Orchid Developments Group Ltd
17 September 2007
Orchid Developments Group Limited
Interim consolidated results for the six months ended 30 June 2007
Highlights
• Varna Grand Mall Multi-use complex - excavations and shoring works have
now commenced. Orchid has already agreed long term leases with anchor
tenants for a third of the mall area (15,000 sq m) including Carrefour
hypermarket.
• Progress in sales of apartment units in Orchid's residential projects
in Sofia and Varna
• Land Bank - agreement signed recently for the purchase of a 231,000 sq
m plot for the development of a logistics park near Varna
David Holland, Chairman, said:
'The real estate market in Bulgaria remains buoyant and we expect the market to
continue to experience further growth. Our existing and planned projects have
seen a high level of interest and development in the first half of 2007. In
particular we are pleased with the strong performance at Varna.'
Enquiries:
Orchid Developments Group Limited +359 2 981 9955
Guy Meyohas
Shore Capital and Corporate Limited -
Nominated Adviser to the Company
Dru Danford +44 20 7408 4090
Citigate Dewe Rogerson +44 20 7638 9571
Sarah Gestetner
Fiona Mulcahy
Nicola Smith
Notes to Editors
Orchid's Business
Orchid is an established real estate developer in Bulgaria, taking advantage of
the country's rapidly growing economy. The expertise and reputation of its team
as a developer has been built up over many years of operating in Bulgaria.
Orchid is active in all of the principal sectors of the Bulgarian real estate
and leisure markets:
Residential developments
Orchid is currently developing three residential projects, one in Sofia and two
in Varna. The Sofia project is situated on a prime site (adjacent to
ambassadorial residences) in the hills overlooking Sofia. This project, Orchid
Hills Sofia, consists of 238 luxury apartments. The first stage of 177
apartments is substantially completed, with agreed sales of 94% of the units
(166) for a consideration of €12.0 million (net of VAT). The Varna projects
comprise both residential and retail developments. One is on a 29,000 square
metre plot and will consist of approximately 91,000 sq m build area.
Construction of the first stage (174 apartments) is scheduled to complete in
March 2008, with agreed sales of 51% of the units (88) for a total consideration
of €3.7 million (net of VAT). The second stage of construction (181 apartments)
started in August 2007. The other development in Varna is situated in the very
heart of the city, with 39,000 square metres of build area comprising high-end
residential, retail and commercial and is currently at the detailed design
stage.
Commercial property developments
There are currently three commercial projects, two of which are located in Sofia
with a total build area of approximately 30,500 square metres. The third is
situated in Varna with a total build area of approximately 24,600 square metres.
Retail property developments
The group is developing a multi-use complex in the center of Varna. This
development, which is the largest planned in the city, totals a build area
approximately 190,000 square metres that comprises the Grand Mall and commercial
towers. Excavation and shoring works started late August 2007.
Hotels and related leisure facilities
Orchid owns and operates two four star hotels in the Golden Sands beach resort
on the Black Sea adjacent to Varna, serving international tour operators.
Chief Executive's Review
Operational review
Orchid is active in all of the principal sub-sectors of the Bulgarian real
estate market, including: residential, commercial and retail developments in
Sofia and Varna, and the operation of hotels on Varna's Black Sea coast.
During the first half of 2007, the company has been focused on progressing the
construction and approval status of its different projects. The construction of
the first phase of the Sofia Hills residential project is now almost fully
completed. The first stage of the residential community development known as
Varna Hills has been increased to include 8 blocks (174 apartments) and
construction is expected to be completed by March 2008. The construction of the
second stage (further 8 blocks) commenced in August 2007.
Commercial and retail developments
Orchid Grand Mall Varna ( our Multi Use Complex in the center of Varna) - In
August 2007 we started the excavation and shoring works of what will be the
largest mixed use complex in Varna, with a total build area of approximately
190,000 sq m, comprising retail, commercial and office space. Tender
documentation for the general contractor's work is being processed and
construction is expected to commence early 2008. In addition, we have agreed the
lease terms with major anchor tenants for approximately 15,000 sq m of the
retail area (being a third of the gross lettable area of the mall).
Orchid Business Centre Varna - Orchid has obtained the building permit for the
construction of c. 24,500 sqm build area of this office development located near
the international airport of Varna. Construction is expected to start during the
4th quarter of 2007.
Residential developments
Orchid Hills Sofia - The construction of our prestigious Orchid Hills
residential development in Sofia is advancing according to plan. To date, we
have agreed sales of 94% of the 177 apartment units in the first phase (70% as
at 31 December 2006) for a total net consideration of €12.0 m. We have obtained
the building permit for the second phase and plan to start its construction in
2008.
Orchid Hills Varna - We have maximised our building rights and increased the
first stage to a total of 174 apartment units (initially 138 units) and the
construction of this stage of our gated residential complex in Varna is
advancing according to schedule. We have already agreed sales of 51% of stage
one (88 units, 38 as at the 31 December 2006) for a total consideration of €3.7
m. The second stage, of 181 units, was launched in August 2007 and its marketing
is underway.
Varna Gardens - The Company has recently received planning approval for this
mixed use high-end residential, commercial and retail development on a prime
location site in Varna's city centre. Construction is planned to start in Q1
2008. The site is 6,500 sq m and the planned build area is around 39,000 sqm, of
which 12,500 sqm will be allocated to high-end residential units.
Hotels and Leisure
The Group operates two hotels in the Golden Sands resort on the Black Sea which
were opened in mid May for the 2007 season. Both hotels operate during the
summer and close for the low season. Occupancy rates are lower than the previous
season, as reflected in lower income as well as lower operating expenses. The
management is looking at ways to maximise shareholder value with these assets
and is currently undertaking a strategic review.
Future Plans
We are concentrating our efforts on progressing the construction of our
residential and commercial developments in Varna and Sofia, as well as on the
leasing of the retail and commercial spaces and selling of the apartment units
in the three residential projects. Orchid is constantly considering new
investment opportunities to further increase the Group's land bank.
Outlook
The real estate market in Bulgaria remains buoyant and the Directors expect that
the market will continue to experience further growth. International property
funds are actively seeking investment opportunities in the region and this has
already provided an opportunity for a profitable sale of Orchid's Porsche Centre
development in 2006. We remain confident that Orchid can continue to pursue
exciting and profitable opportunities in all segments of the property market,
and we will continue to pursue our strategy of opportunistic land acquisitions
in our key markets, being Sofia and Varna, as well as in other large cities in
Bulgaria.
Financial Review
The Group's revenues totaled €4.3 million, mainly due to the recognition of
income from the sale of apartments in the Varna Hills and Sofia Hills
residential projects. Our policy in relation to the residential projects is to
recognise income from sold apartments pro rata to the percentage of construction
completed. Income from sale of land and rights is recognized on transfer of
ownership. By the reporting date, the total sales value of the sold units (out
of 177 units) at our Orchid Sofia Hills residential project was approximately
€10.7 million (excluding Vat), of which a net sales amount of €2.3 million was
recognised in the reporting period. At the Varna Hills project, the total sales
value by the reporting date was approximately €2.6 million (excluding Vat), of
which an amount of €1.7 million was recognised in the reporting period.
The revenues for the period include also the results of our two hotels in Varna,
which opened in mid May, and generated revenue of €0.2 million.
The net loss after tax of €1.6 million (2006: profit €3.4 million) for the
period reflects an investment in additional resources and the scaling up of the
development and marketing activities across the projects.
Current trading
The development of Orchid Sofia Hills, our residential site in Sofia, is well
advanced with the first phase expected to be completed by end 2007. The
construction works on our residential development in Varna advance according to
schedule and the first stage is expected to be completed during Q1 2008. The
sale of the apartment units is progressing according to plan and the second
stage works began recently.
Demolition works on the Multi-use Complex in Varna are completed, excavation and
shoring works recently began. We have already secured major anchor tenants for a
third of the retail area of this development.
The Group plans to start construction works of its business centre in Varna
towards the end of 2007. The building permit for the mixed commercial and
residential development of Orchid Varna Gardens is expected in Q4 2007 and its
construction is expected to start shortly afterwards.
The Board views the future prospects of the Group with confidence.
Interim Consolidated Balance Sheet
Notes Unaudited Unaudited Audited
6 months to 6 months to 31 December 2006
30 June 2007 30 June 2006
€'000 €'000 €'000
Assets
Non-current
Property, plant and equipment 2 44,389 44,514 42,444
Equity accounted investments in associates 282 291 286
Goodwill 1,639 1,638 1,639
Other intangible assets 42 41 47
Long-term financial assets 2 2 2
Long-term loans due from associates 356 446 356
Deferred tax assets 131 256 121
46,841 47,188 44,895
Current
Receivables from sale of investment 368 - 12,886
Development work in progress 4,738 1,539 2,911
Inventories 57 186 59
Development contract receivables 6,956 2,346 4,144
Short-term loans 75 133 180
Trade receivables 1,733 4,221 2,368
Receivables from related parties 14 55 5
Tax receivables 1,072 1,175 552
Other receivables 310 251 312
Cash and cash equivalents 12,120 18,806 6,594
27,443 28,712 30,011
Total assets 74,284 75,900 74,906
Approved by the Board and signed on its behalf by:
Guy Meyohas
Joint Chief Executive
12 September 2007
Interim Consolidated Balance Sheet
Notes Unaudited Unaudited Audited
6 months to 6 months to 31 December
30 June 2007 30 June 2006 2006
€'000 €'000 €'000
Equity
Share capital 5 760 758 758
Share premium 64,216 63,996 63,996
Other reserves 118 - 226
Retained earnings 400 (3,051) 1,734
Total equity 65,494 61,703 66,714
Liabilities
Non-current
Bank loans 4,698 4,992 4,698
Long-term lease liabilities 36 51 50
4,734 5,043 4,748
Current
Short-term loans from related parties - 80 30
Short term bank loans 294 7,337 294
Short-term lease liabilities 29 25 31
Trade payables 2,901 939 2,111
Interest payable 137 134 128
Tax liabilities 384 398 405
Payables to employees and social security 278 216 445
institutions
Other liabilities to related parties 33 25 -
4,056 9,154 3,444
Total liabilities 8,790 14,197 8,192
Total equity and liabilities 74,284 75,900 74,906
Interim Consolidated Income Statement
Notes Unaudited Unaudited Audited
6 months to 6 months to 31 December
30 June 2007 30 June 2006 2006
€'000 €'000 €'000
Revenue 4,289 3,247 8,275
Development costs (3,336) (1,973) (4,960)
Cost of materials (136) (188) (663)
Hired services expenses (598) (432) (1,230)
Employee compensation and benefit expenses (1,227) (807) (2,463)
Depreciation and amortisation (240) (215) (454)
Other expenses (113) (124) (527)
Operating result (1,361) (492) (2,022)
Result from equity accounted associates (3) (4) (9)
Interest expense (202) (177) (358)
Interest income 157 77 294
Profit from sale of subsidiary - - 6,295
Other financial expenses, net (111) (300) (587)
Result for the year before tax (1,520) (896) 3,613
Tax expenses, net 3 (36) (36) (233)
Net result for the period (1,556) (932) 3,380
Earnings per share
Basic earnings/(loss) per share € 4 (0.02) (0.01) 0.05
Diluted earnings/ (loss)per share € 4 (0.02) (0.01) 0.05
Interim Consolidated Statement of Cash Flows
Notes Unaudited Unaudited Audited
6 months to 6 months to 31 December
30 June 2007 30 June 2006 2006
€'000 €'000 €'000
Cash flows from operating activities
Cash receipts from customers 2,539 2,202 6,575
Cash paid to suppliers (6,248) (3,603) (9,918)
Cash paid to employees and social security (1,202) (885) (1,938)
institutions
Taxes paid, net (189) (40) 876
Other cash inflows, net (54) (151) (174)
Net cash flows from operating activities (5,154) (2,477) (4,579)
Cash flow from investing activities
Purchase of property, plant and equipment 2 (1,623) (28,805) (31,670)
Proceeds from sale of property, plant and - - 10
equipment
Interest received 170 56 279
Purchase of intangible assets - (28) (42)
Loans granted (3) (168) (243)
Loan repayments received 100 33 153
Sales of subsidiaries 12,247 - -
Net cash flows from investing activities 10,891 (28,912) (31,513)
Cash flows from financing activities
Proceeds from bank loans - 2,700 2,700
Proceeds from loans - 7,000 7,000
Repayment of loans - - (7,000)
Repayment of bank loans - (2,700) (2,700)
Discharge of finance lease liability (23) - (31)
Proceeds from share capital issued 6 23,985 23,987
Interest paid (189) (104) (285)
Net cash flows from financing activities (206) 30,881 23,671
Cash outflow, related to current exchange loss, (5) (9) (14)
net
Cash in subsidiary disposed of - - (294)
Cash and cash equivalents, beginning of period 6,594 19,323 19,323
Net increase/(decrease) in cash and cash 5,526 (517) (12,729)
equivalents
Cash and cash equivalents, end of period 12,120 18,806 6,594
Interim Consolidated Statement of Changes in Equity
All amounts Share Premium Other Retained Total
presented in €'000 Capital reserve Reserves Earnings equity
Balance 1 January 2006 634 40,137 - (2,119) 38,652
Shares issued 124 24,876 - - 25,000
Transaction costs deducted from - (1,017) - - (1,017)
equity
Net result for the period - - - (932) (932)
Balance 30 June 2006 758 63,996 - (3,051) 61,703
Share option Scheme - - 226 - 226
Accumulated loss in disposed - - - 473 473
equity
Net result for the period - - - 4,312 4,312
Balance 31 December 2006 758 63,996 226 1,734 66,714
Shares issued 2 220 - - 222
Share option Scheme - (108) 222 114
Net result for the period - - - (1,556) (1,556)
Balance 30 June 2007 760 64,216 118 400 65,494
Notes to the Interim Consolidated Financial Information
1. Basis of preparation
The interim consolidated financial information is for the six months ended 30
June 2007. The information has been prepared in accordance with International
Financial Reporting Standards (IFRS), applicable to accounting periods ended on
30 June 2007, as developed and published by the International Accounting
Standards Board (IASB) and as adopted by the European Union.
They do not include all of the information required for full annual financial
statements, and should be read in conjunction with the consolidated financial
statements of the Group for the year ended 31 December 2006.
The main accounting policies of the Group have remained unchanged from those set
out in the Group's 2006 annual report and accounts. The interim consolidated
financial information has been reviewed by the Group's auditors. A copy of the
auditors' review is attached to this interim announcement.
These consolidated condensed interim financial statements have been approved for
issue by the Board of Directors on 12 September 2007.
2. Property, plant and equipment
Land Buildings Machines Vehicles Furniture Assets Total
And And Under
Equipment fixtures construction
€'000 €'000 €'000 €'000 €'000 €'000 €'000
At 1 January 2006
Cost 3,449 8,614 1,074 155 959 2,031 16,282
Accumulated - (518) (52) (43) (278) - (891)
depreciation
Net book amount 3,449 8,096 1,022 112 681 2,031 15,391
Year ended 31
December 2006
Opening net book 3,449 8,096 1,022 112 681 2,031 15,391
amount
Additions 27,454 291 26 269 80 5,119 33,239
Transfers within - (217) 60 - 7 150 -
property, plant and
equipment
Transfers to (303) - - - - (127) (430)
development work
in progress
Disposals cost - - - (85) (24) (45) (154)
Disposals - - - 19 6 - 25
accumulated
depreciation
Disposal cost - sale
of subsidiary (219) - (60) - (2) (4,904) (5,185)
Disposal accumulated - - 1 - 1 - 2
depreciation sale of
subsidiary
Depreciation charge (173) (55) (71) (145) - (444)
Closing net book 30,381 7,997 994 244 604 2,224 42,444
amount
At 31 December 2006
Cost 30,381 8,688 1,100 339 1,020 2,224 43,752
Accumulated - (691) (106) (95) (416) - (1,308)
depreciation
Net book amount 30,381 7,997 994 244 604 2,224 42,444
Land Buildings Machines Vehicles Furniture Assets Total
And and Under
Equipment fixtures Construction
€'000 €'000 €'000 €'000 €'000 €'000 €'000
Period ended 30 June
2007
Opening net book 30,381 7,997 994 244 604 2,224 42,444
amount
Additions 185 - 15 128 3 1,852 2,183
Transfer within - 23 - - - (23) 0
property, plant,
equipment
Disposals cost - - - (29) - - (29)
Disposals accumulated - - - 29 - - 29
depreciation
Depreciation charge - (87) (28) (48) (75) - (238)
Closing net book 30,566 7,933 981 324 532 4,053 44,389
amount
At 30 June 2007
Cost 30,566 8,711 1,115 438 1,023 4,053 45,906
Accumulated - (778) (134) (114) (491) - (1,517)
depreciation
Net book amount 30,566 7,933 981 324 532 4,053 44,389
3. Taxation
Orchid Developments Group Ltd. is a registered offshore company exempt from
taxes. Its offshore subsidiaries are also tax-exempt companies. The current
income tax expenses are attributable only to Bulgarian companies owned by the
Group.
For the period ended 31 December 2006, the corporate income tax rate in Bulgaria
was 15%. For the period ended 30 June 2007 the corporate income tax rate was
10%.
4. Earnings per share
The basic and diluted earnings per ordinary share are calculated on weighted
average number of ordinary shares as follows:
Basic Diluted
30 June 2007 75,773,166 75,773,166
31 December 2006 68,622,058 69,234,435
30 June 2006 66,980,746 66,980,746
For the purposes of calculating diluted EPS, the effect of the Group's share
option scheme on the weighted average number of ordinary shares for the periods
ended 30 June 2007 and 30 June 2006 has been ignored because they are
anti-dilutive.
5. Share issue
During the period to 30 June 2007 211,818 shares were issued to satisfy share
options previously granted under Orchid Developments Group employee share option
scheme. Shares issued and authorised for the period to 30 June 2007 may be
summarised as follows:
6 months to 30 June 2007
Number €'000
At 1 January 2007 75,754,442 758
Issue of shares 211,818 2
At 30 June 2007 75,966,260 760
6 months to 30 June 2006
Number €'000
At 1 January 2006 63,416,432 634
Issue of shares 12,338,010 124
At 30 June 2006 75,754,442 758
Year to 31 December 2006
Number €'000
At 1 January 2006 63,416,432 634
Issue of shares 12,338,010 124
At 31 December 2006 75,754,442 758
The share issue totaled €222,000 and increased equity by €2,000.
INDEPENDENT REVIEW report to ORCHID DEVELOPMENTS GROUP LTD.
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2007, the interim consolidated financial statements
and the related notes. We have read the other information contained in the
interim report, which comprises only the Highlights, Orchid's business and the
Chief Executive's review and considered whether it contains any apparent
mis-statements or material inconsistencies with the financial information.
This report is made solely to the company in accordance with guidance contained
in APB Bulletin 1999/4 'Review of Interim Financial Information'. Our review
work has been undertaken so that we might state to the company those matters we
are required to state to them in a review report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this report, or for
the conclusion we have formed.
Directors' responsibilities
The interim report including the financial information contained therein is the
responsibility of, and has been approved by, the directors. The directors are
responsible for preparing the interim report and ensuring that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of Interim Financial Information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making
enquiries of management and applying analytical procedures to the financial
information and underlying financial data and, based thereon, assessing whether
the accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
International Standards on Auditing and therefore provides a lower level of
assurance than an audit. Accordingly, we do not express an audit opinion on the
financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007.
Grant Thornton Ltd.
Chartered Accountants
Sofia, Bulgaria
14 September 2007
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