RNS Number : 2366U
Orchid Developments Group Ltd
22 June 2009
Orchid Developments Group Limited
('Orchid' or the 'Company')
Results for the Year Ended 31 December 2008
Orchid Developments Group, an established property developer in Bulgaria, today announces preliminary results for the year ended 31 December 2008.
Highlights
-
Current business focused on 3 major projects - Strategic decision to focus on the Group's key development projects - the Grand Mall, Orchid Gardens commercial and residential development, and Orchid Hills Varna residential complex.
David Holland, Chairman of Orchid, said:
'Our major developments are on track and we are very pleased with the high level of interest in the Grand Mall in Varna from international retail brands. Furthermore, good progress has been made across all the Company's projects notwithstanding the difficult economic conditions in 2008.'
Enquiries:
|
Orchid Developments Group Limited
Guy Meyohas
|
+359 2 981 9955
|
|
Shore Capital and Corporate Limited
Graham Shore
Dru Danford
|
+44 20 7408 4090
|
|
Citigate Drewe Rogerson
Sarah Gestetner
Nicola Smith
|
+44 20 7638 9571
|
Chief Executive's Review
Operational review
Orchid Developments Group is an established real estate developer active in all principal sub-sectors of the Bulgarian real estate market: residential, commercial and retail. It has developments in Sofia and Varna and operates a hotel on the Black Sea in Golden Sands, Varna.
The global financial turmoil over the last year has had a significant impact on activity in real estate markets across the world, with the lack of availability of funds being a crucial factor behind the dramatic slowdown of the property investment market. Consequently, as announced on 30 January 2009, the Board took the strategic decision to defer the commencement of all projects which are in planning or permission stages and to scale back some existing projects. The Company has focused on the development of its three major projects being: the Grand Mall; Orchid Gardens commercial and residential development; and Orchid Hills Varna residential complex.
Commercial and retail developments
Grand Mall (Orchid Multi Use Complex Varna) -. The Grand Mall project has continued to attract additional tenants with pre-lets of approximately 71% of the retail space having been now agreed (being circa 36,000 sq m). Further, the Company is currently in negotiation over a further 11% of the retail space. International tenants include household names such as Carrefour; the Inditex group, representing brands like Zara, Pull & Bear and Bershka; Mango; and Gap. In almost every case, the Grand Mall represents their first appearance in the Bulgarian market. Construction, which is funded by committed banking facilities, is progressing according to schedule and is expected to be completed by April 2010. As previously announced, the Group decided to scale back the office element in this development.
Orchid Retail and Logistics Park Varna - The Company owns several parcels of land totalling 284,000 sqm intended for a development of a retail and warehousing complex near Varna. The planned works on this project have been scaled back and further development will depend on the availability of external financing.
Orchid Business Center Varna - Construction of the Business Centre Varna has been postponed.
Residential developments
Orchid Hills Sofia - The development of phase 1 (177 apartment units) is now completed. The Company is currently in the process of delivering these apartments. The Company have entered into signed sale contracts for 97% of the apartments as at the reporting date for a total consideration of €15.0 million.
Orchid Hills Varna - The construction of the first stage of the gated residential complex in Varna (174 apartment units) is now completed. As at the reporting date the Company had delivered 130 apartments to clients. Construction of the second stage, comprising 162 units, commenced during September 2007 and is scheduled to complete during August 2009. Construction of the third stage, comprising 135 units, commenced in March 2009.
As at 31 December 2008, the Company had signed contracts for the sale of 292 units for a total consideration of €17.4 million. The 292 units are split between the stages as follows:
-
Stage 1 - 142 units
-
Stage 2 - 94 units
-
Stage 3 - 56 units
The demand for the apartment units has slowed during the last six months. The Company is starting to see renewed interest from buyers and in June 2009 an agreement for sale of 19 apartment units was concluded for a total value of €1.6 million. The Company has a potential significant order for additional apartments and expects that sales will increase in the second half of 2009.
Varna Gardens - The construction of this mixed use high-end residential, office and retail development on a prime location in Varna city centre commenced in June 2008. We completed the excavation and shoring works at the end of 2008. The general contractor agreement was signed in January 2009 and its works started in February this year. As at the reporting date the Company had sold 9 units for a total consideration of €2.1 million and since the period end the Company has sold a further three units for a total consideration of €0.9 million. The project is fully financed.
Hotels and Leisure
The Company completed the sale of one of its hotel subsidiaries, Yavor Zlatni Piasatsi AD, the owner of Yavor hotel, in December 2008. The total consideration from the sale was approximately €9.6 million of which €9.1 million was received in cash and the balance of €0.5 million is expected to be received in June 2009.
The Company owns and operates the Golden Yavor hotel on the Black Sea. As in previous years, the hotel will operate during the summer months and close for the low season. Management continue to seek ways to maximise shareholder value from this asset.
Future Plans
The Company will continue to focus its efforts in the near future on progressing the construction of our residential and commercial developments in Varna and Sofia, as well as on letting the retail and commercial space and selling the apartment units in the residential projects. The directors continue to explore ways to raise additional funds to strengthen the balance sheet and provide additional working capital. This may include the disposal of further assets.
Outlook
In light of the uncertainty in the economic environment, the Company has limited its ongoing developments to three projects which it believes have the best prospects in terms of market demand and financing availability. These projects are the Grand Mall retail center, Orchid Gardens multi-use commercial and residential development, and Varna Hills residential development.
Financial Review
The Group has adopted the requirements of IFRIC 15 'Agreements for the Construction of Real Estates' and amended its accounting policy in respect of revenue recognition relating to its residential property development projects, Orchid Sofia Hills and Orchid Varna Hills. Income and costs are now recognised when the significant risks and rewards of ownership are transferred to the buyer. This usually takes place in Bulgaria when a notary deed is executed. The Company has restated revenue and costs in previous accounting periods recognised in accordance with the progress of construction. As a result, the opening accumulated loss of the Group at 1 January 2007, the income statement for the year ending 31 December 2007 and the balance sheet at 31 December 2007 have been restated. The effect of adopting IFRIC 15 on the Group's balance sheet at 31 December 2007 was an increase in accumulated loss of €2,277,000 and an increase of liabilities of €8,479,000.
The 2008 financial year results reflect the profit from the sale of the Yavor hotel. The Group does not revalue its properties and profits from sale of its assets therefore represent actual cash-based profits from realisations.
Revenue for the year ended 31 December 2008 comprises mainly gross sales of apartments and hotel services.
The majority of the cost of operations is attributable to the cost of the sale of the apartment units in the Varna Hills residential project. The level of hired services expenses was €1.9 million (2007: €1.2 million), arising from increased activity in Varna Hills, Orchid Gardens and Orchid Multi Complex.
Interest expense in 2008 is mainly attributable to the Golden Yavor loan which was repaid in November 2008.
Current tax expenses of €166,000 (2007: tax income €98,000), are attributable to the profits from sale of apartments and from the realisation of the Yavor hotel.
Net profit for the period was €135,000 in 2008, compared to a loss of €3,413,000 million in 2007(restated).
The balance sheet as at 31 December 2008 showed current assets of €47.0 million compared to current assets of €27.9 million at the end of 2007. This increase results from inventories of apartments in Sofia Hills project which are being delivered to the clients in 2009, as well as the increase in tax and trade receivables which are mainly attributable to the development costs of Orchid Multi Complex in Varna.
The Company's cash position increased to €9.6 million (2007: €6.0 million), mainly from the proceeds of the sale of the Yavor hotel.
Total borrowing liabilities (long and short term) have increased to €40.7 million (2007: €11.7 million) as a result of the drawdown of construction loans.
Trade payables increased to €19.2 million (2007: €12.9 million), as a result of the increase in the volume of construction activities.
Revenues for the period also include the results of our Golden Yavor hotel in Varna, which generated revenue of approximately €0.6million (2007: €0.6 million).
Current trading
The development of Orchid Hills (our residential development in Varna) is well advanced, with the first stage already complete and the second stage expected to complete in Q3 2009. The Group has seen a slowdown in the sales of apartment units as a result of the economic climate and the tightening of mortgage banks' requirements. We expect that the residential market will start picking up towards the end of 2009. Construction works on the residential development in Sofia are now complete and delivery of units will be completed in the next few months. The development works of the Multi Complex in Varna are advancing as well as are the letting of the retail space. The construction of the commercial and residential development, Orchid Gardens, has started.
Good progress is being made across all the Company's key projects and our major developments are on track.
Guy Meyohas
Joint Chief Executive
19 June 2009
Consolidated Balance Sheet
|
|
Notes
|
2008
|
2007
|
|
|
|
€'000
|
€'000
|
|
|
|
|
Restated
|
|
Assets
|
|
|
|
|
Non -current
|
|
|
|
|
Property, plant and equipment
|
7
|
74,533
|
52,319
|
|
Investment in associates
|
9
|
262
|
277
|
|
Goodwill
|
10
|
3
|
3
|
|
Other intangible assets
|
11
|
35
|
46
|
|
Other assets
|
12
|
319
|
135
|
|
Long-term loans due from associates
|
13
|
295
|
277
|
|
Deferred tax assets
|
14
|
482
|
481
|
|
Total non-current assets
|
|
75,929
|
53,538
|
|
|
|
|
|
|
Current
|
|
|
|
|
Receivables from sale of investment
|
8
|
500
|
368
|
|
Development work in progress
|
16
|
12,925
|
16,420
|
|
Inventories
|
17
|
11,868
|
3
|
|
Development contract receivables
|
18
|
1,174
|
1,204
|
|
Trade receivables
|
19
|
5,295
|
2,623
|
|
Receivables from related parties
|
34.1
|
33
|
23
|
|
Tax receivables
|
20
|
5,266
|
959
|
|
Other receivables
|
21
|
348
|
376
|
|
Cash and cash equivalents
|
22
|
9,634
|
5,950
|
|
Total current assets
|
|
47,043
|
27,926
|
|
|
|
|
|
|
Non-current asset held for sale
|
33
|
-
|
5,616
|
|
|
|
|
|
|
Total assets
|
|
122,972
|
87,080
|
Approved by the Board and signed on its behalf by:
Guy Meyohas
Joint Chief Executive
19 June 2009
Consolidated Balance Sheet (continued)
|
|
Notes
|
2008
|
2007
|
|
|
|
€'000
|
€'000
Restated
|
|
|
|
|
|
|
Equity
|
|
|
|
|
Share capital
|
23.1
|
760
|
760
|
|
Share premium
|
23.3
|
64,216
|
64,216
|
|
Other reserves
|
|
224
|
212
|
|
Accumulated loss
|
|
(3,506)
|
(3,641)
|
|
Total equity
|
|
61,694
|
61,547
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Non-current
|
|
|
|
|
Long-term borrowing liabilities
|
24
|
30,488
|
4,111
|
|
Long-term lease liabilities
|
25.1
|
2
|
22
|
|
|
|
30,490
|
4,133
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
Short-term loans from related parties
|
34.1
|
16
|
30
|
|
Short-term borrowing liabilities
|
24
|
10,196
|
7,587
|
|
Short-term lease liabilities
|
25.1
|
20
|
27
|
|
Trade payables
|
26
|
19,188
|
12,874
|
|
Interest payables
|
|
662
|
269
|
|
Tax liabilities
|
27
|
485
|
317
|
|
Payables to employees and social security institutions
|
28.2
|
221
|
277
|
|
|
|
30,788
|
21,381
|
|
|
|
|
|
|
Liabilities directly associated with non-current assets held for sale
|
33
|
-
|
19
|
|
|
|
|
|
|
Total liabilities
|
|
61,278
|
25,533
|
|
|
|
|
|
|
Total equity and liabilities
|
|
122,972
|
87,080
|
Approved by the Board and signed on its behalf by:
Guy Meyohas
Joint Chief Executive
19 June 2009
Consolidated Income Statement
|
|
Notes
|
2008
|
2007
|
|
|
|
€'000
|
€'000
Restated
|
|
|
|
|
|
|
Revenue
|
29
|
7,269
|
3,937
|
|
|
|
|
|
|
Development costs
|
16
|
(4,658)
|
(2,427)
|
|
Cost of materials
|
|
(312)
|
(249)
|
|
Hired services expenses
|
|
(1,918)
|
(1,221)
|
|
Employee compensation and benefit expenses
|
28.1
|
(2,238)
|
(2,186)
|
|
Depreciation and amortisation
|
|
(359)
|
(339)
|
|
Other expenses
|
|
(436)
|
(330)
|
|
Operating loss
|
|
(2,652)
|
(2,815)
|
|
|
|
|
|
|
Loss from equity accounted associates
|
9
|
(15)
|
(9)
|
|
Interest expense
|
30
|
(576)
|
(487)
|
|
Interest income
|
30
|
108
|
286
|
|
Exchange rate gains
|
|
31
|
8
|
|
Other financial expenses
|
31
|
(181)
|
(368)
|
|
Loss for the year before tax
|
|
(3,285)
|
(3,385)
|
|
|
|
|
|
|
Tax (expenses) / income
|
32
|
(166)
|
98
|
|
Net loss for the year from continuing operations
|
(3,451)
|
(3,287)
|
|
Net profit /(loss) from discontinued operation
|
33
|
3,586
|
(126)
|
|
Net profit /(loss) for the year
|
|
135
|
(3,413)
|
|
|
|
|
|
|
Loss per share
|
|
€
|
€
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
Basic loss per share
|
23.4
|
(0.04)
|
(0.04)
|
|
Diluted loss per share
|
23.4
|
(0.05)
|
(0.04)
|
|
|
|
|
|
Approved by the Board and signed on its behalf by:
Guy Meyohas
Joint Chief Executive
19 June 2009
Consolidated Statement of Changes in Equity
|
All amounts presented in €'000
|
Share
capital
|
Share
premium
|
Other
reserves
|
Accumulated
Loss/
Retained
earnings
|
Total
equity
|
|
Balance 1 January 2007 as previously reported
|
758
|
63,996
|
226
|
1,734
|
66,714
|
|
Changes in accounting policy (note 5)
|
|
|
|
(2,080)
|
(2,080)
|
|
Balance 1 January 2007 restated
|
758
|
63,996
|
226
|
(346)
|
64,634
|
|
|
|
|
|
|
|
|
Net loss for 2007 as restated
|
-
|
-
|
-
|
(3,413)
|
(3,413)
|
|
Total recognised income and expenses for the year
|
-
|
-
|
-
|
(3,413)
|
(3,413)
|
|
|
|
|
|
|
|
|
Shares issued
|
2
|
220
|
-
|
-
|
222
|
|
Employee share based compensation
|
-
|
-
|
104
|
-
|
104
|
|
Share options exercised
|
-
|
-
|
(118)
|
118
|
-
|
|
|
|
|
|
|
|
|
Balance 31 December 2007
|
760
|
64,216
|
212
|
(3,641)
|
61,547
|
|
|
|
|
|
|
|
|
Net profit for 2008
|
|
|
|
135
|
135
|
|
Total recognised income and expenses for the year
|
-
|
-
|
-
|
135
|
135
|
|
|
|
|
|
|
|
|
Employee share based compensation
|
-
|
-
|
12
|
-
|
12
|
|
|
|
|
|
|
|
|
Balance 31 December 2008
|
760
|
64,216
|
224
|
(3,506)
|
61,694
|
Consolidated Statement of Cash Flows
|
|
Notes
|
2008
|
2007
|
|
|
|
€'000
|
€'000
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
Cash receipts from customers
|
|
8,847
|
10,878
|
|
Cash paid to suppliers
|
|
(15,094)
|
(14,946)
|
|
Cash paid to employees and social security institutions
|
|
(2,518)
|
(2,420)
|
|
Taxes received, net
|
|
151
|
1,453
|
|
Taxes paid
|
|
(407)
|
(1,222)
|
|
Other cash inflows /(outflows)
|
|
550
|
(256)
|
|
Net cash flows from operating activities
|
|
(8,471)
|
(6,513)
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
Purchase of property, plant and equipment
|
|
(24,304)
|
(12,784)
|
|
Proceeds from sale of subsidiaries
|
|
9,153
|
12,247
|
|
Proceeds from sale of property, plant and equipment
|
|
50
|
-
|
|
Interest received
|
|
92
|
284
|
|
Purchase of intangible assets
|
|
-
|
(10)
|
|
Loans granted
|
|
(2)
|
(26)
|
|
Loan repayments received
|
|
16
|
75
|
|
Net cash flows from investing activities
|
|
(14,995)
|
(214)
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
Proceed from bank loans
|
|
43,678
|
-
|
|
Proceeds from loans
|
|
-
|
6,818
|
|
Repayment of bank loans and related fees
|
|
(14,698)
|
(425)
|
|
Discharge of finance lease liability
|
|
-
|
(6)
|
|
Proceeds from share capital issued
|
|
-
|
221
|
|
Interest paid
|
|
(1,937)
|
(392)
|
|
Net cash flows from financing activities
|
|
27,043
|
6,216
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
(14)
|
(12)
|
|
Cash and cash equivalents, beginning of year
|
|
6,071
|
6,594
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
3,563
|
(523)
|
|
Cash and cash equivalents, end of year
|
|
9,634
|
6,071
|
|
|
|
|
|
|
Included in non-current asset held for sale in the Balance sheet
|
33
|
-
|
(121)
|
|
Included in cash and cash equivalents in the Balance Sheet
|
22
|
9,634
|
5,950
|
Notes to the Consolidated Financial Statements
1. General information
As of 31 December 2008 Orchid Developments Group consists of Orchid Developments Group Ltd. (parent enterprise) and the following subsidiaries and an associate:
|
Name
|
Country of incorporation
|
% of ownership
|
|
|
|
|
|
Sicat Holding Inc. (former Zoltar Investments Ltd.)
|
British Virgin Islands
|
100
|
|
Nedlands Estate Inc.
|
British Virgin Islands
|
100
|
|
Midlung Company S.A.
|
British Virgin Islands
|
100
|
|
Orchid Sofia Hills Ltd.
|
Saint Vincent and the Grenadines
|
100
|
|
Marington Inc.
|
Saint Vincent and the Grenadines
|
100
|
|
Crockett S.A.
|
Saint Vincent and the Grenadines
|
100
|
|
QC Investment Ltd
|
Saint Vincent and the Grenadines
|
100
|
|
Rhodette Ltd.
|
Saint Vincent and the Grenadines
|
100
|
|
Norco Ltd.
|
Saint Vincent and the Grenadines
|
100
|
|
Orchid Multi Complex - Varna 2006 Ltd. (merged with Dalarian Ltd.)
|
Saint Vincent and the Grenadines
|
100
|
|
Harvest Holding Inc.
|
Saint Vincent and the Grenadines
|
100
|
|
Lakan Investments Ltd.
|
Saint Vincent and the Grenadines
|
100
|
|
Infocan Ltd.
|
Saint Vincent and the Grenadines
|
100
|
|
Digital Magic Ltd.
|
Saint Vincent and the Grenadines
|
100
|
|
Orchid Management - Bulgaria EOOD
|
Bulgaria
|
100
|
|
Orchid Capital Properties EOOD
|
Bulgaria
|
100
|
|
Orchid Seaside Apartments EOOD
|
Bulgaria
|
100
|
|
O.M. Razvitie EOOD
|
Bulgaria
|
100
|
|
Orchid Sofia Hills EOOD
|
Bulgaria
|
100
|
|
Orchid Center Varna EOOD
|
Bulgaria
|
100
|
|
Orchid Multi Complex - Varna OOD
|
Bulgaria
|
100
|
|
Orchid Gardens Varna EOOD
|
Bulgaria
|
100
|
|
Black Sea Developments EOOD
|
Bulgaria
|
100
|
|
Orchid Projects EOOD
|
Bulgaria
|
100
|
|
Orchid Airport City - Sofia 2006 EOOD
|
Bulgaria
|
100
|
|
Orchid Logistic Centers EOOD
|
Bulgaria
|
100
|
|
Lyons Bulgaria EOOD
|
Bulgaria
|
100
|
|
Kohav OOD
|
Bulgaria
|
30
|
Orchid Developments Group Ltd. is a limited liability company incorporated on 2 June 2004 and domiciled in George Town, Grand Cayman, British West Indies.
The Group includes companies, which have the following main activities:
-
all commercial, financial, lending, borrowing, trading activities, sale and purchase of real estate;
-
tourist services, real estate property transactions and constructions of hotels; and
-
commercial property and residential property development.
2. 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 2008, 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 2008 and 31 December 2007 are presented in the financial statements in thousand Euros (€'000).
The consolidated financial statements for the year ended 31 December 2008 were approved by the Board of Directors on 19 June 2009.
3. Change in accounting policies
3.1 Overall considerations
The following new changes to Standards and Interpretations are effective for the first time in the financial year, beginning on 1 January 2008, but are not relevant to the activity of the Group:
-
IFRIC 11 'IFRS 2 - Group and Treasury Share Transactions'
-
IFRIC 12 'Service Concession Arrangements'
-
IFRIC 14 'IAS 19 - The Limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction'
-
Amendments to IAS 39 'Financial instruments: Recognition and Measurement' and IFRS 7 'Financial instruments: Disclosures', published in October 2008. Due to the exceptional shocks in the financial market during the third quarter of 2008, the IASB allows the reclassification of financial assets in accordance with the amendments, retrospectively beginning 1 July 2008.
Other standards or interpretations relevant for IFRS financial statements did not become effective during the current financial year.
Significant effects on current, prior or future periods arising from the first-time application of the standards listed above in respect of presentation, recognition and measurement of accounts did not arise.
An overview of Standards and Interpretations that will become mandatory for the company in future periods is given in note 3.3.
3.2 Adoption of new Standards and Interpretations, which are not yet effective
IFRIC 15 'Agreements for the Construction of Real Estate' is mandatory for financial years commencing on or after 1 January 2009. However, the Group have adopted the requirements of this interpretation early for the year ended 31 December 2008. Whilst IFRIC 15 has not yet been endorsed by EU, the IFRIC provides further guidance in respect of the application of IAS 18 'Revenue recognition' and IAS 11 'Construction contracts', and the Group consider that it is acceptable to adopt the IFRIC. Accordingly, the financial statements for prior years have been restated. Further details of the change in accounting policy as a result of adopting IFRIC 15 is set out below in note 5. The Group's revised accounting policy in respect of the construction and sale of residential property is set out in notes 4.5 and 4.15.
3.3 Standards and Interpretations not yet applied by the Group
The following Standards and Interpretations are not effective for the 2008 financial year. The Group has not applied any of these Standards or Interpretations early.
|
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
|
|
IAS 1 (revised) Presentation of financial statements
|
1 January 2009
|
|
IFRIC 13 Customer Loyalty Programmes
|
1 July 2008
|
|
IFRIC 14 IAS19 Limit on a Defined Benefit Asset Minimum Funding Requirements and their interaction
|
1 January 2009
|
|
IFRIC 16 Hedges of a Net Investment in a Foreign Operation
|
1 January 2008
|
|
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
|
|
IAS 32 (amendment) Puttable financial instruments and obligations arising on liquidation
|
1 January 2009
|
|
IAS 39/IFRIC 9 Embedded derivatives - amendments to IAS 39 and IFRIC 9
|
30 June 2009
|
|
IFRS 7 (amendment) Improving disclosures about Financial Instruments
|
1 January 2009
|
|
'Improvements for International Financial Reporting Standards 2008.'
|
1 January 2009
|
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 has adopted the same approach - it requires capitalization of all borrowing costs provided that qualifying assets are acquired. In 2008 € 2,140,246 borrowing costs were capitalised in property, plant and equipment and development work in progress (2007: €0). Therefore, the Group does not expect any changes related to the application of the revised standard IAS 23 in 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.
4. Summary of accounting policies
4.1 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.
4.2 Basis of consolidation
The consolidated financial statements incorporate the financial statements of Orchid Developments Group Ltd. and its subsidiaries drawn up to 31 December 2008. Subsidiaries are all entities over which the Group has the power to govern their financial and operating policies so as to obtain benefits from its activities. All subsidiaries have a reporting date of 31 December.
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.
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.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Unrealised gains and losses on transactions between Group companies are eliminated. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
The income and expenses of a subsidiary acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. 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.
4.3 Investments in associates
Associates are those entities over which the Group is in a position to exert significant influence, but not control or joint control.
Investments in associates are initially recognised at cost and subsequently accounted for using the equity method. However, any goodwill or fair value adjustment attributable to the share in the associate is included in the amount recognised as investment in associates.
All subsequent changes to the share of interest in the equity of the associate are recognised in the Group's carrying amount of the investment. Changes resulting from net results generated by the associate are charged against 'loss from equity accounted associates' in the Group's income statement and therefore affect the net results of the Group. These changes include subsequent depreciation, amortisation or impairment of the fair value adjustments of assets and liabilities. Any non-income related equity movements of the associate that arise, for example, from the distribution of dividends or other transaction with the associate's shareholders, are charged against the proceeds received or granted. No effect on the Group's net result or equity is recognised in the course of these transactions. However, when the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
4.4 Foreign currency translation
The consolidated financial statements are presented in Euro (€), which is also the functional currency of the parent company. The functional currency of all Bulgarian subsidiaries is Bulgarian leva, which has been fixed to the Euro since 17 July 1997.
Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items at year-end exchange rates are recognised in profit or loss.
Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction (not retranslated).
In the Group's financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than the Euro (the Group's presentation currency) are translated into Euro upon consolidation. The functional currency of the entities in the Group have remained unchanged during the reporting period.
On consolidation, assets and liabilities have been translated into Euro at the closing rate at the reporting date. Income and expenses have been translated into the Group's presentation currency at the fixed rate of Bulgarian leva to the Euro over the reporting period. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into Euro at the closing rate.
4.5 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 comprises revenue from the sale of goods (residential development units) and the rendering of services (mainly hotel and tourist services). Revenue from major products and services is shown in note 29.
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.
Revenue relating to residential developments is treated as revenue from the sale of goods. The Group considers that initially the significant risks and rewards of ownership are transferred to the purchaser on the execution of a notary deed for the sale of land or building rights. For completed units the related revenue is recognized on execution of the notary deed. For developments in progress, the Group commences the recognition of revenue on execution of the notary deed for the sale of land or building rights using the percentage of completion basis. Revenue is recognized during the remaining development period using the percentage of completion method as it appropriately reflects the continuous transfer of the remaining risk and rewards of the development to the purchaser to completion. Income from sale of land and rights is recognized upon ownership transfer.
During the year the Group adopted the requirements of IFRIC 15 'Agreements for the Construction of Real Estate'. The revised revenue recognition policy as a result of adopting IFRIC 15 is set out above. Accordingly, the Group has restated prior periods on a consistent basis. Further details of this restatement are set out in note 5. Further details of the accounting policies in respect of residential developments are set out in section 4.15.
Revenue from rendering of services comprises mainly hotel services and 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.
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.
4.6 Borrowing costs
Borrowing costs are capitalised if these are directly attributable to the construction and production of a qualifying asset. They are included in the cost of that asset when it is probable that they will result in future economic benefits to the enterprise and the costs can be measured reliably. Other borrowing costs are recognised as an expense in the Income statement in the period in which they are incurred.
To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate is calculated as the weighted average of the borrowing costs applicable to the borrowings of the enterprise that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset.
The capitalisation of borrowing costs as part of the cost of a qualifying asset should commence when:
-
expenditures for the asset are being incurred;
-
borrowing costs are being incurred; and
-
activities that are necessary to prepare the asset for its intended use or sale are in progress.
Capitalisation of borrowing costs is suspended during extended periods in which active development is interrupted and when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.
4.7 Goodwill
Any excess of the cost of the acquisition over the acquirer's interest in the fair value of the identifiable assets and liabilities at the date of the exchange transaction is described as goodwill and recognised as an asset. Goodwill is tested annually for impairment, and is carried at cost less accumulated impairment losses.
If the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the Group:
-
reassesses the identification and measurement of the acquiree's identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the combination; and
-
recognises immediately in the income statement any excess remaining after that reassessment.
4.8 Intangible assets
Intangible assets include acquired software licences used in administration.
Intangible fixed assets are measured initially at cost. If an intangible asset is acquired separately, the cost comprises its purchase price, including any import duties and non-refundable purchase taxes, and any directly attributable expenditure on preparing the asset for its intended use. If an intangible asset is acquired in a business combination, the cost of that intangible asset is based on its fair value at the date of acquisition.
After initial recognition, an intangible asset is carried at its cost less any accumulated amortisation and any accumulated impairment losses. Impairment losses are recognised in the current period income statement.
Subsequent expenditure on an intangible asset after its purchase or its completion is recognised as an expense when it is incurred unless it is probable that this expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance and this expenditure can be measured and attributed to the asset reliably. If these two conditions are met, the subsequent expenditure is added to the cost of the intangible asset.
Amortisation is calculated using the straight-line method over the estimated useful life of individual assets as follows:
-
Software 2 years
-
Others 7 years
Amortisation charges for the current period are included in the line 'Depreciation and amortisation' in the Income Statement.
4.9 Other assets
Other assets include capitalized brokerage fees related to the Grand Mall project. The Group policy is to amortize the brokerage costs over the life of the operating leases (between 5 and 10 years) starting from the opening date of the Grand Mall.
4.10 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.
4.11 Finance and operating leases
In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset.
The related asset is recognised at the time of inception of the lease at the lower of the fair value of the asset and the present value of the minimum lease payments. A corresponding amount is recognized as a finance lease liability, irrespective of whether some of these lease payments are payable at the date of inception of the lease.
The corresponding finance lease liability is reduced by lease payments less finance charges, which are expensed as finance costs.
Assets acquired under the terms of finance leases are depreciated in accordance with IAS 16 Property, plant and equipment and/or IAS 38 intangible assets.
All other leases are treated as operating lease agreements. Operating lease payments are recognized as an expense on a straight-line basis. Associated costs, such as maintenance and insurance, are expensed as incurred.
4.12 Impairment testing of assets
The Group's assets are subject to impairment testing when an indication for impairment is present.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level.
Individual assets or cash-generating units that include goodwill and other intangible assets with an indefinite useful life or those not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use, based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist.
4.13 Financial assets
The Group's financial assets include cash and financial instruments, which comprise loans and receivables and financial assets available for sale. All financial assets are recognised on their transaction date. All financial assets are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue of the financial asset.
Derecognition of financial instruments occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least at each balance sheet date whether or not there is objective evidence that a financial asset or a group of financial assets is impaired.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivables. Loans and receivables are subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognized in the income statement.
Trade receivables are provided for when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the provision is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows.
4.14 Inventories
Inventories comprise ready for sale residential units and raw materials. At the balance sheet date, inventories are carried at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. Where inventories have been impaired to their net realisable value and in the following period the impairment conditions are no longer present, then a new net realisable value is determined up to the initial value prior impairment. The inventory recovery amount is accounted for as a decrease in inventory expenses for the period in which the recovery takes place.
The cost of inventories is assigned by using the weighted average cost.
When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised.
4.15 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 recognised from the point when the significant risks and rewards of ownership are transferred to the buyer, which is usually the point at which a notary deed for sale of the land is executed. The remaining contract to construct a building is then accounted for as a contract for the sale of goods where control and the risks and rewards of ownership are continuously transferred to the buyer. If the contract is considered profitable, profits are recognised by reference to the percentage of completion at the reporting date. 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 recognized 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'. Cost of completed residential units is transferred from 'Development work in process' to 'Inventories'.
4.16 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.
4.17 Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand, including fiduciary deposits which may be revoked at any time by means of written notification from the Group to the bank. Any short term or highly liquid investments within three months, which can easily be turned into money and contain insignificant risk of change in value are also part of cash and cash equivalents.
4.18 Equity
Share capital is determined using the nominal value of shares that have been issued.
The share premium reserve in capital includes any premiums received on the issue of the share capital.
Other reserves include amounts resulting from share options scheme.
Accumulated loss / Retained earnings include all current and prior period results as determined in the income statement.
4.19 Pension obligations and short-term employee benefits
The Group does not provide pension plans for employees.
The Group reports short-term payables relating to unutilised leave, which shall be compensated if the leave occurs within 12 months after the end of the accounting period, during which time the employees have performed the related work. Short-term payables to personnel include wages, salaries and related social security payments.
4.20 Share-based compensation
The Group operates a number of equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.
The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium and debited to other reserves when the options are exercised.
4.21 Financial liabilities
The Group's financial liabilities include loans and overdrafts, trade and other payables and finance lease liabilities.
Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest related charges are recognised as an expense in the income statement.
Loans are raised for support of long term funding of the Group's operations. They are recognised at fair value and subsequently measured at amortised cost. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Trade payables are recognised initially at fair value and subsequently measured at amortized cost less settlement payments.
Dividend distributions are recognised when the dividends are approved by the shareholders.
4.22 Other provisions, contingent liabilities and contingent assets
Provisions, representing current obligations of the Group arising from past events, the settlement of which is expected to result in an outflow of resources, are recognised as liabilities. A provision is recognised only when the following conditions are present:
-
The Group has a present obligation as a result of a past event
-
It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation
-
A reliable estimate can be made of the amount of the obligation
The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the balance sheet date. In reaching the best estimate of the provision, the Group takes into account the risks and uncertainties that inevitably surround many events and circumstances as well as the effect of the time value of the money, when it is material.
Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.
The Group does not recognise contingent assets in the consolidated financial statements as their existence is not yet confirmed and this may result in the recognition of income that may never be realised.
4.23 Critical accounting estimates and judgments
Estimates and judgments are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Critical judgements in applying the Group's accounting policies are:
(i) Revenue recognition
Revenue from sale of residential units comprises three separate elements, a sale of land, the right to build and a constructed unit. The values of the components of the sale are determined by an external specialist.
The timing of revenue recognition related to property development in complex contractual arrangements is important and judgemental. Revenue and costs on residential developments' construction are recognised from the point when the significant risks and rewards of ownership are transferred to the buyer, which is usually the point at which a notary deed for sale of the land, the right to build or the unfinished unit is executed. The remaining contract to construct a residential unit is then accounted for as a contract for the sale of goods where control and the risks and rewards of ownership are continuously transferred to the buyer. This is measured by reference to the stage of completion of contract activity at the balance sheet date based on the physical work performed. This assessment necessarily requires a high degree of judgment. In addition, the percentage of completion of the project works is determined by independent valuers at each balance sheet date. For further details see note 5.
(ii) Going concern basis of preparation and cash flow forecasts
These financial statements are prepared on the going concern basis which assumes that the Group will have sufficient funding, cash flows and working capital resources available to it, to continue trading for at least twelve months from the date of approval of the consolidated financial statements.
Against the backdrop of a more challenging economic environment, the directors have instituted measures to preserve cash by way of securing the renewal of a short-term loan note (see note 24). In addition, the directors continue to explore ways to raise additional funds to strengthen the balance sheet and provide additional working capital. This may include the disposal of further assets.
After making enquiries, and considering the uncertainties described above, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the annual report and accounts.
(iii) Impairment of property, plant and equipment
An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from each cash-generating unit, which is related to an ongoing project and determines a suitable interest rate in order to calculate the present value of those cash flows (see note 4.12). In the process of measuring expected future cash flows management makes assumptions about future gross profits. These assumptions relate to future events and circumstances. The actual results may vary, and may cause significant adjustments to the Company's assets within the next financial year. In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk and the appropriate adjustment to asset-specific risk factors. For those items of property, plant and equipment, which have significant carrying value and are not related to current development projects, an external independent valuer is engaged to provide valuation should there are indications for impairment.
Critical estimates in applying the Group's accounting policies are:
(i) Deferred income tax
Deferred tax assets require management judgement in determining the amounts to be recognised. In particular, significant judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration given to the timing and level of future taxable income. The assessment of the probability of future taxable income in which deferred tax assets can be utilised is based on the Group's latest approved cash flow forecast. A deferred tax asset is usually recognised if a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised within the statutory time limits.
5. Effect of change in accounting policy following adoption of IFRIC 15 'Agreements for the Construction of Real Estated'
During the year the Group has adopted the requirements of IFRIC 15 and as a result has amended its accounting policy in respect of revenue recognition relating to its residential property development projects.
The Group's residential property developments relate to the apartments for sale developed in the residential area owned by Orchid Sofia Hills and Orchid Seaside Apartments Ltd.
Previously revenue and costs on residential developments were treated as a construction contract and the percentage of completion method of accounting was adopted as set out within IAS 11 'Construction Contracts'. As a result revenue was recognised from the commencement of the contract to the extent that apartments had been sold based on signed contracts with clients. The percentage of completion was calculated based on the physical proportion of the contract work completed as determined by an independent valuer. Income from the sale of land and rights was recognised upon ownership transfer.
Following the adoption of IFRIC 15, the residential developments are now treated as a sale of goods as defined by IAS 18 'Revenue recognition'. Revenue from the sale of goods is only recognised when certain conditions are met, the principal condition being that the significant risks and rewards of ownership have transferred to the buyer and that control over the goods sold is not retained by the Group.
Whilst this is an area of significant judgement, the Group consider that initially the significant risks and rewards of ownership are transferred to the purchaser on the execution of a notary deed, for the sale of the land. For completed units the related revenue is now recognized on execution of the notary deed. For developments in progress, the Group now commences the recognition of revenue on execution of the notary deed using the percentage of completion basis. Revenue is recognized during the remaining development period using the percentage of completion method as it appropriately reflects the continuous transfer of the remaining risk and rewards of the development to the purchaser to completion. Income from sale of land and rights continues to be recognized upon ownership transfer.
As a result of adopting IFRIC 15, the opening accumulated loss of the Group at 1 January 2007, the income statement for the year ending 31 December 2007 and the balance sheet at 31 December 2007 have been restated on a consistent basis.
The effect of adopting IFRIC 15 on the Group's accumulated loss at 1 January 2008 was an increase in accumulated loss of €2,277,000. The effect of adopting IFRIC 15 on years prior to 2007 was to reduce revenues by €1,952,000 and to increase liabilities by €8,479,000.
The effect of adopting IFRIC 15 on the Group's income statement for the year ended 31 December 2007 is set out in the table below:
|
Income statement extract
|
2007
As previously
stated
|
Adjustment
|
2007
Restated
|
|
|
€'000
|
€'000
|
€'000
|
|
|
|
|
|
|
Revenue
|
8,111
|
(4,174)
|
3,937
|
|
Operating loss
|
(2,572)
|
(243)
|
(2,815)
|
|
Tax income
|
52
|
46
|
98
|
|
Net loss for the year
|
(3,216)
|
(197)
|
(3,413)
|
The effect of adopting IFRIC 15 on the earnings per share calculations for 2007 is set out in note 23.4.
The effect of adopting IFRIC 15 on the balance sheet of the Group at 31 December 2007 is set out below:
|
|
2007
|
Adjustments
|
2007
|
|
|
€'000
|
|
€'000
|
|
Assets
|
|
|
Restated
|
|
Non -current
|
|
|
|
|
Property, plant and equipment
|
53,088
|
(769)
|
52,319
|
|
Deferred tax assets
|
169
|
312
|
481
|
|
Others
|
738
|
-
|
738
|
|
|
53,995
|
(457)
|
53,538
|
|
Current assets
|
|
|
|
|
Development work in progress
|
6,062
|
10,358
|
16,420
|
|
Development contract receivables
|
4,920
|
(3,716)
|
1,204
|
|
Tax receivables
|
942
|
17
|
959
|
|
Others
|
14,959
|
-
|
14,959
|
|
|
26,883
|
6,659
|
33,542
|
|
|
|
|
|
|
Total assets
|
80,878
|
6,202
|
87,080
|
|
Equity
|
|
|
|
|
Accumulated loss
|
(1,364)
|
(2,277)
|
(3,641)
|
|
Others
|
65,188
|
-
|
65,188
|
|
Total equity
|
63,824
|
(2,277)
|
61,547
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
Others
|
4,133
|
-
|
4,133
|
|
|
4,133
|
-
|
4,133
|
|
Current liabilities
|
|
|
|
|
Trade payables
|
4,395
|
8,479
|
12,874
|
|
Others
|
8,526
|
-
|
8,526
|
|
Total current liabilities
|
12,921
|
8,479
|
21,400
|
|
|
|
|
|
|
Total liabilities
|
17,054
|
8,479
|
25,533
|
|
|
|
|
|
|
Total equity and liabilities
|
80,878
|
6,202
|
87,080
|
6. Segment reporting
For reporting purposes the divisions of the Group are as follows:
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
property
|
Residential
property
|
Hotel
|
Central
management
|
Consolidation
|
Group
|
|
|
|
|
|
|
|
|
|
31 December 2008
|
2008
|
2008
|
2008
|
2008
|
2008
|
2008
|
|
|
€'000
|
€'000
|
€'000
|
€'000
|
€'000
|
€'000
|
|
Revenue
|
|
|
|
|
|
|
|
From external customers
|
110
|
6,347
|
648
|
164
|
-
|
7,269
|
|
From other Segments
|
-
|
-
|
-
|
853
|
(853)
|
-
|
|
Operating result
|
(629)
|
453
|
(288)
|
(2,175)
|
(13)
|
(2,652)
|
|
Interest expense
|
(1)
|
(3)
|
(403)
|
(188)
|
19
|
(576)
|
|
Interest income
|
19
|
8
|
30
|
70
|
(19)
|
108
|
|
Other financial expenses
|
(22)
|
(9)
|
(99)
|
(20)
|
(31)
|
(181)
|
|
Tax expense
|
52
|
(59)
|
(149)
|
(10)
|
-
|
(166)
|
|
Net result for the year from continuing operations
|
(596)
|
390
|
(909)
|
(2,323)
|
(13)
|
(3,451)
|
|
Net result of investment from discontinued operations
|
-
|
-
|
1,941
|
-
|
1,645
|
3,586
|
|
Depreciation and amortisation
|
(33)
|
(46)
|
(225)
|
(55)
|
-
|
(359)
|
|
Property, plant and equipment
|
51,551
|
4,370
|
7,155
|
76
|
11,381
|
74,533
|
|
Consolidated total assets
|
62,266
|
32,455
|
16,833
|
65,380
|
(53,962)
|
122,972
|
|
Consolidated total liabilities
|
43,134
|
14,516
|
4,831
|
3,848
|
(5,051)
|
61,278
|
|
Business
segments
|
Commercial
property
|
Residential
property
|
Hotel
|
Central
management
|
Consolidation
|
Group
|
|
|
|
|
|
|
|
|
|
31 December 2007
|
2007
|
2007
|
2007
|
2007
|
2007
|
2007
|
|
|
€'000
|
€'000
|
€'000
|
€'000
|
€'000
|
€'000
|
|
|
|
Restated
|
|
|
|
Restated
|
|
Revenue
|
|
|
|
|
|
|
|
From external customers
|
22
|
3,197
|
633
|
85
|
-
|
3,937
|
|
From other Segments
|
-
|
-
|
-
|
704
|
(704)
|
-
|
|
Operating result
|
(458)
|
(28)
|
(39)
|
(2,153)
|
(137)
|
(2,815)
|
|
Interest expense
|
(1)
|
(5)
|
(396)
|
(7)
|
(78)
|
(487)
|
|
Interest income
|
6
|
23
|
13
|
244
|
-
|
286
|
|
Other financial expenses
|
(12)
|
(11)
|
(7)
|
(461)
|
123
|
(368)
|
|
Tax income
|
32
|
9
|
66
|
(9)
|
-
|
98
|
|
Net result for the year from continuing operations
|
(521)
|
(20)
|
(356)
|
(2,383)
|
(7)
|
(3,287)
|
|
Net result for the year from discontinued operations
|
-
|
-
|
(126)
|
-
|
-
|
(126)
|
|
Depreciation and amortisation
|
(13)
|
(45)
|
(222)
|
(59)
|
-
|
(339)
|
|
Property, plant and equipment
|
23,776
|
9,672
|
7,249
|
219
|
11,403
|
52,319
|
|
Consolidated total assets
|
27,636
|
30,980
|
18,059
|
64,773
|
(54,368)
|
87,080
|
|
Consolidated total liabilities
|
8,711
|
12,189
|
8,855
|
939
|
(5,161)
|
25,533
|
7. Property, plant and equipment
7.1 Breakdown of property, plant and equipment
The carrying amounts of the property, plant, and equipment presented in the financial statements at 31 December 2008 are calculated as follows:
|
|
Land
|
Buildings
|
Machines
And
equipment
|
Vehicles
|
Furniture
and fixtures
|
Assets under
construction
|
Total
|
|
|
|
|
|
€'000
|
€'000
|
€'000
|
€'000
|
€'000
|
€'000
|
€'000
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
|
|
|
|
|
|
Carrying amount
at 1 January 2008
|
37,219
|
5,694
|
986
|
385
|
624
|
8,097
|
53,005
|
|
Additions
|
148
|
72
|
30
|
18
|
15
|
28,335
|
28,618
|
|
Transfers within property, plant and equipment
|
13
|
766
|
-
|
-
|
-
|
(779)
|
-
|
|
Transfers to development work in progress
|
(5,926)
|
-
|
-
|
-
|
-
|
-
|
(5,926)
|
|
Disposals - cost
|
(23)
|
(52)
|
(18)
|
(109)
|
-
|
-
|
(202)
|
|
Carrying amount at 31 December 2008
|
31,431
|
6,480
|
998
|
294
|
639
|
35,653
|
75,495
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
Carrying amount at 1 January 2008
|
-
|
(262)
|
(84)
|
(131)
|
(209)
|
-
|
(686)
|
|
Disposals-accumulated depreciation
|
-
|
-
|
17
|
59
|
-
|
-
|
76
|
|
Depreciation
|
-
|
(126)
|
(48)
|
(89)
|
(89)
|
-
|
(352)
|
|
Carrying amount at 31 December 2008
|
-
|
(388)
|
(115)
|
(161)
|
(298)
|
-
|
(962)
|
|
|
|
|
|
|
|
|
|
|
Carrying amount at 31 December 2008
|
31,431
|
6,092
|
883
|
133
|
341
|
35,653
|
74,533
|
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
equipment
|
Vehicles
|
Furniture
and fixtures
|
Assets
Under
construction
|
Total
|
|
|
|
|
|
€'000
|
€'000
|
€'000
|
€'000
|
€'000
|
€'000
|
€'000
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
|
|
|
|
|
|
Carrying amount at 1 January 2007
|
30,381
|
8,085
|
1,023
|
271
|
659
|
2,224
|
42,643
|
|
Additions
|
8,160
|
-
|
24
|
135
|
24
|
6,528
|
14,871
|
|
Transfers within property, plant and equipment
|
184
|
24
|
-
|
-
|
-
|
(208)
|
-
|
|
Transfers to development work in progress
|
(622)
|
-
|
-
|
-
|
-
|
(147)
|
(769)
|
|
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 - cost
|
(6)
|
-
|
-
|
-
|
(1)
|
(70)
|
(77)
|
|
Carrying amount at 31 December 2007
|
37,219
|
5,694
|
986
|
385
|
624
|
8,097
|
53,005
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
Carrying amount at 1 January 2007
|
-
|
(88)
|
(29)
|
(27)
|
(55)
|
-
|
(199)
|
|
Depreciation
|
-
|
(174)
|
(55)
|
(104)
|
(154)
|
-
|
(487)
|
|
Carrying amount at 31 December 2007
|
-
|
(262)
|
(84)
|
(131)
|
(209)
|
-
|
(686)
|
|
|
|
|
|
|
|
|
|
|
Carrying amount at 31 December 2007
|
37,219
|
5,432
|
902
|
254
|
415
|
8,097
|
52,319
|
In relation to the borrowings of the Group as described in note 24 some items of property, such as land owned by several Bulgarian companies, have been pledged as security. Their total carrying amount is €9,816,000.
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
-
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
7.2 Assets under construction
|
Name of project
|
Project carried out by
|
2008
|
2007
|
|
€'000
|
€'000
|
|
Business Park, Varna
|
Orchid Centre Varna EOOD
|
2,932
|
314
|
|
Orchid Multi Complex Mixed Use, Varna
|
Orchid Multi Complex Varna OOD
|
28,733
|
5,824
|
|
Varna Gardens, Varna
|
Orchid Gardens Varna EOOD
|
2,201
|
1,549
|
|
Ring Road
|
Orchid Capital Properties EOOD
|
8
|
2
|
|
Airport City Commercial project
|
Orchid Airport City Sofia 2006 EOOD
|
8
|
3
|
|
Hotel 'Golden Yavor'
|
O.M.Razvitie EOOD
|
10
|
-
|
|
Logistic Centre
|
Orchid Logistic Centers EOOD
|
1,761
|
405
|
|
|
|
35,653
|
8,097
|
In 2008 € 1,980,417 borrowing costs were capitalised in property, plant and equipment (2007: €0).
8. Disposal of subsidiary
On 17 December 2008 the Group disposed of its 100% equity interest in its subsidiary, Yavor Zlatni Piasatsci AD, the owner of the Yavor hotel. The subsidiary was classified as held for sale in the 2007 financial statements (see note 33).
Total consideration for the sale was €9,653,000 of which €9,153,000 was received in 2008. The balance of €500,000 will be paid upon Bulgarian court declaration for the annulment of a missing share certificate of the subsidiary. The process has started and the Group expects it to be finalized in June 2009. For further details see note 33.
9. 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:
|
|
2008
|
2008
|
2007
|
2007
|
|
|
€'000
|
Share %
|
€'000
|
Share %
|
|
Acquisition of share capital
|
1
|
30
|
1
|
30
|
|
Goodwill
|
313
|
30
|
313
|
30
|
|
Share of previous years' losses
|
(37)
|
30
|
(28)
|
30
|
|
Share of current year loss
|
(15)
|
30
|
(9)
|
30
|
|
|
262
|
30
|
277
|
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 2008:
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
Assets
|
1,035
|
1,082
|
|
Liabilities
|
(13)
|
(11)
|
|
Revenue
|
43
|
46
|
|
Loss
|
(49)
|
(31)
|
|
Loss attributable to the Group
|
(15)
|
(9)
|
As of 31 December 2008 the total recognised loss for the Group from 2004 to 2008 amounts to €52,000.
The carrying amount presented on the balance sheet includes goodwill recognised on the initial acquisition of Kohav OOD in year 2004. In 2008 the Group did not receive any dividends (2007: Nil).
10. Goodwill
The net carrying amount of goodwill is analysed as follows:
|
|
Goodwill
|
|
|
€'000
|
|
|
|
|
At 1 January 2007
|
|
|
Opening net book amount
|
1,638
|
|
Transfer of goodwill to non-current asset held for sale
|
(1,635)
|
|
Closing net book amount
|
3
|
|
At 31 December 2007
|
|
|
Cost
|
3
|
|
Closing Net book amount at 31 December 2008
|
3
|
|
|
|
The subsidiary to which the goodwill of €1,635,000 relates was sold in 2008.
11. Other intangible assets
The carrying amounts of the other intangible assets presented in the financial statements at 31 December 2008 are calculated as follows:
|
|
Acquired software
licenses
|
Others
|
Total
|
|
|
€'000
|
€'000
|
€'000
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
|
|
Balance at 1 January 2008
|
10
|
54
|
64
|
|
Additions
|
5
|
-
|
5
|
|
Balance at 31 December 2008
|
15
|
54
|
69
|
|
|
|
|
|
|
Amortization and impairment
|
|
|
|
|
Balance at 1 January 2008
|
(6)
|
(12)
|
(18)
|
|
Amortization
|
(3)
|
(13)
|
(16)
|
|
Balance at 1 December 2008
|
(9)
|
(25)
|
(34)
|
|
|
|
|
|
|
Carrying amount 31 December 2008
|
6
|
29
|
35
|
The carrying amounts of the other intangible assets presented in the financial statements at 31 December 2007 are calculated as follows:
|
|
Acquired software
licenses
|
Others
|
Total
|
|
|
€'000
|
€'000
|
€'000
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
|
|
Balance at 1 January 2007
|
16
|
40
|
56
|
|
Additions
|
1
|
14
|
15
|
|
Transfer of cost related to non-current asset held for sale
|
(7)
|
-
|
(7)
|
|
Balance at 31 December 2007
|
10
|
54
|
64
|
|
|
|
|
|
|
Amortization and impairment
|
|
|
|
|
Balance at 1 January 2007
|
(5)
|
(4)
|
(9)
|
|
Transfer of accumulated depreciation related to non-current asset held for sale
|
4
|
-
|
4
|
|
Amortization
|
(5)
|
(8)
|
(13)
|
|
Balance at 1 December 2007
|
(6)
|
(12)
|
(18)
|
|
|
|
|
|
|
Carrying amount 31 December 2007
|
4
|
42
|
46
|
No intangible assets were provided as security for Group's liabilities.
12. Other assets
Other assets comprise of capitalised brokerage fees amounting to € 319,000 (2007: € 135,000). These were paid to Colliers International for their brokerage services in regard to tenants in the Grand Mall project and will be amortised over the period of the leases after opening the mall.
13. Long-term loans due from associates
The amount of €295,000 (2007: €277,000) 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, starting 2007, with an interest rate EUROLIBOR +2%. In the reporting period interest income on the amortised loan in the amount of € 18,000 was recognized. Refer to note 0 for the effect of the discount.
14. Deferred tax assets
Deferred tax arising from temporary differences and unused tax losses under the liability method, using a principal tax rate for 2008 of 10% according to the Bulgarian Corporate Income Tax Act, can be summarised as follows:
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
Restated
|
|
|
|
|
|
Temporary differences
|
12
|
18
|
|
Unrecognised unused tax losses from previous years
|
361
|
351
|
|
Unused tax losses from the current year
|
109
|
112
|
|
|
482
|
481
|
The management is satisfied in view of the on going plans and projects that the tax losses will be used. See note 32 for further information on the Group's income tax expense.
15. Receivables from sale of investment
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
|
|
Cash in escrow bank account related to the sale of subsidiary
|
500
|
-
|
|
Receivables from sale of subsidiary
|
-
|
368
|
|
|
500
|
368
|
The cash in escrow bank account relates to the sale of subsidiary. For further details refer to note 8.
16. Development work in progress
|
|
|
2008
|
2007
|
|
|
|
€'000
|
€'000
|
|
|
|
|
Restated
|
|
|
|
|
|
|
Sofia Hills residential project
|
|
769
|
10,625
|
|
Varna Hills residential project
|
|
4,357
|
5,795
|
|
Varna Gardens mixed project
|
|
7,799
|
-
|
|
|
|
12,925
|
16,420
|
|
|
Notes
|
2008
|
2007
|
|
|
|
€'000
|
€'000
|
|
|
|
|
Restated
|
|
Development costs expensed in the Income Statement
|
|
4,658
|
2,427
|
|
Recognised profits
|
|
1,664
|
725
|
|
|
|
6,322
|
3,152
|
|
|
|
|
|
|
Advances received
|
|
10,460
|
9,961
|
|
Development contracts-due from customers for development contracts
|
|
1,174
|
1,204
|
In 2008 € 159,829 borrowing costs were capitalised in development work in progress (2007: €0).
16.1 Development work in progress for Sofia Hills residential project
The first stage of the project was completed in December 2008. As at the reporting date Orchid Sofia Hills EOOD had signed contracts for the sale of 171 units (out of 177) and transferred the ownership of 1 unit. An amount of € 10,147,000 representing the cost of 176 apartment units was transferred from development work in progress to inventory.
16.2 Development work in progress for the Varna Hills residential project
Development work in progress for the Varna Hills residential project includes land of value €303,000, of which €166,000 was allocated as development costs. The current project includes 3 stages of which stage 1 (174 apartments) is completed and stage 2 (162 apartments) is in advanced stage of construction. Development costs of € 1,710,000 representing 39 completed units in stage 1 are included in inventory.
The Group has signed contracts for the sale of further 156 apartments units with a total value of € 8,409,000 (excluding value added tax), of which € 2,992,000 has been recognised cumulatively as revenue corresponding to signed notary deeds and adjusted by the percentage of completion of the development work. The percentage of completion of the project works as of 31 December 2008 is 81.29% of the development costs of stage 2.
16.3 Development work in progress for the Varna Gardens mixed use residential and retail project
Development work in progress for the Varna Gardens mixed use residential and retail project of value €7,799,000 includes construction expenses of €1,713,000, capitalized financial expenses of €160,000 and land of value €5,926,000 corresponding to the relative value of the residential part of the total project.
17. Inventories
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
|
|
Apartment units Sofia Hills (176 apartments)
|
10,147
|
-
|
|
Apartment units Varna Hills (39 apartments)
|
1,710
|
-
|
|
Materials
|
11
|
3
|
|
|
11,868
|
3
|
The apartment units within inventory in the residential projects represent 215 completed units out of which 177 have contracts for sale in progress. The Group does not recognize income from sale until the transfer of ownership occurs.
Expenses for materials for a total amount of €312,000 were recognised in the Income Statement in 2008 (2007: € 249,000) under 'Cost of materials'.
18. Development contract receivables
The development contract receivables amounting to € 1,174,000 (2007: €1,204,000) represent the receivables from customers of Varna Hills residential projects. The amount is net of the advances received from these customers as at 31 December 2008. Please refer to Note 16 'Development work in progress' for more information about development contracts.
19. Trade receivables
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
Advances for development work paid to subcontractors and suppliers
|
4,947
|
2,514
|
|
Receivables from tour operators
|
101
|
56
|
|
Others
|
247
|
53
|
|
|
5,295
|
2,623
|
|
|
|
|
|
|
|
|
|
Trade receivables, gross
|
5,295
|
2,633
|
|
Impairment of trade receivables
|
-
|
(10)
|
|
Trade receivables, net
|
5,295
|
2,623
|
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.
20. Tax receivables
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
Restated
|
|
|
|
|
|
Refundable VAT
|
5,247
|
786
|
|
Others
|
19
|
173
|
|
|
5,266
|
959
|
The refundable VAT is attributable to the following companies within the Group:
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
|
|
Orchid Seaside Apartments EOOD
|
77
|
72
|
|
Orchid Sofia Hills EOOD
|
47
|
7
|
|
OM Razvitie EOOD
|
25
|
10
|
|
Orchid Multi Complex Varna OOD
|
4,093
|
604
|
|
Orchid Centre Varna EOOD
|
731
|
67
|
|
Orchid Gardens Varna EOOD
|
250
|
26
|
|
Orchid logistics centers EOOD
|
24
|
-
|
|
|
5,247
|
786
|
An amount of € 359,000 of refundable VAT in Orchid Multi Complex Varna OOD is in process of review at the National Revenue Agency.
21. Other receivables
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
|
|
Insurance
|
-
|
9
|
|
Prepayments
|
82
|
178
|
|
Rents deposits
|
-
|
34
|
|
Advances to employees
|
11
|
11
|
|
Court claims
|
94
|
106
|
|
Others
|
161
|
38
|
|
|
348
|
376
|
22. Cash and cash equivalents
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
|
|
Bank deposits
|
-
|
2,500
|
|
Cash at bank
|
9,599
|
3,416
|
|
Cash in hand
|
35
|
34
|
|
|
9,634
|
5,950
|
23. Equity
23.1 Share capital structure
|
Authorised share capital
|
2008
|
2008
|
2007
|
2007
|
|
|
number
|
€'000
|
number
|
€'000
|
|
|
|
|
|
|
|
Ordinary shares of € 0.01 each
|
125,000,000
|
1,250
|
125,000,000
|
1,250
|
|
|
2008
|
2008
|
2007
|
2007
|
|
Allotted, called up and fully paid
|
number
|
€'000
|
number
|
€'000
|
|
|
|
|
|
|
|
Ordinary shares of € 0.01 each
|
75,966,260
|
760
|
75,966,260
|
760
|
Movements in share capital for the year ended 31 December 2008 were as follows:
|
Analysis of movements in shares
|
2008
|
2008
|
2007
|
2007
|
|
|
number
|
€'000
|
number
|
€'000
|
|
Shares issued:
|
|
|
|
|
|
- at the beginning of the period
|
75,966,260
|
760
|
75,754,442
|
758
|
|
- new share issue
|
-
|
-
|
211,818
|
2
|
|
Shares outstanding and fully paid
at 31 December 2008
|
75,966,260
|
760
|
75,966,260
|
760
|
23.2 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:
|
|
2008
|
2008
|
2007
|
2007
|
|
|
€ per share
|
'000
|
€ per share
|
'000
|
|
|
Average
Exercise
price
|
Number
Option
|
Average
Exercise
price
|
Number
Option
|
|
At 1 January
|
1.67
|
590
|
1.49
|
802
|
|
Exchange rate movements
|
(0.38)
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
-
|
-
|
0.97
|
(212)
|
|
At 31 December
|
1.29
|
590
|
1.67
|
590
|
All of the 590,000 outstanding options are exercisable.
Share options outstanding at the end of the year have the following vesting date and exercise prices:
|
|
|
2008
|
2007
|
|
|
€ per share
|
'000
|
'000
|
|
|
Average
Exercise
price
|
Options
|
Options
|
|
30 June 2006
|
1.00
|
35
|
35
|
|
30 June 2007
|
1.26
|
330
|
330
|
|
30 June 2008
|
1.38
|
225
|
225
|
|
|
1.29
|
590
|
590
|
The options are denominated in Sterling. However, for consistency the notes are disclosed in euro. The weighted average fair value of options granted determined using the Black-Scholes valuation model was €0.73 per option. The significant inputs into the model were a weighted average share price of €1.87 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 2008 the expense for share options charged in the income statement was €12,000 (2007: €104,000).
23.3 Share premium
The share premium amounting to €64,216,000 (2007: €64,216,000) as at 31 December 2008 comprises the difference between the price paid for the issued shares of Orchid Developments Group Ltd. and their par value.
23.4 Loss per share
Both the basic and diluted 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
|
2008
|
2007
|
|
|
€
|
€
|
|
|
|
Restated
|
|
|
|
|
|
Loss from continuing operations as previously stated
|
(3,451,000)
|
(3,090,000)
|
|
Restatement as a result of adoption of IFRIC 15 (note 5)
|
-
|
(197,000)
|
|
Loss from continuing operations as restated
|
(3,451,000)
|
(3,287,000)
|
|
Weighted average number of ordinary shares in issue
|
75,966,260
|
75,870,507
|
|
Basic loss (€ per share) from continuing operations
|
(0.045)
|
(0.043)
|
|
Basic loss (€ per share) from continuing operations as previously stated
|
|
(0.04)
|
|
Discontinued operations
|
2008
|
2007
|
|
|
€
|
€
|
|
|
|
Restated
|
|
|
|
|
|
Earnings (loss) from discontinued operations
|
3,586,000
|
(126,000)
|
|
Weighted average number of ordinary shares in issue
|
75,966,260
|
75,870,507
|
|
Basic earnings (loss) (€ per share) from discontinued operations
|
0.047
|
(0.002)
|
|
Total operations
|
2008
|
2007
|
|
|
€
|
€
|
|
|
|
Restated
|
|
|
|
|
|
Profit (loss) from total operations as previously stated
|
135,000
|
(3,216,000)
|
|
Restatement as a result of IFRIC 15 (note 5)
|
-
|
(197,000)
|
|
Profit /(loss) from total operations as restated
|
135,000
|
(3,413,000)
|
|
Weighted average number of ordinary shares in issue
|
75,966,260
|
75,870,507
|
|
Basic earnings /(loss) (€ per share) from total operations
|
0.002
|
(0.045)
|
|
Basic loss (€ per share) from continuing operations as previously stated
|
|
(0.042)
|
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
|
2008
|
2007
|
|
|
€
|
€
|
|
|
|
Restated
|
|
|
|
|
|
Loss attributable to equity holders of the Group from continuing operations as previously stated
|
(3,451,000)
|
(3,090,000)
|
|
Restatement as a result of adoption of IFRIC 15 (note 5)
|
-
|
(197,000)
|
|
Loss from continuing operations as restated
|
(3,451,000)
|
(3,287,000)
|
|
Weighted average number of ordinary shares in issue
|
75,966,260
|
75,870,507
|
|
Adjustments for assumed conversion of share options
|
589,945
|
706,010
|
|
Weighted average number of ordinary shares
|
|
|
|
for diluted earnings per share
|
76,556,205
|
76,576,517
|
|
Diluted earnings (loss) per share (€ per share)
|
(0.0455)
|
(0.043)
|
|
Diluted earnings (loss) per share (€ per share) as previously stated
|
|
(0.04)
|
|
Discontinued operations
|
2008
|
2007
|
|
|
€
|
€
|
|
Profit /(Loss) attributable to equity holders of the Group from continuing operations
|
3,586,000
|
(126,000)
|
|
Weighted average number of ordinary shares in issue
|
75,966,260
|
75,870,507
|
|
Adjustments for assumed conversion of share options
|
589,945
|
706,010
|
|
Weighted average number of ordinary shares
|
|
|
|
for diluted earnings per share
|
76,556,205
|
76,576,517
|
|
Diluted earnings (loss)loss per share (€ per share)
|
0.047
|
(0.002)
|
|
|
|
|
|
Total operations
|
2008
|
2007
|
|
|
€
|
€
|
|
|
|
Restated
|
|
|
|
|
|
Loss from total operations as previously stated
|
135,000
|
(3,216,000)
|
|
Restatement as a result of IFRIC 15 (note 5)
|
-
|
(197,000)
|
|
Profit /(loss) from continuing operations as restated
|
135,000
|
(3,413,000)
|
|
Weighted average number of ordinary shares in issue
|
75,966,260
|
75,870,507
|
|
Adjustments for assumed conversion of share options
|
589,945
|
706,010
|
|
Weighted average number of ordinary shares
|
|
|
|
for diluted earnings per share
|
76,556,205
|
76,576,517
|
|
Diluted loss per share (€ per share)
|
0.00
|
(0.045)
|
|
Diluted earnings (loss)loss per share (€ per share) as previously stated
|
|
(0.042)
|
The amounts per share are not influenced by any tax consequences.
24. Loans from bank and financial institutions
|
|
2008
|
2007
|
|
|
€'000
|
€'0000
|
|
Bank loans
|
33,684
|
4,698
|
|
Loan note
|
7,000
|
7,000
|
|
|
40,684
|
11,698
|
The loans comprise the following components:
|
|
2008
|
2007
|
|
|
€'000
|
€'0000
|
|
Non-current borrowing
|
30,488
|
4,111
|
|
Current borrowing
|
10,196
|
7,587
|
|
|
40,684
|
11,698
|
Changes in loans during the period are presented as follows:
|
|
€'000
|
|
For the period ended 31 December 2008
|
|
|
Beginning balance 1 January 2008
|
11 698
|
|
Received during the period
|
46,590
|
|
Repaid during the period
|
(17,604)
|
|
Ending balance 31 December 2008
|
40,684
|
The Group received funding for its projects in accordance with the following loan agreements signed with banks during the period ended 31 December 2008:
-
A loan contract dated 7 February 2008 was signed between the subsidiary Orchid Multicomplex Varna OOD and the lender DSK EAD, Bulgaria for an amount of €10 million. The loan was repaid in full on 25 September 2008.
-
The Group signed on 18 April 2008 a credit facility agreement with a consortium of European banks led by OTP Bank to finance the project carried out by the subsidiary Orchid Multicompex Varna up to the amount of €107,026,548. €25,013,000 was drawn at 31 December 2008. The first repayment date of the loan is 31 December 2010. The annual interest rate consists of three-month EURIBOR plus margin. The principal shall be repaid in 78 quarterly payments following 31 December 2010. The loan is collaterised by pledge over the subsidiary enterprise and a pledge over its shares.
-
A facility agreement dated 24 March 2008 was signed by the subsidiary Orchid Centre Varna EOOD and Raiffeisenbank, Bulgaria. The negotiated amount of the principal is up to €11.95 million, out of which €2.986 million was drawn until 31 December 2008. The annual interest rate is the three-month EURIBOR plus margin. According to the repayment terms, the loan should be repaid by 20 December 2019 in forty consecutive quarterly instalments starting from 20 March 2010. The collateral provided to the bank is land in Varna owned by the borrower with an area of 4,629 sq m and the right to build related to it.
-
A revolving loan contract dated 24 March 2008, signed between the subsidiary Orchid Centre Varna EOOD and Raiffeisenbank, Bulgaria. The agreed principal is up to €900,000. The amount utilized as of 30 June 2008 is €0.548 million. The annual interest rate is the three-month EURIBOR plus margin. The maturity date is 20 June 2010. The principal shall be repaid in six consecutive equal monthly instalments, each for the amount of €150,000, starting from 20 January 2010 until 20 June 2010. The collateral provided to the bank is land in Varna owned by the borrower with an area of 4,629 sq m and a first ranking pledge on all future receivables under lease agreements to be signed until the date of maturity of the loan.
-
A facility agreement dated 10 July 2008 was signed by the subsidiary Orchid Gardens Varna EOOD and Unicredit Bulbank, Bulgaria. The negotiated amount of the principal is up to €25 million, of which €1.2 million is a revolving VAT facility. As at 31 December 2008 €1.605 was drawn of the investment facility and €0.329 million of the revolving VAT facility. The annual interest rate is one-month EURIBOR plus margin. The final repayment date under the facility is 30 May 2016. The collateral provided to the bank is land in Varna owned by the borrower with an area of 6,850 sq m and pledges over the borrower's receivables.
The group had prepaid in full the EBRD loan granted to its hotel subsidiary on 27 November 2008.
The loan note was issued by Lakan Investment Ltd. (fully owned subsidiary). The final maturity has been extended to 22 June 2010. An amount of €1 million of interest charges was paid on 28 August 2008 and the amount of €5 million principal was repaid on 5 January 2009. The interest rate charged on the loan as negotiated on 17 June 2009 is three-month EURIBOR plus 25% for the period to 26 August 2009 and three-month EURIBOR plus 50% for the period from 27 August 2009 to 22 June 2010. The loan is repayable on demand by the loan note holders who consist of a range of investment companies. The loan is secured by different plots of land owned by the Group.
A short term overdraft facility from UBP, Switzerland in the amount of € 3.2 million was repaid on 5 January 2009.
25. Lease liabilities
25.1 Finance lease liabilities
Orchid Developments Group Ltd. currently has five finance lease agreements as at 31 December 2008, which relate to vehicles. The net carrying amount of the vehicles held under the leases in 2008 is € 39,000 (2007: € 68,000). The vehicles are included in note 7 Property, plant and equipment.
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
Finance lease liability - non-current portion
|
2
|
22
|
|
Finance lease liability- current portion
|
20
|
27
|
|
|
22
|
49
|
|
Future minimum lease payments are as follows:
|
Up to 1 year
|
From 2
to 5 years
|
Total
|
|
|
€'000
|
€'000
|
€'000
|
|
Lease payments
|
21
|
2
|
23
|
|
Discounts
|
(1)
|
-
|
(1)
|
|
Net present value
|
20
|
2
|
22
|
The lease agreements include fixed lease payments and a purchase option at the end of three-year lease term. The agreements are non-cancellable but do not contain any further restrictions.
25.2 Operating lease
Operating lease expenses in 2008 were as follows:
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
|
|
Rental expenses
|
183
|
117
|
The Group's future minimum operating lease payments are as follows:
|
Lease Payments
|
Up to 1 year
|
From 2 to
5 years
|
Total
|
|
|
€'000
|
€'000
|
€'000
|
|
As at 31 December 2007
|
122
|
185
|
307
|
|
As at 31 December 2008
|
27
|
-
|
-
|
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.
26. Trade payables
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
|
|
Advances from customers for residential units sold
|
10,460
|
9,961
|
|
Liabilities to building companies
|
8,040
|
2,215
|
|
Advances from clients for tourist services
|
38
|
9
|
|
Provisions related to disposal of subsidiary
|
-
|
129
|
|
Others
|
650
|
560
|
|
|
19,188
|
12,874
|
Management considers the carrying amounts recognised in the balance sheet for trade payables to be a reasonable approximation of their fair value.
27. Tax liabilities
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
VAT liabilities
|
250
|
268
|
|
Withholding tax liabilities
|
92
|
-
|
|
Corporate income tax liabilities
|
105
|
38
|
|
Personal income tax
|
1
|
8
|
|
Others
|
37
|
3
|
|
|
485
|
317
|
28. Employees
28.1 Employee compensation and benefit expenses
Employee compensation and benefit expenses include:
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
Wages and salaries
|
(2,118)
|
(2,001)
|
|
Social security
|
(108)
|
(81)
|
|
Share option scheme
|
(12)
|
(104)
|
|
|
(2,238)
|
(2,186)
|
28.2 Payables to employees and social security institutions
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
Wages and salaries
|
214
|
258
|
|
Social security
|
7
|
19
|
|
|
221
|
277
|
Out of the total amount of the salaries payable €110,000 (2007: €110,000) relates to remuneration for the Directors. Please refer to the Directors' Remuneration Report for more information.
29. Revenue
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
Restated
|
|
|
|
|
|
Recognised income from residential units sold (sale of goods)
|
6,321
|
3,152
|
|
Services rendered
|
653
|
709
|
|
Other income
|
295
|
76
|
|
|
7,269
|
3,937
|
30. Interest income and interest expense
The following amounts have been included in the Income Statement for the reporting periods presented:
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
Interest expense
|
|
|
|
Interest expense on loans
|
(548)
|
(402)
|
|
Interest for discount of long-term receivable from associates
|
(18)
|
(79)
|
|
Other interest expenses
|
(10)
|
(6)
|
|
|
(576)
|
(487)
|
|
|
|
|
|
Interest income
|
|
|
|
Interest income resulting from fiduciary deposits
|
52
|
283
|
|
Other interest income
|
56
|
3
|
|
|
108
|
286
|
Other interest income includes interest on amortised loan to associates in the amount of € 18,000.
31. Other financial expenses
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
|
|
Exchange rate loss
|
-
|
(19)
|
|
Bank charges
|
(84)
|
(37)
|
|
EBRD - fees and charges
|
(97)
|
(312)
|
|
|
(181)
|
(368)
|
32. Tax (expenses) / income
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:
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
Restated
|
|
|
|
|
|
Profit /(loss) of Orchid Group for the year
|
135
|
(3,413)
|
|
Profit attributable to Bulgarian companies, the financial result of which is taxable in Bulgaria
|
2,730
|
376
|
|
Corporate income tax rate
|
10%
|
10%
|
|
Expected tax expense
|
(273)
|
(37)
|
|
|
|
|
|
Tax effect from deduction of the financial result
|
106
|
-
|
|
|
|
|
|
Deferred tax income /(expense) related to Bulgarian companies:
|
|
|
|
- origination of temporary differences related to losses
|
1
|
164
|
|
- reversal of temporary differences
|
-
|
(29)
|
|
Actual tax (expenses)/income
|
(166)
|
98
|
Please refer to note 14 deferred tax assets for information on Group's deferred tax assets.
33. 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. Revenue and expenses, gains and losses relating to the discontinuation of this subsidiary have been eliminated from profit or loss from the Group's continuing operations and are shown as a single line item on the face of the income statement (see 'profit for the year from discontinued operations'). The subsidiary's operating loss until the change of control on 17 December 2008 and the gain on disposal disposal of assets and liabilities classified as held for sale can be summarised as follows:
|
|
17 December 2008
|
2007
|
|
|
€'000
|
€'000
|
|
Assets
|
|
|
|
Non -current
|
|
|
|
Property, plant and equipment
|
3,890
|
3,659
|
|
Goodwill
|
1,635
|
1,635
|
|
Other non-current assets
|
1
|
46
|
|
Total non-current assets
|
5,526
|
5,340
|
|
|
|
|
|
Current
|
|
|
|
Cash and cash equivalents
|
1
|
121
|
|
Trade receivables
|
122
|
46
|
|
Other current assets
|
67
|
109
|
|
Total current assets
|
190
|
276
|
|
|
|
|
|
Total assets
|
5,716
|
5,616
|
|
Trade and other current liabilities
|
79
|
19
|
|
Total liabilities
|
79
|
19
|
|
Income Statement
|
Period to 17
December
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
|
|
Revenue
|
38
|
670
|
|
Cost of materials
|
(12)
|
(206)
|
|
Hired services expenses
|
(40)
|
(135)
|
|
Employee compensation and benefit expenses
|
(46)
|
(233)
|
|
Deprecation and amortisation
|
(50)
|
(151)
|
|
Other expenses
|
(206)
|
(65)
|
|
Operating loss
|
(316)
|
(120)
|
|
Financial income /(expenses)
|
8
|
(3)
|
|
Loss for the year before tax
|
(308)
|
(123)
|
|
Tax expenses, net
|
(75)
|
(3)
|
|
Net loss for the period
|
(383)
|
(126)
|
|
|
|
|
|
Proceeds from sale of subsidiary
|
9,653
|
-
|
|
Net carrying value of the investment in subsidiary
|
(5,684)
|
-
|
|
Gain on disposal of subsidiary
|
3,969
|
-
|
|
|
|
|
|
Total per Income Statement
|
3,586
|
(126)
|
|
Cash Flows
|
17 December
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
|
|
Net cash flows from operating activities
|
(35)
|
361
|
|
Net cash flows from investing activities
|
(450)
|
(326)
|
|
Net cash flows from financing activities
|
365
|
(115)
|
|
|
|
|
|
Cash and cash equivalents, beginning of year
|
121
|
201
|
|
Net increase /(decrease) in cash and cash equivalents
|
(120)
|
(80)
|
|
Cash and cash equivalents, end of period
|
1
|
121
|
34. 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 €500,000. 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 2008. Should dividends have been paid, there would not be tax consequences for the company as it is tax exempt.
At 31 December 2008 the details of the signed contracts are as follows:
|
Related party
|
Number of
Purchased
apartments
|
Total
price, net
of VAT
|
Instalments
received,
net of VAT
|
|
|
|
€'000
|
€'000
|
|
Guy Meyohas and Ofer Miretzky (in Orchid Sofia Hills)
|
2
|
327
|
126
|
|
Ron Grushka (in Orchid Sofia Hills)
|
3
|
206
|
101
|
|
Ofer Miretzky (in Orchid Varna Hills)
|
4
|
208
|
208
|
|
Ofer Miretzky (in Orchid Gardens Varna)
|
1
|
304
|
-
|
|
Anatoly Drayluk (in Orchid Gardens Varna)
|
1
|
183
|
-
|
Ofer Miretzky (through Noa Café) had signed lease agreements with Orchid Multi Complex Varna OOD for 2 units of 141 sq m in total and additional sitting area of 81 sq.m. The lease period is 10 years plus a prolongation option for a further 10 year period. Total rent payable under the leases amount to €64,000 per annum.
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.
34.1 Year-end balances
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
Restated
|
|
Receivables
|
|
|
|
Receivables from key management
|
33
|
23
|
|
|
33
|
23
|
|
Payables
|
|
|
|
Loan to key management
|
16
|
30
|
|
|
16
|
30
|
Receivables from related parties for the amount of € 33,000 (2007: € 122,000) have been included in 'trade receivables' and payables for the amount of € 127,000 (2007: € 64,000) have been included in 'trade payables' as they are connected with sale of residential units.
35. Contingent liabilities
35.1 Court claims
There are no pending court claims against the Group, nor any circumstances concerning the Group to give rise to claims.
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. The court proceedings are stopped due to the fact that Toshko and Evelina Goranov entered a claim in Sofia City Court against the court decision for the liquidation of Unity Engineering OOD.
Orchid Multi Complex Varna OOD is engaged in a claim against the Bulgaria National Revenue Agency over disputed VAT claims. One claim in the amount of €48,000 is pending before the Bulgarian Supreme Administrative court; the hearing process had not started yet. A second claim in the amount of €46,000 is pending decision of the Sofia Administrative court.
35.2 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. On April 2008 the Group had signed an agreement with the purchaser declaring the parties have no further claims from each other.
36. Capital commitments
At 31 December 2008, the Group has signed contracts with subcontractors and building companies for construction works, project and design works, excavation and supervision for a total amount of € 85,685,084 related to commercial development property and € 2,238,946 related to residential development property.
37. Capital management policies and procedures
The Group's capital management objectives are:
The Group monitors capital on the basis of the correlation between equity and net debt.
Net debt is calculated as total liabilities less the carrying amount of cash and cash equivalents.
The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. Group's policy is not to exceed an equity-to-net debt ratio of 1:4.
The amount of the correlation for the presented accounting periods is summarized as follows:
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
|
|
Equity
|
61,694
|
61,547
|
|
|
|
|
|
Debt
|
61,278
|
25,533
|
|
- cash and cash equivalents
|
(9,634)
|
(5,950)
|
|
Net debt
|
51,644
|
19,583
|
|
|
|
|
|
Equity to net debt
|
1:0.84
|
1:0.32
|
38. Risk management objectives and policies
The Group is exposed to a market risk, currency risk, interest rate risk and certain other price risks, which result from both its operating and investing activities. The Group does not use financial instruments to decrease the level of financial risks.
The most significant financial risks to which the Group is exposed to are described below.
38.1 Foreign currency risk
Most of the Group's expenditures are carried out in Euros. All of the Group's sale/lease contracts are denominated in Euros, as well as its financing agreements. The exchange rate BGN to Euro has been fixed since 1997.
38.2 Credit risk
The Group's trade and other receivables are monitored to avoid significant concentrations of credit risk.
The Group's exposure to credit risk is limited to the carrying amount of financial assets recognised at the balance sheet date, as summarised below:
|
Classes of financial assets - carrying amounts
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
|
|
Restated
|
|
|
|
|
|
Loans
|
295
|
277
|
|
Long-term exposure to credit risk
|
295
|
277
|
|
|
|
|
|
|
|
|
|
Trade and other receivables
|
2,403
|
2,080
|
|
Cash and cash equivalents
|
9,634
|
5,950
|
|
Short-term exposure to credit risk
|
12,037
|
8,030
|
The Group monitors defaults of customers and other counterparties, identified either individually or by group, and incorporates this information into its credit risk controls.
The Group's management considers that all the above financial assets that are not impaired for each of the reporting dates under review are of good credit quality as these are not past due.
All past due receivables for more than one year are 100% impaired. No impairment was recognized in 2008 (€ 10,000 in 2007).
Part of the Group's financial assets are secured by bank guarantees.
In respect of trade and other receivables, the Company is not exposed to any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable institutions.
38.3 Cash flow and Interest rate risks
As at 31.12.2008, the Group is exposed to changes in market interest rate through its bank borrowings, which are subject to variable interest rates. All other financial assets and liabilities have fixed rates.
The following table illustrates the sensitivity of the net result for the year and equity to reasonably possible change in interest rates of +1% and -1% (2007: +/- 1%), with effect from the beginning of the year. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on the Group's financial instruments held at each balance sheet date. All other variables are held constant.
|
Interest rate sensitivity
|
2008
€'000
|
2007
€'000
|
|
|
+1%
|
-1%
|
+1%
|
-1%
|
|
Change in net result for the year
|
(40)
|
40
|
(49)
|
49
|
|
Change in equity
|
(40)
|
40
|
(49)
|
49
|
38.4 Liquidity risk analysis
The Group manages its liquidity needs by monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash-outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a weekly basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 180-day and a 360-day lookout period are identified monthly.
The Group maintains cash and marketable securities to meet its liquidity requirements for up to 30-day periods. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell long-term assets.
As at 31 December 2008, Group's liabilities have contractual maturities which are summarised below:
|
|
Current
|
Non-current
|
|
Within 1 year
|
Later than 1 year
|
|
|
|
|
|
Financial liabilities measured at amortised cost:
|
|
|
|
Loans
|
10,874
|
30,488
|
|
Trade and other liabilities
|
8,690
|
-
|
|
Finance lease liabilities
|
20
|
2
|
|
|
19,584
|
30,490
|
As at 31 December 2007, Group's liabilities have contractual maturities which are summarised below:
|
|
Current
|
Non-current
|
|
Within 1 year
|
Later than 1 year
|
|
|
Restated
|
|
|
|
|
|
|
Financial liabilities measured at amortised cost:
|
|
|
|
Loans
|
7,886
|
4,111
|
|
Trade and other liabilities
|
2,904
|
-
|
|
Finance lease liabilities
|
27
|
22
|
|
|
10,817
|
4,133
|
The above contractual maturities reflect the gross cash flows, which may differ from the carrying values of the liabilities at the balance sheet date.
38.5 Summary of financial assets and financial liabilities by category
The carrying amounts of Company's financial assets and liabilities as recognised at the balance sheet date of the reporting periods may be categorised as follows:
|
|
2008
|
2007
|
|
|
€'000
|
€'000
|
|
Non current assets
|
|
|
|
Loans and receivables
|
295
|
277
|
|
|
|
|
|
Current assets
|
|
|
|
Loans and receivables
|
2,403
|
2,080
|
|
Cash and cash equivalents
|
9,634
|
5,950
|
|
|
|
|
|
Non current liabilities
|
|
|
|
Financial liabilities measured at amortised cost
|
|
|
|
Loans
|
30,488
|
4,111
|
|
Finance lease liabilities
|
2
|
22
|
|
|
|
|
|
Current liabilities
|
|
|
|
Financial liabilities measured at amortised cost:
|
|
|
|
Loans
|
10,874
|
7,886
|
|
Trade and other liabilities
|
8,690
|
2,904
|
|
Finance lease liabilities
|
20
|
27
|
39. Post Balance sheet events
The directors of the Group consider that for the period after the balance sheet date until the date of the approval of the consolidated financial statements no significant and/or material non-adjusting events took place concerning the activities of the Group, the non-disclosure of which could influence the true and fair presentation of the consolidated financial statements, except for the following:
On 17 June 2009 the final maturity of the loan notes issued by Lakan Investment Ltd. (fully owned subsidiary) was extended to 22 June 2010. The terms of the loan notes agreement are described in note 24 Loans from banks and financial institutions.
Directors David Holland (Non-executive Chairman) Appointed 29 June 2005
Guy Meyohas (Joint Chief Executive) Appointed 30 June 2005
Ofer Miretzky (Joint Chief Executive) Appointed 30 June 2005
Ron Grushka (Non-Executive) Appointed 29 June 2005
Timothy Childs (Non-Executive) Appointed 29 June 2005
Secretary The Secretary Ltd.
Boundary Hall, Cricket Square
P.O. Box1111
Grand Cayman KY1-1102
Cayman Islands
Registered Office Paget-Brown Trust Company Ltd.
Boundary Hall, Cricket Square
P.O. Box1111
Grand Cayman KY1-1102
Cayman Islands
Nominated Adviser Shore Capital and Corporate Ltd
Bond Street House
14 Clifford Street
Lindon W1S 4JU
United Kingdom
Broker Shore Capital Stockbrockers Ltd.
The Corn Exchange
Fenwick Street
Liverpool L2 7TP
United Kingdom
Auditors Grant Thornton OOD
Chartered Accountants
26, Cherni vrah Blvd.
Sofia, 1421 Bulgaria
Registrars Capita IRG (offshore) Ltd.
Victoria Chambers
Liberation Square
1/3 The Esplanade
St. Helier, Jersey, JE4 0FF
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR CKKKDPBKDOAB