Interim Results

RNS Number : 9086Z

Equest Investments Balkans Ltd

30 September 2009

 



30 September 2009 

Equest Investments Balkans Limited

Interim Results 

for the six months ended 30 June 2009

Equest Investments Balkans Limited ('EIB' or 'the Company'), a holding company for investments in the Balkan region, today announces its interim results for the six months ended 30 June 2009. 

Highlights for the Period

• Consolidated revenue of Euro 239.5 million for the six months ended 30 June 2009 (30 June 2008: Euro 263.9 million)

• Operating loss of Euro 15.3 million (30 June 2008: operating loss of Euro 18.3 million)

• Pre-tax loss of Euro 27.5 million (30 June 2008: loss of Euro 34.4 million)

• Loss per share from continuing operations of Euro 1.25 (30 June 2008: loss per share Euro 1.96)

• Total net assets at 30 June 2009 of Euro 131.0 million (31 December 2008: Euro 159.7 million and 30 June 2008: Euro 258.2 million) 

• Net asset value per share of Euro 7.2 (31 December 2008: Euro 8.7 and 30 June 2008: Euro 14.1)

• Two disposals during period; 80% stake in Avto Union for Euro 8.0 million and 37.7% stake in Uniqa Bulgaria for Euro 23.1 million 

• TechnomarketDomo ('TMD'), the leading electronic retailer in South East Europe and EIB's largest holding, had consolidated revenue of Euro 239.5 million (30 June 2008: Euro 262.6 million) 

  • Despite sales impacted by negative trading environment, TMD has increased market share in both core electronics retail markets: Bulgaria c.44% and Romania c.24%

  • TMD wholesale business increased and compensated for reduction in retails sales

Post Period End Events

·   Significant refinancing of TMD's senior debt facilities in July 2009 

·   Disposal programme continues, with the sale of some smaller land and property  
 assets for Euro 1.4 million

·   Novera's senior loan of Euro 12.97 million to Investkredit Bank AG has been settled 

 

Commenting on the results, Ian Schmiegelow, Non-executive Chairman, said:

'The first half of 2009 has witnessed a continuing downturn in the economies of South East Europe and EIB has not been immune to the momentum of this setback. Despite this negative environment, the Company has held to its strategy of concentrating its operations on TechnomarketDomo, EIB's largest holding and the leading electronics retailer in the region, and on maintaining progress with the required disposals of non-core assets to meet debt repayments as well as for providing necessary working capital. In addition, EIB is also now engaged in a review of its corporate structure and management organisation, the results of which will be announced in due course'. 

For further information please contact:    

Equest Investments Balkans Limited	Ian Schmiegelow  Petri Karjalainen Naomi Kora	Tel: + 44 20 7630 3350 Tel: + 44 20 7240 7600
Collins Stewart Europe Limited (Nomad)	Hugh Field	Tel: [phone]
KBC Peel Hunt Limited (Broker)	Capel Irwin	Tel: [phone]
Financial Dynamics (PR adviser)	Ed Gascoigne-Pees Nick Henderson	Tel: [phone]

Copies of the interim results for the six months ended 30 June 2009 will be available on the Company's website www.equestinvestmentsbalkans.com later today.

CHAIRMAN'S STATEMENT

Overview and strategy

Our interim results sharply reflect the testing economic conditions which continue to overhang the South East European region, and which have so badly affected the value of Equest Investments Balkans' ('EIB') operations and investments in Bulgaria and Romania. 

Mindful of this daunting economic climate, the Board and Management of EIB have sought to hasten, as well as to refine, its previously announced strategy of refocusing its resources on two core holdings, the prime one of which is the Company's 61.8% holding in TechnomarketDomo ('TMD'), and on the disposal of its non-core assets. These non-core assets, following the sale of EIB's remaining stake in Uniqa Bulgaria in June 2009, now only comprise a diverse basket of property holdings and property developments, together with the investment in Novera, a waste management company. 

As announced on 16 July 2009 and described in detail in the Report and Financial Statements for the year ended 31 December 2008, EIB agreed the restructuring of TMD's outstanding debt of Euro 79.5 million with its bankers, Raiffeisen Zentralbank Österreich AG ('RZB'). These debts related to the loans assumed by TMD from other EIB Group companies in December 2008 and the facility to K & K Electronics EOOD, a subsidiary of TMD.  The Board of EIB held lengthy discussions both internally and with RZB concerning an undertaking given by EIB's subsidiary, Axis Retail, to facilitate a prepayment of up to Euro 40 million of the Loans to RZB and the consequences of a failure to meet it. Rather than being forced to cede control of TMD to RZB, and the likely loss to EIB of all of TMD's value, the Board took the decision that it was in EIB shareholders' best interests for the Company to provide security over other assets in the EIB Group in order to allow the Company further time to realise assets and refinance TMD and thereby seek to retain control and protect the value of its investment in TMD. The refinancing arrangements involved the provision of security over other assets in the EIB group which, while onerous, offered the only course open to the Company to protect its interest in TMD and to allow time for the realisation of other EIB assets. We are currently finalising documentation of the new loan facilities with RZB, and progressing the sale of a number of properties to help raise the capital to secure the required payment of a further Euro 20.0 million to RZB by no later than 31 December 2009, after which TMD would be much better capitalised to meet the current challenges in the market.

Considerable progress is being made towards the disposal of our non-core property investments while, simultaneously, consideration is being given as to how best to maximise the value within the two development projects, Sozopolis and Banya Wellness Resort, both of which are well advanced in their construction.

In respect to Novera, appropriate steps are being taken to seek redress for the cancellation of its waste management licences by the Sofia Municipality, which termination EIB considers unlawful and unjustified. 

Trading conditions for TMD for the period have been exceedingly challenging, but, nevertheless, it has increased its market position both in Bulgaria and Romania. Further steps are now being taken to integrate the operations of the Technomarket and Domo businesses as well as to streamline and strengthen TMD's corporate management and financial structure, the results of which will be announced in due course.

A new business plan has been prepared by a group of relevantly qualified professionals for EIB's second core holding, the large scale Borovets mountain resort development project. While the development has now been divided into six sub projects, no definitive decision has yet been determined by the Borovets shareholders on when construction works will begin.

Results

In the six months to 30 June 2009, the Group had consolidated revenue of Euro 239.5 million (30 June 2008: Euro 263.9 million) and made a pre tax loss of Euro 27.5 million (30 June 2008: pre-tax loss Euro 34.4 million), basic loss per share including both continuing and discontinuing operations of Euro 1.62 (30 June 2008: loss per share Euro 2.25).

Total Assets of the Group at 30 June 2009 were Euro 437.0 million (31 December 2008: Euro 569.4 million), and Total Net Assets of the Company at 30 June 2009 were Euro 131.0 million (31 December 2008: Euro 159.7 million). 

Net asset value per share decreased 18% to Euro 7.2 per share from Euro 8.7 at 31 December 2008. 

These results can only disappoint and the Board is now engaged in reviewing the corporate structure and management organisation of both EIB and its major investment, TMD, with a view to cutting overheads, improving efficiency and reinforcing accountability.

Financing 

While the Board is confident that EIB currently has the resources to meet its obligations as they fall due, it is also only too well aware that, in the current economic climate, the Company is reliant for this purpose on making significant asset disposals in line with EIB's redefined business strategy to meet loan repayments as and when they fall due. The challenging market conditions will undoubtedly have an impact on our planned disposals in terms of realised prices and timing and, thus, on an asset by asset basis there are circumstances in which defaults could potentially arise. Working with our lending banks in this environment is essential and, as I have made clear in recent announcements, this is no more so than in the case of the new TMD facilities, which require repayment or refinancing by the end of 2009, as well as in respect of certain debt obligations of Immofinance's development projects.  

Whilst there is inherent uncertainty as to cash flow forecasts, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue its operations for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements for the six months ended 30 June 2009.

Directors and Management 

Mr. George Krumov who was re-appointed to the Board on 25 February 2009 subsequently resigned on 8 September 2009, and we thank him for his contribution.

The Board of EIB appointed Mr. Roger de Bazelaire as interim Chief Financial Officer on 8 June 2009 to lead the Company's finance team and report directly to the Board. Mr. de Bazelaire, whose assignment was completed in September 2009, made a significant contribution to EIB's corporate activity over the summer for which we are grateful. It is intended that Mr. de Bazelaire will continue to have a Non-executive role in TMD.

Outlook

The uncertain outlook, at least in the near term, for the economies in South East Europe and Bulgaria in particular will continue to affect the performance of the investments of EIB. However, with steady progress on the non-core asset disposal programme and the proposed improvements to the operations and management structure of TMD, we remain hopeful of reducing the debt in select subsidiaries to sustainable levels and protecting the value of our core holdings.

Ian Schmiegelow

Non-executive Chairman
30 September 2009  MANAGEMENT REVIEW

The EIB management team has concentrated on asset disposals and cash management during the six month period, while, simultaneously, re-negotiating its financing arrangement with the Group's banks. While the global economic crisis was slower to reach the South East European region, its impact was felt heavily in early 2009. We expect that the market conditions will remain challenging for the rest of 2009 and beyond, and we therefore continue to focus on asset disposals and deleveraging our holdings, so that we may recover some of the lost value when the economic climate in the region starts to improve.

Consolidated revenue for the six months ended 30 June 2009 from continuing operations was Euro 239.5 million (30 June 2008: Euro 263.9 million). Underlying operating loss from continuing operations for the six months ended 30 June 2009 was Euro 15.3 million (30 June 2008: operating loss of Euro 18.3 million) and the loss before tax from continuing operations was Euro 27.5 million (30 June 2008: loss of Euro 34.4 million).

Continuing Operations

Continuing operations are divided into electronics and property development. Electronics consists of the Group's investment in TMD and its equity accounted investments in Technomobile Serbia, K&K Electronics Serbia and K&K Electronics Montenegro. Property development consists of the Group's investments in Immofinance and Pelican and its equity accounted investment in Borovets.

The results of the Continuing Operations of the Group, by segment, for the six months ended 30 June 2009 are set out in the table below: 

	Electronics								Property
	Retail	Wholesale		Unallocated		Total Electronics			Development	Unallocated	Total
	€'000	€'000		€'000		€'000			€'000	€'000	€'000
Revenue
Total segment revenue	136,298	100,913		2,338		239,549			-	-	239,549
Segment result	(131)	5,536		(12,973)		(7,568)			(23,953)	(2,517)	(34,038)
Income of a capital nature	-	-		5		5			(1,378)	20,149	18,776
Finance income	418	-		103		521			(209)	(58)	254
Finance costs	(22)	-		(4,873)		(4,895)			(899)	803	(4,991)
Share of profits/(losses) in equity accounted joint ventures and associates	(811)	-		-		(811)			(5,861)	(870)	(7,542)
(Loss)/profit before income tax	(546)	5,536		(17,738)		(12,748)			(32,300)	17,507	(27,541)
Tax expense	(3)	-		(9)		(12)			124	(14)	98
(Loss)/profit for the period	(549)	5,536		(17,747)		(12,760)			(32,176)	17,493	(27,443)

Segment assets and liabilities as at 30 June 2009 were as follows:
	Electronics				Property
	Retail	Wholesale	Unallocated	Total Electronics	Development	Unallocated	Total
	€'000	€'000	€'000	€'000	€'000	€'000	€'000
Assets	161,459	39,550	104,010	305,019	69,007	12,475	386,501
Associates and joint ventures	1,976	-	326	2,302	42,047	-	44,349
Total assets	163,435	39,550	104,336	307,321	111,054	12,475	430,850
Total liabilities	(7,308)	-	(207,110)	(214,418)	(46,361)	(9,393)	(270,172)

Operations discontinued in the period ended 30 June 2009

The operations discontinued in the period ended 30 June 2009 were Avto Union and Novera. The results by segment of such operations for the six months ended 30 June 2009 are set out in the table below:

	Automotive	Infrastructure		Total
	€'000	€'000		€'000
Revenue
Total segment revenue	14,602	9,890		24,492
Segment result	(1,159)	(3,640)		(4,799)
Income of a capital nature	-	-		-
Finance income	-	10		10
Finance costs	(623)	(1,384)		(2,007)
(Loss)/profit before income tax	(1,782)	(5,014)		(6,796)
Tax expense	(15)	-		(15)
(Loss)/profit for the year	(1,797)	(5,014)		(6,811)
Segment assets and liabilities of operations discontinued as at 30 June 2009 were as follows:
	Automotive		Infrastructure		Total
	€'000		€'000		€'000
Assets	-		6,145		6,145
Associates and joint ventures	-		-		-
Total assets	-		6,145		6,145
Total liabilities	-		(35,777)		(35,777)

Further segmental analysis of continuing and discontinued businesses for the six months ended 30 June 2009 is as follows:

	External revenue		Total assets	Capital expenditure
	by location of customers		by location of assets	by location of assets
	€'000		€'000		€'000
Bulgaria	196,428		365,902		4,088
Romania	67,613		71,093		1,025
	264,041		436,995		5,113

Review of EIB Core Holdings

TechnomarketDomo

TechnomarketDomo Group BV ('TMD' or 'TMD Group'), which is currently 61.8% owned by EIB, is the Dutch parent company for the Company's investments in the retail electronics sector in South East Europe, which includes the Bulgarian Technomarket retail and wholesale operations and the Romanian Domo retail operations.

TMD is the largest player in the sector in the South East European region with a consolidated turnover in the first six months of 2009 of Euro 239.5 million (30 June 2008: 262.6 million), and loss before tax of Euro 12.7 million (30 June 2008: Euro 1.1 million).

The consumer electronics retail market has shrunk during the first six months of 2009 in Bulgaria and Romania by an estimated 30% on average. During the period the Bulgarian operations gained market share, increasing its stake to 44% compared to 40% in the corresponding six month period ended 30 June 2008. The Romanian operations also gained market share accounting at the end of June for 24% of the market, compared to 19% in the corresponding six month period in 2008.

Retail sales in Bulgaria are down by 21% compared to the same six month period in 2008. As the Bulgarian currency (BGN) is pegged to the Euro, there is no foreign currency effect on the reported Euro figures. Retail sales in Romania were also down by 21% in Euro and 9% in Romanian Lei compared to the same six month period in 2008. 

The wholesale business in Bulgaria was up by 25% compared to the corresponding six month period in 2008, thus effectively compensating significantly for the lost sales in retail. 

In the first half of the year the TMD Group progressed its previously committed store opening programme and at the end of June operated 216 stores in Bulgaria and Romania. The management is in the process of reviewing the store network to optimise it as necessary. In the first half of the year, the management of the TMD Group has been actively involved in discussions with landlords to seek to bring down rent levels in line with the current economic environment and a substantial number of lease agreements have already been renegotiated.

A comprehensive cost reduction programme was put in place in the first quarter of the year, the impact of which we expect to be visible in the year end financial results.

Optimisation of working capital has been a priority target in the first half of 2009. The TMD business has managed to decrease the inventory level by Euro 25 million as compared to the year end 2008 level. Management of receivables and payables continues to be a priority and management is looking into reassessing its policies in the light of the current market environment. 

The major strategic objective for TMD in 2009 is to complete the integration of the operations of the Technomarket and Domo businesses in Romania and Bulgaria so as to realise synergies between the two operations within the TMD Group.

Post Period End Event

As announced on 16 July 2009, following discussions between RZB, TMD and Axis in connection with an undertaking given by EIB's subsidiary, Axis Retail, to facilitate a prepayment of up to Euro 40 million of TMD's total Euro 79.5 million debt facilities with Raiffeisen Zentralbank Österreich AG ('RZB'), RZB agreed to accept Euro 20.0 million in cash and a bank guarantee from an international bank for the remaining Euro 20.0 million (the 'Citibank Guarantee'). RZB holds security over Axis Retail's holding in TMD. The detailed terms of the revised facilities are still under discussion. Further details of the debt restructuring are set out in 'Loans and Borrowings' below.

Technomarket Serbia and Montenegro (Harwood Limited) 

The Company owns a 23% stake in the Technomarket branded operations in Serbia, and a 50% stake in the Technomarket branded operations in Montenegro, through Harwood Limited. The company has been established and managed by Technomarket's founder, who is also an Executive Director of TMD. 

During the first six months of 2009 the consolidated sales of Harwood amounted to Euro 43.6 million (30 June 2008: Euro 39.7 million) and a negative EBITDA of Euro 2.0 million (30 June 2008: negative Euro 1.4 million). 

Techno-mobile NV

The Company owns a 50% indirect investment in Technomobile Serbia, a chain of stores selling GSM sets, small consumer electronic devices and complimentary services. During the first six months of 2009 sales amounted to Euro 3 million (30 June 2008: Euro 4 million), through a chain of 64 shops, and a negative EBITDA of Euro 1.1 million (30 June 2008: negative Euro 0.9 million). 

Borovets

The Company holds a 33.5% indirect investment in Rila Samokov, which owns 1,977,131 sq m of land for development in the large-scale Borovets mountain resort development project. EIB invested Euro 25.9 million in cash, comprising a payment for the equity purchase and a capital contribution into Rila Samokov.

EIB's partners in the development are the State General Reserve Fund of the Sultanate of Oman ('SGRF') (33.5% shareholding), the Municipality of Samokov (25% shareholding) and Bulgaria's leading construction company Glavbolgarstroy (8% shareholding).

The project has been divided into six sub-projects that can be individually developed, thus lowering the development risk of this large scale Euro 800 million project. An updated business plan has been developed, and, as no major construction works have been started, the project remains debt free.  

As part of the refinancing of TMD's facilities with RZB, EIB has granted a guarantee to SGRF and a second ranking pledge over EIB's shares in Borovets Investments.

Review of EIB Non Core Holdings

Pelican Retail Holdings

Pelican, which is 100% owned by EIB, is a developer and owner of five sites for redevelopment. Four of the sites are located in the centre and densely populated area of Sofia and were formerly used as cinemas, whilst the fifth is a former car factory located by the entrance to Varna, Bulgaria's second city. 

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 is being undertaken jointly between EIB and Equest Balkan Properties plc ('EBP') and is currently marketed for sale.  The Company has signed an agreement with EBP for the re-payment of a Euro 9.65 million loan by EBP to EIB, of which EBP has re-paid an initial Euro 4.25 million, and agreed the ownership split of the asset now to be 80:20 to EBP and EIB respectively, as well as the strategy for the joint ongoing disposal of the asset. 

EIB signed in June 2009 a preliminary, conditional contract for the sale of the Rodacar property to an institutional buyer and is expecting to complete on the sale by the end of November 2009.

All Pelican properties are included in the non-core asset disposal programme and are being prepared for disposal.

Immofinance AD

Immofinance, which is 100% owned by EIB, is a residential property development company focusing on first and second homes in Bulgaria. Immofinance development projects are currently in the non-core asset disposal programme, and the Company is only considering the possible completion of the late stage developments in Sozopol and Banya, subject to successful agreements with the banks providing the construction debt for these projects. 

Sozopolis is a complex of second home properties being constructed in two phases, which will consist of apartments, restaurants, a spa centre and a supermarket on the Black Sea coast. Construction started in November 2007 and the first phase, comprising 111 second home apartments. The first phase of the project has been fully launched for sale and active marketing in Bulgaria, continental Europe and Russia. The project has been financed by a Euro 12.4 million equity investment from EIB and a Euro 38.0 million construction loan from Alpha Bank. The current drawdown on the construction loan is Euro 30.7 million and the Company is currently in negotiations with the bank on a further debt draw down in order to enable a staged completion of the project and deleveraging of the project by further sales of the residential units. EIB's stated aim is to repay the construction debt from the sales proceeds as well as seeking to recover its Euro 8.6 million equity investment in the project. 

Banya Spa & Wellness Resort, a complex of residential apartments, hotel, spa and sports facilities located in the Bulgarian Pirin Mountains, started in September 2006. The project has been financed by a Euro 7.5 million equity investment from EIB and a Euro 10.5 million construction loan from DSK Bank (Bulgaria), of which Euro 6.9 million has been drawn down. Immofinance is in negotiations with the bank on available options, including the rental of Banya Spa & Wellness Resort to a tour operator, provided that an agreement on the funding of the completion of the project is reached. The project is expected to be completed six months after funding is received.  

EIB sold its remaining 30% holding in Boyana Park in June 2009 for Euro 0.6 million in cash.

The Company has also decided to discontinue the development of Banya II, an adjacent land plot concession to the Banya Spa & Wellness development, resulting in an impairment cost of €0.5 million.

Novera

In March 2009 Novera and its operating subsidiaries received letters from the Municipality of Sofia informing them that it was terminating with immediate effect Novera's remaining concession holding companies for waste collection and transportation. As grounds for such termination, the Municipality cited a letter from the local Environmental Inspectorate raising health and safety hazards and claimed 'non-performance' of the Concession Agreements by the Concessionaires. On 31 March 2009 Novera received a notice dated 27 March 2009 from its senior lender to the effect that termination of the Concessions constitutes an event of default under the senior lender facility. Novera also received a notice dated 1 April 2009 from its mezzanine lender that an event of default, according to the mezzanine lender facility, had occurred due to the termination of the concessions.

Novera has now ceased its waste collection operations as the Municipality has contracted other parties to perform these operations. As a consequence, the process of winding up Novera's operations has started.

EIB continues to reject the basis for the Municipality terminating the Concession Agreements and is consulting with its lenders, as well as both its own and its lenders' international and local legal counsel, with a view to seeking redress of the situation.

Loans and borrowings

The table below summarises the Group's interest-bearing loans and borrowings, the carrying amount of which are measured at amortised cost.

				June	Dec
				2009	2008
				€'000	€'000
	Currency	Nominal interest rate	Year of maturity	Carrying amount	Carrying amount
Non-Current
TechnomarketDomo	Euro	Euribor + 2%	2013	14,256	16,256
Immofinance (Sozopolis)	BGN	Euribor + 2%	2013	26,207	20,010
Immofinance	BGN	Euribor + 2%	2014	-	1,386
Immofinance (Banya)	BGN	Euribor+ 2.8%	2014	1,397	-
Shareholder loans
TechnomarketDomo	Euro		2011	14,259	13,159
Other related party loans				416	346
Finance lease
TechnomarketDomo	BGN/RON			1,804	2,019
Immofinance EAD	BGN			16	16
				58,355	53,192
Current
TechnomarketDomo*	Euro	Euribor + 2.2%	2011	29,825	-
TechnomarketDomo*	Euro	Euribor + 2.5%-3.5%	2011	31,234	60,959
TechnomarketDomo	Euro	Euribor + 2%	2013	3,750	3,422
Immofinance (Sozopolis)	BGN	Euribor + 2%	2013	4,442	4,442
Immofinance	BGN	Euribor + 2%	2014	-	5,480
Novera	Euro	1.75%-2.75%	2014	-	12,412
Novera	Euro	7%	2013	-	21,816
Immofinance (Banya)	BGN	Euribor + 2.8%	2014	5,480	-
Related party loans
Pelican Retail Holding Limited	Euro			-	15,000
EIB	Euro			7,272	-
Finance lease
TechnomarketDomo	BGN/RON			966	922
Immofinance EAD	BGN			3	4
Novera AD	BGN			-	9,495
Overdraft
TechnomarketDomo	BGN/RON			22,085	17,450
				105,057	151,402

* A waiver of the covenant on the loans owing by TechnomarketDomo to RZB was signed on 15 July 2009. These loans have therefore been classified as non-current from that date.

Novera was classified as a discontinued operation during the period ended 30 June 2009 as it is in the process of liquidation. Included in the held for sale liabilities at that date are current loans of Euro 22.2 million and a finance lease liability of Euro 8.3 million. EIB's holding in Novera was acquired with Euro 20.0 million in mezzanine debt and Euro 15.0 million in senior debt, both of which are in default as a result of the Sofia Municipality cancelling the waste concessions of Novera. The senior debt was settled to Investkredit Bank during the period.

The largest subsidiary debt is in TMD, resulting from active use of debt in the acquisition of this holding. As announced on 16 July 2009 and described in detail in the Report and Financial Statements for the year ended 31 December 2008, EIB has agreed the restructuring of TMD's debt facilities of Euro 79.5 million with its bankers, Raiffeisen Zentralbank Österreich AG ('RZB'). The refinancing arrangements included a partial prepayment by TMD of Euro 20.0 million under the debt facilities, partially financed by a new loan from a Bulgarian bank, and the provision of a letter of guarantee by Citibank to TMD's lenders (thereby securing payment of a further Euro 20.0 million to the lenders no later than 31 December 2009) (the 'Citibank Guarantee'). The provision of the new facility and the guarantee was facilitated by the Company's 33.3% shareholder, the State General Reserve Fund of the Sultanate of Oman ('SGRF'), to whom, in return, guarantees and security have been given by EIB.  

The repayment of Euro 20.0 million by TMD was financed by an Euro 8.0 million advance by EIB to TMD, by way of a shareholder loan, which TMD used to prepay part of the Refinancing Loans and a Euro 12.0 million bridge facility to EIB repayable within 12 months (the 'Bridge Loan') by a Bulgarian bank (the 'Bank'). The Bridge Loan was drawn down on 15 July 2009 and advanced by EIB to TMD by way of a shareholder loan so as to enable TMD to prepay the other Euro 12.0 million of the Refinancing Loans required to be provided to RZB by 15 July 2009.

EIB and the State General Reserve Fund of the Sultanate of Oman ('SGRF'), EIB's largest shareholder, each hold 50% shareholdings in Borovets Investments EAD. As security under the Bridge Loan, EIB and SGRF each agreed to pledge their 50% shareholdings in Borovets Investments EAD in favour of the Bank. Borovets Investments EAD indirectly owns a 67% shareholding in a holding company which owns 1,977,131 sq m of land for development in the large scale Borovets (Bulgaria) mountain resort development project (the 'Borovets Project'). 

In consideration for agreeing to grant a pledge over its share in the Borovets Project in favour of the Bank and to protect SGRF from potential losses in the event that the Bank takes enforcement action under the Bridge Loan and as security in relation to the bank guarantee mentioned below, EIB has granted a guarantee to SGRF and a second ranking pledge over EIB's shares in Borovets Investments EAD.

The Citibank Guarantee provides that, if TMD is unable to prepay another Euro 20.0 million of the Refinancing Loans by 31 December 2009, RZB will be entitled to draw Euro 20.0 million under the Citibank Guarantee. 

As part of these arrangements, SGRF agreed to indemnify Citibank for losses to Citibank under the Citibank Guarantee and is providing to Citibank the collateral required by Citibank to secure SGRF's indemnity obligations. EIB has agreed to indemnity SGRF against any expenses or losses in connection with the Citibank Guarantee and EIB has granted a fixed and floating charge in favour of SGRF over all of EIB's assets and undertaking (the 'SGRF Security'). The SGRF Security includes a charge over EIB's shares in Axis Retail, as well as over EIB's interests (or the proceeds thereof) in various property holdings including Rodacar, Serdika, Axis-S Retail NV and Immofinance. As from 31 December 2010, SGRF will have the right to exchange any unpaid indebtedness or liability of EIB to SGRF for EIB's indirect 61.8% interest in TMD unless (i) certain conditions related to TMD's business integration and further management appointments at TMD are not satisfied by EIB by 31 December 2009, in which case, SGRF's exchange rights will be exercisable after 31 December 2009 or (ii) an event of default occurs under any of the agreements with SGRF, in which case, SGRF's exchange rights will become exercisable immediately. For the purposes of the exchange, the value of 100% of TMD's shares has been fixed at Euro 20.0 million.

TMD and RZB have also agreed to implement amendments to the terms of the RZB Loans on the basis of an indicative term sheet. The detailed terms of the revised facilities are still under discussion and when agreed will be documented in definitive loan documentation. This is expected to be signed by end October 2009.

The Company remains in active negotiations with the lending banks for all remaining debt in the subsidiaries under EIB majority control, including Immofinance and Novera. 

Non-core Asset Disposal Programme 

During the six month period and post period end, EIB has sold a number of non-core holdings including its remaining holding in Uniqa AD in two tranches to Uniqa International for an aggregate consideration of Euro 23.1 million, its 80% stake in Avto Union, its automotive import and distribution operation, to Eurohold for Euro 8.0 million, and various land and properties for an aggregate consideration of Euro 1.4 million.

EIB is in discussions with potential purchasers for a number of its remaining property assets. The proceeds from these and other disposals will be used to help part refinance the TMD facilities of Euro 32.0 million which fall due prior to 31 December 2009 as referred to above. The challenging market conditions may have an impact on our capabilities to complete our expected disposals in accordance with planned prices and timing.

Uniqa Bulgaria

EIB sold its remaining 37.72% stake in Uniqa Bulgaria for Euro 23.1 million in two tranches in June 2009 to Uniqa International, Austria's largest insurance company, under a pre-agreed arrangement whereby Uniqa Insurance would purchase all remaining EIB shares in the Company by the year 2010. 

The sale of the stake was brought forward from 2010 as part of EIB's non-core asset disposal programme.

Avto Union

As part of its non-core asset disposal programme, EIB sold its 80% stake in Avto Union, the Bulgarian wholesaler and distributor of automobiles and automotive products and services, in April 2009. The total consideration for the sale was Euro 8.0 million, of which Euro 0.8 million was used for payment of overdue interest payments and other operative costs of Avto Union. Euro 5.2 million was received in cash by EIB in June 2009 and a final Euro 2.0 million payment is due, conditional upon an orderly transfer of the operations, no later than 15 December 2009.

Cost Savings

The Company is expecting to achieve cash cost savings in its holding company administrative costs as a result of its non-core asset disposal programme and the planned reduction in the number of intermediate BVI, NV and BV companies. Simultaneously, this will simplify our corporate structure and enable us to focus on our remaining core holdings.

The Company has also embarked on a cost savings programme in its core holding, TMD, in order to maximise operational efficiencies.

EIB Management Team

30 September 2009

  Consolidated statement of comprehensive income (unaudited)

for the six months ended 30 June 2009

		(Unaudited)	(Unaudited)	(Restated)
		1 Jan 2009 to 30 Jun 2009	1 Jan 2008 to 30 Jun 2008	1 Jan 2008 to 31 Dec 2008
		Group	Group	Group
		€ '000	€ '000	€ '000
Revenue		239,549	263,872	625,140
Cost of sales		(205,311)	(219,004)	(518,408)
Gross profit		34,238	44,868	106,732
Other operating income		59	1,407	1,513
Administrative expenses and distribution costs		(46,033)	(63,654)	(127,619)
Impairment of assets		(22,311)	(324)	(2,632)
Loss/ (gain) from fair value adjustment on property assets		(1,378)	877	(1,176)
Gain/ (loss) on sale of investments		20,163	(1,478)	(332)
Operating loss		(15,262)	(18,304)	(23,514)
Finance income		254	1,434	3,185
Finance costs		(4,991)	(7,194)	(17,289)
Share of post tax losses of associates and joint ventures		(7,542)	(10,327)	(28,288)
Loss before tax		(27,541)	(34,391)	(65,906)
Taxation		98	(39)	(728)
Loss from continuing operations		(27,443)	(34,430)	(66,634)
Loss from discontinued operations, net of tax		(6,811)	(4,949)	(72,158)
Loss for the year		(34,254)	(39,379)	(138,792)
Loss attributable to
Owners of the parent		(29,672)	(38,927)	(137,980)
Non-controlling interest		(4,582)	(452)	(812)
		(34,254)	(39,379)	(138,792)
Loss per share attributable to the owners of the parent during the period:
Loss per share - basic and diluted
-Continued operations		(1.25)	(1.96)	(3.70)
-Discontinued operations		(0.37)	(0.29)	(4.05)
Total		(1.62)	(2.25)	(7.75)

  Consolidated statement of comprehensive income (unaudited)

for the six months ended 30 June 2009

		(Unaudited)	(Unaudited)	(Audited)
		1 Jan 2009 to 30 Jun 2009	1 Jan 2008 to 30 Jun 2008	1 Jan 2008 to 31 Dec 2008
		Group	Group	Group
		€ '000	€ '000	€ '000
Loss for the period		(34,254)	(39,379)	(138,792)
Other comprehensive income
Available for sale investment valuation loss recognized in equity		(123)	(65)	(65)
Exchange differences on translation		(2,213)	(3,422)	(11,433)
Settlement of put option liability		8,053	-	-
Debt push-down into a subsidiary		1,891	-	-
Non controlling interest removed on disposal of subsidiary		(1,517)	-	(1,805)
Revaluation of shareholder loan			-	4,385
Income tax relating to components of other comprehensive income		-	-	(14)
Share of closing translation reserve		(510)	-	-
Other movements		-	-	33
Other comprehensive income for the period net of tax		5,581	(3,487)	(8,899)
Total comprehensive income for the period		(28,673)	(42,866)	(147,691)
Loss attributable to
Owners of the parent		(28,425)	(41,573)	(143,252)
Non-controlling interest		(248)	(1,293)	(4,439)
		(28,673)	(42,866)	(147,691)

  Consolidated statement of financial position (unaudited)

as at 30 June 2009 

		(Unaudited)	(Unaudited)	(Audited)
		1 Jan 2009 to 30 Jun 2009	1 Jan 2008 to 30 Jun 2008	1 Jan 2008 to 31 Dec 2008
		Group	Group	Group
		€ '000	€ '000	€ '000
ASSETS
Non-current assets
Property, plant and equipment		27,070	87,268	32,371
Investment property		10,608	14,214	11,957
Goodwill and trademarks		102,829	147,269	115,453
Intangible assets		919	18,466	1,040
Investment in equity-accounted associates		4,180	16,518	18,313
Investment in equity-accounted joint ventures		40,169	66,833	49,404
Available for sale investments		-	16	-
Other receivables		18,468	18,239	19,528
Deferred tax assets		534	327	675
Total non-current assets		204,777	369,150	248,741
Current assets
Property, plant and equipment		-	-	7,069
Inventories		152,977	188,665	185,815
Trade and other receivables		66,189	67,036	70,374
Tax receivables		2,421	3,047	1,907
Available-for-sale investments		-	230	246
Cash and cash equivalents		4,486	19,464	11,277
Total current assets		226,073	278,442	276,688
Non-current assets classified as held for sale		6,145	-	43,989
Total assets		436,995	647,592	569,418
Liabilities
Non-current liabilities
Other payables		346	239	-
Loans and borrowings		58,355	94,499	53,192
Provision		219	168	252
Deferred tax liabilities		7,409	8,756	7,966
Total non-current liabilities		66,329	103,662	61,410
Current liabilities
Trade and other payables		98,379	161,372	158,524
Loans and borrowings		105,057	123,651	151,402
Corporation tax liability		42	241	955
Provisions		365	428	1,433
Total current liabilities		203,843	285,692	312,314
Liabilities directly associated with non-current assets classified as held for sale		35,777	-	35,975
Total liabilities		305,949	389,354	409,699
Total Net Assets		131,046	258,238	159,719

Consolidated statement of financial position (unaudited) as at 30 June 2009 (Continued)
		(Unaudited)	(Unaudited)	(Audited)
		1 Jan 2009 to 30 Jun 2009	1 Jan 2008 to 30 Jun 2008	1 Jan 2008 to 31 Dec 2008
		Group	Group	Group
		€ '000	€ '000	€ '000
Capital and reserves attributable to owners of the parent
Share capital		253,846	253,846	253,846
Available-for-sale reserve		-	137	123
Warrant reserve		6,786	480	6,786
Foreign exchange reserve		(11,895)	(6,376)	(12,310)
Retained earnings		(119,659)	4,789	(90,942)
		129,078	252,876	157,503
Non-controlling interest		1,968	5,362	2,216
Total Equity		131,046	258,238	159,719
Total equity and liabilities		436,995	647,592	569,418

   Consolidated statement of changes in equity

for the six months ended 30 June 2009

		Share Capital	Available for sale reserve	Warrant reserve	Foreign exchange reserve	Retained earnings	Total	Non controlling Interest	Total Equity
		€ '000	€ '000	€ '000	€ '000	€ '000	€ '000	€ '000	€ '000
For the period
1 January 2008 to 30 June 2008
Balance at 1 January 2008		242,145	202	-	(3,795)	43,716	282,268	6,655	288,923
Profit for the period		-	-	-	-	(38,927)	(38,927)	(452)	(39,379)
Available for sale investment valuation loss  recognized in equity		-	(65)	-	-	-	(65)	-	(65)
Share of revaluation reserve on associate		-	-	-	-	-	-	-	-
Deferred tax		-	-	-	-	-	-	-	-
Exchange differences arising on translation		-	-	-	(2,581)	-	(2,581)	(841)	(3,422)
Total comprehensive income/ (expense) for the period		-	(65)	-	(2,581)	(38,927)	(41,573)	(1,293)	(42,866)
Issue of share capital		11,701	-	-	-	-	11,701	-	11,701
Recognition of share based payments		-	-	480	-	-	480	-	480
Balance at 30 June 2008		253,846	137	480	(6,376)	4,789	252,876	5,362	258,238
For the period
1 July 2008 to 31 December 2008
Balance at 1 July 2008		253,846	137	480	(6,376)	4,789	252,876	5,362	258,238
Profit for the period		-	-	-	-	(99,053)	(99,053)	(360)	(99,414)
Deferred tax		-	(14)	-	-	-	(14)	-	(14)
Exchange differences arising on translation		-	-	-	(5,934)	-	(5,934)	(2,077)	(8,011)
Non controlling interest removed on  disposal of subsidiary		-	-	-	-	-	-	(1,805)	(1,805)
Revaluation of shareholder loan		-	-	-	-	3,289	3,289	1,096	4,385
Other movements		-	-	-	-	33	33	-	33
Total comprehensive income/ (expense) for the period		-	(14)	-	(5,934)	(95,731)	(101,679)	(3,146)	(104,826)
Recognition of share based payments		-	-	6,306	-	-	6,306	-	6,306
Balance at 31 December 2008		253,846	123	6,786	(12,310)	(90,942)	157,503	2,216	159,719

Consolidated statement of changes o Consolidated statement of changes in equity
For the six months ended 30 June 2009 (Continued)
		Share Capital	Available for sale reserve	Warrant reserve	Foreign exchange reserve	Retained earnings	Total	Non controlling Interest	Total Equity
		€ '000	€ '000	€ '000	€ '000	€ '000	€ '000	€ '000	€ '000
For the period
1 January 2009 to 30 June 2009
Balance at 1 January 2009		253,846	123	6,786	(12,310)	(90,942)	157,503	2,216	159,719
Profit for the period						(29,672)	(29,672)	(4,582)	(34,254)
Available for sale investment valuation loss recognized in equity		-	(123)	-	-	-	(123)	-	(123)
Exchange differences arising on translation		-	-	-	(2,214)	-	(2,214)	1	(2,213)
Settlement of put option liability		-	-	-	1,866	(585)	1,281	6,772	8,053
Debt push-down into a subsidiary		-	-	-	763	1,540	2,303	(412)	1,891
Share of reserves in associate		-	-	-	-	-	-	(510)	(510)
Other movements		-	-	-	-	-	-	(1,517)	(1,517)
Total comprehensive income/(expense) for the period		-	(123)	-	415	(28,717)	(28,425)	(248)	(28,673)
Balance at 30 June 2009		253,846	-	6,786	(11,895)	(119,659)	129,078	1,968	131,046

Consolidated cash flow statement for the six months ended 30 June 2009
	(Unaudited) June 2009 €'000	(Unaudited) June 2008 €'000	(Audited) December 2008 €'000
Cash flows from operating activities
Loss for the year	(34,254)	(39,379)	(138,792)
Adjustments for:
Depreciation	5,547	5,693	12,556
Amortisation and impairment	22,442	2,102	67,298
Change in value of non-current assets	1,378	(877)	1,176
Share based payment charge	-	12,181	18,487
Share of loss from associates and joint ventures	7,543	10,326	28,288
Loss/(Gain) on sale of:
Available-for-sale assets	107	-	-
Subsidiaries	(10,568)	2,605	3,235
Associates	(9,595)	(1,126)	(2,960)
Investment property	-	6,880	6,217
Property, plant and equipment	9	(56)	(144)
Net finance expense	6,735	8,466	20,313
Income tax expense	(85)	21	806
Cash (outflow)/inflow from operating activities before
changes in working capital and provisions	(10,741)	6,836	16,480
(Increase)/decrease in trade and other receivables	3,580	(11,709)	871
(Increase)/decrease in inventories	15,585	(33,087)	(44,911)
(Decrease)/increase in trade and other payables	(30,793)	(24,561)	8,991
Cash outflow used by operations	(22,369)	(62,521)	(18,569)
Income taxes paid	(842)	(2,621)	(4,239)
Interest paid	(5,088)	(9,536)	(22,373)
Cash outflow from operating activities	(26,299)	(74,678)	(45,181)
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired	-	(10,000)	(21,272)
Disposal of subsidiary, net of cash disposed	6,000	5,610	6,519
Disposal of associates	23,100	1,126	1,259
Purchase of other intangibles	(113)	(345)	(691)
Sale of other intangibles	-	105	105
Capitalised additions to development property	(167)	(7,988)	(10,613)
Sale of development property	-	2,606	2,606
Sale of investment property	-	154	821
Purchases of other property, plant and equipment	(3,840)	(10,322)	(16,453)
Sale of other property, plant and equipment	1,477	1,517	2,331
Purchases of available-for-sale financial assets	-	-	(14)
Investment in restricted cash	470	-	(1,306)
Decrease / (Increase) in other loans receivable	2,228	(50)	(17,744)
Net cash (outflow)/inflow from investing activities	31,155	(17,587)	(54,452)
Consolidated cash flow statement  for the six months ended 30 June 2009 (Continued)
	(Unaudited) June 2009 €'000	(Unaudited) June 2008 €'000	(Audited) December 2008 €'000
Cash flows from financing activities
Proceeds from borrowings	19,870	45,792	67,794
Repayment of loans and borrowings	(29,561)	(1,252)	(16,222)
(Repayment of) / Additional finance lease creditors	(1,419)	1,096	(4,667)
Net cash inflow from financing activities	(11,110)	45,636	46,905
Net decrease in cash and cash equivalents	(8,254)	(46,629)	(52,728)
Cash and cash equivalents at beginning of the period	12,943	66,137	66,137
Foreign exchange losses on cash and cash equivalents	(38)	(44)	(466)
Cash and cash equivalents at end of the period	4,651	19,464	12,943

Cash and cash equivalents
Cash and cash equivalents held in continuing operations	4,486	19,464	11,277
Non-current asset classified as held for sale**	165	-	1,666
Cash and cash equivalents at end of year	4,651	19,464	12,943

** Cash and cash equivalents classified as held for sale relate to cash balances in Novera that is classified as a discontinued operation.

NOTES TO THE FINANCIAL STATEMENTS

1. General information

Equest Investments Balkans Limited is a BVI registered company which was incorporated on 10 December 2003. The registered number of the company is 1069511.

2. Basis of preparation and accounting policies

The unaudited interim financial statements for the six months ended 30 June 2009 have been prepared on a basis consistent with accounting policies set out in the Equest Investments Balkans Limited audited report and financial statements for the year ended 31 December 2008, which were prepared in accordance with IFRS as adopted by the European Union.

The financial information presented herein does not represent statutory accounts. The Group's statutory financial statements for the year ended 31 December 2008 were prepared under IFRS as adopted by the European Union. The auditors, Grant Thornton UK LLP, reported on those accounts and their report was unqualified but contained an emphasis of matter relating to 'going concern'. Their report dated 14 August 2009 indicated the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern. A copy of the 2008 Annual Report, including the auditor's report referred to above, is available on the Company's website www.equestinvestmentsbalkans.com. 

These condensed half year financial statements have not been audited or reviewed by the independent auditors pursuant to the Auditing Practices Board guidance on the 'Review of Interim Financial Information'.

In assessing the going concern basis of preparation of the consolidated financial statements for the six months ended 30 June 2009, the Directors have taken into account the refinancing of the TechnomarketDomo NV ('TMD') loans with Raiffeisen Zentralbank Osterreich AG ('RZB'), the provision of a 12 month bridge financing of €12.0 million in July 2009 from a Bulgarian Bank, a bank guarantee from Citibank, N.A., Sofia branch in favour of RZB for €20.0 million and a commitment from EIBs largest shareholder SGRF to finance the €20.0 million guarantee if called for a period until 31 December 2010. The RZB refinancing was announced to market on 16 July 2009 and is described more fully described the 2008 Annual Report. Discussions are ongoing in respect of certain debt obligations and Immofinance's development projects. The Directors have also agreed a disposal programme of non-core assets, some of which have already occurred and are disclosed in the management review.

The Group's forecasts and projections have been prepared taking into account the challenging economic environment, the mitigating factors referred to above and management commitment to reduce investment in working capital. These forecasts take into account reasonably possible changes in trading performance and the future financing of the Group. They show that the Group will have sufficient facilities for its ongoing operations. While there will always remain some inherent uncertainty within the aforementioned cash flow forecasts, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the consolidated financial statements for the six months ended 30 June 2009.

Accounting policies

The same accounting policies, presentation and methods of computation are followed in these financial statements as applied in the Group's latest annual audited financial statements, except for the following Standards and Interpretations which have been adopted by the Group in the current financial year. These standards and interpretations did not have significant impact on the Group's results or financial position.

• IAS 1 (Amendment) - Presentation of Financial Statements: A revised Presentation; 

• IAS 23 (Amendment) - Borrowing costs; 

• IFRS 2 (Amendment) - Vesting conditions and cancellations; 

• Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations arising on Liquidation; 

• IFRIC 16 - Hedges of a net investment in a foreign operation; 

• IFRIC 17 - Distributions of non-cash assets to owners (effective 1 July 2009)

• IFRIC 18 - Transfers of assets from customers (effective prospectively for transfer on or after 1 July 2009)

• IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures (amended).

The following standards and interpretations, issued by the IASB or IFRIC, have not been adopted by the Group as these are not effective for the year 2009. The Group is currently assessing the impact these standards and interpretations will have on the presentation of its results in future periods: 

• IFRS 3 (Revised) - Business combinations;

• IAS 27 Consolidated and Separate Financial Statements (amended).

Restatement of comparative amounts

During the first half of 2009, management decided to liquidate the Novera group of companies. Accordingly, the Novera subsidiary is classified as a discontinued operation and is presented as a disposal group held for sale. When a subsidiary becomes classified as a discontinued operation, IFRS 5 requires separate presentation of the total of its results for the period on the face of the income statement. IFRS 5 also requires these disclosures be re-presented for prior periods presented in the financial statements. Adjustments to the 31 Dec 2008 comparative information as originally reported are therefore necessary.

The effect of the restatement for the year ending 31 Dec 2008 is to decrease the loss from continuing operations by €61,078,000 and to increase the loss from discontinued operations, net of tax by an equivalent amount. The restatement does not affect the loss for the 2008 year of €138,792,000.  

3. Loss per share

Basic loss per share is calculated by dividing the net loss attributable to equity holders of the company by the weighted average number of ordinary shares during the period. 

	(Unaudited)	(Unaudited)	(Restated)
	1 Jan 2009 to 30 Jun 2009	1 Jan 2008 to 30 Jun 2008	1 Jan 2008 to 31 Dec 2008
	Group	Group	Group
	€ '000	€ '000	€ '000
Basic and diluted loss
Total (continuing and discontinued operations)	(29,672)	(38,927)	(137,980)
Less: Discontinued operations	(6,811)	(4,949)	(72,158)
Continuing operations	(22,861)	(33,978)	(65,822)
Basic weighted average number of shares	18,265,890	17,363,581	17,795,120
Basic loss per share
Total (continuing and discontinued operations)	(1.62)	(2.25)	(7.75)
Less: Discontinued loss from operations	(0.37)	(0.29)	(4.05)
Continuing operations	(1.25)	(1.96)	(3.70)

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END

 

 

IR SEWFWUSUSELU