Preliminary Results
Equest Investments Balkans Ltd
30 April 2007
30 April 2007
Equest Investments Balkans Limited
Preliminary Results for the year ended 31 December 2006
Equest Investments Balkans Ltd ('EIB' or the 'Company') today announces its
preliminary results for the year ended 31 December 2006.
2006 Highlights
• Increase in proforma net asset value per share of 13.7% over the past 12
months to €18.08 per share (£12.19 per share); net asset value per share at
31 December 2006 (after write off of placing expenses) was €17.90 (£12.07)
• Net assets of €310.1m at year end includes investments at fair value of
€227.6m (based on independent valuations) and cash of €76.1m
• Listing of shares on London Stock Exchange AIM section in December 2006
and placing of new shares raising €64.8 million (£43.9m), principally to UK
institutional investors
• Largest acquisition to date completed, 75% equity stake in Technomarket, a
leading electronics retailer in the Balkan region
• Strong portfolio of 7 companies owned in consumer growth related sectors
including retail, financial services, waste management and land & property
development
Post Year End Events
• €45m acquisition of three concessions for waste collection and
transportation in Bulgarian capital, Sofia, through Novera
• Sale of 31% of shares in Vitosha Insurance to Austria's UNIQA Insurance,
EIB's strategic partner in this investment, coupled with a name change to
UNIQA Bulgaria
• Payment of a non refundable deposit of €5m for the planned purchase of
a 67% equity holding in a company which owns 2 million square metres of land for
development in Borovets, Bulgaria's oldest ski resort
Directorate Changes
To broaden the depth of experience of the Board, Mr. James Ede-Golightly,
previously a member of the Investment Committee, and Mr. Robin James have been
appointed as independent non-executive Directors of the Company with effect from
1 May 2007. Mr. James is also a non-executive director of Equest Balkan
Properties Plc.
Mr. John Walley has resigned as non-executive Director of the Company with
effect from 1 May 2007. The Board would like to take this opportunity to thank
Mr. Walley for all his work and commitment to Equest Investments Balkans since
its launch.
Petri Karjalainen, Managing Partner of Equest Partners Limited, EIB's Investment
Adviser, commented:
'EIB has grown considerably and made significant progress in developing its
portfolio of companies in Bulgaria and the Balkan region. We have chosen to
invest in growth sectors in the local economies, such as retail services,
financial services, waste management and land & property development, which we
believe will benefit from the strong growth in GDP currently being experienced
in this region. Our milestone investment in 2006 was Technomarket, which is the
market leader in electronics retail in Bulgaria. In 2007 we have moved into the
exciting growth area of waste management with the investment in Novera. As an
active investment company with mainly majority equity holdings EIB's companies
now employ approximately 4,000 people in the region with a combined turnover of
more than €500m expected for year 2007. We are currently expanding our
investments in the wider Balkan area to further capture the growth opportunities
of a region with some of the highest economic growth rates in the Europe.
John Carrington, Chairman of Equest Investments Balkans, commented:
'2006 was an important year for the business. As well as significant development
in operations across our target region, we launched the Company on the AIM
market of the London Stock Exchange to raise its profile amongst the investment
community and to improve the liquidity of the company's shares. Furthermore,
Bulgaria and Romania's membership in the European Union in January 2007 has
given a further positive boost to these economies, which will further underpin
the growth of our companies in the coming years. These factors, plus the recent
strengthening of EIB's Board, mean that I am confident that the company is
well-positioned for the next phase of its development.'
For further information please contact:
Equest Partners Limited
+ 44 20 7240 7600
Petri Karjalainen
Naomi Kora
Financial Dynamics
+ 44 20 7831 3113
Ed Gascoigne Pees
Nick Henderson
Collins Stewart Europe Limited
+44 20 7523 8350
Hugh Field
Chairman's Statement
This is the third set of results for the Company and it is pleasing to see that
our portfolio of investments continues to expand and develop. These are the
first set of results for EIB as an AIM traded company as the shares were
admitted to trading on the AIM market of the London Stock Exchange on 20
December 2006. At the same time, we raised £43.9m (€64.8m) through a placing at
£12.10 per share.
Although the majority of the companies currently held by EIB are based and
operate in Bulgaria, as the recent name change to Equest Investments Balkans
implies, the investment remit of the Company has been geographically enlarged to
encompass the wider Balkan region. The focus of EIB is to invest in companies
and opportunities that we anticipate will benefit from the growth in domestic
consumer spending in this region.
The assets we have acquired are positioned within four main sectors; retail
services, financial services, land & property development and waste management.
We believe all of these sectors have excellent growth prospects for years to
come.
At 31 December 2006 we had investments in 7 operating companies, which are all
currently non-listed, with a valuation of €227.6m. Proforma net asset value per
share (before write off of AIM placing expenses) increased by 13.7% over the
past 12 months to €18.08 (£12.19). The net asset value per share at 31 December
2006 (after the write off of the placing expenses) was €17.90 (£12.07).
The Technomarket Group, which represents our largest investment, was acquired in
the second half of 2006 after a lengthy period of due diligence and preparation.
Technomarket is the market leader in Bulgaria in large format electronics
retailing, with a market share of 47% in 2006.
The focus for the current six months is to nurture continued growth in the
portfolio and invest the capital raised at the time of the AIM listing in
companies that we expect will deliver returns on equity at or above the level
required.
Given our strategy of seeking to unlock value in private companies, valuation
uplifts can take a period of time to occur, but with the development of the
portfolio coupled with our latest cash generative acquisitions we believe the
Company is well positioned to generate good returns for shareholders in the
coming years.
John Carrington
Chairman
30 April 2007
Investment Manager's Report
Overview
As at 31 December 2006, the Company had 7 investments, held at a valuation of
€227.6m together with €76.1m in cash available for investment. The net assets
of the company were €310.1m.
In April 2007, the Company announced the investment in Novera and the
acquisition of three waste disposal businesses in Sofia.
The Investment Adviser has identified a number of further investment
opportunities and it is anticipated that the Company will be fully invested by
the 30 June 2007.
With the AIM listing and the associated strengthening of the role and membership
of EIB's Board of Directors, the Investment Manager has decided to disband the
Investment Committee. James Ede-Golightly, an independent member of the
Investment Committee since launch, has been appointed a Non Executive Director
of the Company and Lord St John of Bletso will become a senior adviser to the
Investment Manager. We would like to thank Lord St John of Bletso, James
Ede-Golightly and Yuli Stein for their invaluable advice and contribution to the
development of EIB.
Strategy
In order to improve returns for shareholders, we continue to manage actively our
existing holdings and, by using our local offices and networks in Sofia,
Bucharest and Belgrade, we seek to exploit new opportunities for further
investment for EIB and its investments held in the region.
In summary, our ongoing focus for the development of the activities and growing
shareholder value remains to:
• actively manage our existing holdings and build cross selling
and other synergies amongst the EIB held companies;
• broaden the investment focus of EIB and its portfolio companies
to the wider Balkan region and develop companies for the whole Balkan economic
area;
• concentrate investment activity on established companies in
consumer growth areas and select infrastructure opportunities, e.g. Novera, as
well as value enhancing acquisitions for existing companies held;
• build active strategic partnerships with leading global
companies; and
• explore opportunities for IPOs on local and international stock
exchanges for listings of EIB owned companies.
The company may also consider issuing debt at EIB level, if felt appropriate, to
finance the growth of its portfolio.
Portfolio Review
As at 31 December 2006, the net asset value of the company was as shown below.
The market values of the investments shown below and in the financial statements
were derived from independent valuers' reports as at 31 December 2006, adjusted
where necessary for the fair value of the assets and liabilities of the
respective holding companies; certain marketability discounts were also applied.
Investment Cost At Fair Value
(€m) (€m)
Avto Union 16.5 27.4
AXIS Retail 41.7 78.3
Citadel 2.5 2.5
Familia Stores 10.1 3.9
Immofinance 29.7 35.4
Pelican 21. 0 30.7
Vitosha Insurance 17.1 49.4
Total investments 138.6 227.6
Cash 76.1
Other assets and liabilities 6.4
Net Assets 310.1
Retail
Technomarket (75% indirect holding as at 31 December 2006)
EIB acquired 75% of Lynx Property in 2006 through AXIS Retail. Lynx owns 100% of
the subsidiaries trading as Technomarket (the 'Technomarket Group'). The total
acquisition cost of €71.7m was financed by €41.7m from EIB and €30m of external
debt provided by Raiffeisen Bank.
2006 was a year of continued growth for the Technomarket Group. In particular,
the Group companies reinforced their dominant position in the Bulgarian market
for consumer electronics and household appliances and their presence in the
Balkan region. Exports were strong into Serbia, Bosnia, Romania and Albania.
Sales in the EU, albeit representing a relatively low percentage of total sales,
were also good, confirming the competitiveness of the Group in the wider market.
Sales increased 19% on a consolidated basis, from €260m to €310m, with retail
sales registering 42% year on year growth - from €117m to €167m. The major
driver behind this strong sales growth was the ongoing retail network expansion
and continued market growth.
The network increased from 19 stores at the start of the year to 25 stores by
year end 2006. Four of the new store openings were in the first shopping malls
in Bulgaria - three located in the capital Sofia and one in the main seaport of
Varna. The Group completed the reorganisation of its 'big box' property
portfolio, selling the assets in a sale and leaseback transaction. The rental
agreements give 10 year leases at sustainable rental rates for the operations,
ensuring continued competitive advantage.
During 2006 the market position of the Technomarket was strengthened, with the
chain now having 47% of the Bulgarian retail market for consumer electronics and
household appliances. The market share in the higher margin consumer
electronics retail segment is larger, with Technomarket accounting of 54% of the
market in value terms.
On the wholesale side, Technomarket continued its good relationships with key
accounts, increasing sales and adding new clients in Bulgaria, Serbia and
Romania.
Strong and established relationships with global suppliers ensured continued
support for the company's operations. Samsung is the main supplier of the
company, providing the full range of white goods, consumer electronics and IT
products. Panasonic is the second major supplier. Technomarket stores also sell
other household names such as Sony, Philips, LG, Whirlpool, Electrolux and Sony
Ericsson. In 2006 the brand portfolio was expanded by the addition of three new
brands - Daewoo, Nintendo and MSI. Special efforts were directed at the
marketing of Technomarket's own 'Neo' brand, which includes small domestic
appliances and consumer electronics. Also during the year the Neo line added the
latest plasma TV sets to its range and successfully marketed these in Bulgaria
and Serbia.
The major strategic objectives for Technomarket in 2007 are:
• Expanding the retail network in Bulgaria, with new big box stores into
three new cities;
• Increasing marketing focus on the Technomarket brand;
• Continuing support for Technomarkets's own Neo brand of electronics;
• Establishing a retail presence in Romania and expanding activities into
FYR Macedonia.
In 2006 Technomarket Group's sales increased by 19% to €310m and it reported, on
operations, an EBITDA of €17.6m and a pre-tax profit of €15.6m. The company's
operations are highly cash generative and can support both short term and long
term debt facilities for future growth, including its current €25m long term
debt from commercial banks.
EIB's 75% investment in Technomarket as at 31 December 2006 has been valued at
€78.3m. This has been based on the DCF valuation of the Technomarket Group
undertaken by the independent valuer, adjusted to take account of the €30m in
acquisition related debt within the EIB holding company structure.
We are currently in the process of developing the strategic options for
Technomarket. One potential option is a flotation of Technomarket on the Sofia
Stock Exchange.
Avto Union (80% indirect holding as at 31 December 2006)
Avto Union is a leading Bulgarian wholesaler and distributor in the automotive
sector with a market share of 7.8% in new car sales. It sells the following
brands: Fiat, Lancia, Alfa Romeo, Maserati, Mazda, Opel, Chevrolet. It also
sells Piaggio, Vespa and Gilera motorbikes, has the Avis Rent a Car franchise
and distributes Castrol and BP lubricants.
Avto Union is currently one of the fastest growing automotive retailers in
Bulgaria, with 84% sales growth in 2006. In 2006 Avis Rent a Car Bulgaria
received the prize for the fastest growing dealership in the world, while Mazda
Bulgaria was announced as the best dealer for South-East Europe. Castrol and BP
were the market leaders for the 5th consequent year.
Avto Union is focused on organic expansion, but is also considering acquisitions
in the Balkan region. The Company expects continued high growth in existing
brands driven by increasing car ownership in the region and the current low car
ownership ratio.
The company also has a substantial portfolio of property interests and is
currently constructing its flagship mixed use retail and office development, '
Avto Union Centre', located adjacent to the Sofia Airport. This building is
being completed in two phases with the first phase, due to be opened in December
2007, incorporating new showrooms and service centres for the Italian car brands
of Avto Union and the second phase, which is due to be completed in March 2008,
for office buildings and further retail space. The total lettable area is some
27,000 sqm of offices, retail and service space. The total development cost of
the construction is €20m, of which €16m has been financed through debt from
local banks.
Additionally Avto Union is planning to start the construction of a new flagship
Mazda centre in late 2007 in order to further support the growth of this brand
in the country. In total Avto Union has acquired 46,000 sqm of development land
in four separate sites for developing new car distribution centres in Sofia and
Plovdiv in Bulgaria.
In the year ended 31 December 2006, Avto Union had sales of €40.5m (up 84% over
2005) and profits before tax of €1.1m (up 278% over 2005) on an adjusted basis.
Profitability continues to increase and the company is currently financing its
operational growth from internal sources with no long term debt, with the
exception of debt associated with its property development, and approximately
€2m in short term trade financing.
EIB's 80% investment in Avto Union as of 31 December 2006 has been valued at
€27.4m and is based on a DCF valuation undertaken by the independent valuer and
the independent valuation of the property held by the company.
Familia (100% indirect holding as at 31 December 2006)
Familia Stores is a chain of local convenience food stores and one of the
leading local operators in food retail in Bulgaria. The company operates 26
stores in Sofia, and is in the process of launching up to 7 new stores during
2007. Some of the less profitable stores in its network are also expected to be
closed.
Following trading and management difficulties in the company during mid year
2006 (at which time EIB held a minority equity stake of 30.6% in Familia for an
initial equity investment or €2.3m) EIB acquired a 100% equity holding in the
company. EIB then made an additional investment of €1m in equity and €6.3m in
the form of capital loans. A further €1.3m has been provided to the company in
early 2007, principally in order to support the company in order to obtain debt
facilities from local banks in Bulgaria.
EIB has also installed a new management team into the company to re-launch the
operations of the food retailer. The turnaround process of the company is
currently ongoing and includes, amongst other things, the streamlining of the
products range, improving and building long term relationships with local
suppliers, as well as optimising the current network of stores with additional
new store launches. Furthermore, the company is also actively seeking
acquisition opportunities in Bulgaria and the Balkan region for further growth.
In the year ended 31 December 2006, Familia had sales of €8.4m (down 20% from
2005) and a loss before tax of €5.3m. The major reason for the loss was a write
down of old receivables together with certain one-off restructuring costs.
Currently the company has short-term debt of €1m from local banks, no external
long-term debt and is expected to return to profitability in 2007.
EIB's 100% interest in Familia Stores as of 31 December 2006 is valued at €3.9m,
which represents a discounted value of EIB's €6.7m in capital loans and does not
include any value attributed EIB's equity investments in Familia.
Financial Services
Vitosha Insurance (68.48% indirect holding as at 31 December 2006)
Vitosha Insurance is the fifth largest insurance company in Bulgaria with life
and non-life operations. Set up as a private company in 1994, it has been built
up to more than 100 branches across the country and it is now ranked 4th in life
insurance and 6th in non-life insurance (source: Bulgarian Financial Supervisory
Commission).
2006 was a year of change and further growth for Vitosha, with life insurance
premiums up 72% and total premiums up 28%.
EIB has a strategic partnership with Uniqa, Austria's largest insurance company.
During the year, Uniqa acquired operational control of Vitosha Insurance and
started to implement its own internal procedures and practices in the company.
In addition to changes in operations of the company, Uniqa and EIB also decided
to increase capital and further invest some €18m into the company during the
year in order to meet capital requirements associated with the growth in premium
income in the life and non life operations. EIB's contribution to the capital
increase was approximately €10m, which was provided through external debt with
no additional equity investment from EIB itself.
Vitosha had gross premium income of €42m in 2006 (2005: €33m) and operating
profit of €340,000 in 2006 (2005: loss €1.38m).
EIB's investment in Vitosha Insurance as of 31 December 2006 was valued at
€49.4m based on a DCF valuation undertaken by the independent valuer - adjusted
to reflect the forward purchase contracts by Uniqa of EIB's shares held in the
company, the terms of which are based on the growth in the premium income and
profitability of the company.
In 2007 Uniqa has re-branded Vitosha Insurance as Uniqa Bulgaria and acquired a
further 31% of shares from EIB, for a controlling holding. EIB's equity holding
is now 38% in Uniqa Bulgaria. The initial payments for the sale of €12m have in
the main been used for repayment of loans associated with EIB's further
investment in the company during 2006. Further payments for this tranche will be
made in 2008 and 2009, the amount of which are to be determined by the Company's
performance.
Land & Property Development
Immofinance (100% indirect holding as at 31 December 2006)
Immofinance is a residential property development company focusing on first and
second homes in Bulgaria and neighboring countries. The current portfolio
consists of 7 separate residential development projects at various stages of
development.
1. Embassy Suites is a gated community next to Vitosha Mountain in Sofia.
It consists of 80 apartments and 118 underground parking spaces and was
completed in November 2006. 62% of the apartments have now been sold. The
remaining 38% are expected to be sold by the end of 2007. The total developed
area for Immofinance in the project is 26,000 sqm, of which 15,917 sqm is for
residential apartments.
2. Construction of Banya Spa & Wellness Resort, a complex of residential
apartments, hotel, spa and sports facilities located in the Bulgarian Pirin
Mountains, started in September 2006 and expected to be completed by February
2008. The project is currently in construction and has been launched for sales
with first sales completed. The gross floor area for Immofinance in the project
is 22,537 sqm of which 12,615 sqm is for residential apartments and 4,248 sqm is
for the hotel and spa.
3. Construction of Banya SPA II, a complex of holiday apartments, houses
and a spa center, will commence in September 2007. A design permit has been
obtained and construction is expected to be completed by mid 2009. The gross
floor area for Immofinance in the project is projected at 31,500 sqm, of which
24,600 sqm is for residential apartments and 1,000 sqm is for the spa area.
4. Construction of Boyana Park, a modern gated community in Sofia which
will consist of functional apartments, sports facilities, community centre and
retail premises, will commence in September 2007 and is estimated to be
completed by March 2009. The gross floor area for Immofinance in the project is
projected at 42,500 sqm, of which 26,438 sqm is for residential apartments and
3,490 sqm is for commercial use.
5. Construction of The Boyana Diplomatic Club, a complex of luxury
condominium apartments in Sofia aimed at the high-end residential market, is due
to commence in September 2007 and be completed in September 2008. The gross
floor area for Immofinance in the project is projected at 4,208 sqm, all of
which is for residential apartments.
6. Sozopolis is a complex of second home properties, a hotel, two
restaurants, a spa centre and a supermarket on the Black Sea coast. Building
permission has been granted and construction is expected to commence in October
2007. The completion date is expected to be mid 2009. The gross floor area for
Immofinance in the project is projected at 33,785 sqm, of which 30,742 sqm is
for residential apartments and 2,52800 sqm is for the spa area.
7. Construction of the Kavarna Blue Lagoon, a vacation complex for second
homebuyers by the Black Sea, is expected to commence in January 2008, with a
completion date set for September 2009. T Immofinance as a 50% owner of the
development. The total area developed for sale by is projected at 50,000 sqm.
It is expected that the detailed plans for the development will be completed in
the next few months.
EIB's investment in Immofinance as of 31 December 2006 is valued at €35.3m. This
is based on the estimates of the present market values of Immofinance's various
developments, undertaken by the independent valuer CBRE, coupled with a discount
to reflect the relatively early stage of the development portfolio.
Pelican (100% indirect holding as at 31 December 2006)
Pelican is a developer and owner of five sites that are to be redeveloped for
commercial use and let to tenants upon completion. Four of the sites are located
in the centre and densely populated area of Sofia and were used as cinemas prior
to introduction on the new market economy in the country, whilst the fifth is a
former car factory located by the entrance to Varna, Bulgaria's second city.
1. Serdika is a 24,000 sqm mixed office and retail scheme with underground
parking for 180 cars adjacent to the Vasil Levski monument in the centre of
Sofia. The development is being undertaken jointly between EIB (42% holding)
and Equest Balkan Properties plc (58% holding). The relative holdings are
based on their respective ownership in Serdika Cinema and the Serdika Hotel
and in accordance with independent third party valuations. Construction is
due to start by the summer of 2007, subject to receiving further approvals
in respect of the historical sensitivity of the location, which have been
requested by the authorities in recent months. Completion is expected
during 2009. This, together with a discounting of risks associated with
completion of the project, has led to a reduction in the carrying value of
Serdika Cinema.
2. Evropa Palace is currently seeking approvals for conversion into a retail
area of 1,640 sqm lettable space and is in the process of being let to a
single tenant who will also be responsible for the full refurbishment of
property. Refurbishment is expected to start in June 2007 and be completed
by March 2008.
3. Iztok, a disused cinema, is planned to be demolished and reconstructed as a
multi-storey retail and office building with 1,980 sqm in build up area.
Design works, additional land purchase, permits and approvals are ongoing
and demolition and site mobilisation are scheduled to start in January 2008.
4. Reconstruction of Urvich with lettable commercial space of approximately 500
sqm is scheduled to commence in September 2007 and negotiations with
potential tenants are ongoing.
5. Rodacar, a former factory in Varna with a build up area of 17,000 sqm, is
currently being let as general warehouse space. Plans are being prepared for
redevelopment of this site into a new build multipurpose development for
retail and offices use.
EIB's investment in Pelican as at 31 December 2006 is valued at €30.7m,
comprising property of €27.1m and short-term receivables of €3.6m. The property
valuation is based on the estimates of the present market values of Pelican's
developments, undertaken by the independent valuer CBRE. The company with its
development portfolio is currently debt free.
Citadel (100% indirect holding as at 31 December 2006)
Citadel is a land holding company which has acquired 84 hectares of agricultural
land in the northern outskirts of Bucharest, near the Snagov area some 25 km
outside that capital. Citadel is looking to acquire further land in the area
with a view to seeking permission to change the use of the land area to a
large-scale residential property development project.
EIB's investment in Citadel as of 31 December 2006 is valued at €2.5m, which is
the cost value of the investment. The company is currently debt free.
Post Year End developments
Novera (94% indirect holding acquired in March 2007)
EIB acquired the three concession holding companies for waste collection and
transportation in Sofia through Novera, a wholly owned subsidiary of EIB, in
March 2007.
At the same time, Novera also acquired other activities related to waste
management and infrastructure services that are provided in Bulgaria, and in the
future, for the broader Balkan region.
The companies provide waste collection, street cleaning and snow clearing
services to the Municipality of Sofia in Bulgaria. The current infrastructure,
which has been built up over the past 10 years of operations of the Companies,
consists of more than 350 waste collection trucks and other vehicles, and over
1,800 employees.
Novera has committed to improve the waste collection services in the region and
is in negotiations with a number of leading European waste management companies
to help grow and develop the operations of Novera in Bulgaria.
The consideration for the acquisitions was €45m in cash, with up to a further
€10m payable later dependent on the performance of the concession holding
companies in 2007. The initial cost of the acquisition of €45m was financed €25m
from EIB's cash resources and a mezzanine debt facility of €20m from Accession
Mezzanine Capital ('AMC'). Under the terms of the mezzanine debt facility, AMC
is entitled to an equity stake of up to 6% of the equity in Novera. EIB intends
to refinance €15m of its initial €25m outlay through a senior bank debt
facility. The businesses were acquired debt free.
The combined turnover of the three concession holding companies in the year
ended 31 December 2006 was €22.4m with an EBITDA of €5.4m. The combined net
assets of the three concession holding companies as at 31 December 2006 were
€13.6m. Other service activities in waste management and infrastructure services
that have been incorporated in Novera generated an EBITDA of €6.1m in the year
ended 31 December 2006.
Borovets
In April 2007 EIB made a non-refundable payment of €5m to purchase an option to
acquire 67% of Rila-Samokov 2004 AD, the project company that owns 2 million
square metres of land in the Borovets mountain area for further development into
residential second homes and associated infrastructure.
EIB's investment in Novera and payment in respect of the Borovets project are
not included in the valuation table for year-end 2006 as they were made in 2007.
Equest Capital Management Limited
30 April 2007
STATEMENT OF NET ASSETS
As at 31 December 2006
31 December 31 December
2006 2005
Expressed in Euro Notes €000 €000
Assets 2 and 3 227,607 129,220
Investments at fair value
(cost: €138,636,000; 2005: €76,200,000)
Cash & cash equivalents 76,072 35,916
Management fees in advance 4 973 722
Pending Investment 7 5,000 -
Other debtors 1,272 1,118
Interest receivable - 353
310,924 167,329
Liabilities
Agency and administration fees payable 4 285 64
Custodian fees payable 4 128 56
Director fees 4 13 13
Performance fees 4 29 8,042
Other accrued liabilities 401 157
856 8,332
Net assets attributable to shareholders
310,068 158,997
9 17,324,350 10,000,000
Number of shares
Net asset value per share 8 €17.90 €15.90
The accompanying notes are an integral part of these financial statements.
SCHEDULE OF INVESTMENTS
.
As at 31 December 2006
Investment Cost Fair value
€OOO €OOO
% of Net Assets
Avto Union Holding Ltd 16,500 27,359 8.82%
AXIS Retail Holding Ltd 41,675 78,300 25.26%
Citadel Financial Holding Ltd 2,460 2,460 0.79%
Familia Overseas Hording Ltd 10,128 3,960 1.28%
Immofinance Holding Ltd 29,773 35,429 11.43%
Pelican Retail Holding Ltd 21,000 30,734 9.91%
Vitosha Holdings Ltd 17,100 49,365 15.92%
Total Investments 138,636 227,607 73.41%
Cash 76,072 24.53%
Other assets and liabilities 6,389 2.06%
Total Net Assets 310,068 100.00%
SCHEDULE OF INVESTMENTS Cost Fair value
As at 31 December 2005 €OOO €OOO
% of
Investment Net
Assets
Avto Union Holding Ltd 16,500 29,825 18.76%
AXIS Retail Holding Ltd 1,100 1,100 0.69%
Familia Overseas Holding Ltd 2,500 2,375 1.49%
Immofinance Holding Ltd 21,000 31,792 20.00%
Pelican Retail Holding Ltd 21,000 25,076 15.77%
Vitosha Holdings Ltd 14,100 39,052 24.56%
Total investments 76,200 129,220 81.30%
Cash 35,916 22.59%
Other assets and liabilities (6,139) (3.89%)
Total Net Assets 158,997 100.00%
STATEMENT OF OPERATIONS
For the year ended 31 December 2006
Notes Year ended Year ended
31 December 31 December
2006 2005
€000 €000
Income 2 1,157 703
Investment income
Total investment income 1,157 703
Expenses 4,096 2,453
Investment management fees 3,445 8,042
Performance fees 4 126 56
Custodian fees 4 3,192 177
Amortisation of formation expenses 4 37 21
Audit fees 8
Legal fees 17 27
Administrative and agency fees 4 365 165
Director's fees and expenses 4 8 8
Other fees and expenses 503 165
Total expenses 11,789 11,114
Net investment loss
(10,632) (10,411)
Net realised gain on currency 608
transactions
-
Net movement in unrealised gain on 35,951 53,020
investments
Net Increase in Net Assets resulting from 25,927 42,609
Operations
STATEMENT OF CHANGES IN NET ASSETS
For the year ended 31 December 2006
Year ended Year ended
31 December 31 December
2006 2005
€000 €000
From operations (10,632) (10,411)
Net investment (loss)
Net movement in realised gain on currency transactions 608
-
Net movement in unrealised gain on investments 35,951 53,020
Net increase in net assets resulting from operations 25,927 42,609
From share capital transactions
Proceeds from shares issued 85,000
125,145
Payments for shares redeemed - -
Net increase in net assets from share capital 125,145 85,000
transactions
Net increase in net assets in the year 151,072 127,609
Net Assets: 158,996 31,387
Beginning of year
End of year 310,068 158,996
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
Note 1 - Operations
Equest Investment Balkans Ltd (formerly known as Equest Investments Bulgaria
Ltd) (the 'Company') was incorporated on 10 December 2003, as an International
Business Company under the laws of the British Virgin Islands. 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 Alternative Investment Market ('AIM')
of the London Stock Exchange.
The Company changed its name to Equest Investments Balkans Limited on 20
December 2006.
The Company's investment objective is to provide shareholders with long-term
capital growth. The Company will seek to achieve it's investment objective by
investing directly or indirectly in equity or equity related securities in
developing enterprises organised or operating primarily in Bulgaria, Romania and
other countries throughout the Balkan region.
Note 2 - Significant Accounting Policies
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America. These principles require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
These financial statements are prepared in Euros. The following are the
significant accounting policies adopted by the Company:
A. Security valuation. Investments have been valued by the directors at their
fair value in compliance with the principles of the International Private Equity
Venture Capital Valuation guidelines which have been adopted by the Investment
Manager. The carrying value assigned to the investments are based on available
information and do not necessarily represent amounts that might ultimately be
realised since such amounts depend on future circumstances and cannot be
determined with certainty until the individual investments are liquidated, and
such differences could be material. Third party agents are appointed by the
Company to provide semi-annual independent valuations of the Company's assets.
Under the terms of the guidelines unquoted investments are stated at amounts
considered by the directors to be reasonable assessment of their fair value,
subject to the requirement to apply a degree of caution in making the necessary
estimates. Fair value is the amount at which an asset could be exchanged between
knowledgeable, willing parties in an arm's length transaction.
Investments are valued at cost for a limited period after the date of
acquisitions.
The discounted cash flow method has been used for investment in established
businesses with an identifiable stream of continuing earnings that can be
considered to be maintainable. Where an investment's value is derived mainly
from the underlying value of its property assets rather than its earnings, the
valuation is calculated with regard to the underlying property assets. Where
there has been a subsequent recent investment by a third party that is deemed to
be at arms length, this may be used as the basis of valuation. In cases where an
exit is actively being sought, any offers from potential purchases would be
relevant in assessing the valuation of an investment and are taken into account
in arriving at the valuation.
Where appropriate, a marketability discount may be applied to the investment
valuation, based on the likely timing of an exit, the influence over that exit,
the risk of achieving condition precedent to that exit and general market
conditions. In arriving at the value of an investment, the percentage ownership
is calculated after taking into account any dilution through outstanding
warrants, options and performance related mechanisms.
The company held no quoted investments at the year-end.
B. Security transactions and income. Security transactions are recorded on the
trade date. Realised gains or losses on security transactions are determined on
the identified cost basis. Interest income is recognised on the accrual basis.
C. Translation of foreign currencies. Assets and liabilities denominated in
foreign currencies are translated at the rates of exchange in effect at the year
end, and any adjustments, other than those relating to securities and forward
foreign currency contracts, are charged or credited to the Statement of
Operations as 'net realised loss on foreign currency translation'. Security
transactions (purchases, sales and income) denominated in foreign currencies are
translated at rates of exchange in effect at the time of each transaction and
market values at the year end are translated at exchange rates at that date. Any
exchange difference arising when a security is held at the year end, or when a
security transaction is settled, is taken to the Statement of Operations as
'change in unrealised depreciation of investments' and 'net realised loss on
foreign currency translation' respectively. Income and expenses are translated
at the rates of exchange in effect at the time of the transaction.
D.Realised and unrealised gains and losses. Realised and unrealised changes in
fair values of financial instruments are included in realised and unrealised
gains and losses in the Statement of Operations in the period in which the
changes occur.
Note 3 - Investments
In accordance with accounting principles generally accepted in the United States
of America the holdings have not been consolidated. Details on the investments
held by the companies are set out below. These companies have valued the
underlying subsidiaries at cost. The Company has revalued these investments as
set out in Note 2 A.
AVTO UNION HOLDING LIMITED €000
Percentage of Voting Shares Held 100%
Balance Sheet as at 31 December 2006
Assets: 9,490
Investment in Avto Union EAD
Loan to Avto Union EAD 6,759
Debtors 577
Bank account 132
Total assets 16,958
Liabilities and shareholders equity: 2
Current liabilities
Shareholders equity 16,956
Total liabilities and shareholders equity 16,958
IMMOFINANCE HOLDING LIMITED €000
Percentage of Voting Shares Held 100%
Balance Sheet as at 31 December 2006
Assets: 10,372
Investment in Immofinance EAD
Loan to Immofinance EAD 19,037
Debtors 1,480
Bank accounts 51
Total assets 30,940
Liabilities and shareholders equity: 2
Current liabilities
Shareholders equity 30,938
Total liabilities and shareholders equity 30,940
PELICAN RETAIL HOLDING LIMITED
Percentage of Voting Shares Held 100%
Balance Sheet as at 31 December 2006 €000
Assets: 10,471
Investment in Pelican Retail EAD
Investment in Rodacar AD 5,480
Loan to Pelican Retail EAD 1,658
Debtors 404
Bank account 4,394
Total assets 22,407
Liabilities and shareholders equity: 796
Current liabilities
Shareholders equity 21,611
Total liabilities and shareholders equity 22,407
AXIS RETAIL HOLDING HOLDING LIMITED
Percentage of Voting Shares Held 100%
Balance Sheet as at 31 December 2006 €000
Assets: 41,425
Loans to Axis Retail NV
Debtor 1,591
Bank Account 8
Total assets 43,024
Liabilities and shareholders equity: 902
Current liabilities
Shareholders equity 42,122
Total liabilities and shareholders equity 43,024
VITOSHA HOLDING LIMITED
Percentage of Voting Shares Held 100%
Balance Sheet as at 31 December 2006 €000
Assets : 26,670
Investment in Vitosha Insurance and Re-Insurance AD
Loans to Vitosha Insurance and Re-Insurance AD 1,534
Debtors 154
Bank account 266
Total assets 28,624
Liabilities and shareholders equity; 12,000
Loans payable
Current liabilities 41
Shareholders equity 16,583
Total liabilities and shareholders equity 28,624
CITADEL FINANCIAL HOLDING LIMITED €000
Percentage of Voting Shares Held 100%
Balance Sheet as at 31 December 2006
Assets: 2,430
Loans to Castle Financial Holding NV
Debtors 50
Bank account 6
Total assets 2,486
Liabilities and shareholders equity: 2
Current liabilities:
Creditors
Total shareholders equity 2,484
Total liabilities and shareholders equities 2,486
FAMILIA OVERSEAS HOLDING LIMITED
Percentage of Voting Shares Held 100%
Balance Sheet as at 31 December 2006
€000
Assets: 3,320
Investment in Magazini Familia Plus EOOD
Loans to Magazini Familia Plus EOOD 3,757
Bank account 212
Total assets 7,289
Liabilities and shareholders equity: 8
Current liabilities:
Creditors
Total shareholders equity 7,281
Total liabilities and shareholders equities 7,289
Note 4 - Investment Performance and Advisory Incentive fees, Agency and
Administration and Supervisory Custodian Fees
A. Investment Management fees. Under the Investment Management Agreement dated 5
March 2004 as amended by an agreement dated 11 December 2006, between the
Company and Equest Capital Management Limited (the 'Investment Manager'), the
Investment Manager receives, at the end of each calendar half year end, a
investment management fee of 2.5 % of the committed capital per annum. The
investment management fee is payable semi-annually in advance. Investment
management fees earned during the year ended 31 December, 2006 amounted to
€4,096,000 (2005: €2,453,000). Investment management fees prepaid at the year
ended 31 December 2006 amounted to €973,000 (2005: €722,000).
B. Performance fees. From 20 December 2006, the Investment Manager is entitled
to receive a performance fee to be determined during successive periods of
twenty four months. The performance fee is equal to 20% of the excess of the
closing Net Asset Value per share at the end of each performance period over the
higher of:
(i) The Euro equivalent of the placing price increased by 8% per annum on a
compounding basis up to the relevant performance period;
(ii) the closing Net Asset Value per Ordinary Share at the end of the
immediately preceding performance period; and
(iii) a high watermark which is the highest closing Net Asset Value per ordinary
share at the end of any previous performance period in respect of which a
performance fee was last earned;
multiplied by the time weighted average of the number of Ordinary Shares in the
Performance Period.
Prior to 20 December 2006 performance fees were calculated through the Company's
holding of Class B Shares. The Investment Manager was entitled to receive a
carried interest of 20% of all distributions once the Company returned to
shareholders the entire amount invested by them them in the Company plus a
hurdle return of 8% per annum thereon. The performance fee earned for during
the year ended 31 December, 2006, amounted to €11,488,000 (2005: €8,042,000).
The performance fee payable at 31 December 2006, was €29,000 (2005: €8,042,000).
A performance fee crystallised on 20 December, 2006, the date the Company was
admitted to the AIM. The performance fee payable at that date in the sum of
€11,459,000 was taken in the form of shares. Shares totaling 641,510 were issued
at the AIM float price of €17.8624.
C. Agency and administration fees. Under the Agency and Administrative Agreement
dated 20 February 2004 between the Company and Olympia Capital (Ireland) Limited
('Olympia'), which was amended by board resolution dated 7 December, 2006.
Olympia receives a fee, payable quarterly in arrears at an annualised rate of
0.15% for Net Assets up to €200m and 0.10% for Net Assets above €200m. The
Agency and Administration fees for the year ended 31 December 2006 amounted to
€365,000 (2005:€165,000). Agency and Administration fees payable at 31 December
2006, amounted to €285,000 (2005: €64,000).
D. Custodian fees. Under the Custodian Agreement dated 20 February 2004, between
the Company and Northern Trust Fiduciary Services (Ireland) Limited ('Northern
Trust'), Northern Trust receives a fee, calculated and payable monthly at an
annualised rate of 0.05% of the Company's Net Asset Value subject to a minimum
of 01,200 per month. The custodian fees for the year ended 31 December 2006
amounted to €126,000 (2005: €56,000). The custodian fees payable at the year
ended 31 December, 2006, were €128,000 (2005: €56,000).
E. Director's fees. The company pays a maximum of €30,000 per annum for all
Directors of the company excepting the Chairman of the Company who earns
€40,000. Director's fees for the year ended 31 December 2006, amounted to €8,000
(2005: €8,000). The Director's fees payable at the year ended 31 December, 2006,
were €13,000 (2005: €13,000). Mr Petri Karjalainen, has waived his director's
fees.
Note 5 - Income Taxes
Under current British Virgin Islands legislation, there is no income tax,
capital gains or withholding tax, estate duty or inheritance tax payable by the
Company. The Company has been advised by its United States Counsel that,
provided it does not engage in business in the United States, which it does not
intend to do, it should not be subject to United States federal income or
withholding taxes on gains realised by it from trading in securities in the
United States other than the 30% withholding tax on United States-sourced
dividends. As the Company is not subject to taxation in the British Virgin
Islands and it has been advised that its proposed method of operations should
not result in it being subject to United States income taxes, no provision for
taxes has been made in the financial statements.
Note 6 - Distributions to Shareholders
The Board of Directors may declare distributions out of such sources and at such
times as it from time to time may determine at its sole discretion. The Company
does not currently intend to distribute its income or net realised capital
gains. For the year ended 31 December 2006 no distributions were declared. The
Board of Directors will periodically review its distribution policy in light of
the Company's ongoing needs and operations.
Note 7 -- Pending Investment
The Company provided Novera EAD a Bulgarian incorporated company, with an
advance in the sum of €5,000,000 on 22 December 2006. Novera Holdings Limited a
company incorporated in the British Virgin Islands was incorporated on 3 January
2007. The Company was issued Novera Holdings Limited shares in the sum of
€5,000,000 in full repayment of the advance to Novera EAD on 3 January 2007.
Note 8 - Net Asset Value
In accordance with US Generally Accepted Accounting Standards formation expenses
of €3,192,000 relating to the listing by the Company on AIM have been fully
expensed in the statement of operations for the period in which they are
incurred. However, in accordance with the Company's Offering Memorandum the
Reported Net Asset Value ('NAV') each quarter reflects the amortization of these
formation expenses in order not to prejudice early investors. A reconciliation
of the Net Asset Value is as follows:
31 December 2006
€000
Net Asset value per financial statements 310,068
Write back AIM listing costs expensed in year 3,192
Net Asset value per valuation as at December 31, 313,260
2006
Number of shares in issue at December 31, 2006 17,324,350
Net Asset Value per share as published per €18.08
valuation
Net Asset Value per share as per financial statements €17.90
Difference between published Net Asset Value per share and financial €0.18
statements Net Asset Value per share
The reported Net Asset Value per share is calculated by dividing the adjusted
Net Assets of the Company by the number of participating shares in issue.
Note 9 - Share Capital
Authorised
The authorised share capital of the Company is 50,000,000 Ordinary shares of no
par value. Prior to the listing on AIM the authorised share capital of the
Company was 20,000,000 Class A shares of €0.01 each and 4 Class B shares of €100
par value each. All A Class shares were converted into Ordinary Shares on a one
for one basis. The four Class B shares were repurchased and cancelled. In
December 2006, a performance fee crystallized and shares totaling 641,510 were
issued to the Investment Manager in lieu of this fee.
Transactions in Common Shares of the Company were as follows:
For the year ended 31 December 2006
Shares Amount €000
Opening Balance at 1 January, 2006 10,000,000 117,000
Proceeds from shares issued 7,324,350 125,145
Payments from shares redeemed - -
Closing Balance at 31 December, 2006 17,324,350 242,145
Note 10 - Financial Instruments with Market, Currency, Liquidity, Interest,
Credit and Off-Balance Sheet Risk
The Company's financial instruments are held at market value, which approximates
fair value as outlined in Note 2 of these statements. The most appropriate
indication of fair market value is likely to be an independent third party
transaction within the valuation period. In the absence of this all unquoted
investments are valued at cost at the year end by the administrator using the
conservative value methodology.
Market Risk
Market Risk arises from uncertainty about future prices of financial investments
held. It represents the potential loss the Company might suffer through holding
market positions in the face of price movements.
Currency Risk
The Company may hold assets denominated in currencies other than the Euro, the
functional currency. The Company is therefore exposed to currency risk, as the
value of the securities denominated in other currencies will fluctuate due to
changes in exchange rates. The Company's policy is not to enter into any
currency hedging transactions. As at 31 December 2006 all of the Company's
assets were held in Euro.
Liquidity Risk
A significant period of time may pass before the Company has completed its
investments in portfolio companies. Such investments may typically take from
three to five years from the date of initial investment to reach a state of
maturity when realisation of the investment can be achieved. Transaction
structures typically will not provide for earlier liquidity of the Company's
investment. It is likely that no significant return from the disposition of
Company investments will occur for a substantial period of time from the
Settlement Date and this may impact the Company's overall liquidity.
Interest Rate Risk
The majority of the Company's financial assets and liabilities are non-interest
bearing; as a result, the Company is not subject to significant amounts of risk
due to fluctuations in the prevailing levels of market interest rates. Any
excess cash and cash equivalents are invested at short-term market interest
rates.
The Company is exposed to risks associated with the effects of fluctuations in
the level of market interest rates on its financial position and cash flows. The
Company earned interest of €1,157,000 during the year ended 31 December 2006.
Credit and Off-Balance Sheet Risk
All securities transactions are cleared through and held in custody primarily by
one major international institution, namely Barings (Ireland) Limited. The
assets of the Company are segregated along with other Barings (Ireland) Limited
client assets from Northern Trust (Ireland) Limited own assets. The Company is
subject to credit risk to the extent that this institution may be unable to
fulfill its obligations either to return the Company's securities or repay
amounts owed. For these financial instruments, the maximum credit risk amount as
at 31 December 2006 is represented by the amount at which they are included in
the statement of assets and liabilities. In the normal course of the business
the Company does not require collateral for financial instruments with credit
risk.
Note 11 - Related Party Transactions
Mr. John Walley, a director of the Company is a director of Olympia Capital
(Ireland) Limited, the Administrator to the Company. All fees in relation to the
Agency and Administration Agreement are disclosed in note 4 of the financial
statements.
Mr. Petri Karjalainen, a director of the Company is a director and shareholder
of the Investment Manager and Investment Advisor. As at December 31, 2006 Mr
Karjalainen held 71,200 Ordinary shares in the Company. All fees paid to the
Investment Manger are disclosed in note 4.
Mr. John Carrington a director of the Company held 30,000 shares at December 31,
2006. No further material contracts for provisions of services existed during
the year under review to which the Company is a party and in which any director
was interested.
Other than the investment management agreement and investment advisory agreement
in relation to Mr Karjalainen and the administration agreement in relation to Mr
Walley there are no contracts entered into by the Company in which the directors
have a material interest.
Note 12 - Post Year End Events
The following post year end events occurred
Novera EAD, a wholly owned subsidiary of the Company acquired Christota AD, Wolf
96 DOD and Ditz AD, for €45,000,000 in cash (with up to a further €10,000,000
dependent on the performance in 2007) on March 27, 2007 through. These Companies
are three concession holding companies for waste collection and transportation
in Sofia and other activities related to waste management and infrastructure
services that are provided in Bulgaria. The initial cost of the acquisition of
€45,000,000 was financed €25,000,000 from EIB's cash resources and a mezzanine
debt facility of €20,000,000 from Accession Mezzanine Capital ('AMC'). Under the
terms of the mezzanine debt facility, AMC is entitled to an equity stake of up
to 6% of the equity in Novera EAD. EIB intends to refinance €15,000,000 of its
initial €25,000,000 outlay through a senior bank debt facility. The businesses
were acquired debt free. The combined turnover of the three concession holding
companies in the year ended 31 December 2006 was €22,400,000 with an EBITDA of
€5,400,000. The combined net assets of the three concession holding companies as
at 31 December 2006 were €13,600,000.
In April 2007 the Company made a non-refundable payment of €5,000,000 to
purchase an option to acquire 67% of the company which owns 2 million square
metres of land in the mountain skiing and holiday area of Borovets.
Vitosha Insurance was renamed Uniqa Insurance Bulgaria in March 2007 at the same
time as Uniqa acquired an additional 31% from the Company, thereby becoming the
majority shareholder.
Note 13 - Financial Highlights
The financial highlights for the Company for the year ended 31 December, 2006
are as follows:
Basic earnings per share for the year ended December 31, 2006 was (€0.75),
(2005: (€1.04). Basic earnings per share is based on the net investment loss in
the statement of operations and the average number of shares in issue during the
year.
Per share operating performance (for a share of capital stock outstanding 2006 2005
throughout the year)
Net Asset Value, beginning of year 15.90 9.81
Income from operations (0.75) (1.04)
Net investment
Net unrealised gain on investment 2.75 5.30
Benefit of share premium on additional share issue - 1.83
Net Asset Value, end of year 17.90 15.90
Total return 12.58% 62.08%
Ratio of investment income to average net assets (annualised) 0.49% 0.56%
Ratio of expenses to average net assets (annualised) (4.98%) (8.79%)
Ratio of unrealized gain on currency & investments to average net assets 15.42% 41.95%
(annualised)
Ratio of net investment income to average net assets 10.93% 33.72%
--oo--
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