TIDMTBI
RNS Number : 7483Y
Trans Balkan Investments Ltd
31 December 2010
TRANS BALKAN INVESTMENTS LIMITED
(Formerly Equest Investments Balkans Limited)
FULL YEAR RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2009
Trans Balkan Investments Limited ("TBIL" or "the Company"), a
holding company with subsidiaries investing in the Balkan region
(all together "the Group"), today announces its final results for
the year ended 31 December 2009.
TBIL has prepared its consolidated financial statements in
accordance with International Financial Reporting Standards
("IFRS").
Headlines for the financial year ended 31 December 2009
-- Group consolidated revenue of EUR560.9 million for the year
ended 31 December 2009 (2008: EUR625.1million)
-- Full year pre-tax loss of EUR72.7 million (2008: loss of
EUR61.7 million)
-- 2009 loss per share from continuing operations of EUR3.91
(2008: loss per share EUR3.46)
-- Total net assets at 31 December 2009 of EUR116.8 million (31
December 2008: EUR164.4 million)
-- Net asset value per share of EUR6.39 (31 December 2008:
EUR9.24)
-- TechnomarketDomo N.V., TBIL's largest holding, reported
consolidated sales of EUR558.4 million (31 December 2008: EUR621.5
million), EBITDA EUR12.0 million (31 December 2008: EUR23.5
million) and pre tax loss EUR3.53 million (31 December 2008: pre
tax profit EUR2.82 million).
-- Borovets Investments EAD, TBIL's strategic stake in the Rila
Samokov development project, valued at EUR36.52 million (31
December 2008: EUR44.05 million) by independent valuers.
-- Appointment of Ian Schmiegelow as Non-executive Chairman and
representatives of major shareholders. SGRF and Kairos Investment
Management Ltd (representing 53.81% of TBIL shares in issue), as
Non-executive Directors on the Board
-- Renegotiation of TechnomarketDomo N.V.'s debt facilities and
TBIL's funding arrangements agreed with the State General Reserve
Fund of Oman.
-- Sale of non-core holdings including remaining holding in
Uniqa Bulgaria AD, Avto Union AD and various land and properties
for a total consideration of EUR44.3 million (Uniqa Bulgaria AD
EUR23.1 million, Avto Union AD EUR8 million, Castle Golf and Boyana
Park EUR1.4 million, Rodacar AD property EUR9.9 million, Serdika
property EUR1.9 million).
-- Termination of Novera's waste management concession for the
city of Sofia.
Commenting on the results, Ian Schmiegelow, TBIL's Non-executive
Chairman, said:
"Although much was achieved during 2009 by way of internalising
management, restructuring debt facilities, cutting costs and
selling non core assets, the year proved yet another disappointing
period for investors with the broadening economic crisis causing
major harm to the Company's operations and the value of its
investments. The story for 2010 is sadly no different with little
relief from the pressure on liquidity, performance and value
despite all the measures taken to ease this situation."
The Company confirms, pursuant to AIM Rule 20, that its report
and accounts for the year ended 31 December 2009 has been posted to
Shareholders and that copies are available on the Company's website
at www.transbalkaninvestmentslimited.com.
For further information please contact:
Trans Balkan Investments Ian Schmiegelow Tel: + 44 20 7630
Limited Natalie Weedon 3350
Collins Stewart - Nomad Stewart Wallace Tel: +44 20 7523
& Joint Broker 8322
KBC Peel Hunt Limited - Capel Irwin Tel: +44 20 7418
Joint Broker 8900
Financial Dynamics - PR Ed Gascoigne-Pees Tel: +44 20 7269
adviser David Cranmer 7132
Nick Henderson
CHAIRMAN'S STATEMENT
The operating climate in the Balkan region for TBIL did not
improve during 2009 and so remained extremely challenging. The
ongoing economic crisis continued to have a notable impact
throughout the year on the Company's operations as well as on the
value of its investments in retail, financial services,
infrastructure, land and property development. In particular, the
performance of its major retail subsidiary, TechnomarketDomo N.V.
("TMD"), a market leader in the Balkan region in electronics and
white goods retail, was severely hampered by the weakening consumer
markets in Bulgaria and Romania with a resultant fall in both
turnover and profitability.
In the twelve months to 31 December 2009, TBIL had consolidated
revenue of EUR560.9 million and made a pretax loss of EUR72.7
million (31 December 2008: pre-tax loss EUR61.7 million) and a loss
per share including both continuing and discontinuing operations of
EUR2.53 (31 December 2008: loss per share EUR7.52). IFRS NAV per
share decreased 31% to EUR 6.39 at 31 December 2009 from EUR9.24 at
31 December 2008. Total assets of the Company reduced to EUR366.1
million (31 December 2008: EUR566.6 million), while total debt
reduced to EUR132.4 million (31 December 2008: EUR204.6 million).
2010 has witnessed a continuing, if not worsening economic malaise,
and this has even further damaged the investment value of TBIL's
overall business.
A major issue for TBIL during 2009 and throughout 2010 to date
has been the relentless pressure on liquidity, only relieved from
time to time by the continuing support of its largest shareholder,
The State General Reserve Fund of Oman ("SGRF"), and the ongoing
disposal of non core assets. The continuation of TBIL's operations
in this environment has only been achieved, as I outline below,
through some innovative but costly refinancing arrangements, the
forbearance of some creditors and, finally, the resourcefulness and
tenacity of TBIL's small operating team.
On 31st December 2009, TBIL announced that, by reference to the
restructured TMD debt facilities reported on 16 July 2009, the
Company, through a wholly owned subsidiary, had repaid in full,
together with all outstanding interest, its EUR12 million bridge
facility ("the Bridge Loan") granted by a Bulgarian Bank, ("the
Bank"). This repayment was made as a result of the obligation to
repay the Bank first out of the net proceeds of any sale of the
Serdika and Rodacar properties, both of which sales were effected
during the latter part of 2009. In addition, AXIS Retail N.V., the
parent of TMD, repaid to Raiffeisen Zentralbank Osterreich AG
("RZB") EUR3 million of the EUR20 million due to be repaid by 31
December 2009. This was enabled by the specific waiver by SGRF of
its entitlement to such monies following the repayment of the
Bank's Bridge Loan.
On 11 January 2010, it was further announced that RZB had
received the balance of EUR17 million (plus accrued interest) due
to be repaid to it by 31 December 2009 by calling the Citibank,
N.A., Sofia Branch guarantee issued to RZB as part of the
restructuring of TMD's debt facilities during the summer of 2009
(the "Citibank Guarantee"). This amount, in turn, was met by SGRF
under the terms of its counter indemnity granted in respect to the
Citibank Guarantee. The Board of TBIL acknowledged that the
aforementioned restructuring, while burdening TBIL with onerous
commitments to SGRF by way of a comprehensive security package
("the SGRF Security"), nevertheless provided TBIL with further time
to protect and, hopefully, grow the value of its investment in TMD
and Borovets. The terms of the restructuring included particular
exchange rights in respect to TBIL's holding in TMD that SGRF had
in connection with TBIL's indebtedness to SGRF, the exercise of
which would be triggered by certain conditions, involving approval
of business and integration plans and the completion of a number of
senior TMD management appointments, not being satisfied by TBIL by
31 December 2009.
On 9 February 2010, the Board announced that SGRF had notified
TBIL that SGRF's exchange rights and rights under the SGRF Security
had become exercisable and as such SGRF had reserved its position.
TBIL entered into discussions with SGRF on the circumstances giving
rise to this notification and continued to work with SGRF on a
longer term resolution of these issues. It had become increasingly
clear to the Board, as there was no foreseeable relief to the
depressed value of TBIL's remaining property assets, that the only
feasible option for achieving a timely release from the
unsustainable level of its indebtedness was to sell its holding in
TMD. To this end, on 3 June 2010, the Board announced that it was
in discussion with the minority shareholders of TMD concerning an
unsolicited and indicative offer from them to purchase TBIL's
equity shareholding of 61.8 % in TMD. Whilst giving suitable
consideration to this offer, the Board had also continued to
consider other realistic options in order to resolve most
advantageously for all of the Company's shareholders the matter of
raising sufficient funds both to repay the EUR17 million TBIL owed
to SGRF as well as to finance its other commitments and, hopefully,
return some value to shareholders. Consequently, the Board
announced on 4 August 2010 that it had engaged Entrea Capital of
Sofia, Bulgaria and Capital Partners of Bucharest, Romania, acting
jointly, to be its independent financial adviser to assist it in
respect to the offer, a further offer from one of these minority
Shareholders acting alone as well as in reviewing other options
including the sale of TBIL's holding in TMD in whole or in part to
a third party. Furthermore, the Board confirmed that it had also
appointed Ernst & Young to prepare an independent fair
valuation of TBIL's holding in TMD. An orderly process for the sale
of TMD is now in hand which has been made possible through the
terms, admittedly onerous, of the Amendment Agreement between TBIL
and SGRF and dated 21 October 2010; this is detailed in note 34
Events after the reporting date to the Financial Statements.
While the proposed sale of TMD is taking place against a back
drop of challenging trading conditions, it should be appreciated
how, despite this, both the businesses in Romania and Bulgaria have
increased their market share whilst, simultaneously, taking steps
to reduce costs, close unprofitable stores and otherwise refine
operating efficiencies.
At the same time, during 2009, the Company continued an orderly
sale of its property assets including Serdika and Rodacar. To date
in 2010, two of the former cinema sites in Sofia, Iztok and Europa
Palace, have also been sold.
Separately from the economic developments and as previously
reported, the Company encountered significant problems at Novera,
its waste management investment, during 2009 that culminated in the
cancellation of Novera's waste management concessions by the Sofia
Municipality. TBIL does not consider this termination as lawful or
reasonable and has consequently sought appropriate legal advice in
conjunction with the senior and mezzanine lenders to Novera.
Following an initial approach by all three parties to the Bulgarian
Government the response was to reject any proposal for a negotiated
settlement. As a result, the Board is investigating the options
available to it in respect to pursuing a complaint against the
Bulgarian Government under the terms of the relevant Bilateral
Investment Treaty.
On a more positive note, TBIL, together with its fellow
shareholders, continues to review the steps which need to be taken
to progress the plans for the major Borovets resort development.
There have been some preliminary discussions with the
representatives of a major resort developer, but, while the weak
market conditions persist, it is unlikely that an early decision on
any firm course will be taken. In the meantime however, there is
much preparatory work involving rezoning, concessions and the like
which can be handled advantageously.
During 2009 and since, the Company has continued to implement
material cost saving measures arising from the simplification of
its holding company structure, involving liquidating and merging
BVI and Dutch NV / BV holding companies together with dormant
special purpose vehicles, as well as from the streamlining of its
administrative processes. Simultaneously, the Board has been
focused on the proper maintenance of its existing operations
coupled with the further sale of non core assets both of which are
essential to ensuring that TBIL and its subsidiaries meet their
various financial commitments.
Throughout 2009 and to date in 2010 TBIL's Board has actively
managed its business risks in the most challenging of economic
environments. After making suitable enquiries and giving proper
consideration to factors which could give rise to significant
financial exposure, including asset sales, the Board has a
reasonable expectation that the Company has adequate resources to
both continue its operations for the foreseeable future and meet
its obligations as they fall due. However, there cannot be
certainty while the extremely difficult market conditions prevail
as they may impact adversely on planned disposals in terms of price
expectation and timing. Given this position, the Company continues
to adopt the going concern basis in the preparation of these
financial statements.
Going forward the Board remains particularly concerned about the
outlook for the economies of Bulgaria and Romania. However, despite
the difficult prevailing circumstances and on the basis of the
clear intention to dispose of TBIL's interest in TMD, the
continuation of its non core asset sale programme and the
rationalisation of any other remaining business interest, the Board
is endeavoring to secure the best value overall for
shareholders.
Finally, I should like to thank the members of TBIL's small
operating team for their effort and resolve in testing times, the
shareholders for their patience and understanding and all others,
including members of the Board, who have contributed positively to
TBIL's progress during an impossibly difficult year.
Ian Schmiegelow
Non-Executive Chairman Trans Balkan Investments Limited
MANAGEMENT REVIEW
While the effects of the global economic crisis were slow to
reach the South East European region, the impact was felt heavily
in the last quarter of 2009 and has continued into 2010. TBIL's
largest holdings are located in Bulgaria where, in 2009, GDP
contracted by 4.9% whereas in Romania, the comparable GDP fall was
7.1%. The consequent damage to consumer markets in both countries
resulted in a dramatic drop in retail sales for both of TMD's
operating subsidiaries, KKE and Domo Retail, which make up the
Company's major business activities. Property valuations have been
another victim of the spreading economic malaise and the Company's
various property holdings have severely suffered both in respect to
value and the Company's ability to advance its two main development
projects at Sozopolis and Banya. The IMF forecasts Bulgarian GDP
growth in 2010 to be nil and the Romanian GDP to decrease by 1.9%.
The Board expects that market conditions through to the end of 2010
will remain extremely challenging bringing relentless pressure on
the Company's liquidity, trading levels and asset values. In this
commercial environment, management intends to continue its focus on
disposing of and deleveraging its property holdings as well as on
reviewing its options in respect of major liquidity issues.
Financial review
In the financial year to 31 December 2009, the Company had
consolidated revenue of EUR560.9 million (31 December 2008:
EUR625.1 million) and made a pre tax loss of EUR72.7 million (31
December 2008: pre-tax loss of EUR61.7 million), resulting in a
loss per share from continuing operations of EUR3.92 (31 December
2008: loss per share from continuing operations of EUR3.47).
Review of TBIL core holdings
TechnomarketDomo N.V.
61.8% HOLDING AS AT 31 DECEMBER 2009
TechnomarketDomo N.V. Group NV ("TMD") is the Dutch parent
company for the Company's investments in the retail electronics and
white goods sector in South East Europe which, in the main,
comprise 100% of the Bulgarian Technomarket retail and wholesale
operations and 100% of the Romanian Domo retail operations.
TMD is the largest player in the sector in South East Europe
with a consolidated turnover in 2009 of EUR558.4 million (2008:
EUR621.5 million), and an EBITDA of EUR12.0 million (2008: EUR23.5
million).
TMD runs a dual brand strategy with large format stores located
in both Bulgaria and Romania under the Technomarket brand and in
the main, smaller stores operating under the Domo brand in Romania.
At the end of the year, the total TMD network consisted of 218
stores, with TMD's retail market share in Bulgaria amounting to
37%, while its market share in Romania was 27%.
The major strategic objectives for TMD in 2010 were to
accelerate the integration of the operations of the Technomarket
and Domo businesses to eliminate continually unprofitable stores as
well as to reposition the business for fewer but more discerning
consumers within TMD and to achieve optimum sales growth.
Post period event
As was described in the announcements made on 11 January 2010
and 09 February 2010, TMD reduced its bank debt exposure to
Raiffeisen Zentralbank Osterreich AG ("RZB") from an outstanding
principal amount of approximately EUR81 million at the beginning of
the year to approximately EUR56 million as at 31 December 2009, it
also renegotiated an extended final maturity from three to five
years, that is until 31 December 2014.
In view of the economic slowdown, management undertook a
detailed cost analysis of TMD's operations and implemented a number
of recommendations in the first quarter 2010, including negotiating
rental decreases where possible and closing the majority of Domo
stores in Bulgaria with the remaining operations rebranded under
the Technomarket brand.
Technomarket Serbia and Montenegro (Harwood Limited)
23% HOLDING AS AT 31 DECEMBER 2009
In 2009, the consolidated sales of Harwood amounted to EUR84
million (2008: EUR107 million) and a resultant negative EBITDA of
EUR4.5 million (2008: EUR3.2 million). TBIL's investment in Harwood
amounted to EUR6.4 million in shareholder loans and EUR0.7 million
in equity.
Technomobile
50% HOLDING AS AT 31 DECEMBER 2009
The Company owns 50% of Technomobile Serbia, a chain of stores
selling GSM sets, small consumer electronic devices and
complementary services. In 2009 sales in Technomobile Serbia
amounted to EUR7.0 million (2008: EUR7.9 million), through a chain
of 56 shops, resulting in a negative EBITDA of EUR1.6 million
(2008: negative EUR1.7 million).
Borovets
33.5% HOLDING AS AT 31 DECEMBER 2009
TBIL holds a 33.5% indirect investment in Rila Samokov 2004 AD,
which owns 1,977,131 sq. m. of land for large-scale resort
development in the Borovets mountain area. This was purchased in
2007 for EUR 25.9 million in cash.
TBIL's investment is held through its 50% stake in Borovets
Invest BV, a holding company, which in turn owns 100% of Borovets
Investments EAD, a 67% shareholder in Rila Samokov 2004 AD. TBIL's
partner in Borovets Invest BV is the State General Reserve Fund of
the Sultanate of Oman ("SGRF"). The other shareholders in Rila
Samokov 2004 AD are the Municipality of Samokov (25% shareholding)
and Bulgaria's leading construction company Glavbolgarstroy (8%
shareholding).
Currently plans divide the project into six sub-projects which
can be individually developed, thereby reducing the development
risk of this major EUR800 million project. While no substantial
construction works have yet been undertaken, the project remains
debt free.
Valuations
Regular valuations of TBIL's assets are made and TBIL's 33.5%
indirect ownership in Rila Samokov 2004 AD as at 31 December 2009
was valued at EUR36.5 million by CB Richard Ellis, reputable
international property valuers.
Review of TBIL Non-Core Holdings
Novera AD (in liquidation)
94% HOLDING AS AT 31 DECEMBER 2009
As previously announced, the remaining Concession Agreements for
the provision of waste management and street cleaning services in
Sofia held by three wholly owned subsidiaries of Novera AD were
terminated by the municipality of Sofia in March 2009. TBIL rejects
the basis of the termination of these Concession Agreements and has
had discussions with legal representatives of the Bulgarian
Government over the Municipal Council of Sofia's conduct in
relation to the Concession Agreements. The senior and mezzanine
lenders to Novera AD also participated in these discussions.
Novera AD is now in liquidation and the liquidator is handling
all the necessary paperwork relating to the company's former
employees. The liquidator is also realising any remaining assets to
assist in covering the costs of the liquidation.
Avto Union AD
In April 2009 TBIL sold its 80% holding in Avto Union AD, a
Bulgarian wholesaler and distributor of automotive products and
services, which had an approximate 6.7% share of the new car sales
market in Bulgaria in first quarter 2009. It also sold motorcycles,
held an Avis car rental franchise and distributed Castrol and BP
lubricants. Additionally Avto Union AD owned the Avto Union Centre
building, a 28,000 square meter mixed use show room and office
building.
The purchaser of Avto Union AD was Eurohold Automotive Group,
the automotive subsidiary of Eurohold Bulgaria Inc, a publicly
listed company on the Sofia Stock Exchange. While the investment
was sold at a loss at it should be noted that, since the sale,
sales in the automotive market then dropped by 54% in 2009 and by a
further 36% in the first eight months of 2010.
Post Period Event
In March 2010, due to Eurohold's financial difficulties, TBIL
renegotiated the repayment plan in respect to the balance of the
outstanding purchase price which amounts to EUR2.0 million with the
final installment now due in February 2011.
Uniqa AD (Bulgaria)
In June 2009, TBIL sold its remaining 37.71% stake in Uniqa
Bulgaria in two tranches in 2009 to Uniqa International, Austria's
largest insurance company, under a pre-agreed arrangement. The
first tranche was for 21.19% of the shares in Uniqa AD, with the
proceeds used for the repayment of a Serdika related debt to Uniqa
Real Estate and a second tranche of 16.52% of the shares was for
cash.
Post Period Event
In April 2010 TBIL exercised a put option and assigned to Uniqa
International subordinated financial instruments, comprising a
subordinated bond at a price of EUR1,533,876 million and
subordinated debt of EUR1,533,876 million plus accrued interest
amounting to EUR586 000 to the date of the assignment.
Pelican Retail Holdings
100% HOLDING AS AT 31 DECEMBER 2009
Pelican Retail is the owner of three sites which were formerly
used as cinemas and are located in the city centre and densely
populated areas of Sofia and a fourth site which is a land plot in
the city of Pernik. All these Pelican Retail properties are
included in the asset disposal programme.
In 2009, Pelican Retail sold two of its other assets: the
Serdika Forum in which TBIL held a 20% stake, was sold for EUR1.9
million to the hotel operator and real estate developer, Terra
Tours, and in November, Rodacar AD, a former car factory in Varna
with a built up area of 12,300 square meters, to Baumax, the leader
in the Austrian DIY market.
Post Period Event
TBIL has successfully sold two of the former cinemas Iztok and
Evropa Palace. On 30 July 2010, the sale of Iztok was completed for
the net sale proceeds amounting to EUR1,428,000 in cash which has
been received. On 11 November 2010, the Evropa Palace was sold for
the consideration of EUR1,500,000 in cash which has been received.
The proceeds from the sale of Iztok and Evropa Palace cinemas were
utilised to fund the Company's liabilities and continuing
operations. Negotiations with a potential buyer for the sale of the
remaining cinema, Urvich, are at an advanced stage.
Immofinance EAD
100% HOLDING AS AT 31 DECEMBER 2009
Immofinance EAD is a property development company focusing on
first and second homes in Bulgaria. Immofinance is in discussions
with the respective banks financing its two remaining development
projects, Sozopolis and Banya, as to the future of the projects.
The loan facilities are currently in default as a result of
breaches of covenants and the loans are secured on the relevant
developments but are on a non-recourse basis to TBIL.
The Immofinance EAD portfolio consists of two development
projects and the land holdings listed below.
1. Sozopolis is a planned complex of second home properties, a
spa centre, and several retail units including two restaurants on
the Black Sea coast. The construction started in November 2007 and
the first phase of the project, comprising 105 second home
apartments, was completed in 2009. However, EUR7 million is still
owed to the main construction company and another EUR8 million is
required for the completion of the second phase of the project.
Total gross floor area relating to the project is 35,575 square
meters, of which 30,265 square meters is for residential
apartments.
The marketing of the project coincided with the deterioration of
the Bulgarian economy and consequently a major collapse in demand
and, as at 31 December 2009, only six units (totalling 2,634 square
meters) had been sold.
The project has been financed by a EUR8.2 million equity
investment by TBIL and a EUR38 million construction loan from Alpha
Bank. The current drawdown on the construction loan is
EUR27.3million (of which EUR1.5 million has been repaid) and a EUR5
million VAT facility (of which EUR1.2 million has been repaid).
TBIL, with Immofinance EAD being in breach of its covenants, is in
discussions with Alpha Bank in respect to the future of this
development project.
2. Banya Spa & Wellness Resort, a complex of residential
apartments, hotel, spa and sports facilities located in the
foothills of Pirin Mountain, was started in September 2006. The
gross floor area of the project is 20,277 square meters of which
12,572 square meter is for residential apartments (119 units) and
7,705 square meters for the hotel and spa.
The project was financed by a EUR7.5 million equity investment
by TBIL and a EUR10.5 million construction loan from DSK Bank of
which, currently, EUR6.9 million has been drawn down. The loan is
in default and Immofinance EAD is in discussion with the bank on
the available options, including the possible rental of Banya Spa
& Wellness Resort to a tour operator, on the basis that the
funding of EUR4 million required for the completion of the project
is forthcoming. Provided this additional financing can be secured,
the project is expected to be finalised within nine months.
Immofinance's partner in the project is the Municipality of Razlog
which holds a 4% equity interest in the Banya Spa & Wellness
project.
3. Boyana Diplomatic Club is a land plot adjacent to the Boyana
Diplomatic Club in Sofia which is designed for high end condominium
apartments, with a total gross floor area projected at
approximately 5 000 square meters.
4. Embassy Apartments is completed development in Sofia, which
currently has just five apartments totalling 1,405 square meter
that are in the process of sale.
Immofinance EAD Property assets in total have been valued at
EUR26.96 million as at 31 December 2009.
Bank Debt
The Group had EUR106.4 million in bank debt at year end secured
against assets in which TBIL had majority control. All debt as at
31 December 2009 was non-recourse to TBIL.
The largest subsidiary bank debt is within TechnomarketDomo N.V.
and resulted from the use of debt in the acquisition of this
holding. This debt facility, with an outstanding principal amount
of approximately EUR81 million with RZB was reduced to
approximately EUR56.2 million as at 31 December 2009.
TBIL's holding in Novera AD was acquired with EUR20.0 million in
mezzanine debt and EUR15.0 million in senior debt provided by
InvestkreditBank, both of which facilities were in default as a
result of the Sofia Municipality cancelling the waste concessions
of Novera AD. The EUR15.0 million senior debt was repaid to
InvestkreditBank in 2009 by a new senior lender to Novera AD, Eagle
8.
A table of the principal debt of TBIL and its subsidiaries as at
31 December 2009 is set out below.
2009
EUR'000
Nominal Year of Carrying
Subsidiary Currency interest rate maturity amount
------------------ ---------- -------------- -------------- --------------
Non-Current
TechnomarketDomo
N.V. EUR Euribor + 4% 2014 26,558
Euribor +
KKE EUR 3.5% 2014 9,005
35,563
-------------------------------------------- -------------- --------------
Current
3m Euribor +
Immofinance EAD EUR 5% 2013 29,838
TechnomarketDomo
N.V. EUR Euribor + 4% 2014 19,621
Euribor +
KKE EUR 3.5% 2014 1,001
3m Euribor +
Banya Holiday AD EUR 2.8% 2013 7,354
Overdrafts 12,982
---------------------------------------------- -------------- --------------
70,796
-------------------------------------------- -------------- --------------
In December 2008, TMD and Axis Retail, together with K & K
Electronics EOOD ("KKE") and Domo Retail SA, as guarantors, entered
into an agreement with RZB pursuant to which TMD assumed EUR65
million of the loans provided to the TMD group of companies for the
purposes of acquiring holdings in the operating subsidiaries (the
"Refinancing Loans"). RZB and KKE also executed an agreement for
amendments of the original EUR25 million loan facility originally
granted in 2006. (The "KKE Loan" together with the Refinancing
Loans, the "RZB Loans"). Security for the RZB Loans included a
pledge by Axis Retail of all of its shares in TMD to RZB. Axis
Retail and Lyra, a minority shareholder in TMD, also gave an
undertaking to RZB (the "Undertaking") to facilitate a prepayment
of up to EUR40 million of the Refinancing Loans. The TBIL group had
no other exposure under the RZB Loans.
In 2009, following discussions between RZB, TMD and Axis Retail,
RZB agreed to accept prepayment of EUR40 million as EUR20.0 million
in cash and a bank guarantee from Citibank for the remaining
EUR20.0 million in exchange for the release of the Undertaking.
The repayment of EUR20 million by TMD was financed by an EUR8
million shareholder loan to TMD and a EUR12 million bridge facility
provided by a Corporate Commercial Bank AD to TBIL repayable within
12 months. The bridge loan was drawn down on 15 July 2009 and
advanced by TBIL to TMD by a way of a shareholder loan.
The Citibank Guarantee provided that, if TMD was unable to
prepay another EUR20 million of the Refinancing Loans by 31
December 2009, RZB would be entitled to draw EUR20 million under
the Citibank Guarantee.
As part of these arrangements, SGRF agreed to indemnify Citibank
for losses to Citibank under the Citibank Guarantee and provided
Citibank with the collateral required by Citibank to secure SGRF's
indemnity obligations. TBIL agreed to indemnity SGRF against any
expenses or losses in connection with the Citibank Guarantee and
TBIL granted a fixed and floating charge in favour of SGRF over all
of TBIL's assets and undertakings (the "SGRF Security"). The SGRF
Security included a charge over TBIL's shares in Axis Retail, as
well as over TBIL's interests (or the proceeds of any sales
thereof) in various property holdings including Rodacar AD,
Serdika, Axis-S Retail NV and Immofinance EAD.
As from 31 December 2009, SGRF had the right to exchange any
unpaid indebtedness or liability of TBIL to SGRF for TBIL's
indirect 61.8% interest in TMD unless
(i) certain conditions related to TMD's business integration and
further management appointments at TMD were not satisfied by TBIL
by 31 December 2009, in which case, SGRF's exchange rights would be
exercisable after 31 December 2009 or
(ii) an event of default occurred under any of the agreements
with SGRF, in which case, SGRF's exchange rights would become
exercisable immediately. For the purposes of such exchange rights,
the value of 100% of TMD was fixed at EUR20 million.
On 31st December 2009 TBIL, through a wholly owned subsidiary,
repaid in full the EUR12 million bridge facility granted by a
Bulgarian bank together with all outstanding interest.
Further in December 2009, Axis Retail, the parent of TMD, repaid
to RZB EUR3 million to reduce the amount of the Citibank Guarantee.
A balance of EUR17 million (plus accrued interest) due to be repaid
to RZB by 31 December 2009 was met by RZB calling the Citibank
Guarantee which, in turn, was covered by SGRF under the terms of
its related counter indemnity.
Through repayments and the arrangements described above, the
exposure to RZB in respect of TMD as at 31st of December 2009, was
reduced from an outstanding principal amount of approximately EUR81
million to approximately EUR56 million, with loan covenants waived
until 31 December 2010 and final maturity extended from three to
five years, that is until 31 December 2014.
In December 2008 TBIL extended a corporate guarantee to
InvestkreditBank in lieu of the senior debt in Novera AD as a part
of a restructuring and standstill agreement in relation to Novera's
debt obligations.
The Company completed the sale of Avto Union AD in April 2009
and this resulted in the transfer of all related debt obligations
to the buyer.
TBIL is in active discussions with the lending banks for all
remaining subsidiary debt related to assets over which TBIL has
majority control.
Non-core asset disposal programme
As more fully described above, in 2009 TBIL sold a number of
non-core holdings including its remaining investment in Uniqa AD to
Uniqa International for an aggregate consideration of EUR23.1
million, the 80% stake in Avto Union AD for EUR8.0 million, various
land plots for an aggregate consideration of EUR1.4 million, the
20% investment in the Serdika project for EUR1.9 million and the
Rodacar AD property for EUR9.9 million.
TBIL has continued this process in 2010 with the sale of a
number of the remaining property assets. The proceeds from these
and other disposals has been used to fund TIBL's continuing
operations as well as help to repay the Facility from SGRF used for
the repayment of TechnomarketDomo's N.V. facilities.
The difficult current economic conditions in the South East
European region continue to have a negative impact on TBIL and its
subsidiaries, and the Company is not expecting a recovery in these
economies until 2011 at the earliest.
Cost Savings
The Company is expecting to continue to achieve substantial cost
savings in its holding company administrative costs both as a
result of its non-core asset disposal programme and the reduction
in the number of intermediate BVI, NV and BV companies.
Simultaneously this will significantly simplify the corporate
structure and enable the Company to focus on its remaining core
holdings. As a result of the restructuring steps already
implemented, the number of intermediary companies has been reduced
by five since 31 December 2009, and by the year end the number will
have been reduced by a further six intermediate or dormant
companies.
The Company has also embarked on a cost savings programme within
TechnomarketDomo N.V. in order to maximise operational
efficiency.
Hedging
The Company and its subsidiaries maintain their existing cash
balances where possible in Euro. However, the debt of the
subsidiaries is largely denominated in Euro and these debts have
not been hedged to local currencies. The Bulgarian Leva is pegged
to the Euro and the Company expects that this peg should be
maintained at the current level.
Consolidated financial statements
The consolidated financial statements and related comments in
this report provide details on the major account movements since 31
December 2009. The 2008 comparative consolidated financial
statements have been restated to account for the errors, which were
identified during the current year (reference to paragraph Errors
on pages 45-46).
Copies of the annual accounts will be available from Trans
Balkan Investments Limited, c/o Hamilton Lunn, 5th Floor, Audley
House, 13 Palace Street, London SW1E 5HX, UK or can be downloaded
from the company's website
www.transbalkaninvestmentslimited.com.
TBIL Management
15 December 2010
DIRECTOR'S REPORT
The Directors of the Company ("the Directors") present their
report and consolidated financial statements for the year ended 31
December 2009.
Principal activity and incorporation
The Company is an investment holding company, incorporated on 10
December 2003 under the laws of the British Virgin Islands. The
Company changed its name from Equest Investments Bulgaria Limited
to Equest Investments Balkans Limited on 20 December 2006 and
subsequently to Trans Balkan Investments Limited ("TBIL") on 9
February 2010.
The Company's core focus is to optimise the growth of
TechnomarketDomo N.V., the Company's electronics retailer; to
maximise the value of Borovets, the mountain resort development,
and to sell the remaining, non-core assets.
Results and dividends
The Group's results for the year ended 31 December 2009 are set
out in the Consolidated income statement and Consolidated statement
of comprehensive income on page 22 and page 23.
A review of the Group's activities is contained within the
Chairman's Statement and the Management's Review on pages 3 and 6
respectively.
No dividend has been declared for the year ended 31 December
2009.
Governance
The Directors recognise the value of the Principles of Good
Governance and Code of Best Practice as set out in the Combined
Code and, although the Company is not obliged by the AIM listing
rules to do so, they intend, where appropriate, to comply with the
main provisions of the Corporate Governance Code to the relevant
extent, taking into account the size of the Company and the nature
of its business.
Responsibilities of the Board
The Board of Directors is responsible for the determination of
the strategy of the Company and for overall supervision of the
objectives that have been set. The Board also has responsibility
for the Company's day-to-day operations and in order to fulfil
these obligations, the Board has delegated executive authority to
the Directors and management of the Company.
At each of the regular Board meetings held, the financial
performance of the Company is reviewed. In addition, the members of
the Board receive regular reports from the management.
Directors
The current Directors are as stated below. The Directors served
throughout the year unless otherwise stated.
Mr. Kieron O'Rourke resigned on 4 February 2009. Messrs. Warith
Al-Kharusi, Faisal Al-Riyami, Kalim Aziz and Guido Brera were
appointed on 25 February 2009, with George Krumov being
re-appointed on the same day. Ian Schmiegelow was appointed
Non-executive Chairman of the Company on 31 March 2009 replacing
Mr. John Carrington. Mr. George Krumov and Mr. Kari Haataja
resigned on 8 September 2009 and 6 November 2009 respectively.
Petri Karjalainen retired by rotation at the AGM held on 6 October
2009 and was not re-elected.
The Board of the Company comprises six Non-executive Directors.
Of the six Non-executive Directors, two are considered to be
independent. Brief biographical details of the members of the Board
are set out below:
Ian Schmiegelow (Independent Non-executive Chairman)
Mr. Schmiegelow (67) spent sixteen years with Hambros Bank where
he became the Executive Director responsible for its international
banking and bond issuance activity, following his studies at
Cambridge University and practice in London as a barrister.
Thereafter, as a Senior Vice President of First National Bank of
Chicago, he directed a review of its international activities and
was Chairman of the management committee responsible for the bank's
operations in the UK, Europe, Middle East and Africa. Mr
Schmiegelow is Chairman and Chief Executive of Hamilton Lunn which
he set up, together with his then business partner, in 1988 as a
regulated corporate advisory firm. Hamilton Lunn now provides
corporate finance, asset management and property investment
advisory and management services to its clients. Mr Schmiegelow is
also a Governor of Oundle School.
Warith Al-Kharusi(Non-executive Director)
Mr. Al-Kharusi (58), a resident of Oman, joined the State
General Reserve Fund of the Sultanate of Oman ("SGRF") in 1985 as
the Director General and is now the Chief Executive Officer of the
SGRF. He holds a Diploma in Business Administration.
Faisal Al-Riyami(Non-executive Director)
Mr. Al-Riyami (34), a resident of Oman, joined SGRF in June 2007
as the Section Head of Direct Investments of the SGRF. Prior to
joining SGRF Mr. Al-Riyami spent nine years working in various
corporate roles mainly in banking and later telecoms and I.T.
Kalim Aziz (Non-executive Director)
Mr. Aziz (44) joined Kairos in January 2006 and is the Co-fund
Manager of the Kairos Eurasian Fund with Guido Brera, and is the
primary analyst at Kairos for stocks in the Eurasian markets.
Before joining Kairos, he was Head of Equity research for the EMEA
Region at UniCredit Banca Mobiliare in London. Previously Mr. Aziz
has specialised in Telecoms research and he held a number of senior
research positions at securities houses in London and Karachi. Mr.
Aziz holds a Masters in Business Administration from the University
of Karachi.
Guido Brera (Non-executive Director)
Mr. Brera (41) is a Co-founder of Kairos. He graduated from
Universita La Sapienza, Rome and qualified as a Dottore
Commercialista (the equivalent of a chartered accountant) in 1993.
In 1994, he joined Fineco SIM, concentrating on relative value
trades, calendar spreads, stock index futures arbitrages and the
establishment of structured products for institutional clients. In
1996, he joined Cisalpina Gestioni as manager of the Cisalpina
Bilanciato and Cisalpina Indice funds. In 1997, he joined Giubergia
Warburg as director, Head of Proprietary Trading, leaving to
establish Kairos in early 1999. Mr. Brera has been Co-manager of
Kairos Fund Limited since its inception in June 1999.
Robin James(Independent Non-executive Director)
Mr. James (65) is based in the Isle of Man and, until he retired
in June 2005, was CEO of the banking and financial services group,
Singer & Friedlander (Isle of Man) Holdings Limited. Mr James
is currently licensed by the Isle of Man Financial Supervision
Commission and is a Non-executive Director of a diverse number of
companies including listed companies. Mr James spent nine years
with Kleinwort Benson Limited in the UK and South Africa. He is
also Chairman of the Company's Audit Committee.
Interests of the Directors in contracts with the Company
Any interests the Directors, or companies that they are
connected to, had during the year under review in relation to
contracts for services with the Company other than as Directors are
set out in note 32 "Related party transactions" to the consolidated
financial statements.
Directors' service contracts
The following Directors have entered into letters of appointment
with the Company, details of which are set out below:
Name Title Annual Appointed Resigned
remuneration
Ian Schmiegelow Non-executive EUR40,000 31 March 2009
Chairman
Warith Non-executive EUR30,000 25 February
Al-Kharusi Director 2009
Faisal Al-Riyami Non-executive EUR30,000 25 February
Director 2009
Kalim Aziz Non-executive N.A.* 25 February
Director 2009
Guido Brera Non-executive N.A.* 25 February
Director 2009
Robin James Non-executive EUR30,000 01 May 2007
Director
* Directors have waived their right to be paid a fee in
consideration for acting as a Non-executive Director of the
Company.
Share capital
As at the date of this report, the Company has 18,265,890
ordinary shares of no par value in issue. The Company's ordinary
shares are traded on the AIM Market operated by the London Stock
Exchange plc in pounds sterling. However the Company's reporting
currency is the Euro to reflect the underlying assets and
liabilities in the Balkan region.
Share warrants
On 25 April 2008, as part of the reorganisation of the Company's
management structure, the Company's shareholders approved the grant
of warrants to Equest Capital Limited ('ECL') entitling ECL to
purchase 564 925 ordinary shares in the Company. The warrants are
exercisable, if and to the extent that they are still subsisting,
at any time after 1 January 2009 on a condition, inter alia; that
the net asset value per ordinary share reported immediately prior
to the exercise of the Warrants is not less than the audited net
asset value per ordinary share as at 31 December 2007. The warrants
cease to be exercisable, inter alia following a change of control
of the Company. ECL is owned by Trusts set up by the former
Executive Directors of TBIL, Mr. Haataja, Mr. Karjalainen and Mr.
Krumov, and ECL in turn has transferred the ownership of the
warrants equally to its shareholders.
The Company does not operate any employee share option
schemes.
Committees
The Management Committee, which comprised Warith Al-Kharusi
(Chairman), Faisal Al-Riyami, Kalim Aziz, Kari Haataja, Petri
Karjalainen and George Krumov, had regular monthly or weekly
meetings and maintained active participation in the execution of
Company strategy and overseeing operational activities, together
with the management. This committee was disbanded following changes
made to the Board during the course of the year.
The Audit Committee, which comprises Faisal Al-Riyami, Robin
James (Chairman) and Ian Schmiegelow, meets at least three times
each year. The committee monitors the integrity of the consolidated
financial statements of the Company and any formal announcements
relating to the Company's financial performance. It also reviews
regular reports from management and the external auditors on
accounting and internal control matters. Where appropriate, the
committee monitors the progress of action taken in relation to such
matters.
The Operating Committee which is comprised of Ian Schmiegelow,
Natalie Weedon, Zdravka Kostadinova, Elena Fournadjieva, Tero
Halmari and Nina Girginova meets on average twice a month to
discuss, update, prioritise and assign responsibilities for key
operational issues.
The Directors also monitor and plan performance, remuneration
and succession of the Board, either through board meetings or, if
appropriate, through the use of appropriately constituted
committees of the Board.
Auditors
A resolution will be submitted to the forthcoming Annual General
Meeting of the Company to re-appoint the current auditors of the
Company, for the ensuing year.
Post consolidated statement of financial position events
A summary of the significant transactions entered into by the
Company and its subsidiaries subsequent to 31 December 2009 is
included in note 34 of the consolidated financial statements.
Relations with shareholders
The Company is committed to maintaining an effective dialogue
with its shareholders. Shareholders will have the opportunity at
the Annual General Meeting of the Company to ask questions about
the Company's activities and performance.
Company website
To provide a portal for investor information and in accordance
with the requirements of AIM, the Company maintains a website at:
www.transbalkaninvestmentslimited.com.
Annual General Meeting
The Directors are proposing a number of ordinary resolutions at
the Annual General Meeting of the Company to be held in early 2011,
including a resolution requesting approval of the Company's
investment strategy as required under the AIM rules.
On behalf of the Board of Directors
Ian Schmiegelow
Statement of Directors' responsibilities in respect of the
Annual Report and the consolidated financial statements
The Directors are responsible for preparing the Annual Report
and the consolidated financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare consolidated
financial statements for each financial year. Under that law the
Directors have elected to prepare the consolidated financial
statements in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union. The
consolidated financial statements are required by law to give a
true and fair view of the state of affairs of the Company and Group
and of the profit or loss of the Group for that period.
In preparing those consolidated financial statements, the
Directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and estimates that are reasonable and
prudent;
-- state that the consolidated financial statements comply with
International Financial Reporting Standards as adopted by the
European Union, subject to any material departures disclosed and
explained in the consolidated financial statements;
-- prepare the consolidated financial statements on a going
concern basis unless it is inappropriate to presume that the group
will continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the consolidated financial
statements.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the company and the group and to enable them
to ensure that the consolidated financial statements comply with
the British Virgin Islands laws and regulations. They are also
responsible for safeguarding the assets of the company and the
group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the British Virgin Islands
governing the preparation and dissemination of consolidated
financial statements may differ from legislation in other
jurisdictions.
On behalf of the Board of Directors
Ian Schmiegelow
Consolidated income statement for the year ended 31 December
2009
Notes (Restated)
Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
------------------------------------------ ------- ----------- -----------
Revenue 2 560,868 625,140
Cost of sales (469,871) (518,408)
------------------------------------------ ------- ----------- -----------
Gross profit 90,997 106,732
Other operating income 389 1,513
Administration, selling and distribution
costs 3 (89,685) (117,806)
Impairment of assets 4 (64,577) (6,228)
(Loss) from fair value adjustment
of investment property (7,610) (1,176)
(Gain)/ loss on disposal of investment
property 3,816 (6,217)
Gain/(loss) on sale of investments 6 12,793 3,888
Share of post tax losses of associates
and joint ventures 16, 17 (10,028) (28,288)
------------------------------------------ ------- ----------- -----------
Operating (loss) (63,905) (47,582)
Finance income 7 2,135 3,185
Finance costs 7 (10,905) (17,289)
(Loss) before tax (72,675) (61,686)
Taxation 8 (863) (728)
------------------------------------------ ------- ----------- -----------
(Loss) from continuing operations (73,538) (62,414)
Profit/(loss) on discontinued operation,
net of tax 9 25,308 (72,158)
------------------------------------------ ------- ----------- -----------
(Loss) for the year (48,230) (134,572)
Attributable to:
- Owners of the parent (46,143) (133,760)
-Non-controlling interest (2,087) (812)
------------------------------------------ ------- ----------- -----------
(48,230) (134,572)
------------------------------------------ ------- ----------- -----------
Earnings per share for (loss)/ profit
attributable to
the equity holders of the parent during
the year
(basic and diluted) 10
- Continued operations (3.91) (3.46)
- Discontinued operations 1.39 (4.05)
------------------------------------------ ------- ----------- -----------
(2.52) (7.51)
------------------------------------------ ------- ----------- -----------
The consolidated financial statements on pages 22 to 29 were
approved and authorised for issue by the Board of Directors on 14
December 2010 and were signed on their behalf by:
Ian Schmiegelow Robin James
Non-executive Chairman Non-executive Director
The notes on pages 30 to 98 are an integral part of these
consolidated financial statements.
Consolidated statement of comprehensive income for the year
ended 31 December 2009
Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
------------------------------------------------ ----------- -----------
Loss for the period (48,230) (134,572)
------------------------------------------------ ----------- -----------
Other comprehensive income
Available for sale, investment valuation loss
recognized in equity (123) (79)
Exchange differences on translation (3,692) (11,433)
Other movements - 519
------------------------------------------------ ----------- -----------
Other comprehensive income for the period net
of tax (3,815) (10,993)
------------------------------------------------ ----------- -----------
Total comprehensive income for the period (52,045) (145,565)
------------------------------------------------ ----------- -----------
Loss attributable to
Owners of the parent (48,254) (141,835)
Non-controlling interest (3,791) (3,730)
------------------------------------------------ ----------- -----------
(52,045) (145,565)
------------------------------------------------ ----------- -----------
The consolidated financial statements on pages 22 to 29 were
approved and authorised for issue by the Board of Directors on 14
December 2010 and were signed on their behalf by:
Ian Schmiegelow Robin James
Non-executive Chairman Non-executive Director
The notes on pages 30 to 98 are an integral part of these
consolidated financial statements.
Consolidated statement of financial position as at 31 December
2009
Notes (Restated)
31/12/2009 31/12/2008 31/12/2007
EUR'000 EUR'000 EUR'000
------------------------------- ------ ----------- ----------- -----------
ASSETS
Non-current assets
Property, plant and equipment 11 19,158 32,371 70,372
Investment property 12 9,758 11,957 35,558
Goodwill and trademarks 13 75,051 112,680 149,727
Other intangible assets 14 869 1,040 20,327
Investments in
equity-accounted associates 16 827 18,313 16,082
Investments in
equity-accounted joint
ventures 17 35,581 41,904 66,597
Available-for-sale investments - - 16
Other receivables 19 14,839 27,028 23,725
Deferred tax assets 25 388 675 287
------------------------------- ------ ----------- ----------- -----------
Total non-current assets 156,471 245,968 382,691
------------------------------- ------ ----------- ----------- -----------
Current assets
Property, plant and equipment 11 - 7,069 -
Inventories 18 147,144 185,815 155,578
Trade and other receivables 19 46,152 70,374 53,515
Tax receivables 283 1,907 3,404
Available-for-sale investments - 246 295
Cash and bank balances 20 16,078 11,277 66,137
Total current assets 209,657 276,688 278,929
------------------------------- ------ ----------- ----------- -----------
Non-current assets classified
as held for sale 26 7 43,989 -
------------------------------- ------ ----------- ----------- -----------
Total assets 366,135 566,645 661,620
------------------------------- ------ ----------- ----------- -----------
LIABILITIES
Non-current liabilities
Other payables 21 344 - 24,562
Loans and borrowings 22 52,111 53,192 97,878
Provisions 24 99 252 103
Deferred tax liability 25 6,675 7,966 10,625
------------------------------- ------ ----------- ----------- -----------
Total non-current liabilities 59,229 61,410 133,168
------------------------------- ------ ----------- ----------- -----------
Current liabilities
Trade and other payables 21 108,326 151,028 162,993
Loans and borrowings 22 80,305 151,402 73,767
Corporation tax liability 1,097 955 2,292
Provisions 24 370 1,433 477
Total current liabilities 190,098 304,818 239,529
Liabilities directly
associated with non-current
assets classified as held for
sale 26 42 35,975 -
------------------------------- ------ ----------- ----------- -----------
Total liabilities 249,369 402,203 372,697
------------------------------- ------ ----------- ----------- -----------
TOTAL NET ASSETS 116,766 164,442 288,923
------------------------------- ------ ----------- ----------- -----------
The notes on pages 30 to 98 are an integral part of these
consolidated financial statements.
Consolidated statement of financial position as at 31 December
2009 (Continued)
Notes (Restated)
31/12/2009 31/12/2008 31/12/2007
EUR'000 EUR'000 EUR'000
------------------------------- ------ ----------- ----------- -----------
Capital and reserves attributable to
equity holders of the parent
Share capital 29 253,846 253,846 242,145
Available-for-sale reserve - 123 202
Warrant Reserve 6,786 6,786 -
Foreign exchange reserve (13,653) (11,665) (3,795)
Retained earnings (133,795) (86,881) 43,716
------------------------------- ------ ----------- ----------- -----------
113,184 162,209 282,268
Non-controlling interest 3,582 2,233 6,655
------------------------------- ------ ----------- ----------- -----------
TOTAL EQUITY 116,766 164,442 288,923
------------------------------- ------ ----------- ----------- -----------
Total equity and liabilities 366,135 566,645 661,620
------------------------------- ------ ----------- ----------- -----------
The consolidated financial statements on pages 22 to 29 were
approved and authorised for issue by the Board of Directors on 14
December 2010 and were signed on their behalf by:
Ian Schmiegelow Robin James
Non-executive Chairman Non-executive Director
The notes on pages 30 to 98 are an integral part of these
consolidated financial statements.
Consolidated statement of changes in equity for the year ended
31 December 2008
Foreign Attributable
Notes Share Available-for-sale Warrant exchange Retained to Non-controlling Total
owners
of the
capital reserve reserve reserve earnings parent interest Equity
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
------------------ ------ -------- ------------------- -------- --------- ---------- ------------- ---------------- ----------
For the period
------ -------- ------------------- -------- --------- ---------- ------------- ---------------- ----------
1 January 2008
to 31 December
2008
------------------ ------ -------- ------------------- -------- --------- ---------- ------------- ---------------- ----------
Balance at 1
January 2008 29 242,145 202 - (3,795) 43,716 282,268 6,655 288,923
------------------ ------ -------- ------------------- -------- --------- ---------- ------------- ---------------- ----------
Loss for the
period - - - (133,760) (133,760) (812) (134,572)
Other
comprehensive
income/
(expense) for
the year - (79) - (7 870) (126) (8,075) (2,918) (10,993)
Total
comprehensive
income/(expense)
for the year
(restated) - (79) - (7,870) (133,886) (141,835) (3,730) (145,565)
Issue of share
capital 11,701 - - - 11,701 - 11,701
Non-controlling
interest removed
on disposal
of subsidiary - - - - - - (1,788) (1,788)
Recognition
of share based
payments - - 6,786 - - 6,786 - 6,786
Revaluation
of shareholder
loan 3,289 3,289 1,096 4,385
Balance at 31
December 2008
(restated) 29 253,846 123 6,786 (11,665) (86,881) 162,209 2,233 164,442
------------------ ------ -------- ------------------- -------- --------- ---------- ------------- ---------------- ----------
The consolidated financial statements on pages 22 to 29 were
approved and authorised for issue by the Board of Directors on 14
December 2010 and were signed on their behalf by:
Ian Schmiegelow Robin James
Non-executive Chairman Non-executive Director
The notes on pages 30 to 98 are an integral part of these
consolidated financial statements.
Consolidated statement of changes in equity for the year ended
31 December 2009
Foreign Attributable
Notes Share Available-for-sale Warrant exchange Retained to Non-controlling Total
owners of
capital reserve reserve reserve Earnings the parent interest equity
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
------------------ ------ -------- ------------------- -------- --------- ---------- ------------- ---------------- ---------
For the period 1
January 2009 to
31 December 2009
------------------ ------ -------- ------------------- -------- --------- ---------- ------------- ---------------- ---------
Balance at 1
January 2009
(restated) 29 253,846 123 6,786 (11,665) (86,881) 162,209 2,233 164,442
------------------ ------ -------- ------------------- -------- --------- ---------- ------------- ---------------- ---------
Loss for the
period (46,143) (46,143) (2,087) (48,230)
Other
comprehensive
income/
(expense) for
the year (123) (1,988) (2,111) (1,704) (3,815)
------------------ ------ -------- ------------------- -------- --------- ---------- ------------- ---------------- ---------
Total
comprehensive
income/(expense)
for the year (123) (1,988) (46,143) (48,254) (3,791) (52,045)
Issue of share
capital
Non-controlling
interest removed
on disposal of
subsidiary (585) (585) (2,615) (3,200)
Non-controlling
interest on
conversion of
flip up option
into shares 7,755 7,755
Revaluation of
shareholder
loan (186) (186) (186)
------------------ ------ -------- ------------------- -------- --------- ---------- ------------- ---------------- ---------
Balance at 31
December 2009 29 253,846 - 6,786 (13,653) (133,795) 113,184 3,582 116,766
------------------ ------ -------- ------------------- -------- --------- ---------- ------------- ---------------- ---------
The consolidated financial statements on pages 22 to 29 were
approved and authorised for issue by the Board of Directors on 14
December 2010 and were signed on their behalf by:
Ian Schmiegelow Robin James
Non-executive Chairman Non-executive Director
The notes on pages 30 to 98 are an integral part of these
consolidated financial statements.
Consolidated cash flow statement for the year ended 31 December
2009
Notes Year ended Year ended
31/12/2009 31/12/2008
-------------------------------------------- ------ ----------- -----------
EUR'000 EUR'000
-------------------------------------------- ------ ----------- -----------
Cash flows from operating activities
(Loss)/ profit for the year (48,230) (134,572)
Adjustments for:
Depreciation 3 6,820 12,556
Amortisation and impairment 3,4 65,005 67,298
Loss from fair value adjustment of
investment property 7,610 1,176
Share based payment charge - 18,487
Share of profit from associates and joint
ventures 16,17 10,028 28,288
Gain on disposal of:
Subsidiaries (30,541) (985)
Associates (7,559) (2,960)
Investment property (3,816) 6,217
Gain on sale of property, plant and
equipment (328) (144)
Net finance expense 7 8,769 20,313
Net foreign exchange (gain)/losses 626
Income tax expense 8 863 806
Increase(decrease) in provisions (195)
-------------------------------------------- ------ ----------- -----------
Cash flows from operating activities before
changes in working capital and provisions 9,052 16,480
-------------------------------------------- ------ ----------- -----------
(Increase)/decrease in trade and other
receivables 19 35,943 (2,025)
Increase in inventories 18 14,410 (44,911)
(Decrease)/increase in trade and other
payables 21 (48,146) 8,991
-------------------------------------------- ------ ----------- -----------
Cash generated from operations 11,259 (21,465)
Income taxes paid (1,388) (4,239)
Interest paid (9,268) (22,373)
-------------------------------------------- ------ ----------- -----------
Net cash flows from operating activities
carried forward 603 (48,077)
-------------------------------------------- ------ ----------- -----------
The notes on pages 30 to 98 are an integral part of these
consolidated financial statements.
Consolidated cash flow statement for the year ended 31 December
2009 (Continued)
Notes Year ended Year ended
31/12/2009 31/12/2008
-------------------------------------------- ------ ----------- -----------
EUR'000 EUR'000
-------------------------------------------- ------ ----------- -----------
Cash (outflow)/inflow from operating
activities 603 (48,077)
Cash flows from investing activities
Acquisition of subsidiary, net of cash
acquired (21,272)
Disposal of subsidiary, net of cash
disposed 4,058 6,519
Disposal of associates 16 10,140 1,259
Purchase of other intangibles 14 (300) (691)
Settlement of earn out consideration (3,592)
Sale of other intangibles 105
Capitalised additions to development
property (10,613)
Sale of development property 2,606
Sale of investment property 9,566 821
Purchases of other property, plant and
equipment 11 (3,420) (16,453)
Sale of other property, plant and equipment 57 2,331
Purchases of available-for-sale financial
assets (14)
Investment in restricted cash (1,306)
Interest received 2,990
Loans granted (13,036) (14,848)
Repayment of loans granted 13,932 -
Net cash (outflow) from investing
activities 20,395 (51 556)
Cash flows from financing activities
Proceeds from bank borrowings 7,786 34,176
Proceeds from other loans 7,200 16,168
Repayment of bank loans (27,200)
Repayment of other loans (16,222)
Repayment of finance lease creditors (1,036) (4,667)
-------------------------------------------- ------ ----------- -----------
Net cash inflow from financing activities (13,250) 29,455
-------------------------------------------- ------ ----------- -----------
Net (decrease) in cash and cash equivalents 7,748 (70,178)
Cash and cash equivalents at beginning of
year (4,507) 66,137
Foreign exchange (losses) on cash and cash
equivalents (138) (466)
-------------------------------------------- ------ ----------- -----------
Cash and cash equivalents at end of year 3,103 (4,507)
-------------------------------------------- ------ ----------- -----------
The consolidated financial statements on pages 22 to 29 were
approved and authorised for issue by the Board of Directors on 14
December 2010 and were signed on their behalf by:
Ian Schmiegelow Robin James
Non-executive Chairman Non-executive Director
The notes on pages 30 to 98 are an integral part of these
consolidated financial statements.
Statement of accounting policies and notes to the consolidated
financial statement
For the year ended 31 December 2009
1.1 General information
Trans Balkan Investments Limited (formerly known as Equest
Investment Balkans Ltd), a company incorporated in the British
Virgin Islands, ("the Company") and its subsidiaries (together "the
Group") is an investment holding company with a portfolio of retail
and property development investments in South East Europe. (See
note 6 and 15 for subsidiary details). The Company commenced
operations on 14 April 2004. The shares of the Company were first
listed on the Irish Stock Exchange on 19 April 2004. On 20 December
2006 the shares of the Company were listed on the AIM Market of the
London Stock Exchange ("AIM'). The company delisted from the Irish
Stock Exchange on 17 June 2009 as part of the reorganisation of the
management of the Company and the transition of the Company from an
investment fund to an investment holding company. The principal
activities of the Group are described in note 5.
The company changed its name to Trans Balkan Investments Limited
on 9 March 2010.
The shares were suspended from trading on 30 June 2010 as the
underlying operating companies were unable to complete their
year-end audits by 30 June 2010.
1.2 Basis of preparation
The principal accounting policies adopted in the preparation of
the consolidated financial statements are set out below. The
policies have been consistently applied to all the years presented,
unless otherwise stated.
Statement of compliance
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS"), issued by the International Accounting Standards Board
("IASB") as adopted by the European Union.
The consolidated financial statements have been prepared on the
historical cost basis except for the revaluation of certain
non-current assets and financial instruments. The principal
accounting policies are set out below. The policies have been
consistently applied to all the years presented, unless otherwise
stated.
1.3 Basis of consolidation
Where the Group has the power, either directly or indirectly, to
govern the financial and operating policies of another entity or
business so as to obtain benefits from its activities, it is
classified as a subsidiary. The existence and effect of potential
voting rights that are currently exercisable or convertible are
considered when assessing whether the Group controls another
entity. Subsidiaries are fully consolidated from the date of
acquisition, being the date on which the Group obtains control, and
continue to be consolidated until the date that such control
ceases. The consolidated financial statements present the results
of the company and its subsidiaries as if they formed a single
entity. Intercompany transactions and balances between Group
companies are eliminated in full.
Non-controlling interests in subsidiaries are identified
separately from the Group's equity therein. The interests of
non-controlling shareholders may be initially measured at fair
value or at the non-controlling interests' proportionate share of
the fair value of the acquirer's identifiable net assets. The
choice of measurement basis is made on an
acquisition-by-acquisition basis. Subsequent to acquisition, the
carrying amount of non-controlling interests is the amount of those
interests at initial recognition plus the non-controlling
interests' share of subsequent changes in equity.
Where losses applicable to the non-controlling shareholders
exceed the non-controlling interest in the equity of the relevant
subsidiary, the excess, and any further losses attributable to the
non-controlling interests, are charged to the group. Where excess
losses have been taken up by the group, if the subsidiary in
question subsequently reports profits, all such profits are
attributed to the group until the non-controlling interests' share
of losses previously absorbed by the group has been recovered.
Where the Group's interest in a subsidiary decreases, but does
not result in a loss of control, the sale is treated as a deemed
disposal to non-controlling interests and is recognised as a
partial disposal of the subsidiary. Any resulting gain or loss is
recognised as a profit or loss. The carrying amounts of the Group's
interests and the non-controlling interests are adjusted to reflect
the changes in their relative interests in subsidiaries.
Where the Group has the power to participate in, but not control
the financial and operating policy decisions of another entity, it
is classified as an associate. An investment of 20% - 50% in the
voting rights of an entity is an indicator of such significant
influence being applicable. Associates are initially recognised in
the consolidated statement of financial position at cost. The
Group's share of post-acquisition profits and losses is recognised
in the consolidated income statement, except those losses in excess
of the Group's investment in the associate. These are not
recognised unless the Group is liable for these losses.
Profits and losses arising on transactions between the Group and
its associates are recognised only to the extent of unrelated
investors' interests in the associate. The investor's share in the
associate's profits and losses resulting from these transactions is
eliminated against the carrying value of the associate.
Any premium paid for an investment in an associate above the
fair value of the Group's share of the identifiable assets,
liabilities and contingent liabilities acquired is capitalised and
included in the carrying amount of the associate. The carrying
amount of the investment in an associate is subject to impairment
testing at the end of each reporting period to determine whether
there is any objective evidence to recognise any additional
impairment loss. See note 16 Investments in associates for details
.
Where the Group has joint control with at least one other
investor over the financial and operating policy decisions of
another entity, it is classified as a jointly controlled entity
("JCE"). See note 17 for details on investments in joint ventures.
JCEs are accounted for using the equity method as follows:
- JCEs are initially recognised in the consolidated statement of
financial position at cost. The Group's share of post-acquisition
profits and losses is recognised in the consolidated income
statement, except those losses in excess of the Group's investment
in the JCE. These are not recognised unless the Group is liable for
these losses.
- Profits and losses arising on transactions between the Group
and its JCEs are recognised only to the extent of unrelated
investors' interests in the JCE. The investor's share in the
associate's profits and losses resulting from these transactions is
eliminated against the carrying value of the JCE.
- Any premium paid for a JCE above the fair value of the Group's
share of the identifiable assets, liabilities and contingent
liabilities acquired is capitalised and included in the carrying
amount of the JCE. The carrying amount of the investment in a JCE
is subject to impairment testing when there is an indication that
impairment could exist.
1.4 Adoption of new and revised International Financial
Reporting Standards (IFRSs)
1.4.1 Standards and Interpretations affecting amounts reported
in the current period (and/or prior periods)
The following new and revised Standards and Interpretations have
been adopted in the current period and have affected the amounts
reported in these consolidated financial statements. Details of
other Standards and Interpretations adopted in these consolidated
financial statements but that have had no effect on the amounts
reported are set out in section
1.4.2. Standards affecting presentation and disclosure
-- IAS 1 Presentation of Financial Statements (as revised in
2007); effective for annual periods beginning on or after 1 January
2009. The main change in IAS 1 is the replacement of the income
statement by a statement of comprehensive income which will also
include all non-owner changes in equity, such as the revaluation of
available for sale financial assets. Alternatively, entities will
be allowed to present two statements: a separate income statement
and a statement of comprehensive income. The revised IAS 1 also
introduces a requirement to present a statement of financial
position at the beginning of the earliest comparative period
whenever the entity restates comparatives due to reclassifications,
changes in accounting policies, or corrections of errors.
-- IFRS 8 Operating Segments; effective for annual periods
beginning on or after 1 January 2009. IFRS 8 is a disclosure
Standard that has resulted in re-designation of the Group's
reportable segments (see note 5).
Amendments to IAS 40 Investment Property
As part of Improvements to IFRSs (2008), IAS 40 has been amended
to include within its scope investment property in the course of
construction. Therefore, following the adoption of the amendments
in line with the Group's general accounting policy, investment
property under construction is measured at fair value (where that
fair value is reliably determinable), with changes in fair value
recognised as a profit or loss.
This will result in a reclassification from IAS 16 to IAS 40 and
thus in 2009 the change in fair value will be reported under
gain/loss from fair value adjustments to property assets while in
2008, these valuation changes were included in impairment of
assets. The change has been applied prospectively from 1 January
2009 in accordance with the relevant transitional provisions,
resulting in a transfer from property, plant and equipment to
investment property at its previous carrying amount of
EUR10,893,000 (as disclosed in Note 12). The loss from the fair
value adjustment of investment property, recognised in profit and
loss in 2009, directly attributable to these assets is
EUR3,461,000.
1.4.3 Standards and Interpretations adopted with no effect on
the financial statements
The following new and revised Standards and Interpretations have
also been adopted in these consolidated financial statements. The
adoption has had no significant impact on the amounts reported in
these consolidated financial statements but may affect the
accounting for future transactions or arrangements.
-- IAS 23 Borrowing costs (as revised in 2007). The main change
to the Standard was to eliminate the option to expense all
borrowing costs when incurred. This change has had no impact on
these consolidated financial statements because it has always been
the Group's policy to capitalise borrowing costs incurred on
qualifying assets.
-- Amendments to IAS 31 Financial Instruments: Presentation and
IAS 1 Presentation of Financial statements - Puttable Financial
Instruments and Obligations arising on Liquidation. The revisions
to IAS 32 amend the criteria for debt/equity classification by
permitting certain puttable financial instruments (or components of
instruments) that impose on an entity an obligation to deliver to
another party a pro-rata share of net assets of the entity only on
liquidation, to be classified as equity, subject to specified
criteria being met.
-- Amendments to IAS 39 Financial Instruments: Recognition and
Measurement - Eligible Hedged Items. The amendments provide
clarification on two aspects of hedge accounting: identifying
inflation as a hedged risk or portion, and hedging with
options.
-- IFRIC 15 Agreements for the Construction of Real Estate. The
interpretation addresses how entities should determine whether an
agreement for the construction of real estate is within the scope
of IAS 11 Construction Contracts or IAS 18 Revenue and when revenue
should be recognised. The requirements have not affected the
accounting for the Group's construction activities.
-- Improvements to IFRS. In addition to the changes affecting
amounts reported in the financial statements described at 1.3.1
above, the Improvements have led to a number of changes in the
detail of the Group's accounting policies - some of which are
changes in terminology only, and some of which are substantive but
have had no material effect on amounts reported. The majority of
these amendments are effective from 1 January 2009.
1.4.4 Future changes in accounting policies
Standards, amendments and interpretations to published standards
not yet effective
Certain new standards, amendments and interpretations to
existing standards applicable to the Group's operations have been
issued, but are not effective at 31 December 2009.
The following standards, amendments and interpretations to
published standards adopted by the European Union were in issue,
but not yet effective, for annual accounting periods beginning on
or after 1 January 2009:
-- IFRS 3 (revised) "Business combinations" adopted by the EU on
3 June 2009 (effective for annual periods beginning on or after 1
July 2009)
-- Amendments to IFRS 2 "Share-based Payment" - Group
cash-settled share-based payment transactions adopted by the EU on
23 March 2010 (effective for annual periods beginning on or after 1
January 2010)
-- IAS 27 "Consolidated and Separate Financial Statements"
adopted by the EU on 3 June 2009 (effective for annual periods
beginning on or after 1 July 2009)
-- Amendments to IAS 39 "Financial Instruments: Recognition and
Measurement" - Eligible hedged items, adopted by the EU on 15
September 2009 (effective for annual periods beginning on or after
1 July 2009)
-- Amendments to various standards and interpretations
"Improvements to IFRSs (2009)" resulting from the annual
improvement project of IFRS published on 16 April 2009, adopted by
the EU on 23 March 2010 (IFRS 2, IFRS 5, IFRS 8, IAS 1, IAS 7, IAS
17, IAS 18, IAS 36, IAS 38, IAS 39, and IFRIC 9) primarily with a
view to removing inconsistencies and clarifying wording, adopted by
the EU on 23 March 2010 (effective for annual periods beginning on
or after 1 January 2010)
-- IFRIC 12 "Service Concession Arrangements" adopted by the EU
on 25 March 2009 (effective for annual periods beginning on or
after 30 March 2009)
-- IFRIC 15 "Agreements for the Construction of Real Estate"
adopted by the EU on 22 July 2009 (effective for annual periods
beginning on or after 1 January 2010)
-- IFRIC 17 "Distributions of Non-Cash Assets to Owners" adopted
by the EU on 26 November 2009 (effective for annual periods
beginning on or after 1 November 2009)
-- IFRIC 18 "Transfers of Assets from Customers" adopted by the
EU on 27 November 2009 (effective for annual periods beginning on
or after 1 November 2009)
-- IFRS 5 (Amendment) Non Current Assets Held for Sale and
Discontinued Operations as a result of Improvements to
International Financial Reporting Standards 2008 (effective 1 July
2009)
-- Amendments to IAS 24 "Related Party Disclosures" -
Simplifying the disclosure requirements for government-related
entities and clarifying the definition of a related party, adopted
by the EU on 19 July 2010 (effective for annual periods beginning
on or after 1 January 2011)
-- Amendments to IAS 32 "Financial Instruments: Presentation" -
Accounting for rights issues, adopted by the EU on 23 December 2009
(effective for annual periods beginning on or after 1 February
2010)
-- Amendments to IFRIC 14 "IAS 19 - The Limit on a defined
benefit Asset Minimum Funding Requirements and their Interaction" -
Prepayments of a Minimum Funding Requirement, adopted by the EU on
19 July 2010 (effective for annual periods beginning on or after 1
January 2011)
-- IFRIC 19 "Extinguishing Financial Liabilities with Equity
Instruments", adopted by the EU on 23 July 2010 (effective for
annual periods beginning on or after 1 July 2010)
The Group is currently assessing the impact of these new
standards and changes on the consolidated financial statements. The
Group has decided not to early adopt any of the above amendments as
they are not expected to have a significant impact on the reported
results of the Group.
Standards and Interpretations issued by IASB but not yet adopted
by the EU
Currently, IFRS as adopted by the EU do not significantly differ
from regulations adopted by the International Accounting Standards
Board (IASB) except from the following standards, amendments to the
existing standards and interpretations, which were not endorsed for
use as at 15 October 2010 of the consolidated financial
statements:
-- IFRS 9 "Financial Instruments" (effective for annual periods
beginning on or after 1 January 2013)
-- Amendments to various standards and interpretations
"Improvements to IFRSs (2010)" resulting from the annual
improvement project of IFRS published on May 2010 (IFRS 1, IFRS 3,
IFRS 7, IAS 1, IAS 27, IAS 34, IFRIC 13) primarily with a view to
removing inconsistencies and clarifying wording (most amendments
are to be applied for annual periods beginning on or after 1
January 2011)
1.5 Accounting policies
Revenue
The Group earns revenue through the sale of goods, rendering of
services the sale of development property, interest income and
through the receipt of dividends. Development property is property,
plant and equipment which are in the process of being developed
with the intention to sell in the future.
Revenue Recognition
Revenue is recognised to the extent that it is probable that
future economic benefits will flow to the Group and the revenue can
be reliably measured. The amount of revenue is not considered to be
reliably measurable until all contingencies relating to the sale
have been resolved. Revenue is measured at the fair value of the
consideration received or receivable for the sale of goods and
rendering of services in the ordinary course of the Group's
activities. Revenue is shown net of value-added tax, returns,
rebates and discounts. The following specific recognition criteria
must also be met before revenue is recognised:
Sale of goods:Revenue from the sale of goods is recognised when
the following conditions are satisfied:
-- the Group has transferred to the buyer the significant risks
and rewards of ownership of the goods;
-- the Group retains neither continuing managerial involvement
to the degree usually associated with ownership nor effective
control over the goods sold;
-- the amount of revenue can be measured reliably;
1.5 Accounting policies (continued)
-- it is probable that the economic benefits associated with the
transaction will flow to the entity; and
-- the costs incurred or to be incurred in respect of the
transaction can be measured reliably.
Rendering of services:The amount of the income in respect of the
concession contracts for waste collection is recognised as income
for the period in which the cleaning and transportation of waste
were provided based on certified handover protocols. The revenue
received from these concession rights has been included in
discontinued operations. See note 13 (goodwill and Trademarks) and
9 (Discontinued operations). Rendering of other services i.e.
repair of electronic appliances are recognised in the accounting
period in which the services are rendered, by reference to
completion of the specific transaction assessed on the basis of the
actual service provided as a proportion of the total services to be
provided.
Sale of development properties: Revenue from sale of development
properties is recognised on the completion of the sale
contract.
Dividend revenue: Dividend revenue from investments is
recognised when the shareholder's right to receive payment has been
established.
Interest income: Interest revenue is accrued on a time basis, by
reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts
estimated future cash receipts through the expected life of the
financial asset to that assets net carrying amount on initial
recognition.
Rental income:Rental income arising from operating leases on
investment properties is accounted for on a straight-line basis
over the lease term.
Foreign currency
(a) Functional and presentation currency
Items included in the consolidated financial statements of each
Group entity are measured using the currency of the primary
economic environment in which the entity operates (the 'functional
currency'). The consolidated financial statements are presented in
Euros, which is Company's presentation currency. The functional
currency of each entity within the Group is a key judgement of
management and the Directors. This judgement prioritises primary
factors, such as the source of competitive forces and the
denomination of sales prices and input costs, over secondary
considerations such as the source of financing, in accordance with
IAS21. These considerations indicate that the functional currencies
of the Balkan trading entities are local currencies, the currency
of the country in which the subsidiary operates, which for a
significant proportion of the Group is the Bulgarian Lev, and the
functional currency of the holding and intermediary holding
companies is the Euro. The value of the Bulgarian Lev was fixed at
1 January 1999 at a rate of 1.95583 BGN: 1 EUR.
(b) Transactions and balances
Foreign currency transactions, transactions denominated in a
currency which is different to that of the functional currency, are
translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains
and losses resulting from the settlement of such transactions and
from the translation at year-end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised in
the income statement. Non-monetary items carried at fair value,
which are denominated in foreign currencies, are translated at the
rates prevailing at the date when the fair value was determined and
the gain or loss is recognised in the income statement except for
differences arising on the retranslation of non-monetary items in
respect of which gains and losses are recognised directly in
equity. Non-monetary items that are measured in terms of historical
cost in a foreign currency are not retranslated.
(c) Group companies
The result and financial position of the Group entities (none of
which has the currency of a hyperinflationary economy) that have a
functional currency different from the presentation currency are
translated into the presentation currency as follows:
(i) Assets and liabilities for each consolidated statement of
financial position presented are translated at the closing rate at
the end of the reporting period;
(ii) Income and expenses for each income statement are
translated at average exchange rates (unless this average is
not a reasonable approximation of the cumulative effect of the
rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates of the
transactions); and
(iii) All resulting exchange differences are recognised in other
comprehensive income and accumulated in equity and attributed to
non-controlling interests as appropriate.
When a foreign operation is sold, all accumulated exchange
differences in respect of that foreign operation attributable to
the Group are reclassified to profit or loss.
Goodwill and fair value adjustments arising on the acquisition
of a foreign operation are treated as assets and liabilities of the
foreign operation and translated at the closing rate.
Expenses recognition
Expenses are recognised when a decrease in future economic
benefit related to a decrease in an asset or an increase of a
liability has arisen that can be reliably measured. An expense is
recognised immediately when an expenditure produces no future
economic benefits. An expense is also recognised when a liability
is incurred without the recognition of an asset,as when a liability
under a product warranty arises.
Matching of costs with revenues: Expenses are recognised on the
basis of a direct association between the cost incurred and the
earning of specific items of income.
Borrowing costs
Interest incurred on the bank loans used to fund the
construction of investment property is capitalised as part of its
cost, net of interest received on cash drawn down, yet to be
expended. The Group does not incur any other interest costs that
qualify for capitalisation under IAS 23 'Borrowing costs' and other
interest costs are therefore recognised as an expense when
incurred.
Warrants
The Group has made use of warrants (equity-settled share-based
payments) to compensate the Group's investment manager under the
terms of the Termination Agreement (see details in Note 30).The
fair value of the warrants issued is measured at grant date and is
charged to the income statement and accounted for as an increase to
the Group's share capital at the time that the services are
provided to the Group in accordance with IFRS 2. The fair value of
the warrants has been determined by a third party advisor using the
Black-Scholes model.
The share price volatility was assumed to be equal to 5% and the
risk free rate of return was assumed to be 5.6%. The warrants in
issue are exercisable for nil consideration and as such no
adjustment is made on exercise. Where the exercise of the warrants
is contingent on certain conditions, an adjustment for the amount
charged to the income statement is
made if those conditions are not met. These warrants are
recorded as equity in accordance with IFRS2 as they will be settled
for a fixed number of the Group's own equity shares.
Taxation
(a) Current income tax
There is no liability for income tax in the British Virgin
Islands. The Group is liable for tax in the Netherlands Antilles,
the Netherlands, Bulgaria and Romania on the activity of its
subsidiaries. The tax expense represents the sum of the tax
currently payable and deferred tax. The tax currently payable is
based on taxable profit for the year. Taxable profit differs from
net profit as reported in the income statement because it excludes
items of income and expenditure that are taxable or deductible in
other periods and it also excludes items that are not taxable or
deductible. The Group's liability for current tax is calculated
using tax rates applicable at the consolidated statement of
financial position date.
(b) Deferred taxation
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the consolidated
statement of financial position differs from its tax base, except
for differences arising on:
- the initial recognition of goodwill;
- the initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting or taxable profit;
and
- investments in subsidiaries, associates and jointly controlled
entities where the Group is able to control the timing of the
reversal of the difference and it is probable that the difference
will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be
available against which the difference can be utilised.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantively enacted by the
consolidated statement of financial position date and are expected
to apply when the deferred tax liabilities/assets are
settled/recovered. Deferred tax relating to items recognised
directly in equity is recognised in equity and not in the income
statement.
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority on either:
- the same taxable Group company; or
- different Group entities which intend either to settle current
tax assets and liabilities on a net basis, or to realise the assets
and settle the liabilities simultaneously, in each future period in
which significant amounts of deferred tax assets or liabilities are
expected to be settled or recovered.
Segment reporting
An operating segment is a component of an entity that engages in
business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the
entity's chief operating decision maker and for which discrete
financial information is available.
The Group adopted IFRS 8 on operating segments during the
current year 31 December 2009. Operating segments are reported in a
manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker has
been identified as the strategic decision makers- being the TBIL
Board of Directors.
Dividends
Dividends are recognised when they become legally payable. In
the case of interim dividends to equity shareholders, this is when
the dividends are declared by the Directors. In the case of final
dividends, this is when the dividends are approved by the
shareholders at the Annual General Meeting.
Business combinations
The consolidated financial statements incorporate the results of
business combinations using the purchase method. In the
consolidated statement of financial position, the acquirer's
identifiable assets, liabilities and contingent liabilities are
initially recognised at their fair values at acquisition date. The
results of acquired operations are included in the consolidated
income statement from the date on which control is obtained.
Goodwill
Goodwill arising in a business combination is recognised as an
asset at the date that control is acquired i.e. the acquisition
date. Goodwill represents the excess of the cost of a business
combination over the interest in the fair value of identifiable
assets, liabilities and contingent liabilities acquired. Cost
comprises the fair values of assets given, liabilities assumed and
equity instruments issued, plus any direct costs of
acquisition.
Where the fair value of identifiable assets, liabilities and
contingent liabilities exceed the fair value of consideration paid,
the excess is credited in full to the consolidated income statement
on the acquisition date.
Goodwill is not amortised but is reviewed for impairment at
least annually. For the purpose of impairment testing, goodwill is
allocated to each of the Group's cash-generating units expected to
benefit from the synergies of the combination. Cash-generating
units to which goodwill has been allocated are tested for
impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the
cash-generating unit is less than its carrying amount, the
impairment loss is allocated first to reduce the carrying amount of
any goodwill allocated to the unit and then to the other assets of
the unit pro-rata on the basis of the carrying amount of each asset
in the unit. An impairment loss recognised for goodwill is not
reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill
is included in the determination of the profit or loss on
disposal.
Property, plant and equipment
Items of property, plant and equipment are initially recognised
at cost. As well as the purchase price, cost includes directly
attributable costs and the estimated present value of any future
unavoidable costs of dismantling and removing items. The
corresponding liability is recognised within provisions.
Freehold land is not depreciated.
Plant, machinery, motor vehicles and other equipment are stated
at cost less accumulated depreciation and accumulated impairment
losses.
Depreciation is provided on all other items of property, plant
and equipment to write off the carrying value of items over their
expected useful lives. It is applied on a straight-line basis over
the following periods:
Class Years
------------------------------------- ------------------------------
Freehold buildings 25-40
Plant, machinery and motor vehicles 2-10
Fixtures, fittings, equipment Over the lease period or 2-15
The assets' residual values, useful economic lives and methods
of depreciation are reviewed at each financial year end and
adjusted if appropriate. Assets held under finance leases are
depreciated over their expected useful lives on the same basis as
owned assets or, where shorter, the term of the relevant lease.
Leases
Group as a lessee:Where substantially all of the risks and
rewards incidental to ownership of a leased asset have been
transferred to the Group (a "finance lease"), the asset is treated
as if it had been purchased outright. The amount initially
recognised as an asset is the lower of the fair value of the leased
asset and the present value of the minimum lease payments payable
over the term of the lease. The corresponding lease commitment is
shown as a liability. Lease payments are analysed between capital
and interest. The interest element is charged to the consolidated
income statement over the period of the lease and is calculated so
that it represents a constant proportion of the lease liability.
The capital element reduces the balance owed to the lessor.
Where substantially all of the risks and rewards incidental to
ownership are not transferred to the Group (an "operating lease"),
the total amount of rentals payable under the lease is charged to
the consolidated income statement on a straight-line basis over the
lease term. The aggregate benefit of lease incentives is recognised
as a reduction of the rental expense over the lease term on a
straight-line basis.
The land and buildings elements of property leases are
considered separately for the purposes of lease classification.
Group as a lessor:Leases where the Group does not transfer
substantially all the risks and rewards of ownership of the asset
are classified as operating leases. Initial direct costs incurred
in negotiating an operating lease are added to the carrying amount
of the leased asset and recognised over the lease term on the same
basis as rental income.
Investment property
Property that is held for rental, yields capital appreciation or
both (including property held under construction for such
purposes), and that is not occupied by the Group or held for sale
is classified as investment property. The Group has elected to use
the fair value model to measure investment property after initial
recognition.
Development property held for sale is classified as
inventory.
Investment property comprises freehold land and freehold
buildings. Investment property is measured initially at its cost,
including related transaction costs and subsequently re-valued at
the consolidated statement of financial position date to fair
value.
Subsequent expenditure is charged to the asset's carrying amount
only when it is probable that future economic benefits associated
with the item will flow to the Group and the cost of the item can
be measured reliably. All other repairs and maintenance costs are
charged to the income statement during the financial period in
which they are incurred.
Fair value is based on active market prices, adjusted, if
necessary, for any difference in the nature, location or condition
of the specific asset. These valuations are prepared annually by CB
Richard Ellis, independent professionally qualified valuers. The
fair value of investment property reflects, among other things,
rental income from current leases and assumptions about rental
income from future leases in the light of current market
conditions. The fair value also reflects, on a similar basis, any
cash outflows that could be expected in respect of the
property.
Investment property that is being redeveloped for continuing use
as investment property or for which the market has become less
active continues to be measured at fair value. Changes in fair
values of investment property are recorded in the income statement.
Depreciation is not provided in respect of investment
properties.
Rent receivable is spread on a straight-line basis over the
period of the lease. Where an incentive (such as a rent free
period) is given to a tenant, the carrying value of the investment
property excludes any amount reported as a separate asset as a
result of recognising rental income on this basis.
Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. Intangible assets are recognised if it is
probable that economic benefits that are attributable to the asset
will flow to the enterprise and the cost of the asset can be
measured reliably. The cost of intangible assets acquired in a
business combination is measured at the fair value as at the date
of acquisition. Following initial recognition, intangible assets
are carried at cost less any accumulated amortization and any
accumulated impairment losses.
The useful lives of intangible assets are assessed to be finite
or indefinite.
Intangible assets with finite lives are amortised over the
period of their useful lives and assessed for impairment whenever
there is an indication that the intangible asset may be impaired.
Acquired computer software licences are capitalised on the basis of
the costs incurred to acquire and bring to use the specific
software. The amortisation period and the amortisation method for
an intangible asset with a finite useful life is reviewed at least
each financial year end. Changes in the expected useful life or the
expected pattern of consumption of future economic benefits
embodied in the asset is accounted for by changing the amortisation
period or method, as appropriate, and treated as a change in
accounting estimates. The amortisation expense on intangible assets
with finite lives is recognised in the income statement in the
expense category consistent with the function of the intangible
asset.
Intangible assets with indefinite useful lives are tested for
impairment annually either individually or at the cash-generating
unit level. Such intangibles are not amortised. The useful life of
an intangible asset with an indefinite life is reviewed annually to
determine whether the indefinite life assessment continues to be
supportable. If not, the change in the useful life assessment from
indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible
asset is measured as the difference between the net disposal
proceeds and the carrying amount of the asset and is recognised in
the income statement when the asset is derecognised.
Amortisation is calculated on a straight-line basis over the
estimated useful life of the intangible assets. The useful life of
the intangible assets is as follows:
Class Years
------------- --------------
Trademarks Indefinite
Software 2 - 7
Concessions Contract life
------------- --------------
Impairment of tangible and intangible assets excluding
goodwill
At the end of each reporting period, the Group reviews the
carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent
of the impairment loss, if any.
Where it is not possible to estimate the recoverable amount of
an individual asset, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs. Where a
reasonable and consistent basis of allocation can be identified,
corporate assets are also allocated to individual cash-generating
units for which a reasonable and consistent allocation basis can be
identified.
Intangible assets with indefinite useful lives and intangible
assets not yet available for use are tested for impairment at least
annually, and whenever there is an indication that the asset may be
impaired.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset or cash generating unit is
estimated to be less than its carrying amount, the carrying amount
of the asset is reduced to its recoverable amount. An impairment
loss is recognised immediately in profit or loss.
When an impairment loss subsequently reverses, the carrying
amount of the asset or cash generating unit is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised
for the asset or cash generating unit in prior years. A reversal of
an impairment loss is recognised immediately in profit or loss.
Financial assets
All financial assets are recognised and derecognised on a trade
date where the purchase or sale of a financial asset is under a
contract whose terms require delivery of the financial asset within
the timeframe established by the market concerned, and are
initially measured at fair value, plus transaction costs.
The Group classifies its financial assets into one of the two
categories discussed below, depending on the purpose for which the
asset was acquired. Management determines the classification of its
financial assets at initial recognition.
a) Loans and receivables: These assets are non-derivative
financial assets with fixed or determinable payments that are not
quoted in an active market. They arise through the provision of
goods and services to customers and also incorporate other types of
contractual monetary assets such as loans to related parties. They
are initially recognised at fair value plus transaction costs that
are directly attributable to their acquisition or issue, and are
subsequently carried at amortised cost using the effective interest
rate method. Amortised cost is calculated taking into account any
discount or premium on acquisition and includes fees that are an
integral part of the effective interest rate and transaction costs.
Gains and losses are recognised in the income statement when the
loans and receivables are derecognised or impaired, as well as
through the amortisation process.
Impairment provisions are recognised when there is objective
evidence (such as significant financial difficulties on the part of
the counterparty, default or significant delay in payment) that the
Group will be unable to collect all of the amounts due under the
terms of the receivable. The amount of such a provision is the
difference between the net carrying amount and the present value of
the future expected cash flows associated with the impaired
receivable. Assets that are assessed not to be impaired
individually are, in addition, assessed for impairment on a
collective basis.
Objective evidence of impairment for a portfolio of receivables
could include the Group's past experience of collecting payments,
an increase in the number of delayed payments in the portfolio past
the average credit period, as well as observable changes in
national or local economic conditions. For trade receivables, which
are reported net of any provision for impairment; such provisions
are recorded in a separate allowance account with the loss being
recognised within administrative expenses in the income statement.
On confirmation that the trade receivable will not be collectable,
the gross carrying value of the asset is written off against the
allowance for trade receivables.
Cash and cash equivalents comprises cash in hand, deposits held
on call with banks and other short term highly liquid investments
with original maturities of three months or less. Bank overdrafts
are not included in the cash and bank balances on the consolidated
statement of financial position. Bank overdrafts are included in
the cash and cash equivalents on the consolidated cash flow
statement.
TheGroup's loans and receivables comprise trade and other
receivables and cash and cash equivalents in the consolidated
statement of financial position.
b) Available-for-sale financial assets: Non-derivative financial
assets not included in the above categories are classified as
available-for-sale and comprise principally the Group's strategic
investments in entities not qualifying as subsidiaries or joint
venture's associates. They are carried at fair value with changes
in fair value recognised in other comprehensive income and
accumulated in a separate component of equity (available-for-sale
reserve). Where there is a significant or prolonged decline in the
fair value of an available-for-sale financial asset (which
constitutes objective evidence of impairment), the full amount of
the impairment, including any amount previously charged to other
comprehensive income, is reclassified from equity to profit and
loss account as reclassification adjustment. Purchases and sales of
available-for-sale financial assets are recognised on the
settlement date with any change in fair value between trade date
and settlement date being recognised in the available-for-sale
reserve. On sale, the amount held in the available-for-sale reserve
associated with that asset is removed from other comprehensive
income and recognised in profit and loss for the period. Returns on
corporate securities classified as available-for-sale are
recognised in the income statement.
Financial liabilities and equity instruments issued by the
Group
Debt and equity instruments are classified as either financial
liabilities or as equity in accordance with the substance of the
contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Group are recognised
at the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities are classified as either financial
liabilities at fair value through profit or loss or other financial
liabilities.
Fair value through profit or loss
Financial liabilities are classified as fair value through
profit or loss when the financial liability is either held for
trading or is designated as fair value through profit or loss.
A financial liability is held for trading if:
- It has been acquired principally for the purpose of
repurchasing it in the near future; or
- On initial recognition it is part of a portfolio of identified
financial instruments that the Group manages together and has a
recent actual pattern of short term profit-taking; or
- It is a derivative that is not designated and effective as a
hedging instrument.
A financial liability other than a financial liability held for
trading may be designated as at fair value through profit or loss
upon initial recognition if:
- Such designation eliminates or significantly reduces a
measurement or recognition inconsistency that would otherwise
arise; or
- The financial liability forms part of a group of financial
assets or financial liabilities or both, which is managed and its
performance is evaluated on a fair value basis, in accordance with
the Group's documented risk management or investment strategy, and
information about the grouping is provided internally on that
basis; or
- It forms part of a contract containing one or more embedded
derivatives, and IAS 39 Financial Instruments: Recognition and
measurement permits the entire combined contract to be designated
as at fair value through profit
Financial liabilities at fair value through profit or loss are
stated at fair value, with any gains or losses arising on
re-measurement recognised in profit or loss.
Other financial liabilities
Loans and borrowings
All loans and borrowings are initially recognized at fair value
less directly attributable transaction costs, and have not been
designated 'as at fair value through profit or loss'. After initial
recognition, interest bearing loans and borrowings are subsequently
measured at amortised cost with the interest expense recognised on
an effective yield basis. Gains and losses are recognised in the
income statement when the liabilities are derecognised. Loans and
borrowings are classified as current liabilities unless the Group
has an unconditional right to defer settlement of the liability for
at least 12 months after the consolidated statement of financial
position date.
Trade and other payables
Trade and other payables are non-interest bearing and are
normally settled on 45-day terms. Trade and other payables are
recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method.
Derecognition of financial assets and liabilities
Financial assets
A financial asset (or, where applicable a part of a financial
asset or part of a group of similar financial assets) is
derecognised when:
-- the rights to receive cash flows from the asset have
expired;
-- the Group retains the right to receive cash flows from the
asset, but has assumed an obligation to pay them in full without
material delay to a third party under a 'pass through' arrangement;
or
-- the Group has transferred its rights to receive cash flows
from the asset and either (a) has transferred substantially all the
risks and rewards of the asset, or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset, but
has transferred control of the asset.
When the Group has transferred its rights to receive cash flows
from an asset and has neither transferred nor retained
substantially all the risks and rewards of the asset nor
transferred control of the asset, the asset is recognised to the
extent of the Group's continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee over the
transferred asset is measured at the lower of the original carrying
amount of the asset and the maximum amount of consideration that
the Group could be required to repay.
When continuing involvement takes the form of a written and/or
purchased option (including a cash settled option or similar
provision) on the transferred asset, the extent of the Group's
continuing involvement is the amount of the transferred asset that
the Group may repurchase, except that in the case of a written put
option (including a cash settled option or similar provision) on an
asset measured at fair value, the extent of the Group's continuing
involvement is limited to the lower of the fair value of the
transferred asset and the option exercise price.
Financial liabilities
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original
liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognised in the
income statement.
Inventories
Inventories, including properties held for resale, are initially
recognised at cost, and subsequently at the lower of cost and net
realisable value using the weighted average cost formula. Cost
comprises all costs of purchases, custom duties and other direct
costs incurred in bringing the inventories to their present
location and condition. Borrowing costs related to the development
properties are capitalized. Net realisable value is the estimated
selling price in the ordinary course of business, less the
estimated costs of completion and the estimated costs necessary to
make a sale.
Non-current assets held for sale ( disposal groups) and
discontinued operations
Non-current assets and disposal groups are classified as held
for sale when:
- they are available for immediate sale in its present
condition;
- management is committed to a plan to sell;
- it is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn;
- an active programme to locate a buyer has been initiated;
- the asset or disposal group is being marketed at a reasonable
price in relation to its fair value; and
- a sale is expected to complete within 12 months from the date
of classification.
Non-current assets and disposal groups classified as held for
sale are measured at the lower of:
- their carrying amount immediately prior to being classified as
held for sale in accordance with the Group's accounting policies;
and
- fair value less costs to sell.
Following their classification as held for sale, non-current
assets (including those in a disposal group) are not
depreciated.
The results of operations disposed during the year are included
in the consolidated income statement up to the date of
disposal.
A discontinued operation is a component of the Group's business
that represents a separate major line of business or geographical
area of operations or a subsidiary acquired exclusively with a view
to resale, that has been disposed of, has been abandoned or that
meets the criteria to be classified as held for sale.
Profit or loss from discontinued operations, including prior
year components of profit or loss, is presented in a single amount
in the income statement. This amount comprises the post-tax profit
or loss of discontinued operations and the post-tax gain or loss
resulting from the measurement and disposal of assets classified as
held for sale.
Provisions and Contingent liabilities
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event,
when it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Where the
time value of money is material, provisions are discounted at a
pre-tax rate reflecting current market assessments of the time
value of money and the risks specific to the liability.
Where the Group has a possible obligation as a result of a past
event that may, but probably will not result in an outflow of
economic benefits, then no provision is made. Disclosures are made
of the contingent liability including where practicable an estimate
of the financial effect, uncertainties relating to the amount or
timing and the possibility of any reimbursement.
Errors
Prior period errors are omissions from and misstatements in the
Group's consolidated financial statements for one or more prior
periods arising from a failure to use, or the misuse of, reliable
information that was available when consolidated financial
statements for those periods were authorised for issue and could
reasonably be expected to have been obtained and taken into account
in the preparation and presentation of those consolidated financial
statements.
During 2007, TBIL 'pushed down' debt to TMD, thereby decreasing
the non-controlling interest of the non-controlling shareholder. As
compensation for taking on this liability, TBIL agreed to pay the
non-controlling shareholder EUR7,496,500.
During the current financial year the Group identified that this
liability was settled by transferring 955,000 of TBIL's shares in
TMD to the non-controlling shareholder at 31 December 2008 and not
in March 2009. The 2008 comparative consolidated financial
statements have been restated to account for this error. The effect
of the restatement has been summarised below:
Effect on the statement of total comprehensive income
2008
EUR'000
---------------------------------------------------------------- --------
Increase in gain/(loss) on disposal of subsidiaries and
associates (note 6) 4,220
---------------------------------------------------------------- --------
4,220
---------------------------------------------------------------- --------
Effect on the consolidated statement of financial position
2008
EUR'000
---------------------------------------------------------------- --------
Total Assets
Decrease in goodwill and trademarks (note 13) 2,773
---------------------------------------------------------------- --------
2,773
---------------------------------------------------------------- --------
1.5 Accounting policies (continued)
Errors (continued)
Total Equity and Liabilities
Decrease in trade and other payables 7,496
Increase in foreign exchange reserves (645)
Increase in retained earnings (4,061)
Increase in non-controlling interest (17)
---------------------------------------------------------------- --------
2,773
Effect on the earnings per share
Decrease of total loss (continued and discontinued operations) 4,220
Increase of total earnings per share 0,24
Increase of earnings per share related to continuing
operations 0,24
---------------------------------------------------------------- --------
During the current financial year the Group identified that bank
overdrafts in 2008 are not included as a component of cash and cash
equivalents in the Consolidated cash flow statement. The 2008
comparative consolidated cash flow statement has been restated to
account for this error. The effect of the restatement is a decrease
in cash and cash equivalents and cash inflows from financing
activities at the end of the year by EUR17,450,000 in the
consolidated cash flow statement.
As of December 31, 2008 the Group has presented within
investments in joint ventures a loan with carrying amount of EUR7
500 000. During 2009 the Group has reconsidered the presentation
and has reclassified the loan from investments in joint ventures to
trade and other receivables. The 2008 comparative consolidated
financial statements have been restated to reflect this
reclassification.
1.6 Critical accounting estimates and judgements
The Group makes certain estimates and judgements regarding the
future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under current
circumstances. In the future, actual experience may differ from
these estimates and judgements. The estimates and judgements that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year are discussed below.
Judgements
(a) Going concern
In assessing the going concern basis of preparation of the
consolidated financial statements for the year ended 31 December
2009, the Directors have taken into account the status of current
negotiations on the sale of properties and investments. The Group's
forecasts and projections have been prepared by reference to the
economic environment and its challenges and the uncertainties
surrounding the sale of TMD as described below. These forecasts
take into account possible changes in trading performance,
potential sales of investments and properties and the future
financing of the Group. Subject to the considerable uncertainties
inherent in the circumstances outlined below, the Directors
consider that the Group will have sufficient facilities for its
ongoing operations.
As disclosed in note 32 Related party transactions, the parent
company TBIL has entered into a commercial agreement (the"
Commercial Agreement") with its largest shareholder, the State
General Reserve Fund of the Sultanate of Oman ("SGRF"). According
to the Commercial Agreement TBIL is required to comply with certain
covenants, part of which have been asserted by SGRF as not having
been complied with as of 31 December 2009 and subsequently in case
of non-compliance, SGRF has the right to acquire TBIL's equity
interest in one of its
subsidiaries "TechnomarketDomo N.V." ("TMD") for EUR 12.4
million. In February 2010 SGRF had notified the Group that SGRF's
exchange rights under the agreement had become exercisable and that
SGRF had reserved its position.
As further disclosed in note 34 Events after the reporting date,
in October 2010 TBIL entered into an amendment agreement with SGRF
(the "Amendment Agreement"). Under the Amendment Agreement SGRF
agreed to defer for twelve months from the date of the Amendment
Agreement, the exercise of its right to acquire TBIL's interests in
TMD, which SGRF has asserted it is entitled to exercise immediately
pursuant to the terms of the Commercial Agreement. The deferral of
its right is provided by SGRF so as to afford TBIL an opportunity
to sell its interest in TMD and to participate in the proceeds from
such sale in exchange for the payment of certain fees and other
sums. If the net proceeds of the sale of TBIL's indirect interest
in TMD are insufficient to satisfy the amounts due to SGRF,
including those arising from the Amendment Agreements by the end of
the extended period as per the Amendment Agreement, SGRF may
exercise the right to acquire TBIL's indirect interest in TMD and
will continue to be entitled to the fee of EUR8.5 million (note
34)
As disclosed in note 22 to the consolidated financial statements
certain ring fenced Group subsidiaries, were not able to repay the
due principal and interest per bank loans, provided by DSK Bank and
Alpha bank. As a result during 2009 the construction works on the
two main real estate projects (Sozopolis and Banya) were halted.
The Directors and the banks are in discussions in respect to the
future of these projects. Up to the date of authorization of the
accompanying consolidated financial statements by the Directors,
these discussions have not yet been finalized. Consequently, the
Group is restricted from selling its main properties in Sozopolis
and Banya by its bank creditors. Also, according to the Commercial
Agreement and the Amendment Agreement, certain assets cannot be
sold without prior written consent from SGRF.
Accordingly, the Group's forecasts and projections to October
2011 are substantially dependent on the expected proceeds from the
sale of TMD following the implementation of the Amendment
Agreement. The Directors have made assumptions in their financial
forecasts regarding the expected sale proceeds. However, there are
material uncertainties underlying these assumptions due to the
current testing economic conditions and challenging markets as well
as the conditions and the unpredictable nature of the expected sale
proceeds and the related costs of disposal. These material
uncertainties together with the time constraints imposed by the
Amendment Agreement, could have a significant impact on the Group's
ability to continue as a going concern and, therefore it may be
unable to realize its assets and discharge its liabilities when
they fall due. The consolidated financial statements do not include
any adjustments that may be required in the event that the Group is
unable to continue as a going concern.
(b) Estimate of fair value of properties
The best evidence of fair value is current prices in an active
market for comparable properties. In the absence of such
information, the Group determines the amount within a range of
reasonable, fair value estimates. In making its judgement, the
Group considers information from a variety of sources and engages
external, professional advisers to carry out third party valuations
of its properties. These are completed in accordance with the
appropriate sections of the current Practice Statements contained
in the Royal Institution of Chartered Surveyors Appraisal and
Valuation Standards, 6th Edition (the "Red Book"). This is an
internationally accepted basis of valuation. In completing these
valuations the valuer considers the following:
-- current prices in an active market for properties of a
different nature, condition or location (or subject to different
lease or other contracts), adjusted to reflect those
differences;
-- recent prices of similar properties in less active markets,
with adjustments to reflect any changes in
-- economic conditions since the date of the transactions that
occurred at those prices; and
-- discounted cash flow projections based on reliable estimates
of future cash flows, derived from the terms of any existing lease
and other contracts and (where possible) from external evidence
such as current market rents for similar properties in the same
location and condition, and using discount rates that reflect
current market assessments of the uncertainty in the amount and
timing of the cash flows.
(c) Contingent liability on purchase and 100% consolidation of
Domo Retail
As at 31 December 2007, the Group had a contingent
liability to the vendors which was due if Domo Retail
SA achieves certain revenue and profitability targets.
The present value of the liability as at 31 December
2007, based on the fact that Domo Retail SA achieved
all its goals, was EUR11,865,000. This earn out is
based on the annual accounts 2007 of Domo Retail SA.
This earn out was paid in 2008 up to a remaining obligation
of EUR3,592,000 as per 31 December 2008, which was
paid in 2009.
In addition, the Group has a financial liability which,
at a present value at 31 December 2008, was EUR20,384,000
(2007: EUR24,250,000). This liability is based on
fair value of 13% of the TMD shares.
In terms of management judgement, the contingent liability
and the financial liability have been considered deferred
consideration under IFRS 3, Business combinations.
Any subsequent adjustments to these values within
one year from the acquisition date will therefore
be recorded as an adjustment to goodwill.
On 31 March 2009 a flip-up option was exercised whereby
the former Domo Retail SA owners exchanged their remaining
holding of 25% in Domo Retail SA for 13% of the shares
of TMD. Consequently, the financial liability of EUR20,385,000
was credited to share premium.
Management have deemed that exercise by either party of the put
or call option is virtually certain and therefore Domo Retail is
accounted for as a 100% subsidiary, even though legally TMD owns
only 75%.
(d) Loss of control of Novera AD
On the 13 March 2009 the municipality of Sofia sent a
termination letter to Novera's Group of Companies which had
concession rights for waste collection until October 2014. The
termination letters had immediate effect and resulted in the
termination of the concession agreements between the companies and
the municipality. As a result, a decision was taken at the General
Shareholders Meeting on the 13 July 2009 for the termination of
Novera AD and its liquidation. The Novera Group of companies has
thus been de-consolidated as, at that date, management deemed this
to be the date of loss of control (please refer to note 4 and note
9).
Estimates and assumptions
(e) Impairment of goodwill, other intangibles and non-financial
assets
The Group is required to test, on an annual basis, whether
goodwill, other intangibles and non-financial assets have suffered
any impairment. Where the recoverable amount is determined based on
value in use calculations, the use of this method requires the
estimation of future cash flows and the choice of a discount rate
in order to calculate the present value of the cash flows.
Discount rates incorporate estimates of risk factors specific to
each cash generating unit. A range of discount rates could be
considered reasonable given the subjectivity of these inputs, and
the impact that the choice of rate has on the quantum or existence
of impairment may be material. Further information on impairment is
provided in note 4.
(f) Determination of fair values of intangible assets acquired
and put options arising in business combinations
The fair values of intangibles acquired in the 2008 financial
year for the Domo Retail SA and Novera EAD business combinations
are based on the discounted cash flows expected to be derived from
the use and eventual sale of the assets acquired. To the extent
that the final earnings are different to the assumptions made, such
differences may give rise to impairment.
(g) Income taxes
The Group is subject to income tax in several jurisdictions and
significant judgement is required in determining the provision for
income taxes. During the ordinary course of business, there are
transactions and calculations for which the ultimate tax
determination is uncertain. As a result, the Group recognizes tax
liabilities based onestimated of whether additional taxes and
interest will be due. The Group believes that its accruals for tax
liabilities are adequate for all open audit years based on its
assessment of many factors, including past experience and
interpretations of tax law. This assessment relies on estimates and
assumptions and may involve a series of complex judgements about
future events. To the extent that the final tax outcome of these
matters is different than the amounts recorded, such differences
will impact income tax expense in the period in which such
determination is made.
(h) Provisions and warranties
There are certain provisions which are recognised where the
actual outcome may vary from the amount recognised in the
consolidated financial statements. The amounts recognised are based
on management's best estimate.
The amount recognised for warranties for which customers are
covered for the cost of repairs is estimated based on management's
past experience and the future expectations of defects.
(i) Related party loans at amortised cost
Loans from related parties to the TMD group of EUR15,101,000
(2008 EUR13 159,000) have been reported at amortised cost using an
effective interest rate of 8% (2008: 16%). The loans are repayable
on 31 December 2014 (2008: 30 June 2011). Existing loans from
related parties to TMD as of 31 December 2008 of EUR13,159,000 have
been de-recognised as at 1 July 2009 and recognised under these
assumptions. These assumptions are also applicable to loans of
EUR14,221,000 extended by related parties to TMD after 1 July 2009.
The change of the effective interest rate assumption in 2009 (8%)
compared to 2008 (16%) relates to the committed shareholder support
and development of the markets.
(j) Provision for impairment of receivables
Management maintains an allowance for doubtful receivables to
account for estimated losses resulting from the inability of
customers to make required payments. When evaluating the adequacy
of an allowance for doubtful receivables, management bases its
estimates on the aging of accounts receivable, balances and
historical write-off experience, customer credit worthiness and
changes in customer payment terms. If the financial condition of
customers were to deteriorate, actual write-offs might be higher
than expected.
(k) Impairment of inventories
Management reviews the inventory balances to determine if
inventories can be sold at amounts greater than or equal to their
carrying amounts plus costs to sell. This review includes
identification of slow-moving inventories, obsolete inventories and
partially or fully damaged inventories. The identification process
includes historical performance of the inventory, current
operational plans for the inventory, as well as industry and
customer specific trends. Damaged stock is either provided for or
written off depending on the extent of the damage.
(l) Classification of development properties as investments
properties and inventories
The classification of development properties as investments
properties or inventories reflects the Directors initial intention
as to how the Group will consume the economic benefits from the
respective assets. If the Directors aim at inception to hold the
property to earn rentals or capital appreciation it is classified
and presented as Investment property. Respectively if the directors
at inception aim to develop the project for sale in the ordinary
course of the business the property is classified as Inventory.
Subsequently transfers between the classification groups are made
only in compliance with the specific requirements of IAS 40 and IAS
2,
2. Revenue Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
-------------------------------- ----------- -----------
Revenue arises from:
Sale of goods 550,643 606,943
Provision of services 5,191 11,910
Sale of development properties 2,398 2,504
Other revenue 2,636 3,783
-------------------------------- ----------- -----------
Total 560,868 625,140
-------------------------------- ----------- -----------
Further analysis of revenue is showed in the segmental analysis
note5.
3. Administrative, selling and distribution costs
Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
---------------------------------------------------- ----------- -----------
Administrative, selling and distribution costs
comprise the following:
Wages and salaries (including directors) 21,448 23,145
Defined contribution pension scheme contributions 18 20
Employer's national insurance contributions and
similar taxes 4,073 4,171
Administration expenses 14,264 23,169
Operating lease expense 27,447 24,933
Depreciation 4,323 4,033
Amortisation 428 372
Advertising and marketing 2,538 4,300
Termination payment to former investment manager
(note 30) - 18,487
Transportation 3,827 3,930
Professional services 3,358 3,359
Utilities 3,096 2,390
Outsourced services 4,276 4,074
Other third party services 589 1,423
Total 89,685 117,806
Separately disclosable items in other notes:
Rental income from investment property (note
12) (7) (94)
Foreign exchange (profit)/ loss (note 7) 626 (2,575)
Profit on disposal of property, plant and equipment (328) (144)
---------------------------------------------------- ----------- -----------
4. Impairment of assets
Impairment costs-continuing operations
This impairment has been allocated as follows: Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
------------------------------------------------- ----------- -----------
Goodwill (note 13) 25,000 360
Concessions - 88
Other intangibles - 13
Development property 5,617
Receivables 13,738 -
Inventory (note 18) 25,839 150
------------------------------------------------- ----------- -----------
Total 64,577 6,228
------------------------------------------------- ----------- -----------
The large impairment loss in 2009 is as a result of the
impairment of loan receivables from associates and joint ventures
of EUR7,908,000 (refer to note 19) and impairment of advances to
suppliers and related party receivables at Immofinance group of
EUR5,589,000.
Impairment costs-discontinued operations
This impairment has been allocated as follows:
Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
------------------------------- ----------- -----------
Goodwill (note 13) - 19,049
Concessions - 14,807
Other intangibles - 816
Property, plant and equipment - 19,901
Receivables - 1,078
Inventory - 1,404
------------------------------- ----------- -----------
Total - 57,055
------------------------------- ----------- -----------
The large impairment loss in 2008 is a result of the loss of the
concession rights in relation to the Novera AD infrastructure
operation, which led to the business being tested for impairment.
Due to these events, management assessed that the value in use of
the business was EURnil. The non financial assets were valued at
their fair value less costs to sell with the financial assets
reviewed and valued at the amounts that could be recovered. These
valuations took into account the short timeframe that Novera AD had
to realise the cash on the sale of these assets. The value of total
assets valued on this basis was EUR10 323,000. This was compared to
the carrying value of total assets of EUR57,633,000 which therefore
gave rise to an impairment of EUR47,310 000. The impairment loss in
Novera AD group in the prior year was allocated to property, plant
and equipment (EUR17,137,000), concessions (EUR14,807,000),
goodwill (EUR12,995,000), inventory (EUR1,293,000) and receivables
(EUR1,078,000).
In July 2009 Novera AD went into liquidation which led to the
Group losing control over the company. Novera AD has been presented
as a discontinued operation in 2009 (note 9).
The goodwill relating to Avto Union AD (EUR6,054,000) was fully
impaired in 2008 based on its recoverable amount determined by
reference to the expected disposal proceeds of the sub Group,
classified as a disposal group.
5. Segment information
The Group has adopted IFRS 8 Operating Segments with effect from
1 January 2009. IFRS 8 requires operating segments to be identified
on the basis of internal reports about components of the Group that
are regularly reviewed by the chief operating decision maker in
order to allocate resources to the segments and to assess their
performance. In contrast, the predecessor Standard (IAS 14 Segment
reporting) required an entity to report two sets of segments
(business and geographical), using the risks and returns approach,
with the entity's system of internal financial reporting to key
management personnel serving as the starting point for the
identification of such segments. As a result, following the
adoption of IFRS 8, the identification of the Group's reportable
segments has changed.
The chief operating decision maker has been identified as the
TBIL Board of Directors.
The Group operates in four main business segments differentiated
by the specifics of the products and the services:
- Electronic (sale of electronic goods and household
appliances)
- Property development (development of properties for commercial
and residential purposes)
- Automotive (sale of vehicles and related products to the
general public)
- Infrastructure (waste management business)
The organization and monitoring of the information by segments
is based on financial reporting system for statutory IFRS reporting
purposes. Respectively the accounting policies of the reportable
segments are the same as the Groups accounting policies described
in Note 1.
Of these, the Automotive and Infrastructure segments have been
classified as discontinued.
Some of the Group's costs, including headquarters and warehouses
related costs, cannot be allocated to one of the above segments and
they are monitored at Group level.
Continuing operations Discontinued operations
Total Total
Property continuing Auto- discontinued
Electronics Develop-ment Un-allocated operations Motive Infrast-ructure operations
2009 2009 2009 2009 2009 2009 2009
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
------------------ ------------ ------------- ------------- ----------- -------- ---------------- -------------
Segment revenue 558,408 2,460 - 560,868 14,602 9,890 24,492
Segment
profit/(loss) 2,360 7,332 (4,176) 5,516 (1,158) (4,336) (5,494)
Impairment of
assets, loss
from fair value
adjustments of
investment
properties,
gain/loss on
sale of
investments (25,500) (42,406) 8,514 (59,392) 2,500 30,369 32,869
Share of
profits/(losses)
in equity
accounted joint
ventures and
associates
(notes 16 and
17) (2,106) (6,696) (1,227) (10,029) - - -
------------ ------------- ------------- ----------- -------- ---------------- -------------
Segment operating
profit/(loss) (25,246) (41,770) 3,111 (63,905) 1,342 26,033 27,375
Finance income 1,254 665 216 2,135 - 9 9
Finance costs (8,026) (2,879) - (10,905) (623) (1,438) (2,061)
(Loss)/profit
before tax (32,018) (43,984) 3,327 (72,675) 719 24,604 25,323
Tax expense (466) (375) (22) (863) (15) - (15)
------------------ ------------ ------------- ------------- ----------- -------- ---------------- -------------
(Loss)/profit
for the year (32,484) (44,359) 3,305 (73,538) 704 24,604 25,308
------------------ ------------ ------------- ------------- ----------- -------- ---------------- -------------
Segmental assets and liabilities as at the 31 December 2009 are
as follows:
Continuing operations Discontinued operations
------------------------------------------------------ ---------------------------------------------
Total Total
Property continuing discontinued
Electronic Develop-ment Un-allocated operations Auto-motive Infrast-ructure operation
2009 2009 2009 2009 2009 2009 2009
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
------------- ----------- ------------- ------------- ----------- ------------ ---------------- -------------
Assets 284,205 40,901 4,614 329,720 - 7 7
Associates
and joint
ventures 689 35,719 - 36,408 - - -
------------- ----------- ------------- ------------- ----------- ------------ ---------------- -------------
Total Assets 284,894 76,620 4,614 366,128 - 7 7
------------- ----------- ------------- ------------- ----------- ------------ ---------------- -------------
Total
Liabilities (192,550) (47,912) (8,907) (249,369) - (42) (42)
------------- ----------- ------------- ------------- ----------- ------------ ---------------- -------------
Other segment items included in the income statement are as
follows:
Continuing operations Discontinued operations
---------------------------------------- ------------------------------------------ -------------
Total Total
Property continuing discontinued
Electronic Development Un-allocated operations Auto-motive Infrastructure operations
2009 2009 2009 2009 2009 2009 2009
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
------------------ ----------- ------------ ------------- ----------- ------------ --------------- -------------
Capital
expenditure 4,226 271 - 4,497 1,539 - 1,539
Depreciation
(note 11) 4,284 39 - 4,323 1,187 2,497 3,684
Amortisation
(note 13 and 14) 383 45 - 428 6 - 6
Impairment (note
4) 32,247 32,329 - 64,577 - - -
------------------ ----------- ------------ ------------- ----------- ------------ --------------- -------------
Continuing operations Discontinued operations
Total Total
Property continuing Auto- discontinued
Electronic Develop-ment Un-allocated operations motive Infrastru-cture Unallocated operations
2008 2008 2008 2008 2008 2008 2008 2008
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
--------------- ----------- ------------- ------------- ----------- --------- ---------------- ------------ -------------
Segment
revenue 621,510 2,510 1,120 625,140 68,884 24,164 - 93,048
Segment
operating
profit or
(loss) 16,375 (8,466) (23,687) (15,779) (3,191) (9,782) - (12,973)
Impairment
of assets,
loss from
fair value
adjustments
of investment
properties,
gain/loss
on sale of
investments 4,221 (10,639) 2,903 (3,515) (6,054) (47,310) - (53,364)
----------- ------------- ------------- ----------- --------- ---------------- ------------ -------------
20,596 (19,105) (20,784) (19,294) (9,245) (57,092) - (66,337)
Finance income 1,641 1,436 107 3,185 382 10 - 392
Finance costs (16,261) (1,028) - (17,289) (2,117) (4,018) - (6,135)
Share of
losses
in equity
accounted
joint ventures
and
associates
(notes 16,
17) (1,960) (26,328) - (28,288) - - - -
--------------- ----------- ------------- ------------- ----------- --------- ---------------- ------------ -------------
(Loss)/profit
before income
tax 4,016 (45,025) (20,677) (61,686) (10,980) (61,100) - (72,080)
Tax expense (1,870) 1,142 - (728) (100) 22 - (78)
--------------- ----------- ------------- ------------- ----------- --------- ---------------- ------------ -------------
(Loss)/profit
for the year 2,146 (43,883) (20,677) (62,414) (11,080) (61,078) - (72,158)
--------------- ----------- ------------- ------------- ----------- --------- ---------------- ------------ -------------
Segmental assets and liabilities as at the 31 December 2008 are
as follows:
Continuing operations Discontinued operations
------------------------------------------------------ ----------------------------------------------------------
Total Total
Property continuing discontinued
Electronic Develop-ment Un-allocated operations Auto-motive Infrastructure Unallocated operations
2008 2008 2008 2008 2008 2008 2008 2008
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
------------- ----------- ------------- ------------- ----------- ------------ --------------- ------------ -------------
Assets 352,376 82,393 31,337 466,106 43,989 - - 43,989
Associates
and joint
ventures 3,128 53,422 - 56,550 - - - -
------------- ----------- ------------- ------------- ----------- ------------ --------------- ------------ -------------
Total Assets 355,504 135,815 31,337 522,656 43,989 - - 43,989
------------- ----------- ------------- ------------- ----------- ------------ --------------- ------------ -------------
Total
Liabilities (264,880) (50,461) (50,887) (366,228) (35,975) - - (35,975)
------------- ----------- ------------- ------------- ----------- ------------ --------------- ------------ -------------
Other segment items included in the income statement are as
follows:
Continuing operations Discontinued operations
------------------------------------------------------ --------------------------------------------
Total Total
Property continuing discontinued
Electronic Develop-ment Un-allocated operations Auto-motive Infrastructure operations
2008 2008 2008 2008 2008 2008 2008
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
------------------ ----------- ------------- ------------- ----------- ------------ --------------- -------------
Capital
expenditure 9,348 4,711 - 14,059 14,720 15,283 30,003
Depreciation
(note 11) 3,890 143 - 4,033 2,157 6,366 8,523
Amortisation
(note 13 and 14) 364 6,235 - 6,599 9,794 50,905 60,699
Impairment (note - 6,228 - - - - -
12, 13 and 14)
------------------ ----------- ------------- ------------- ----------- ------------ --------------- -------------
The Group's secondary reporting format for reporting segment
information is geographic segments.
External revenue Total assets Non-current assets Capital expenditure
by location by location by location of by location of
of customers of assets assets assets
---------- ------------------ ------------------ ------------------- --------------------
2009 2008 2009 2008 2009 2008 2009 2008
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
---------- -------- -------- -------- -------- -------- --------- -------- ----------
Bulgaria 390,761 425,103 291,246 565,098 90,470 218,911 4,279 41,460
Romania 170,107 200,037 74,889 1,547 66,008 71,046 1,757 2,602
---------- -------- -------- -------- -------- -------- --------- -------- ----------
560,868 625,140 366,135 566,645 156,478 289,957 6,036 44,062
---------- -------- -------- -------- -------- -------- --------- -------- ----------
6. Gain / (Loss) on disposal of subsidiaries and associates
Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
---------------------------------------------------- ----------- -----------
Loss on disposal of St George - (627)
Loss on disposal of Boyana (1,267) (2,608)
Gain on disposal of Uniqa Bulgaria AD 8,827 2,960
Loss on disposal of Castle Golf Properties (314) -
Gain on part disposal of TechnomarketDomo N.V. as
a result of the debt-pushdown liability settlement - 4,220
Gain on part disposal of TechnomarketDomo N.V. as
a result the flip-up agreement 5,547 -
Other losses - (57)
12,793 3,888
---------------------------------------------------- ----------- -----------
Loss on disposal of St George Resort and spa
The 50% investment in St George was sold during 2008.
Loss on disposal of Boyana Residence EOOD
On 29 January 2008 the Group sold 70% of its shareholding in
Boyana Residence EOOD. The investment in the group of Boyana
Residence EOOD had been reduced to 30% as a result of the deal. The
participation in Boyana Residence EOOD was classified as investment
in associate and had been reported according to the equity method
(note 16). On 1 June 2009 the Group disposed of its remaining 30%
shareholding in Boyana Residence EOOD.
Gain on disposal of share-holding in Uniqa
During 2007 the Group sold 41% of its shares in Uniqa Bulgaria
AD, leaving the Group with 38% of Uniqa Bulgaria AD. The
preliminary purchase price was received by the Group in 2007 and
based on audited 2007 consolidated financial statements of Uniqa
Insurance was adjusted in 2008. This resulted in profit of
EUR2,960,000 being recognised in 2008, resulting in payments of
EUR1,126,000 from Uniqa in 2008 and EUR1 834,000 in 2009
respectively.
During 2009 Vitosha holding sold the remaining 38% share holding
in Uniqa Bulgaria AD in two tranches. 21% was sold on the 2 June
2009 for EUR13,362,000 and the remaining 17% of the shares was sold
for EUR7,900 000 on 29 June 2009.
Loss on Castle Golf Properties
At the end of May 2009, Castle Europe Holding BV sold 100% of
its shares in Castle Golf Properties SRL for a consideration of
EUR800,000. Further impairment loss of EUR4,844,000 has been
recognized in 2009 which is presented net against the net gain from
disposal of Castle Golf Properties.
Profit on part disposal of TechnomarketDomo N.V. shares
Debt Push-down
In 2008 that the Group settled its liability of EUR7,496,500 to
the non-controlling shareholder in TechnomarketDomo N.V. by
transferring of 955,000 of the Groups shares in TMD at 31 December
2008. The 2008 comparative financial information has been restated
(note 1.5) to reflect this transaction. This resulted in a gain on
partial disposal, 3.82%, of the Groups investment in TMD. This
liability relates to TBIL 'pushed down' acquisition debt of
EUR30,000,000 to TechnomarketDomo N.V. in 2007.
Flip-up
On 28 September 2007, TMD acquired 75% of Domo Retail SA.
Included in this transaction, TMD had a call option and Domo
non-controlling shareholders had a put option respectively on the
remaining 25% shares of Domo, to be exercised in 2009. At 31 March
2009, the Domo non-controlling shareholders exercised their put
option under the purchase agreement and exchanged their shares in
Domo for 3,629,310 newly issued shares of TMD. This then settled
the outstanding liability of EUR20,384,000. Further as per the
agreement the Group transferred 92 500 TMD shares to the
non-controlling shareholders of Domo.The conclusion of the
conditions per the Domo purchase agreement on the 31 March 2009
resulted in the profit recognised above.
7. Finance income and finance costs
Finance income and finance costs include all interest-related
income and expenses. The following amounts have been included in
the income statement line for the reporting periods presented:
Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
--------------------------------------------------- ----------- -----------
Bank and other interest receivable 219 696
Interest income on loans to related parties (note
32) 1,916 2,444
Foreign exchange gain - 45
--------------------------------------------------- ----------- -----------
Total finance income 2,135 3,185
--------------------------------------------------- ----------- -----------
Bank loans and overdrafts 5,055 7,069
Other interest payable 1,134 7,240
Finance leases 182 160
Related party interest expense (note 32) 4,001 192
Foreign exchange loss 626 2,620
Unwinding of discount on provisions (93) 8
--------------------------------------------------- ----------- -----------
Total finance costs 10,905 17,289
--------------------------------------------------- ----------- -----------
Interest income and interest expense is calculated using the
effective interest rate method. Other interest expense in 2008
include an amount of EUR2,577,000 relating to the unwinding of a
put option liability and EUR1,001,000 relating to an earn out
liability which are both held at amortised cost. See note 21 Trade
and other payables and note 13 Goodwill and trademarks for details
surrounding these TMD liabilities. See note 12 Investment property
for the capitalisation rate and the amount of borrowing costs
capitalised during the year.
8. Taxation
Income tax recognised in profit and loss
Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
--------------------------------------------------- ----------- -----------
Tax expense
-current 1,493 2,154
-prior year over provision - 18
Utilisation of previously unrecognised tax losses 22 -
Deferred tax movement (652) (1,444)
Total income tax expense 863 728
--------------------------------------------------- ----------- -----------
As the Group is operating in different countries (Bulgaria,
Romania and Netherlands) the tax rates applied vary
in respect of the jurisdiction of the entities within
the Group. The tax rates used for determining the
current tax liability for 2009 and 2008, respectively,
are as follows:
2009 2008
Country Tax rate% Tax rate%
------------ --------- ---------
Bulgaria 10.0% 10.0%
Slovakia 19.0% 19.0%
Romania 16.0% 16.0%
Netherlands 25.5% 25.5%
The tax on the Groups profit before tax differs from the
theoretical amount that would arise using the weighted average rate
of tax of the applicable profits of the consolidated companies as
follows:
Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
---------------------------------------------------- ----------- -----------
(Loss) before tax for the period (72 675) (61,686)
---------------------------------------------------- ----------- -----------
Tax calculated at domestic rates applicable to
profits in the respective countries (2,437) (551)
Expenses not deductible for tax purposes 160 65
Utilisation of previously unrecognised tax losses (4) (46)
Tax losses for which no deferred tax asset has been
recognised 3,173 1 206
Effect of change in tax rate - (4)
Difference in tax rate of equity accounted
associates and joint ventures - (6)
Tax adjustments related to prior years - (3)
Other (29) 67
---------------------------------------------------- ----------- -----------
Total tax expense 863 728
---------------------------------------------------- ----------- -----------
Effective tax rate 1,2% 1,2%
Income tax recognised in other comprehensive income
Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
----------------------------------------------- ----------- -----------
Current tax - -
Deferred tax
Revaluation of available for sale investments (14) 14
Exchange differences arising on translation (406) (696)
The standard rate of corporation tax used in the above
reconciliation is the weighted average of the rates applicable in
each of the jurisdictions in which the Group carries out its
operations. The expected tax charge disclosed is therefore an
aggregation of those amounts in the separate financial statements
of the Group's subsidiaries.
The movements in the deferred tax assets and liabilities during
the period are shown in note 25 Deferred tax.
9. Discontinued operations
In 2008 the Group took a decision to dispose of its interest in
the Avto Union AD group. The Avto Union AD Group was therefore
classified as a discontinued operation in the 2008 consolidated
financial statements. In May 2009 the Group sold its entire
shareholding of Avto Union AD Holding Limited for EUR7,200,000.
In March 2009 it was confirmed by the Municipality of Sofia that
Novera's concession agreements were to be terminated with immediate
effect. Novera EAD thus began liquidation proceedings during the
2009 financial year. Novera EAD was not a discontinued operation or
classified as held for sale as at 31 December 2008 and the
comparative statement of comprehensive income has been re-presented
to show this discontinued operation separately from continuing
operations.
Result of discontinued operations
Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
----------------------------------------------- ----------- -----------
Revenue 24,492 93,048
Expenses (32,039) (108,073)
----------------------------------------------- ----------- -----------
Pre tax (loss) (7,547) (15,025)
Impairment (57,055)
Tax expense (15) (78)
----------------------------------------------- ----------- -----------
Results from operating activities after tax (7,562) (72,158)
Gain from disposal of discontinued operations 32,870 -
Profit/(Loss) for the year from discontinued
operations 25,308 (72,158)
----------------------------------------------- ----------- -----------
Profit/(Loss) from discontinuing operations attributable
to
Owners of the parent 25,473 (69,942)
Non-controlling interest (165) (2,216)
---------------------------------------------------------- ------- ---------
25,308 (72,158)
---------------------------------------------------------- ------- ---------
Gain on disposal of Avto Union AD
The disposal of Avto Union AD in May 2009 resulted in a gain of
EUR2,500 000.
Gain on disposal of Novera AD
In 2009 the group lost control of Novera AD. As a result of the
post consolidated statement of financial position events in March
2009, Novera AD was accounted for on the break-up basis in 2008. In
2008 impairments and provisions were recognised greater than the
Company's investment in Novera AD and this has resulted in a large
gain on disposal of EUR30 370 000 recognised in 2009. Further
impairment loss of EUR35,302,000 has been recognized in 2009 which
is presented net against the net gain from disposal of discontinued
operations.
The consolidated cash flow statement includes the following
amounts relating to discontinued operations:
Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
-------------------------------------------- ----------- -----------
Operating activities 1,244 11,792
Investing activities 4,058 (8,939)
Financing activities 5,664
-------------------------------------------- ----------- -----------
Net cash (used in) discontinued operations 5,302 8,517
-------------------------------------------- ----------- -----------
10. Earnings per share
Basic earnings per share are calculated by dividing the profit
attributable to equity holders of the company by the weighted
average number of ordinary shares in issue during the year.
Earnings / (loss) per share
Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
------------------------------------------------ ----------- -----------
Basic and diluted earnings / (loss)
Total (continuing and discontinued operations) (46 143) (133,760)
Discontinued operations
- (profit) / loss after tax 25,307 (72,158)
- Non-controlling interest - -
Continuing operations (71,450) (61,602)
------------------------------------------------ ----------- -----------
Basic weighted average number of shares 18,265,890 17,795,120
Basic earnings / (loss) per share
Total (continuing and discontinued operations) (2.52) (7.51)
Less discontinued profit from operations 1.39 (4.05)
Continuing operations (3.91) (3.46)
------------------------------------------------ ----------- -----------
During the prior year contingently issuable warrants of
EUR6,786,000 were granted (note 30). The conditions relating to
these warrants have not been satisfied at the year end and thus
there is no impact on diluted earnings per share.
11. Property, plant and equipment
Plant, Development
machinery Fixtures, property
Land & & motor fittings & held for
buildings vehicles equipment investment Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
--------------- ---------- ----------- ---------
Cost
Balance at 1
January 2008 7,783 32,438 6,354 30,172 76,747
Additions 3,696 24,623 4,223 10,804 43,346
Disposals (3,023) (4,591) (699) (2,606) (10,919)
Transfers - (2,422) 2,488 - 66
Re-classified
to
non-current
assets held
for sale (4,549) (8,389) (859) (20,205) (34,002)
Net exchange
differences (358) (253) (982) (379) (1,972)
--------------- ---------- ----------- ----------- ------------ ---------
Balance at 31
December
2008 3,549 41,406 10,525 17,786 73,266
--------------- ---------- ----------- ----------- ------------ ---------
Balance at 1
January 2009 3,549 41,406 10,525 17,786 73,266
Additions 152 1 330 2,758 29 4,269
Disposals (2) (32,564) (212) (3,895) (36,673)
Transfers to
investment
property
(note 12) - - - (13,698) (13,698)
Transfers - (895) 903 - 8
Net exchange
differences (198) (222) (515) (222) (1,157)
--------------- ---------- ----------- ----------- ------------ ---------
Balance at 31
December
2009 3,501 9 055 13,459 - 26,015
--------------- ---------- ----------- ----------- ------------ ---------
The majority of other transfers in 2009 relate to an amount of
development property transferred to investment property
Plant, Fixtures, Development
machinery fittings property
Land & & motor & held for
buildings vehicles equipment investment Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
--------------- ----------- ----------- ---------- ------------ ---------
Accumulated
depreciation
Balance at 1
January 2008 (214) (6 295) 163 (29) (6,375)
Depreciation (651) (9 870) (2 026) (10) (12,557)
Impairment - (19,901) - (5,637) (25,538)
Disposals 113 2,602 501 - 3,216
Re-classified
to
non-current
assets held
for sale 584 5,868 310 - 6,762
Net exchange
differences 13 132 322 199 666
--------------- ----------- ----------- ---------- ------------ ---------
Balance at 31
December
2008 (155) (27,464) (730) (5,477) (33,826)
--------------- ----------- ----------- ---------- ------------ ---------
Balance at 1
January 2009 (155) (27,464) (730) (5,477) (33,826)
Depreciation (123) (4,646) (2,052) - (6,821)
Impairment - - - (18) (18)
Disposals 2 27,948 82 2,551 30,583
Transfers to
investment
property
(note 12) - - - 2,806 2,806
Net exchange
differences 9 74 198 138 419
--------------- ----------- ----------- ---------- ------------ ---------
Balance at 31
December
2009 (267) (4,088) (2,502) - (6,857)
--------------- ----------- ----------- ---------- ------------ ---------
Net book value
At 31 December 2008 3,394 13,942 9,795 12,309 39,440
--------------------- ------ ------- ------- ------- -------
At 31 December 2009 3,234 4,967 10,957 - 19,158
--------------------- ------ ------- ------- ------- -------
In March 2009 it was confirmed by the Municipality of Sofia that
Novera's concession agreements were to be terminated with immediate
effect. This resulted in the property, plant and equipment of the
Novera group being valued at fair value less cost to sell and
therefore resulted in an impairment of EUR17,137,000 in the 2008
financial year (note 4). Due to these events the value of the
plant, machinery and motor vehicles held by Novera EAD was expected
to be realised through their sale within 2009 and therefore in 2008
were reclassified to current assets.
In 2008 the net book value of property, plant and equipment is
split between current and non-current assets as follows:
Plant, Development
machinery Fixtures, property
Land & & motor fittings held for
buildings vehicles & equipment investment Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
------------- ----------- ----------- ------------- ------------ --------
Current - 7,069 - - 7,069
Non-current 3,394 6,873 9,795 12,309 32,371
Total net
book value
at 31
December
2008 3,394 13,942 9,795 12,309 39,440
------------- ----------- ----------- ------------- ------------ --------
In 2009 the net book value of property, plant and equipment is
classified as non-current.
The Group's bank borrowings are secured by property, plant and
equipment of EUR19,033,000 (2008: EUR26,917,000).
The net carrying amount of property, plant and equipment
includes the following amounts in respect of assets held under
finance lease (note 27):
2009 2008
EUR'000 EUR'000
------------------------------------- -------- --------
Plant, machinery and motor vehicles 1,444 14,894
Fixtures, fittings and equipment 1,467 215
------------------------------------- -------- --------
2,911 15,109
------------------------------------- -------- --------
No companies in the Group have entered into contractual
commitments to purchase any material items of property, plant or
equipment in the current or prior year.
The Group has an accounting policy to capitalise finance costs
relating to development property. The amount capitalised during
2008 was EUR1,646 000. Refer to note 12 for the amount capitalised
during 2009.
12. Investment property
2009 2008
EUR'000 EUR'000
--------------------------------------------------------- -------- ---------
Beginning of year 11,957 35,558
Additions 268 25
Disposals (5,750) (22,398)
Transfer from property, plant and equipment (note
11) 10,893 -
Reclassified to non-current assets held for sale - (52)
Net (loss)/ gain from fair value adjustments in
investment property (7,610) (1,176)
--------------------------------------------------------- -------- ---------
End of year 9,758 11,957
--------------------------------------------------------- -------- ---------
Investment property under construction with a value of
EUR10,893,000 was transferred from property, plant and equipment to
investment property following the adoption of the amendments to IAS
40 Investment Property resulting from Improvements to IFRSs issued
in May 2008 (see note 1.4.1)
The Group's investment property was revalued at 31 December 2009
and 2008 by independent professionally qualified valuers CB Richard
Ellis. Valuations were prepared in accordance with RICS Appraisal
and Valuation Standards. Valuations of all investment property were
prepared on the market value basis. This is defined in the
valuation report as the estimated amount for which a property
should exchange on the date of the valuation between a willing
buyer and seller in an arm's length transaction after proper
marketing wherein the parties had each acted knowledgeably,
prudently and without compulsion.
A number of different assumptions have been used by the valuers
in obtaining a market value for the various properties. These
relate to the lettable area, refurbishment period and costs, market
rents, yield profile and purchasers costs.
As disclosed in note 22 to the consolidated financial
statements, the Group is in default of its obligation to DSK bank
and Alpha bank. As a result, at the end of 2009 the construction
works of the investment properties ceased. The Directors are in
discussions with the banks for the restructuring of the debt and
providing additional financing. The Directors believe that the
Group will complete the construction projects if an agreement with
the banks is reached and additional financing is secured. The
discussions continue and the result of the negotiations with the
banks represents a risk for the future of the projects and may
cause a material adjustment to the carrying amount of the
investment property within the next financial year.
Further, the Group holds 33.5% of the 1,977,131 sq. m. land plot
for development in the large-scale Borovets mountain resort through
the Borovets BV joint venture. The construction work has not been
started, except for the parking lot. The fair value of the land
plot was determined by the independent valuer and has been approved
by the Group's Board of directors. Due to the inherent uncertainty
in valuation especially in the current market conditions the fair
value may differ significantly from the values that would have been
used in the presence of an active property market and these
differences could be material.
During the year EUR7,000 (2008: EUR94,000) was recognised in
income statement in relation to rental income from the investment
properties. Direct operating expenses, including repairs and
maintenance, arising from investment property that generated rental
income amounted to EURnil (2008: EUR94,000). Direct operating
expenses, including repairs and maintenance, arising from
investment property that did not generate rental income during the
year amounted to EUR18,000 (2008: EUR73,000).
During 2008 the majority of the rental income was earned from
Rodacar AD. However, in 2008 Rodacar AD terminated a number of
tenancy agreements. This was due to management entering into
negotiations with potential buyers for the company. In 2009 the
investment property held by Rodacar AD was sold and did not earn
rental income during the year.
There are no contractual commitments entered into to construct
or develop any of the investment property held by the Group.
The Group has an accounting policy to capitalise finance costs
relating to investment property. The amount capitalised during in
2009 was EUR1 631,000 (2008: EUR1,646,000).
13. Goodwill and trademarks
A significant amount of the total intangibles assets of the
Group are made up of goodwill and trademarks and are therefore
separately disclosed on the consolidated statement of financial
position.
Goodwill Trademarks Total
EUR'000 EUR'000 EUR'000
------------------------------------------- --------- ----------- ---------
Cost
Balance at 1 January 2008 107,107 42,796 149,903
Additions - externally acquired - 41 41
Remeasurement-put option (6,424) - (6,424)
Remeasurement-earn out 330 - 330
Disposals - (4) (4)
Decrease in ownership percentage in TMD (2,772) - (2,772)
Avto Union reclassified to non-current
assets held for sale (6,054) - (6,054)
Net exchange differences (4,777) (4,024) (8,802)
------------------------------------------- --------- ----------- ---------
Balance at 31 December 2008 (restated) 87,410 38,809 126,218
------------------------------------------- --------- ----------- ---------
Balance at 1 January 2009 (restated) 87,410 38,809 126,218
Liquidation of Novera EAD (12,996) - (12,996)
Disposals (2,494) - (2,494)
Deemed disposals due to flip-up (6,785) - (6,785)
Net exchange differences (1,113) (2,226) (3,339)
------------------------------------------- --------- ----------- ---------
Balance at 31 December 2009 64,022 36,583 100,605
------------------------------------------- --------- ----------- ---------
Accumulated amortisation and impairment
At 1 January 2008 (174) (2) (176)
Amortisation charge for the year - (10) (10)
Impairment losses (19,409) - (19,409)
Disposals - 3 3
Reclassified to non-current assets held for
sale 6,054 - 6,054
----------------------------------------------- --------- ------- ---------
At 31 December 2008 (13,529) (9) (13,538)
----------------------------------------------- --------- ------- ---------
At 1 January 2009 (13,529) (9) (13,538)
Amortisation charge for the year - (11) (11)
Impairment losses (25,000) - (25,000)
Disposals 12,995 - 12,995
Reclassified to non-current assets held for
sale - - -
----------------------------------------------- --------- ------- ---------
Balance at 31 December 2009 (25,534) (20) (25,554)
----------------------------------------------- --------- ------- ---------
Carrying value
At 31 December 2008 (restated) 73,881 38,800 112,680
----------------------------------------------- --------- ------- ---------
At 31 December 2009 38,488 36,563 75,051
----------------------------------------------- --------- ------- ---------
In 2006, the Group acquired 75% of TechnomarketDomo N.V.
("TMD"), which at the time owned 100% of K&K Electronics EAD
(KKE). In 2007, TMD acquired 75% of Domo Retail SA ("Domo").
The total consideration payable for Domo was estimated to be
EUR97,901 000 as it was contingent on two elements of deferred
consideration - (i) an earn-out liability of EUR13,432,000 to the
vendor and (ii) a financial liability of EUR23,658,000 (with a
carrying value of EUR20,384 000) to the vendors to acquire the
remaining 25% of Domo Retail SA. As part of the Domo transaction,
TMD had a call option and the remaining 25% shareholders had a put
option on the remaining 25% shares of Domo Retail SA. The value of
this option as at 31 December 2008 was EUR20,384 000.
In 2008 that the Group settled its liability of EUR7,496,500 to
the non-controlling shareholder in TechnomarketDomo N.V. by
transferring of 955,000 of the Groups shares in TMD at 31 December
2008. The 2008 comparative financial information has been restated
(note 1.5) to reflect this transaction. This resulted in a gain on
partial disposal, 3.82%, of the Groups investment in TMD. As a
consequence, the Groups percentage ownership of TMD at 31 Dec 2008
decreased from 75% to 71.18%. In accounting for this deemed
disposal, goodwill of EUR2,772,000 was derecognised in 2008.
At 31 March 2009, the non-controlling shareholders in Domo
Retail SA exercised their put option and exchanged their shares in
Domo for 3,629 310 newly issued shares of TMD. Additionally, as
part of the Agreement, the group transferred 92,500 of their shares
in TMD to these same non-controlling shareholders of Domo Retail SA
as consideration for executing the Agreement. As a consequence of
the transfer the Groups' percentage ownership in TMD decreased by
9.35% in 2009, from 71.18% to 61.83%. In accounting for this deemed
disposal goodwill to the value of EUR6,784,502 was derecognised in
2009.
In 2009 the impairment losses in goodwill are a direct result of
the annual impairment exercise carried out by management.
In 2008 the impairment losses in goodwill relate to investments
held in Novera AD (EUR12,995,000), Immofinance EAD (EUR360,000) and
Avto Union AD (EUR6,054,000). See details of impairment in note 4.
In 2008 the increase in goodwill is a result of an earn-out
liability of EUR13,762 000 being agreed. Also in 2008, the put
option liability was replaced by an agreement entitling the
non-controlling investors in Domo to shares in TMD. In accordance
with IFRS 3 the deferred consideration was remeasured, resulting in
a reduction of goodwill recorded on the purchase of Domo Retail SA
of EUR6,424,000.
Impairment review of goodwill
The goodwill of EUR64,022,000 at 31 December 2009 originates
from the electronic sector.The Group appointed an independent
valuation expert to determine the recoverable amount of the
electronic sector as a cash-generating unit (CGU) as at 31 December
2009. As a result of the independent valuation management has
decided to impair goodwill by EUR25 000,000. Refer to note 1.6
Critical accounting estimates and judgements.
Impairment review of trademarks
When Domo was acquired in 2007 the Domo brand, represented by
its trademark, was recognised as an intangible asset. The Group
appointed an independent valuation expert to value the brand at
this date. The fair value of Domo's brand was determined using the
valuation technique called 'Relief from Royalty Method'. Under this
method the Domo brand was estimated to have a value of
EUR46,000,000 and was regarded as having an indefinite useful life
as it was considered that there was no foreseeable limit to the
period over which the asset is expected to generate net cash
inflows. The independent valuation did not require any impairment
to the Domo brand. Refer to note 1.6 critical accounting estimates
and judgements.
Major assumptions behind valuation of the recoverable amount
The recoverable amount of the CGU was determined by applying
discounted cash flow valuation analysis to the five-year business
plans provided by management. A period of 5 years was chosen as
management believes this is the approximate amount of time needed
for the companies to achieve stable growth and normalised
profitability levels. The major assumptions used in the valuation
are as follows:
Romania % Bulgaria %
---------------------------------- ---------- ------------
Inflation Rate 2.8 - 4.3 2.1 - 3.1
Discount rate 15.03 14.25
Country growth rates 1 - 4.3 (2.6) - 3.7
Weighted Average Cost of capital 10.03% 14.25%
Electronic sector growth rate 2.5% 2.5%
The table below represent the split of goodwill and trademarks
by cash generating units (CGU):
2009 2008
----------------------------------- ------- --------
Trademark - Electronics CGU 36,563 38,800
Goodwill - Electronic CGU 38,488 71,387
Goodwill - Financial services CGU 2,493
----------------------------------- ------- --------
75,051 112,680
14. Other Intangible Assets
Software Concessions Other Intangibles Total
EUR'000 EUR'000 EUR'000 EUR'000
----------------------- --------- ------------ ------------------ --------
Cost
Balance at 1 January
2008 1,395 21,219 703 23,317
Additions - externally
acquired 544 92 2 638
Additions - internally
acquired - - 12 12
Disposals (43) - (73) (116)
Reclassified as
non-current assets
held for sale (373) - (573) (946)
Net exchange
differences (161) - - (161)
----------------------- --------- ------------ ------------------ --------
Balance at 31 December
2008 1,362 21,311 71 22,744
----------------------- --------- ------------ ------------------ --------
Balance at 1 January 2009 1,362 21,311 71 22,744
Additions - externally acquired - - 3 3
Additions - internally acquired - - (42) (42)
Disposals - (21,311) (21,311)
Net exchange differences 183 - - 183
--------------------------------- ------ --------- ----- ---------
Balance at 31 December 2009 1,545 - 32 1,577
--------------------------------- ------ --------- ----- ---------
Accumulated amortisation and impairment
At 1 January 2008 (171) (2,816) (3) (2,990)
Amortisation charge for the year (375) (3,600) (31) (4,006)
Impairment losses (271) (14,895) (558) (15,724)
Disposals 12 - - 12
Reclassified to non-current assets held
for sale 373 - 573 946
Net exchange differences 58 - - 58
---------------------------------------- ------ --------- ------ ---------
At 31 December 2008 (374) (21,311) (19) (21,704)
---------------------------------------- ------ --------- ------ ---------
At 1 January 2009 (374) (21,311) (19) (21,704)
Amortisation charge for the year (372) - (3) (375)
Disposals - 21,311 21,311
Net exchange differences 60 - - 60
---------------------------------------- ------ --------- ------ ---------
Balance at 31 December 2009 (686) - (22) (708)
---------------------------------------- ------ --------- ------ ---------
Net book value
At 31 December 2008 988 - 52 1,040
---------------------------------------- ------ --------- ------ ---------
At 31 December 2009 859 - 10 869
---------------------------------------- ------ --------- ------ ---------
During the prior year impairment losses were recognised on the
concessions, software and other intangibles. The significant
impairment of the concessions is the result of the withdrawal of
the Novera AD concessions at the beginning of March 2009. The
recoverable amount of the concessions is based on fair value less
costs to sell and is determined to have no value. These concessions
were fully impaired in 2008.
15. Subsidiaries
The Directors consider that to give full particulars of all
Group subsidiaries would lead to a statement of excessive length.
The following information relates to those subsidiary companies
whose results or financial position, in the opinion of the
Directors, principally affect the consolidated financial statements
of the Group as at the 31 December 2009:
Country of Proportion of effective ownership
Name incorporation interest at 31 December
2009 2008
Technomarket Domo
NV Netherlands 62%* 71%*
K & K Electronics
EOOD Bulgaria 62%* 71%*
DOMO Retail EOOD Bulgaria 62%* 71%*
K & K Electronics
Romania Romania 62%* 71%*
IBN Electronics
S.R.O Slovakia 40%** 46%**
Balkan Soft Sole
EOOD Bulgaria 62%* 71%*
K & K Services
EOOD Bulgaria 62%* 71%*
Domo Retail S.A. Romania 62% 71%
DOMO Distribution
Group SRL Romania 62% 71%
Castle Golf
Properties SRL Romania - 100%
Avto Union AD Bulgaria - 80%
Immofinance EAD Bulgaria 100% 100%
First Liquid
Private House
OOD Bulgaria 100% 100%
Atia Holiday EAD Bulgaria 100% 100%
Banya Holiday AD Bulgaria 67% 67%
Pelican Retail
EAD Bulgaria 100% 100%
Lexington EAD Bulgaria 100% 100%
Rodacar AD Bulgaria 100% 100%
Novera EAD Bulgaria *** 94%
Chistota-Sofia AD Bulgaria *** 94%
Ditz AD Bulgaria *** 94%
Wolf 96 OOD Bulgaria *** 94%
Waste Management
Services EAD Bulgaria *** 94%
The above significant investments in subsidiaries are not
directly held by the Company but via intermediate holding
companies. All subsidiary undertakings are included in the
consolidation.
* -In the current year it was identified that the debt 'push
down' liability owing to Lyra by Axis Retail NV was settled in
December 2008 by a transfer of 955,000 of the Group shares in TMD.
At 31 March 2009, the Domo non-controlling shareholders exercised
their put option and "flipped" their shares in Domo for 3,629,310
newly issued shares of TMD. Additionally, Axis Retail NV
transferred 92,500 of their shares in TMD to these same
non-controlling shareholders of Domo, as consideration for
executing the Agreement. These transactions resulted in deemed
disposals. The Groups' percentage ownership in TMD decreased from
71% to 62% (2008: from 75% to 71.18%) (note 13).
** -K & K Electronics EOOD have a 65% shareholding in IBN
Electronics S.R.O. which is thus a sub-subsidiary of Trans Balkan
Investments Limited (formerly known as Equest Investments Balkans
Limited).
Technomarket Domo BV is restricted from paying out dividends to
the holding company. This is due to loan agreements entered into
with various banking institutions.
*** -In July 2009 the Group lost control over Novera AD when it
entered into liquidation and has been disclosed as a discontinued
operation in the current year (note 9).
Refer to note 6 for a breakdown on gain / (loss) on disposal of
subsidiaries.
16. Investments in associates
The following entities meet the definition of an associate and
have been equity accounted in the consolidated financial
statements:
Country of Proportion of effective ownership
Name incorporation interest at 31 December
2009 2008
--------------------------------------- ----------------- -----------------
UNIQA Bulgaria AD Bulgaria - 37.7%
Forum Serdika Coop Bulgaria 20% 16%
Harwood BV Netherlands 23% 23%
Biz Air OOD Bulgaria 31% 38%
Boyana Residence
EOOD Bulgaria - 30%
Covalim S.A. Sf
Gheorghe Romania 21% 24%
Environ Bulgaria 15% 18%
------------------- ------------------- ----------------- -----------------
Uniqa Bulgaria AD
During 2007 the Group sold 41% of its shares in Uniqa Bulgaria
AD, leaving the Group with 38% of Uniqa Bulgaria AD.
On 2 June 2009 the Vitosha holding entered into a share purchase
agreement for sale of the remaining 38% share holding in Uniqua
Bulgaria AD in two tranches. 21% was sold on the 2 June 2009 for
EUR13,362,000 and the remaining 17% of the shares for EUR7,900,000
on 29th June 2009.
Forum Serdika
Serdika is a 26,300 sq. m. mixed office and retail scheme with
underground parking for 200 cars adjacent to the Vasil Levski
monument in the centre of Sofia. The development was being
undertaken jointly between the Group and Equest Balkan Properties
plc ("EBP") but was sold in 2009 for EUR1.9million to a hotel
operator and real estate developer, Terra Tours.
2009 2008
EUR'000 EUR'000
----------------------- --------- --------
Beginning of year 18,313 16,082
Additions in the year - 5,826
Disposals in the year (13 447) -
Fair value change (333) -
Share of (loss) (3,706) (3,595)
----------------------- --------- --------
End of year 827 18,313
Aggregated amounts relating to associates are as follows:
2009 2008
EUR'000 EUR'000
------------------------ --------- ----------
Total assets 51,103 143,582
Total liabilities (56,834) (126,789)
Revenues 84,064 152,560
Loss of the associates (17,076) (6,623)
There are no restrictions on dividend distributions for the
associates in the Group.
17. Investment in joint ventures
The Group's joint ventures are contractually arranged between
two parties which undertake an economic activity that is subject to
joint control. Joint control is the contractually agreed sharing
control over an economic activity.The strategic financial and
operating decisions relating to the activity require the unanimous
consent of the venturers.
The following entity meets the definition of a joint venture and
has been equity accounted in the consolidated financial
statements:
Country of Proportion of effective ownership
Name incorporation interest at 31 December
2009 2008
--------------------------------------- ----------------- -----------------
Borovets Invest BV Netherlands 50% 50%
Barrowbridge BV Netherlands 50% 50%
------------------- ------------------- ----------------- -----------------
The joint ventures are not directly held by the Company but via
intermediate holding companies.
2009 2008
EUR'000 EUR'000
Beginning of year 41,904 66,597
Additions in the year -
Dividends received -
Share of (loss)/ profit (6,323) (24,693)
End of year 35,581 41,904
Aggregated amounts relating to joint ventures are as
follows:
2009 2008
EUR'000 EUR'000
Non-current assets 109,275 128,247
Current assets 11,972 21,676
Non-current liabilities (2,307) (18,251)
Current liabilities (5,002) (4,273)
Revenues 7,080 7,861
(Loss) (14,944) (74,836)
During the current year, equity accounted losses which exceeded
the initial investment in the joint venture were obtained. This
unrecognised cumulative share of losses amounted to EUR1,376,000
(2008: EUR227,000).
Loans from the holding company to joint ventures consist of
EUR4,360,000 (2008: EUR5,662,000) and this entire amount is
classified as non-current. This loans are unsecured and bear fixed
interest.
There were no capital commitments entered into by any of the
joint ventures as at 31 December 2009. Technomobile DOO has
contingent liabilities relating to issued guarantees of EUR183,000
(2008: EUR264 000). There are no other contingent assets or
liabilities relating to joint ventures as at 31 December 2009.
There are no restrictions on dividend distributions for the
joint ventures in the Group.
18. Inventories
2009 2008
EUR'000 EUR'000
Raw materials and consumables 179 160
Finished goods and goods for resale 127,212 158,744
Development property held for resale 46,779 29,407
Provision for slow-moving and obsolete goods (27,026) (2,496)
147,144 185,815
The amount of inventories recognised as an expense and reported
in cost of sales in the consolidated income statement is
EUR469,871,000 (2008: EUR518,408,000)
The amount of inventories carried at net realizable value is
EUR19,800 000 ( 2008: EUR29,407,000)
The amount of write-down of inventories recognised as an expense
and reported in the income statement is EUR25,821,000 (2008:
EUR1,983,000). Of this amount, EUR25,839,000 (2008: EUR1,500,000)
relates to impairment (note 4).
The carrying value of inventories pledged as security for bank
loans and borrowings is EUR144,732,000 (2008: EUR157,100,000).
The development property is held by Immofinance EAD. These
properties are currently being marketed for sale, but due to the
nature of the inventory, the amount may be recovered after more
than 12 months after year end.
19. Trade and other receivables
Current portion
2009 2008
Trade receivables EUR'000 EUR'000
Trade receivables 22,881 25,699
Less: provision for impairment of trade receivables (477) (1,371)
Trade receivables - net 22,404 24,328
Loans and receivables due from related parties 15,877 18,231
Deposits paid to suppliers 455 782
Other receivables 8,805 18,138
Prepayments 4,752 8,895
Less: provision for impairment (6,141)
Trade and other receivables 46,152 70,374
Non - Current Portion
Other receivables
2009 2008
EUR'000 EUR'000
Loans and receivables due from related parties 20,326 31,182
Restricted cash - 1,306
Deposits paid to suppliers 43
Interest receivables 2,181 1,942
Other receivables 3,655 98
Less: provision for impairment (11,366) (7,500)
Non-current other receivables 14,839 27,028
The ageing analysis of trade and other receivables is as
follows:
2009 2008
EUR'000 EUR'000
Neither past due nor impaired 24,424 68,976
Less than 60 days 5,361 7,804
61 - 120 days 1,515 2,359
121 days and older 17,776 10,649
Individually impaired 11,915 7,614
60,991 97,402
Movements on the Group allowance for impairment of trade and
other receivables are as follows:
2009 2008
EUR'000 EUR'000
Beginning of year (8,871) (105)
Provided during the year (736) (403)
Receivable written off during the year as uncollectable (13,738) (8,578)
Released provision 4,283
Unused amounts reversed - 39
Reclassified to non-current assets held for sale - 176
Reclassified to disposed off 1,078 --
End of year (17,984) (8,871)
The Group believes that the unimpaired amounts that are past due
date by more than 30 days are still collectible based on historic
payment behaviour.
Maturity analysis for trade and other receivables:
This schedule represents the Group's remaining contractual
liability for its trade and other payments with agreed repayment
periods. The tables have been drawn up based on undiscounted cash
flows of trade and other payables based on the earliest date on
which the Group can be required to pay. The tables include both
interest and principal cash flows.
2008 Due within Due between Due beyond
1 year 1 and 5 years 5 years Total
EUR'000 EUR'000 EUR'000 EUR'000
Trade receivables 24,328 - - 24,328
Loans and receivables due
from related parties 18,231 25,197 1,569 44,997
Deposits paid to suppliers 782 - - 782
Restricted cash - 1,306 - 1,306
Other receivables 18,138 115 - 18,253
Prepayments 8,895 - - 8,895
Total 70,374 26,618 1,569 98,561
2009 Due within Due between Due beyond
1 year 1 and 5 years 5 years Total
EUR'000 EUR'000 EUR'000 EUR'000
Trade receivables 22,404 - - 22,404
Loans and receivables due
from related parties 15,764 13,617 - 29,381
Deposits paid to suppliers 455 43 - 498
Restricted cash - - - -
Other receivables 5,819 - 4,728 10,547
Prepayments 1,710 - - 1,710
Total 46,152 13,660 4,728 64,540
The majority of trade and other receivables are non-interest
bearing and are generally on 30 to 90 day terms. The carrying
amount of current trade and other receivables approximates fair
value because they are short term. The carrying amount of the
non-current other receivables approximates their fair value,
because they bear interest approximately the market interest
rates.
The Group has trade receivables of EUR35,980,000 pledged as
security over its assets.
Significant Loans and receivables due from associates
As at 31 December 2009 the Group has three loan agreements for
loans granted to Harwood with the following terms and
conditions:
- a loan with a principal of EUR6,505,000 (2008: EUR6,505,000)
at an interest rate of 10% which is repayable in December 2012
which has been utilised in full as at 31 December 2009
- a loan with a principal of EUR1,500,000 (2008: EURnil) at an
interest rate of 6% which is repayable in March 2014 which has been
utilised in full as at 31 December 2009
- a loan with a principal of EUR4,000,000 (2008: EUR4,000,000)
at an interest rate of 0% which is repayable in May 2012 out of
which an amount of EUR3,340,000 was utilised as at 31 December
2009. The loan has been amortised using an effective interest rate
of 7.75%.
Interest accrued on these loans as at 31 December 2009 amounts
to EUR1 526,000.
Also, as at 31 December 2009 the Group has recognised an
impairment of 50% on both principal and interest, amounting to
EUR6,436,000.
Significant Loans and receivables due from joint ventures
As at 31 December 2009 the Group has two loan agreements for
loans granted to Barrowbridge with the following terms and
conditions:
- a loan with a principal of EUR750,000 (2008: EUR750,000) at an
interest rate of 9% which is repayable in December 2012 which has
been utilised in full as at 31 December 2009
- a loan with a principal of EUR500,000 (2008:0) at an interest
rate of 7% which is repayable in December 2013 which has been
utilised in full as oat31 December 2009
Interest accrued on these loans as at 31 December 2009 is
amounting to EUR220,000.
Also, as at 31 December 2009 the Group recognised an impairment
of 50% on both principal and interest, amounting to EUR735,000.
Loans and receivables balance include a loan to Borovets with a
principal of EUR7,072,189 (2008: EUR15,000,000) at an interest rate
of 5.5% which is repayable in December 2012.
As at 31 December 2008 the loan was impaired by 50% and had a
carrying amount of EUR7,500,000. Interest accrued as at 31 December
2009 amounted to EUR1,473,000.
In 2009 an amount of EUR7,739,000 principal and EUR825,000
interest was repaid which resulted in an allowance for impairment
of EUR4,282,000 recognized in 2008 , which reintegrated in 2009 .
The loan as at 31 December 2009 includes EUR7,072,000 principal and
EUR836,000 interest.
The carrying amount of the loan as at 31 December 2009 includes
an allowance for impairment amounting to EUR3,955,000, ie the loan
is impaired by 50%.
Significant loans and receivables due from associates and joint
ventures in 2009 have been impaired by 50% (2008: nil) as the
performance of these companies may be undermined in the short term
as a result of adverse market conditions.
Other
At Immofinance group loan receivables and advances to suppliers
of EUR5 496,000 (2008: nil) have been considered as uncollectable
and impaired during 2009.
Other receivables balance include a loan to the Uniqa Group.
This loan has a principal of EUR3,000,000 (2008: EUR3,000,000)
and bears interest at a rate of SOFIBOR + 1% repayable on 16
November 2016. In April 2010 the loan was settled in full.
See note 23 Financial instruments - Risk management for
disclosure of the concentration of credit risk.
20. Cash and cash equivalents
Cash and cash equivalents comprise:
2009 2008
EUR'000 EUR'000
Cash available on demand 14,666 9,778
Short-term deposits - 509
Restricted cash (guarantees) 52 775
Cash equivalents 1,360 215
16,078 11,277
Cash and cash equivalents held for sale 7 1,666
-------
Cash and cash equivalents 16,085 12,943
-------
For the purpose of the consolidated cash flow statement, cash
and cash equivalents and bank overdrafts include the following:
2009 2008
EUR'000 EUR'000
Cash and cash equivalent 16,085 12,943
Less bank overdrafts (12,982) (17,450)
3,103 (4,507)
21. Trade and other payables
2008
2009 (restated)
EUR'000 EUR'000
Trade payables 90,197 103,517
Trade payables with related parties 3,247 4,064
Refundable deposits 1,108 1,404
Employees and social security 4,793 5 827
Deferred income, accruals and other payables 8,976 12,056
Other - 51
Other tax and social security taxes 5 134
Deferred acquisition consideration - 23,975
Current trade and other payables 108,326 151,028
All trade and other payables are carried at amortised cost in
the consolidated statement of financial position. Interest expense
is therefore calculated using the effective interest rate
method.
Notwithstanding this the book value of current trade payables
approximates fair value. The carrying value of non current trade
payables approximates their fair value because they bear interest
rate approximate to the market interest rates.
As at 31 December 2007, TMD had recorded a financial liability
of EUR24 250,000 at amortised cost. This comprised the present
value of the redemption amount of the option it entered into
through the purchase agreement dated 7 July 2007 for the purchase
of Domo Retail SA and its subsidiaries on 28 September 2007 of
EUR23,658,000 and the interest accrued of EUR592 000 up until the
31 December 2007. In 2008 the carrying value of this liability was
EUR20,384,000 at amortised cost, comprised of the present value of
the redemption amount of the option. As at the 31 December 2008,
the liability was reclassified as a current liability. In 31 March
2009 the 25% remaining interest in Domo Retail S.A. was acquired by
TMD N.V. The exchange was finalized by converting the 25% of shares
held by the non-controlling in Domo Retail S.A. into 13% of shares
of TMD N.V. The conversion was completed in accordance with the
settlement and flip-up agreement of 19 November 2009 by means of
contribution in kind.
This deferred acquisition consideration further includes, as at
31 December 2008 a contingent earn out liability to the vendors
which was based on Domo RR achieving certain revenue and
profitability targets. The discounted value of this liability as at
31 December 2009 is EURnil (2008:EUR3,592,000). The profitability
targets were met and thus payments made to this contingent
liability over 2009 were EUR3,592,000 (2008: EUR11,270,000).
The working capital facilities in the Group not utilized at 31
December 2009 amount to EUR14,841,000.
Maturity analysis for trade and other payables
2009 Due within Due between Due beyond
1 year 1 and 5 years 5 years Total
EUR'000 EUR'000 EUR'000 EUR'000
Trade payables 90,197 - - 90,197
Trade payables with related
parties 3,247 - - 3,247
Refundable deposits 1,108 - - 1,108
Employees and social security 4,793 4,793
Deferred income, accruals and
other payables Other tax and 8,976 344 - 9,320
social security taxes 5 - - 5
108,326 344 - 108,670
(Restated) (Restated)
2008 Due within Due between Due beyond
1 year 1 and 5 years 5 years Total
EUR'000 EUR'000 EUR'000 EUR'000
Trade payables 103,517 - - 103,517
Trade payables with related
parties 4,064 - - 4,064
Refundable deposits 1,404 - - 1,404
Employees and social
security 5,827 5,827
Deferred income, accruals
and other payables 12,056 - - 12,056
Interest payable 51 - - 51
Other tax and social
security taxes 134 - - 134
Deferred acquisition
consideration 23,975 - - 23,975
151,028 - - 151,028
2009 2008
EUR'000 EUR'000
Less than 60 days 82,383 87,670
61 - 120 days 3,492 15,794
121 days and older 4,322 53
90,197 103,517
22. Loans and borrowings
This note provides information about the contractual terms of
the Group's interest-bearing loans and borrowings, which are
measured at amortised cost.
2009 2008
EUR'000 EUR'000
Nominal
interest Year of Carrying Carrying
Subsidiary Creditor Currency rate maturity amount amount
Non-Current
TechnomarketDomo Euribor +
N.V. RZB EUR 4% 2014 26,558 -
Euribor +
KKE RZB EUR 3.5% 2014 9,005 16,256
1m Euribor
Immofinance EAD Alpha bank EUR + 2% 2013 - 20,010
3m Euribor
Banya Holiday AD DSK bank EUR + 2.8% 2013 - 1,386
Related party
loans Note 32 EUR 15,142 13,505
Finance lease creditor (note 27) EUR, BGN 1,406 2,035
------------
52,111 53,192
Current
3m Euribor
Immofinance EAD Alpha bank EUR + 5% 2013 29,838 -
-
TechnomarketDomo Euribor +
N.V. RZB EUR 4% 2010 19,621 60,959
Euribor +
KKE RZB EUR 3.5% 2014 1,001 3,422
1m Euribor
Immofinance EAD Alpha bank EUR + 2% 2013 - 4,442
3m Euribor
Banya Holiday AD DSK bank EUR + 2.8% 2013 7,353 5,480
Investkredit
Novera AD bank EUR 1.75%-2.75% 2014 - 12,412
Accession
Easter
Europe
Novera AD Capital AB EUR 7% 2013 - 21,816
Related party
loans Note 32 EUR 8,600 15,000
Finance lease creditor (note 27) EUR, BGN 910 10,421
Overdrafts EUR, RON 12,982 17,450
80,305 151,402
On 16 July 2009 TMD entered into indicative term sheet for the
restructuring of its loan facilities with RZB following an EUR20
million debt repayment in July 2009 and provision shareholder
commitment back by bank guarantee for additional EUR20 million
repayment by 31 December 2009. The term sheet waived the covenants
for 2008 and 2009 under the loan facility.
On 17 December 2009 TMD renewed its agreement with RZB. The new
agreement of EUR65 million includes changes in interest conditions
and loan covenants compared to the prior loan agreements. The loan
covenants were waived until 31 December 2010. The loan matures in
31 December 2014. TMD exposure as at 31 December 2009 amounted to
EUR 46 million. TMD reduced its exposure to RZB by EUR 20 million,
which was paid in December 2009 (EUR3 million) and 6 January 2010
(EUR17 million).
KKE has received a loan from RZB with an original principal
amount of EUR25 million. KKE exposure as at 31 December 2009
amounted to EUR10 million. The loan matures on 31 December
2014.
TBIL received a loan from Rila Samokov with a repayment date at
31 July 2010.The maturity date has since been extended until 31
December 2011.
The following breaches occurred during the 2009:
In April 2009 Banya Holiday AD was in default of its obligation
to DSK Bank AD and the total commitment may become immediately
payable on notice from the bank. The long term loan has been
classified as current. Banya Holiday AD is required to pay penalty
interest at a rate of 3m Euribor plus a spread of 9.8%.
Management is actively involved with DSK Bank to renegotiate the
repayment of the principal to start in 2012 and the repayment of
the interest, in 2011. The discussions continue.
In November 2009 Immofinance EAD was in default of its
obligation to Alpha Bank and the total commitment may become
immediately payable on notice from the bank. The long term loan has
been classified as current. Immofinance EAD is required to pay
penalty interest at a rate of 3m Euribor plus a spread of 7.5%.
Management is actively involved in discussions with Alpha Bank.
The carrying value of the short term loans and borrowings
approximates the fair value of these amounts. The carrying value of
the long term loans and borrowings approximates their fair value,
because they bear an interest rate approximately equivalent to the
market interest rates.
The security held by the lenders of secured bank loans
comprises:
-- The pledge of a going concern of K&K Electronics EOOD,
including pledge of shares, cash and cash equivalents, property
plant and equipment, trademarks and inventories
-- The pledge of a going concern of TMD
-- The pledge of the shares of Axis NV in TMD
-- The pledge of Immofinance EAD work in progress (Sozopolis
Project)
-- The pledge of Immofinance EAD receivables
-- The pledge of the Banya land on which the project has been
developed
-- The pledge of two flats owned by Immofinance EAD
Finance lease payables are secured over the assets they relate
to. See the property, plant and equipment note (note 11) for the
related amount of property, plant and equipments pledged as a
security.
The related party loans are unsecured and carry interest at a
fixed rate of between 1% and 17.5%.
The currency profile of the Group's loans and borrowings is as
follows:
2009 2008
EUR'000 EUR'000
Euro 127,552 143,370
RON 2,585
Bulgarian Lev 2,279 61,224
132,416 204,594
The Group uses credit lines (overdrafts) whose status as of the
year end is as follows: credit limit of EUR 22,719,293; unutilized
amounts at year end of EUR 9,731,518.
The Group's principal financial liabilities comprise
interest-bearing bank loans and borrowings, finance
leases and trade payables. The main purpose of these
financial instruments is to raise finance for the
Group's operations. The Group has various financial
assets such as trade receivables and cash and cash
equivalents, which arise directly from its operations.
The Group has exposure to the following risks from
its use of financial instruments:
-- credit risk
-- liquidity risk
-- market risk
This note presents information about the Group's exposure
to each of the above risks, the Group's objectives,
policies and processes for measuring and managing
risk, and the Group's management of capital. Further
quantitative disclosures are included throughout these
consolidated financial statements.
The Group's principal financial liabilities comprise
interest-bearing bank loans and borrowings, finance
leases and trade payables. The Group has various financial
assets such as trade receivables and cash equivalents,
which arise directly from its operations.
Credit risk
Credit risk is the risk of financial loss to the Group
if a customer or counterparty to a financial instrument
fails to meet its contractual obligations, and arises
principally from the Group's receivables from customers
and related parties.
The Group has policies in place to ensure that sales
of products and rendering of services are made to
customers with an appropriate credit history. The
carrying amount of accounts receivable, net of the
provision for impairment, represents the maximum trading
amount exposed to credit risk. Although the collection
of receivables could be influenced by economic factors,
management believes that there is no significant risk
of loss to the Group beyond the provision for impairment
already recorded.
Debtors are followed and analyses based on past experience
and credit quality. With respect to credit risk arising
from the other financial assets of the Group, which
comprise cash and cash equivalents and other financial
assets, the Group's exposure to credit risk arises
from default of the counterparty, with a maximum exposure
equal to the carrying amount of these instruments.
The Group is also exposed to credit risk from a number
of related party receivables. The terms and repayment
conditions of these loan receivables are monitored
by management.
The carrying amount of financial assets represents
the maximum credit exposure.
The table below shows the credit limit and balance
of 5 major counterparties at the end of the reporting
period .
23. Financial instruments - Risk Management
Credit Carrying Credit Carrying
Counterparty Location limit amount limit amount
2009 2009 2008 2008
EUR'000 EUR'000 EUR'000 EUR'000
TMD top five customers Bulgaria 12,015 10,394 11,248
9,286
TMD top five customers Romania 6,127 5,705 5,891 5,690
Related party receivables - 11,126 - 35,294
Third party receivables - 5,654 - -
Liquidity risk - - - -
Liquidity risk is the risk that the Group will not
be able to meet its financial obligations as they
fall due. The Group's approach to managing liquidity
is to ensure, as far as possible, that it will always
have sufficient liquidity to meet its liabilities
when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage
to the Group's reputation. Due to the dynamic nature
of the underlying businesses, the Group aims to maintain
flexibility in funding by keeping committed credit
lines available. The company is in ongoing discussions
with the bank for financing its operating activities
and/or refinancing the existing loans. See maturity
analysis in trade and other payables (note 21). The
maturity analysis on the bases of the contracted undiscounted
payments is presented below.
Maturity analysis for loans and borrowings
This schedule represents the Group's remaining contractual
liability for its non-derivative financial liabilities
with agreed repayment periods. The tables have been
drawn up based on undiscounted cash flows of financial
liabilities based on the earliest date on which the
Group can be required to pay. The tables include both
interest and principal cash flows
Due
Due between Due
within 1 and 5 beyond
1 year years 5 years Total
2009 EUR'000 EUR'000 EUR'000 EUR'000
Bank loans 60,021 39,965 99,986
Related
party
loans
(note 32) 12,731 20,980 33 711
Finance
lease
agreements 988 1,522 2,510
Bank
overdrafts 13,019 13,019
86,759 62,467 149,226
2008
Bank loans 121,775 42,874 - 164,649
Related
party
loans
(note 32) 15,000 17,890 - 32,890
Finance
lease
agreements 12,118 2,247 8 14,373
Bank
overdrafts 17,450 17,450
166 343 63,011 8 229,362
Market risk
Market risk is the risk that changes in market prices,
such as foreign exchange and interest rates will affect
the Group's income or the value of its holdings of
financial instruments. The objective of market risk
management is to manage and control market risk exposures
within acceptable parameters, while optimising the
return.
Currency risk
The Group enters into transactions denominated in
foreign currencies related to its financing and its
activities. As a result of significant investment
operations in Romania, the Group's consolidated statement
of financial position can be affected significantly
by movements in the RON/EUR and RON/USD exchange rates.
The Group also has transactional currency exposures.
Such exposure arises from sales or purchases by its
operating units in Romania and Bulgaria in currencies
other than the functional unit's currency - RON or
BGN. The Group does not use special financial instruments
to hedge against this risk. However, most of the Group's
operations are located in Bulgaria and since BGN is
pegged to EUR at a fixed rate, the foreign currency
risk is considered to be low in this respect.
The carrying value of the foreign currency denominated
monetary assets and monetary liabilities at the end
of the reporting period are as follows:
Financial assets
2009 2008
EUR'000 EUR'000
Euro 48,091 43,502
Bulgarian Lev 19,745 61,400
Other currencies 8,735 -
76,571 104,902
Financial Liabilities
2009 2008
EUR'000 EUR'000
Euro 129,373 155,649
Bulgarian Lev 65,805 207,469
Other currencies 46,378 5
241,556 363,123
The following significant exchange rates were applied
during the year:
Euro Average Rate Spot Rate
2009 2008 2009 2008
BGN 0.511 0.511 0.511 0.511
RON 0.236 0.277 0.237 0.251
Foreign currency sensitivity analysis
The table below demonstrates the sensitivity to a
reasonably possible change in the RON and EUR exchange
rates, with all other variables held constant, of
the Group's profit after tax and Group's equity (due
to changes in the fair value of monetary assets and
liabilities.
2009 2008
EUR'000 EUR'000
10% increase in RON:EUR rate (1,341) (1,801)
10% decrease in RON:EUR rate 1,341 1,801
Interest rate risk
The Group's exposure to the risk of changes in market
interest rates relates primarily to the Group's long
term debt obligations with floating interest rates.
TMD entered into interest rate swap agreement, effective
in 2010 and onwards, to mitigate the interest rate
risk with respect to its long-term liabilities. Breakdown
of loans and interest rates is disclosed in note 22.
At year end the Group's interest bearing borrowings
amount to EUR132,416,000 (2008: EUR204,594,000). The
majority of these loans have a variable interest rate
based on a percentage above Euribor.
Interest rate sensitivity analysis
The following table demonstrates the sensitivity to
a reasonably possible change of 100 basis points in
the interest rate, with all other variables held constant,
of the Group's profit before tax and Group's equity
(through the impact on floating rate non-current borrowings).
EUR'000 EUR'000
Increase Decrease
2009 (356) 356
2008 (831) 831
Capital risk management
The Group's objectives when managing capital are to
safeguard the Group's ability to continue as a going
concern in order to provide return for shareholders
and benefits for other stakeholders and to maintain
an optimal capital structure to reduce the cost of
capital.
In order to maintain or adjust the capital structure,
the Group may adjust the amount of dividends paid
to shareholders, return capital to shareholders, issue
new shares or sell assets to reduce debt.
Consistent with others in the industry, the Group
monitors capital on the basis of the gearing ratio.
This ratio is calculated as net debt divided by the
total capital. Net debt is calculated as total borrowings
(including bank loans and loans from non-controlling
shareholders), and other long term loans as shown
in the consolidated statement of financial position,
less cash and cash equivalents. Total capital is calculated
as equity, as shown in the consolidated statement
of financial position, plus net debt.
Group capital risk
2009 2008
EUR'000 EUR'000
Loans and borrowings 132,416 204,594
less: cash and cash
equivalents (16,078) (11,277)
Net debt 116,338 193,317
Total equity 116,766 167,21
Total capital 233,104 360,536
Gearing ratio 50% 54%
Fair value of financial instruments
Fair value is the amount at which a financial instrument
may be exchanged or settled in an arm's length transaction
as best proof of its market value in an active market.
The management believe that the fair value of financial
instruments comprising cash items, trade and other
receivables, interest-bearing loans and borrowings,
trade and other payables does not differ significantly
from their current carrying amounts, especially when
they are short-term in nature or their interest rates
are changing in line with the change in the current
market conditions.
Below is set out a comparison by category of carrying
amounts and fair values of the Group's financial instruments.
31/12/2009 31/12/2008
Carrying amount Fair value Carrying amount Fair value
Financial assets
Cash and cash
equivalents 3 096 3 096 11,277 11,277
Trade and other
receivables at
amortised cost 60,493 60,493 96,620 96,620
63 589 63 589 107,897 107,897
Financial liabilities
at amortised cost
Interest bearing
loans and
borrowings:
- bank borrowings -
current portion
(Note 22) 57,814 57,814 108,531 108,531
- long-term bank
facilities (Note
22) 35,563 35,563 37,652 37,652
- overdrafts 12 982 12 982 17,450 17,450
- finance leases
(Note 27) 2,316 2,316 12,456 12,456
- loans from related
parties (Note 22) 23,742 23,742 28,505 28,505
Trade and other
payables 108,326 108,326 142,705 142,705
240,743 240,743 347,299 347,299
Related party loans
The terms and conditions of the related part loans
are discussed in note 32 Related party
transactions.
24. Provisions
2009 2008
Warranty Warranty and
and Other Pensions Total Other Pensions Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Beginning of
year 591 1,094 1,685 512 68 580
Charged to
profit or
loss 357 61 418 664 21 685
Additions - 18 18 - 991 991
Utilised in
year (538) - (538) (585) (65) (650)
Derecognised - (1,021) (1,021) - - -
Unwinding of
discount - (93) (93) - 79 79
End of year 410 59 469 591 1,094 1,685
Due within
one year or
less 311 59 370 418 1,015 1,433
Due after
more than
one year 99 - 99 173 79 252
Total
provisions 410 59 469 591 1,094 1,685
The Group has accrued provisions for pensions to its employees
based on the requirements as set forth by the Labour Code in
Bulgaria. The provisions are accrued to the extent that management
believe that the employees will continue to be the Group's
employees until the date of the retirement.
25. Deferred tax
Deferred tax is calculated in full on temporary differences
under the liability method using tax rates that are expected to
apply when the asset or liability is recovered or settled. The
movements in deferred tax assets and liabilities (prior to the
offsetting of balances within the same jurisdiction as permitted by
IAS12: Deferred tax) during the period are shown below.
2009 2008
EUR'000 EUR'000
--------
Balance at the beginning of year 7,291 10,338
Current year movements through the income statement:
Temporary differences on property, plant and equipment 34 (292)
Other temporary differences 105 (60)
Revaluation of investment property (699) (1,084)
Thin capitalisation 43 43
Impairment of inventory 11 (34)
Impairment of receivables 1 (28)
Disposals (79)
Current year movements taken to other comprehensive
income:
Available-for-sale securities (14) 14
Temporary differences on property, plant and equipment 16 -
Impairment of inventory 59 -
Temporary differences on intangible assets (481) (696)
Acquired through business combinations:
Temporary differences on property, plant and equipment - (61)
Other temporary differences - (849)
End of year 6,287 7,291
Deferred tax assets and liabilities for the year comprise
the following:
Deferred tax liabilities 2009 2008
EUR'000 EUR'000
--------
Temporary differences on property, plant and equipment 468 418
Temporary differences on intangible assets 5,843 6,324
Other temporary differences - 147
Revaluations 364 1,063
Available-for-sale assets - 14
--------
Total deferred tax liabilities 6,675 7,966
--------
Deferred tax assets
2009 2008
EUR'000 EUR'000
Thin Capitalisation - 43
Impairment of receivables 37 38
Impairment of inventory 41 111
Temporary differences on property, plant and equipment 317 322
Other temporary differences (7) 161
--------
Total deferred tax assets 388 675
--------
Deferred tax assets have been recognised in respect of all such
tax losses and other temporary differences giving rise to deferred
tax assets where the Directors believe it is probable that these
assets will be recovered.
Unrecognised tax assets on deductible temporary differences
which expire within the next 12 months amount to EUR13,000 (2008:
EUR64,000) and expiring over a period exceeding 12 months is
EUR1,743,000 (2008: EUR2 439,000). Unrecognised deferred tax assets
on unrecognised tax losses carried forward amount to EUR3,242,000
(2008: EUR43,000). Of these, EUR23,000 will expire within the next
12 months.
26. Assets and liabilities classified as held for sale
In 2008 the Group took a decision to dispose of its interest in
the Avto Union AD group. The Avto Union AD subsidiary within the
automotive sector was therefore presented as a held for sale
disposal group in the 31 December 2008 consolidated financial
statements. In April 2009 the Group entered into an agreement for
the sale of Avto Union AD Holding Limited for EUR7,200,000 and thus
all assets and liabilities were disposed of during the year.
The following major classes of assets and liabilities relating
to these operations have been classified as held for sale in the
consolidated statement of financial position at 31 December
2009.
Total Total
2009 2008
EUR'000 EUR'000
Assets classified as held
for sale
Property, plant and equipment - 27,240
Investment Property - 51
Other non-current assets - 504
Inventories - 11,677
Trade and other receivables - 2,421
Cash 7 1,666
Other current assets - 430
Total assets 7 43,989
Liabilities classified
as held for sale
Loans and borrowings - 21,420
Other non-current liabilities - 18
Trade and other payables 40 9,730
Loans and borrowings - 4,571
Other current liabilities 2 236
Total liabilities 42 35,975
During 2008 there were significant impairments recognised on the
assets relating to the Avto Union AD operation (note 4).
27. Obligations under finance leases
Finance leases
The Group leases a portion of its plant, machinery and motor
vehicles with a net carrying value of EUR1,444,000 (2008:
EUR14,894,000) and computer equipment with a net carrying value of
EUR1,467,000 (2008: EUR215,000). Such assets are generally
classified as finance leases as the rental period amounts to the
estimated useful economic life of the assets concerned and often
the Group has the right to purchase the assets outright at the end
of the minimum lease term by paying a nominal amount.
Future lease payments are due as follows:
Obligations
under finance
leases 2009 2008
Minimum lease Carrying Minimum lease Carrying
payment value payment value
EUR'000 EUR'000 EUR'000 EUR'000
Amounts
payable under
finance
leases:
Within one
year 1,056 910 12,118 10,421
In more than
one year and
not more than
five years 1,499 1,407 2,247 2,027
In more than
five years - - 8 8
2,555 2,317 14,373 12,456
Less: Future
finance
charges (239) (1) (1,917) -
Present value
of lease
obligations 2,316 2,316 12,456 12,456
Less amounts
due within
one year (910) (910) (10,421) (10,421)
Amounts due
after more
than one
year 1,406 1,406 2,035 2,035
28. Operating leases
Operating leases - lessee
The Group leases shops, offices and warehouses under
non-cancellable operating lease agreements. The majority of the
leases have varying terms, escalation clauses and renewal
rights.
The total future value of minimum lease payments is due as
follows:
2009 2008
EUR'000 EUR'000
Not later than one year 22 957 27,526
Later than one year and not later than five years 82,776 84,896
Later than five years 27,877 41,409
133 610 153,831
During the year an amount of EUR27,447,000 was recognised as an
expense in the profit and loss account in respect of operating
leases.
29. Share capital and reserves
Authorised
The authorised share capital of the Company is 50,000,000
Ordinary shares of no par value.
Issue share capital 2009 2008
Ordinary shares Ordinary shares
Number EUR'000 Number EUR'000
Beginning of year 18,265,890 253,846 17,324,350 242,145
Shares issued - - 941,540 11,701
End of year 18,265,890 253,846 18,265,890 253,846
All issued ordinary shares are fully paid up.
The following describes the nature and purpose of each reserve
within owners' equity:
Reserve Description and purpose
Share capital Amount subscribed for share capital
at nominal value.
Warrant reserve Amount of warrants granted at fair
value.
Available-for-sale (AFS) Gains/losses arising on financial
assets classified as available-for-sale.
Foreign exchange Gains/losses arising on retranslating
the net assets of overseas operations
into EUR
30. Share-based payment
Termination agreement and related warrant agreement
As described in note 32, the consideration for the Termination
Agreement of 17 June 2008 in respect of Equest Capital Management
Limited was the issue of 941,540 ordinary shares and warrants over
564,925 ordinary shares. The cost of the termination agreement
amounted to EUR18,487,000 which was based on the fair value of the
shares issued and warrants and is charged to the income statement.
The fair value of the shares issued is the market price of the
shares, and as at 17 June 2009, this amounted to EUR11,701,000.
The fair value of the warrants has been independently determined
at EUR6 786,000 using the Black-Scholes pricing model, based on a
share price of GBP9.40. The fair value of each warrant was
calculated as EUR12.01. The share price volatility was assumed to
be equal to 5% and the risk free rate of return was assumed to be
5.6%. The warrants were granted by the Company under a warrant
instrument and are exercisable for nil consideration at any time
after the expiry of 12 months from 1 January 2008 on the condition
that (i) the net asset value ("NAV") per Ordinary Share reported
immediately prior to the exercise of any Warrants is not less than
the audited NAV per Ordinary Share as at 31 December 2007, and (ii)
ECL is not in any material default at the date of exercise of such
Warrants under the Termination Agreement, the Services Agreement or
the Technical Support Agreement. In 2008 the cost amounted to
EUR6,786,000 was based on the fair value of the warrants and was
charged to the income statement. Based on the NAV at 31 December
2009, no warrants are currently exercisable.
Long Term Incentive Plan
On 5 November 2009 the Company and ECL agreed to terminate the
long term incentive plan(the "LTIP"). No payments have or will be
made under the LTIP in respect of the current financial year ending
31 December 2009 or in respect of future years. There is no impact
on the consolidated financial statements from cancelling of the
LTIP.
31. Disposal of subsidiary
In May 2009 the Group disposed of Avto Union AD Holding Limited
which carried out its automotive operations for EUR7,200,000 and
profit on disposal of EUR2,500,000 (note 9).
Consideration received:
2009 2008
EUR'000 EUR'000
Consideration received, satisfied in cash (note
6) 7,200 -
Cash and cash equivalents disposed of (1,142) -
Net cash inflow 6,058 -
In July 2009 Novera EAD went into liquidation which led to the
Group losing control over its infrastructure operations.
Analysis of the assets and liabilities over which control
was lost:
Total Total
2009 2008
EUR'000 EUR'000
------------- --------
Property, plant and equipment 12,255 -
Investment Property 20,256 -
Other non-current assets 196 -
Inventories 10,116 -
Trade and other receivables 4,101 -
Cash 1,306 -
Other current assets 461 -
Loans and borrowings (93,162) -
Other non-current liabilities (362) -
Trade and other payables (11,108) -
Share capital (17 300)
Minority interest (1 518)
Other current liabilities (2 692) -
------------- --------
Net assets and liabilities (77,451) -
------------- --------
32. Related party transactions
Balances and transactions between the parent company and its
subsidiaries, which are related parties of the parent company have
been eliminated on consolidation and are not disclosed in this
note. Details of transactions between the group and other related
parties are disclosed below.
Related parties with which the Group have had transactions
during the year include:
- Key management personnel;
- Associates;
- Joint ventures;
- Other related parties, including non-controlling shareholder
of subsidiaries and joint ventures, as well as shareholders of the
Group.
Trading transactions
Sale of goods, property and other assets and rendering
of services Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
Key management personnel - -
Associates 2,260 -
Joint ventures 926
Other related parties 14,327 23,871
17,513 23,871
Purchases of goods, property and other assets and
rendering of services Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
Key management personnel - -
Associates 4,058 103
Joint ventures - -
Other related parties 3,379 6,650
7,437 6,753
Certain loans were made to associates and joint ventures during
the year and the interest is described below. These related party
transactions include both those from continued and discontinued
operations.
Interest expense Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
Key management personnel - -
Associates - -
Joint ventures 507
Other related parties 3,494 192
4,001 192
Interest income Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
Key management personnel - -
Associates 989 1 173
Joint ventures 540 912
Other related parties 387 359
1 916 2,444
Amounts owed by related parties Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
Key management personnel - -
Associates 10,875 15,362
Joint ventures 4,844 9,076
Other related parties 11,348 17,475
27,067 41,913
Amounts above owed by related parties include interest
receivables of EUR2,333,714 (2008: EUR2,543,000), trade receivables
of EUR177,516 (2008: EUR232,000) and loan receivables of
EUR31,427,239 (2008: EUR34 413,000).
The Group has recognised an impairment loss of EUR7,908,000
(2008: nil) for impairment in respect of related party
receivables.
Amounts owed to related parties Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
Key management personnel - -
Associates 120 -
Joint ventures 7,707 -
Other related parties 19,162 32,815
26,989 32,815
Included in the above amounts owed to related parties are
interest payables of EUR1,400,000 (2008: EUR245,000). Trade
payables of EUR3,247 000 (2008: EUR4,065,000) and loan payables of
EUR22,342,000 (2008: EUR28 505,000). Loans payable include loan
from Rila Samokov 2004 AD and Loan from Lyra investment Holding
N.V. as disclosed further below.
Terms and conditions of transactions with related parties
Outstanding balances at the year-end are unsecured, interest
free (except for loans) and settlement occurs in cash. There have
been no guarantees provided or received for any related party
receivables or payables.
Related party loans are unsecured and bear interest at a rate of
between 0% and 10%. No guarantees have been given or received
during 2009 or 2008 regarding related party transactions. A loan of
EUR15,000,000 was repaid to Uniqa Real Estate AG within the current
year. The Loan of EUR15,101,000 (2008: EUR13,159,000) at carrying
amount payable to Lyra investment Holding N.V. carries interest at
1% per annum and is payable in 2014.
The loan to Rila amounts to EUR7,200,000 as at 31 December.2009.
It bears interest of 12% and was repayable on 31 July 2010. The
maturity date has been extended until 31 December 2011.
Related Party Transactions
Messrs. Karjalainen, Haataja and Krumov, formerly Executive
Directors of the Company, are the ultimate owners of Equest Capital
Management Limited (ECL). ECL and the Company's terminated the
agreement effective 17 June 2008 and entered into a technical
support agreement (the "Technical Support Agreement") and a
services agreement (the "Services Agreement"). Pursuant to Service
Agreement ECL agreed to procure that Messrs. Karjalainen, Haataja
and Krumov and other senior managers are made available to the
Company to present any new business opportunities they identify in
the target region (which includes Bulgaria, Romania, Albania,
Croatia, FYR Macedonia, Kosovo, Bosnia and Herzegovina, the
Republic of Serbia, Slovenia, the Republic of Montenegro, Turkey
and Ukraine) (the "Target Region") and which are within the remit
of Company's investment objective and strategy to the Company.
Pursuant to the Technical Support Agreement, ECL was obliged to
provide or procure the provision of back office technical support
and other services necessary for the Company's day to day
operations such as office premises in various locations, IT,
administrative and finance services.
Both Agreements were terminated effective 5 November 2009
pursuant to which, the Company had no obligations, whether past,
present or future to ECL in respect to incentive fees. As a
settlement ECL has received consideration comprising of an amounts
of EUR800,000 for services under Service Agreement and Technical
Support Agreement and an amount of EUR500,000 to cover all
remaining obligations by the Company to ECL and the other
parties.
In 2009 the Company has paid the amount of EUR600,000 as per the
provisions of the Settlement and Termination Agreement. The amounts
of EUR200,000 and EUR500,000 representing the retained amount are
subject to fulfilment of conditions under the agreement. These
amount will be withheld by the Company until the guarantee, loan or
other financial accommodation issued by the subsidiary of TBIL,
Immofinance EAD or its affiliates granted to or in respect of
Bellview Property Management, a whole owned subsidiary of ECL is
fully released and repaid to the Company.
SGRF Agreement
The Group through its wholly owned subsidiary Axis Retail N.V.
("Axis Retail"), owns 61.83% of the shares of TechnomarketDomo N.V.
("TMD"). The remaining shares are owned by: Lyra Investment Holding
NV (25.17%); Dominuse Management Ltd (12.74%) and Alexandru
Mnohoghitnei (0.26%).
On 16 July 2009, as part of the restructuring of loan agreements
(the "RZB Loan") between Axis Retail, TMD and its operating
subsidiaries, K & K Electronics EOOD and Domo Retail SA and
Raiffeisen Zentralbank Osterreich AG ("RZB"), Axis Retail was
required to repay RZB an amount of EUR20 million by 31 December
2009. To secure this repayment, a bank guarantee for EUR20 million
(the "Guarantee") was issued by Citibank, N.A. ("Citibank") in
favour of RZB. Pursuant to the terms of the Commercial Agreement
between SGRF and TBIL, SGRF provided credit support to TBIL (the
"SGRF Facility") to facilitate the issue of the Guarantee. As part
of the SGRF Facility, (i) SGRF made available to Citibank
collateral for any drawdown by RZB under the Guarantee, (ii) TBIL
indemnified SGRF for any loss it may incur in the event Citibank
made a drawdown on the Guarantee, and TBIL granted security to SGRF
over substantially all of TBIL's assets to secure its indemnity
obligation (the "SGRF Security"), and (iii) SGRF had the right,
subject to the satisfaction of certain conditions, to exchange any
unpaid indebtedness or liability of TBIL to SGRF for TBIL's
indirect interest in TMD, the value of 100% of TMD's shares being
fixed for this purpose at EUR20 million (the "TMD Right").
The SGRF Security included a charge over TBIL's shares in Axis
Retail and Axis S-retail, as well as over TBIL's interests (or the
proceeds thereof) in various property holdings including Rodacar
AD, Serdika and Immofinance EAD. According to the Commercial
Agreement, the Group is restricted from selling its properties and
equity investments without the written consent of SGRF.
As from 31 December 2009, SGRF had the right to exchange any
unpaid indebtedness or liability of TBIL to SGRF for TBIL's
indirect 61.8% interest in TMD, which right was not exercisable
until after 31 December 2010 unless (i) certain conditions related
to TMD's business integration and further management appointments
at TMD were not satisfied by TBIL by 31 December 2009, in which
case, SGRF's exchange rights would be exercisable after 31 December
2009 or (ii) an event of default occurred under any of the
agreements with SGRF, in which case, SGRF's exchange rights would
become exercisable immediately.
SGRF has asserted that part of the covenants under the
Commercial Agreement were not satisfied by 31 December, 2009.
As at 31December, 2009 the Group had repaid EUR3 million of the
RZB loan (note 22 - borrowings). During January 2010 (note 34 -
events after BS date) the Citibank guarantee was called by RZB.
For 2009 the Group has recognized EUR893,000 interest and other
expenses (2008: nil ). The balance of the payable of the Group to
SGRF as of 31December, 2009 was EUR893,000 (2008: nil). The SGRF
option to acquire TBIL's interest in TMD for a fixed price and
related contract provisions have not been valued and recorded as at
31December, 2009.
For further developments on SGRF related matters refer to note
34 - events after BS date.
Compensation of key management personnel Year ended Year ended
31/12/2009 31/12/2008
EUR'000 EUR'000
Short-term benefits 1,098 1,270
Post employment benefits - -
Other long-term benefits - -
Share based payments - 18,487
1,098 19,757
33. Contingent assets and liabilities
The Group's contingent liabilities include:
2009 2008
EUR'000 EUR'000
Bank guarantees 10,158 10,876
Letters of credit 13,437 15,441
Trade guarantees 1,250 2 556
24,845 28,873
For guaranteeing the payables in compliance with the effective
commercial contracts, for collaterals connected with the execution
of the customs duties of the Group and as part of the credit
facility contracts, the bank guarantees of EUR10,158,000 ( 2008:
EUR10,876,000) have been issued by the credit institutions
servicing the Group. The bank guarantees as at 31 December 2008
were all provided to related parties of the Group
Immofinance EAD has guaranteed liabilities to a bank for a third
party amounting to EUR1,250,000 (2008: EUR 2,556,000). The third
party had been controlled by a key management personnel member up
to October 2009. Management believes that it is not highly probable
that a payment could occur in order to settle the guarantee.
Certain assets of the Group are pledged as security relating to
bank loans (note 22). There are no contingent assets relating to
the Group.
34. Events after the reporting date
On 11 January 2010 RZB received the balance of EUR17 million
(plus accrued interest) due to be repaid to it by 31 December 2009
by the Group by calling the Citibank, N.A., Sofia Branch guarantee
issued to RZB as part of the restructuring of TMD's debt facilities
during the summer of 2009 (see note 32 - related parties). This
amount, in turn, was met by SGRF, TBIL's largest shareholder, under
the terms of its counter indemnity granted in respect to the
Citibank Guarantee. The Board of TBIL acknowledged that the
aforementioned restructuring, while burdening TBIL with onerous
commitments to SGRF by way of a comprehensive security package
("the SGRF Security"), nevertheless provided TBIL with further time
to protect and grow the value of its investment in TMD.
On 9 February 2010, the Board announced that SGRF had notified
TBIL that SGRF's exchange rights under the SGRF Security had become
exercisable and that SGRF had reserved its position. TBIL entered
into discussions with SGRF over the circumstances giving rise to
this notification and continued to work with SGRF on a longer term
resolution of these issues. To this end, on 3 June 2010, the Board
announced that it was in discussion with the minority shareholders
of TMD concerning an unsolicited and indicative offer from them to
purchase TBIL's equity shareholding of 61.8% in TMD. Whilst giving
suitable consideration to this offer, the Board has also continued
to consider other realistic options in order to resolve most
advantageously for all the Company's shareholders the matter of
raising sufficient funds both to repay the EUR17 million TBIL owes
to SGRF as well as to finance the further development of the TMD
Group's business throughout the South East European region.
Consequently, the Board announced on 4 August 2010 that it had
engaged Entrea Capital of Sofia, Bulgaria and Capital Partners of
Bucharest, Romania, acting jointly, to be its independent financial
adviser to assist it in respect to this offer as well as in
reviewing other realistic options, including the sale of TBIL's
holding in TMD in whole or in part to a third party. Furthermore,
the Board confirmed that it had also appointed Ernst & Young to
prepare an independent fair valuation of TBIL's holding in TMD.
This initial indicative offer was followed by a further offer from
one of these minority shareholders acting alone. Discussions in
respect to these offers are continuing.
This review of the options in respect to TMD is taking place as
the Company continues to face a challenging trading
environment.
During October 2010, following negotiations between TBIL and
SGRF, an Amendment Agreement was signed, the principal terms of
which are as follows:
-- SGRF has agreed to defer exercising the right to acquire TMD
until the date falling 12 months after the date of the Amendment
Agreement (the "End Date") and, in consideration for that deferral,
TBIL has agreed to pay the following amounts:
-- pay SGRF a fee of EUR8.5 million as soon as it has available
funds and no later than upon receipt of the proceeds of the sale of
its indirect interest in TMD or a sufficient part of them (the
"Completion Date") or the End Date (whichever is first to
occur);
-- pay SGRF 15% of the net proceeds of the sale of its indirect
interest in TMD on the Completion Date;
-- pay SGRF 30% of any part of the net proceeds of the sale of
its indirect interest in TMD payable as deferred consideration
after the Completion Date as and when received, but only in respect
of proceeds of the sale of its indirect interest in TMD in excess
of EUR45 million; and repay the loan of EUR7.2 million plus accrued
interest to Rila Samokov (the "Rila Loan") on or before the
Completion Date or 31 December 2011 (whichever is first to
occur).
-- If the net proceeds of sale of TBIL's indirect interest in
TMD are insufficient to satisfy the foregoing amounts and other
amounts arising under the SGRF Facility by the End Date, SGRF may
exercise the right and will continue to be entitled to the fee of
EUR8.5 million set out above.
-- TBIL shall extend the existing security granted in favour of
SGRF to secure the timely payment of all amounts under the
Amendment Agreement, as well as timely repayment of the Rila Loan.
The existing security takes the form of a pledge over TBIL's
indirect interest in TMD and Harwood Holding BV (whether over
shares and shareholder loans in Axis Retail NV, Axis S - Retail NV
and/or over shares and shareholder loans in TMD at SGRF's option)
(ranking only after RZB's security interests and SGRF's second
ranking security) and a pledge over TBIL's bank accounts.
-- TBIL shall afford SGRF the opportunity, upon receipt of an
informal, indicative or formal offer (containing prescribed details
of such an offer) from a third party for its indirect equity
interest in TMD, within 10 days after that offer (and before TBIL
enters exclusivity with that third party), to submit a competing
offer in writing, whether informal, indicative or formal as SGRF
sees fit, and if SGRF chooses to submit an offer, TBIL shall
consider that offer and, if it thinks fit, pursue that offer
instead of pursuing the third party offer. TBIL shall pursue such
offer submitted by SGRF instead of a third party offer, if the
consideration offered by SGRF is, taken as a whole and in TBIL's
reasonable judgement, higher than the consideration in any
reasonably credible competing offer. Due account will be taken of
the risk inherent in offers involving third party finance or
deferred consideration (but this shall not preclude TBIL from
pursuing a subsequent third party offer from an existing bidder or
a new source, received before formal acceptance of SGRF's formal
offer, if the third party offer is higher in TBIL's reasonable
judgement taking into account those factors).
-- TBIL shall co-operate with the appointment by SGRF of
specialist advisers initially being Alvarez & Marsal or another
professional with relevant experience to advise in relation to TMD.
If and to the extent SGRF so requires, and provided it is not
contrary to the best interests of TBIL and TMD to do so, TBIL shall
exercise its powers as indirect holder of 61.83% of the shares of
TMD to cause (i) one or two officers of that specialist adviser to
be appointed to the board of TMD (provided that such candidate is
suitable and if found not to be suitable SGRF may propose a
replacement or replacements until a suitable candidate is found)
and (ii) TMD to join in the appointment of that specialist adviser
and (iii) TMD to implement the recommendations of that specialist
adviser. The reasonable fees and costs of such specialist advisers
may be allocated to TBIL (or if TMD joins in the appointment of the
specialist adviser to TMD) by SGRF and TBIL shall bear or, if TMD
joins in the appointment of the specialist adviser, exercise its
powers as indirect holder of 61.83% of the shares of TMD to seek to
cause TMD to bear those fees and costs.
-- Until the End Date (and subject to no Event of Default or
breach of the Amendment Agreement occurring) SGRF will take no
enforcement action in respect of Events of Default under the
Commercial Agreement (as amended) occurring before the date of the
Amendment Agreement of which it is aware.
-- TBIL shall seek, subject to shareholder approval, to delist
its shares from AIM, at its next Annual General Meeting or as soon
as practicable thereafter.
On 30 July 2010, the sale of Iztok, one of the three former
cinemas sites in Sofia, owned through Pelican Retail EAD was
completed. The net sale proceeds amounting to EUR1,428,000 in cash
which has been received and utilised to fund the Company's
liabilities and continuing operations.
On 30 July 2010, the revised repayment schedule was agreed with
Eurohold in connection with the sale of Auto Union AD. The
outstanding amount of EUR2,000,000 will be paid in instalments
until 15 February 2011.
On 6 October 2010 the preliminary agreement for the sale of
Urvich, one of the former three cinemas sites,has been signed
In November 2010 Evropa Palace one of the former three cinema
sites was sold
DIRECTORS AND ADVISERS
Board of Directors Registered Office
Ian Schmiegelow Non-executive Chairman Harneys Corporate Services Limited
Warith Al-Kharusi Non-executive Director Cragmuir Chambers
Faisal Al-Riyami Non-executive Director PO Box 71
Kalim Aziz Non-executive Director Road Town
Guido Brera Non-executive Director Tortola
Robin James Non-executive Director British Virgin Islands
Nominated Adviser & Joint Broker Joint Broker
Collins Stewart Europe Limited KBC Peel Hunt
88 Wood Street 111 Old Broad Street
London EC2V 7QR London EC2N IPH
England England
Independent Auditor Custodian
Deloitte Audit OOD Northern Trust (Ireland) Limited
103 Stamboliiski blvd. Georges Court
Sofia 54-62 Townsend Street
Bulgaria Dublin 2
Ireland
Legal Counsel to the Company Registrar
Harney Westwood & Riegels Computershare Investor Services
Cragmuir Chambers (BVI Limited)
PO Box 71 c/o
Road Town PO Box 83
Tortola Ordnance House
British Virgin Islands 31 Pier Road
St Helier
Jersey JE4 8PW
INDEPENDENT AUDITOR'S REPORT
To the shareholders of
Trans Balkans Investment Limited (TBIL)
Report on the Consolidated Financial Statements
1. We have audited the accompanying consolidated financial
statements from page 22. to page 99 of Trans Balkans Investment
Limited (the "Group"), which comprise the consolidated statement of
financial position as of December 31, 2009, and the statement of
comprehensive income, statement of changes in equity and statement
of cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory notes. The Group's
consolidated financial statements for the year ended December 31,
2008 have been audited by another auditor who issued unqualified
opinion dated August 17, 2009.
Management's Responsibility for the Consolidated Financial
Statements
2. Management is responsible for the preparation and fair
presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards (IFRS),
as approved by the European Union. This responsibility includes:
designing, implementing and maintaining internal control relevant
to the preparation and fair presentation of financial statements
that are free from material misstatement, whether due to fraud or
error; selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the
circumstances.
Auditor's Responsibility
3. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. Except as
discussed in paragraphs 6 and 7 below, we conducted our audit in
accordance with International Standards on Auditing. Those
standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance whether the
consolidated financial statements are free from material
misstatement.
4. An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the
auditor's judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the Group's
preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group's internal control. An
audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of
the consolidated financial statements.
5. We believe, except as discussed in paragraphs 6 and 7 below,
that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Basis for qualification
6. As disclosed in note 19 to the accompanying consolidated
financial statements as of December 31, 2009 the Group reports
amounts receivable from related parties, including EUR 8,465
thousand of unsecured loans and trade receivables and EUR 680 of
equity investment. We were unable to determine whether these assets
are fully recoverable and if they are fairly valued and presented
in the consolidated statement of financial position as of December
31, 2009.
7. As disclosed in note 13 to the accompanying consolidated
financial statements as of December 31, 2009 the Group reports
goodwill and trademarks with a carrying amount of EUR 75,051
thousand related to the TechnomarketDomo N.V. ("TMD") cash
generating unit.
As disclosed in note 1.6 and note 32 to the accompanying
consolidated financial statements the parent company TBIL has
entered into a commercial agreement (the "Commercial Agreement")
with its largest shareholder, the State General Reserve Fund of the
Sultanate of Oman (SGRF). According to the Commercial Agreement,
TBIL is required to comply with certain covenants, part of which
have been asserted by SGRF as not having been complied with as of
December 31, 2009. In case of non-compliance, SGRF has the right to
acquire TBIL's equity interest in TMD for EUR 12.4 million. In
February 2010 SGRF has notified TBIL that their exchange right
under the Commercial Agreement had become exercisable and as such
SGRF reserved its position.
As further disclosed in note 34 to the accompanying consolidated
financial statements, in October 2010 TBIL entered into an
amendment agreement with SGRF (the "Amendment Agreement"). Under
the Amendment Agreement, SGRF has agreed to defer for twelve months
from the date of the Amendment Agreement the exercise of its right
to acquire TBIL's interests in TMD, which right SGRF has asserted
it is entitled to exercise immediately pursuant to the terms of the
Commercial Agreement. The deferral of its right is provided by SGRF
so as to afford TBIL an opportunity to sell its interest in TMD and
to participate in the proceeds from such sale in exchange for the
payment of certain fees and other amounts. If the net proceeds of
the sale of TBIL's indirect interest in TMD are insufficient to
satisfy the amounts due to SGRF, including those arising from the
Amendment Agreement by the end of the extended period as per the
Amendment Agreement, SGRF may exercise the right to acquire TBIL's
indirect interest in TMD and will continue to be entitled to
certain fees. Accordingly, the Group's forecasts and projections
till October 2011 are substantially dependent on the expected
proceeds from sale of TMD following the Amendment Agreement.
As further disclosed in note 13 to the accompanying consolidated
financial statements, for the purposes of goodwill impairment
testing, the recoverable amount of TMD as cash generating unit has
been determined by applying discounted cash flow valuation analysis
based on the five-year business plans provided by management. A
period of 5 years has been chosen as management believes this is
the approximate amount of time needed for the companies to achieve
stable growth and normalised profitability levels. As a result of
this analysis the Group has recognized impairment losses of EUR 25
million as of December 31, 2009.
As the recoverability of the goodwill and the trademarks is
dependent upon the successful sale of TMD, and considering the
current market conditions and the complexity of the above described
matters, we were unable to satisfy ourselves through other audit
procedures, as to whether the goodwill, trademarks, provisions for
onerous contracts, and/or puttable option liability and other
liabilities, if any, are fairly presented and valued in the
accompanying consolidated financial statements.
Qualified Opinion
8. In our opinion, except for the effects of such adjustments,
if any, as might have been determined to be necessary had we been
able to satisfy ourselves as to the matters discussed in paragraphs
6 and 7 above, the Group's consolidated financial statements
present fairly, in all material respects, the financial position of
the Group as of December 31, 2009, and of its financial performance
and its cash flows for the year then ended, in accordance with
IFRS, as approved by the European Union.
Emphasis of matter
9 Without further qualifying our opinion we draw attention to
the following matters:
-- As disclosed in note 1.6 to the accompanying consolidated
financial statements the management has developed estimates for
fair value of properties, classified as inventories and investment
properties, by engaging external appraisers to carry out
valuations. The work carried out by the appraisers was based upon
information supplied by the management which was assumed to be
correct and comprehensive. Due to the inherent uncertainty in
valuation, especially in the current market conditions, the fair
values may differ significantly from the values that would have
been used in the presence of an active property market and other
valuation methods applied and sources of information used, and
these differences could be material.
-- As disclosed in note 1.6 the Group's consolidated financial
statements are prepared on a going concern basis. The Group's
forecasts and projections until October 2011 are substantially
dependent on the expected proceeds from sale of TMD following the
Amendment Agreement. The management has made assumptions in their
financial forecasts regarding the expected sale proceeds, however,
there are material uncertainties underlying these assumptions due
to the current challenging market situation and the unpredictable
nature of the expected sale proceeds and the related costs of
disposal. The material uncertainties related to events or
conditions and the time constraints imposed by the Amendment
Agreement, may cast significant doubt on the Group's ability to
continue as a going concern and, therefore, it may be unable to
realize its assets and discharge its liabilities when they fall
due. These consolidated financial statements do not include any
adjustments that may be required in the event the Group is unable
to continue as a going concern.
Deloitte Audit OOD
Sylvia Peneva
Managing Director
Registered Auditor
December 14, 2010
Sofia
This information is provided by RNS
The company news service from the London Stock Exchange
END
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