Annual Financial Report
TRANS BALKAN INVESTMENTS LIMITED
(Formerly Equest Investments Balkans Limited)
FULL YEAR RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2009
Trans Balkan Investments Limited ("TBIL" or "the Company"), a holding company with subsidiaries investing in the Balkan region (all together "the Group"), today announces its final results for the year ended 31 December 2009.
TBIL has prepared its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS").
Headlines for the financial year ended 31 December 2009
· Group consolidated revenue of €560.9 million for the year ended 31 December 2009 (2008: €625.1million)
· Full year pre-tax loss of €72.7 million (2008: loss of €61.7 million)
· 2009 loss per share from continuing operations of €3.91 (2008: loss per share €3.46)
· Total net assets at 31 December 2009 of €116.8 million (31 December 2008: €164.4 million)
· Net asset value per share of €6.39 (31 December 2008: €9.24)
· TechnomarketDomo N.V., TBIL's largest holding, reported consolidated sales of €558.4 million (31 December 2008: €621.5 million), EBITDA €12.0 million (31 December 2008: €23.5 million) and pre tax loss €3.53 million (31 December 2008: pre tax profit €2.82 million).
· Borovets Investments EAD, TBIL's strategic stake in the Rila Samokov development project, valued at €36.52 million (31 December 2008: €44.05 million) by independent valuers.
· Appointment of Ian Schmiegelow as Non-executive Chairman and representatives of major shareholders. SGRF and Kairos Investment Management Ltd (representing 53.81% of TBIL shares in issue), as Non-executive Directors on the Board
· Renegotiation of TechnomarketDomo N.V.'s debt facilities and TBIL's funding arrangements agreed with the State General Reserve Fund of Oman.
· Sale of non-core holdings including remaining holding in Uniqa Bulgaria AD, Avto Union AD and various land and properties for a total consideration of €44.3 million (Uniqa Bulgaria AD €23.1 million, Avto Union AD €8 million, Castle Golf and Boyana Park €1.4 million, Rodacar AD property €9.9 million, Serdika property €1.9 million).
· Termination of Novera's waste management concession for the city of Sofia.
Commenting on the results, Ian Schmiegelow, TBIL's Non-executive Chairman, said:
"Although much was achieved during 2009 by way of internalising management, restructuring debt facilities, cutting costs and selling non core assets, the year proved yet another disappointing period for investors with the broadening economic crisis causing major harm to the Company's operations and the value of its investments. The story for 2010 is sadly no different with little relief from the pressure on liquidity, performance and value despite all the measures taken to ease this situation."
The Company confirms, pursuant to AIM Rule 20, that its report and accounts for the year ended 31 December 2009 has been posted to Shareholders and that copies are available on the Company's website at www.transbalkaninvestmentslimited.com.
For further information please contact:
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Trans Balkan Investments Limited |
Ian Schmiegelow Natalie Weedon |
Tel: + 44 20 7630 3350 |
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Collins Stewart - Nomad & Joint Broker |
Stewart Wallace |
Tel: +44 20 7523 8322 |
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KBC Peel Hunt Limited - Joint Broker |
Capel Irwin |
Tel: +44 20 7418 8900 |
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Financial Dynamics - PR adviser |
Ed Gascoigne-Pees |
Tel: +44 20 7269 7132 |
CHAIRMAN'S STATEMENT
The operating climate in the Balkan region for TBIL did not improve during 2009 and so remained extremely challenging. The ongoing economic crisis continued to have a notable impact throughout the year on the Company's operations as well as on the value of its investments in retail, financial services, infrastructure, land and property development. In particular, the performance of its major retail subsidiary, TechnomarketDomo N.V. ("TMD"), a market leader in the Balkan region in electronics and white goods retail, was severely hampered by the weakening consumer markets in Bulgaria and Romania with a resultant fall in both turnover and profitability.
In the twelve months to 31 December 2009, TBIL had consolidated revenue of €560.9 million and made a pretax loss of €72.7 million (31 December 2008: pre-tax loss €61.7 million) and a loss per share including both continuing and discontinuing operations of €2.53 (31 December 2008: loss per share €7.52). IFRS NAV per share decreased 31% to € 6.39 at 31 December 2009 from €9.24 at 31 December 2008. Total assets of the Company reduced to €366.1 million (31 December 2008: €566.6 million), while total debt reduced to €132.4 million (31 December 2008: €204.6 million). 2010 has witnessed a continuing, if not worsening economic malaise, and this has even further damaged the investment value of TBIL's overall business.
A major issue for TBIL during 2009 and throughout 2010 to date has been the relentless pressure on liquidity, only relieved from time to time by the continuing support of its largest shareholder, The State General Reserve Fund of Oman ("SGRF"), and the ongoing disposal of non core assets. The continuation of TBIL's operations in this environment has only been achieved, as I outline below, through some innovative but costly refinancing arrangements, the forbearance of some creditors and, finally, the resourcefulness and tenacity of TBIL's small operating team.
On 31st December 2009, TBIL announced that, by reference to the restructured TMD debt facilities reported on 16 July 2009, the Company, through a wholly owned subsidiary, had repaid in full, together with all outstanding interest, its €12 million bridge facility ("the Bridge Loan") granted by a Bulgarian Bank, ("the Bank"). This repayment was made as a result of the obligation to repay the Bank first out of the net proceeds of any sale of the Serdika and Rodacar properties, both of which sales were effected during the latter part of 2009. In addition, AXIS Retail N.V., the parent of TMD, repaid to Raiffeisen Zentralbank Osterreich AG ("RZB") €3 million of the €20 million due to be repaid by 31 December 2009. This was enabled by the specific waiver by SGRF of its entitlement to such monies following the repayment of the Bank's Bridge Loan.
On 11 January 2010, it was further announced that RZB had received the balance of €17 million (plus accrued interest) due to be repaid to it by 31 December 2009 by calling the Citibank, N.A., Sofia Branch guarantee issued to RZB as part of the restructuring of TMD's debt facilities during the summer of 2009 (the "Citibank Guarantee"). This amount, in turn, was met by SGRF under the terms of its counter indemnity granted in respect to the Citibank Guarantee. The Board of TBIL acknowledged that the aforementioned restructuring, while burdening TBIL with onerous commitments to SGRF by way of a comprehensive security package ("the SGRF Security"), nevertheless provided TBIL with further time to protect and, hopefully, grow the value of its investment in TMD and Borovets. The terms of the restructuring included particular exchange rights in respect to TBIL's holding in TMD that SGRF had in connection with TBIL's indebtedness to SGRF, the exercise of which would be triggered by certain conditions, involving approval of business and integration plans and the completion of a number of senior TMD management appointments, not being satisfied by TBIL by 31 December 2009.
On 9 February 2010, the Board announced that SGRF had notified TBIL that SGRF's exchange rights and rights under the SGRF Security had become exercisable and as such SGRF had reserved its position. TBIL entered into discussions with SGRF on the circumstances giving rise to this notification and continued to work with SGRF on a longer term resolution of these issues. It had become increasingly clear to the Board, as there was no foreseeable relief to the depressed value of TBIL's remaining property assets, that the only feasible option for achieving a timely release from the unsustainable level of its indebtedness was to sell its holding in TMD. To this end, on 3 June 2010, the Board announced that it was in discussion with the minority shareholders of TMD concerning an unsolicited and indicative offer from them to purchase TBIL's equity shareholding of 61.8 % in TMD. Whilst giving suitable consideration to this offer, the Board had also continued to consider other realistic options in order to resolve most advantageously for all of the Company's shareholders the matter of raising sufficient funds both to repay the €17 million TBIL owed to SGRF as well as to finance its other commitments and, hopefully, return some value to shareholders. Consequently, the Board announced on 4 August 2010 that it had engaged Entrea Capital of Sofia, Bulgaria and Capital Partners of Bucharest, Romania, acting jointly, to be its independent financial adviser to assist it in respect to the offer, a further offer from one of these minority Shareholders acting alone as well as in reviewing other options, including the sale of TBIL's holding in TMD in whole or in part to a third party. Furthermore, the Board confirmed that it had also appointed Ernst & Young to prepare an independent fair valuation of TBIL's holding in TMD. An orderly process for the sale of TMD is now in hand which has been made possible through the terms, admittedly onerous, of the Amendment Agreement between TBIL and SGRF and dated 21 October 2010; this is detailed in note 34 Events after the reporting date to the Financial Statements.
While the proposed sale of TMD is taking place against a back drop of challenging trading conditions, it should be appreciated how, despite this, both the businesses in Romania and Bulgaria have increased their market share whilst, simultaneously, taking steps to reduce costs, close unprofitable stores and otherwise refine operating efficiencies.
At the same time, during 2009, the Company continued an orderly sale of its property assets including Serdika and Rodacar. To date in 2010, two of the former cinema sites in Sofia, Iztok and Europa Palace, have also been sold.
Separately from the economic developments and as previously reported, the Company encountered significant problems at Novera, its waste management investment, during 2009 that culminated in the cancellation of Novera's waste management concessions by the Sofia Municipality. TBIL does not consider this termination as lawful or reasonable and has consequently sought appropriate legal advice in conjunction with the senior and mezzanine lenders to Novera. Following an initial approach by all three parties to the Bulgarian Government the response was to reject any proposal for a negotiated settlement. As a result, the Board is investigating the options available to it in respect to pursuing a complaint against the Bulgarian Government under the terms of the relevant Bilateral Investment Treaty.
On a more positive note, TBIL, together with its fellow shareholders, continues to review the steps which need to be taken to progress the plans for the major Borovets resort development. There have been some preliminary discussions with the representatives of a major resort developer, but, while the weak market conditions persist, it is unlikely that an early decision on any firm course will be taken. In the meantime, however, there is much preparatory work involving rezoning, concessions and the like which can be handled advantageously.
During 2009 and since, the Company has continued to implement material cost saving measures arising from the simplification of its holding company structure, involving liquidating and merging BVI and Dutch NV / BV holding companies together with dormant special purpose vehicles, as well as from the streamlining of its administrative processes. Simultaneously, the Board has been focused on the proper maintenance of its existing operations coupled with the further sale of non core assets both of which are essential to ensuring that TBIL and its subsidiaries meet their various financial commitments.
Throughout 2009 and to date in 2010 TBIL's Board has actively managed its business risks in the most challenging of economic environments. After making suitable enquiries and giving proper consideration to factors which could give rise to significant financial exposure, including asset sales, the Board has a reasonable expectation that the Company has adequate resources to both continue its operations for the foreseeable future and meet its obligations as they fall due. However, there cannot be certainty while the extremely difficult market conditions prevail as they may impact adversely on planned disposals in terms of price expectation and timing. Given this position, the Company continues to adopt the going concern basis in the preparation of these financial statements.
Going forward the Board remains particularly concerned about the outlook for the economies of Bulgaria and Romania. However, despite the difficult prevailing circumstances and on the basis of the clear intention to dispose of TBIL's interest in TMD, the continuation of its non core asset sale programme and the rationalisation of any other remaining business interest, the Board is endeavoring to secure the best value overall for shareholders.
Finally, I should like to thank the members of TBIL's small operating team for their effort and resolve in testing times, the shareholders for their patience and understanding and all others, including members of the Board, who have contributed positively to TBIL's progress during an impossibly difficult year.
Ian Schmiegelow
Non-Executive Chairman
Trans Balkan Investments Limited
MANAGEMENT REVIEW
While the effects of the global economic crisis were slow to reach the South East European region, the impact was felt heavily in the last quarter of 2009 and has continued into 2010. TBIL's largest holdings are located in Bulgaria where, in 2009, GDP contracted by 4.9% whereas in Romania, the comparable GDP fall was 7.1%. The consequent damage to consumer markets in both countries resulted in a dramatic drop in retail sales for both of TMD's operating subsidiaries, KKE and Domo Retail, which make up the Company's major business activities. Property valuations have been another victim of the spreading economic malaise and the Company's various property holdings have severely suffered both in respect to value and the Company's ability to advance its two main development projects at Sozopolis and Banya. The IMF forecasts Bulgarian GDP growth in 2010 to be nil and the Romanian GDP to decrease by 1.9%. The Board expects that market conditions through to the end of 2010 will remain extremely challenging bringing relentless pressure on the Company's liquidity, trading levels and asset values. In this commercial environment, management intends to continue its focus on disposing of and deleveraging its property holdings as well as on reviewing its options in respect of major liquidity issues.
Financial review
In the financial year to 31 December 2009, the Company had consolidated revenue of €560.9 million (31 December 2008: €625.1 million) and made a pre tax loss of €72.7 million (31 December 2008: pre-tax loss of €61.7 million), resulting in a loss per share from continuing operations of €3.92 (31 December 2008: loss per share from continuing operations of €3.47).
Review of TBIL core holdings
TechnomarketDomo N.V.
61.8% HOLDING AS AT 31 DECEMBER 2009
TechnomarketDomo N.V. Group NV ("TMD") is the Dutch parent company for the Company's investments in the retail electronics and white goods sector in South East Europe which, in the main, comprise 100% of the Bulgarian Technomarket retail and wholesale operations and 100% of the Romanian Domo retail operations.
TMD is the largest player in the sector in South East Europe with a consolidated turnover in 2009 of €558.4 million (2008: €621.5 million), and an EBITDA of €12.0 million (2008: €23.5 million).
TMD runs a dual brand strategy with large format stores located in both Bulgaria and Romania under the Technomarket brand and in the main, smaller stores operating under the Domo brand in Romania. At the end of the year, the total TMD network consisted of 218 stores, with TMD's retail market share in Bulgaria amounting to 37%, while its market share in Romania was 27%.
The major strategic objectives for TMD in 2010 were to accelerate the integration of the operations of the Technomarket and Domo businesses to eliminate continually unprofitable stores as well as to reposition the business for fewer but more discerning consumers within TMD and to achieve optimum sales growth.
Post period event
As was described in the announcements made on 11 January 2010 and 09 February 2010, TMD reduced its bank debt exposure to Raiffeisen Zentralbank Osterreich AG ("RZB") from an outstanding principal amount of approximately €81 million at the beginning of the year to approximately €56 million as at 31 December 2009, it also renegotiated an extended final maturity from three to five years, that is until 31 December 2014.
In view of the economic slowdown, management undertook a detailed cost analysis of TMD's operations and implemented a number of recommendations in the first quarter 2010, including negotiating rental decreases where possible and closing the majority of Domo stores in Bulgaria with the remaining operations rebranded under the Technomarket brand.
Technomarket Serbia and Montenegro (Harwood Limited)
23% HOLDING AS AT 31 DECEMBER 2009
In 2009, the consolidated sales of Harwood amounted to €84 million (2008: €107 million) and a resultant negative EBITDA of €4.5 million (2008: €3.2 million). TBIL's investment in Harwood amounted to €6.4 million in shareholder loans and €0.7 million in equity.
Technomobile
50% HOLDING AS AT 31 DECEMBER 2009
The Company owns 50% of Technomobile Serbia, a chain of stores selling GSM sets, small consumer electronic devices and complementary services. In 2009 sales in Technomobile Serbia amounted to €7.0 million (2008: €7.9 million), through a chain of 56 shops, resulting in a negative EBITDA of €1.6 million (2008: negative €1.7 million).
Borovets
33.5% HOLDING AS AT 31 DECEMBER 2009
TBIL holds a 33.5% indirect investment in Rila Samokov 2004 AD, which owns 1,977,131 sq. m. of land for large-scale resort development in the Borovets mountain area. This was purchased in 2007 for € 25.9 million in cash.
TBIL's investment is held through its 50% stake in Borovets Invest BV, a holding company, which in turn owns 100% of Borovets Investments EAD, a 67% shareholder in Rila Samokov 2004 AD. TBIL's partner in Borovets Invest BV is the State General Reserve Fund of the Sultanate of Oman ("SGRF"). The other shareholders in Rila Samokov 2004 AD are the Municipality of Samokov (25% shareholding) and Bulgaria's leading construction company Glavbolgarstroy (8% shareholding).
Currently plans divide the project into six sub-projects which can be individually developed, thereby reducing the development risk of this major €800 million project. While no substantial construction works have yet been undertaken, the project remains debt free.
Valuations
Regular valuations of TBIL's assets are made and TBIL's 33.5% indirect ownership in Rila Samokov 2004 AD as at 31 December 2009 was valued at €36.5 million by CB Richard Ellis, reputable international property valuers.
Review of TBIL Non-Core Holdings
Novera AD (in liquidation)
94% HOLDING AS AT 31 DECEMBER 2009
As previously announced, the remaining Concession Agreements for the provision of waste management and street cleaning services in Sofia held by three wholly owned subsidiaries of Novera AD were terminated by the municipality of Sofia in March 2009. TBIL rejects the basis of the termination of these Concession Agreements and has had discussions with legal representatives of the Bulgarian Government over the Municipal Council of Sofia's conduct in relation to the Concession Agreements. The senior and mezzanine lenders to Novera AD also participated in these discussions.
Novera AD is now in liquidation and the liquidator is handling all the necessary paperwork relating to the company's former employees. The liquidator is also realising any remaining assets to assist in covering the costs of the liquidation.
Avto Union AD
In April 2009 TBIL sold its 80% holding in Avto Union AD, a Bulgarian wholesaler and distributor of automotive products and services, which had an approximate 6.7% share of the new car sales market in Bulgaria in first quarter 2009. It also sold motorcycles, held an Avis car rental franchise and distributed Castrol and BP lubricants. Additionally Avto Union AD owned the Avto Union Centre building, a 28,000 square meter mixed use show room and office building.
The purchaser of Avto Union AD was Eurohold Automotive Group, the automotive subsidiary of Eurohold Bulgaria Inc, a publicly listed company on the Sofia Stock Exchange. While the investment was sold at a loss at it should be noted that, since the sale, sales in the automotive market then dropped by 54% in 2009 and by a further 36% in the first eight months of 2010.
Post Period Event
In March 2010, due to Eurohold's financial difficulties, TBIL renegotiated the repayment plan in respect to the balance of the outstanding purchase price which amounts to €2.0 million with the final installment now due in February 2011.
Uniqa AD (Bulgaria)
In June 2009, TBIL sold its remaining 37.71% stake in Uniqa Bulgaria in two tranches in 2009 to Uniqa International, Austria's largest insurance company, under a pre-agreed arrangement. The first tranche was for 21.19% of the shares in Uniqa AD, with the proceeds used for the repayment of a Serdika related debt to Uniqa Real Estate and a second tranche of 16.52% of the shares was for cash.
Post Period Event
In April 2010 TBIL exercised a put option and assigned to Uniqa International subordinated financial instruments, comprising a subordinated bond at a price of €1,533,876 million and subordinated debt of €1,533,876 million plus accrued interest amounting to €586,000 to the date of the assignment.
Pelican Retail Holdings
100% HOLDING AS AT 31 DECEMBER 2009
Pelican Retail is the owner of three sites which were formerly used as cinemas and are located in the city centre and densely populated areas of Sofia and a fourth site which is a land plot in the city of Pernik. All these Pelican Retail properties are included in the asset disposal programme.
In 2009, Pelican Retail sold two of its other assets: the Serdika Forum in which TBIL held a 20% stake, was sold for €1.9 million to the hotel operator and real estate developer, Terra Tours, and in November, Rodacar AD, a former car factory in Varna with a built up area of 12,300 square meters, to Baumax, the leader in the Austrian DIY market.
Post Period Event
TBIL has successfully sold two of the former cinemas Iztok and Evropa Palace. On 30 July 2010, the sale of Iztok was completed for the net sale proceeds amounting to €1,428,000 in cash which has been received. On 11 November 2010, the Evropa Palace was sold for the consideration of €1,500,000 in cash which has been received. The proceeds from the sale of Iztok and Evropa Palace cinemas were utilised to fund the Company's liabilities and continuing operations. Negotiations with a potential buyer for the sale of the remaining cinema, Urvich, are at an advanced stage.
Immofinance EAD
100% HOLDING AS AT 31 DECEMBER 2009
Immofinance EAD is a property development company focusing on first and second homes in Bulgaria. Immofinance is in discussions with the respective banks financing its two remaining development projects, Sozopolis and Banya, as to the future of the projects. The loan facilities are currently in default as a result of breaches of covenants and the loans are secured on the relevant developments but are on a non-recourse basis to TBIL.
The Immofinance EAD portfolio consists of two development projects and the land holdings listed below.
1. Sozopolis is a planned complex of second home properties, a spa centre, and several retail units including two restaurants on the Black Sea coast. The construction started in November 2007 and the first phase of the project, comprising 105 second home apartments, was completed in 2009. However, €7 million is still owed to the main construction company and another €8 million is required for the completion of the second phase of the project.
Total gross floor area relating to the project is 35,575 square meters, of which 30,265 square meters is for residential apartments.
The marketing of the project coincided with the deterioration of the Bulgarian economy and consequently a major collapse in demand and, as at 31 December 2009, only six units (totalling 2,634 square meters) had been sold.
The project has been financed by a €8.2 million equity investment by TBIL and a €38 million construction loan from Alpha Bank. The current drawdown on the construction loan is €27.3million (of which €1.5 million has been repaid) and a €5 million VAT facility (of which
€1.2 million has been repaid). TBIL, with Immofinance EAD being in breach of its covenants, is in discussions with Alpha Bank in respect to the future of this development project.
2. Banya Spa & Wellness Resort, a complex of residential apartments, hotel, spa and sports facilities located in the foothills of Pirin Mountain, was started in September 2006. The gross floor area of the project is 20,277 square meters of which 12,572 square meter is for residential apartments (119 units) and 7,705 square meters for the hotel and spa.
The project was financed by a €7.5 million equity investment by TBIL and a €10.5 million construction loan from DSK Bank of which, currently, €6.9 million has been drawn down. The loan is in default and Immofinance EAD is in discussion with the bank on the available options, including the possible rental of Banya Spa & Wellness Resort to a tour operator, on the basis that the funding of €4 million required for the completion of the project is forthcoming. Provided this additional financing can be secured, the project is expected to be finalised within nine months. Immofinance's partner in the project is the Municipality of Razlog which holds a 4% equity interest in the Banya Spa & Wellness project.
3. Boyana Diplomatic Club is a land plot adjacent to the Boyana Diplomatic Club in Sofia which is designed for high end condominium apartments, with a total gross floor area projected at approximately 5,000 square meters.
4. Embassy Apartments is completed development in Sofia, which currently has just five apartments totalling 1,405 square meter that are in the process of sale.
Immofinance EAD Property assets in total have been valued at €26.96 million as at 31 December 2009.
Bank Debt
The Group had €106.4 million in bank debt at year end secured against assets in which TBIL had majority control. All debt as at 31 December 2009 was non-recourse to TBIL.
The largest subsidiary bank debt is within TechnomarketDomo N.V. and resulted from the use of debt in the acquisition of this holding. This debt facility, with an outstanding principal amount of approximately €81 million with RZB was reduced to approximately €56.2 million as at
31 December 2009.
TBIL's holding in Novera AD was acquired with €20.0 million in mezzanine debt and
€15.0 million in senior debt provided by InvestkreditBank, both of which facilities were in default as a result of the Sofia Municipality cancelling the waste concessions of Novera AD. The €15.0 million senior debt was repaid to InvestkreditBank in 2009 by a new senior lender to Novera AD, Eagle 8.
A table of the principal debt of TBIL and its subsidiaries as at 31 December 2009 is set out below.
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2009 |
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€'000 |
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Currency |
Nominal interest rate |
Year of maturity |
Carrying amount |
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Subsidiary |
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Non-Current |
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|
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TechnomarketDomo N.V. |
€ |
Euribor + 4% |
2014 |
26,558 |
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KKE |
€ |
Euribor + 3.5% |
2014 |
9,005 |
|
|
|
|
|
35,563 |
|
|
|
|
|
|
|
Current |
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|
|
|
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Immofinance EAD |
€ |
3m Euribor + 5% |
2013 |
29,838 |
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|
|
|
|
|
|
TechnomarketDomo N.V. |
€ |
Euribor + 4% |
2014 |
19,621 |
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KKE |
€ |
Euribor + 3.5% |
2014 |
1,001 |
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|
|
|
|
|
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Banya Holiday AD |
€ |
3m Euribor + 2.8% |
2013 |
7,354 |
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Overdrafts |
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12,982 |
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|
|
|
70,796 |
In December 2008, TMD and Axis Retail, together with K & K Electronics EOOD ("KKE") and Domo Retail SA, as guarantors, entered into an agreement with RZB pursuant to which TMD assumed €65 million of the loans provided to the TMD group of companies for the purposes of acquiring holdings in the operating subsidiaries (the "Refinancing Loans"). RZB and KKE also executed an agreement for amendments of the original €25 million loan facility originally granted in 2006. (The "KKE Loan" together with the Refinancing Loans, the "RZB Loans"). Security for the RZB Loans included a pledge by Axis Retail of all of its shares in TMD to RZB. Axis Retail and Lyra, a minority shareholder in TMD, also gave an undertaking to RZB (the "Undertaking") to facilitate a prepayment of up to €40 million of the Refinancing Loans. The TBIL group had no other exposure under the RZB Loans.
In 2009, following discussions between RZB, TMD and Axis Retail, RZB agreed to accept prepayment of €40 million as €20.0 million in cash and a bank guarantee from Citibank for the remaining €20.0 million in exchange for the release of the Undertaking.
The repayment of €20 million by TMD was financed by an €8 million shareholder loan to TMD and a €12 million bridge facility provided by a Corporate Commercial Bank AD to TBIL repayable within 12 months. The bridge loan was drawn down on 15 July 2009 and advanced by TBIL to TMD by a way of a shareholder loan.
The Citibank Guarantee provided that, if TMD was unable to prepay another €20 million of the Refinancing Loans by 31 December 2009, RZB would be entitled to draw €20 million under the Citibank Guarantee.
As part of these arrangements, SGRF agreed to indemnify Citibank for losses to Citibank under the Citibank Guarantee and provided Citibank with the collateral required by Citibank to secure SGRF's indemnity obligations. TBIL agreed to indemnity SGRF against any expenses or losses in connection with the Citibank Guarantee and TBIL granted a fixed and floating charge in favour of SGRF over all of TBIL's assets and undertakings (the "SGRF Security"). The SGRF Security included a charge over TBIL's shares in Axis Retail, as well as over TBIL's interests (or the proceeds of any sales thereof) in various property holdings including Rodacar AD, Serdika, Axis-S Retail NV and Immofinance EAD.
As from 31 December 2009, SGRF had the right to exchange any unpaid indebtedness or liability of TBIL to SGRF for TBIL's indirect 61.8% interest in TMD unless
(i) certain conditions related to TMD's business integration and further management appointments at TMD were not satisfied by TBIL by 31 December 2009, in which case, SGRF's exchange rights would be exercisable after 31 December 2009 or
(ii) an event of default occurred under any of the agreements with SGRF, in which case, SGRF's exchange rights would become exercisable immediately. For the purposes of such exchange rights, the value of 100% of TMD was fixed at €20 million.
On 31st December 2009 TBIL, through a wholly owned subsidiary, repaid in full the €12 million bridge facility granted by a Bulgarian bank together with all outstanding interest.
Further in December 2009, Axis Retail, the parent of TMD, repaid to RZB €3 million to reduce the amount of the Citibank Guarantee. A balance of €17 million (plus accrued interest) due to be repaid to RZB by 31 December 2009 was met by RZB calling the Citibank Guarantee which, in turn, was covered by SGRF under the terms of its related counter indemnity.
Through repayments and the arrangements described above, the exposure to RZB in respect of TMD as at 31st of December 2009, was reduced from an outstanding principal amount of approximately €81 million to approximately €56 million, with loan covenants waived until 31 December 2010 and final maturity extended from three to five years, that is until 31 December 2014.
In December 2008 TBIL extended a corporate guarantee to InvestkreditBank in lieu of the senior debt in Novera AD as a part of a restructuring and standstill agreement in relation to Novera's debt obligations.
The Company completed the sale of Avto Union AD in April 2009 and this resulted in the transfer of all related debt obligations to the buyer.
TBIL is in active discussions with the lending banks for all remaining subsidiary debt related to assets over which TBIL has majority control.
Non-core asset disposal programme
As more fully described above, in 2009 TBIL sold a number of non-core holdings including its remaining investment in Uniqa AD to Uniqa International for an aggregate consideration of €23.1 million, the 80% stake in Avto Union AD for €8.0 million, various land plots for an aggregate consideration of €1.4 million, the 20% investment in the Serdika project for €1.9 million and the Rodacar AD property for €9.9 million.
TBIL has continued this process in 2010 with the sale of a number of the remaining property assets. The proceeds from these and other disposals has been used to fund TIBL's continuing operations as well as help to repay the Facility from SGRF used for the repayment of TechnomarketDomo's N.V. facilities.
The difficult current economic conditions in the South East European region continue to have a negative impact on TBIL and its subsidiaries, and the Company is not expecting a recovery in these economies until 2011 at the earliest.
Cost Savings
The Company is expecting to continue to achieve substantial cost savings in its holding company administrative costs both as a result of its non-core asset disposal programme and the reduction in the number of intermediate BVI, NV and BV companies. Simultaneously this will significantly simplify the corporate structure and enable the Company to focus on its remaining core holdings. As a result of the restructuring steps already implemented, the number of intermediary companies has been reduced by five since 31 December 2009, and by the year end the number will have been reduced by a further six intermediate or dormant companies.
The Company has also embarked on a cost savings programme within TechnomarketDomo N.V. in order to maximise operational efficiency.
Hedging
The Company and its subsidiaries maintain their existing cash balances where possible in Euro. However, the debt of the subsidiaries is largely denominated in Euro and these debts have not been hedged to local currencies. The Bulgarian Leva is pegged to the Euro and the Company expects that this peg should be maintained at the current level.
Consolidated financial statements
The consolidated financial statements and related comments in this report provide details on the major account movements since 31 December 2009. The 2008 comparative consolidated financial statements have been restated to account for the errors, which were identified during the current year (reference to paragraph Errors on pages 45-46).
Copies of the annual accounts will be available from Trans Balkan Investments Limited, c/o Hamilton Lunn, 5th Floor, Audley House, 13 Palace Street, London SW1E 5HX, UK or can be downloaded from the company's website www.transbalkaninvestmentslimited.com.
TBIL Management
15 December 2010
DIRECTOR'S REPORT
The Directors of the Company ("the Directors") present their report and consolidated financial statements for the year ended 31 December 2009.
Principal activity and incorporation
The Company is an investment holding company, incorporated on 10 December 2003 under the laws of the British Virgin Islands. The Company changed its name from Equest Investments Bulgaria Limited to Equest Investments Balkans Limited on 20 December 2006 and subsequently to Trans Balkan Investments Limited ("TBIL") on 9 February 2010.
The Company's core focus is to optimise the growth of TechnomarketDomo N.V., the Company's electronics retailer; to maximise the value of Borovets, the mountain resort development, and to sell the remaining, non-core assets.
Results and dividends
The Group's results for the year ended 31 December 2009 are set out in the Consolidated income statement and Consolidated statement of comprehensive income on page 22 and page 23.
A review of the Group's activities is contained within the Chairman's Statement and the Management's Review on pages 3 and 6 respectively.
No dividend has been declared for the year ended 31 December 2009.
Governance
The Directors recognise the value of the Principles of Good Governance and Code of Best Practice as set out in the Combined Code and, although the Company is not obliged by the AIM listing rules to do so, they intend, where appropriate, to comply with the main provisions of the Corporate Governance Code to the relevant extent, taking into account the size of the Company and the nature of its business.
Responsibilities of the Board
The Board of Directors is responsible for the determination of the strategy of the Company and for overall supervision of the objectives that have been set. The Board also has responsibility for the Company's day-to-day operations and in order to fulfil these obligations, the Board has delegated executive authority to the Directors and management of the Company.
At each of the regular Board meetings held, the financial performance of the Company is reviewed. In addition, the members of the Board receive regular reports from the management.
Directors
The current Directors are as stated below. The Directors served throughout the year unless otherwise stated.
Mr. Kieron O'Rourke resigned on 4 February 2009. Messrs. Warith Al-Kharusi, Faisal Al-Riyami, Kalim Aziz and Guido Brera were appointed on 25 February 2009, with George Krumov being re-appointed on the same day. Ian Schmiegelow was appointed Non-executive Chairman of the Company on 31 March 2009 replacing Mr. John Carrington. Mr. George Krumov and Mr. Kari Haataja resigned on 8 September 2009 and 6 November 2009 respectively. Petri Karjalainen retired by rotation at the AGM held on 6 October 2009 and was not re-elected.
The Board of the Company comprises six Non-executive Directors. Of the six Non-executive Directors, two are considered to be independent. Brief biographical details of the members of the Board are set out below:
Ian Schmiegelow (Independent Non-executive Chairman)
Mr. Schmiegelow (67) spent sixteen years with Hambros Bank where he became the Executive Director responsible for its international banking and bond issuance activity, following his studies at Cambridge University and practice in London as a barrister. Thereafter, as a Senior Vice President of First National Bank of Chicago, he directed a review of its international activities and was Chairman of the management committee responsible for the bank's operations in the UK, Europe, Middle East and Africa. Mr Schmiegelow is Chairman and Chief Executive of Hamilton Lunn which he set up, together with his then business partner, in 1988 as a regulated corporate advisory firm. Hamilton Lunn now provides corporate finance, asset management and property investment advisory and management services to its clients. Mr Schmiegelow is also a Governor of Oundle School.
Warith Al-Kharusi(Non-executive Director)
Mr. Al-Kharusi (58), a resident of Oman, joined the State General Reserve Fund of the Sultanate of Oman ("SGRF") in 1985 as the Director General and is now the Chief Executive Officer of the SGRF. He holds a Diploma in Business Administration.
Faisal Al-Riyami(Non-executive Director)
Mr. Al-Riyami (34), a resident of Oman, joined SGRF in June 2007 as the Section Head of Direct Investments of the SGRF. Prior to joining SGRF Mr. Al-Riyami spent nine years working in various corporate roles mainly in banking and later telecoms and I.T.
Kalim Aziz (Non-executive Director)
Mr. Aziz (44) joined Kairos in January 2006 and is the Co-fund Manager of the Kairos Eurasian Fund with Guido Brera, and is the primary analyst at Kairos for stocks in the Eurasian markets. Before joining Kairos, he was Head of Equity research for the EMEA Region at UniCredit Banca Mobiliare in London. Previously Mr. Aziz has specialised in Telecoms research and he held a number of senior research positions at securities houses in London and Karachi. Mr. Aziz holds a Masters in Business Administration from the University of Karachi.
Guido Brera (Non-executive Director)
Mr. Brera (41) is a Co-founder of Kairos. He graduated from Universita La Sapienza, Rome and qualified as a Dottore Commercialista (the equivalent of a chartered accountant) in 1993. In 1994, he joined Fineco SIM, concentrating on relative value trades, calendar spreads, stock index futures arbitrages and the establishment of structured products for institutional clients. In 1996, he joined Cisalpina Gestioni as manager of the Cisalpina Bilanciato and Cisalpina Indice funds. In 1997, he joined Giubergia Warburg as director, Head of Proprietary Trading, leaving to establish Kairos in early 1999. Mr. Brera has been Co-manager of Kairos Fund Limited since its inception in June 1999.
Robin James(Independent Non-executive Director)
Mr. James (65) is based in the Isle of Man and, until he retired in June 2005, was CEO of the banking and financial services group, Singer & Friedlander (Isle of Man) Holdings Limited. Mr James is currently licensed by the Isle of Man Financial Supervision Commission and is a Non-executive Director of a diverse number of companies including listed companies. Mr James spent nine years with Kleinwort Benson Limited in the UK and South Africa. He is also Chairman of the Company's Audit Committee.
Interests of the Directors in contracts with the Company
Any interests the Directors, or companies that they are connected to, had during the year under review in relation to contracts for services with the Company other than as Directors are set out in note 32 "Related party transactions" to the consolidated financial statements.
Directors' service contracts
The following Directors have entered into letters of appointment with the Company, details of which are set out below:
|
Name |
Title |
Annual remuneration |
Appointed |
Resigned |
|
Ian Schmiegelow |
Non-executive Chairman |
€40,000 |
31 March 2009 |
|
|
Warith Al-Kharusi |
Non-executive Director |
€30,000 |
25 February 2009 |
|
|
Faisal Al-Riyami |
Non-executive Director |
€30,000 |
25 February 2009 |
|
|
Kalim Aziz |
Non-executive Director |
N.A.* |
25 February 2009 |
|
|
Guido Brera |
Non-executive Director |
N.A.* |
25 February 2009 |
|
|
Robin James |
Non-executive Director |
€30,000 |
01 May 2007 |
|
* Directors have waived their right to be paid a fee in consideration for acting as a Non-executive Director of the Company.
Share capital
As at the date of this report, the Company has 18,265,890 ordinary shares of no par value in issue. The Company's ordinary shares are traded on the AIM Market operated by the London Stock Exchange plc in pounds sterling. However the Company's reporting currency is the Euro to reflect the underlying assets and liabilities in the Balkan region.
Share warrants
On 25 April 2008, as part of the reorganisation of the Company's management structure, the Company's shareholders approved the grant of warrants to Equest Capital Limited ('ECL') entitling ECL to purchase 564,925 ordinary shares in the Company. The warrants are exercisable, if and to the extent that they are still subsisting, at any time after 1 January 2009 on a condition, inter alia; that the net asset value per ordinary share reported immediately prior to the exercise of the Warrants is not less than the audited net asset value per ordinary share as at 31 December 2007. The warrants cease to be exercisable, inter alia, following a change of control of the Company. ECL is owned by Trusts set up by the former Executive Directors of TBIL, Mr. Haataja, Mr. Karjalainen and Mr. Krumov, and ECL in turn has transferred the ownership of the warrants equally to its shareholders.
The Company does not operate any employee share option schemes.
Committees
The Management Committee, which comprised Warith Al-Kharusi (Chairman), Faisal Al-Riyami, Kalim Aziz, Kari Haataja, Petri Karjalainen and George Krumov, had regular monthly or weekly meetings and maintained active participation in the execution of Company strategy and overseeing operational activities, together with the management. This committee was disbanded following changes made to the Board during the course of the year.
The Audit Committee, which comprises Faisal Al-Riyami, Robin James (Chairman) and Ian Schmiegelow, meets at least three times each year. The committee monitors the integrity of the consolidated financial statements of the Company and any formal announcements relating to the Company's financial performance. It also reviews regular reports from management and the external auditors on accounting and internal control matters. Where appropriate, the committee monitors the progress of action taken in relation to such matters.
The Operating Committee which is comprised of Ian Schmiegelow, Natalie Weedon, Zdravka Kostadinova, Elena Fournadjieva, Tero Halmari and Nina Girginova meets on average twice a month to discuss, update, prioritise and assign responsibilities for key operational issues.
The Directors also monitor and plan performance, remuneration and succession of the Board, either through board meetings or, if appropriate, through the use of appropriately constituted committees of the Board.
Auditors
A resolution will be submitted to the forthcoming Annual General Meeting of the Company to re-appoint the current auditors of the Company, for the ensuing year.
Post consolidated statement of financial position events
A summary of the significant transactions entered into by the Company and its subsidiaries subsequent to 31 December 2009 is included in note 34 of the consolidated financial statements.
Relations with shareholders
The Company is committed to maintaining an effective dialogue with its shareholders. Shareholders will have the opportunity at the Annual General Meeting of the Company to ask questions about the Company's activities and performance.
Company website
To provide a portal for investor information and in accordance with the requirements of AIM, the Company maintains a website at: www.transbalkaninvestmentslimited.com.
Annual General Meeting
The Directors are proposing a number of ordinary resolutions at the Annual General Meeting of the Company to be held in early 2011, including a resolution requesting approval of the Company's investment strategy as required under the AIM rules.
On behalf of the Board of Directors
Ian Schmiegelow
Statement of Directors' responsibilities in respect of the Annual Report and the consolidated financial statements
The Directors are responsible for preparing the Annual Report and the consolidated financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare consolidated financial statements for each financial year. Under that law the Directors have elected to prepare the consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The consolidated financial statements are required by law to give a true and fair view of the state of affairs of the Company and Group and of the profit or loss of the Group for that period.
In preparing those consolidated financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state that the consolidated financial statements comply with International Financial Reporting Standards as adopted by the European Union, subject to any material departures disclosed and explained in the consolidated financial statements;
• prepare the consolidated financial statements on a going concern basis unless it is inappropriate to presume that the group will continue in business.
The Directors confirm that they have complied with the above requirements in preparing the consolidated financial statements.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and the group and to enable them to ensure that the consolidated financial statements comply with the British Virgin Islands laws and regulations. They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the British Virgin Islands governing the preparation and dissemination of consolidated financial statements may differ from legislation in other jurisdictions.
On behalf of the Board of Directors
Ian Schmiegelow
Consolidated income statement for the year ended 31 December 2009
|
|
Notes |
|
(Restated) |
|
|
|
Year ended |
Year ended |
|
|
|
31/12/2009 |
31/12/2008 |
|
|
|
€'000 |
€'000 |
|
Revenue |
2 |
560,868 |
625,140 |
|
Cost of sales |
|
(469,871) |
(518,408) |
|
Gross profit |
|
90,997 |
106,732 |
|
|
|
|
|
|
Other operating income |
|
389 |
1,513 |
|
Administration, selling and distribution costs |
3 |
(89,685) |
(117,806) |
|
Impairment of assets |
4 |
(64,577) |
(6,228) |
|
(Loss) from fair value adjustment of investment property |
|
(7,610) |
(1,176) |
|
(Gain)/ loss on disposal of investment property |
|
3,816 |
(6,217) |
|
Gain/(loss) on sale of investments |
6 |
12,793 |
3,888 |
|
Share of post tax losses of associates and joint ventures |
16, 17 |
(10,028) |
(28,288) |
|
Operating (loss) |
|
(63,905) |
(47,582) |
|
|
|
|
|
|
Finance income |
7 |
2,135 |
3,185 |
|
Finance costs |
7 |
(10,905) |
(17,289) |
|
(Loss) before tax |
|
(72,675) |
(61,686) |
|
Taxation |
8 |
(863) |
(728) |
|
(Loss) from continuing operations |
|
(73,538) |
(62,414) |
|
Profit/(loss) on discontinued operation, net of tax |
9 |
25,308 |
(72,158) |
|
(Loss) for the year |
|
(48,230) |
(134,572) |
|
Attributable to: |
|
|
|
|
- Owners of the parent |
|
(46,143) |
(133,760) |
|
-Non-controlling interest |
|
(2,087) |
(812) |
|
|
|
(48,230) |
(134,572) |
|
Earnings per share for (loss)/ profit attributable to the equity holders of the parent during the year |
|
|
|
|
(basic and diluted) |
10 |
|
|
|
- Continued operations |
|
(3.91) |
(3.46) |
|
- Discontinued operations |
|
1.39 |
(4.05) |
|
|
|
(2.52) |
(7.51) |
|
|
|
|
|
The consolidated financial statements on pages 22 to 29 were approved and authorised for issue by the Board of Directors on 14 December 2010 and were signed on their behalf by:
|
Ian Schmiegelow |
Robin James |
|
Non-executive Chairman |
Non-executive Director |
The notes on pages 30 to 98 are an integral part of these consolidated financial statements.
Consolidated statement of comprehensive income for the year ended 31 December 2009
|
|
|
Year ended |
Year ended |
|||
|
|
|
|
|
31/12/2009 |
31/12/2008 |
|
|
|
|
€'000 |
€'000 |
|||
|
|
|
|
|
|||
|
Loss for the period |
|
(48,230) |
(134,572) |
|||
|
|
|
|
|
|||
|
Other comprehensive income |
|
|
|
|||
|
Available for sale, investment valuation loss recognized in equity |
|
(123) |
(79) |
|||
|
Exchange differences on translation |
|
(3,692) |
(11,433) |
|||
|
Other movements |
|
- |
519 |
|||
|
Other comprehensive income for the period net of tax |
|
(3,815) |
(10,993) |
|||
|
Total comprehensive income for the period |
|
(52,045) |
(145,565) |
|||
|
|
|
|
|
|||
|
Loss attributable to |
|
|
|
|||
|
Owners of the parent |
|
(48,254) |
(141,835) |
|||
|
Non-controlling interest |
|
(3,791) |
(3,730) |
|||
|
|
|
(52,045) |
(145,565) |
|||
The consolidated financial statements on pages 22 to 29 were approved and authorised for issue by the Board of Directors on 14 December 2010 and were signed on their behalf by:
|
Ian Schmiegelow |
Robin James |
|
Non-executive Chairman |
Non-executive Director |
The notes on pages 30 to 98 are an integral part of these consolidated financial statements.
Consolidated statement of financial position as at 31 December 2009
|
|
Notes |
|
(Restated) |
|
|
|
|
31/12/2009 |
31/12/2008 |
31/12/2007 |
|
|
|
€'000 |
€'000 |
€'000 |
|
ASSETS |
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Property, plant and equipment |
11 |
19,158 |
32,371 |
70,372 |
|
Investment property |
12 |
9,758 |
11,957 |
35,558 |
|
Goodwill and trademarks |
13 |
75,051 |
112,680 |
149,727 |
|
Other intangible assets |
14 |
869 |
1,040 |
20,327 |
|
Investments in equity-accounted associates |
16 |
827 |
18,313 |
16,082 |
|
Investments in equity-accounted joint ventures |
17 |
35,581 |
41,904 |
66,597 |
|
Available-for-sale investments |
|
- |
- |
16 |
|
Other receivables |
19 |
14,839 |
27,028 |
23,725 |
|
Deferred tax assets |
25 |
388 |
675 |
287 |
|
Total non-current assets |
|
156,471 |
245,968 |
382,691 |
|
Current assets |
|
|
|
|
|
Property, plant and equipment |
11 |
- |
7,069 |
- |
|
Inventories |
18 |
147,144 |
185,815 |
155,578 |
|
Trade and other receivables |
19 |
46,152 |
70,374 |
53,515 |
|
Tax receivables |
|
283 |
1,907 |
3,404 |
|
Available-for-sale investments |
|
- |
246 |
295 |
|
Cash and bank balances |
20 |
16,078 |
11,277 |
66,137 |
|
Total current assets |
|
209,657 |
276,688 |
278,929 |
|
Non-current assets classified as held for sale |
26 |
7 |
43,989 |
- |
|
Total assets |
|
366,135 |
566,645 |
661,620 |
|
LIABILITIES |
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Other payables |
21 |
344 |
- |
24,562 |
|
Loans and borrowings |
22 |
52,111 |
53,192 |
97,878 |
|
Provisions |
24 |
99 |
252 |
103 |
|
Deferred tax liability |
25 |
6,675 |
7,966 |
10,625 |
|
Total non-current liabilities |
|
59,229 |
61,410 |
133,168 |
|
Current liabilities |
|
|
|
|
|
Trade and other payables |
21 |
108,326 |
151,028 |
162,993 |
|
Loans and borrowings |
22 |
80,305 |
151,402 |
73,767 |
|
Corporation tax liability |
|
1,097 |
955 |
2,292 |
|
Provisions |
24 |
370 |
1,433 |
477 |
|
Total current liabilities |
|
190,098 |
304,818 |
239,529 |
|
Liabilities directly associated with non-current assets classified as held for sale |
26 |
42 |
35,975 |
- |
|
Total liabilities |
|
249,369 |
402,203 |
372,697 |
|
TOTAL NET ASSETS |
|
116,766 |
164,442 |
288,923 |
The notes on pages 30 to 98 are an integral part of these consolidated financial statements.
Consolidated statement of financial position as at 31 December 2009 (Continued)
|
|
Notes |
|
(Restated) |
|
|
|
|
31/12/2009 |
31/12/2008 |
31/12/2007 |
|
|
|
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
|
Capital and reserves attributable to equity holders of the parent |
|
|
|
|
|
|
|
|
|
|
|
Share capital |
29 |
253,846 |
253,846 |
242,145 |
|
Available-for-sale reserve |
|
- |
123 |
202 |
|
Warrant Reserve |
|
6,786 |
6,786 |
- |
|
Foreign exchange reserve |
|
(13,653) |
(11,665) |
(3,795) |
|
Retained earnings |
|
(133,795) |
(86,881) |
43,716 |
|
|
|
113,184 |
162,209 |
282,268 |
|
Non-controlling interest |
|
3,582 |
2,233 |
6,655 |
|
TOTAL EQUITY |
|
116,766 |
164,442 |
288,923 |
|
Total equity and liabilities |
|
366,135 |
566,645 |
661,620 |
|
|
|
|
|
|
The consolidated financial statements on pages 22 to 29 were approved and authorised for issue by the Board of Directors on 14 December 2010 and were signed on their behalf by:
|
Ian Schmiegelow |
Robin James |
|
Non-executive Chairman |
Non-executive Director |
The notes on pages 30 to 98 are an integral part of these consolidated financial statements.
Consolidated statement of changes in equity for the year ended 31 December 2008
|
|
Notes |
Share |
Available-for-sale |
Warrant |
Foreign exchange |
Retained |
Attributable to |
Non-controlling |
Total |
|
|
|
capital |
reserve |
reserve |
reserve |
earnings |
owners of the parent |
interest |
Equity |
|
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
|
For the period |
|
|
|
|
|
|
|
|
|
|
1 January 2008 to 31 December 2008 |
|||||||||
|
Balance at 1 January 2008 |
29 |
242,145 |
202 |
- |
(3,795) |
43,716 |
282,268 |
6,655 |
288,923 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
- |
- |
- |
|
(133,760) |
(133,760) |
(812) |
(134,572) |
|
Other comprehensive income/ (expense) for the year |
|
- |
(79) |
- |
(7 870) |
(126) |
(8,075) |
(2,918) |
(10,993) |
|
Total comprehensive income/(expense) for the year (restated) |
|
- |
(79) |
- |
(7,870) |
(133,886) |
(141,835) |
(3,730) |
(145,565) |
|
Issue of share capital |
|
11,701 |
- |
|
- |
- |
11,701 |
- |
11,701 |
|
Non-controlling interest removed on disposal of subsidiary |
|
- |
- |
- |
- |
- |
- |
(1,788) |
(1,788) |
|
Recognition of share based payments |
|
- |
- |
6,786 |
- |
- |
6,786 |
- |
6,786 |
|
Revaluation of shareholder loan |
|
|
|
|
|
3,289 |
3,289 |
1,096 |
4,385 |
|
Balance at 31 December 2008 (restated) |
29 |
253,846 |
123 |
6,786 |
(11,665) |
(86,881) |
162,209 |
2,233 |
164,442 |
The consolidated financial statements on pages 22 to 29 were approved and authorised for issue by the Board of Directors on 14 December 2010 and were signed on their behalf by:
|
Ian Schmiegelow |
Robin James |
|
Non-executive Chairman |
Non-executive Director |
The notes on pages 30 to 98 are an integral part of these consolidated financial statements.
Consolidated statement of changes in equity for the year ended 31 December 2009
|
|
Notes |
Share |
Available-for-sale |
Warrant |
Foreign exchange |
Retained |
Attributable to |
Non-controlling |
Total |
|
|
|
capital |
reserve |
reserve |
reserve |
Earnings |
owners of the parent |
interest |
equity |
|
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
|
For the period 1 January 2009 to 31 December 2009 |
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2009 (restated) |
29 |
253,846 |
123 |
6,786 |
(11,665) |
(86,881) |
162,209 |
2,233 |
164,442 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
|
|
|
|
(46,143) |
(46,143) |
(2,087) |
(48,230) |
|
Other comprehensive income/ (expense) for the year |
|
|
(123) |
|
(1,988) |
|
(2,111) |
(1,704) |
(3,815) |
|
Total comprehensive income/(expense) for the year |
|
|
(123) |
|
(1,988) |
(46,143) |
(48,254) |
(3,791) |
(52,045) |
|
Issue of share capital |
|
|
|
|
|
|
|
|
|
|
Non-controlling interest removed on disposal of subsidiary |
|
|
|
|
|
(585) |
(585) |
(2,615) |
(3,200) |
|
Non-controlling interest on conversion of flip up option into shares |
|
|
|
|
|
|
|
7,755 |
7,755 |
|
Revaluation of shareholder loan |
|
|
|
|
|
(186) |
(186) |
|
(186) |
|
Balance at 31 December 2009 |
29 |
253,846 |
- |
6,786 |
(13,653) |
(133,795) |
113,184 |
3,582 |
116,766 |
The consolidated financial statements on pages 22 to 29 were approved and authorised for issue by the Board of Directors on 14 December 2010 and were signed on their behalf by:
|
Ian Schmiegelow |
Robin James |
|
Non-executive Chairman |
Non-executive Director |
The notes on pages 30 to 98 are an integral part of these consolidated financial statements.
Consolidated cash flow statement for the year ended 31 December 2009
|
|
Notes |
Year ended |
Year ended |
|
|
|
31/12/2009 |
31/12/2008 |
|
|
|
€'000 |
€'000 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
(Loss)/ profit for the year |
|
(48,230) |
(134,572) |
|
Adjustments for: |
|
|
|
|
Depreciation |
3 |
6,820 |
12,556 |
|
Amortisation and impairment |
3,4 |
65,005 |
67,298 |
|
Loss from fair value adjustment of investment property |
|
7,610 |
1,176 |
|
Share based payment charge |
|
- |
18,487 |
|
Share of profit from associates and joint ventures |
16,17 |
10,028 |
28,288 |
|
Gain on disposal of: |
|
|
|
|
Subsidiaries |
|
(30,541) |
(985) |
|
Associates |
|
(7,559) |
(2,960) |
|
Investment property |
|
(3,816) |
6,217 |
|
Gain on sale of property, plant and equipment |
|
(328) |
(144) |
|
Net finance expense |
7 |
8,769 |
20,313 |
|
Net foreign exchange (gain)/losses |
|
626 |
|
|
Income tax expense |
8 |
863 |
806 |
|
Increase(decrease) in provisions |
|
(195) |
|
|
|
|
|
|
|
Cash flows from operating activities before |
|
|
|
|
changes in working capital and provisions |
|
9,052 |
16,480 |
|
|
|
|
|
|
(Increase)/decrease in trade and other receivables |
19 |
35,943 |
(2,025) |
|
Increase in inventories |
18 |
14,410 |
(44,911) |
|
(Decrease)/increase in trade and other payables |
21 |
(48,146) |
8,991 |
|
Cash generated from operations |
|
11,259 |
(21,465) |
|
|
|
|
|
|
Income taxes paid |
|
(1,388) |
(4,239) |
|
Interest paid |
|
(9,268) |
(22,373) |
|
Net cash flows from operating activities carried forward |
|
603 |
(48,077) |
The notes on pages 30 to 98 are an integral part of these consolidated financial statements.
Consolidated cash flow statement for the year ended 31 December 2009 (Continued)
|
|
Notes |
Year ended |
Year ended |
|
|
|
31/12/2009 |
31/12/2008 |
|
|
|
€'000 |
€'000 |
|
Cash (outflow)/inflow from operating activities |
|
603 |
(48,077) |
|
Cash flows from investing activities |
|
|
|
|
Acquisition of subsidiary, net of cash acquired |
|
|
(21,272) |
|
Disposal of subsidiary, net of cash disposed |
|
4,058 |
6,519 |
|
Disposal of associates |
16 |
10,140 |
1,259 |
|
Purchase of other intangibles |
14 |
(300) |
(691) |
|
Settlement of earn out consideration |
|
(3,592) |
|
|
Sale of other intangibles |
|
|
105 |
|
Capitalised additions to development property |
|
|
(10,613) |
|
Sale of development property |
|
|
2,606 |
|
Sale of investment property |
|
9,566 |
821 |
|
Purchases of other property, plant and equipment |
11 |
(3,420) |
(16,453) |
|
Sale of other property, plant and equipment |
|
57 |
2,331 |
|
Purchases of available-for-sale financial assets |
|
|
(14) |
|
Investment in restricted cash |
|
|
(1,306) |
|
Interest received |
|
2,990 |
|
|
Loans granted |
|
(13,036) |
(14,848) |
|
Repayment of loans granted |
|
13,932 |
- |
|
|
|
|
|
|
Net cash (outflow) from investing activities |
|
20,395 |
(51 556) |
|
Cash flows from financing activities |
|
|
|
|
Proceeds from bank borrowings |
|
7,786 |
34,176 |
|
Proceeds from other loans |
|
7,200 |
16,168 |
|
Repayment of bank loans |
|
(27,200) |
|
|
Repayment of other loans |
|
|
(16,222) |
|
Repayment of finance lease creditors |
|
(1,036) |
(4,667) |
|
|
|
|
|
|
Net cash inflow from financing activities |
|
(13,250) |
29,455 |
|
|
|
|
|
|
Net (decrease) in cash and cash equivalents |
|
7,748 |
(70,178) |
|
Cash and cash equivalents at beginning of year |
|
(4,507) |
66,137 |
|
Foreign exchange (losses) on cash and cash equivalents |
|
(138) |
(466) |
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
3,103 |
(4,507) |
The consolidated financial statements on pages 22 to 29 were approved and authorised for issue by the Board of Directors on 14 December 2010 and were signed on their behalf by:
|
Ian Schmiegelow |
Robin James |
|
Non-executive Chairman |
Non-executive Director |
The notes on pages 30 to 98 are an integral part of these consolidated financial statements.
Statement of accounting policies and notes to the consolidated financial statement
For the year ended 31 December 2009
1.1 General information
Trans Balkan Investments Limited (formerly known as Equest Investment Balkans Ltd), a company incorporated in the British Virgin Islands, ("the Company") and its subsidiaries (together "the Group") is an investment holding company with a portfolio of retail and property development investments in South East Europe. (See note 6 and 15 for subsidiary details). The Company commenced operations on 14 April 2004. The shares of the Company were first listed on the Irish Stock Exchange on 19 April 2004. On 20 December 2006 the shares of the Company were listed on the AIM Market of the London Stock Exchange (''AIM'). The company delisted from the Irish Stock Exchange on 17 June 2009 as part of the reorganisation of the management of the Company and the transition of the Company from an investment fund to an investment holding company. The principal activities of the Group are described in note 5.
The company changed its name to Trans Balkan Investments Limited on 9 March 2010.
The shares were suspended from trading on 30 June 2010 as the underlying operating companies were unable to complete their year-end audits by 30 June 2010.
1.2 Basis of preparation
The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), issued by the International Accounting Standards Board ("IASB") as adopted by the European Union.
The consolidated financial statements have been prepared on the historical cost basis except for the revaluation of certain non-current assets and financial instruments. The principal accounting policies are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.
1.3 Basis of consolidation
Where the Group has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The consolidated financial statements present the results of the company and its subsidiaries as if they formed a single entity. Intercompany transactions and balances between Group companies are eliminated in full.
Non-controlling interests in subsidiaries are identified separately from the Group's equity therein. The interests of non-controlling shareholders may be initially measured at fair value or at the non-controlling interests' proportionate share of the fair value of the acquirer's identifiable net assets. The choice of measurement basis is made on an acquisition-by-acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity.
Where losses applicable to the non-controlling shareholders exceed the non-controlling interest in the equity of the relevant subsidiary, the excess, and any further losses attributable to the non-controlling interests, are charged to the group. Where excess losses have been taken up by the group, if the subsidiary in question subsequently reports profits, all such profits are attributed to the group until the non-controlling interests' share of losses previously absorbed by the group has been recovered.
Where the Group's interest in a subsidiary decreases, but does not result in a loss of control, the sale is treated as a deemed disposal to non-controlling interests and is recognised as a partial disposal of the subsidiary. Any resulting gain or loss is recognised as a profit or loss. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in subsidiaries.
Where the Group has the power to participate in, but not control the financial and operating policy decisions of another entity, it is classified as an associate. An investment of 20% - 50% in the voting rights of an entity is an indicator of such significant influence being applicable. Associates are initially recognised in the consolidated statement of financial position at cost. The Group's share of post-acquisition profits and losses is recognised in the consolidated income statement, except those losses in excess of the Group's investment in the associate. These are not recognised unless the Group is liable for these losses.
Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors' interests in the associate. The investor's share in the associate's profits and losses resulting from these transactions is eliminated against the carrying value of the associate.
Any premium paid for an investment in an associate above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. The carrying amount of the investment in an associate is subject to impairment testing at the end of each reporting period to determine whether there is any objective evidence to recognise any additional impairment loss. See note 16 Investments in associates for details .
Where the Group has joint control with at least one other investor over the financial and operating policy decisions of another entity, it is classified as a jointly controlled entity ("JCE"). See note 17 for details on investments in joint ventures. JCEs are accounted for using the equity method as follows:
- JCEs are initially recognised in the consolidated statement of financial position at cost. The Group's share of post-acquisition profits and losses is recognised in the consolidated income statement, except those losses in excess of the Group's investment in the JCE. These are not recognised unless the Group is liable for these losses.
- Profits and losses arising on transactions between the Group and its JCEs are recognised only to the extent of unrelated investors' interests in the JCE. The investor's share in the associate's profits and losses resulting from these transactions is eliminated against the carrying value of the JCE.
- Any premium paid for a JCE above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the JCE. The carrying amount of the investment in a JCE is subject to impairment testing when there is an indication that impairment could exist.
1.4 Adoption of new and revised International Financial Reporting Standards (IFRSs)
1.4.1 Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)
The following new and revised Standards and Interpretations have been adopted in the current period and have affected the amounts reported in these consolidated financial statements. Details of other Standards and Interpretations adopted in these consolidated financial statements but that have had no effect on the amounts reported are set out in section
1.4.2. Standards affecting presentation and disclosure
· IAS 1 Presentation of Financial Statements (as revised in 2007); effective for annual periods beginning on or after 1 January 2009. The main change in IAS 1 is the replacement of the income statement by a statement of comprehensive income which will also include all non-owner changes in equity, such as the revaluation of available for sale financial assets. Alternatively, entities will be allowed to present two statements: a separate income statement and a statement of comprehensive income. The revised IAS 1 also introduces a requirement to present a statement of financial position at the beginning of the earliest comparative period whenever the entity restates comparatives due to reclassifications, changes in accounting policies, or corrections of errors.
· IFRS 8 Operating Segments; effective for annual periods beginning on or after 1 January 2009. IFRS 8 is a disclosure Standard that has resulted in re-designation of the Group's reportable segments (see note 5).
Amendments to IAS 40 Investment Property
As part of Improvements to IFRSs (2008), IAS 40 has been amended to include within its scope investment property in the course of construction. Therefore, following the adoption of the amendments in line with the Group's general accounting policy, investment property under construction is measured at fair value (where that fair value is reliably determinable), with changes in fair value recognised as a profit or loss.
This will result in a reclassification from IAS 16 to IAS 40 and thus in 2009 the change in fair value will be reported under gain/loss from fair value adjustments to property assets while in 2008, these valuation changes were included in impairment of assets. The change has been applied prospectively from 1 January 2009 in accordance with the relevant transitional provisions, resulting in a transfer from property, plant and equipment to investment property at its previous carrying amount of €10,893,000 (as disclosed in Note 12). The loss from the fair value adjustment of investment property, recognised in profit and loss in 2009, directly attributable to these assets is €3,461,000.
1.4.3 Standards and Interpretations adopted with no effect on the financial statements
The following new and revised Standards and Interpretations have also been adopted in these consolidated financial statements. The adoption has had no significant impact on the amounts reported in these consolidated financial statements but may affect the accounting for future transactions or arrangements.
· IAS 23 Borrowing costs (as revised in 2007). The main change to the Standard was to eliminate the option to expense all borrowing costs when incurred. This change has had no impact on these consolidated financial statements because it has always been the Group's policy to capitalise borrowing costs incurred on qualifying assets.
· Amendments to IAS 31 Financial Instruments: Presentation and IAS 1 Presentation of Financial statements - Puttable Financial Instruments and Obligations arising on Liquidation. The revisions to IAS 32 amend the criteria for debt/equity classification by permitting certain puttable financial instruments (or components of instruments) that impose on an entity an obligation to deliver to another party a pro-rata share of net assets of the entity only on liquidation, to be classified as equity, subject to specified criteria being met.
· Amendments to IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items. The amendments provide clarification on two aspects of hedge accounting: identifying inflation as a hedged risk or portion, and hedging with options.
· IFRIC 15 Agreements for the Construction of Real Estate. The interpretation addresses how entities should determine whether an agreement for the construction of real estate is within the scope of IAS 11 Construction Contracts or IAS 18 Revenue and when revenue should be recognised. The requirements have not affected the accounting for the Group's construction activities.
· Improvements to IFRS. In addition to the changes affecting amounts reported in the financial statements described at 1.3.1 above, the Improvements have led to a number of changes in the detail of the Group's accounting policies - some of which are changes in terminology only, and some of which are substantive but have had no material effect on amounts reported. The majority of these amendments are effective from 1 January 2009.
1.4.4 Future changes in accounting policies
Standards, amendments and interpretations to published standards not yet effective
Certain new standards, amendments and interpretations to existing standards applicable to the Group's operations have been issued, but are not effective at 31 December 2009.
The following standards, amendments and interpretations to published standards adopted by the European Union were in issue, but not yet effective, for annual accounting periods beginning on or after 1 January 2009:
· IFRS 3 (revised) "Business combinations" adopted by the EU on 3 June 2009 (effective for annual periods beginning on or after 1 July 2009)
· Amendments to IFRS 2 "Share-based Payment" - Group cash-settled share-based payment transactions adopted by the EU on 23 March 2010 (effective for annual periods beginning on or after 1 January 2010)
· IAS 27 "Consolidated and Separate Financial Statements" adopted by the EU on 3 June 2009 (effective for annual periods beginning on or after 1 July 2009)
· Amendments to IAS 39 "Financial Instruments: Recognition and Measurement" - Eligible hedged items, adopted by the EU on 15 September 2009 (effective for annual periods beginning on or after 1 July 2009)
· Amendments to various standards and interpretations "Improvements to IFRSs (2009)" resulting from the annual improvement project of IFRS published on 16 April 2009, adopted by the EU on 23 March 2010 (IFRS 2, IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 18, IAS 36, IAS 38, IAS 39, and IFRIC 9) primarily with a view to removing inconsistencies and clarifying wording, adopted by the EU on 23 March 2010 (effective for annual periods beginning on or after 1 January 2010)
· IFRIC 12 "Service Concession Arrangements" adopted by the EU on 25 March 2009 (effective for annual periods beginning on or after 30 March 2009)
· IFRIC 15 "Agreements for the Construction of Real Estate" adopted by the EU on 22 July 2009 (effective for annual periods beginning on or after 1 January 2010)
· IFRIC 17 "Distributions of Non-Cash Assets to Owners" adopted by the EU on 26 November 2009 (effective for annual periods beginning on or after 1 November 2009)
· IFRIC 18 "Transfers of Assets from Customers" adopted by the EU on 27 November 2009 (effective for annual periods beginning on or after 1 November 2009)
· IFRS 5 (Amendment) Non Current Assets Held for Sale and Discontinued Operations as a result of Improvements to International Financial Reporting Standards 2008 (effective 1 July 2009)
· Amendments to IAS 24 "Related Party Disclosures" - Simplifying the disclosure requirements for government-related entities and clarifying the definition of a related party, adopted by the EU on 19 July 2010 (effective for annual periods beginning on or after 1 January 2011)
· Amendments to IAS 32 "Financial Instruments: Presentation" - Accounting for rights issues, adopted by the EU on 23 December 2009 (effective for annual periods beginning on or after 1 February 2010)
· Amendments to IFRIC 14 "IAS 19 - The Limit on a defined benefit Asset, Minimum Funding Requirements and their Interaction" - Prepayments of a Minimum Funding Requirement, adopted by the EU on 19 July 2010 (effective for annual periods beginning on or after 1 January 2011)
· IFRIC 19 "Extinguishing Financial Liabilities with Equity Instruments", adopted by the EU on 23 July 2010 (effective for annual periods beginning on or after 1 July 2010)
The Group is currently assessing the impact of these new standards and changes on the consolidated financial statements. The Group has decided not to early adopt any of the above amendments as they are not expected to have a significant impact on the reported results of the Group.
Standards and Interpretations issued by IASB but not yet adopted by the EU
Currently, IFRS as adopted by the EU do not significantly differ from regulations adopted by the International Accounting Standards Board (IASB) except from the following standards, amendments to the existing standards and interpretations, which were not endorsed for use as at 15 October 2010 of the consolidated financial statements:
· IFRS 9 "Financial Instruments" (effective for annual periods beginning on or after 1 January 2013)
· Amendments to various standards and interpretations "Improvements to IFRSs (2010)" resulting from the annual improvement project of IFRS published on May 2010 (IFRS 1, IFRS 3, IFRS 7, IAS 1, IAS 27, IAS 34, IFRIC 13) primarily with a view to removing inconsistencies and clarifying wording (most amendments are to be applied for annual periods beginning on or after 1 January 2011)
1.5 Accounting policies
Revenue
The Group earns revenue through the sale of goods, rendering of services, the sale of development property, interest income and through the receipt of dividends. Development property is property, plant and equipment which are in the process of being developed with the intention to sell in the future.
Revenue Recognition
Revenue is recognised to the extent that it is probable that future economic benefits will flow to the Group and the revenue can be reliably measured. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. Revenue is measured at the fair value of the consideration received or receivable for the sale of goods and rendering of services in the ordinary course of the Group's activities. Revenue is shown net of value-added tax, returns, rebates and discounts. The following specific recognition criteria must also be met before revenue is recognised:
Sale of goods:Revenue from the sale of goods is recognised when the following conditions are satisfied:
· the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
· the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
· the amount of revenue can be measured reliably;
1.5 Accounting policies (continued)
· it is probable that the economic benefits associated with the transaction will flow to the entity; and
· the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Rendering of services:The amount of the income in respect of the concession contracts for waste collection is recognised as income for the period in which the cleaning and transportation of waste were provided based on certified handover protocols. The revenue received from these concession rights has been included in discontinued operations. See note 13 (goodwill and Trademarks) and 9 (Discontinued operations). Rendering of other services i.e. repair of electronic appliances are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
Sale of development properties: Revenue from sale of development properties is recognised on the completion of the sale contract.
Dividend revenue: Dividend revenue from investments is recognised when the shareholder's right to receive payment has been established.
Interest income: Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assets net carrying amount on initial recognition.
Rental income:Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease term.
Foreign currency
(a) Functional and presentation currency
Items included in the consolidated financial statements of each Group entity are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The consolidated financial statements are presented in Euros, which is Company's presentation currency. The functional currency of each entity within the Group is a key judgement of management and the Directors. This judgement prioritises primary factors, such as the source of competitive forces and the denomination of sales prices and input costs, over secondary considerations such as the source of financing, in accordance with IAS21. These considerations indicate that the functional currencies of the Balkan trading entities are local currencies, the currency of the country in which the subsidiary operates, which for a significant proportion of the Group is the Bulgarian Lev, and the functional currency of the holding and intermediary holding companies is the Euro. The value of the Bulgarian Lev was fixed at 1 January 1999 at a rate of 1.95583 BGN: 1 EUR.
(b) Transactions and balances
Foreign currency transactions, transactions denominated in a currency which is different to that of the functional currency, are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Non-monetary items carried at fair value, which are denominated in foreign currencies, are translated at the rates prevailing at the date when the fair value was determined and the gain or loss is recognised in the income statement except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
(c) Group companies
The result and financial position of the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
(i) Assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate at the end of the reporting period;
(ii) Income and expenses for each income statement are translated at average exchange rates (unless this average is
not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates of the transactions); and
(iii) All resulting exchange differences are recognised in other comprehensive income and accumulated in equity and attributed to non-controlling interests as appropriate.
When a foreign operation is sold, all accumulated exchange differences in respect of that foreign operation attributable to the Group are reclassified to profit or loss.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.
Expenses recognition
Expenses are recognised when a decrease in future economic benefit related to a decrease in an asset or an increase of a liability has arisen that can be reliably measured. An expense is recognised immediately when an expenditure produces no future economic benefits. An expense is also recognised when a liability is incurred without the recognition of an asset,as when a liability under a product warranty arises.
Matching of costs with revenues: Expenses are recognised on the basis of a direct association between the cost incurred and the earning of specific items of income.
Borrowing costs
Interest incurred on the bank loans used to fund the construction of investment property is capitalised as part of its cost, net of interest received on cash drawn down, yet to be expended. The Group does not incur any other interest costs that qualify for capitalisation under IAS 23 'Borrowing costs' and other interest costs are therefore recognised as an expense when incurred.
Warrants
The Group has made use of warrants (equity-settled share-based payments) to compensate the Group's investment manager under the terms of the Termination Agreement (see details in Note 30).The fair value of the warrants issued is measured at grant date and is charged to the income statement and accounted for as an increase to the Group's share capital at the time that the services are provided to the Group in accordance with IFRS 2. The fair value of the warrants has been determined by a third party advisor using the Black-Scholes model.
The share price volatility was assumed to be equal to 5% and the risk free rate of return was assumed to be 5.6%. The warrants in issue are exercisable for nil consideration and as such no adjustment is made on exercise. Where the exercise of the warrants is contingent on certain conditions, an adjustment for the amount charged to the income statement is
made if those conditions are not met. These warrants are recorded as equity in accordance with IFRS2 as they will be settled for a fixed number of the Group's own equity shares.
Taxation
(a) Current income tax
There is no liability for income tax in the British Virgin Islands. The Group is liable for tax in the Netherlands Antilles, the Netherlands, Bulgaria and Romania on the activity of its subsidiaries. The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expenditure that are taxable or deductible in other periods and it also excludes items that are not taxable or deductible. The Group's liability for current tax is calculated using tax rates applicable at the consolidated statement of financial position date.
(b) Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:
- the initial recognition of goodwill;
- the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and
- investments in subsidiaries, associates and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the consolidated statement of financial position date and are expected to apply when the deferred tax liabilities/assets are settled/recovered. Deferred tax relating to items recognised directly in equity is recognised in equity and not in the income statement.
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:
- the same taxable Group company; or
- different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.
Segment reporting
An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's chief operating decision maker and for which discrete financial information is available.
The Group adopted IFRS 8 on operating segments during the current year 31 December 2009. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the strategic decision makers- being the TBIL Board of Directors.
Dividends
Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when the dividends are declared by the Directors. In the case of final dividends, this is when the dividends are approved by the shareholders at the Annual General Meeting.
Business combinations
The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated statement of financial position, the acquirer's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained.
Goodwill
Goodwill arising in a business combination is recognised as an asset at the date that control is acquired i.e. the acquisition date. Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair values of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition.
Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated income statement on the acquisition date.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised within provisions.
Freehold land is not depreciated.
Plant, machinery, motor vehicles and other equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is provided on all other items of property, plant and equipment to write off the carrying value of items over their expected useful lives. It is applied on a straight-line basis over the following periods:
|
Class |
Years |
|
|
|
|
Freehold buildings |
25-40 |
|
Plant, machinery and motor vehicles |
2-10 |
|
Fixtures, fittings, equipment |
Over the lease period or 2-15 |
The assets' residual values, useful economic lives and methods of depreciation are reviewed at each financial year end and adjusted if appropriate. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.
Leases
Group as a lessee:Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a "finance lease"), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased asset and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated income statement over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.
Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease"), the total amount of rentals payable under the lease is charged to the consolidated income statement on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.
The land and buildings elements of property leases are considered separately for the purposes of lease classification.
Group as a lessor:Leases where the Group does not transfer substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income.
Investment property
Property that is held for rental, yields capital appreciation or both (including property held under construction for such purposes), and that is not occupied by the Group or held for sale is classified as investment property. The Group has elected to use the fair value model to measure investment property after initial recognition.
Development property held for sale is classified as inventory.
Investment property comprises freehold land and freehold buildings. Investment property is measured initially at its cost, including related transaction costs and subsequently re-valued at the consolidated statement of financial position date to fair value.
Subsequent expenditure is charged to the asset's carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred.
Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. These valuations are prepared annually by CB Richard Ellis, independent professionally qualified valuers. The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property.
Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active continues to be measured at fair value. Changes in fair values of investment property are recorded in the income statement. Depreciation is not provided in respect of investment properties.
Rent receivable is spread on a straight-line basis over the period of the lease. Where an incentive (such as a rent free period) is given to a tenant, the carrying value of the investment property excludes any amount reported as a separate asset as a result of recognising rental income on this basis.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Intangible assets are recognised if it is probable that economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably. The cost of intangible assets acquired in a business combination is measured at the fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses.
The useful lives of intangible assets are assessed to be finite or indefinite.
Intangible assets with finite lives are amortised over the period of their useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and treated as a change in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset.
Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset and is recognised in the income statement when the asset is derecognised.
Amortisation is calculated on a straight-line basis over the estimated useful life of the intangible assets. The useful life of the intangible assets is as follows:
|
Class |
Years |
|
|
|
|
Trademarks |
Indefinite |
|
Software |
2 - 7 |
|
Concessions |
Contract life |
Impairment of tangible and intangible assets excluding goodwill
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.
Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
When an impairment loss subsequently reverses, the carrying amount of the asset or cash generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash generating unit in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
Financial assets
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs.
The Group classifies its financial assets into one of the two categories discussed below, depending on the purpose for which the asset was acquired. Management determines the classification of its financial assets at initial recognition.
a) Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise through the provision of goods and services to customers and also incorporate other types of contractual monetary assets such as loans to related parties. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty, default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms of the receivable. The amount of such a provision is the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. Assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis.
Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions. For trade receivables, which are reported net of any provision for impairment; such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the allowance for trade receivables.
Cash and cash equivalents comprises cash in hand, deposits held on call with banks and other short term highly liquid investments with original maturities of three months or less. Bank overdrafts are not included in the cash and bank balances on the consolidated statement of financial position. Bank overdrafts are included in the cash and cash equivalents on the consolidated cash flow statement.
TheGroup's loans and receivables comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position.
b) Available-for-sale financial assets: Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise principally the Group's strategic investments in entities not qualifying as subsidiaries or joint venture's associates. They are carried at fair value with changes in fair value recognised in other comprehensive income and accumulated in a separate component of equity (available-for-sale reserve). Where there is a significant or prolonged decline in the fair value of an available-for-sale financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously charged to other comprehensive income, is reclassified from equity to profit and loss account as reclassification adjustment. Purchases and sales of available-for-sale financial assets are recognised on the settlement date with any change in fair value between trade date and settlement date being recognised in the available-for-sale reserve. On sale, the amount held in the available-for-sale reserve associated with that asset is removed from other comprehensive income and recognised in profit and loss for the period. Returns on corporate securities classified as available-for-sale are recognised in the income statement.
Financial liabilities and equity instruments issued by the Group
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.
Fair value through profit or loss
Financial liabilities are classified as fair value through profit or loss when the financial liability is either held for trading or is designated as fair value through profit or loss.
A financial liability is held for trading if:
- It has been acquired principally for the purpose of repurchasing it in the near future; or
- On initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short term profit-taking; or
- It is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading may be designated as at fair value through profit or loss upon initial recognition if:
- Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
- The financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
- It forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and measurement permits the entire combined contract to be designated as at fair value through profit
Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss.
Other financial liabilities
Loans and borrowings
All loans and borrowings are initially recognized at fair value less directly attributable transaction costs, and have not been designated 'as at fair value through profit or loss'. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost with the interest expense recognised on an effective yield basis. Gains and losses are recognised in the income statement when the liabilities are derecognised. Loans and borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the consolidated statement of financial position date.
Trade and other payables
Trade and other payables are non-interest bearing and are normally settled on 45-day terms. Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Derecognition of financial assets and liabilities
Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:
· the rights to receive cash flows from the asset have expired;
· the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass through' arrangement; or
· the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group's continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
When continuing involvement takes the form of a written and/or purchased option (including a cash settled option or similar provision) on the transferred asset, the extent of the Group's continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash settled option or similar provision) on an asset measured at fair value, the extent of the Group's continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.
Inventories
Inventories, including properties held for resale, are initially recognised at cost, and subsequently at the lower of cost and net realisable value using the weighted average cost formula. Cost comprises all costs of purchases, custom duties and other direct costs incurred in bringing the inventories to their present location and condition. Borrowing costs related to the development properties are capitalized. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make a sale.
Non-current assets held for sale ( disposal groups) and discontinued operations
Non-current assets and disposal groups are classified as held for sale when:
- they are available for immediate sale in its present condition;
- management is committed to a plan to sell;
- it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn;
- an active programme to locate a buyer has been initiated;
- the asset or disposal group is being marketed at a reasonable price in relation to its fair value; and
- a sale is expected to complete within 12 months from the date of classification.
Non-current assets and disposal groups classified as held for sale are measured at the lower of:
- their carrying amount immediately prior to being classified as held for sale in accordance with the Group's accounting policies; and
- fair value less costs to sell.
Following their classification as held for sale, non-current assets (including those in a disposal group) are not depreciated.
The results of operations disposed during the year are included in the consolidated income statement up to the date of disposal.
A discontinued operation is a component of the Group's business that represents a separate major line of business or geographical area of operations or a subsidiary acquired exclusively with a view to resale, that has been disposed of, has been abandoned or that meets the criteria to be classified as held for sale.
Profit or loss from discontinued operations, including prior year components of profit or loss, is presented in a single amount in the income statement. This amount comprises the post-tax profit or loss of discontinued operations and the post-tax gain or loss resulting from the measurement and disposal of assets classified as held for sale.
Provisions and Contingent liabilities
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the time value of money is material, provisions are discounted at a pre-tax rate reflecting current market assessments of the time value of money and the risks specific to the liability.
Where the Group has a possible obligation as a result of a past event that may, but probably will not result in an outflow of economic benefits, then no provision is made. Disclosures are made of the contingent liability including where practicable an estimate of the financial effect, uncertainties relating to the amount or timing and the possibility of any reimbursement.
Errors
Prior period errors are omissions from and misstatements in the Group's consolidated financial statements for one or more prior periods arising from a failure to use, or the misuse of, reliable information that was available when consolidated financial statements for those periods were authorised for issue and could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those consolidated financial statements.
During 2007, TBIL 'pushed down' debt to TMD, thereby decreasing the non-controlling interest of the non-controlling shareholder. As compensation for taking on this liability, TBIL agreed to pay the non-controlling shareholder €7,496,500.
During the current financial year the Group identified that this liability was settled by transferring 955,000 of TBIL's shares in TMD to the non-controlling shareholder at 31 December 2008 and not in March 2009. The 2008 comparative consolidated financial statements have been restated to account for this error. The effect of the restatement has been summarised below:
|
Effect on the statement of total comprehensive income |
|
|
|
2008 |
|
|
€'000 |
|
Increase in gain/(loss) on disposal of subsidiaries and associates (note 6) |
4,220 |
|
|
4,220 |
|
|
|
|
Effect on the consolidated statement of financial position |
|
|
|
2008 |
|
|
€'000 |
|
Total Assets |
|
|
Decrease in goodwill and trademarks (note 13) |
2,773 |
|
|
2,773 |
|
1.5 Accounting policies (continued)
Errors (continued) |
|
|
Total Equity and Liabilities |
|
|
Decrease in trade and other payables |
7,496 |
|
Increase in foreign exchange reserves |
(645) |
|
Increase in retained earnings |
(4,061) |
|
Increase in non-controlling interest |
(17) |
|
|
2,773 |
|
Effect on the earnings per share |
|
|
Decrease of total loss (continued and discontinued operations) |
4,220 |
|
Increase of total earnings per share |
0,24 |
|
Increase of earnings per share related to continuing operations |
0,24 |
During the current financial year the Group identified that bank overdrafts in 2008 are not included as a component of cash and cash equivalents in the Consolidated cash flow statement. The 2008 comparative consolidated cash flow statement has been restated to account for this error. The effect of the restatement is a decrease in cash and cash equivalents and cash inflows from financing activities at the end of the year by €17,450,000 in the consolidated cash flow statement.
As of December 31, 2008 the Group has presented within investments in joint ventures a loan with carrying amount of €7 500 000. During 2009 the Group has reconsidered the presentation and has reclassified the loan from investments in joint ventures to trade and other receivables. The 2008 comparative consolidated financial statements have been restated to reflect this reclassification.
1.6 Critical accounting estimates and judgements
The Group makes certain estimates and judgements regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under current circumstances. In the future, actual experience may differ from these estimates and judgements. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Judgements
(a) Going concern
In assessing the going concern basis of preparation of the consolidated financial statements for the year ended 31 December 2009, the Directors have taken into account the status of current negotiations on the sale of properties and investments. The Group's forecasts and projections have been prepared by reference to the economic environment and its challenges and the uncertainties surrounding the sale of TMD as described below. These forecasts take into account possible changes in trading performance, potential sales of investments and properties and the future financing of the Group. Subject to the considerable uncertainties inherent in the circumstances outlined below, the Directors consider that the Group will have sufficient facilities for its ongoing operations.
As disclosed in note 32 Related party transactions, the parent company TBIL has entered into a commercial agreement (the" Commercial Agreement") with its largest shareholder, the State General Reserve Fund of the Sultanate of Oman ("SGRF"). According to the Commercial Agreement, TBIL is required to comply with certain covenants, part of which have been asserted by SGRF as not having been complied with as of 31 December, 2009 and subsequently in case of non-compliance, SGRF has the right to acquire TBIL's equity interest in one of its
subsidiaries "TechnomarketDomo N.V." ("TMD") for € 12.4 million. In February 2010 SGRF had notified the Group that SGRF's exchange rights under the agreement had become exercisable and that SGRF had reserved its position.
As further disclosed in note 34 Events after the reporting date, in October 2010 TBIL entered into an amendment agreement with SGRF (the "Amendment Agreement"). Under the Amendment Agreement SGRF agreed to defer for twelve months from the date of the Amendment Agreement, the exercise of its right to acquire TBIL's interests in TMD, which SGRF has asserted it is entitled to exercise immediately pursuant to the terms of the Commercial Agreement. The deferral of its right is provided by SGRF so as to afford TBIL an opportunity to sell its interest in TMD and to participate in the proceeds from such sale in exchange for the payment of certain fees and other sums. If the net proceeds of the sale of TBIL's indirect interest in TMD are insufficient to satisfy the amounts due to SGRF, including those arising from the Amendment Agreements by the end of the extended period as per the Amendment Agreement, SGRF may exercise the right to acquire TBIL's indirect interest in TMD and will continue to be entitled to the fee of €8.5 million (note 34)
As disclosed in note 22 to the consolidated financial statements certain ring fenced Group subsidiaries, were not able to repay the due principal and interest per bank loans, provided by DSK Bank and Alpha bank. As a result during 2009 the construction works on the two main real estate projects (Sozopolis and Banya) were halted. The Directors and the banks are in discussions in respect to the future of these projects. Up to the date of authorization of the accompanying consolidated financial statements by the Directors, these discussions have not yet been finalized. Consequently, the Group is restricted from selling its main properties in Sozopolis and Banya by its bank creditors. Also, according to the Commercial Agreement and the Amendment Agreement, certain assets cannot be sold without prior written consent from SGRF.
Accordingly, the Group's forecasts and projections to October 2011 are substantially dependent on the expected proceeds from the sale of TMD following the implementation of the Amendment Agreement. The Directors have made assumptions in their financial forecasts regarding the expected sale proceeds. However, there are material uncertainties underlying these assumptions due to the current testing economic conditions and challenging markets as well as the conditions and the unpredictable nature of the expected sale proceeds and the related costs of disposal. These material uncertainties together with the time constraints imposed by the Amendment Agreement, could have a significant impact on the Group's ability to continue as a going concern and, therefore it may be unable to realize its assets and discharge its liabilities when they fall due. The consolidated financial statements do not include any adjustments that may be required in the event that the Group is unable to continue as a going concern.
(b) Estimate of fair value of properties
The best evidence of fair value is current prices in an active market for comparable properties. In the absence of such information, the Group determines the amount within a range of reasonable, fair value estimates. In making its judgement, the Group considers information from a variety of sources and engages external, professional advisers to carry out third party valuations of its properties. These are completed in accordance with the appropriate sections of the current Practice Statements contained in the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards, 6th Edition (the "Red Book"). This is an internationally accepted basis of valuation. In completing these valuations the valuer considers the following:
· current prices in an active market for properties of a different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences;
· recent prices of similar properties in less active markets, with adjustments to reflect any changes in
· economic conditions since the date of the transactions that occurred at those prices; and
· discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.
(c) Contingent liability on purchase and 100% consolidation of Domo Retail
|
As at 31 December 2007, the Group had a contingent liability to the vendors which was due if Domo Retail SA achieves certain revenue and profitability targets. The present value of the liability as at 31 December 2007, based on the fact that Domo Retail SA achieved all its goals, was €11,865,000. This earn out is based on the annual accounts 2007 of Domo Retail SA. This earn out was paid in 2008 up to a remaining obligation of €3,592,000 as per 31 December 2008, which was paid in 2009. |
|
|
|
In addition, the Group has a financial liability which, at a present value at 31 December 2008, was €20,384,000 (2007: €24,250,000). This liability is based on fair value of 13% of the TMD shares. |
|
|
|
In terms of management judgement, the contingent liability and the financial liability have been considered deferred consideration under IFRS 3, Business combinations. Any subsequent adjustments to these values within one year from the acquisition date will therefore be recorded as an adjustment to goodwill. |
|
|
|
On 31 March 2009 a flip-up option was exercised whereby the former Domo Retail SA owners exchanged their remaining holding of 25% in Domo Retail SA for 13% of the shares of TMD. Consequently, the financial liability of €20,385,000 was credited to share premium.
|
Management have deemed that exercise by either party of the put or call option is virtually certain and therefore Domo Retail is accounted for as a 100% subsidiary, even though legally TMD owns only 75%.
(d) Loss of control of Novera AD
On the 13 March 2009 the municipality of Sofia sent a termination letter to Novera's Group of Companies which had concession rights for waste collection until October 2014. The termination letters had immediate effect and resulted in the termination of the concession agreements between the companies and the municipality. As a result, a decision was taken at the General Shareholders Meeting on the 13 July 2009 for the termination of Novera AD and its liquidation. The Novera Group of companies has thus been de-consolidated as, at that date, management deemed this to be the date of loss of control (please refer to note 4 and note 9).
Estimates and assumptions
(e) Impairment of goodwill, other intangibles and non-financial assets
The Group is required to test, on an annual basis, whether goodwill, other intangibles and non-financial assets have suffered any impairment. Where the recoverable amount is determined based on value in use calculations, the use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows.
Discount rates incorporate estimates of risk factors specific to each cash generating unit. A range of discount rates could be considered reasonable given the subjectivity of these inputs, and the impact that the choice of rate has on the quantum or existence of impairment may be material. Further information on impairment is provided in note 4.
(f) Determination of fair values of intangible assets acquired and put options arising in business combinations
The fair values of intangibles acquired in the 2008 financial year for the Domo Retail SA and Novera EAD business combinations are based on the discounted cash flows expected to be derived from the use and eventual sale of the assets acquired. To the extent that the final earnings are different to the assumptions made, such differences may give rise to impairment.
(g) Income taxes
The Group is subject to income tax in several jurisdictions and significant judgement is required in determining the provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the Group recognizes tax liabilities based onestimated of whether additional taxes and interest will be due. The Group believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors, including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgements about future events. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such determination is made.
(h) Provisions and warranties
There are certain provisions which are recognised where the actual outcome may vary from the amount recognised in the consolidated financial statements. The amounts recognised are based on management's best estimate.
The amount recognised for warranties for which customers are covered for the cost of repairs is estimated based on management's past experience and the future expectations of defects.
(i) Related party loans at amortised cost
Loans from related parties to the TMD group of €15,101,000 (2008 €13,159,000) have been reported at amortised cost using an effective interest rate of 8% (2008: 16%). The loans are repayable on 31 December 2014 (2008: 30 June 2011). Existing loans from related parties to TMD as of 31 December 2008 of €13,159,000 have been de-recognised as at 1 July 2009 and recognised under these assumptions. These assumptions are also applicable to loans of €14,221,000 extended by related parties to TMD after 1 July 2009. The change of the effective interest rate assumption in 2009 (8%) compared to 2008 (16%) relates to the committed shareholder support and development of the markets.
(j) Provision for impairment of receivables
Management maintains an allowance for doubtful receivables to account for estimated losses resulting from the inability of customers to make required payments. When evaluating the adequacy of an allowance for doubtful receivables, management bases its estimates on the aging of accounts receivable, balances and historical write-off experience, customer credit worthiness and changes in customer payment terms. If the financial condition of customers were to deteriorate, actual write-offs might be higher than expected.
(k) Impairment of inventories
Management reviews the inventory balances to determine if inventories can be sold at amounts greater than or equal to their carrying amounts plus costs to sell. This review includes identification of slow-moving inventories, obsolete inventories and partially or fully damaged inventories. The identification process includes historical performance of the inventory, current operational plans for the inventory, as well as industry and customer specific trends. Damaged stock is either provided for or written off depending on the extent of the damage.
(l) Classification of development properties as investments properties and inventories
The classification of development properties as investments properties or inventories reflects the Directors initial intention as to how the Group will consume the economic benefits from the respective assets. If the Directors aim at inception to hold the property to earn rentals or capital appreciation it is classified and presented as Investment property. Respectively if the directors at inception aim to develop the project for sale in the ordinary course of the business the property is classified as Inventory. Subsequently transfers between the classification groups are made only in compliance with the specific requirements of IAS 40 and IAS 2,
|
2. Revenue |
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Revenue arises from: |
|
|
|
Sale of goods |
550,643 |
606,943 |
|
Provision of services |
5,191 |
11,910 |
|
Sale of development properties |
2,398 |
2,504 |
|
Other revenue |
2,636 |
3,783 |
|
Total |
560,868 |
625,140 |
Further analysis of revenue is showed in the segmental analysis note5.
3. Administrative, selling and distribution costs
|
|
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Administrative, selling and distribution costs comprise the following: |
|
|
|
Wages and salaries (including directors) |
21,448 |
23,145 |
|
Defined contribution pension scheme contributions |
18 |
20 |
|
Employer's national insurance contributions and similar taxes |
4,073 |
4,171 |
|
Administration expenses |
14,264 |
23,169 |
|
Operating lease expense |
27,447 |
24,933 |
|
Depreciation |
4,323 |
4,033 |
|
Amortisation |
428 |
372 |
|
Advertising and marketing |
2,538 |
4,300 |
|
Termination payment to former investment manager (note 30) |
- |
18,487 |
|
Transportation |
3,827 |
3,930 |
|
Professional services |
3,358 |
3,359 |
|
Utilities |
3,096 |
2,390 |
|
Outsourced services |
4,276 |
4,074 |
|
Other third party services |
589 |
1,423 |
|
|
|
|
|
Total |
89,685 |
117,806 |
|
|
|
|
|
Separately disclosable items in other notes: |
|
|
|
Rental income from investment property (note 12) |
(7) |
(94) |
|
Foreign exchange (profit)/ loss (note 7) |
626 |
(2,575) |
|
Profit on disposal of property, plant and equipment |
(328) |
(144) |
4. Impairment of assets
|
Impairment costs-continuing operations
This impairment has been allocated as follows:
|
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Goodwill (note 13) |
25,000 |
360 |
|
Concessions |
- |
88 |
|
Other intangibles |
- |
13 |
|
Development property |
|
5,617 |
|
Receivables |
13,738 |
- |
|
Inventory (note 18) |
25,839 |
150 |
|
Total |
64,577 |
6,228 |
The large impairment loss in 2009 is as a result of the impairment of loan receivables from associates and joint ventures of €7,908,000 (refer to note 19) and impairment of advances to suppliers and related party receivables at Immofinance group of €5,589,000.
Impairment costs-discontinued operations
This impairment has been allocated as follows:
|
|
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Goodwill (note 13) |
- |
19,049 |
|
Concessions |
- |
14,807 |
|
Other intangibles |
- |
816 |
|
Property, plant and equipment |
- |
19,901 |
|
Receivables |
- |
1,078 |
|
Inventory |
- |
1,404 |
|
Total |
- |
57,055 |
The large impairment loss in 2008 is a result of the loss of the concession rights in relation to the Novera AD infrastructure operation, which led to the business being tested for impairment. Due to these events, management assessed that the value in use of the business was €nil. The non financial assets were valued at their fair value less costs to sell with the financial assets reviewed and valued at the amounts that could be recovered. These valuations took into account the short timeframe that Novera AD had to realise the cash on the sale of these assets. The value of total assets valued on this basis was €10,323,000. This was compared to the carrying value of total assets of €57,633,000 which therefore gave rise to an impairment of €47,310,000. The impairment loss in Novera AD group in the prior year was allocated to property, plant and equipment (€17,137,000), concessions (€14,807,000), goodwill (€12,995,000), inventory (€1,293,000) and receivables (€1,078,000).
In July 2009 Novera AD went into liquidation which led to the Group losing control over the company. Novera AD has been presented as a discontinued operation in 2009 (note 9).
The goodwill relating to Avto Union AD (€6,054,000) was fully impaired in 2008 based on its recoverable amount determined by reference to the expected disposal proceeds of the sub Group, classified as a disposal group.
5. Segment information
The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance. In contrast, the predecessor Standard (IAS 14 Segment reporting) required an entity to report two sets of segments (business and geographical), using the risks and returns approach, with the entity's system of internal financial reporting to key management personnel serving as the starting point for the identification of such segments. As a result, following the adoption of IFRS 8, the identification of the Group's reportable segments has changed.
The chief operating decision maker has been identified as the TBIL Board of Directors.
The Group operates in four main business segments differentiated by the specifics of the products and the services:
- Electronic (sale of electronic goods and household appliances)
- Property development (development of properties for commercial and residential purposes)
- Automotive (sale of vehicles and related products to the general public)
- Infrastructure (waste management business)
The organization and monitoring of the information by segments is based on financial reporting system for statutory IFRS reporting purposes. Respectively the accounting policies of the reportable segments are the same as the Groups accounting policies described in Note 1.
Of these, the Automotive and Infrastructure segments have been classified as discontinued.
Some of the Group's costs, including headquarters and warehouses related costs, cannot be allocated to one of the above segments and they are monitored at Group level.
|
|
|
Continuing operations |
Discontinued operations |
||||
|
|
Electronics |
Property Develop-ment |
Un-allocated |
Total continuing operations |
Auto- Motive |
Infrast-ructure |
Total discontinued operations |
|
|
2009 |
2009 |
2009 |
2009 |
2009 |
2009 |
2009 |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
|
|
|
|
Segment revenue |
558,408 |
2,460 |
- |
560,868 |
14,602 |
9,890 |
24,492 |
|
Segment profit/(loss) |
2,360 |
7,332 |
(4,176) |
5,516 |
(1,158) |
(4,336) |
(5,494) |
|
Impairment of assets, loss from fair value adjustments of investment properties, gain/loss on sale of investments |
(25,500) |
(42,406) |
8,514 |
(59,392) |
2,500 |
30,369 |
32,869 |
|
Share of profits/(losses) in equity accounted joint ventures and associates (notes 16 and 17) |
(2,106) |
(6,696) |
(1,227) |
(10,029) |
- |
- |
- |
|
Segment operating profit/(loss) |
(25,246) |
(41,770) |
3,111 |
(63,905) |
1,342 |
26,033 |
27,375 |
|
|
|
|
|
|
|
|
|
|
Finance income |
1,254 |
665 |
216 |
2,135 |
- |
9 |
9 |
|
Finance costs |
(8,026) |
(2,879) |
- |
(10,905) |
(623) |
(1,438) |
(2,061) |
|
|
|
|
|
|
|
|
|
|
(Loss)/profit before tax |
(32,018) |
(43,984) |
3,327 |
(72,675) |
719 |
24,604 |
25,323 |
|
Tax expense |
(466) |
(375) |
(22) |
(863) |
(15) |
- |
(15) |
|
(Loss)/profit for the year |
(32,484) |
(44,359) |
3,305 |
(73,538) |
704 |
24,604 |
25,308 |
Segmental assets and liabilities as at the 31 December 2009 are as follows:
|
|
Continuing operations |
Discontinued operations |
||||||
|
|
|
Electronic |
Property Develop-ment |
Un-allocated |
Total continuing operations |
Auto-motive |
Infrast-ructure |
Total discontinued operation |
|
|
|
2009 |
2009 |
2009 |
2009 |
2009 |
2009 |
2009 |
|
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
|
|
Assets |
284,205 |
40,901 |
4,614 |
329,720 |
- |
7 |
7 |
|
|
Associates and joint ventures |
689 |
35,719 |
- |
36,408 |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
284,894 |
76,620 |
4,614 |
366,128 |
- |
7 |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
(192,550) |
(47,912) |
(8,907) |
(249,369) |
- |
(42) |
(42) |
Other segment items included in the income statement are as follows:
|
|
Continuing operations |
Discontinued operations |
|
||||||
|
|
Electronic |
Property Development |
Un-allocated |
Total continuing operations |
Auto-motive |
Infrastructure |
Total discontinued operations |
||
|
|
2009 |
2009 |
2009 |
2009 |
2009 |
2009 |
2009 |
||
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
||
|
Capital expenditure |
4,226 |
271 |
- |
4,497 |
1,539 |
- |
1,539 |
||
|
Depreciation (note 11) |
4,284 |
39 |
- |
4,323 |
1,187 |
2,497 |
3,684 |
||
|
Amortisation (note 13 and 14) |
383 |
45 |
- |
428 |
6 |
- |
6 |
||
|
Impairment (note 4) |
32,247 |
32,329 |
- |
64,577 |
- |
- |
- |
||
|
|
Continuing operations |
Discontinued operations |
||||||
|
|
Electronic |
Property Develop-ment |
Un-allocated |
Total continuing operations |
Auto- motive |
Infrastru-cture |
Unallocated |
Total discontinued operations |
|
|
2008 |
2008 |
2008 |
2008 |
2008 |
2008 |
2008 |
2008 |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
|
|
|
|
|
|
|
|
|
|
|
Segment revenue |
621,510 |
2,510 |
1,120 |
625,140 |
68,884 |
24,164 |
- |
93,048 |
|
Segment operating profit or (loss) |
16,375 |
(8,466) |
(23,687) |
(15,779) |
(3,191) |
(9,782) |
- |
(12,973) |
|
Impairment of assets, loss from fair value adjustments of investment properties, gain/loss on sale of investments |
4,221 |
(10,639) |
2,903 |
(3,515) |
(6,054) |
(47,310) |
- |
(53,364) |
|
|
20,596 |
(19,105) |
(20,784) |
(19,294) |
(9,245) |
(57,092) |
- |
(66,337) |
|
|
|
|
|
|
|
|
|
|
|
Finance income |
1,641 |
1,436 |
107 |
3,185 |
382 |
10 |
- |
392 |
|
Finance costs |
(16,261) |
(1,028) |
- |
(17,289) |
(2,117) |
(4,018) |
- |
(6,135) |
|
Share of losses |
|
|
|
|
|
|
|
|
|
in equity accounted |
|
|
|
|
|
|
|
|
|
joint ventures and |
|
|
|
|
|
|
|
|
|
associates (notes 16, 17) |
(1,960) |
(26,328) |
- |
(28,288) |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
(Loss)/profit before income tax |
4,016 |
(45,025) |
(20,677) |
(61,686) |
(10,980) |
(61,100) |
- |
(72,080) |
|
Tax expense |
(1,870) |
1,142 |
- |
(728) |
(100) |
22 |
- |
(78) |
|
(Loss)/profit for the year |
2,146 |
(43,883) |
(20,677) |
(62,414) |
(11,080) |
(61,078) |
- |
(72,158) |
Segmental assets and liabilities as at the 31 December 2008 are as follows:
|
|
Continuing operations |
Discontinued operations |
||||||||
|
|
Electronic |
Property Develop-ment |
Un-allocated |
Total continuing operations |
Auto-motive |
Infrastructure |
Unallocated |
Total discontinued operations |
||
|
|
2008 |
2008 |
2008 |
2008 |
2008 |
2008 |
2008 |
2008 |
||
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
||
|
Assets |
352,376 |
82,393 |
31,337 |
466,106 |
43,989 |
- |
- |
43,989 |
||
|
Associates and joint ventures |
3,128 |
53,422 |
- |
56,550 |
- |
- |
- |
- |
||
|
|
|
|
|
|
|
|
|
|
||
|
Total Assets |
355,504 |
135,815 |
31,337 |
522,656 |
43,989 |
- |
- |
43,989 |
||
|
Total Liabilities |
(264,880) |
(50,461) |
(50,887) |
(366,228) |
(35,975) |
- |
- |
(35,975) |
||
Other segment items included in the income statement are as follows:
|
|
Continuing operations |
Discontinued operations |
|||||
|
|
Electronic |
Property Develop-ment |
Un-allocated |
Total continuing operations |
Auto-motive |
Infrastructure |
Total discontinued operations |
|
|
2008 |
2008 |
2008 |
2008 |
2008 |
2008 |
2008 |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
|
Capital expenditure |
9,348 |
4,711 |
- |
14,059 |
14,720 |
15,283 |
30,003 |
|
Depreciation (note 11) |
3,890 |
143 |
- |
4,033 |
2,157 |
6,366 |
8,523 |
|
Amortisation (note 13 and 14) |
364 |
6,235 |
- |
6,599 |
9,794 |
50,905 |
60,699 |
|
Impairment (note 12, 13 and 14) |
- |
6,228 |
- |
- |
- |
- |
- |
The Group's secondary reporting format for reporting segment information is geographic segments.
|
|
External revenue |
Total assets |
Non-current assets |
Capital expenditure |
||||
|
|
by location of customers |
by location of assets |
by location of assets |
by location of assets |
||||
|
|
2009 |
2008 |
2009 |
2008 |
2009 |
2008 |
2009 |
2008 |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
|
Bulgaria |
390,761 |
425,103 |
291,246 |
565,098 |
90,470 |
218,911 |
4,279 |
41,460 |
|
Romania |
170,107 |
200,037 |
74,889 |
1,547 |
66,008 |
71,046 |
1,757 |
2,602 |
|
|
560,868 |
625,140 |
366,135 |
566,645 |
156,478 |
289,957 |
6,036 |
44,062 |
6. Gain / (Loss) on disposal of subsidiaries and associates
|
|
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Loss on disposal of St George |
- |
(627) |
|
Loss on disposal of Boyana |
(1,267) |
(2,608) |
|
Gain on disposal of Uniqa Bulgaria AD |
8,827 |
2,960 |
|
Loss on disposal of Castle Golf Properties |
(314) |
- |
|
Gain on part disposal of TechnomarketDomo N.V. as a result of the debt-pushdown liability settlement |
- |
4,220 |
|
Gain on part disposal of TechnomarketDomo N.V. as a result the flip-up agreement |
5,547 |
- |
|
Other losses |
- |
(57) |
|
|
12,793 |
3,888 |
Loss on disposal of St George Resort and spa
The 50% investment in St George was sold during 2008.
Loss on disposal of Boyana Residence EOOD
On 29 January 2008 the Group sold 70% of its shareholding in Boyana Residence EOOD. The investment in the group of Boyana Residence EOOD had been reduced to 30% as a result of the deal. The participation in Boyana Residence EOOD was classified as investment in associate and had been reported according to the equity method (note 16). On 1 June 2009 the Group disposed of its remaining 30% shareholding in Boyana Residence EOOD.
Gain on disposal of share-holding in Uniqa
During 2007 the Group sold 41% of its shares in Uniqa Bulgaria AD, leaving the Group with 38% of Uniqa Bulgaria AD. The preliminary purchase price was received by the Group in 2007 and based on audited 2007 consolidated financial statements of Uniqa Insurance was adjusted in 2008. This resulted in profit of €2,960,000 being recognised in 2008, resulting in payments of €1,126,000 from Uniqa in 2008 and €1,834,000 in 2009 respectively.
During 2009 Vitosha holding sold the remaining 38% share holding in Uniqa Bulgaria AD in two tranches. 21% was sold on the 2 June 2009 for €13,362,000 and the remaining 17% of the shares was sold for €7,900,000 on 29 June 2009.
Loss on Castle Golf Properties
At the end of May 2009, Castle Europe Holding BV sold 100% of its shares in Castle Golf Properties SRL for a consideration of €800,000. Further impairment loss of €4,844,000 has been recognized in 2009 which is presented net against the net gain from disposal of Castle Golf Properties.
Profit on part disposal of TechnomarketDomo N.V. shares
Debt Push-down
In 2008 that the Group settled its liability of €7,496,500 to the non-controlling shareholder in TechnomarketDomo N.V. by transferring of 955,000 of the Groups shares in TMD at 31 December 2008. The 2008 comparative financial information has been restated (note 1.5) to reflect this transaction. This resulted in a gain on partial disposal, 3.82%, of the Groups investment in TMD. This liability relates to TBIL 'pushed down' acquisition debt of €30,000,000 to TechnomarketDomo N.V. in 2007.
Flip-up
On 28 September 2007, TMD acquired 75% of Domo Retail SA. Included in this transaction, TMD had a call option and Domo non-controlling shareholders had a put option respectively on the remaining 25% shares of Domo, to be exercised in 2009. At 31 March 2009, the Domo non-controlling shareholders exercised their put option under the purchase agreement and exchanged their shares in Domo for 3,629,310 newly issued shares of TMD. This then settled the outstanding liability of €20,384,000. Further as per the agreement the Group transferred 92,500 TMD shares to the non-controlling shareholders of Domo.The conclusion of the conditions per the Domo purchase agreement on the 31 March 2009 resulted in the profit recognised above.
7. Finance income and finance costs
Finance income and finance costs include all interest-related income and expenses. The following amounts have been included in the income statement line for the reporting periods presented:
|
|
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
|
|
|
|
Bank and other interest receivable |
219 |
696 |
|
Interest income on loans to related parties (note 32) |
1,916 |
2,444 |
|
Foreign exchange gain |
- |
45 |
|
Total finance income |
2,135 |
3,185 |
|
|
|
|
|
Bank loans and overdrafts |
5,055 |
7,069 |
|
Other interest payable |
1,134 |
7,240 |
|
Finance leases |
182 |
160 |
|
Related party interest expense (note 32) |
4,001 |
192 |
|
Foreign exchange loss |
626 |
2,620 |
|
Unwinding of discount on provisions |
(93) |
8 |
|
Total finance costs |
10,905 |
17,289 |
Interest income and interest expense is calculated using the effective interest rate method. Other interest expense in 2008 include an amount of €2,577,000 relating to the unwinding of a put option liability and €1,001,000 relating to an earn out liability which are both held at amortised cost. See note 21 Trade and other payables and note 13 Goodwill and trademarks for details surrounding these TMD liabilities. See note 12 Investment property for the capitalisation rate and the amount of borrowing costs capitalised during the year.
8. Taxation
Income tax recognised in profit and loss
|
|
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Tax expense |
|
|
|
-current |
1,493 |
2,154 |
|
-prior year over provision |
- |
18 |
|
Utilisation of previously unrecognised tax losses |
22 |
- |
|
Deferred tax movement |
(652) |
(1,444) |
|
Total income tax expense |
863 |
728 |
|
As the Group is operating in different countries (Bulgaria, Romania and Netherlands) the tax rates applied vary in respect of the jurisdiction of the entities within the Group. The tax rates used for determining the current tax liability for 2009 and 2008, respectively, are as follows: |
|
|
2009 |
2008 |
|
Country |
Tax rate% |
Tax rate% |
|
Bulgaria |
10.0% |
10.0% |
|
Slovakia |
19.0% |
19.0% |
|
Romania |
16.0% |
16.0% |
|
Netherlands |
25.5% |
25.5% |
The tax on the Groups profit before tax differs from the theoretical amount that would arise using the weighted average rate of tax of the applicable profits of the consolidated companies as follows:
|
|
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
(Loss) before tax for the period |
(72 675) |
(61,686) |
|
Tax calculated at domestic rates applicable to profits in the respective countries |
(2,437) |
(551) |
|
Expenses not deductible for tax purposes |
160 |
65 |
|
Utilisation of previously unrecognised tax losses |
(4) |
(46) |
|
Tax losses for which no deferred tax asset has been recognised |
3,173 |
1 206 |
|
Effect of change in tax rate |
- |
(4) |
|
Difference in tax rate of equity accounted associates and joint ventures |
- |
(6) |
|
Tax adjustments related to prior years |
- |
(3) |
|
Other |
(29) |
67 |
|
Total tax expense |
863 |
728 |
Effective tax rate 1,2% 1,2%
Income tax recognised in other comprehensive income
|
|
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Current tax |
- |
- |
|
|
|
|
|
Deferred tax |
|
|
|
Revaluation of available for sale investments |
(14) |
14 |
|
Exchange differences arising on translation |
(406) |
(696) |
The standard rate of corporation tax used in the above reconciliation is the weighted average of the rates applicable in each of the jurisdictions in which the Group carries out its operations. The expected tax charge disclosed is therefore an aggregation of those amounts in the separate financial statements of the Group's subsidiaries.
The movements in the deferred tax assets and liabilities during the period are shown in note 25 Deferred tax.
9. Discontinued operations
In 2008 the Group took a decision to dispose of its interest in the Avto Union AD group. The Avto Union AD Group was therefore classified as a discontinued operation in the 2008 consolidated financial statements. In May 2009 the Group sold its entire shareholding of Avto Union AD Holding Limited for €7,200,000.
In March 2009 it was confirmed by the Municipality of Sofia that Novera's concession agreements were to be terminated with immediate effect. Novera EAD thus began liquidation proceedings during the 2009 financial year. Novera EAD was not a discontinued operation or classified as held for sale as at 31 December 2008 and the comparative statement of comprehensive income has been re-presented to show this discontinued operation separately from continuing operations.
Result of discontinued operations
|
|
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Revenue |
24,492 |
93,048 |
|
Expenses |
(32,039) |
(108,073) |
|
Pre tax (loss) |
(7,547) |
(15,025) |
|
Impairment |
|
(57,055) |
|
Tax expense |
(15) |
(78) |
|
Results from operating activities after tax |
(7,562) |
(72,158) |
|
Gain from disposal of discontinued operations |
32,870 |
- |
|
Profit/(Loss) for the year from discontinued operations |
25,308 |
(72,158) |
|
Profit/(Loss) from discontinuing operations attributable to |
|
|
|
Owners of the parent |
25,473 |
(69,942) |
|
Non-controlling interest |
(165) |
(2,216) |
|
|
25,308 |
(72,158) |
|
|
|
|
Gain on disposal of Avto Union AD
The disposal of Avto Union AD in May 2009 resulted in a gain of €2,500,000.
Gain on disposal of Novera AD
In 2009 the group lost control of Novera AD. As a result of the post consolidated statement of financial position events in March 2009, Novera AD was accounted for on the break-up basis in 2008. In 2008 impairments and provisions were recognised greater than the Company's investment in Novera AD and this has resulted in a large gain on disposal of €30 370 000 recognised in 2009. Further impairment loss of €35,302,000 has been recognized in 2009 which is presented net against the net gain from disposal of discontinued operations.
The consolidated cash flow statement includes the following amounts relating to discontinued operations:
|
|
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Operating activities |
1,244 |
11,792 |
|
Investing activities |
4,058 |
(8,939) |
|
Financing activities |
|
5,664 |
|
Net cash (used in) discontinued operations |
5,302 |
8,517 |
10. Earnings per share
Basic earnings per share are calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year.
|
Earnings / (loss) per share |
|
|
|
|
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Basic and diluted earnings / (loss) |
|
|
|
Total (continuing and discontinued operations) |
(46 143) |
(133,760) |
|
Discontinued operations |
|
|
|
- (profit) / loss after tax |
25,307 |
(72,158) |
|
- Non-controlling interest |
- |
- |
|
Continuing operations |
(71,450) |
(61,602) |
|
Basic weighted average number of shares |
18,265,890 |
17,795,120 |
|
|
|
|
|
Basic earnings / (loss) per share |
|
|
|
Total (continuing and discontinued operations) |
(2.52) |
(7.51) |
|
Less discontinued profit from operations |
1.39 |
(4.05) |
|
Continuing operations |
(3.91) |
(3.46) |
During the prior year contingently issuable warrants of €6,786,000 were granted (note 30). The conditions relating to these warrants have not been satisfied at the year end and thus there is no impact on diluted earnings per share.
11. Property, plant and equipment
|
|
Land & buildings |
Plant, machinery & motor vehicles |
Fixtures, fittings & equipment |
Development property held for investment |
Total |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
|
Cost |
|
|
|
|
|
|
Balance at 1 January 2008 |
7,783 |
32,438 |
6,354 |
30,172 |
76,747 |
|
Additions |
3,696 |
24,623 |
4,223 |
10,804 |
43,346 |
|
Disposals |
(3,023) |
(4,591) |
(699) |
(2,606) |
(10,919) |
|
Transfers |
- |
(2,422) |
2,488 |
- |
66 |
|
Re-classified to non-current assets held for sale |
(4,549) |
(8,389) |
(859) |
(20,205) |
(34,002) |
|
Net exchange differences |
(358) |
(253) |
(982) |
(379) |
(1,972) |
|
Balance at 31 December 2008 |
3,549 |
41,406 |
10,525 |
17,786 |
73,266 |
|
|
|
|
|
|
|
|
Balance at 1 January 2009 |
3,549 |
41,406 |
10,525 |
17,786 |
73,266 |
|
Additions |
152 |
1 330 |
2,758 |
29 |
4,269 |
|
Disposals |
(2) |
(32,564) |
(212) |
(3,895) |
(36,673) |
|
Transfers to investment property (note 12) |
- |
- |
- |
(13,698) |
(13,698) |
|
Transfers |
- |
(895) |
903 |
- |
8 |
|
Net exchange differences |
(198) |
(222) |
(515) |
(222) |
(1,157) |
|
Balance at 31 December 2009 |
3,501 |
9 055 |
13,459 |
- |
26,015 |
The majority of other transfers in 2009 relate to an amount of development property transferred to investment property
|
|
Land & buildings |
Plant, machinery & motor vehicles |
Fixtures, fittings & equipment |
Development property held for investment |
Total |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
|
Accumulated depreciation |
|
|
|
|
|
|
Balance at 1 January 2008 |
(214) |
(6 295) |
163 |
(29) |
(6,375) |
|
Depreciation |
(651) |
(9 870) |
(2 026) |
(10) |
(12,557) |
|
Impairment |
- |
(19,901) |
- |
(5,637) |
(25,538) |
|
Disposals |
113 |
2,602 |
501 |
- |
3,216 |
|
Re-classified to non-current assets held for sale |
584 |
5,868 |
310 |
- |
6,762 |
|
Net exchange differences |
13 |
132 |
322 |
199 |
666 |
|
Balance at 31 December 2008 |
(155) |
(27,464) |
(730) |
(5,477) |
(33,826) |
|
|
|
|
|
|
|
|
Balance at 1 January 2009 |
(155) |
(27,464) |
(730) |
(5,477) |
(33,826) |
|
Depreciation |
(123) |
(4,646) |
(2,052) |
- |
(6,821) |
|
Impairment |
- |
- |
- |
(18) |
(18) |
|
Disposals |
2 |
27,948 |
82 |
2,551 |
30,583 |
|
Transfers to investment property (note 12) |
- |
- |
- |
2,806 |
2,806 |
|
Net exchange differences |
9 |
74 |
198 |
138 |
419 |
|
Balance at 31 December 2009 |
(267) |
(4,088) |
(2,502) |
- |
(6,857) |
Net book value
|
At 31 December 2008 |
3,394 |
13,942 |
9,795 |
12,309 |
39,440 |
|
At 31 December 2009 |
3,234 |
4,967 |
10,957 |
- |
19,158 |
In March 2009 it was confirmed by the Municipality of Sofia that Novera's concession agreements were to be terminated with immediate effect. This resulted in the property, plant and equipment of the Novera group being valued at fair value less cost to sell and therefore resulted in an impairment of €17,137,000 in the 2008 financial year (note 4). Due to these events the value of the plant, machinery and motor vehicles held by Novera EAD was expected to be realised through their sale within 2009 and therefore in 2008 were reclassified to current assets.
In 2008 the net book value of property, plant and equipment is split between current and non-current assets as follows:
|
|
Land & buildings |
Plant, machinery & motor vehicles |
Fixtures, fittings & equipment |
Development property held for investment |
Total |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
|
Current |
- |
7,069 |
- |
- |
7,069 |
|
Non-current |
3,394 |
6,873 |
9,795 |
12,309 |
32,371 |
|
Total net book value at 31 December 2008 |
3,394 |
13,942 |
9,795 |
12,309 |
39,440 |
In 2009 the net book value of property, plant and equipment is classified as non-current.
The Group's bank borrowings are secured by property, plant and equipment of €19,033,000 (2008: €26,917,000).
The net carrying amount of property, plant and equipment includes the following amounts in respect of assets held under finance lease (note 27):
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Plant, machinery and motor vehicles |
1,444 |
14,894 |
|
Fixtures, fittings and equipment |
1,467 |
215 |
|
|
2,911 |
15,109 |
No companies in the Group have entered into contractual commitments to purchase any material items of property, plant or equipment in the current or prior year.
The Group has an accounting policy to capitalise finance costs relating to development property. The amount capitalised during 2008 was €1,646,000. Refer to note 12 for the amount capitalised during 2009.
12. Investment property
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Beginning of year |
11,957 |
35,558 |
|
Additions |
268 |
25 |
|
Disposals |
(5,750) |
(22,398) |
|
Transfer from property, plant and equipment (note 11) |
10,893 |
- |
|
Reclassified to non-current assets held for sale |
- |
(52) |
|
Net (loss)/ gain from fair value adjustments in investment property |
(7,610) |
(1,176) |
|
End of year |
9,758 |
11,957 |
Investment property under construction with a value of €10,893,000 was transferred from property, plant and equipment to investment property following the adoption of the amendments to IAS 40 Investment Property resulting from Improvements to IFRSs issued in May 2008 (see note 1.4.1)
The Group's investment property was revalued at 31 December 2009 and 2008 by independent professionally qualified valuers CB Richard Ellis. Valuations were prepared in accordance with RICS Appraisal and Valuation Standards. Valuations of all investment property were prepared on the market value basis. This is defined in the valuation report as the estimated amount for which a property should exchange on the date of the valuation between a willing buyer and seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
A number of different assumptions have been used by the valuers in obtaining a market value for the various properties. These relate to the lettable area, refurbishment period and costs, market rents, yield profile and purchasers costs.
As disclosed in note 22 to the consolidated financial statements, the Group is in default of its obligation to DSK bank and Alpha bank. As a result, at the end of 2009 the construction works of the investment properties ceased. The Directors are in discussions with the banks for the restructuring of the debt and providing additional financing. The Directors believe that the Group will complete the construction projects if an agreement with the banks is reached and additional financing is secured. The discussions continue and the result of the negotiations with the banks represents a risk for the future of the projects and may cause a material adjustment to the carrying amount of the investment property within the next financial year.
Further, the Group holds 33.5% of the 1,977,131 sq. m. land plot for development in the large-scale Borovets mountain resort through the Borovets BV joint venture. The construction work has not been started, except for the parking lot. The fair value of the land plot was determined by the independent valuer and has been approved by the Group's Board of directors. Due to the inherent uncertainty in valuation, especially in the current market conditions the fair value may differ significantly from the values that would have been used in the presence of an active property market and these differences could be material.
During the year €7,000 (2008: €94,000) was recognised in income statement in relation to rental income from the investment properties. Direct operating expenses, including repairs and maintenance, arising from investment property that generated rental income amounted to €nil (2008: €94,000). Direct operating expenses, including repairs and maintenance, arising from investment property that did not generate rental income during the year amounted to €18,000 (2008: €73,000).
During 2008 the majority of the rental income was earned from Rodacar AD. However, in 2008 Rodacar AD terminated a number of tenancy agreements. This was due to management entering into negotiations with potential buyers for the company. In 2009 the investment property held by Rodacar AD was sold and did not earn rental income during the year.
There are no contractual commitments entered into to construct or develop any of the investment property held by the Group.
The Group has an accounting policy to capitalise finance costs relating to investment property. The amount capitalised during in 2009 was €1,631,000 (2008: €1,646,000).
13. Goodwill and trademarks
A significant amount of the total intangibles assets of the Group are made up of goodwill and trademarks and are therefore separately disclosed on the consolidated statement of financial position.
|
|
Goodwill |
Trademarks |
Total |
|
|
€'000 |
€'000 |
€'000 |
|
Cost |
|
|
|
|
Balance at 1 January 2008 |
107,107 |
42,796 |
149,903 |
|
Additions - externally acquired |
- |
41 |
41 |
|
Remeasurement-put option |
(6,424) |
- |
(6,424) |
|
Remeasurement-earn out |
330 |
- |
330 |
|
Disposals |
- |
(4) |
(4) |
|
Decrease in ownership percentage in TMD |
(2,772) |
- |
(2,772) |
|
Avto Union reclassified to non-current assets held for sale |
(6,054) |
- |
(6,054) |
|
Net exchange differences |
(4,777) |
(4,024) |
(8,802) |
|
Balance at 31 December 2008 (restated) |
87,410 |
38,809 |
126,218 |
|
Balance at 1 January 2009 (restated) |
87,410 |
38,809 |
126,218 |
|
Liquidation of Novera EAD |
(12,996) |
- |
(12,996) |
|
Disposals |
(2,494) |
- |
(2,494) |
|
Deemed disposals due to flip-up |
(6,785) |
- |
(6,785) |
|
Net exchange differences |
(1,113) |
(2,226) |
(3,339) |
|
Balance at 31 December 2009 |
64,022 |
36,583 |
100,605 |
|
Accumulated amortisation and impairment |
|
|
|
|
At 1 January 2008 |
(174) |
(2) |
(176) |
|
Amortisation charge for the year |
- |
(10) |
(10) |
|
Impairment losses |
(19,409) |
- |
(19,409) |
|
Disposals |
- |
3 |
3 |
|
Reclassified to non-current assets held for sale |
6,054 |
- |
6,054 |
|
At 31 December 2008 |
(13,529) |
(9) |
(13,538) |
|
|
|
|
|
|
At 1 January 2009 |
(13,529) |
(9) |
(13,538) |
|
Amortisation charge for the year |
- |
(11) |
(11) |
|
Impairment losses |
(25,000) |
- |
(25,000) |
|
Disposals |
12,995 |
- |
12,995 |
|
Reclassified to non-current assets held for sale |
- |
- |
- |
|
Balance at 31 December 2009 |
(25,534) |
(20) |
(25,554) |
|
|
|
|
|
|
Carrying value |
|
|
|
|
At 31 December 2008 (restated) |
73,881 |
38,800 |
112,680 |
|
At 31 December 2009 |
38,488 |
36,563 |
75,051 |
In 2006, the Group acquired 75% of TechnomarketDomo N.V. ("TMD"), which at the time owned 100% of K&K Electronics EAD (KKE). In 2007, TMD acquired 75% of Domo Retail SA ("Domo").
The total consideration payable for Domo was estimated to be €97,901,000 as it was contingent on two elements of deferred consideration - (i) an earn-out liability of €13,432,000 to the vendor and (ii) a financial liability of €23,658,000 (with a carrying value of €20,384,000) to the vendors to acquire the remaining 25% of Domo Retail SA. As part of the Domo transaction, TMD had a call option and the remaining 25% shareholders had a put option on the remaining 25% shares of Domo Retail SA. The value of this option as at 31 December 2008 was €20,384,000.
In 2008 that the Group settled its liability of €7,496,500 to the non-controlling shareholder in TechnomarketDomo N.V. by transferring of 955,000 of the Groups shares in TMD at 31 December 2008. The 2008 comparative financial information has been restated (note 1.5) to reflect this transaction. This resulted in a gain on partial disposal, 3.82%, of the Groups investment in TMD. As a consequence, the Groups percentage ownership of TMD at 31 Dec 2008 decreased from 75% to 71.18%. In accounting for this deemed disposal, goodwill of €2,772,000 was derecognised in 2008.
At 31 March 2009, the non-controlling shareholders in Domo Retail SA exercised their put option and exchanged their shares in Domo for 3,629,310 newly issued shares of TMD. Additionally, as part of the Agreement, the group transferred 92,500 of their shares in TMD to these same non-controlling shareholders of Domo Retail SA as consideration for executing the Agreement. As a consequence of the transfer the Groups' percentage ownership in TMD decreased by 9.35% in 2009, from 71.18% to 61.83%. In accounting for this deemed disposal goodwill to the value of €6,784,502 was derecognised in 2009.
In 2009 the impairment losses in goodwill are a direct result of the annual impairment exercise carried out by management.
In 2008 the impairment losses in goodwill relate to investments held in Novera AD (€12,995,000), Immofinance EAD (€360,000) and Avto Union AD (€6,054,000). See details of impairment in note 4. In 2008 the increase in goodwill is a result of an earn-out liability of €13,762,000 being agreed. Also in 2008, the put option liability was replaced by an agreement entitling the non-controlling investors in Domo to shares in TMD. In accordance with IFRS 3 the deferred consideration was remeasured, resulting in a reduction of goodwill recorded on the purchase of Domo Retail SA of €6,424,000.
Impairment review of goodwill
The goodwill of €64,022,000 at 31 December 2009 originates from the electronic sector.The Group appointed an independent valuation expert to determine the recoverable amount of the electronic sector as a cash-generating unit (CGU) as at 31 December 2009. As a result of the independent valuation management has decided to impair goodwill by €25,000,000. Refer to note 1.6 Critical accounting estimates and judgements.
Impairment review of trademarks
When Domo was acquired in 2007 the Domo brand, represented by its trademark, was recognised as an intangible asset. The Group appointed an independent valuation expert to value the brand at this date. The fair value of Domo's brand was determined using the valuation technique called 'Relief from Royalty Method'. Under this method the Domo brand was estimated to have a value of €46,000,000 and was regarded as having an indefinite useful life as it was considered that there was no foreseeable limit to the period over which the asset is expected to generate net cash inflows. The independent valuation did not require any impairment to the Domo brand. Refer to note 1.6 critical accounting estimates and judgements.
Major assumptions behind valuation of the recoverable amount
The recoverable amount of the CGU was determined by applying discounted cash flow valuation analysis to the five-year business plans provided by management. A period of 5 years was chosen as management believes this is the approximate amount of time needed for the companies to achieve stable growth and normalised profitability levels. The major assumptions used in the valuation are as follows:
|
|
Romania % |
Bulgaria % |
|
|
|
|
|
Inflation Rate |
2.8 - 4.3 |
2.1 - 3.1 |
|
Discount rate |
15.03 |
14.25 |
|
Country growth rates |
1 - 4.3 |
(2.6) - 3.7 |
|
Weighted Average Cost of capital |
10.03% |
14.25% |
|
Electronic sector growth rate |
2.5% |
2.5% |
|
|
|
|
The table below represent the split of goodwill and trademarks by cash generating units (CGU):
|
|
2009 |
2008 |
|
|
|
|
|
Trademark - Electronics CGU |
36,563 |
38,800 |
|
Goodwill - Electronic CGU |
38,488 |
71,387 |
|
Goodwill - Financial services CGU |
|
2,493 |
|
|
75,051 |
112,680 |
|
|
|
|
14. Other Intangible Assets
|
|
Software |
Concessions |
Other Intangibles |
Total |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
|
Cost |
|
|
|
|
|
Balance at 1 January 2008 |
1,395 |
21,219 |
703 |
23,317 |
|
Additions - externally acquired |
544 |
92 |
2 |
638 |
|
Additions - internally acquired |
- |
- |
12 |
12 |
|
Disposals |
(43) |
- |
(73) |
(116) |
|
Reclassified as non-current assets held for sale |
(373) |
- |
(573) |
(946) |
|
Net exchange differences |
(161) |
- |
- |
(161) |
|
Balance at 31 December 2008 |
1,362 |
21,311 |
71 |
22,744 |
|
Balance at 1 January 2009 |
1,362 |
21,311 |
71 |
22,744 |
|
Additions - externally acquired |
- |
- |
3 |
3 |
|
Additions - internally acquired |
- |
- |
(42) |
(42) |
|
Disposals |
- |
(21,311) |
|
(21,311) |
|
Net exchange differences |
183 |
- |
- |
183 |
|
Balance at 31 December 2009 |
1,545 |
- |
32 |
1,577 |
|
Accumulated amortisation and impairment |
|
|
|
|
|
At 1 January 2008 |
(171) |
(2,816) |
(3) |
(2,990) |
|
Amortisation charge for the year |
(375) |
(3,600) |
(31) |
(4,006) |
|
Impairment losses |
(271) |
(14,895) |
(558) |
(15,724) |
|
Disposals |
12 |
- |
- |
12 |
|
Reclassified to non-current assets held for sale |
373 |
- |
573 |
946 |
|
Net exchange differences |
58 |
- |
- |
58 |
|
At 31 December 2008 |
(374) |
(21,311) |
(19) |
(21,704) |
|
|
|
|
|
|
|
At 1 January 2009 |
(374) |
(21,311) |
(19) |
(21,704) |
|
Amortisation charge for the year |
(372) |
- |
(3) |
(375) |
|
Disposals |
- |
21,311 |
|
21,311 |
|
Net exchange differences |
60 |
- |
- |
60 |
|
Balance at 31 December 2009 |
(686) |
- |
(22) |
(708) |
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
At 31 December 2008 |
988 |
- |
52 |
1,040 |
|
At 31 December 2009 |
859 |
- |
10 |
869 |
During the prior year impairment losses were recognised on the concessions, software and other intangibles. The significant impairment of the concessions is the result of the withdrawal of the Novera AD concessions at the beginning of March 2009. The recoverable amount of the concessions is based on fair value less costs to sell and is determined to have no value. These concessions were fully impaired in 2008.
15. Subsidiaries
The Directors consider that to give full particulars of all Group subsidiaries would lead to a statement of excessive length. The following information relates to those subsidiary companies whose results or financial position, in the opinion of the Directors, principally affect the consolidated financial statements of the Group as at the 31 December 2009:
|
Name |
Country of incorporation |
Proportion of effective ownership interest at 31 December |
|
|
|
|
2009 |
2008 |
|
Technomarket Domo NV |
Netherlands |
62%* |
71%* |
|
K & K Electronics EOOD |
Bulgaria |
62%* |
71%* |
|
DOMO Retail EOOD |
Bulgaria |
62%* |
71%* |
|
K & K Electronics Romania |
Romania |
62%* |
71%* |
|
IBN Electronics S.R.O |
Slovakia |
40%** |
46%** |
|
Balkan Soft Sole EOOD |
Bulgaria |
62%* |
71%* |
|
K & K Services EOOD |
Bulgaria |
62%* |
71%* |
|
Domo Retail S.A. |
Romania |
62% |
71% |
|
DOMO Distribution Group SRL |
Romania |
62% |
71% |
|
Castle Golf Properties SRL |
Romania |
- |
100% |
|
Avto Union AD |
Bulgaria |
- |
80% |
|
Immofinance EAD |
Bulgaria |
100% |
100% |
|
First Liquid Private House OOD |
Bulgaria |
100% |
100% |
|
Atia Holiday EAD |
Bulgaria |
100% |
100% |
|
Banya Holiday AD |
Bulgaria |
67% |
67% |
|
Pelican Retail EAD |
Bulgaria |
100% |
100% |
|
Lexington EAD |
Bulgaria |
100% |
100% |
|
Rodacar AD |
Bulgaria |
100% |
100% |
|
Novera EAD |
Bulgaria |
*** |
94% |
|
Chistota-Sofia AD |
Bulgaria |
*** |
94% |
|
Ditz AD |
Bulgaria |
*** |
94% |
|
Wolf 96 OOD |
Bulgaria |
*** |
94% |
|
Waste Management Services EAD |
Bulgaria |
*** |
94% |
The above significant investments in subsidiaries are not directly held by the Company but via intermediate holding companies. All subsidiary undertakings are included in the consolidation.
* -In the current year it was identified that the debt 'push down' liability owing to Lyra by Axis Retail NV was settled in December 2008 by a transfer of 955,000 of the Group shares in TMD. At 31 March 2009, the Domo non-controlling shareholders exercised their put option and "flipped" their shares in Domo for 3,629,310 newly issued shares of TMD. Additionally, Axis Retail NV transferred 92,500 of their shares in TMD to these same non-controlling shareholders of Domo, as consideration for executing the Agreement. These transactions resulted in deemed disposals. The Groups' percentage ownership in TMD decreased from 71% to 62% (2008: from 75% to 71.18%) (note 13).
** -K & K Electronics EOOD have a 65% shareholding in IBN Electronics S.R.O. which is thus a sub-subsidiary of Trans Balkan Investments Limited (formerly known as Equest Investments Balkans Limited).
Technomarket Domo BV is restricted from paying out dividends to the holding company. This is due to loan agreements entered into with various banking institutions.
*** -In July 2009 the Group lost control over Novera AD when it entered into liquidation and has been disclosed as a discontinued operation in the current year (note 9).
Refer to note 6 for a breakdown on gain / (loss) on disposal of subsidiaries.
16. Investments in associates
The following entities meet the definition of an associate and have been equity accounted in the consolidated financial statements:
|
Name |
Country of incorporation |
Proportion of effective ownership interest at 31 December |
|
|
|
|
2009 |
2008 |
|
UNIQA Bulgaria AD |
Bulgaria |
- |
37.7% |
|
Forum Serdika Coop |
Bulgaria |
20% |
16% |
|
Harwood BV |
Netherlands |
23% |
23% |
|
Biz Air OOD |
Bulgaria |
31% |
38% |
|
Boyana Residence EOOD |
Bulgaria |
- |
30% |
|
Covalim S.A. Sf Gheorghe |
Romania |
21% |
24% |
|
Environ |
Bulgaria |
15% |
18% |
Uniqa Bulgaria AD
During 2007 the Group sold 41% of its shares in Uniqa Bulgaria AD, leaving the Group with 38% of Uniqa Bulgaria AD.
On 2 June 2009 the Vitosha holding entered into a share purchase agreement for sale of the remaining 38% share holding in Uniqua Bulgaria AD in two tranches. 21% was sold on the 2 June 2009 for €13,362,000 and the remaining 17% of the shares for €7,900,000 on 29th June 2009.
Forum Serdika
Serdika is a 26,300 sq. m. mixed office and retail scheme with underground parking for 200 cars adjacent to the Vasil Levski monument in the centre of Sofia. The development was being undertaken jointly between the Group and Equest Balkan Properties plc ("EBP") but was sold in 2009 for €1.9million to a hotel operator and real estate developer, Terra Tours.
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Beginning of year |
18,313 |
16,082 |
|
Additions in the year |
- |
5,826 |
|
Disposals in the year |
(13 447) |
- |
|
Fair value change |
(333) |
- |
|
Share of (loss) |
(3,706) |
(3,595) |
|
End of year |
827 |
18,313 |
Aggregated amounts relating to associates are as follows:
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Total assets |
51,103 |
143,582 |
|
Total liabilities |
(56,834) |
(126,789) |
|
Revenues |
84,064 |
152,560 |
|
Loss of the associates |
(17,076) |
(6,623) |
|
|
|
|
There are no restrictions on dividend distributions for the associates in the Group.
17. Investment in joint ventures
The Group's joint ventures are contractually arranged between two parties which undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing control over an economic activity.The strategic financial and operating decisions relating to the activity require the unanimous consent of the venturers.
The following entity meets the definition of a joint venture and has been equity accounted in the consolidated financial statements:
|
Name |
Country of incorporation |
Proportion of effective ownership interest at 31 December |
|
|
|
|
2009 |
2008 |
|
Borovets Invest BV |
Netherlands |
50% |
50% |
|
Barrowbridge BV |
Netherlands |
50% |
50% |
The joint ventures are not directly held by the Company but via intermediate holding companies.
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Beginning of year |
41,904 |
66,597 |
|
Additions in the year |
|
- |
|
Dividends received |
|
- |
|
Share of (loss)/ profit |
(6,323) |
(24,693) |
|
End of year |
35,581 |
41,904 |
Aggregated amounts relating to joint ventures are as follows:
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Non-current assets |
109,275 |
128,247 |
|
Current assets |
11,972 |
21,676 |
|
Non-current liabilities |
(2,307) |
(18,251) |
|
Current liabilities |
(5,002) |
(4,273) |
|
Revenues |
7,080 |
7,861 |
|
(Loss) |
(14,944) |
(74,836) |
During the current year, equity accounted losses which exceeded the initial investment in the joint venture were obtained. This unrecognised cumulative share of losses amounted to €1,376,000 (2008: €227,000).
Loans from the holding company to joint ventures consist of €4,360,000 (2008: €5,662,000) and this entire amount is classified as non-current. This loans are unsecured and bear fixed interest.
There were no capital commitments entered into by any of the joint ventures as at 31 December 2009. Technomobile DOO has contingent liabilities relating to issued guarantees of €183,000 (2008: €264,000). There are no other contingent assets or liabilities relating to joint ventures as at 31 December 2009.
There are no restrictions on dividend distributions for the joint ventures in the Group.
18. Inventories
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Raw materials and consumables |
179 |
160 |
|
Finished goods and goods for resale |
127,212 |
158,744 |
|
Development property held for resale |
46,779 |
29,407 |
|
Provision for slow-moving and obsolete goods |
(27,026) |
(2,496) |
|
|
147,144 |
185,815 |
The amount of inventories recognised as an expense and reported in cost of sales in the consolidated income statement is
€469,871,000 (2008: €518,408,000)
The amount of inventories carried at net realizable value is €19,800,000 ( 2008: €29,407,000)
The amount of write-down of inventories recognised as an expense and reported in the income statement is €25,821,000 (2008: €1,983,000). Of this amount, €25,839,000 (2008: €1,500,000) relates to impairment (note 4).
The carrying value of inventories pledged as security for bank loans and borrowings is €144,732,000 (2008: €157,100,000).
The development property is held by Immofinance EAD. These properties are currently being marketed for sale, but due to the nature of the inventory, the amount may be recovered after more than 12 months after year end.
19. Trade and other receivables
Current portion
|
|
2009 |
2008 |
|
Trade receivables
|
€'000 |
€'000 |
|
Trade receivables |
22,881 |
25,699 |
|
Less: provision for impairment of trade receivables |
(477) |
(1,371) |
|
Trade receivables - net |
22,404 |
24,328 |
|
|
|
|
|
Loans and receivables due from related parties |
15,877 |
18,231 |
|
Deposits paid to suppliers |
455 |
782 |
|
Other receivables |
8,805 |
18,138 |
|
Prepayments |
4,752 |
8,895 |
|
Less: provision for impairment |
(6,141) |
|
|
Trade and other receivables |
46,152 |
70,374 |
Non - Current Portion
|
Other receivables
|
|
|
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
|
|
|
|
Loans and receivables due from related parties |
20,326 |
31,182 |
|
Restricted cash |
- |
1,306 |
|
Deposits paid to suppliers |
43 |
|
|
Interest receivables |
2,181 |
1,942 |
|
Other receivables |
3,655 |
98 |
|
Less: provision for impairment |
(11,366) |
(7,500) |
|
Non-current other receivables |
14,839 |
27,028 |
The ageing analysis of trade and other receivables is as follows:
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Neither past due nor impaired |
24,424 |
68,976 |
|
Less than 60 days |
5,361 |
7,804 |
|
61 - 120 days |
1,515 |
2,359 |
|
121 days and older |
17,776 |
10,649 |
|
Individually impaired |
11,915 |
7,614 |
|
|
60,991 |
97,402 |
Movements on the Group allowance for impairment of trade and other receivables are as follows:
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Beginning of year |
(8,871) |
(105) |
|
Provided during the year |
(736) |
(403) |
|
Receivable written off during the year as uncollectable |
(13,738) |
(8,578) |
|
Released provision |
4,283 |
|
|
Unused amounts reversed |
- |
39 |
|
Reclassified to non-current assets held for sale |
- |
176 |
|
Reclassified to disposed off |
1,078 |
-- |
|
End of year |
(17,984) |
(8,871) |
The Group believes that the unimpaired amounts that are past due date by more than 30 days are still collectible based on historic payment behaviour.
Maturity analysis for trade and other receivables:
This schedule represents the Group's remaining contractual liability for its trade and other payments with agreed repayment periods. The tables have been drawn up based on undiscounted cash flows of trade and other payables based on the earliest date on which the Group can be required to pay. The tables include both interest and principal cash flows.
|
2008 |
Due within |
Due between |
Due beyond |
|
|
|
1 year €'000 |
1 and 5 years €'000 |
5 years €'000 |
Total €'000 |
|
Trade receivables |
24,328 |
- |
- |
24,328 |
|
Loans and receivables due from related parties |
18,231 |
25,197 |
1,569 |
44,997 |
|
Deposits paid to suppliers |
782 |
- |
- |
782 |
|
Restricted cash |
- |
1,306 |
- |
1,306 |
|
Other receivables |
18,138 |
115 |
- |
18,253 |
|
Prepayments |
8,895 |
- |
- |
8,895 |
|
Total |
70,374 |
26,618 |
1,569 |
98,561 |
|
2009 |
Due within |
Due between |
Due beyond |
|
|
|
1 year €'000 |
1 and 5 years €'000 |
5 years €'000 |
Total €'000 |
|
Trade receivables |
22,404 |
- |
- |
22,404 |
|
Loans and receivables due from related parties |
15,764 |
13,617 |
- |
29,381 |
|
Deposits paid to suppliers |
455 |
43 |
- |
498 |
|
Restricted cash |
- |
- |
- |
- |
|
Other receivables |
5,819 |
- |
4,728 |
10,547 |
|
Prepayments |
1,710 |
- |
- |
1,710 |
|
Total |
46,152 |
13,660 |
4,728 |
64,540 |
The majority of trade and other receivables are non-interest bearing and are generally on 30 to 90 day terms. The carrying amount of current trade and other receivables approximates fair value because they are short term. The carrying amount of the non-current other receivables approximates their fair value, because they bear interest approximately the market interest rates.
The Group has trade receivables of €35,980,000 pledged as security over its assets.
Significant Loans and receivables due from associates
As at 31 December 2009 the Group has three loan agreements for loans granted to Harwood with the following terms and conditions:
- a loan with a principal of €6,505,000 (2008: €6,505,000) at an interest rate of 10% which is repayable in December 2012 which has been utilised in full as at 31 December 2009
- a loan with a principal of €1,500,000 (2008: €nil) at an interest rate of 6% which is repayable in March 2014 which has been utilised in full as at 31 December 2009
- a loan with a principal of €4,000,000 (2008: €4,000,000) at an interest rate of 0% which is repayable in May 2012 out of which an amount of €3,340,000 was utilised as at 31 December 2009. The loan has been amortised using an effective interest rate of 7.75%.
Interest accrued on these loans as at 31 December 2009 amounts to €1,526,000.
Also, as at 31 December 2009 the Group has recognised an impairment of 50% on both principal and interest, amounting to €6,436,000.
Significant Loans and receivables due from joint ventures
As at 31 December 2009 the Group has two loan agreements for loans granted to Barrowbridge with the following terms and conditions:
- a loan with a principal of €750,000 (2008: €750,000) at an interest rate of 9% which is repayable in December 2012 which has been utilised in full as at 31 December 2009
- a loan with a principal of €500,000 (2008:0) at an interest rate of 7% which is repayable in December 2013 which has been utilised in full as oat31 December 2009
Interest accrued on these loans as at 31 December 2009 is amounting to €220,000.
Also, as at 31 December 2009 the Group recognised an impairment of 50% on both principal and interest, amounting to €735,000.
Loans and receivables balance include a loan to Borovets with a principal of €7,072,189 (2008: €15,000,000) at an interest rate of 5.5% which is repayable in December 2012.
As at 31 December 2008 the loan was impaired by 50% and had a carrying amount of €7,500,000. Interest accrued as at 31 December 2009 amounted to €1,473,000.
In 2009 an amount of €7,739,000 principal and €825,000 interest was repaid which resulted in an allowance for impairment of €4,282,000 recognized in 2008 , which reintegrated in 2009 . The loan as at 31 December 2009 includes €7,072,000 principal and €836,000 interest.
The carrying amount of the loan as at 31 December 2009 includes an allowance for impairment amounting to €3,955,000, ie the loan is impaired by 50%.
Significant loans and receivables due from associates and joint ventures in 2009 have been impaired by 50% (2008: nil) as the performance of these companies may be undermined in the short term as a result of adverse market conditions.
Other
At Immofinance group loan receivables and advances to suppliers of €5,496,000 (2008: nil) have been considered as uncollectable and impaired during 2009.
Other receivables balance include a loan to the Uniqa Group.
This loan has a principal of €3,000,000 (2008: €3,000,000) and bears interest at a rate of SOFIBOR + 1% repayable on 16 November 2016. In April 2010 the loan was settled in full.
See note 23 Financial instruments - Risk management for disclosure of the concentration of credit risk.
20. Cash and cash equivalents
Cash and cash equivalents comprise:
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Cash available on demand |
14,666 |
9,778 |
|
Short-term deposits |
- |
509 |
|
Restricted cash (guarantees) |
52 |
775 |
|
Cash equivalents |
1,360 |
215 |
|
|
16,078 |
11,277 |
|
Cash and cash equivalents held for sale |
7 |
1,666 |
|
Cash and cash equivalents |
16,085 |
12,943 |
For the purpose of the consolidated cash flow statement, cash and cash equivalents and bank overdrafts include the following:
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Cash and cash equivalent |
16,085 |
12,943 |
|
Less bank overdrafts |
(12,982) |
(17,450) |
|
|
3,103 |
(4,507) |
|
|
|
|
21. Trade and other payables
|
|
2009
|
2008 (restated) |
|
|
€'000 |
€'000 |
|
Trade payables |
90,197 |
103,517 |
|
Trade payables with related parties |
3,247 |
4,064 |
|
Refundable deposits |
1,108 |
1,404 |
|
Employees and social security |
4,793 |
5 827 |
|
Deferred income, accruals and other payables |
8,976 |
12,056 |
|
Other |
- |
51 |
|
Other tax and social security taxes |
5 |
134 |
|
Deferred acquisition consideration |
- |
23,975 |
|
Current trade and other payables |
108,326 |
151,028 |
All trade and other payables are carried at amortised cost in the consolidated statement of financial position. Interest expense is therefore calculated using the effective interest rate method.
Notwithstanding this the book value of current trade payables approximates fair value. The carrying value of non current trade payables approximates their fair value because they bear interest rate approximate to the market interest rates.
As at 31 December 2007, TMD had recorded a financial liability of €24,250,000 at amortised cost. This comprised the present value of the redemption amount of the option it entered into through the purchase agreement dated 7 July 2007 for the purchase of Domo Retail SA and its subsidiaries on 28 September 2007 of €23,658,000 and the interest accrued of €592 000 up until the 31 December 2007. In 2008 the carrying value of this liability was €20,384,000 at amortised cost, comprised of the present value of the redemption amount of the option. As at the 31 December 2008, the liability was reclassified as a current liability. In 31 March 2009 the 25% remaining interest in Domo Retail S.A. was acquired by TMD N.V. The exchange was finalized by converting the 25% of shares held by the non-controlling in Domo Retail S.A. into 13% of shares of TMD N.V. The conversion was completed in accordance with the settlement and flip-up agreement of 19 November 2009 by means of contribution in kind.
This deferred acquisition consideration further includes, as at 31 December 2008 a contingent earn out liability to the vendors which was based on Domo RR achieving certain revenue and profitability targets. The discounted value of this liability as at 31 December 2009 is €nil (2008:€3,592,000). The profitability targets were met and thus payments made to this contingent liability over 2009 were €3,592,000 (2008: €11,270,000).
The working capital facilities in the Group not utilized at 31 December 2009 amount to €14,841,000.
Maturity analysis for trade and other payables
|
2009 |
Due within |
Due between |
Due beyond |
|
|
1 year €'000 |
1 and 5 years €'000 |
5 years €'000 |
Total €'000 |
|
|
Trade payables |
90,197 |
- |
- |
90,197 |
|
Trade payables with related parties |
3,247 |
- |
- |
3,247 |
|
Refundable deposits |
1,108 |
- |
- |
1,108 |
|
Employees and social security |
4,793 |
|
|
4,793 |
|
Deferred income, accruals and other payables Other tax and social security taxes |
8,976 5 |
344 - |
- - |
9,320 5 |
|
|
108,326 |
344 |
- |
108,670 |
|
|
(Restated) |
|
|
(Restated) |
|
2008 |
Due within |
Due between |
Due beyond |
|
|
1 year €'000 |
1 and 5 years €'000 |
5 years €'000 |
Total €'000 |
|
|
Trade payables |
103,517 |
- |
- |
103,517 |
|
Trade payables with related parties |
4,064 |
- |
- |
4,064 |
|
Refundable deposits |
1,404 |
- |
- |
1,404 |
|
Employees and social security |
5,827 |
|
|
5,827 |
|
Deferred income, accruals and other payables |
12,056 |
- |
- |
12,056 |
|
Interest payable |
51 |
- |
- |
51 |
|
Other tax and social security taxes |
134 |
- |
- |
134 |
|
Deferred acquisition consideration |
23,975 |
- |
- |
23,975 |
|
|
151,028 |
- |
- |
151,028 |
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Less than 60 days |
82,383 |
87,670 |
|
61 - 120 days |
3,492 |
15,794 |
|
121 days and older |
4,322 |
53 |
|
|
90,197 |
103,517 |
22. Loans and borrowings
This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost.
|
|
|
|
|
|
2009 |
2008 |
|
|
|
|
|
|
€'000 |
€'000 |
|
|
|
Currency |
Nominal interest rate |
Year of maturity |
Carrying amount |
Carrying amount |
|
Subsidiary |
Creditor |
|||||
|
Non-Current |
|
|
|
|
|
|
|
TechnomarketDomo N.V. |
RZB |
€ |
Euribor + 4% |
2014 |
26,558 |
- |
|
KKE |
RZB |
€ |
Euribor + 3.5% |
2014 |
9,005 |
16,256 |
|
Immofinance EAD |
Alpha bank |
€ |
1m Euribor + 2% |
2013 |
- |
20,010 |
|
Banya Holiday AD |
DSK bank |
€ |
3m Euribor + 2.8% |
2013 |
- |
1,386 |
|
Related party loans |
Note 32 |
€ |
|
|
15,142 |
13,505 |
|
Finance lease creditor (note 27) |
|
€, BGN |
|
|
1,406 |
2,035 |
|
|
|
|
|
|
52,111 |
53,192 |
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
Immofinance EAD |
Alpha bank |
€ |
3m Euribor + 5% |
2013 |
29,838 |
- |
|
|
|
|
|
|
|
- |
|
TechnomarketDomo N.V. |
RZB |
€ |
Euribor + 4% |
2010 |
19,621 |
60,959 |
|
KKE |
RZB |
€ |
Euribor + 3.5% |
2014 |
1,001 |
3,422 |
|
Immofinance EAD |
Alpha bank |
€ |
1m Euribor + 2% |
2013 |
- |
4,442 |
|
|
|
|
|
|
|
|
|
Banya Holiday AD |
DSK bank |
€ |
3m Euribor + 2.8% |
2013 |
7,353 |
5,480 |
|
Novera AD |
Investkredit bank |
€ |
1.75%-2.75% |
2014 |
- |
12,412 |
|
Novera AD |
Accession Easter Europe Capital AB |
€ |
7% |
2013 |
- |
21,816 |
|
Related party loans |
Note 32 |
€ |
|
|
8,600 |
15,000 |
|
Finance lease creditor (note 27) |
|
€, BGN |
|
|
910 |
10,421 |
|
Overdrafts |
|
€, RON |
|
|
12,982 |
17,450 |
|
|
|
|
|
|
80,305 |
151,402 |
On 16 July 2009 TMD entered into indicative term sheet for the restructuring of its loan facilities with RZB following an €20 million debt repayment in July 2009 and provision shareholder commitment back by bank guarantee for additional €20 million repayment by 31 December 2009. The term sheet waived the covenants for 2008 and 2009 under the loan facility.
On 17 December 2009 TMD renewed its agreement with RZB. The new agreement of €65 million includes changes in interest conditions and loan covenants compared to the prior loan agreements. The loan covenants were waived until 31 December 2010. The loan matures in 31 December 2014. TMD exposure as at 31 December 2009 amounted to € 46 million. TMD reduced its exposure to RZB by € 20 million, which was paid in December 2009 (€3 million) and 6 January 2010 (€17 million).
KKE has received a loan from RZB with an original principal amount of €25 million. KKE exposure as at 31 December 2009 amounted to €10 million. The loan matures on 31 December 2014.
TBIL received a loan from Rila Samokov with a repayment date at 31 July 2010.The maturity date has since been extended until 31 December 2011.
The following breaches occurred during the 2009:
In April 2009 Banya Holiday AD was in default of its obligation to DSK Bank AD and the total commitment may become immediately payable on notice from the bank. The long term loan has been classified as current. Banya Holiday AD is required to pay penalty interest at a rate of 3m Euribor plus a spread of 9.8%.
Management is actively involved with DSK Bank to renegotiate the repayment of the principal to start in 2012 and the repayment of the interest, in 2011. The discussions continue.
In November 2009 Immofinance EAD was in default of its obligation to Alpha Bank and the total commitment may become immediately payable on notice from the bank. The long term loan has been classified as current. Immofinance EAD is required to pay penalty interest at a rate of 3m Euribor plus a spread of 7.5%. Management is actively involved in discussions with Alpha Bank.
The carrying value of the short term loans and borrowings approximates the fair value of these amounts. The carrying value of the long term loans and borrowings approximates their fair value, because they bear an interest rate approximately equivalent to the market interest rates.
The security held by the lenders of secured bank loans comprises:
· The pledge of a going concern of K&K Electronics EOOD, including pledge of shares, cash and cash equivalents, property plant and equipment, trademarks and inventories
· The pledge of a going concern of TMD
· The pledge of the shares of Axis NV in TMD
· The pledge of Immofinance EAD work in progress (Sozopolis Project)
· The pledge of Immofinance EAD receivables
· The pledge of the Banya land on which the project has been developed
· The pledge of two flats owned by Immofinance EAD
Finance lease payables are secured over the assets they relate to. See the property, plant and equipment note (note 11) for the related amount of property, plant and equipments pledged as a security.
The related party loans are unsecured and carry interest at a fixed rate of between 1% and 17.5%.
The currency profile of the Group's loans and borrowings is as follows:
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Euro |
127,552 |
143,370 |
|
RON |
2,585 |
|
|
Bulgarian Lev |
2,279 |
61,224 |
|
|
132,416 |
204,594 |
The Group uses credit lines (overdrafts) whose status as of the year end is as follows: credit limit of € 22,719,293; unutilized amounts at year end of € 9,731,518.
Related party loans
The terms and conditions of the related part loans are discussed in note 32 Related party transactions. |
|
|
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24. Provisions
|
|
2009 |
2008 |
||||
|
|
Warranty and Other |
Pensions |
Total |
Warranty and Other |
Pensions |
Total |
|
|
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
€'000 |
|
Beginning of year |
591 |
1,094 |
1,685 |
512 |
68 |
580 |
|
Charged to profit or loss |
357 |
61 |
418 |
664 |
21 |
685 |
|
Additions |
- |
18 |
18 |
- |
991 |
991 |
|
Utilised in year |
(538) |
- |
(538) |
(585) |
(65) |
(650) |
|
Derecognised |
- |
(1,021) |
(1,021) |
- |
- |
- |
|
Unwinding of discount |
- |
(93) |
(93) |
- |
79 |
79 |
|
End of year |
410 |
59 |
469 |
591 |
1,094 |
1,685 |
|
|
|
|
|
|
|
|
|
Due within one year or less |
311 |
59 |
370 |
418 |
1,015 |
1,433 |
|
Due after more than one year |
99 |
- |
99 |
173 |
79 |
252 |
|
Total provisions |
410 |
59 |
469 |
591 |
1,094 |
1,685 |
The Group has accrued provisions for pensions to its employees based on the requirements as set forth by the Labour Code in Bulgaria. The provisions are accrued to the extent that management believe that the employees will continue to be the Group's employees until the date of the retirement.
25. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using tax rates that are expected to apply when the asset or liability is recovered or settled. The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS12: Deferred tax) during the period are shown below.
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Balance at the beginning of year |
7,291 |
10,338 |
|
Current year movements through the income statement: |
|
|
|
Temporary differences on property, plant and equipment |
34 |
(292) |
|
Other temporary differences |
105 |
(60) |
|
Revaluation of investment property |
(699) |
(1,084) |
|
Thin capitalisation |
43 |
43 |
|
Impairment of inventory |
11 |
(34) |
|
Impairment of receivables |
1 |
(28) |
|
|
|
|
|
Disposals |
(79) |
|
|
Current year movements taken to other comprehensive income: |
|
|
|
Available-for-sale securities |
(14) |
14 |
|
Temporary differences on property, plant and equipment |
16 |
- |
|
Impairment of inventory |
59 |
- |
|
Temporary differences on intangible assets |
(481) |
(696) |
|
|
|
|
|
Acquired through business combinations: |
|
|
|
Temporary differences on property, plant and equipment |
- |
(61) |
|
Other temporary differences |
- |
(849) |
|
End of year |
6,287 |
7,291 |
|
|
|
|
|
Deferred tax assets and liabilities for the year comprise the following: |
|
|
|
Deferred tax liabilities |
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Temporary differences on property, plant and equipment |
468 |
418 |
|
Temporary differences on intangible assets |
5,843 |
6,324 |
|
Other temporary differences |
- |
147 |
|
Revaluations |
364 |
1,063 |
|
Available-for-sale assets |
- |
14 |
|
Total deferred tax liabilities |
6,675 |
7,966 |
|
|
|
|
|
Deferred tax assets |
|
|
|
|
2009 €'000 |
2008 €'000 |
|
Thin Capitalisation |
- |
43 |
|
Impairment of receivables |
37 |
38 |
|
Impairment of inventory |
41 |
111 |
|
Temporary differences on property, plant and equipment |
317 |
322 |
|
Other temporary differences |
(7) |
161 |
|
Total deferred tax assets |
388 |
675 |
Deferred tax assets have been recognised in respect of all such tax losses and other temporary differences giving rise to deferred tax assets where the Directors believe it is probable that these assets will be recovered.
Unrecognised tax assets on deductible temporary differences which expire within the next 12 months amount to €13,000 (2008: €64,000) and expiring over a period exceeding 12 months is €1,743,000 (2008: €2,439,000). Unrecognised deferred tax assets on unrecognised tax losses carried forward amount to €3,242,000 (2008: €43,000). Of these, €23,000 will expire within the next 12 months.
26. Assets and liabilities classified as held for sale
In 2008 the Group took a decision to dispose of its interest in the Avto Union AD group. The Avto Union AD subsidiary within the automotive sector was therefore presented as a held for sale disposal group in the 31 December 2008 consolidated financial statements. In April 2009 the Group entered into an agreement for the sale of Avto Union AD Holding Limited for €7,200,000 and thus all assets and liabilities were disposed of during the year.
The following major classes of assets and liabilities relating to these operations have been classified as held for sale in the consolidated statement of financial position at 31 December 2009.
|
|
Total |
Total |
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Assets classified as held for sale |
|
|
|
Property, plant and equipment |
- |
27,240 |
|
Investment Property |
- |
51 |
|
Other non-current assets |
- |
504 |
|
Inventories |
- |
11,677 |
|
Trade and other receivables |
- |
2,421 |
|
Cash |
7 |
1,666 |
|
Other current assets |
- |
430 |
|
Total assets |
7 |
43,989 |
|
Liabilities classified as held for sale |
|
|
|
Loans and borrowings |
- |
21,420 |
|
Other non-current liabilities |
- |
18 |
|
Trade and other payables |
40 |
9,730 |
|
Loans and borrowings |
- |
4,571 |
|
Other current liabilities |
2 |
236 |
|
Total liabilities |
42 |
35,975 |
During 2008 there were significant impairments recognised on the assets relating to the Avto Union AD operation (note 4).
27. Obligations under finance leases
Finance leases
The Group leases a portion of its plant, machinery and motor vehicles with a net carrying value of €1,444,000 (2008: €14,894,000) and computer equipment with a net carrying value of €1,467,000 (2008: €215,000). Such assets are generally classified as finance leases as the rental period amounts to the estimated useful economic life of the assets concerned and often the Group has the right to purchase the assets outright at the end of the minimum lease term by paying a nominal amount.
Future lease payments are due as follows:
|
Obligations under finance leases |
2009 |
2008 |
||||
|
|
Minimum lease payment |
Carrying value |
Minimum lease payment |
Carrying value |
||
|
|
€'000 |
€'000 |
€'000 |
€'000 |
||
|
Amounts payable under finance leases: |
|
|
|
|
||
|
Within one year |
1,056 |
910 |
12,118 |
10,421 |
||
|
In more than one year and not more than five years |
1,499 |
1,407 |
2,247 |
2,027 |
||
|
In more than five years |
- |
- |
8 |
8 |
||
|
|
2,555 |
2,317 |
14,373 |
12,456 |
||
|
Less: Future finance charges |
(239) |
(1) |
(1,917) |
- |
||
|
Present value of lease obligations |
2,316 |
2,316 |
12,456 |
12,456 |
||
|
Less amounts due within one year |
(910) |
(910) |
(10,421) |
(10,421) |
||
|
Amounts due after more than one year |
1,406 |
1,406 |
2,035 |
2,035 |
||
28. Operating leases
Operating leases - lessee
The Group leases shops, offices and warehouses under non-cancellable operating lease agreements. The majority of the leases have varying terms, escalation clauses and renewal rights.
The total future value of minimum lease payments is due as follows:
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Not later than one year |
22 957 |
27,526 |
|
Later than one year and not later than five years |
82,776 |
84,896 |
|
Later than five years |
27,877 |
41,409 |
|
|
133 610 |
153,831 |
During the year an amount of €27,447,000 was recognised as an expense in the profit and loss account in respect of operating leases.
29. Share capital and reserves
Authorised
The authorised share capital of the Company is 50,000,000 Ordinary shares of no par value.
|
Issue share capital |
|
2009 |
|
2008 |
|
|
|
Ordinary shares |
|
Ordinary shares |
|
|
Number |
€'000 |
Number |
€'000 |
|
|
|
|
|
|
|
Beginning of year |
18,265,890 |
253,846 |
17,324,350 |
242,145 |
|
Shares issued |
- |
- |
941,540 |
11,701 |
|
End of year |
18,265,890 |
253,846 |
18,265,890 |
253,846 |
All issued ordinary shares are fully paid up.
The following describes the nature and purpose of each reserve within owners' equity:
|
Reserve |
Description and purpose |
|
|
|
|
Share capital |
Amount subscribed for share capital at nominal value. |
|
|
|
|
Warrant reserve |
Amount of warrants granted at fair value. |
|
|
|
|
Available-for-sale (AFS) |
Gains/losses arising on financial assets classified as available-for-sale. |
|
|
|
|
Foreign exchange |
Gains/losses arising on retranslating the net assets of overseas operations into € |
30. Share-based payment
Termination agreement and related warrant agreement
As described in note 32, the consideration for the Termination Agreement of 17 June 2008 in respect of Equest Capital Management Limited was the issue of 941,540 ordinary shares and warrants over 564,925 ordinary shares. The cost of the termination agreement amounted to €18,487,000 which was based on the fair value of the shares issued and warrants and is charged to the income statement. The fair value of the shares issued is the market price of the shares, and as at 17 June 2009, this amounted to €11,701,000.
The fair value of the warrants has been independently determined at €6,786,000 using the Black-Scholes pricing model, based on a share price of £9.40. The fair value of each warrant was calculated as €12.01. The share price volatility was assumed to be equal to 5% and the risk free rate of return was assumed to be 5.6%. The warrants were granted by the Company under a warrant instrument and are exercisable for nil consideration at any time after the expiry of 12 months from 1 January 2008 on the condition that (i) the net asset value ("NAV") per Ordinary Share reported immediately prior to the exercise of any Warrants is not less than the audited NAV per Ordinary Share as at 31 December 2007, and (ii) ECL is not in any material default at the date of exercise of such Warrants under the Termination Agreement, the Services Agreement or the Technical Support Agreement. In 2008 the cost amounted to €6,786,000 was based on the fair value of the warrants and was charged to the income statement. Based on the NAV at 31 December 2009, no warrants are currently exercisable.
Long Term Incentive Plan
On 5 November 2009 the Company and ECL agreed to terminate the long term incentive plan(the "LTIP"). No payments have or will be made under the LTIP in respect of the current financial year ending 31 December 2009 or in respect of future years. There is no impact on the consolidated financial statements from cancelling of the LTIP.
31. Disposal of subsidiary
In May 2009 the Group disposed of Avto Union AD Holding Limited which carried out its automotive operations for €7,200,000 and profit on disposal of €2,500,000 (note 9).
|
Consideration received: |
|
|
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
|
|
|
|
Consideration received, satisfied in cash (note 6) |
7,200 |
- |
|
Cash and cash equivalents disposed of |
(1,142) |
- |
|
Net cash inflow |
6,058 |
- |
In July 2009 Novera EAD went into liquidation which led to the Group losing control over its infrastructure operations.
|
Analysis of the assets and liabilities over which control was lost: |
|
|
|
|
Total |
Total |
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
Property, plant and equipment |
12,255 |
- |
|
Investment Property |
20,256 |
- |
|
Other non-current assets |
196 |
- |
|
Inventories |
10,116 |
- |
|
Trade and other receivables |
4,101 |
- |
|
Cash |
1,306 |
- |
|
Other current assets |
461 |
- |
|
Loans and borrowings |
(93,162) |
- |
|
Other non-current liabilities |
(362) |
- |
|
Trade and other payables |
(11,108) |
- |
|
Share capital |
(17 300) |
|
|
Minority interest |
(1 518) |
|
|
Other current liabilities |
(2 692) |
- |
|
Net assets and liabilities |
(77,451) |
- |
|
|
|
|
32. Related party transactions
Balances and transactions between the parent company and its subsidiaries, which are related parties of the parent company have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the group and other related parties are disclosed below.
Related parties with which the Group have had transactions during the year include:
- Key management personnel;
- Associates;
- Joint ventures;
- Other related parties, including non-controlling shareholder of subsidiaries and joint ventures, as well as shareholders of the Group.
Trading transactions
|
Sale of goods, property and other assets and rendering of services |
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Key management personnel |
- |
- |
|
Associates |
2,260 |
- |
|
Joint ventures |
926 |
|
|
Other related parties |
14,327 |
23,871 |
|
|
17,513 |
23,871 |
|
Purchases of goods, property and other assets and rendering of services |
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Key management personnel |
- |
- |
|
Associates |
4,058 |
103 |
|
Joint ventures |
- |
- |
|
Other related parties |
3,379 |
6,650 |
|
|
7,437 |
6,753 |
Certain loans were made to associates and joint ventures during the year and the interest is described below. These related party transactions include both those from continued and discontinued operations.
|
Interest expense |
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Key management personnel |
- |
- |
|
Associates |
- |
- |
|
Joint ventures |
507 |
|
|
Other related parties |
3,494 |
192 |
|
|
4,001 |
192 |
|
Interest income |
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Key management personnel |
- |
- |
|
Associates |
989 |
1 173 |
|
Joint ventures |
540 |
912 |
|
Other related parties |
387 |
359 |
|
|
1 916 |
2,444 |
|
Amounts owed by related parties |
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Key management personnel |
- |
- |
|
Associates |
10,875 |
15,362 |
|
Joint ventures |
4,844 |
9,076 |
|
Other related parties |
11,348 |
17,475 |
|
|
27,067 |
41,913 |
Amounts above owed by related parties include interest receivables of €2,333,714 (2008: €2,543,000), trade receivables of €177,516 (2008: €232,000) and loan receivables of €31,427,239 (2008: €34,413,000).
The Group has recognised an impairment loss of €7,908,000 (2008: nil) for impairment in respect of related party receivables.
|
Amounts owed to related parties |
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Key management personnel |
- |
- |
|
Associates |
120 |
- |
|
Joint ventures |
7,707 |
- |
|
Other related parties |
19,162 |
32,815 |
|
|
26,989 |
32,815 |
Included in the above amounts owed to related parties are interest payables of €1,400,000 (2008: €245,000). Trade payables of €3,247,000 (2008: €4,065,000) and loan payables of €22,342,000 (2008: €28,505,000). Loans payable include loan from Rila Samokov 2004 AD and Loan from Lyra investment Holding N.V. as disclosed further below.
Terms and conditions of transactions with related parties
Outstanding balances at the year-end are unsecured, interest free (except for loans) and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables.
Related party loans are unsecured and bear interest at a rate of between 0% and 10%. No guarantees have been given or received during 2009 or 2008 regarding related party transactions. A loan of €15,000,000 was repaid to Uniqa Real Estate AG within the current year. The Loan of €15,101,000 (2008: €13,159,000) at carrying amount payable to Lyra investment Holding N.V. carries interest at 1% per annum and is payable in 2014.
The loan to Rila amounts to €7,200,000 as at 31 December.2009. It bears interest of 12% and was repayable on 31 July 2010. The maturity date has been extended until 31 December 2011.
Related Party Transactions
Messrs. Karjalainen, Haataja and Krumov, formerly Executive Directors of the Company, are the ultimate owners of Equest Capital Management Limited (ECL). ECL and the Company's terminated the agreement effective 17 June 2008 and entered into a technical support agreement (the "Technical Support Agreement") and a services agreement (the "Services Agreement"). Pursuant to Service Agreement ECL agreed to procure that Messrs. Karjalainen, Haataja and Krumov and other senior managers are made available to the Company to present any new business opportunities they identify in the target region (which includes Bulgaria, Romania, Albania, Croatia, FYR Macedonia, Kosovo, Bosnia and Herzegovina, the Republic of Serbia, Slovenia, the Republic of Montenegro, Turkey and Ukraine) (the "Target Region") and which are within the remit of Company's investment objective and strategy to the Company. Pursuant to the Technical Support Agreement, ECL was obliged to provide or procure the provision of back office technical support and other services necessary for the Company's day to day operations such as office premises in various locations, IT, administrative and finance services.
Both Agreements were terminated effective 5 November 2009 pursuant to which, the Company had no obligations, whether past, present or future to ECL in respect to incentive fees. As a settlement ECL has received consideration comprising of an amounts of €800,000 for services under Service Agreement and Technical Support Agreement and an amount of €500,000 to cover all remaining obligations by the Company to ECL and the other parties.
In 2009 the Company has paid the amount of €600,000 as per the provisions of the Settlement and Termination Agreement. The amounts of €200,000 and €500,000 representing the retained amount are subject to fulfilment of conditions under the agreement. These amount will be withheld by the Company until the guarantee, loan or other financial accommodation issued by the subsidiary of TBIL, Immofinance EAD or its affiliates granted to or in respect of Bellview Property Management, a whole owned subsidiary of ECL is fully released and repaid to the Company.
SGRF Agreement
The Group through its wholly owned subsidiary Axis Retail N.V. ("Axis Retail"), owns 61.83% of the shares of TechnomarketDomo N.V. ("TMD"). The remaining shares are owned by: Lyra Investment Holding NV (25.17%); Dominuse Management Ltd (12.74%) and Alexandru Mnohoghitnei (0.26%).
On 16 July 2009, as part of the restructuring of loan agreements (the "RZB Loan") between Axis Retail, TMD and its operating subsidiaries, K & K Electronics EOOD and Domo Retail SA and Raiffeisen Zentralbank Österreich AG ("RZB"), Axis Retail was required to repay RZB an amount of €20 million by 31 December 2009. To secure this repayment, a bank guarantee for €20 million (the "Guarantee") was issued by Citibank, N.A. ("Citibank") in favour of RZB. Pursuant to the terms of the Commercial Agreement between SGRF and TBIL, SGRF provided credit support to TBIL (the "SGRF Facility") to facilitate the issue of the Guarantee. As part of the SGRF Facility, (i) SGRF made available to Citibank collateral for any drawdown by RZB under the Guarantee, (ii) TBIL indemnified SGRF for any loss it may incur in the event Citibank made a drawdown on the Guarantee, and TBIL granted security to SGRF over substantially all of TBIL's assets to secure its indemnity obligation (the "SGRF Security"), and (iii) SGRF had the right, subject to the satisfaction of certain conditions, to exchange any unpaid indebtedness or liability of TBIL to SGRF for TBIL's indirect interest in TMD, the value of 100% of TMD's shares being fixed for this purpose at €20 million (the "TMD Right").
The SGRF Security included a charge over TBIL's shares in Axis Retail and Axis S-retail, as well as over TBIL's interests (or the proceeds thereof) in various property holdings including Rodacar AD, Serdika and Immofinance EAD. According to the Commercial Agreement, the Group is restricted from selling its properties and equity investments without the written consent of SGRF.
As from 31 December 2009, SGRF had the right to exchange any unpaid indebtedness or liability of TBIL to SGRF for TBIL's indirect 61.8% interest in TMD, which right was not exercisable until after 31 December 2010 unless (i) certain conditions related to TMD's business integration and further management appointments at TMD were not satisfied by TBIL by 31 December 2009, in which case, SGRF's exchange rights would be exercisable after 31 December 2009 or (ii) an event of default occurred under any of the agreements with SGRF, in which case, SGRF's exchange rights would become exercisable immediately.
SGRF has asserted that part of the covenants under the Commercial Agreement were not satisfied by 31 December, 2009.
As at 31December, 2009 the Group had repaid €3 million of the RZB loan (note 22 - borrowings). During January 2010 (note 34 - events after BS date) the Citibank guarantee was called by RZB.
For 2009 the Group has recognized €893,000 interest and other expenses (2008: nil ). The balance of the payable of the Group to SGRF as of 31December, 2009 was €893,000 (2008: nil). The SGRF option to acquire TBIL's interest in TMD for a fixed price and related contract provisions have not been valued and recorded as at 31December, 2009.
For further developments on SGRF related matters refer to note 34 - events after BS date.
|
Compensation of key management personnel |
Year ended |
Year ended |
|
|
31/12/2009 |
31/12/2008 |
|
|
€'000 |
€'000 |
|
Short-term benefits |
1,098 |
1,270 |
|
Post employment benefits |
- |
- |
|
Other long-term benefits |
- |
- |
|
Share based payments |
- |
18,487 |
|
|
1,098 |
19,757 |
33. Contingent assets and liabilities
The Group's contingent liabilities include:
|
|
2009 |
2008 |
|
|
€'000 |
€'000 |
|
|
|
|
|
Bank guarantees |
10,158 |
10,876 |
|
Letters of credit |
13,437 |
15,441 |
|
Trade guarantees |
1,250 |
2 556 |
|
|
24,845 |
28,873 |
For guaranteeing the payables in compliance with the effective commercial contracts, for collaterals connected with the execution of the customs duties of the Group and as part of the credit facility contracts, the bank guarantees of €10,158,000 ( 2008: €10,876,000) have been issued by the credit institutions servicing the Group. The bank guarantees as at 31 December 2008 were all provided to related parties of the Group
Immofinance EAD has guaranteed liabilities to a bank for a third party amounting to €1,250,000 (2008: € 2,556,000). The third party had been controlled by a key management personnel member up to October 2009. Management believes that it is not highly probable that a payment could occur in order to settle the guarantee.
Certain assets of the Group are pledged as security relating to bank loans (note 22). There are no contingent assets relating to the Group.
34. Events after the reporting date
On 11 January 2010 RZB received the balance of €17 million (plus accrued interest) due to be repaid to it by 31 December 2009 by the Group by calling the Citibank, N.A., Sofia Branch guarantee issued to RZB as part of the restructuring of TMD's debt facilities during the summer of 2009 (see note 32 - related parties). This amount, in turn, was met by SGRF, TBIL's largest shareholder, under the terms of its counter indemnity granted in respect to the Citibank Guarantee. The Board of TBIL acknowledged that the aforementioned restructuring, while burdening TBIL with onerous commitments to SGRF by way of a comprehensive security package ("the SGRF Security"), nevertheless provided TBIL with further time to protect and grow the value of its investment in TMD.
On 9 February 2010, the Board announced that SGRF had notified TBIL that SGRF's exchange rights under the SGRF Security had become exercisable and that SGRF had reserved its position. TBIL entered into discussions with SGRF over the circumstances giving rise to this notification and continued to work with SGRF on a longer term resolution of these issues. To this end, on 3 June 2010, the Board announced that it was in discussion with the minority shareholders of TMD concerning an unsolicited and indicative offer from them to purchase TBIL's equity shareholding of 61.8% in TMD. Whilst giving suitable consideration to this offer, the Board has also continued to consider other realistic options in order to resolve most advantageously for all the Company's shareholders the matter of raising sufficient funds both to repay the €17 million TBIL owes to SGRF as well as to finance the further development of the TMD Group's business throughout the South East European region. Consequently, the Board announced on 4 August 2010 that it had engaged Entrea Capital of Sofia, Bulgaria and Capital Partners of Bucharest, Romania, acting jointly, to be its independent financial adviser to assist it in respect to this offer as well as in reviewing other realistic options, including the sale of TBIL's holding in TMD in whole or in part to a third party. Furthermore, the Board confirmed that it had also appointed Ernst & Young to prepare an independent fair valuation of TBIL's holding in TMD. This initial indicative offer was followed by a further offer from one of these minority shareholders acting alone. Discussions in respect to these offers are continuing.
This review of the options in respect to TMD is taking place as the Company continues to face a challenging trading environment.
During October 2010, following negotiations between TBIL and SGRF, an Amendment Agreement was signed, the principal terms of which are as follows:
· SGRF has agreed to defer exercising the right to acquire TMD until the date falling 12 months after the date of the Amendment Agreement (the "End Date") and, in consideration for that deferral, TBIL has agreed to pay the following amounts:
· pay SGRF a fee of €8.5 million as soon as it has available funds and no later than upon receipt of the proceeds of the sale of its indirect interest in TMD or a sufficient part of them (the "Completion Date") or the End Date (whichever is first to occur);
· pay SGRF 15% of the net proceeds of the sale of its indirect interest in TMD on the Completion Date;
· pay SGRF 30% of any part of the net proceeds of the sale of its indirect interest in TMD payable as deferred consideration after the Completion Date as and when received, but only in respect of proceeds of the sale of its indirect interest in TMD in excess of €45 million; and repay the loan of €7.2 million plus accrued interest to Rila Samokov (the "Rila Loan") on or before the Completion Date or 31 December 2011 (whichever is first to occur).
· If the net proceeds of sale of TBIL's indirect interest in TMD are insufficient to satisfy the foregoing amounts and other amounts arising under the SGRF Facility by the End Date, SGRF may exercise the right and will continue to be entitled to the fee of €8.5 million set out above.
· TBIL shall extend the existing security granted in favour of SGRF to secure the timely payment of all amounts under the Amendment Agreement, as well as timely repayment of the Rila Loan. The existing security takes the form of a pledge over TBIL's indirect interest in TMD and Harwood Holding BV (whether over shares and shareholder loans in Axis Retail NV, Axis S - Retail NV and/or over shares and shareholder loans in TMD at SGRF's option) (ranking only after RZB's security interests and SGRF's second ranking security) and a pledge over TBIL's bank accounts.
· TBIL shall afford SGRF the opportunity, upon receipt of an informal, indicative or formal offer (containing prescribed details of such an offer) from a third party for its indirect equity interest in TMD, within 10 days after that offer (and before TBIL enters exclusivity with that third party), to submit a competing offer in writing, whether informal, indicative or formal as SGRF sees fit, and if SGRF chooses to submit an offer, TBIL shall consider that offer and, if it thinks fit, pursue that offer instead of pursuing the third party offer. TBIL shall pursue such offer submitted by SGRF instead of a third party offer, if the consideration offered by SGRF is, taken as a whole and in TBIL's reasonable judgement, higher than the consideration in any reasonably credible competing offer. Due account will be taken of the risk inherent in offers involving third party finance or deferred consideration (but this shall not preclude TBIL from pursuing a subsequent third party offer from an existing bidder or a new source, received before formal acceptance of SGRF's formal offer, if the third party offer is higher in TBIL's reasonable judgement taking into account those factors).
· TBIL shall co-operate with the appointment by SGRF of specialist advisers initially being Alvarez & Marsal or another professional with relevant experience to advise in relation to TMD. If and to the extent SGRF so requires, and provided it is not contrary to the best interests of TBIL and TMD to do so, TBIL shall exercise its powers as indirect holder of 61.83% of the shares of TMD to cause (i) one or two officers of that specialist adviser to be appointed to the board of TMD (provided that such candidate is suitable and if found not to be suitable SGRF may propose a replacement or replacements until a suitable candidate is found) and (ii) TMD to join in the appointment of that specialist adviser and (iii) TMD to implement the recommendations of that specialist adviser. The reasonable fees and costs of such specialist advisers may be allocated to TBIL (or if TMD joins in the appointment of the specialist adviser to TMD) by SGRF and TBIL shall bear or, if TMD joins in the appointment of the specialist adviser, exercise its powers as indirect holder of 61.83% of the shares of TMD to seek to cause TMD to bear those fees and costs.
· Until the End Date (and subject to no Event of Default or breach of the Amendment Agreement occurring) SGRF will take no enforcement action in respect of Events of Default under the Commercial Agreement (as amended) occurring before the date of the Amendment Agreement of which it is aware.
· TBIL shall seek, subject to shareholder approval, to delist its shares from AIM, at its next Annual General Meeting or as soon as practicable thereafter.
On 30 July 2010, the sale of Iztok, one of the three former cinemas sites in Sofia, owned through Pelican Retail EAD was completed. The net sale proceeds amounting to €1,428,000 in cash which has been received and utilised to fund the Company's liabilities and continuing operations.
On 30 July 2010, the revised repayment schedule was agreed with Eurohold in connection with the sale of Auto Union AD. The outstanding amount of €2,000,000 will be paid in instalments until 15 February 2011.
On 6 October 2010 the preliminary agreement for the sale of Urvich, one of the former three cinemas sites,has been signed
In November 2010 Evropa Palace one of the former three cinema sites was sold
DIRECTORS AND ADVISERS
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Board of Directors Ian Schmiegelow Non-executive Chairman Warith Al-Kharusi Non-executive Director Faisal Al-Riyami Non-executive Director Kalim Aziz Non-executive Director Guido Brera Non-executive Director Robin James Non-executive Director |
Registered Office Harneys Corporate Services Limited Cragmuir Chambers PO Box 71 Road Town Tortola British Virgin Islands |
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Nominated Adviser & Joint Broker Collins Stewart Europe Limited 88 Wood Street London EC2V 7QR England |
Joint Broker KBC Peel Hunt 111 Old Broad Street London EC2N IPH England |
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Independent Auditor |
Custodian |
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Deloitte Audit OOD |
Northern Trust (Ireland) Limited |
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103 Stamboliiski blvd. |
Georges Court |
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Sofia |
54-62 Townsend Street |
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Bulgaria |
Dublin 2 |
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Ireland |
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Legal Counsel to the Company Harney Westwood & Riegels Cragmuir Chambers PO Box 71 Road Town Tortola British Virgin Islands |
Registrar Computershare Investor Services (BVI Limited) c/o PO Box 83 Ordnance House 31 Pier Road St Helier Jersey JE4 8PW |
INDEPENDENT AUDITOR'S REPORT
To the shareholders of
Trans Balkans Investment Limited (TBIL)
Report on the Consolidated Financial Statements
1. We have audited the accompanying consolidated financial statements from page 22. to page 99 of Trans Balkans Investment Limited (the "Group"), which comprise the consolidated statement of financial position as of December 31, 2009, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. The Group's consolidated financial statements for the year ended December 31, 2008 have been audited by another auditor who issued unqualified opinion dated August 17, 2009.
Management's Responsibility for the Consolidated Financial Statements
2. Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), as approved by the European Union. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor's Responsibility
3. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Except as discussed in paragraphs 6 and 7 below, we conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Group's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
5. We believe, except as discussed in paragraphs 6 and 7 below, that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Basis for qualification
6. As disclosed in note 19 to the accompanying consolidated financial statements as of December 31, 2009 the Group reports amounts receivable from related parties, including EUR 8,465 thousand of unsecured loans and trade receivables and EUR 680 of equity investment. We were unable to determine whether these assets are fully recoverable and if they are fairly valued and presented in the consolidated statement of financial position as of December 31, 2009.
7. As disclosed in note 13 to the accompanying consolidated financial statements as of December 31, 2009 the Group reports goodwill and trademarks with a carrying amount of EUR 75,051 thousand related to the TechnomarketDomo N.V. ("TMD") cash generating unit.
As disclosed in note 1.6 and note 32 to the accompanying consolidated financial statements the parent company TBIL has entered into a commercial agreement (the "Commercial Agreement") with its largest shareholder, the State General Reserve Fund of the Sultanate of Oman (SGRF). According to the Commercial Agreement, TBIL is required to comply with certain covenants, part of which have been asserted by SGRF as not having been complied with as of December 31, 2009. In case of non-compliance, SGRF has the right to acquire TBIL's equity interest in TMD for EUR 12.4 million. In February 2010 SGRF has notified TBIL that their exchange right under the Commercial Agreement had become exercisable and as such SGRF reserved its position.
As further disclosed in note 34 to the accompanying consolidated financial statements, in October 2010 TBIL entered into an amendment agreement with SGRF (the "Amendment Agreement"). Under the Amendment Agreement, SGRF has agreed to defer for twelve months from the date of the Amendment Agreement the exercise of its right to acquire TBIL's interests in TMD, which right SGRF has asserted it is entitled to exercise immediately pursuant to the terms of the Commercial Agreement. The deferral of its right is provided by SGRF so as to afford TBIL an opportunity to sell its interest in TMD and to participate in the proceeds from such sale in exchange for the payment of certain fees and other amounts. If the net proceeds of the sale of TBIL's indirect interest in TMD are insufficient to satisfy the amounts due to SGRF, including those arising from the Amendment Agreement by the end of the extended period as per the Amendment Agreement, SGRF may exercise the right to acquire TBIL's indirect interest in TMD and will continue to be entitled to certain fees. Accordingly, the Group's forecasts and projections till October 2011 are substantially dependent on the expected proceeds from sale of TMD following the Amendment Agreement.
As further disclosed in note 13 to the accompanying consolidated financial statements, for the purposes of goodwill impairment testing, the recoverable amount of TMD as cash generating unit has been determined by applying discounted cash flow valuation analysis based on the five-year business plans provided by management. A period of 5 years has been chosen as management believes this is the approximate amount of time needed for the companies to achieve stable growth and normalised profitability levels. As a result of this analysis the Group has recognized impairment losses of EUR 25 million as of December 31, 2009.
As the recoverability of the goodwill and the trademarks is dependent upon the successful sale of TMD, and considering the current market conditions and the complexity of the above described matters, we were unable to satisfy ourselves through other audit procedures, as to whether the goodwill, trademarks, provisions for onerous contracts, and/or puttable option liability and other liabilities, if any, are fairly presented and valued in the accompanying consolidated financial statements.
Qualified Opinion
8. In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves as to the matters discussed in paragraphs 6 and 7 above, the Group's consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2009, and of its financial performance and its cash flows for the year then ended, in accordance with IFRS, as approved by the European Union.
Emphasis of matter
9 Without further qualifying our opinion we draw attention to the following matters:
· As disclosed in note 1.6 to the accompanying consolidated financial statements the management has developed estimates for fair value of properties, classified as inventories and investment properties, by engaging external appraisers to carry out valuations. The work carried out by the appraisers was based upon information supplied by the management which was assumed to be correct and comprehensive. Due to the inherent uncertainty in valuation, especially in the current market conditions, the fair values may differ significantly from the values that would have been used in the presence of an active property market and other valuation methods applied and sources of information used, and these differences could be material.
· As disclosed in note 1.6 the Group's consolidated financial statements are prepared on a going concern basis. The Group's forecasts and projections until October 2011 are substantially dependent on the expected proceeds from sale of TMD following the Amendment Agreement. The management has made assumptions in their financial forecasts regarding the expected sale proceeds, however, there are material uncertainties underlying these assumptions due to the current challenging market situation and the unpredictable nature of the expected sale proceeds and the related costs of disposal. The material uncertainties related to events or conditions and the time constraints imposed by the Amendment Agreement, may cast significant doubt on the Group's ability to continue as a going concern and, therefore, it may be unable to realize its assets and discharge its liabilities when they fall due. These consolidated financial statements do not include any adjustments that may be required in the event the Group is unable to continue as a going concern.
Deloitte Audit OOD
Sylvia Peneva
Managing Director
Registered Auditor
December 14, 2010
Sofia
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