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Nanette Real Estate Group NV

'Nanette' or 'the Group'

Q1 Financial Results 2009

Nanette Real Estate Group, the Central & Eastern European focused residential real estate developer is pleased to announce its unaudited financial results, for the 3 months ended 31 March 2009.

Financial Highlights 

• Turnover €956 k (€9.4 m Q1 2008)

• €956 k income from sales of apartments (€9.4 m Q1 2008)

• Loss before tax: €7.5 m (Profit €1.3 m Q1 2008)

Operational Highlights

• 54 apartments sold in the period (112 Q1 2008) 

• 77 apartments were recognized in the revenues (169 Q1 2008)

• 2,676 apartments sold in total

• Total land-bank not recognized to profit 11,920, apartments (11,567 Q1 2008) excluding investment properties,  which includes land of 617,000 sqm in Hungary Poland and Ukraine 

Outlook

The loss in these financial statements caused primarily by exposure to weakening currencies in CEE. This resulted in unrealised foreign exchange losses for the company, without effect on the local market activity, where each country is independently operated. In the current currency's exchange rate the company will recognize back part of the losses in the second quarter.

Despite the current global weakening, the company is encouraged by the positive activity in Poland, where the market has peaked up again at the end of February and in the last three months it sold more than 100 flats, which represents a substantial growth, compared to the total number of flats it sold (86) during the whole year of 2008.

Shaul Lotan, Chairman, and Oscar Kazanelson CEO, commentated:

'Despite the current global economic situation, which affected the real estate development sector in the region, the company has continued to present sustainable sales for long term profitability. The company believes that there is still a significant demand for high quality residential property in Central and Eastern Europe, as recently was demonstrated in Poland.'

'The Company, with its highly capable management team and diversified portfolio, combined with its recent financing and refinancing facilities, will expedite the projects' development in accordance with its business plan. These facilities are providing Nanette an additional leverage and demonstrating the Company's strong positions in the local markets were it is active.'  

 

26th May 2009

Enquiries:

Nanette Real Estate
	Shaul Lotan		+ 31 20 778 4141
	Eyal Keltsh		+ 48 606 141 201
Global Equity IR
	Amira Bardichev		07956 206270
KBC Peel Hunt
	Capel Irwin		0207 418 8900
	Nicholas Marren

CONSOLIDATED BALANCE SHEETS

Euro in thousands

		March 31,				December 31,
		2009		2008		2008
		Unaudited				Audited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		16,228		31,190		22,056
Deposits		19,991		48,229		22,657
Trade and other receivables		3,029		9,434		7,351
Inventory of land and housing units		28,134		97,328		24,330
		67,382		186,181		76,394
NON-CURRENT ASSETS:
Land		34,584		17,983		43,130
Investment properties		14,639		18,354		17,036
Furniture and equipment		168		143		170
Other financial assets		15,865		40,253		16,746
Goodwill		370		2,269		455
Deferred tax asset		1,421		802		357
Investment in associates (Note 3)		53,102		452		52,114
		120,149		80,256		130,008
Total assets		187,531		266,437		206,402

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

  

CONSOLIDATED BALANCE SHEETS

Euro in thousands

		March 31,				December 31,
		2009		2008		2008
		Unaudited				Audited
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Interest bearing loans and borrowings		28,783		24,889		32,929
Trade and other payables		5,700		19,894		6,302
Customer advances		8,448		23,321		9,484
		42,931		68,104		48,715
NON-CURRENT LIABILITIES:
Interest bearing loans and borrowings		70,581		104,733		75,206
Other liabilities		2,554		1,483		2,482
Deferred tax liability		454		2,453		96
		73,589		108,669		77,784
Total liabilities		116,520		176,773		126,499
EQUITY:
Equity attributable to equity holders of the parent:
Share capital		3,449		3,435		3,449
Share premium		67,473		67,415		67,473
Treasury shares		(527)		-		(527)
Other reserves		(1,489)		272		486
Retained earnings		1,990		18,262		8,906
		70,896		89,384		79,787
Minority interests		115		280		116
Total equity		71,011		89,664		79,903
Total liabilities and equity		187,531		266,437		206,402

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

May 21, 2009
Date of approval of the		Shaul Lotan		Oscar Katzenelson		Ran Jacobs
financial statements		Chairman of the  Board of Directors		Director and CEO		Director and CFO

  

CONSOLIDATED STATEMENTS OF INCOME

Euro in thousands (except per share data)

		Three months ended March 31,				Year ended December 31,
		2009		2008		2008
		Unaudited				Audited
Revenues		956		9,369		26,529
Cost of revenues		742		7,251		20,921
Gross profit		214		2,118		5,608
Fair value adjustment of investment property		-		-		1,969
		214		2,118		7,577
Marketing, general and administrative expenses		1,190		1,397		6,351
Operating profit (loss)		(976)		721		1,226
Financial costs		(13,490)		(3,865)		(27,685)
Financial income		6,594		4,041		25,272
Share in profit (loss) of associates		340		(200)		1,180
Other income		-		588		6,330
Profit (loss) before taxes on income		(7,532)		1,285		6,323
Taxes on income (tax benefit)		(612)		344		701
Profit (loss) for the period		(6,920)		941		5,622
Attributable to:
Equity holders of the parent		(6,916)		727		5,529
Minority interest		(4)		214		93
		(6,920)		941		5,622
Earnings (loss) per share attributable to equity holders of the parent (in Euro):
Basic and diluted		(0.04)		-		0.03

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Three months ended March 31,				Year ended December 31,
		2009		2008		2008
		Unaudited				Audited
Profit (loss) for the period		(6,920)		941		5,622
Other comprehensive income (loss):
Currency translation differences		(534)		339		(392)
Group's share in other comprehensive income (loss) of associates		(1,438)		3		(2,198)
Other comprehensive income (loss) for the period, net of tax		(1,972)		342		(2,590)
Total comprehensive income (loss) for the period, net of tax		(8,892)		1,283		3,032
Attributable to:
Equity holders of the parent		(8,891)		1,057		2,910
Minority interests		(1)		226		122
		(8,892)		1,283		3,032

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 

Euro in thousands

		Attributable to equity holders of the parent
		Share		Share		Treasury		Other		Retained				Minority		Total
		capital		premium		shares		reserves		earnings		Total		interests		equity
Balance at January 1, 2008 (audited)		3,435		67,415		-		(58)		17,535		88,327		568		88,895
Total comprehensive income (loss) for the period		-		-		-		(2,619)		5,529		2,910		122		3,032
Exercise of options		14		58		-		-		-		72		-		72
Treasury shares		-		-		(527)		-		-		(527)		-		(527)
Dividend paid		-		-		-		-		(10,995)		(10,995)		-		(10,995)
Dividend to minority interest		-		-		-		-		-		-		(159)		(159)
Acquisition of minority interest		-		-		-		-		-		-		(415)		(415)
Reclassification according to statutory requirements		-		-		-		3,163		(3,163)		-		-		-
		14		58		(527)		3,163		(14,158)		(11,450)		(574)		(12,024)
Balance at December 31, 2008 (audited)		3,449		67,473		(527)		486		8,906		79,787		116		79,903
Total comprehensive loss for the period		-		-		-		(1,975)		(6,916)		(8,891)		(1)		(8,892)
Balance at March 31, 2009 (unaudited)		3,449		67,473		(527)		(1,489)		1,990		70,896		115		71,011

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 

Euro in thousands

		Attributable to equity holders of the parent
		Share		Share		Treasury		Other		Retained				Minority		Total
		capital		premium		shares		reserves		earnings		Total		interests		equity
Balance at January 1, 2008 (audited)		3,435		67,415		-		(58)		17,535		88,327		568		88,895
Total comprehensive income for the period		-				-		330		727		1,057		226		1,283
Dividend to minority interest		-				-		-		-		-		(102)		(102)
Acquisition of minority interest		-				-		-		-		-		(412)		(412)
Balance at March 31, 2008 (unaudited)		3,435		67,415		-		272		18,262		89,384		280		89,664

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Euro in thousands

		Three months ended March 31,				Year ended December 31,
		2009		2008		2008
		Unaudited				Audited
Cash flows from operating activities:
Profit (loss) for the period		(6,920)		941		5,622
Adjustments for:
Non-cash:
Depreciation		7		19		40
Financial costs		13,490		3,865		27,685
Financial income		(6,594)		(4,041)		(25,272)
Taxes on income (tax benefit)		(612)		344		701
Other income		-		(482)		370
Share of loss (gain) in associate		(340)		200		(1,180)
Gain on sale of interest in joint ventures and subsidiaries		-		-		(6,527)
Fair value adjustment of investment property		-		-		(1,969)
		5,951		(95)		(6,152)
Working capital adjustments:
Decrease (increase) in trade and other receivables		3,596		3,925		(1,114)
Increase in inventory of land and housing units		(1,846)		(12,708)		(29,310)
Decrease in trade and other payables		(131)		(1,582)		(4,014)
Increase in customer advances		342		982		2,462
		1,961		(9,383)		(31,976)
Interest paid		(279)		(3,520)		(9,294)
Interest received		788		3,598		8,973
Income tax paid		(238)		(888)		(958)
		271		(810)		(1,279)
Net cash provided by (used in) operating activities		1,263		(9,347)		(33,785)

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

  CONSOLIDATED STATEMENTS OF CASH FLOWS

Euro in thousands

		Three months ended March 31,				Year ended December 31,
		2009		2008		2008
		Unaudited				Audited
Cash flows from investing activities:
Acquisition of subsidiaries, net of cash acquired (a)		-		-		(29,855)
Deconsolidation of proportionately consolidated company (b)		-		-		(4,624)
Initially proportionately consolidated company (formerly a subsidiary) (c)		-		-		24,152
Exercise of option granted to minority		-		-		(582)
Loans granted, net		(4,850)		(4,973)		(5,862)
Restricted bank deposits, net		(578)		(33,330)		(12,735)
Purchases of furniture and equipment		-		-		(74)
Net cash used in investing activities		(5,428)		(38,303)		(29,580)
Cash flows from financing activities:
Short-term loans, net		-		-		2,995
Issue of debentures, net of issue costs		-		-		24,402
Repayments and reacquisition of debentures		(1,230)		-		(18,025)
Receipt of long-term loans		1,267		14,704		32,363
Repayments of long-term loans		-		(6,835)		(14,584)
Dividend paid (Note 5)		-		-		(10,995)
Exercise of options		-		-		72
Purchase of treasury shares		-		-		(527)
Net cash provided by financing activities		37		7,869		15,701
Effect of exchange rate changes on cash and cash equivalents		(1,700)		66		(1,185)
Increase (decrease) in cash and cash equivalents		(5,828)		(39,715)		(48,849)
Cash and cash equivalents at beginning of period		22,056		70,905		70,905
Cash and cash equivalents at end of period		16,228		31,190		22,056

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Euro in thousands

			Three months ended March 31,				Year ended December 31,
			2009		2008		2008
			Unaudited				Audited
(a)	Acquisition of subsidiaries, net of cash acquired
	Assets and liabilities at date of acquisition:
	Working capital (excluding cash and cash equivalents)		-		-		3,713
	Investment property		-		-		(33,568)
			-		-		(29,855)
(b)	Deconsolidation of proportionately consolidated company
	Assets and liabilities at date of deconsolidation:
	Working capital (excluding cash and cash equivalents)		-		-		49,336
	Furniture and equipment		-		-		26
	Investment property		-		-		10,515
	Goodwill		-		-		1,085
	Deferred taxes		-		-		(1,900)
	Long-term receivables		-		-		(11,848)
	Long-term liabilities		-		-		(39,205)
	Investment in associate		-		-		(12,633)
			-		-		(4,624)
(c)	Deconsolidation of proportionately consolidated company
	Assets and liabilities at date of deconsolidation  (see Note 8e):
	Working capital (excluding cash and cash equivalents)		-		-		(2,227)
	Investment properties		-		-		26,812
	Long-term receivables		-		-		(6,113)
	Long-term liabilities		-		-		5,026
	Deferred taxes		-		-		(207)
	Currency translation adjustment		-		-		(407)
	Gain on disposal		-		-		1,268
			-		-		24,152

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

NOTE 1:-    GENERAL

The interim condensed consolidated financial statements of the Company for three months ended March 31, 2009, were authorized for issue in accordance with a resolution of the directors on May 21, 2009.

The Company is a limited liability company incorporated and domiciled in the Netherlands. The address of its registered office is Rapenburgerstraat 204, 1011 Mn Amsterdam, The Netherlands. The Company's shares are publicly traded on AIM in London. In addition, the Company has debentures outstanding which are registered for trading on the Tel-Aviv Stock Exchange.

The Company and its investee companies ('the Group') are engaged in the development, construction and sale of real estate residential projects in Hungary, Poland, Romania, Croatia and Ukraine. 

NOTE 2:-    BASIS OF PREPARATION AND ACCOUNTING POLICIES

a.    Basis of preparation:

The interim financial statement as of March 31, 2009 and for the three months then ended ('the interim statements') have been prepared in a condensed format in accordance with IAS 34, 'Interim Financial Reporting', and should be read in conjunction with the Group's audited annual financial statements and accompanying notes as of December 31, 2008 ('2008 annual financial statements').

b.    Accounting policies:

The accounting policies and methods of computations applied in preparation of the interim condensed consolidated financial statements are consistent with those applied in the 2008 annual financial statements, except for the adoption of new Standards and Interpretations commencing January 1, 2009, as noted below:

    IAS 1 - Revised Presentation of Financial Statements

The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income: it presents all items of recognized income and expense, either in one single statement, or in two linked statements. The Group has elected to present two statements.

    IFRIC 9 - Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement

These amendments to IFRIC 9 require an entity to assess whether an embedded derivative must be separated from a host contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. IAS 39 now states that if an embedded derivative cannot be reliably measured, the entire hybrid instrument must remain classified as at fair value through profit or loss.

    IFRIC 16 - Hedges of a Net Investment in a Foreign Operation

The interpretation is to be applied prospectively. IFRIC 16 provides guidance on the accounting for a hedge of a net investment. As such, it provides guidance on identifying the foreign currency risks that qualify for hedge accounting in the hedge of a net investment, where within the group the hedging instruments can be held in the hedge of a net investment and how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment. 

IFRS 2 - Share-based Payment

Pursuant to an amendment to IFRS 2, the definition of vesting terms will only include service conditions and performance conditions and the cancellation of a grant that includes non-vesting conditions by the Company or the counterparty, will be accounted for by way of acceleration of vesting and not by forfeiture. 

Conditions that are other than service and performance conditions will be viewed as non-vesting conditions and must therefore be taken into account when estimating the fair value of the instrument granted.

IAS 28 - Investment in Associates

Pursuant to an amendment to IAS 28, the test of impairment of an investment in an associate will be carried out with reference to the entire investment. Accordingly, a recognized impairment loss is not allocated specifically but rather attributed to the investment as a whole. Therefore, the entire impairment loss previously recognized may be reversed to the extent that the relevant conditions are satisfied. 

IFRIC 15 - Agreements for the Construction of Real Estate

IFRIC 15 establishes rules for distinguishing between agreements for the construction of real estate under the scope of IAS 11 and similar agreements under the scope of IAS 18. When an agreement is specifically negotiated for the construction of an asset or a combination of assets when the buyer is able to specify the major structural elements and specify any changes therein, the agreement is within the scope of IAS 11. Accordingly, revenue will be recognized by reference to the stage of completion. In contrast, when the buyer has only limited ability to influence the design or to specify only minor variations, the agreement is an agreement for the sale of real estate within the scope of IAS 18. 

The adoption of these amendments did not have any impact on the financial position or performance of the Group.

c.    Improvements to IFRS:

In May 2008, the Board issued its first omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Group.

    IAS 1 Presentation of Financial Statements: Assets and liabilities classified as held for trading in accordance with IAS 39 Financial Instruments: Recognition and Measurement are not automatically classified as current in the statement of financial position. The Group amended its accounting policy accordingly and analyzed whether Management's expectation of the period of realization of financial assets and liabilities differed from the classification of the instrument. This did not result in any re-classification of financial instruments between current and non-current in the statement of financial position.

    IAS 23 Borrowing Costs

The definition of borrowing costs is revised to consolidate the two types of items that are considered components of 'borrowing costs' into one - the interest expense calculated using the effective interest rate method calculated in accordance with IAS 39. 

 

IAS 38 Intangible Assets

Expenditure on advertising and promotional activities is recognized as an expense when the Group either has the right to access the goods or has received the service.

NOTE 3:-    INVESTEES

a.    Composition:

		March 31,				Year ended December 31,
		2009		2008		2008
		Unaudited				Audited
		Euro in thousands
Investment in associates		10,008		452		11,101
Loan to associates		43,094		-		41,013
		53,102		452		52,114

b.    Share of the associate's balance sheet:

		March 31,				Year ended December 31,
		2009		2008		2008
		Unaudited				Audited
		Euro in thousands
Current assets		57,935		4,715		67,281
Non-current assets		39,206		4,235		38,568
Current liabilities		(13,139)		(1,686)		(18,774)
Non-current liabilities		(73,994)		(6,812)		(75,974)
Net assets		10,008		452		11,101

c.    Share of the associate's revenues and profit:

		Three months ended March 31,				Year ended December 31,
		2009		2008		2008
		Unaudited				Audited
		Euro in thousands
Revenues		3,500		-		20,512
Profit (loss)		340		(200)		1,180

d.    In February 2009, the Company (through a wholly-owned subsidiary) completed the purchase from a related party of an additional 15% of the issued and outstanding share capital of Osnova-C, for a nominal consideration of approximately $ 1 thousand (€ 1 thousand). Osnova-C owns vacant land (investment property in the Ukraine). The Company also paid $ 6,000 thousand (€ 4,286 thousand) to acquire shareholders loans previously granted to Osnova-C, and granted a new loan to Osnova-C in the amount of $ 350 (€ 250 thousand). The loans bear interest at an annual rate of LIBOR+5%. Subsequent to this purchase, the Company holds 30% of the share capital of Osnova-C. 

NOTE 4:-    INTEREST-BEARING LOANS AND BORROWINGS

a.    During the first quarter of 2009, the Company purchased its own debentures (series B and series C) on the Tel-Aviv Stock Exchange, at par value of NIS 2.4 million and NIS 10.1 million, respectively for a total consideration of NIS 0.8 million and NIS 5.5 million (approximately € 1.2 million), respectively. The excess of the carrying amount of the debentures acquired over the consideration paid in the amount of € 1.2 million was recorded as a gain in financial income.

b.    On March 25, 2009, Midrug Ltd. downgraded the credit rating of the debentures (series B and C) to the local rating of Baa1.

NOTE 5:-    DIVIDENDS

		Three months ended March 31,				Year ended December 31,
		2009		2008		2008
		Euro in thousands (except per share data)
Dividends on Ordinary shares declared and paid		-		-		10,995
Dividend per share		-		-		0.06

  NOTE 6:-    SEGMENT REPORTING

The Group operates internationally and its organizational structure matches its geographical segments: Hungary and Poland. Accordingly, the division of operations in this manner represents the basis according to which the Group reports data for management purposes. The geographical segments are determined according to the destination countries to which the Group's sales are made, which are identical to the location of assets.

		Hungary		Poland*)		Other		Consolidated
		Euro in thousands
Three months ended March 31, 2009 (unaudited):
Segment revenues		930		-		26		956
Segment results (includes share in profit (loss) of associates)		(227)		299		(20)		52
Unallocated expenses								(688)
Financial costs								(13,490)
Financial income								6,594
Loss before taxes on income								(7,532)

		Hungary		Poland		Other		Consolidated
		Euro in thousands
Three months ended  March 31, 2008 (unaudited):
Segment revenues		1,277		8,048		44		9,369
Segment results (includes share in profit (loss) of associates)		(9)		1,310		17		1,318
Unallocated expenses								(797)
Financial costs								(3,865)
Financial income								4,041
Other income								588
Profit before taxes on income								1,285

Year ended December 31, 2008 (audited):

		Hungary		Poland *)		Other		Consolidated
		Euro in thousands
Revenues		18,322		8,047		160		26,529
Segment results (includes share in profit (loss) of associates)		3,806		2,811		(355)		6,262
Unallocated general corporate expenses								(3,856)
Financial costs								(27,685)
Financial income								25,272
Other income								6,330
Profit before taxes on income								6,323

NOTE 7:-    EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE

In April 2009, the Company sold 50% of its interest in a fully held Hungarian subsidiary (the subsidiary) in consideration of HUF 250 million (€ 850 thousand) which approximates the carrying value of the investment. 

In addition, the purchaser agreed to provide the subsidiary with a shareholder loan in an amount of € 893 thousand. Pursuant to the sale agreement, shares representing 2% of the purchaser's interest in the subsidiary are to be held by a trustee. All of the voting rights in these shares are held by the trustee for the benefit of the Company, and all other rights relating to these shares are held by the trustee for the benefit of the purchaser. Accordingly, the Company will continue to consolidate the subsidiary. 

ENDQRFPUUQGAUPBPGA