Orchid Developments Group Ltd
14 April 2008
Orchid Developments Group Limited
('Orchid' or the 'Company')
Results for the Year Ended 31 December 2007
Highlights
• Varna Grand Mall multi-use complex - strong demand for the retail
space with pre lets representing about 60% of the retail lettable area now
agreed. Construction expected to commence in April 2008.
• Residential units sales are progressing well at Sofia and Varna Hills
Projects, at 95% and 58% respectively of the current available stages
• Land bank increases with further plots purchase for the logistics park.
• High interest in Orchid Gardens, mixed residential and commercial
development following the marketing campaign launch.
• Financing has been agreed for the Orchid Multi Use Complex Varna with
a consortium of European banks led by OTP Hungary
• Sale of the Yavor Hotel - agreed for a total consideration of Euro9.85
million
David Holland, chairman of Orchid, said:
'Orchid Developments has had a very positive year in 2007. Our developments are
on track and we have seen a high level of interest on both the commercial and
residential side. We continue to increase our land bank for further phases of
development.'
Enquiries: +359 2 981 9955
Orchid Developments Group Limited
Guy Meyohas
Shore Capital and Corporate Limited +44 20 7408 4090
Graham Shore
Dru Danford
Citigate Dewe Rogerson +44 20 7638 9571
Sarah Gestetner
Nicola Smith
Chief Executive's Review
Operational review
Orchid Developments is active in all principal sub-sectors of the Bulgarian real
estate and leisure markets: residential, commercial property and retail
developments in Sofia and Varna including the operation of hotels on Varna's
coast.
During the year, the Company has focused on progressing the development of its
commercial and residential projects as well as actively pursuing the acquisition
of plots for new commercial developments. Orchid's land bank increased by
280,000 sq m of land intended primarily for retail and logistic uses. The
Company has also made considerable progress in the development of its multi use
complex, Grand Mall Varna and in the construction of the Varna Hills residential
development. In addition the Company launched the Orchid Gardens multi use
project and the Business Center in Varna in March 2008.
The Company has several exciting developments underway and the Directors remain
confident that Orchid can continue to deliver on its stated strategy of
generating value for its shareholders by developing quality residential,
commercial and retail developments in prime locations in selected Bulgarian
cities.
Commercial and retail developments
Orchid Multi Use Complex Varna - The Company is witnessing strong demand for
retail space in the Grand Mall Varna. Pre-lets of approximately 30,000 sq m of
the retail area have now been agreed. Excavation and shoring works are completed
and construction is scheduled to begin in April 2008. Financing has been agreed
with a consortium of European banks led by OTP Hungary.
Orchid Business Center Varna - Construction of the Business Centre Varna is
scheduled to commence in the coming weeks. Financing has been agreed and
Colliers International have been nominated as the exclusive brokers for this
development.
Orchid Retail and Logistics Park Varna - During 2007 the Company purchased
several parcels of plots totalling 280,000 sqm with the intention of developing
a retail and warehousing complex near Varna. The plots are well situated between
three major international transportation arteries and less than 2 km from
Varna's seaport and airport.
The Group has issued a Euro7 million short term loan note for the finance of
this acquisition, repayable on 31 July 2008. We expect to complete the rezoning
process in Q3 2008 and start construction and leasing activities shortly
thereafter.
Residential developments
Orchid Hills Sofia - The construction of our prestigious Orchid Hills
residential development in Sofia is now complete, and we are currently in the
process of securing the usage permit for the site. A total of 167 apartments
have been sold to date (155 as at the reporting date) for a total consideration
of Euro14.8 million.
Orchid Hills Varna - The construction of the first stage of our gated
residential complex in Varna (174 apartment units) is scheduled for completion
in April 2008. The second stage, comprising 162 units, started construction
during September 2007 and is scheduled to complete in March 2009. In total the
Company have already sold 187 units of the current stages (141 as at the
reporting date) for a total consideration of Euro10.4 million. The Company
intend to start marketing stage 3 this year with construction planned to
commence in early 2009.
Varna Gardens - The Company has received the building permit for the
construction of this mixed use High-End residential, office and retail
development on a prime location site in Varna city centre. The total build area
is 44,000 sq m of which 17,500 will be designated for high-end retail and office
floors.
Hotels and Leisure
The Group operates two hotels in the Golden Sands resort on the Black Sea.
Occupancy rates during 2007 were lower than in the previous season, resulting in
lower income compared to the previous season.
A preliminary agreement for the sale of Yavor Zlatni AD (owner of the Yavor
hotel) was signed during December 2007for a total consideration of Euro9.85
million. The sale is expected to complete during June 2008. The completion is
subject to conditions precedent which are under the Company's control. The
assets and liabilities of Yavor Zlatni are shown as 'Investment held for sale'
in the Consolidated Balance Sheet and its net result is shown as 'Net loss from
discontinued operation' in the Consolidated Income Statement.
Future Plans
The Group will concentrate efforts in the near future 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 our residential projects.
Outlook
The real estate market in Bulgaria has remained buoyant throughout 2007 with
international property funds continuing to invest and acquire assets in
Bulgaria. The Group is constantly exploring ways to maximise shareholder value,
and this may result in disposal of some of our assets.
The directors do not expect that the recent global financial crisis will
directly affect the local market. The Bulgarian market might, however, witness
stabilisation in real estate prices after an increase of over 20% during 2007 as
well as some slow down in the purchasing activity of international property
funds. Therefore, the Company does not expect further yield compression during
2008. The directors remain confident that Orchid can continue to pursue exciting
and profitable opportunities in both the commercial and residential markets,
through a strategy of opportunistic land acquisitions in our key markets, being
Sofia and Varna, as well as in other large cities in Bulgaria.
Financial Review
During 2007, the Group's revenues increased to Euro8.1 million (2006: Euro7.5
million), primarily due to recognition of income from the sale of apartments in
its residential projects. Our policy in relation to residential projects is to
recognize income on the basis of the percentage of construction completed whilst
the sale of land and rights is recognised on actual transfer of ownership. At 31
December 2007, the total sales value of units sold at Orchid Sofia Hills
amounted to approximately Euro11.3 million (excluding VAT), of which a net sales
amount of Euro3.1 million was recognised in the reporting period. The total
sales value of the sold units at Varna Hills amounted to approximately Euro6.3
million (excluding VAT), of which a net sales amount of approximately Euro4.3
million were recognised in the reporting period.
Revenues for the period also include the results of our Golden Yavor hotel in
Varna, which has generated revenue of approximately Euro0.6million (2006:
Euro0.9 million).
The net loss after tax of approximately Euro3.2 million (2006: profit after tax
Euro3.4 million) for the period reflects the large scale of the Group's
development and marketing activities during 2007.
During the period the Company also reclassified the Yavor Hotel on the balance
sheet as 'investment held for sale'.
Current trading
The development of Orchid Hills, the residential development in Varna, is well
advanced with the first stage expected to be completed shortly, and the second
stage likely to follow in Q2 2008. The Group is witnessing strong demand for the
apartment units from local residents. Construction works on the residential
development in Sofia are now complete and the unit delivery process will be
completed in the next few months. The development works of the Multi Complex in
Varna are advancing as well as are the leasing activities.
The Group has recently received the building permit for its commercial and
residential development of Orchid Gardens - Varna and plan to start construction
in Q2 2008. The Business Park project in Varna was recently launched and the
Group expect to start its construction in April 2008.
The Company is expecting to finalise the sale of the Yavor hotel in June 2008.
The Board views the future prospects of the Group with confidence.
Guy Meyohas
Joint Chief Executive
Consolidated Balance Sheet
Notes 2007 2006
Euro'000 Euro'000
Assets
Non -current
Property, plant and equipment 3 53,088 42,444
Investment in associates 4 277 286
Goodwill 5 3 1,639
Other intangible assets 7 46 47
Other assets 8 135 -
Long-term financial assets - 2
Long-term loans due from associates 9 277 356
Deferred tax assets 10 169 121
Total non-current assets 53,995 44,895
Current
Receivables from sale of investment 368 12,886
Development work in progress 11 6,062 2,911
Inventories 12 3 59
Development contract receivables 13 4,920 4,144
Short-term loans - 180
Trade receivables 14 2,623 2,368
Receivables from related parties 29.1 23 5
Tax receivables 15 942 552
Other receivables 16 376 312
Cash and cash equivalents 17 5,950 6,594
21,267 30,011
Non-current asset held for sale 28 5,616 -
Total assets 80,878 74,906
The accompanying notes form an integral part of the consolidated financial
statements.
Notes 2007 2006
Euro'000 Euro'000
Equity
Share capital 18.1 760 758
Share premium 18.3 64,216 63,996
Other reserves 212 226
Accumulated loss / Retained earnings (1,364) 1,734
Total equity 63,824 66,714
Liabilities
Non-current
Borrowing liabilities 19 4,111 4,698
Long-term lease liabilities 20.1 22 50
4,133 4,748
Current liabilities
Short-term loans from related parties 30 30
Short-term borrowing liabilities 19 7,587 294
Short-term lease liabilities 20.1 27 31
Trade payables 21 4,395 2,111
Interest payables 269 128
Tax liabilities 22 317 405
Payables to employees and social security institutions 23.2 277 445
12,902 3,444
Liabilities directly associated with non-current assets
held for sale 28 19 -
Total liabilities 17,054 8,192
Total equity and liabilities 80,878 74,906
Approved by the Board and signed on its behalf by: Guy Meyohas
Joint Chief Executive
The accompanying notes form an integral part of the consolidated financial
statements.
Consolidated Income Statement
Notes 2007 2006
Euro'000 Euro'000
Restated
Revenue 24 8,111 7,475
Development costs 11 (6,358) (4,960)
Cost of materials (249) (350)
Hired services expenses (1,221) (1,055)
Employee compensation and benefit expenses 23.1 (2,186) (2,208)
Depreciation and amortisation (339) (301)
Other expenses (330) (483)
Operating loss (2,572) (1,882)
Result from equity accounted associates 4 (9) (9)
Interest expense 25 (487) (355)
Interest income 25 286 293
Profit from sale of subsidiary 30.2 - 6,295
Exchange rate gains 8 12
Financial expenses 26 (368) (596)
Profit / (loss) for the year before tax (3,142) 3,758
Tax income / (expenses), net 27 52 (233)
Net profit /(loss) for the period from continuing operations (3,090) 3,525
Net loss from discontinued operation (126) (145)
Net profit /(loss) for the year (3,216) 3,380
Earnings per share Euro Euro
Continuing operations
Basic earnings / (loss) per share 18.4 (0.04) 0.05
Diluted earnings / (loss) per share 18.4 (0.04) 0.05
In 2007 the Company reclassified one subsidiary as held for sale. As a result
all income and expenses related to it are shown under Net Loss from Discontinued
Operations.
The accompanying notes form an integral part of the consolidated financial
statements.
Consolidated Statement of Changes in Equity
All amounts Share capital Share Other Accumulated Total
premium reserves Loss/ equity
presented in Euro '000 Retained
earnings
Balance 1 January 2006 634 40,137 - (2,119) 38,652
Accumulated loss in disposed
subsidiary - - - 473 473
Income recognised directly in
equity - - - 473 473
Net profit for 2006 - - 3,380 3,380
Total recognised income for the
year - - - 3,853 3,853
Shares issued 124 24,876 - 25,000
Transaction costs deducted from
equity - (1,017) - - (1,017)
Employee share based compensation - - 226 - 226
Balance 31 December 2006 758 63,996 226 1,734 66,714
Net loss for 2007 - - - (3,216) (3,216)
Total recognised expenses for the
year - - - (3,216) (3,216)
Shares issued 2 220 - - 222
Employee share based compensation - - 104 - 104
Share options exercised - - (118) 118 -
Balance 31 December 2007 760 64,216 212 (1,364) 63,824
The accompanying notes form an integral part of the consolidated financial
statements.
Consolidated Statement of Cash Flows
Notes 2007 2006
Euro'000 Euro'000
Cash flows from operating activities
Cash receipts from customers 10,878 6,575
Cash paid to suppliers (14,946) (9,918)
Cash paid to employees and social security institutions (2,420) (1,938)
Taxes received, net 1,453 876
Taxes paid (1,222) -
Other cash outfflows, net (256) (174)
Net cash flows from operating activities (6,513) (4,579)
Cash flows from investing activities
Purchase of property, plant and equipment (12,784) (31,670)
Proceeds from sale of investment 12,247 -
Cash in subsidiary disposed of - (294)
Proceeds from sale of property, plant and equipment - 10
Interest received 284 279
Purchase of intangible assets (10) (42)
Loans granted (26) (243)
Loan repayments received 75 153
Net cash flows from investing activities (214) (31,807)
Cash flows from financing activities
Proceed from bank loans - 2,700
Proceeds from loans 6,818 7,000
Repayment of loans - (7,000)
Repayment of bank loans and related fees (425) (2,700)
Discharge of finance lease liability (6) (31)
Proceeds from share capital issued 221 23,987
Interest paid (392) (285)
Net cash flows from financing activities 6,216 23,671
Cash outflow, related to current exchange gains, net (12) (14)
Cash and cash equivalents, beginning of year 6,594 19,323
Net decrease in cash and cash equivalents (523) (12,729)
Cash and cash equivalents, end of year 6,071 6,594
Included in non-current asset held for sale in the Balance 28 121 -
sheet
Included in cash and cash equivalents in the Balance sheet 17 5,950 6,594
The accompanying notes form an integral part of the consolidated financial
statements.
Notes to the Consolidated Financial Statements
1. General information
Basis for preparation of the consolidated financial statements
The consolidated financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards (IFRS), applicable
to accounting periods ended on 31 December 2007, as developed and published by
the International Accounting Standards Board (IASB) and as adopted by the
European Union.
All amounts for the periods ended 31 December 2007 and 31 December 2006 are
presented in the financial statements in thousand euros (Euro '000).
Change in accounting policies
Standards and Interpretations not yet applied by the Group
The following new Standards and Interpretations, which are yet to become
mandatory, have not been applied in the Group's 2007 financial statements.
Standard or Interpretation Effective in reporting periods
starting on or after
IFRS 8 Operating Segments 1 January 2009
IAS 23 Borrowing Costs (revised 2007) 1 January 2009
IFRIC 12 Service Concession Arrangements 1 January 2008
IFRIC 13 Customer Loyalty Programmes 1 July 2008
IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum 1 January 2008
Funding Requirements and their Interaction
IFRS 3 Business Combinations (revised 2008) 1 July 2009
IFRS 2 Share-based Payment - amendments 1 January 2009
IAS 27 Consolidated and Separate Financial Statements (revised 2008) 1 July 2009
Based on the Group's accounting policies, the management does not expect a
material impact on the Group financial statements when the Interpretations
become effective. The Group does not intend to apply any of these
pronouncements early.
According to the new standard IAS 23, all borrowing costs that are directly
attributable to qualifying assets are to be capitalised. The Group's current
accounting policy requires capitalization of all borrowing costs provided that
qualifying assets are acquired. Therefore, the Group does not expect any
significant changes related to the application of the revised standard IAS 23 in
2009.
Summary of accounting policies
Overall considerations
The significant accounting policies that have been used in the preparation of
these consolidated financial statements are summarised below.
The consolidated financial statements have been prepared on the historical cost
basis, except for the revaluation of certain financial assets and liabilities to
fair value. The measurement bases of certain financial assets and liabilities
are described in more detail in the accounting policies below.
It should be noted that accounting estimates and assumptions are used in
preparation of the consolidated financial statements. Although these estimates
are based on management's best knowledge of current events and actions, actual
results may ultimately differ from those estimates.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and the entities controlled by the Company (its subsidiaries) made
up to 31 December 2007. Control is achieved where the Company has the power to
govern the financial and operating policies of an investee entity so as to
obtain benefits from its activities.
On acquisition of a business, the assets and liabilities and contingent
liabilities of a subsidiary are measured at their fair values at the date of
acquisition. Any excess of the cost of acquisition over the fair values of the
identifiable net assets acquired is recognised as goodwill. Any deficiency
between the cost of acquisition and the fair value of the identifiable net
assets acquired is credited to the income statement in the period of
acquisition. Any intangible assets are identified and measured prior to the
goodwill allocation.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies into line with those used by the
Group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Where the Group acquires a subsidiary or Group of assets which are not deemed to
constitute a business, the cost of acquisition is allocated between the
individual identifiable assets and liabilities acquired, based upon their
relative fair values at the date of acquisition.
The results of subsidiaries acquired during the year are included in the
consolidated income statement from the effective date of acquisition, as
appropriate.
The income and expenses of a subsidiary are included in the consolidated
financial statements until the date on which the parent ceases to control the
subsidiary. The difference between the proceeds from the disposal of the
subsidiary and its carrying amount as of the date of disposal is recognised in
the consolidated income statement as the gain or loss on the disposal of the
subsidiary.
1.1 Income and expense recognition
Revenue is measured at the fair value of the consideration received or
receivable taking into account the amount of any trade discounts and volume
rebates, allowed by the Group.
Revenue on residential developments is determined using the percentage of
completion method. For more information about the revenue and profit
recognition, please refer to Note 0 'Residential property developments'.
Revenue from rendering of services is recognised when the outcome of the
transaction can be measured reliably. Revenue received from tour operators is
recognised on completion of a client's stay at the hotel. Rental income is
recognised as rental services are provided.
Revenue from sale of goods is recognised, provided all of 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 value of the revenue can be measured reliably;
• it is probable that the economic benefits associated with the transaction
will flow to the Group;
• the cost incurred or to be incurred in respect of the transaction can be
measured reliably
Operating expenses are recognised in the income statement upon utilisation of
the service or at the date of their origin. Interest income and expenses are
reported on an accruals basis.
1.2 Property, plant and equipment
An item of property, plant and equipment is initially measured at its cost,
which comprises its purchase price and any directly attributable costs of
bringing the asset to working condition for its intended use.
Subsequent to initial recognition as an asset, an item of property, plant and
equipment is carried at its cost less any accumulated depreciation and any
accumulated impairment losses. Impairment losses are recognised in the current
period income statement.
Subsequent expenditure relating to an item of property, plant and equipment that
has already been recognised in the consolidated financial statements is added to
the carrying amount of the asset when it is probable that future economic
benefits, in excess of the originally assessed standard of performance of the
existing asset, will flow to the Group. All other subsequent expenditure is
recognised as an expense in the period in which it is incurred.
Property, plant and equipment acquired under finance lease agreements are
depreciated based on their expected useful economic lives, determined by
reference to comparable assets or based on the period of the lease contract if
shorter.
Depreciation is calculated using the straight-line method over the estimated
useful life of individual assets as follows:
• Buildings 50 years
• Machines 2-7 years
• Vehicles 4-7 years
• Others 7 years.
No residual values are assumed. Value in use of property, plant and equipment is
reassessed annually.
Depreciation charges for the current period are included in the line
'Depreciation and amortisation' in the Income Statement.
Assets under construction and land are not depreciated.
1.3 Residential property developments
The Group's development contracts relate to the apartments for sale developed in
the residential area owned by Orchid Sofia Hills Ltd. and Orchid Seaside
Apartments Ltd.
Revenue and costs on residential developments' construction are determined using
the percentage of completion method and these are recognised to the extent that
apartments are sold based on signed contracts with clients. The percentage of
completion is calculated based on the physical proportion of the contract work
completed as determined by an independent valuer. If the contract is considered
profitable, profits are recognised by reference to the percentage of completion.
Any expected loss on any individual contract is recognised immediately as an
expense in the income statement. Income from sale of land and rights is
recognised upon ownership transfer.
After commencement of a residential project land expenses and construction in
progress expenditures are transferred from 'Property, plant and equipment' to
'Development work in progress'. The land related to the project is written off
over the course of the project in line with the recognition of revenue.
1.4 Accounting for income taxes
Current income tax assets and/or liabilities comprise those obligations to, or
claims from, fiscal authorities relating to the current or prior reporting
period, that are unpaid at the balance sheet date. They are calculated according
to the tax rates and tax laws applicable to the fiscal periods to which they
relate based on the taxable result for the year. All changes to current tax
assets or liabilities are recognised as a component of tax expense in the income
statement.
Tax losses available to be carried forward as well as other income tax credits
to the Group are assessed for recognition as deferred tax assets. Deferred tax
assets in relation to carried forward losses are recognised to the extent that
the realisation of the related tax benefits through the future taxable profits
is probable.
Deferred tax liabilities are always provided for in full. Deferred tax assets
are recognised to the extent that it is probable that they will be able to be
offset against future taxable income.
Deferred tax assets and liabilities are calculated, without discounting, at tax
rates that are expected to apply to their respective period of realisation,
provided they are enacted or substantively enacted at the balance sheet date.
Most changes in deferred tax assets or liabilities are recognised as a component
of tax expense in the income statement.
2. Segment reporting
For reporting purposes the divisions of the Group are as follows:
• Hotel
• Commercial property development
• Residential property development
• Central management
The activities undertaken by the hotel segment include the development,
renovation and operation of hotels on the Black Sea coast. The development and
letting out of premises for offices and shops is undertaken by the commercial
property segment. The residential property segment develops and sells apartments
and houses. All segments operate in Bulgaria.
All inter-segment transfers are priced and carried out at arm's length.
Business segments Commercial Residential Hotel Central Consolidation Group
property property management
31 December 2007 2007 2007 2007 2007 2007 2007
Euro '000 Euro'000 Euro'000 Euro'000 Euro'000 Euro'000
Ravenue
From external customers 22 7,371 633 85 - 8,111
From other Segments - - - 704 (704) -
Operating result (458) 215 (39) (2,153) (137) (2,572)
Finance cost, net (84) 18 (383) 238 1 (210)
Other financial expenses, net (13) (11) (4) (461) 129 (360)
Tax expense 34 (45) 70 (7) - 52
Net result for the year from
continuing operations (521) 177 (356) (2,383) (7) (3,090)
Net result of investment from
discontinued operations - - (126) - - (126)
Depreciation and amortisation (13) (45) (222) (59) - (339)
Property, plant and equipment 23,776 10,441 7,249 219 11,403 53,088
Consolidated total assets 27,636 24,778 18,059 64,773 (54,368) 80,878
Consolidated total 8,711 3,710 8,855 939 (5,161) 17,054
liabilities
Business segments Commercial Residential Hotel Central Consolidation Group
property property management
31 December 2006 2006 2006 2006 2006 2006 2006
Euro '000 Euro'000 Euro'000 Euro'000 Euro'000 Euro'000
Revenue
From external customers 246 6,356 864 9 - 7,475
From other Segments - - - 509 (509) -
Operating result (296) 830 (94) (2,043) (279) (1,882)
Profit from sale of
investment - - - 6,295 - 6,295
Finance cost, net 56 (56) (322) 69 182 (71)
Other financial expenses, net (8) (8) (22) (501) (45) (584)
Tax expense 7 (194) (37) (9) - (233)
Net result for the year (241) 572 (475) 3,811 (142) 3,525
from continuing operations
Net result for the year - - (145) - - (145)
from discontinued operations
Depreciation and amortisation (28) (30) (215) (28) - (301)
Property, plant and equipment 20,979 10,307 11,063 141 (46) 42,444
Consolidated total assets 22,462 21,246 17,977 56,603 (43,382) 74,906
Consolidated total liabilities 139 2,316 6,882 1,556 (2,701) 8,192
3. Property, plant and equipment
3.1 Breakdown of property, plant and equipment
Land Buildings Machines and Vehicles Furniture Assets Total
equiment and under
fixtures construction
Euro'000 Euro'000 Euro'000 Euro'000 Euro'000 Euro'000 Euro'000
Cost 3,449 8,614 1,074 155 959 2,031 16,282
Accumulated depreciation - (518) (52) (43) (278) - (891)
Net book amount
at 1 January 2006 3,449 8,096 1,022 112 681 2,031 15,391
Cost 30,381 8,688 1,100 339 1,020 2,224 43,752
Accumulated depreciation - (691) (106) (95) (416) - (1,308)
Net book amount
at 31 December 2006 30,381 7,997 994 244 604 2,224 42,444
Cost 37,841 5,694 986 385 624 8,244 53,774
Accumulated depreciation - (262) (84) (131) (209) - (686)
Net book amount
at 31 December 2007 37,841 5,432 902 254 415 8,244 53,088
The carrying amounts of the property, plant, and equipment presented in the
financial statements at 31 December 2007 are calculated as follows:
Land Buildings Machines and Vehicles Furniture Assets Total
equiment and under
fixtures construction
Euro'000 Euro'000 Euro'000 Euro'000 Euro'000 Euro'000 Euro'000
Carrying amount
at 1 January 2006 3,449 8,096 1,022 112 681 2,031 15,391
Additions 27,454 291 26 269 80 5,119 33,239
Transfers within
property, plant and
equipment - (217) 60 - 7 150 -
Transfers to development
work in progress (303) - - - - (127) (430)
Disposals at cost - - - (85) (24) (45) (154)
Disposals - related
accumulated depreciation - - - 19 6 - 25
Disposal at cost - sale
of subsidiary (219) - (60) - (2) (4,904) (5,185)
Disposal related
accumulated depreciation
- . sale of subsidiary - - 1 - 1 - 2
Depreciation charge - (173) (55) (71) (145) - (444)
Carrying amount
at 31 December 2006 30,381 7,997 994 244 604 2,224 42,444
Additions 8,160 - 24 135 24 6,528 14,871
Transfers within
property, plant and
equipment 184 24 - - - (208) -
Transfer of cost related
to non-current asset held
for sale (878) (3,018) (138) (89) (419) (230) (4,772)
Transfer of accumulated
depreciation related to
non-current asset held
for sale - 603 77 68 361 - 1,109
Disposals (6) - - - (1) (70) (77)
Depreciation charge - (174) (55) (104) (154) - (487)
Carrying amount
at 31 December 2007 37,841 5,432 902 254 415 8,244 53,088
In relation to the short-term borrowings of the Group as described in note 0
some items of property, such as land owned by several Bulgarian companies, have
been pledged as security. Their total carrying amount is 8,274,202.
Land and buildings of the Group comprise the following real estate property
acquired and developed by the Group:
• Ring Road Project, Sofia
• Varna Hills residential project
• Sofia Hills residential project
• Golden Yavor Hotel in Golden Sands Resort, Varna
• Business Park, Varna
• Varna Gardens Mixed Use Residential and Retail Project
• Orchid Multi Complex Mixed Use Retail and Commercial Project,
Varna
• Logistic Centre, Varna
• Airport City Commercial project
As at 31 December 2007 there are no contractual commitments for acquiring new
assets.
3.2 Assets under construction consist of :
Name of project Project carried out by 2007 2006
Euro'000 Euro'000
Business Park, Varna Orchid Centre Varna EOOD 314 15
Orchid Multi Complex Mixed Use,Varna Orchid Multi Complex Varna EOOD and Orchid 5,824 611
Multi-Complex Varna 2006 EOOD
Sofia Office Building, Sofia Nedlands Estate Inc. - 70
Varna Gardens, Varna Orchid Gardens Varna EOOD 1,549 1,528
Varna Hills Residential project Orchid Seaside Apartments EOOD - -
Sofia Hills Residential project Orchid Sofia Hills EOOD 147 -
Ring Road Orchid Capital Properties EOOD 2 -
Airport City Commercial project Orchid Airport City Sofia 2006 EOOD 3 -
Logistic Centre Orchid Logistic Centers EOOD 405 -
8,244 2,224
Sofia Office Building is a project which was undertaken in 2004. At present
there is a court claim against PFP Ltd for the non-execution of the contract by
PFP Ltd. For more information please refer to Note 0 'Court claims'.
Any depreciation charges are included in line 'Depreciation' in the Income
Statement.
4. Investment in associates
The Group holds a 30 per cent voting and equity interest in Kohav OOD, which
will act as a managing company for entertainment and leisure complexes.
The carrying value of investments in associates is set out as follows:
2007 2007 2006 2006
Euro'000 Share % Euro'000 Share %
Acquisition of share capital 1 30 1 30
Goodwill 313 30 313 30
Share of previous years' losses (28) 30 (19) 30
Share of current year loss (9) 30 (9) 30
277 30 286 30
The investment in associates is accounted for under the equity method.
Financial information for Kohav OOD is summarised as follows for the period
ended 31 December 2007:
2007 2006
Euro'000 Euro'000
Assets 1,082 1,116
Liabilities (11) (8)
Revenue 46 49
Loss (31) (31)
Loss attributable to the Group (9) (9)
As of 31 December 2007 the total recognised loss for the Group from 2004 to 2007
amounts to 37,000.
The carrying amount presented on the balance sheet includes goodwill recognised
on the initial acquisition of Kohav OOD in year 2004. In 2007 the Group did not
receive any dividends (2006: Nil).
5. Goodwill
The net carrying amount of goodwill is analysed as follows.
Goodwill
Euro'000
At 1 January 2006
Cost 1,638
Net book amount 1,638
Year ended 31 December 2006
Opening net book amount 1,638
Additions 1
Closing net book amount 1,639
At 1 January 2007
Opening net book amount 1,639
Transfer of goodwill to non-current asset held for sale (1,636)
Closing net book amount 3
At 31 December 2007
Cost 3
Net book amount 3
The goodwill transferred to non-current asset held for sale is related to the
acquisition of Zoltar Investment Holdings Inc. by the Group in 2004.
An internal valuation was carried out by management in order to test the
goodwill amounting to 1,636,000 attributable to Yavor Hotel. According to the
valuation, the fair value of the investment less costs to sell was estimated to
be higher than the carrying amount of this cash generating unit. The key
assumptions used by management in calculating the fair value less costs to sell
are offers by potential buyers and a preliminary agreement signed for the sale
of the hotel.
In 2007 a contract was signed for the sale of the subsidiary to which the
goodwill refers.
In 2007 two companies, Infocan Ltd. and Digital Magic Ltd., were acquired by the
Group although no goodwill resulted from the acquisition. Their assets and
liabilities are significant for the Group and details about the transactions are
disclosed in Note 0 'Acquisitions of Infocan Ltd. and Digital Magic Ltd'.
6. Acquisitions of Infocan Ltd. and Digital Magic Ltd.
6.1 Acqusition of Infocan Ltd.
One of the Group subsidiaries (Lakan Investment Ltd.) acquired 100% of the share
capital of Infocan Ltd. on 6 November 2007.
The details of the acquisition of Infocan Ltd. are as follows:
6 November 2007
Euro '000
Purchase consideration in cash paid 7,355
Fair value of net assets acquired at acquisition date (7,355)
Goodwill -
There were no revenues or profit/loss recognised by the acquired company prior
to the acquisition date. The amount of the Group's share in the Company's loss
since the acquisition date until 31 December 2007 was 14,000.
The assets and liabilities arising from the acquisition of Infocan Ltd. were as
follows:
Book value Adjustments Fair value
6 November 6 November 2007 6 November
2007 2007
Euro'000 Euro'000 Euro'000
Property, plant and equipment 6,285 1,040 7,325
Cash and cash equivalents 41 - 41
Short-term loans from the Group (6,315) 6,315 -
Other liabilities (11) - (11)
Fair value of net assets acquired at acquisition date - 7,355 7,355
The fair value adjustments reflect the characteristics of the assets in terms of
location and development opportunities for implementation of new projects, which
are to be carried out by exploiting the acquired assets. There were no revenues
or profit/loss recognised by the acquired company prior to the acquisition date.
Therefore, the Group accounted for the acquisition as obtaining a new asset
rather than a business.
6.2 Acqusition of Digital Magic Ltd.
Orchid Developments Group Ltd. acquired 100% of the share capital of Digital
Magic Ltd. on 19 December 2007. The details of acquisition of Digital Magic Ltd.
are as follows:
19 December 2007
Euro'000
Purchase consideration in cash paid 715
Final payment made after 31 December 2007 170
Fair value of net assets acquired at acquisition date (885)
Goodwill -
The fair value of the net assets approximated to the book value of the net
assets acquired as these were the market prices prevailing at the time the
acquisition was made. In addition, the fair value adjustments reflect the
characteristics of the assets in terms of location and development opportunities
for implementation of new projects, which are to be carried out by exploiting
the acquired assets.
There were no revenues or profit/loss recognised by the acquired company prior
to the acquisition date. Therefore, the Group accounted for the acquisition as
obtaining a new asset rather than a business. Orchid Group's share in the
Company's loss since the acquisition date until 31 December 2007 was Euro nil.
The assets and liabilities arising from the acquisition of Digital Magic Ltd.
were as follows:
Book value Adjustments Fair value
19 December 2007 19 December 2007 19 December 2007
Euro'000 Euro'000 Euro'000
Property, plant and equipment 670 170 840
Cash and cash equivalents 2 - 2
Group other receivables 45 - 45
Short-term loans from Orchid (715) 715 -
Group Other liabilities (2) - (2)
Fair value of net assets acquired at
acquisition date - 885 885
7. Other intangible assets
Software Others Total
Euro'000 Euro'000 Euro'000
Cost 5 9 14
Accumulated amortisation (1) (1) (2)
Net book amount at 1 January 2006 4 8 12
Cost 16 40 56
Accumulated amortisation (5) (4) (9)
Net book amount at 31 December 2006 11 36 47
Cost 10 54 64
Accumulated amortisation (6) (12) (18)
Net book amount at 31 December 2007 4 42 46
The carrying amounts of the other intangible assets presented in the financial
statements at 31 December 2007 are calculated as follows:
Software Others Total
Euro '000 Euro '000 Euro '000
Opening net book amount
at 1 January 2006 4 8 12
Additions 11 31 42
Amortisation charge (4) (3) (7)
Closing net book amount
at 31 December 2006 11 36 47
Additions 1 14 15
Amortisation charge (5) (8) (13)
Transfer of cost related to non-current asset
held for sale (7) - (7)
Transfer of accumulated depreciation related
to non-current asset held for sale 4 - 4
Closing net book amount
at 31 December 2007 4 42 46
No intangible assets were provided as security for Group's liabilities.
8. Other assets
Other assets comprise of capitalised brokerage fees amounting to Euro135,000.
These were paid to Colliers International for their brokerage services in regard
to tenants in the Grand Mall project.
9. Long-term loans due from associates
The amount of Euro277,000 (2006: Euro356,000) recognised in the balance sheet
refers to loan receivables from Kohav OOD, which is an associate company to
Crockett S.A belonging to Orchid Group. The long -term loan was discounted for
a period of 4 years, with an interest rate EUROLIBOR +2%. The interest charges
reported as a result of the discount are Euro79,000. Refer to note 0 on the
effect of the discount.
10. Deferred tax assets
Deferred tax arising from temporary differences and unused tax losses under the
liability method, using a principal tax rate for 2007 of 10% according to the
Bulgarian Corporate Income Tax Act, can be summarised as follows.
2007 2006
Euro'000 Euro'000
Temporary differences 18 8
Unrecognised unused tax losses from previous years 64 79
Unused tax losses from current year 87 34
169 121
The management is satisfied in view of the on going plans and projects that the
tax losses will be used. See note 0 for further information on the Group's
income tax expense.
11. Development work in progress
Notes 2007 2006
Euro'000 Euro'000
Sofia Hills residential project 0 1,198 1,997
Varna Hills residential project 0 4,864 914
6,062 2,911
Notes 2007 2006
Euro'000 Euro'000
Development costs expensed in the Income 6,358 4,960
Statement
Recognised profits 968 1,367
7,326 6,327
Notes 2007 2006
Euro'000 Euro'000
Advances received 0 1,482 412
Development contracts-due from customers for 0 4,920 4,144
development contracts
The retentions amount to Euro5,168,000 (Euro5,670,000). Retentions will be
payable by the customer upon acceptance of the work done. The remaining balance
of advances received for development contracts are included in Note 0, Trade
payables.
11.1. Development work in progress for Sofia Hills residential project
Development work in progress for Sofia Hills residential project includes land
of value Euro776,000 of which Euro198,000 (2006: Euro383,000) was written off as
development costs. The current project phase is expected to be completed by the
first half of 2008.
The Group has signed contracts for the sale of 155 apartments with a total value
of Euro11,337,000 (2006: Euro9,547,000) (excluding value added tax), of which
Euro11,087,000 has been recognised cumulatively as revenue corresponding to the
signed contracts and adjusted with the percentage of completion of the
development work. The percentage of completion of the project works as of 31
December 2007 has been determined by an independent valuer and is 98% (2006:
85%) of the development costs of the whole project.
As at 31 December 2007 the Group incurred cumulative development costs totalling
Euro9,856,000 (excluding value added tax). The costs recognised correspond to
the apartments sold. Euro3,000,000 (2006: Euro4,960,000) has been recognised as
current year development costs in the income statement. The remaining amount of
Euro1,198,000 (2006: Euro1,997,000) is accounted for as development work in
progress.
11.2 Development work in progress for the Varna Hills residential project
Development work in progress for Varna Hills residential project includes land
of value Euro303,000, of which Euro64,000 was allocated as development costs.
The current project include 3 stages of which stage 1 and stage 2 (336
apartments) are in progress and respectively income and development cost are
recognised.
The Group has signed contracts for the sale of 141 apartments units with a total
value of Euro6,331,000 (excluding value added tax), of which Euro4,261,000 has
been recognised cumulatively as revenue corresponding to the signed contracts
and adjusted by the percentage of completion of the development work. The
percentage of completion of the project works as of 31 December 2007 has been
determined by an independent valuer and is 75% (stage 1) and 41% (stage 2) of
the development costs of the whole project.
As at 31 December 2007 the Group incurred cumulative development costs for the
three stages totalling Euro8,221,000 (excluding value added tax). The cost
recognised corresponds to the apartments sold. Euro3,357,000 has been recognised
as current year development costs in the income statement. The remaining amount
of Euro4,864,000 (2006: Euro914,000) is accounted for as development work in
progress.
12. Inventories
2007 2006
Euro'000 Euro'000
Materials 3 59
Expenses for materials for a total amount of Euro249,000 were recognised in the
Income Statement in 2007 (2006: Euro350,000) under 'Cost of materials'.
13. Development contract receivables
The development contract receivables amounting to Euro4,920,000 (2006:
Euro4,144,000) represent the receivables from customers of Sofia Hills and Varna
Hills residential projects. The amount is net of the advances received from
these customers as at 31 December 2007. Please refer to Note 0 'Development work
in progress' for more information about development contracts.
14. Trade receivables
2007 2006
Euro'000 Euro'000
Advances for development work paid to subcontractors and suppliers 2,514 2,083
Receivables from tour operators 56 214
Others 53 71
2,623 2,368
2007 2006
'000 '000
Trade receivables, gross 2,633 2,517
Impairment of trade receivables (10) (149)
Trade receivables, net 2,623 2,368
Trade receivables are usually due within 45 days and do not bear any effective
interest rate. All trade receivables are subject to credit risk exposure.
However, the Group does not identify specific concentrations of credit risk
concerning trade and other receivables, as the amounts recognised consist of a
large number of receivables from various customers.
15. Tax receivables
2007 2006
Euro'000 Euro'000
Refundable VAT 786 545
Others 156 7
Trade receivables, net 942 552
The refundable VAT is attributable to the following companies within the Group:
2007 2006
Euro'000 Euro'000
Yavor Zlatni Piassatsi AD - 287
Orchid Seaside Apartments EOOD 72 126
Orchid Sofia Hills EOOD 7 123
OM Razvitie EOOD 10 6
Orchid Multi Complex Varna OOD 604 3
Orchid Centre Varna EOOD 67 -
Orchid Gardens Varna EOOD 26 -
786 545
16. Other receivables
2007 2006
Euro'000 Euro'000
Insurance 9 5
Prepayments 178 125
Rents depositis 34 13
Advances to employees 11 19
Court claims 106 106
Others 38 44
376 312
17. Cash and cash equivalents
2007 2006
Euro'000 Euro'000
Fiduciary deposits 2,500 4,366
Cash at bank 3,416 2,191
Cash in hand 34 37
5,950 6,594
Fiduciary deposits of Euro2,500,000 are held by the Group. They represent
investments in the form of time deposits for up to 2 days. The amounts are
invested by Union Bancaire Privee, Switzerland (the Bank) on behalf of the
Company at the discretion of the Bank with its subsidiaries or branches as well
as with banks or companies.
18. Equity
18.1 Share capital structure
Authorised share capital 2007 2007 2006 2006
number Euro '000 number Euro '000
Ordinary shares of Euro0.01 each 100,000,000 1,000 100,000,000 1,000
2007 2007 2006 2006
Alloted, called up and fully paid number Euro '000 number Euro '000
Ordinary shares of Euro0.01 each 75,966,260 760 75,754,442 758
Movements in share capital for the year ended 31 December 2007 were as follows:
Analysis of movements in shares 2007 2007 2006 2006
number Euro '000 number Euro '000
Shares issued:
- at the beginning of the period 75,754,442 758 63,416,432 634
- new share issue 211,818 2 12,338,010 124
Shares outstanding and fully paid
at 31 December 2007 75,966,260 760 75,754,442 758
During the year 211,818 shares were issued to satisfy share options previously
granted under Orchid Developments Group employee share option scheme.
18.2 Share options
Share options were granted to the chairman of the board and to selected
employees. The Options have different vesting periods that are divided in
tranches with lengths between six months and three years. The exercise price of
the granted options is equal to the market price except for certain options
granted in the IPO.
The movements in the number of share options outstanding and their related
weighted exercise price are as follows:
2007 2007 2006 2006
Euro per share '000 Euro per share '000
Average Number Average Number
exercise Option exercise Option
price price
At 1 January 1.49 802 1.23 423
Granted - - 2.05 379
Exercised 0.97 (212) - -
At 31 December 1.67 590 1.62 802
Out of the 802,000 outstanding options, 212,000 were exercised in 2007, and
365,000 are exercisable.
Share options outstanding at the end of the year have the following expiry date
and exercise prices:
2007 2006
Euro per share '000 '000
Average Options Options
exercise
price
30 June 2006 1.29 35 247
30 June 2007 1.63 330 330
30 June 2008 1.79 225 225
1.67 590 802
The weighted average fair value of options granted determined using the
Black-Scholes valuation model was Euro0.73 per option. The significant inputs
into the model were a weighted average share price of Euro1.87 at the grant
date, the exercise prices shown above, volatility of 20% and expected option
life of 2 years, and an annual risk free interest rate of 4.82%. The volatility
measured at the standard deviation of continuously compounded share returns is
based on statistical analysis of monthly share prices since the IPO.
In 2007 the expense for share options charged in the income statement was
Euro104,000 (2006: Euro 226,000).
18.3 Share premium
The share premium amounting to Euro64,216,000 (2006: Euro63,996,000) as at 31
December 2007 comprises the difference between the price paid for the issued
shares of Orchid Developments Group Ltd. and their par value.
18.4 Earnings/ (Loss) per share
Both the basic and diluted earnings (loss) per share have been calculated using
the net results attributable to shareholders of the Group as the numerator.
The weighted average number of shares used to calculate basic earnings (loss)
per share and the profit (loss) attributable to shareholders is as follows:
Continuing operations 2007 2006
Euro Euro
Profit /(loss) from continuing operations (3,090,000) 3,525,000
Weighted average number of ordinary shares in issue 75,870,507 68,622,058
Basic earnings /(loss) (Euro per share) from continuing operations (0.04) 0.05
Discontinued operations 2007 2006
Euro Euro
Loss from discontinued operations (126,000) (145,000)
Weighted average number of ordinary shares in issue 75,870,507 68,622,058
Basic loss (Euro per share) from discontinued operations (0.002) (0.002)
Total operations 2007 2006
Euro Euro
Loss from total operations (3,216,000) 3,380,000
Weighted average number of ordinary shares in issue 75,870,507 68,622,058
Basic (loss)/earnings (Euro per share) from total operations (0.042) 0.049
Diluted loss per share is calculated adjusting the weighted average number of
ordinary shares to assume conversion of all dilutive potential ordinary shares.
The Group has one category of dilutive potential ordinary shares being share
options granted which are assumed to have been converted into ordinary shares.
Continuing operations 2007 2006
Euro Euro
Profit /(Loss) attributable to equity holders of the Group from continuing (3,090,000) 3,525,000
operations
Weighted average number of ordinary shares in issue 75,870,507 68,622,058
Adjustments for - assumed conversion of share options 706,010 612,377
Weighted average number of ordinary shares
for diluted earnings per share 76,546,517 69,234,435
Diluted earnings (loss) per share (Euro per share) (0.04) 0.05
Discontinued operations 2007 2006
Euro Euro
Profit /(Loss) attributable to equity holders of the Group from continuing (126,000) (145,000)
operations
Weighted average number of ordinary shares in issue 75,870,507 68,622,058
Adjustments for - assumed conversion of share options 706,010 612,377
Weighted average number of ordinary shares
for diluted earnings per share 76,576,517 69,234,435
Diluted loss per share ( per share) (0.002) (0.002)
Total operations 2007 2006
Euro Euro
Profit /(Loss) attributable to equity holders of the Group from continuing
operations (3,216,000) 3,380,000
Weighted average number of ordinary shares in issue 75,870,507 68,622,058
Adjustments for - assumed conversion of share options 706,010 612,377
Weighted average number of ordinary shares
for diluted earnings per share 76,576,517 69,234,435
Diluted loss per share (Euro per share) (0.042) 0.049
The amounts per share are not influenced by any tax consequences.
19. Loans from bank and financial institutions
2007 2006
Euro'000 Euro'0000
Bank loan 4,698 4,992
Loan note 7,000 -
11,698 4,992
The loans comprise the following components:
2007 2006
Euro'000 Euro'0000
Non-current borrowing 4,111 4,698
Current borrowing 7,587 294
11,698 4,992
The bank loan is secured by pledges of going concern of O.M. Razvitie EOOD and
Yavor Zlatni Piasatsi AD.
The current interest rate is variable and averaged 8.07% (2006: 6.99%).
The loan note was issued by Lakan Investment Ltd. (fully owned subsidiary). It
has a fixed interest rate of 14.29% and will mature in August 2008. The loan is
secured by different plots of land owned by the Group.
All loans are denominated in Euros.
20. Lease liabilities
20.1 Finance lease liabilities
Orchid Developments Group Ltd. currently has five finance lease agreements as at
31 December 2007, which relate to vehicles. The net carrying amount of the
vehicles held under the leases in 2007 is Euro68,000 (2006: Euro108,000). The
vehicles are included in note 0 Property, plant and equipment.
2007 2006
Euro '000 Euro '000
Finance lease liability - non-current portion 22 50
Finance lease liability- current portion 27 31
49 81
Future minimum lease payments are as follows: Up to 1 year From 2 Total
to 5 years
Euro '000 Euro '000 Euro '000
Lease payments 30 23 53
Discounts (3) (1) (4)
Net present value 27 22 49
The lease agreements include fixed lease payments and a purchase option at the
end of three-year lease term. The agreements are non-cancelable but do not
contain any further restrictions.
20.2 Operating lease
Operating lease expenses in 2007 were as follows:
2007 2006
Euro '000 Euro '000
Rental expenses 117 56
The Group's future minimum operating lease payments are as follows:
Up to 1 year From 2 to 5 Total
years
Lease Payments Euro '000 Euro '000 Euro '000
As at 31 December 2006 72 133 205
As at 31 December 2007 122 185 307
The rent agreements signed by the Group for the rent of the offices located in
Sofia and Varna do not contain any contingent rent clauses. The contracts do not
contain purchase options.
21. Trade payables
2007 2006
Euro '000 Euro '000
Advances from customers for residential units sold 1,482 412
Liabilities to building companies 2,215 871
Advances from clients for tourist services 9 13
Provisions related to disposal of subsidiary 129 400
Others 560 415
4,395 2,111
Management considers the carrying amounts recognised in the balance sheet for
trade payables to be a reasonable approximation of their fair value.
22. Tax liabilities
2007 2006
Euro '000 Euro '000
VAT liabilities 268 265
Corporate income tax liabilities 38 109
Personal income tax 8 24
Other 3 7
317 405
23. Employees
23.1 Employee compensation and benefit expenses
Employee compensation and benefit expenses include:
2007 2006
Euro '000 Euro '000
Wages and salaries (2,001) (1,904)
Social security (81) (78)
Share option scheme (104) (226)
(2,186) (2,208)
23.2 Payables to employees and social security institutions
2007 2006
Euro '000 Euro '000
Wages and salaries 258 434
Social security 19 11
277 445
Out of the total amount of the salaries payable Euro110,000 (2006: Euro219,000)
relates to remuneration for the Directors. Please refer to the Directors'
Remuneration Report for more information.
24. Revenue
2007 2006
Euro '000 Euro '000
Recognised income from residential units sold 7,326 6,327
Services rendered 709 952
Goods sold - 135
Other income 76 61
8,111 7,475
The revenue of the non-current asset held for sale is presented in Note 0.
25. Interest income and interest expense
The following amounts have been included in the Income Statement for the
reporting periods presented:
2007 2006
Euro'000 Euro'000
Interest expense
Interest expense resulting from the bank loan (402) (350)
Interest for discount of long-term receivable from associates (79) -
Other interest expenses (6) (5)
(487) (355)
2007 2006
Euro'000 Euro'000
Interest income
Interest income resulting from fiduciary deposits 283 289
Other interest income 3 4
286 293
26. Financial expenses
2007 2006
Euro'000 Euro'000
Exchange rate loss (19) (51)
Bank charges (37) (36)
EBRD - fees and charges (312) (509)
(368) (596)
27. Income tax expense
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.
The net actual tax expenses are as follows:
2007 2006
Euro'000 Euro'000
Profit /(loss) of Orchid Group for the year (3,142) 3,758
Profit attributable to Bulgarian companies, the financial result of which 376 1,547
is taxable in Bulgaria
Corporate income tax rate 10% 15%
Current tax expense (37) (232)
Deferred tax income /(expense) related to Bulgarian companies:
- origination of temporary differences related to losses 118 53
- origination of temporary differences related to thin capitalisation - 6
- adjustment for tax rate differences - (49)
- reversal of temporary rate differences (29) (11)
Actual tax income/(expense), net 52 (233)
Please refer to Note 0 Deferred tax assets for information on Group's deferred
tax assets.
28. Non-current asset held for sale
The non-current asset held for sale represents a subsidiary of Orchid
Developments Group Ltd.,Yavor Zlatni Piasatci AD, which operates the Yavor hotel
in Golden Sands Resort, Varna.
The results from re-measurement and disposal of balance sheet items classified
as held for sale can be classified as follows:
2007 2006
Euro'000 Euro'000
Assets
Non -current
Property, plant and equipment 3,659 3,549
Goodwill 1,635 -
Other non-current assets 46 83
Total non-current assets 5,340 3,632
Current
Cash and cash equivalents 121 201
Trade receivables 46 298
Other current assets 109 337
Total current assets 276 836
Total assets 5,616 4,468
Liabilities 2007 2006
Euro'000 Euro'000
Trade and other current lliabilities 19 97
Total liabilities 19 97
Income Statement 2007 2006
Euro'000 Euro'000
Revenue 670 800
Cost of materials (206) (314)
Hired services expenses (135) (175)
Employee compensation and benefit expenses (233) (255)
Deprecation and amortisation (151) (153)
Other expenses (65) (44)
Operating loss (120) (141)
Financial expenses, net (3) (4)
Loss for the year before tax (123) (145)
Tax expenses, net (3) -
Net loss for the year (126) (145)
Cash Flows 2007 2006
Euro'000 Euro'000
Net cash flows from operating activities 361 (51)
Net cash flows from investing activities (326) (9)
Net cash flows from financing activities (115) 211
Cash and cash equivalents, beginning of year 201 50
Net increase /(decrease) in cash and cash equivalents (80) 151
Cash and cash equivalents, end of year 121 201
The directors are satisfied that the realizable value is in excess of the net
book value of the investment held for sale.
29. Related parties transactions
The Group's related parties include the Group's key management and directors.
In December 2005 the Board approved that the Directors could purchase apartments
from the Sofia Hills residential project at the project's price list for an
aggregate amount up to Euro500,000. Guy Meyohas, Ofer Miretzky and Ron Grushka
exercised this right.
Other shareholders also purchased apartments in the project under the Group's
standard contractual terms and conditions. Those transactions are not considered
as related parties transactions.
None of the transactions incorporate special terms and conditions and no
guarantee has been given or received.
Orchid Developments Group Ltd. has not paid dividends to shareholders in 2007.
Should dividends have been paid, there would not be tax consequences for the
company as it is tax exempt.
At 31 December 2007 the details of the signed contracts are as follows:
Related party Number of Total price Pre-paid amount
purchased
apartments
Euro'000 Euro'000
Guy Meyohas and Ofer Miretzky (in Orchid Sofia Hills) 2 392 151
Ron Grushka (in Orchid Sofia Hills) 3 247 121
Ofer Miretzky (in Orchid Varna Hills) 4 249 44
The Directors' shareholdings are disclosed in the Director's Report.
Please refer to Note 21.1 Share capital structure for information on the
entity's fully paid share capital.
29.1 Year-end balances
Receivables 2007 2006
Euro'000 Euro'000
Receivables related to the sale of apartments of Orchid Sofia Hills 290 228
Receivables related to the sale of apartments of Orchid Varna Hills 99 -
Receivables from key management 23 5
412 233
Payables
Loan to key management 30 30
The receivables are calculated on the basis of stage of completion less the
advances already paid.
30. Contingent liabilities
30.1 Court claims
There are no pending court claims against the Group, nor any circumstances
concerning the Group to give rise to claims.
The Group signed an agreement with PFP Ltd., Bulgaria on 12 June 2004 to acquire
50 % of the share capital of PFP Ltd. in exchange for investment in the company
amounting to Euro875,000. According to the agreement, Nedlands Estate Inc.
should provide the financing required to perform the project. The project
includes the construction of a building for commercial and office purposes,
located in the centre of Sofia. The amount of the consideration is determined as
the value of an apartment owned by PFP Ltd. (Euro75,000) and the value of the
plot on which the building will be constructed (Euro800,000).
As at 31 December 2007, no share capital has been issued by PFP Ltd. Nedlands
Estate Inc. has made an advance payment of Euro102,000 to architects in relation
to the project. PFP Ltd. has not executed its obligations under the agreement
and therefore Nedlands Estate Inc. has filed a court claim for non execution of
the agreement. On 28 November 2007 Nedlands Estate Inc. won the claim entitling
it to receive from PFP Ltd. the amount of 208,000 BGN.
On 21 February 2007 Nedlands Estate Inc. entered a new claim in the commercial
division of the Sofia City Court against PFP Ltd. and against Chardash Trading
Ltd. under article 135 of the Commercial Act. The claim has been entered due to
the fact that PFP Ltd. has sold its plot to Chardash Trading Ltd. while Nedlands
Estate Inc., being PFP Ltd.'s creditor under the previous judgement, has an
attachment over the plot as a guarantee of the previous claim. In March 2007
this claim was entered in the Register Agency as a burden over the plot till the
end of the court proceedings. As at 31 December 2007 no final Court judgement
has been given.
There is a court claim challenging the validity of an agreement for voluntary
partition executed with regard to two of the sites No 1724 and No 1088 included
in a plot of land with an area of 10 326 square metres belonging to Orchid Sofia
Hills EOOD. The claim was submitted by Toshko and Evelina Goranov on 18 June
2002. Orchid Sofia Hills is not a party to this claim. The claim has been
rejected in the first two court instances. Toshko and Evelina Goranov have
appealed to the Supreme Court that decided that the decision of the Court of
Appeal should be revoked and the case was then returned for consideration to the
Court of Appeal.
30.2 Contingencies in regard to sale of subsidiary
In 2006 the Group disposed of Snowside Limited which was the ultimate owner of
the Porsche Building in Sofia, Bulgaria. The Group guaranteed minimum rent for
the available space of the building at the date of sale for a period of 3 years.
The Group had made a provision of Euro400,000 in 2006. A sum of Euro271,000 was
used up to 31 December 2007. The Group considers that the remaining provision of
Euro129,000 is adequate and in accordance with current rental levels and demand
for the building. If lease agreements are concluded for a higher rent amount
than the guaranteed rent, the purchaser has the obligation to pay additional
amounts calculated by the annual difference in rents multiplied by 12.9.
30.3 Copies of Report
This preliminary announcement, which does not constitute statutory accounts, has
been extracted from the audited statutory financial statements of the Group for
the year ended 31 December 2007.
Copies of the group's audited statutory accounts for the year ended 31 December
2007 will be dispatched to shareholders and the AIM team on 18th April. Copies
will also be available to the public on request at the company's office
This information is provided by RNS
The company news service from the London Stock Exchange