 109 54Finance expenses, net 2,145 1,229Income taxes 591 687Group's share of profits of associate 27 (29)Gain from sale of subsidiaries (see note 30) (43) -Equity-settled share based payment (2) 14Change in fair value of investment property (see note 8) (2,295) (4,704)Increase in inventory (30,506) (17,384)Inventory write-down 3,858 -(Increase) decrease in trade accounts receivable 25 (1,117)Increase in other accounts receivable (1,179) (763)Increase in trade accounts payable 4,744 411Increase in other liabilities 10,159 469Cash from (used in) operations:Interest received 643 469Interest paid (1,138) (980)Income taxes paid (186) (401) ----------- ---------Net cash used in operating activities (17,659) (7,359) ----------- --------- Cash from (used in) investing activitiesAcquisition of property and equipment (184) (275)Acquisition of subsidiaries, net of cash acquired - (2,180)(see note 29)Disposal of subsidiaries (see note 30) 3,724 -Additional investment in subsidiaries (see note 29.c) - (155)Short term loans granted to related parties (5,358) (1,392)Short term loans repaid by related parties 155 1,498Restricted cash (6,045) (1,344) ----------- ---------Net cash used in investing activities (7,708) (3,848) ----------- --------- Cash from (used in) financing activitiesShort term loans received from banks 41,010 10,243Short term loans repaid to banks (7,833) (9,014)Short term loans received from related parties 639 2,696Short term loans repaid to related parties (4,635) (13,668)Payment of finance lease liability (5,096) (1,572)Dividend received - 139Dividend paid to minority shareholders - (33)Dividend paid to shareholders (see note 16) (4,652) (2,440) ---------- ---------Net cash from (used in) financing activities 19,433 (13,649) ---------- --------- Decrease in cash and cash equivalents during the year (5,934) (24,856) Effect of exchange rate changes on cash 144 107 Cash and cash equivalents at the beginning of the year 17,354 42,103 ---------- --------- Cash and cash equivalents at the end of the year 11,564 17,354 ========== ========= Non cash activity Investment property acquired through finance lease (see note 1,799 19,096 ========== ========= The notes are an integral part of these consolidated financial statements. Independent Auditors' Report To the directors of Engel East Europe N.V. We have audited the accompanying 2007 consolidated financial statements of EngelEast Europe N.V. (hereinafter referred to as "the Group"), which comprise theconsolidated balance sheet as at 31 December 2007 and the consolidated incomestatement, consolidated statement of changes in shareholders' equity andconsolidated cash flow statement for the year then ended, and a summary ofsignificant accounting policies and other explanatory notes. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of theseconsolidated financial statements in accordance with International FinancialReporting Standards as adopted by the EU. This responsibility includesdesigning, implementing and maintaining internal control relevant to thepreparation and fair presentation of the financial statements that are free frommaterial misstatements, whether due to fraud or error; selecting and applyingappropriate accounting policies; and making accounting estimates that arereasonable in the circumstances. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financialstatements based on our audit. We conducted our audit in accordance with theInternational Standards on Auditing. Those standards require that we comply withrelevant ethical requirements and plan and perform the audit to obtainreasonable assurance whether the financial statements are free of materialmisstatement. An audit involves performing procedures to obtain audit evidence about theamounts and disclosures in the financial statements. The procedures selecteddepend on our judgment, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. Inmaking those risk assessments, we consider internal control relevant to theentity's preparation and fair presentation of the financial statements in orderto design audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the entity'sinternal control. An audit also includes evaluating the appropriateness ofaccounting principles used and the reasonableness of accounting estimates madeby management, as well as evaluating the overall presentation of the financialstatements. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in allmaterial respects, the consolidated financial position of the Group as at 31December 2007, and its consolidated financial performance and its consolidatedcash flows for the year then ended in accordance with International FinancialReporting Standards as adopted by the EU. 5 March 2008 KPMG Hungaria Kft. Istvan Henye Partner Engel East Europe N.V. Notes to the consolidated financial statements For the year ended 31 December 2007 NOTE 1 - REPORTING ENTITY Engel East Europe N.V. (the "Company") is a Company domiciled in TheNetherlands. The main shareholder of the Company is Engel General Developers Ltd(incorporated in Israel), which owns, as of 31 December 2007, 68.35 % of theCompany's shares. The ultimate controlling party at 31 December 2006 was JacobEngel, Chairman of the Company. On 1 March 2007 Azorim investment, Developmentand Construction Ltd. (incorporated in Israel), whose ultimate partner isBoymelgreen Capital Ltd. (incorporated in Israel) acquired a controllinginterest in the Group. The Company has been listed on the Alternative Investment Market ("AIM") of theLondon Stock Exchange, United Kingdom since 15 December 2005. The consolidated financial statements of the Company as at 31 December 2007 andfor the year then ended comprise the Company and its subsidiaries (togetherreferred to as the "Group") and the Group's interests in associates and jointlycontrolled entities. Copies of these consolidated financial statements of the Group are availableupon request from the Company's registered office at Rapenburgerstraat 204, 1011MN Amsterdam, The Netherlands. The Group owns subsidiary companies and joint ventures mainly in Central andEastern Europe which purchase, develop, hold and sell real estate assets. The financial statements were authorised for issue by the directors on 5 March,2008. NOTE 2 - CASH AND CASH EQUIVALENTS 31 December ------------------- Interest rate 2007 2006 ----------- ---------- % Thousands Euro --------- ------------------- Petty cash - 44 23Bank deposit - in HUF 2.7 622 1,096Bank deposit - in Euro 3.5 4,732 15,148Bank deposit - in CZK 0.8 2,505 260Bank deposit - in LEV 0.1 3,168 241Bank deposit - in other currencies - 493 586 ----------- ---------- Total 11,564 17,354 =========== ========== NOTE 3 - RESTRICTED BANK DEPOSITS AND CASH IN ESCROW 31 December ------------------- Interest rate 2007 2006 ----------- ---------- % Thousands Euro --------- ------------------- In HUF 2.7 7,279 2,813In CAD - 8 276In PLN 4.8 4,118 2,535In LEV - 600 -In CZK - 583 865 ----------- ---------- Total 12,588 6,489 =========== ========== The Group pledged all bank deposits to secure banking facilities granted to theGroup. Cash in escrow of EUR 1,183 thousand (2006: EUR 138 thousand) representsadvances due to land owners for the purchase of land and held in an escrowaccount until the finalization of the land purchase (i.e. legal title passes tothe Group). NOTE 4 - TRADE ACCOUNTS RECEIVABLE 31 December ------------------- 2007 2006 ----------- ---------- Thousands Euro ------------------- In HUF 760 1,035In LEV 254 7In CZK 147 48In PLN 4 90 ----------- ---------- Total 1,165 1,180 =========== ========== The balances represent receivables from customers for the sale of housing units.No amounts were overdue and no impairments losses were recorded with respect totrade receivables at 31 December 2007 or 2006 NOTE 5 - PREPAYMENTS AND OTHER ASSETS 31 December -------------------- 2007 2006 ----------- ---------- Thousands Euro -------------------- Advances to suppliers 413 389Tax authorities 62 48VAT recoverable 2,320 736Prepaid expenses 190 640Other 81 105 ----------- ---------- Total 3,066 1,918 =========== ========== NOTE 6 - LOANS TO JOINT VENTURE ENTITIES 31 December ------------------- Interest rate 2007 2006 ----------- ----------Loans provided to joint venture entities: % Thousands Euro ---------- -------------------Fixed rate loan 15% 2,706 967Short-term loans - 2,606 1,054Floating rate loans 3m Euribor+1% 2,237 325 ----------- ---------- Total 7,549 2,346 =========== ========== The loans are denominated in Euro; no repayment date has been set. As such, theloans are classified as current assets. NOTE 7 - INVENTORIES OF HOUSING UNITS 31 December -------------------- 2007 2006 ----------- ---------- Thousands Euro -------------------- Completed housing units for sale 277 640Housing units under construction 74,654 51,406 ----------- ---------- Total 74,931 52,046 =========== ========== The Group has pledged inventories having a carrying amount of EUR 55,736thousands to secure banking facilities granted to the Group (on 31 December2006: EUR 19,159 thousands). The amount of inventory that is carried at net realisable value is EUR 2,211thousands. NOTE 8 - INVESTMENT PROPERTY AND INVESTMENT PROPERTY UNDER DEVELOPMENT Movements of the investment property under development balances were as follows: 2007 2006 ----------- ---------- Thousands Euro -------------------- Balance at 1 January 391 391Reclassified to inventory (391) - ----------- ----------Balance at 31 December - 391 =========== ========== Movements of the investment property balances were as follows: 2007 2006 ----------- ---------- Thousands Euro -------------------- Balance at 1 January 24,333 -Acquisitions 1,799 19,629Reclassified to inventory (491) -Change in fair value 2,295 4,704 ----------- ----------Balance at 31 December 27,936 24,333 =========== ========== Investment property relates to a plot of land in Serbia held for commercialdevelopment. The acquisition of investment property was made by way of financelease (see note 24). If the discounted rate used in the discounted cash flow analysis would differ by10% (a change of 120 basis points to the 12% discounted rate, which was used)from management's estimates, the change in the fair value of investment propertywould be an estimated EUR 942 thousands lower or EUR 968 thousands higher as at31 December 2007. NOTE 9 - PROPERTY AND EQUIPMENT ----------- ----------- ----------- Vehicles Furniture, office Total equipment and other assets ----------- ----------- ----------- Thousands Euro ------------------------------ CostBalance at 1 January 2006 19 186 205Additions 172 103 275 ----------- ----------- -----------Balance at 31 December 2006 191 289 480Additions - 184 184 ----------- ----------- -----------Balance at 31 December 2007 191 473 664 =========== =========== ===========Accumulated depreciationBalance at 1 January 2006 6 81 87Depreciation for the year 20 34 54 ----------- ----------- -----------Balance at 31 December 2006 26 115 141Depreciation for the year 26 83 109 ----------- ----------- -----------Balance at 31 December 2007 52 198 250 =========== =========== ===========Net book value at 31 December 2007 139 275 414 =========== =========== ===========Net book value at 31 December 2006 165 174 339 =========== =========== =========== NOTE 10 - DEFERRED TAX ASSETS AND LIABILITIES The following are the deferred tax assets and liabilities recognised by theGroup, and the movements thereon, during the current and prior reportingperiods. Revenue Tax Recognition* losses Other Total ---------- --------- --------- -------- Thousands Euro ------------------------------ Balance at 1 January 2006 (1,048) 1,237 85 274Acquisition of subsidiary (635) - - (635)Charge / (credit) to profit or lossfor the year (507) 317 - (190)Other - - 109 109 ---------- --------- --------- --------Balance at 31 December 2006 (2,190) 1,554 194 (442) ---------- --------- --------- --------Inventory write-down 145 - - 145Charge / (credit) to profit or lossfor the year (133) 290 - 157 ---------- --------- --------- --------Balance at 31 December 2007 (2,178) 1,844 194 (140) ========== ========= ========= ======== * Deferred tax assets arise on account of temporary differences between the taxbasis and accounting basis of customer advances in the balance sheet (some ofwhich are recognised as revenues for tax purposes), inventories in the balancesheet (some of which are recognised as a cost of sales for tax purposes) andinvestment property (changes in fair value of investment property). Deferredtax assets and liabilities have been offset where a legal right of offsetexists. The tax losses expire in the years 2009-2015. NOTE 11 - SUBSIDIARIES AND JOINT VENTURES As at 31 December 2007, the Company holds interests in the following companies: a. Arces International B.V. ("Arces") - holding company, Amsterdam, TheNetherlands. The Company and Heitman Financial UK LLC ("the Heitman Fund") eachhold 50% of Arces' shares. Arces is considered a jointly controlled entity. Arces holds the following subsidiaries: 1. Engel Park Kft. ("Park") - a wholly owned subsidiary - built residentialproject in Budapest, Hungary. 2. Engel Sun Palace Kft. ("Sun Palace") and Engel HAZ Ingatlanfejleszto Kft. ("Engel Haz") - wholly owned subsidiaries - is building a mix-use project with amajority of residential in Budapest, Hungary (see note 26.q). 3. Engel Projekt Kft. ("Projekt") - a wholly owned subsidiary - is building aresidential project in Gyor, Hungary. 4. Palace Engel Dejvice s.r.o. ("Dejvice") - a wholly owned subsidiary (formerly64% interest in share capital) (see note 26.e) - through its wholly ownedsubsidiary Palace Engel Safranka s.r.o.("Safranka") - is building a residentialproject in Prague, Czech Republic. 5. Palace Engel Estate s.r.o. ("Vokovice") - a wholly owned subsidiary (formerly64% interest in share capital) (see note 26.e) - is building a residentialproject in Prague, Czech Republic. 6. Palace Engel I S.p. Z.o.o. ("Zabky") - a wholly owned subsidiary - isbuilding a residential project in Warsaw's outskirts, Poland. 7. Engel Apartmenty Emilii Plater S.p. Z.o.o. ("Emilii Plater") - a wholly ownedsubsidiary - is building a residential project in Warsaw, Poland. The following amounts are included in the Group's financial statements as aresult of the proportionate consolidation of Arces: 31 December --------------------- 2007 2006 ------------ ----------- Thousands Euro ---------------------Current assets 48,763 29,496 ============ ===========Non-current assets 614 766 ============ ===========Current liabilities (41,464) (21,834) ============ =========== For the year ended 31 December --------------------- 2007 2006 ------------ ----------- Thousands Euro ---------------------Income 13,654 13,109 ============ ===========Expenses (13,823) (14,927) ============ =========== The Group's proportionate share of non-current assets of Arces includes therelevant proportion of an investment in an associate, accounted for using theequity method (see note 12). b. Enman B.V. ("Enman") - holding company, Amsterdam, The Netherlands. TheCompany and an investment fund HEPP III Luxembourg Master S.a.r.l. ("HEPP III")each hold 50% of Enman's shares. Enman is considered a jointly controlled entity(See note 26.a): Enman holds the following subsidiaries: 1. E. G. Company EOOD. ("E.G Company") - a wholly owned subsidiary (see note26.n). 2. E.G. Project EOOD. ("E.G Project") - a wholly owned subsidiary (see note26.l). 3. E.G. Panorama EOOD. ("Panorama") - a wholly owned subsidiary - is building aresidential project in Sofia, Bulgaria (see note 26.o) 4. E.G. Malinova Dolina EOOD. ("Malinova Dolina") - a wholly owned subsidiary(see note 26.m). 5. E.G. Gorna Banya EOOD ("Gorna Banya") - a wholly owned subsidiary - plansto build a residential project in Sofia, Bulgaria (see note 26.kk). 6. Palace Engel Wilanow 1 Sp.z o.o. ("Wilanow") - a wholly owned subsidiary -plans to build a residential project in Warsaw, Poland (see note 26.b). 7. Engel Ingatlan Kft. ("Ingatlan") - a wholly owned subsidiary - is buildinga residential project in Budapest, Hungary (see note 26.p). 8. Palace Engel Mokotow Sp.z o.o. ("Mokotow") - a wholly owned subsidiary -plans to build a residential project in Warsaw, Poland. 9. Palace Engel Veleslavin a.s. ("Veleslavin") and Palace Engel Villa s.r.o. -wholly owned subsidiaries - plan to build a residential project in Prague, CzechRepublic (see note 26.f). 10. Engel Lylia s.r.l ("Lylia") - a wholly owned subsidiary - plans to builda residential project in Bucharest, Romania (see note 26.i). 11. Engel Crizantema s.r.l ("Crizantema") - a wholly owned subsidiary -through its wholly owned subsidiary Engel Tulip s.r.l ("Tulip") plans to build aresidential project in Bucharest, Romania (see note 26.j). 12.Palace Engel Project Koncern s.r.o ("Koncern") - a wholly owned subsidiary -plans to build a residential project in Prague, Czech Republic (see note 26.g). The following amounts are included in the Group's financial information as aresult of the proportionate consolidation of Enman: 31 December -------------------- 2007 2006 ----------- ----------- Thousands Euro --------------------Current assets 24,060 12,308 =========== ===========Non-current assets 3 6 =========== ===========Current liabilities (10,465) (1,442) =========== =========== For the year ended 31 December -------------------- 2007 2006 ----------- ----------- Thousands Euro --------------------Income 3,407 (92) =========== ===========Expenses (4,317) 185 =========== =========== c. ECG Trust Canada Holding Trust ("ECG") - a 95% interest in thebeneficial interest- holding trust (see note 26.s). ECG holds the following joint venture: Montreal Residential Holdings Master Limited Partnership ("MLP") - 20% in thepartnership future distributions - Holding Partnership, Montreal, Canada. Theremaining 80% in future distributions is owned by Lehman Brothers Real EstatePartners II ("Lehman Brothers"). MLP holds the following subsidiaries: 1. Le Quartier Quebec LP - 99.99% in the partnership rights - owns land inMontreal, Canada. 2. Trianon Sur Le Golf Quebec LP - 99.99% in the partnership rights - ownsland in Montreal, Canada. 3. Le Chagall Quebec LP - 99.99% in the partnership rights - owns land inMontreal, Canada. 4. Le Quartier-Parisien Inc. - 99.99% in the share capital - beneficialtitle holder company, Canada. 5. Trianon Sur Le Golf Inc. - 99.99% in the share capital - beneficialtitle holder company, Canada. 6. Le Chagall Inc. - 99.99% in the share capital - beneficial title holdercompany, Canada. d. Palace Engel s.r.o. ("Prokopsky") - 64% interest in the share capital - builta residential project in Prague, Czech Republic. e. Palace Engel Development s.r.o. ("Barandov") - 64% interest in the sharecapital - built a residential project in Prague, Czech Republic. f. Engel Management s.r.o. ("Management") - a wholly owned subsidiary -management company, Czech Republic. g. Burlington Hungary Kft. ("Burlington") - a wholly owned subsidiary -management company, CEE Region. h. Turlington Kft. ("Turlington") - a wholly owned subsidiary - managementcompany, Hungary. i. Engel Management S.p. Z.o.o - wholly owned by Burlington (see g. above) -management company, Poland. j. Puribul EOOD. ("Puribul") - a wholly owned subsidiary - is building aresidential project in Sofia, Bulgaria. k. Nisim EOOD. ("Nissim") - a wholly owned subsidiary - is building aresidential project in Sofia, Bulgaria. l. Engel Marina Dorcol Ltd. ("Marina Dorcol") - 95% interest in the sharecapital - plans to build mix-use project with a majority of residential inBelgrade, Serbia (see notes 26.d). m. E.G. Management EOOD. ("E.G. Management") - a wholly owned subsidiary -management company, Bulgaria. n. Engel Orchidea s.r.l ("Orchidea") - a wholly owned subsidiary -plans to build a residential project in Bucharest, Romania. o. Engel Rose s.r.l ("Rose") - a wholly owned subsidiary - plans tobuild a residential project in Bucharest, Romania (see note 26.h). p. Davero Invest s.r.l ("Davero") - a wholly owned subsidiary -management company, Romania. q. Eurobul Ltd. ("Eurobul") - a wholly owned subsidiary - administration servicecompany, Israel. r. Engel Yzum Bnia Vebizua Shnaym (94) Ltd. - 77.3% interest in the sharecapital - (see note 26.r). s. Palace Engel Troya a. s. ("Troya") - a wholly owned subsidiary. t. 6212-964 Canada Inc. ("Canada Inc.") - a wholly owned subsidiary -management company, Canada (inactive) (see note 26.s). u. 9152-8372 Quebec Inc. ("Quebec Inc.") - a wholly owned subsidiary -management company, Canada (see note 26.s). v. Palace Engel III Sp z.o.o ("Krakow ") - a wholly owned subsidiary -plans to build a residential project in Krakow, Poland (see note 26.c). NOTE 12 - INVESTMENT IN ASSOCIATE a. Arces, a jointly-controlled entity, owns a 40% associate interest in theshare capital of Palace Engel Vrsovice s.r.o. ("Vrsovice"). The additional 45%and 15% are held by a former manager in the Group and a company owned by theCompany's former CEO, respectively. Vrsovice, through its wholly ownedsubsidiary (Agentura Novy Domov 2000, spol s.r.o) built and sold units in aresidential project in Prague, Czech Republic. b. Composition: 31 December --------------------- 2007 2006 ------------ ----------- Thousands Euro ---------------------Cost of investment 2 2Share of profits since date of acquisition 161 188Dividend received since date of acquisition (139) (139) ------------ -----------Carrying value of interest in associate 24 51 ============ =========== c. Summarised financial information in respect of the associate is set out below: 31 December --------------------- 2007 2006 ------------ ----------- Thousands Euro ---------------------Total assets 128 265Total liabilities (18) (20) ------------ -----------Net assets 110 245 ============ ===========Group's proportionate share of the associate's net assets 22 49 ============ =========== For the year ended 31 December --------------------- 2007 2006 ------------ ----------- Thousands Euro ---------------------Net profit (loss) for the year (135) 147 ============ ===========Group's proportionate share of theassociate's net profit (27) 29(loss) for the year ============ =========== NOTE 13 - INTEREST-BEARING LOANS FROM BANKS 2007 2006 ------------- ------------- Interest Year of Face Carrying Face Carrying Currency rate maturity value amount value amount -------- --------------- ------- ------- ------- ------- ------- Thousands Euro ----------------------- Secured bankloan Euro 3m Euribor+1.5% 2008 2,578 2,686 102 102Secured bankloan HUF 5.72% *2008 5,239 5,329 2,821 2,870Secured bankloan HUF 1M Buribur+1.8% 2008 1,520 1,520 137 137Secured bankloan HUF AKK** 50 % + 1.8 % 2009 3,274 3,274 486 486Secured bankloan HUF 3M Buribur+3.25% *2011 356 356 - -Secured bankloan HUF 3m Euribor+1.5% 2008 489 489 - -Secured bankloan HUF AKK**110 % + 1.65 % 2009 3,980 3,991 - -Secured bankloan CZK 3m Pribur+2.25% *2010 1,296 1,360 5,270 5,567Secured bankloan CZK 3m Pribur+2.25% *2010 1,623 1,995 - -Secured bankloan Euro 3m Euribor+3.25% *2011 1,363 1,363 948 948Secured bankloan LEVA 3m Euribor+2.5% *2009 1,778 1,786 - -Secured bankloan RON 3m Euribor+2.5% 2008 1,212 1,317 - -Secured bankloan RON 3m Euribor+2.75% 2008 1,257 1,377 - -Secured bankloan Euro 3m Euribor+10.5% *2008 1,500 1,500 1,500 1,500Secured bankloan Euro*** 3m Euribor+1% 2008 6,677 6,840 - -Secured bankloan PLN 1Y Wibor + 1.8% 2008 2,241 2,433 965 1,015Secured bankloan PLN 3m Wibor + 1.5% 2009 7,086 7,086 - -Secured bankloan PLN 3m Wibor + 1.5% *2008 880 886 - - ------- ------- ------- ------- Total interest-bearing loans from 44,349 45,588 12,229 12,625 ======= ======= ======= ======= * Represents the latest possible year of maturity. ** AKK - the appropriate latest 3 month's average yield for the one yearHungarian Treasury bill. *** The loan is secured by guarantees provided by the parent company. The Group finances its projects primarily with commercial bank lines of credit.The loans will be repaid out of the proceeds of the sale of the project. Theloans are expected to be settled in the Group's normal operating cycle andtherefore are classified as current liabilities NOTE 14 - LOANS AND AMOUNTS DUE TO RELATED PARTIES AND OTHERS 31 December ------------------- 2007 2006 ----------- ---------- Currency Thousands Euro --------- ------------------- Payable to:Heitman Fund (1) Euro 1,957 2,514Joint ventures (2) Euro 203 140Minority shareholders of subsidiaries (3) Euro 105 45Engel General Developers Ltd. (4) Euro 74 68Lehman Brothers (5) CAD 2,383 3,759Loans from land owners (6) CAD - 2,143 ----------- ---------- Total 4,722 8,669 =========== ========== No repayment dates have been set with regard to the above loans and advances.All are expected to be settled from proceeds generated from sales of thedevelopment projects to which they relate. As such, they are classified ascurrent liabilities. (1) Interest is charged at 15% per annum. (2) Interest is charged at 3 month Euribor+1.00%. (3) Interest is charged at 3 month Pribor+2.50%. (4)The loans received from Engel General Developers Ltd. bear an interest of 12month Euribor . (5) The loan bears no interest. (6) The loans were received from the owners of land purchased in Canada. Theywere repaid at July 2007 and bore interest of 5.5%-6%. NOTE 15 - OTHER LIABILITIES 31 December ------------------- 2007 2006 ----------- ---------- Thousands Euro -------------------Advances from customers 15,673 6,553Tax authorities 9 217Accrued expenses 195 107Payroll and related expenses 456 61Other 401 264 ----------- ---------- Total 16,734 7,202 =========== ========== NOTE 16 - EQUITY 31 December ---------- 2006 and 2007 ---------- Thousands Euro ----------Authorised: 120,000,000 ordinary shares of par value EUR 0.01 each 1,200Issued and fully paid:At the beginning of the year (87,777,777 ordinary shares) 878 ----------At the end of the year (87,777,777 ordinary shares) 878 ========== The Company has one class of ordinary shares which carry no right to fixedincome. The holders of ordinary shares are entitled to receive dividends as declaredfrom time to time and are entitled to one vote per share at meetings of theCompany. All shares rank equally with regard to the Company's residual assets. Dividends Dividends are declared based on the retained earnings presented in the Company'sconsolidated financial statements prepared in accordance with The NetherlandsCivil Code and not from the retained earnings presented in these consolidatedfinancial statements. On 22 June 2006, a gross dividend of EUR 0.0068 (in the amount of EUR 597thousands) per share was paid. On 16 August 2006, a gross dividend of EUR 0.021 (in the amount of EUR 1.8million) per share was paid. On 29 March 2007, a gross dividend of EUR 0.053 per share (in the amount of EUR4.6 million) was paid. NOTE 17 - REVENUES For the year ended 31 December ------------------ 2007 2006 ---------- ---------- Thousands Euro ------------------Sale of housing units 13,035 13,030Sale of land 3,178 -Revenue from transaction with joint venturepartner (see note 26.a) - 10,282Developer fee, net (see note 26.a) - 622Management fees 688 707Rent 61 79Other 57 241 ---------- ---------- Total 17,019 24,961 ========== ========== NOTE 18 - INVENTORY WRITE-DOWN For the year ended 31 December ------------------ 2007 2006 ---------- ---------- Thousands Euro ------------------Germany (see note 26.r) 2,728 -Canada (see note 26.s) 1,049 -Other 81 - ---------- ---------- Total 3,858 - ========== ========== NOTE 19 - COST OF REVENUES For the year ended 31 December ------------------ 2007 2006 ----------- ---------- Thousands Euro ------------------Cost of housing units 8,967 9,630Cost of sold land 1,687 -Payroll and related expenses 482 436Depreciation and amortization 173 112Professional services 114 106Maintenance 446 161Other 145 450 ----------- ---------- Total 12,014 10,895 =========== ========== NOTE 20 - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES For the year ended 31 December ------------------- 2007 2006 ----------- ----------- Thousands Euro -------------------Selling 863 405Payroll and related expenses 1,185 698Professional services 1,495 664Depreciation 48 33Travel and accommodation 287 86Provision for legal claims (see note 31) 1,079 -Maintenance 256 222Other 77 89 ----------- ----------- Total 5,290 2,197 =========== =========== NOTE 21 - NET FINANCING COSTS For the year ended 31 December ------------------- 2007 2006 ----------- ---------- Thousands Euro -------------------Finance income:Interest earned from bank deposits (674) (1,337)Interest on loans to related parties (171) (86)Gain from restructuring of finance lease(see note 26.d) (1,930) - ----------- ---------- Total (2,775) (1,423) ----------- ----------Finance expenses:Interest on loans from bank 2,068 705Interest on loans from related parties 173 619Interest on loans from others 34 154Interest on financial lease 2,973 951 ----------- ---------- Total 5,248 2,429 ----------- ---------- ----------- ----------Foreign exchange differences loss/(gain) (328) 223 ----------- ---------- Net financing costs 2,145 1,229 =========== ========== NOTE 22 - INCOME TAXES For the year ended 31 December ------------------- 2007 2006 ----------- ---------- Thousands Euro -------------------Current tax 628 477Net deferred tax (157) 152Prior year taxes 120 58 ----------- ----------Total income tax expense recognised in theincome statement 591 687 =========== ========== Reconciliation of statutory to effective tax rate: For the year ended 31 December ------------------- 2007 2006 ----------- ---------- Thousands Euro -------------------Statutory income tax rate in the Netherlands 25.50% 29.60%Profit (loss) before taxes (4,020) 15,373 ----------- ----------Tax at the statutory income tax rate (1,025) 4,550Changes in tax burden as a result of:Differences in statutory tax rates ofsubsidiaries (185) (860)Deferred taxes not provided for lossescarried forward (*) 1,682 69Non taxable income, net - (3,043)Prior year's taxes 120 58Other differences, net (1) (87) ----------- ----------Income tax 591 687 =========== ========== * As at 31 December 2007 deferred taxes were not recognized for tax lossescarried forward in the amount of EUR 2,065 thousand (2006: EUR 383 thousand),since the Group doesn't expect to generate taxable profits in the related Groupcompanies in the near future. NOTE 23 - EARNINGS (LOSSES) PER SHARE The calculation of basic earnings per share attributable to the ordinary equityholders of the Company is based on the following data: For the year ended 31 December ------------------ 2007 2006 ---------- ---------- Thousands Euro ------------------ Profit (loss) attributable to ordinary shareholdersProfit (loss) for the purposes of basic anddiluted earnings per share profit for theyear attributable to equity holders of theCompany (4,611) 14,686 ========== ========== 31 December ---------- 2006 and 2007 ----------Weighted average number of ordinary shares(In thousands of shares)Issued ordinary shares at 1 January 87,778Changes during the year - ----------Weighted average number of ordinary and diluted shares at 31December 87,778 ========== * There are no dilutive factors. NOTE 24 - FINANCE LEASE LIABILITY Terms and conditions of outstanding financial lease liabilities were as follows: 31 December, -------------------------- 2007 2006 -------------- -------------- Thousands Euro -------- -------- -------- -------- Nominal Year of Face Carrying Face Carrying Currency interest rate maturity value amount value amount ------- --------- -------- -------- -------- -------- --------Finance lease CSD 8.5% 2006-2105 - - 47,708 18,475liabilitiesFinance lease CSD 8.0% 2007-2105 50,933 16,183 - -liabilities The financial lease liability relates to a project in Serbia where the Group isobliged to pay monthly rent for land for 99 years. The Group has elected toaccount for the property interest as an investment property. On 11 December 2007, the Group signed a new lease agreement, with a new paymentschedule - see also note 26.d. Repayments under the term of the finance lease as follows: Minimum Minimum lease lease payments Interest Principal payments Interest Principal --------- -------- -------- -------- -------- -------- *2007 2006 --------------------- -------------------- Thousands Euro -------------------------------------- Less than oneyear 1,692 58 1,634 3,925 244 3,681Between oneand five years 13,870 2,598 11,272 15,999 3,759 12,240More than fiveyears 35,371 32,094 3,277 27,784 25,230 2,554 --------- -------- -------- -------- -------- -------- 50,933 34,750 16,183 47,708 29,233 18,475 ========= ======== ======== ======== ======== ======== * According to the new lease agreement The value of the finance lease and its payments are adjusted in on a monthlybasis to the local index of retail prices in Serbia. The increases of the local index of retail prices in Belgrade, Serbia in 2007and 2006 were 9.3% and 5.3%, respectively. NOTE 25 - FINANCIAL INSTRUMENTS Currency risk Exposure to currency risk: The Group's financial assets and liabilities held in various currencies was asfollows based on notional amounts. 31 December, 2007 ---------------------------------------- Thousands Euro ---------------------------------------- HUF CZK PLN CSD Euro (*) Other Total ------- ------- -------- -------- -------- -------- --------Cash and cashequivalents 642 2,510 404 23 7,910 75 11,564Restrictedbank depositsand cash inescrow 7,279 583 4,118 - 600 8 12,588Trade accountsreceivable 760 147 4 - 254 - 1,165Loans to jointventureentities - - - - 7,549 - 7,549Investment inassociate - 24 - - - - 24----------------- ------- ------- -------- -------- -------- -------- --------Total assets 8,681 3,264 4,526 23 16,313 83 32,890----------------- ------- ------- -------- -------- -------- -------- --------Interest-bearing loans frombanks 14,959 3,355 10,404 - 14,175 2,695 45,588Currentportion offinance leaseliability - - - 1,634 - - 1,634Loans andamounts due torelatedparties andother - - - - 2,339 2,383 4,722Trade accountspayable 3,946 2,007 465 2 826 170 7,416Finance leaseliability - - - 14,549 - - 14,549----------------- ------- ------- -------- -------- -------- -------- --------Totalliabilities 18,905 5,362 10,869 16,185 17,340 5,248 73,909----------------- ------- ------- -------- -------- -------- -------- -------- Net exposure (10,224) (2,098) (6,343) (16,162) (1,027) (5,165) (41,019)================= ======= ======= ======== ======== ======== ======== ======== (*) Including Euro and LEV (according to the Bulgarian national bank, the LEV ispegged to the Euro) 31 December, 2006 ----------------------------------------- Thousands Euro ----------------------------------------- ------- -------- -------- -------- -------- -------- HUF CZK PLN CSD Euro (*) Other Total -------- ------- -------- -------- -------- -------- --------Cash and cashequivalents 1,111 263 77 63 15,391 449 17,354Restrictedbank depositsand cash inescrow 2,813 865 2,535 - - 276 6,489Trade accountsreceivable 1,035 48 90 - 7 - 1,180Loans to jointventureentities - - - - 2,346 - 2,346Investment inassociate 51 - - - - 51----------------- -------- ------- -------- -------- -------- -------- --------Total assets 4,959 1,227 2,702 63 17,744 725 27,420----------------- -------- ------- -------- -------- -------- -------- --------Interest-bearing loans frombanks 3,493 5,567 1,015 - 2,550 - 12,625Currentportion offinance leaseliability - - - 3,681 - - 3,681Loans andamounts due torelatedparties andother - - - - 2,767 5,902 8,669Trade accountspayable 1,392 807 97 - 74 378 2,748Finance leaseliability - - - 14,794 - - 14,794----------------- -------- ------- -------- -------- -------- -------- --------Totalliabilities 4,885 6,374 1,112 18,475 5,391 6,280 45,517----------------- -------- ------- -------- -------- -------- -------- -------- Net exposure 74 (5,147) 1,590 (18,412) 12,353 (5,555) (15,097)================= ======== ======= ======== ======== ======= ======= ======= (*) Including Euro and LEV (according to the Bulgarian national bank, the LEV ispegged to the Euro). The following significant exchange rates against the Euro applied during theyear: Spot rate - as of 31, December Average rate - as of 31, December --------------------- ---------------------- ------------ ----------- 2007 2006 2007 2006 ------------ ----------- ------------ -----------HungarianForint 253.35 252.31 251.31 264.27Czech Crown 26.62 27.49 27.75 28.34Polish Zloty 3.58 3.83 3.78 3.90Serbian Dinar 79.24 79.00 80.09 84.06Bulgarian Leva 1.95 1.95 1.95 1.95 NOTE 26 - SIGNIFICANT ACQUISITIONS, SALES AND JOINT VENTURES a. Joint venture agreement Heitman II On 29 December 2005 the Company and Enman entered into a series of agreementswith HEPP III, whereby HEPP III subscribed for shares of Enman constituting 50%of its outstanding share capital. During the year ended 31 December 2006 HEPPIII invested a total amount of EUR 20.6 million. From the investment, EUR 3.1million was repaid to the Company in January 2006 on account of loans previouslyprovided to Enman. In addition, HEPP III paid EUR 1.8 million to a subsidiary ofthe Company as developer fee. The revenues of the Company for the year ended 31December 2006 include a net amount of EUR10.9 million deriving from the abovementioned agreement. Poland b. On 30 January 2006 the Group signed two agreements for the purchase of twoplots in Warsaw, Poland. The Group intends to develop a residential project on the acquired land with atotal area of approximately 26,000 sqm. One plot was acquired for a totalpurchase price of approximately EUR 1.8 million and on 7 April 2006 theownership of the company which holds the plot, Wilanow (see note 11.b.6) wastransferred to Enman. For the second plot a conditional pre-agreement was signed for a total purchaseprice of approximately EUR4.2 million, out of which 10% was transferred upon thesigning to escrow account. The balance will be paid upon receiving theresidential planning permit, which was not yet received as of 31 December 2007. c. On 23 April 2007, the Group signed a pre-contract for the purchase of landfor a new development project of approximately 200 residential units in acentral district of Krakow, Poland. The Group intends to develop a residential project of approximately 12,500 sqmon the acquired plots which have a total land area of 9,763 sqm. The final agreement was signed on 18 July 2007. The total purchase price ofapproximately EUR 6.9 million for the land was paid in 2007. Serbia d. On 25 May 2006, a subsidiary in which the Company holds 95% interest, won acompetitive tender run by the municipality of Belgrade for a 99-year lease onapproximately 2.57 hectares of land in Marina Dorcol. The Company intends todevelop this land as a mixed-use project with total gross building area of76,000 sqm. The subsidiary signed a revised lease contract with the municipality of Belgradeon 11 December 2007 with respect to this property interest. Under the revisedagreement, the present value of the new lease payments is 16.7% lower than theprevious present value; the decrease arises mainly from a deferral of payments.These changes give rise to income recognition of EUR 1.9 million from there-measurment of the finance lease liability. As a result of the win at auction of an additional 1.5 hectares plot within theMarina Dorcol project, the Group signed a new lease agreement under which itwill be required to pay a total of approximately EUR 3.5 million; EUR 0.4million of this was paid in February 2008 with the balance due over the nextfour years. Czech Republic e. On 15 May 2006 Arces (see note 11.a) purchased for approximately EUR 320thousands the remaining 36% share in two projects in which Arces already owned64% of the share capital - Dejvice and Vokovice (see notes 11.a.4 and 11.a.5).These remaining 36% shares were held by Immoconsult, an affiliate of AustrianVolksbank A.G., and Emerald, its agent. Arces repaid to Immoconsult and Emeraldinterest-bearing loans provided by them to the two companies of approximatelyEUR 1.1 million, in total. f. On 25 May 2006 the Group signed an agreement for the purchase of land inPrague, Czech Republic. The project was purchased by Enman, as a part of theCompany's joint venture with HEPP III (see a. above). Enman intends to develop a residential project on the acquired land, throughownership of companies (see note 11.b.9), with a total area of approximately10,000 sqm. As of 31 December 2007 the total purchase price of the land, whichis approximately EUR 5 million, has been paid, except for an amount equal toapproximately EUR 241 thousands which is being held in an escrow account,subject to change of zoning for one of the buildings. g. On 29 August 2006 the Group signed an agreement for the purchase ofadditional land in Prague, Czech Republic, for the development of approximately100 luxurious residential units (see note 11.s and note 11.b.12). The Group intends to develop a residential project with a total area ofapproximately 9,000 sqm on the acquired land. In December 2007, the Group purchased the land for approximately EUR 4.8 million Romania h. On 16 February, 2007 the Group signed a final contract for the purchase ofland for a new development project of approximately 1,160 residential units in asouth suburb of Bucharest, Romania. The total purchase price of the land was EUR1.937 million. The land was registered on the name Engel Rose on 19 February,2007 The Group intends to develop a residential project of approximately 116,000 sqmon the acquired plots with a total land area of 77,500 sqm. i. On 15 August 2006 the Company signed an agreement for the purchase of3 adjacent plots in Bucharest, Romania, for the development of approximately 550residential units (see note 11.b 10). The Group intends to develop a residential project of approximately 55,000 sqmon the acquired plots with a total area of 23,000 sqm. The total purchase pricepaid for the land is EUR4.6 million. An amount of EUR 0.5 million is being heldin escrow account subject to approval of pre-building permit. The Company hasnot yet received pre-building permit. j. On 14 September 2006 the Company signed an agreement for the purchaseof land for a new development project of approximately 390 residential units inBucharest, Romania (see note 11.b 11). The Group intends to develop a residential project of approximately 35,000 sqmon the acquired plots with a total land area of 17,700 sqm. The total purchaseprice of the land was EUR 4.4 million. Bulgaria k. On 11 October 2005, the Group signed a conditional agreement, pursuant towhich E.G. Gorna Banya EOOD. - a wholly owned subsidiary of Enman - Sofia,Bulgaria, purchased the construction rights and undertook to develop aresidential project on a property of approximately 10,960 sqm in Sofia,Bulgaria. In 2007 Enman has replaced the Company in the agreement, since theproject is part of the joint venture between the Company and HEPP III. Theparties agreed that the seller's consideration would vary between 20%-25% of theproceeds from the sales of the completed units of the project according to theactual average selling price per sqm. In June 2007 the new planning permit was approved and, following this, a finalagreement was signed on 29 June, 2007, by E.G. Gorna Banya. The final agreement also includes the purchase of the construction rights in anadditional plot, adjacent to the above mentioned land, and the development of anadditional residential project on a property of approximately 9,300 sqm inSofia, Bulgaria with similar terms as the first plot. Enman has granted the seller a bank guarantee for an amount of EUR 1.2 millionto secure its obligations to the seller. l. In 2007, Enman sold the land of E.G. Project EOOD - a wholly owned subsidiary- Sofia, Bulgaria. The total sale price for the land was EUR 1.6 million. m. On 2 March, 2007 Enman sold the land of E.G. Malinova Dolina EOOD - a whollyowned subsidiary - Sofia, Bulgaria. The total sale price for the land was EUR 3.2 million. n. On 14 November, 2007 Enman sold the land of E.G. Company EOOD - a whollyowned subsidiary - Sofia, Bulgaria. The total sale price for the land was EUR 1.65 million. o. On 29 November, 2007 The Company has signed a preliminary agreement for thesale of the project of E. G. Panorama EOOD - a wholly owned subsidiary - Sofia,Bulgaria. The total sale price for the project is EUR 7.5 million, which will be paidduring 2008 when the final agreement will be sign. According to the preliminary agreement, the Group must issue a guarantee to thebuyer to secure its obligations to the buyer. The Company will be entitled to receive 8% from the annual income from rentingthe units of the building. As of 31 December 2007; The Company received,according to the preliminary agreement, 1% of the total sale price total of EUR75 thousands. Hungary p. On 11 April 2006 Enman, through Ingatlan, its subsidiary (see note 11.b.7)signed an agreement for the purchase of an area of approximately 20,000 sqm inBudapest, Hungary, The land was acquired for a total purchase price of EUR 2.4 million. During 2007, the Group started to develop a residential project on the acquiredland. q. On 30 October, 2007 the Group signed a long lease agreement with"World Class Klub Kft." to operate the gym and pool complex which is being builtby Engel Sun Palace Kft, a 100% owned subsidiary of Arces, in Budapest, Hungary. The agreement will be valid when the company will complete the construction ofthe gym. Germany r. On 6 December 2005, the Company acquired a 77.3% beneficial interestin Engel Yzum Bnia Vebitzua Shnaym (94) Ltd. which owns land in the city ofRaznitz, Germany. During 2007, the Company reviewed the project and decided not to continuedeveloping it. Accordingly the value of the project has been written down by EUR2.7 million. Canada s. On 29 November 2005, the Company acquired a 95% beneficial interest inECG Trust. The Trust owns 3 residential development plots in Montreal, Canada. The Group has decided to discontinue the activity in Montreal - Canada which itmanages through a joint venture with Lehman Brothers. The Group's share in thejoint venture's future distributions is 20%. As a result of this decision, the book value of the 3 plots located in Montrealwas decreased to the estimated market value. The total effect on the Group waswrite-down of inventory in the amount of EUR 1,049 thousands in 2007. In addition, provisions for future expenses, related to this discontinuedactivity, were recognised by the Group in its 2007 financial statements (seealso note 31). NOTE 27 - OPERATING LEASE The operating lease rentals are payable as follows: 2007 2006 -------------- ------------- Thousands Euro ------------------------- Less than one year 1,128 1,682Between one and five years 9,247 6,857More than five years 23,581 11,907 -------------- ------------- Total 33,956 20,446 ============== ============= The Company leases the plot in Serbia (see note 26.d) which will be used forresidential construction under an operating lease. The lease runs for a periodof 99 years, with an option to renew the lease after that date. The leasepayments are adjusted for changes in the retail price index in Belgrade, Serbia. As at 31 December 2007 EUR 2,184 thousands has been capitalised to housing unitsunder construction in respect of operating lease payments (at 31 December 2006an amount of EUR 673 thousands). NOTE 28 - RELATED PARTIES The main shareholder of the Company is Engel General Developers (incorporated inIsrael) and the ultimate controlling party at 31 December 2006 was Jacob Engel,Chairman of the Company. On 1 March 2007 the Azorim investment, Development andConstruction Ltd. (incorporated in Israel), whose ultimate parent company isBoymelgreen Capital Ltd. (incorporated in Israel), acquired a controllinginterest in the Company. Related party transactions Transactions between the Company and its subsidiaries, which are related partiesof the Company, have been eliminated on consolidation and are not disclosed inthis note. Details of transactions between the Group and other related partiesare disclosed below. During the year ended in 31 December 2006 the Company repaid a loan ofapproximately EUR 9.4 million to Engel General Developers Ltd. The Company has 6 directors. During the year 2007, the Company replaced 3directors. The annual salary cost of the directors in 2007 amounted to EUR 820 thousands(in 2006 - EUR 712 thousands). Transactions with directors and senior employees In 2006 the Company established a share option programme that entitles executivedirectors and senior employees to purchase shares of the Company. Trading transactions During the year, Group entities entered into the following trading transactionswith related parties that are not members of the Group. The followingtransactions with related parties are included in the financial statements: For the year ended 31 December -------------------- 2007 2006 ----------- ----------- Thousands Euro -------------------- Balance sheetPurchase of land - 2,000Short term loans granted to joint ventures (5,358) (1,392)Short term loans repaid by joint ventures 155 1,498Short term loans received from related parties:Engel General Developers Ltd. 6 -Other related parties - 261 ----------- ----------- (5,197) 2,367 ----------- -----------Short term loans repaid to related parties:Engel General Developers Ltd. - (9,567)Other related parties - (1,805) ----------- ----------- - (11,372) ----------- -----------Income statementIncome - Interest on loans to related parties (171) (86) NOTE 29 - AQUISITION OF SUBSIDIARIES AND MINORITY INTERESTS a. On 30 January 2006 the Group signed two agreements for the purchase of twoplots in Warsaw, Poland (see note 26.b). In connection with the first plot, theGroup acquired the ownership of the company which holds the plot, Wilanow and on7 April 2006 the ownership of Wilanow was transferred to Enman. Theconsideration was paid in cash, by Enman. ----------- ----------- ----------Net assets acquired Book value Fair value Fair value adjustments ----------- ----------- ---------- Thousands Euro ----------------------------Inventories of housing units 544 643 1,187Trade and other receivables 22 - 22Trade and other payables (20) - (20)Amounts due to related parties andother (28) - (28)Deferred taxes - (194) (194) ----------- ----------- ---------- Total 518 449 967 =========== =========== ========== b. On 25 May 2006 the Group signed an agreement for the purchase of landin Prague, Czech Republic. The project was purchased by Enman, as a part of itsjoint venture with HEPP III (see note 26.f). Consideration was paid in cash. ----------- ----------- ----------Net assets acquired Book value Fair value Fair value adjustments ----------- ----------- ---------- Thousands Euro ----------------------------Inventories of housing units 164 1,490 1,654Deferred taxes - (441) (441) ----------- ----------- ---------- Total 164 1,049 1,213 =========== =========== ========== The revenue and profit of the combined entities, detailed in a. and b. above,for the year, if the acquisitions had occurred at the beginning of 2006, wouldnot materially differ from revenue and profit presented in financial statementsfor 2006 as both of the acquired entities had yet to incur any material expensesor generate any revenues. c. Acquisition of minority interests On 15 May 2006 Arces acquired an additional 36 percent interest in Dejvice andin Vokovice for EUR 320 thousand in cash, increasing its ownership from 64 to100 percent (see note 26.e). The Group recognised a decrease in minorityinterests of EUR 182 thousand and decrease in capital reserve of EUR 340thousand. NOTE 30 - DISPOSAL OF SUBSIDIARY On 19 April, 2007 Enman acquired all of the shares in Engel Lylia s.r.l andEngel Crizantema s.r.l from the Company (see notes 26.i and 26.j) for an amountless than EUR 2 thousands in cash and also repaid all loans made by the Companyto these entities. The disposal had the following effect on the Company's assets and liabilities: Engel Lylia Engel Crizantema Total s.r.l s.r.l ------------------------------ Thousands Euro ------------------------------ Housing units under construction (2,668) (2,389) (5,057)Trade and other receivables (32) (25) (57)Cash and cash equivalents (22) (34) (56)Deferred tax liabilities 1 - 1Short term loan from bank - 1,320 1,320Trade and other payables 112 - 112 ----------- ------------ ----------Net identifiable assets andliabilities (2,609) (1,128) (3,737)Gain on disposal (43) - (43) ----------- ------------ ----------Received consideration satisfied incash (2,652) (1,128) (3,780)Cash disposal 22 34 56 ----------- ------------ ----------Net cash inflow (2,630) (1,094) (3,724) =========== ============ ========== NOTE 31 -PROVISIONS a. During 2007, two legal claims were filed against Engel Sun Palace Kft,a 100% owned subsidiary of Enman: 1. On 3 April, 2007 the subsidiary was sued by one of its formerconstructor. The constructor sued for return of the entire guarantee which wascalled by the subsidiary, in amount of HUF 837 million (approximately EUR 3.3million). 2. On 27 July, 2007 the subsidiary received a payment notice from thecourt claiming HUF 145 million (approximately EUR 574 thousands). The claim wassubmitted due to a deviation from the original loan agreement with the bank. b. The Jointly controlled entities in Canada and the parent company arein a legal proceeding with a minority shareholder (5%) who was employed astechnical manager in the Canadian projects and was dismissed by the Company. Provisions for this claim and for future expenses, related to the discontinuedactivity in Canada, were recognised by the Group in its 2007 financialstatements. c. The management of the Company has decided to make provisions in regardto the above of EUR 1,079 thousand, in the 2007 financial statements. NOTE 32 - SEGMENT REPORTING The Group comprises the following main business segments: 1. Residential- the residential segment includes purchasing, developing,holding and selling real estate assets. mainly in Central and Eastern Europe. 2. Commercial - The commercial segment includes the activity related toinvestment property in Serbia (see not 11.l). The Group considers the Central and Eastern Europe to be one geographic regiontherefore no geographical segment information has been prepared. The Company also has assets in Germany and in Canada. Due to the fact that themanagement of the Company decided to discontinue these activities, noinformation on these geographical regions has been provided under this note. Residential Commercial Consolidated --------------- -------------- -------------- 2007 2006 2007 2006 2007 2006 -------------------------------------- Thousands Euro --------------------------------------Revenue from external customers:Sale of housing unitsand lands 16,213 13,030 - - 16,213 13,030Revenue from transactionwith joint venturespartner - 10,282 - - - 10,282Developer fee, net - 622 - - - 622Management fees, net 688 707 - - 688 707Other 57 241 - - 57 241Changes in fair value ofinvestment property - - 2,295 4,704 2,295 4,704Rent 61 79 - - 61 79 --------- -------- -------- -------- -------- --------Total revenue fromexternal customers 17,019 24,961 2,295 4,704 19,314 29,665Inter-segment revenue - - - - - - --------- -------- -------- -------- -------- --------Total revenue 17,019 24,961 2,295 4,704 19,314 29,665 ========= ======== ======== ======== ======== ======== Segment result (4,143) 11,869 2,295 4,704 (1,848) 16,573Net financing costs (1,041) (278) (1,104) (951) (2,145) (1,229)Share of (loss) profitof associates (27) 29 - - (27) 29Income tax expense (472) (313) (119) (374) (591) (687) -------- --------Profit for the year (4,611) 14,686 ======== ======== Segment assets 110,105 71,700 27,936 24,333 138,041 96,033Investment in associates 24 51 - - 24 51Unallocated assets - - - - 1,172 10,363 -------- --------Total assets 139,237 106,447 ======== ======== Segment liabilities 76,618 32,465 15,578 18,101 92,196 50,566Unallocated liabilities - - - - - - -------- --------Total liabilities 92,196 50,566 ======== ======== Capital expenditure 184 275 - - 184 275Depreciation 109 54 - - 109 54 END This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Kimberly Enterprises