Nanette Real Estate: Half Yearly Report | Company Announcements

Monday 24 August, 2009

Nanette Real Estate

Half Yearly Report

RNS Number : 8659X

Nanette Real Estate Group N.V.

24 August 2009

Nanette Real Estate Group NV

'Nanette' or 'the Group'

Q2 Financial Results 2009

Nanette Real Estate Group, the Central & Eastern European focused residential real estate developer is pleased to announce its reviewed financial results for the 6 months ended 30 June 2009.

Financial Highlights

Turnover €2 m (€10.6 m Q2 2008)
€ 2 m income from sales of apartments (€10.6 m Q2 2008)
Loss before tax : €5.6 m (Profit €4.4 m Q2 2008)
Profit before tax in the 3 month ended on June: €1.9 m (Profit €3.9 m Q2 2008)

Operational Highlights

221 apartments sold in the period (192 Q2 2008)
151 apartments were reflected in the revenues (out of which 41 were in the revenue of these consolidated financial statements and 110 from Poland as the market picked up); (276 Q2 2008 - 61 apartments in Hungary and 215 apartments in Poland)
2,781 apartments sold in total
Total land-bank not recognized to profit app. 11,200, apartments (11,460 Q2 2008) excluding investment properties, which includes land of app. 620,000 sqm. in Hungary Poland and Ukraine.

Important Notice

Nanette's board of directors believe the costs of maintaining the Company's listing exceed the benefits, and therefore believe that the cancellation of the Company's listing on AIM is in the best interests of shareholders. Consequently the Company will shortly convene an Extraordinary General Meeting ('EGM') at which a resolution proposing the cancellation of the Company's AIM listing will be tabled. The date of the EGM will be announced within 7 days. Further details were given in a separate announcement released on Friday the 21st of August, titled 'Notice Regarding Delisting'.

Outlook

The loss in these financial statements was caused by exposure to weakening currencies in CEE and devaluation of our investment in Ukraine. This resulted in unrealised foreign exchange losses for the company, without effecting the local market activity, where each country is independently operated. In the current foreign exchange rate of the Zloty the company will recognize back another part of the losses in the third quarter.

Despite the current global weakening, the company is encouraged by the positive activity in Poland that continued to grow in the second quarter, where the market has picked up again at the end of February and in the last six months it sold more than 170 apartments, which represents a substantial growth, compared to the total number of flats it sold (86) during the whole year of 2008.

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

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

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

The board had a long discussion about the future of the Company and came to the conclusion that due to lack of liquidity and the opportunities on the AIM the Company will be better served de-listed from AIM, the board voted to recommend the Company shareholders to de-list Nanette from AIM.

24st August 2009

Enquiries:


Nanette Real Estate
	Shaul Lotan	+ 31 20 778 4141
	Eyal Keltsh	+ 48 606 141 201

Global Equity IR
	Amira Bardichev	07956 206270

KBC Peel Hunt
	Capel Irwin	0207 418 8900

CONSOLIDATED BALANCE SHEETS

Euro in thousands

	June 30,		December 31,
	2009	2008	2008
	Unaudited		Audited
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	8,960	38,376	22,056
Deposits	8,298	26,804	22,657
Trade and other receivables	6,488	3,131	7,351
Inventory of land and housing units	34,890	39,081	24,330

	58,636	107,392	76,394

NON-CURRENT ASSETS:
Land	32,754	27,873	43,130
Investment properties	15,899	47,273	17,036
Furniture and equipment	66	147	170
Other financial assets	17,500	7,120	16,746
Goodwill	420	1,148	455
Deferred tax asset	1,348	572	357
Investment in associates (Note 3)	56,972	68,084	52,114

	124,959	152,217	130,008

Total assets	183,595	259,609	206,402

CONSOLIDATED BALANCE SHEETS

Euro in thousands

	June 30,		December 31,
	2009	2008	2008
	Unaudited		Audited
LIABILITIES AND EQUITY

CURRENT LIABILITIES:
Interest bearing loans and borrowings	15,565	17,360	32,929
Trade and other payables	8,366	15,107	6,302
Customer advances	10,191	16,248	9,484

	34,122	48,715	48,715

NON-CURRENT LIABILITIES:
Interest bearing loans and borrowings	73,361	105,233	75,206
Other liabilities	2,632	9,175	2,482
Deferred tax liability	538	1,844	96

	76,531	116,252	77,784

Total liabilities	110,653	164,967	126,499

EQUITY:
Equity attributable to equity holders of the parent:
Share capital	3,449	3,449	3,449
Share premium	67,473	67,473	67,473
Treasury shares	(527)	(527)	(527)
Other reserves	(971)	2,038	486
Retained earnings	3,421	21,972	8,906

	72,845	94,405	79,787
Minority interests	97	237	116

Total equity	72,942	94,642	79,903

Total liabilities and equity	183,595	259,609	206,402

August 19, 2009

Date of approval of the

Shaul Lotan

Oscar Katzenelson

Ran Jacobs

financial statements

Chairman of the

Board of Directors

Director and CEO

Director and CFO

CONSOLIDATED STATEMENTS OF INCOME

Euro in thousands (except per share data)

	Six months ended June 30,		Three months ended June 30,		Year ended December 31,
	2009	2008	2009	2008	2008
	Unaudited				Audited

Revenues	2,091	10,562	1,135	1,193	26,529
Cost of revenues	1,764	8,156	1,022	905	20,921

Gross profit	327	2,406	113	288	5,608

Fair value adjustment of investment property	(683)	1,786	(683)	1,786	1,969

	(356)	4,192	(570)	2,074	7,577
Marketing, general and administrative expenses	2,537	2,654	1,347	1,257	6,351

Operating profit (loss)	(2,893)	1,538	(1,917)	817	1,226

Financial costs	(8,642)	(9,765)	(6,503)	(5,900)	(27,685)
Financial income	7,519	12,474	12,276	8,433	25,272
Share in profit (loss) of associates	(1,607)	506	(1,947)	706	1,180
Other income (expenses)	-	450	-	(138)	6,330

Profit (loss) before taxes on income	(5,623)	5,203	1,909	3,918	6,323
Taxes on income (tax benefit)	(213)	600	399	256	701

Profit (loss) for the period	(5,410)	4,603	1,510	3,662	5,622

Attributable to:
Equity holders of the parent	(5,485)	4,437	1,431	3,710	5,529
Minority interest	75	166	79	(48)	93

	(5,410)	4,603	1,510	3,662	5,622

Earnings (loss) per share attributable to equity holders of the parent (in Euro):
Basic and diluted	(0.03)	0.03	0.01	0.02	0.03

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Six months ended June 30,		Three months ended June 30,		Year ended December 31,
	2009	2008	2009	2008	2008
	Unaudited				Audited

Profit (loss) for the period	(5,410)	4,603	1,510	3,662	5,622

Other comprehensive income (loss):

Currency translation differences	(692)	1,125	(158)	786	(392)
Group's share in other comprehensive income (loss) of associates	(775)	1,048	663	1,045	(2,198)

Other comprehensive income (loss) for the period, net of tax	(1,467)	2,173	505	1,831	(2,590)

Total comprehensive income (loss) for the period, net of tax	(6,877)	6,776	2,015	5,493	3,032

Attributable to:
Equity holders of the parent	(6,942)	6,533	1,949	5,476	2,910
Minority interests	65	243	66	17	122

	(6,877)	6,776	2,015	5,493	3,032

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Euro in thousands

	Attributable to equity holders of the parent
	Share	Share	Treasury	Other	Retained		Minority	Total
	capital	premium	Shares	reserves	earnings	Total	interests	equity

Balance at January 1, 2008 (audited)	3,435	67,415	-	(58)	17,535	88,327	568	88,895

Total comprehensive income (loss) for the period	-	-	-	(2,619)	5,529	2,910	122	3,032
Exercise of options	14	58	-	-	-	72	-	72
Treasury shares	-	-	(527)	-	-	(527)	-	(527)
Dividend paid	-	-	-	-	(10,995)	(10,995)	-	(10,995)
Dividend to minority interest	-	-	-	-	-	-	(159)	(159)
Acquisition of minority interest	-	-	-	-	-	-	(415)	(415)
Reclassification according to statutory requirements	-	-	-	3,163	(3,163)	-	-	-

	14	58	(527)	3,163	(14,158)	(11,450)	(574)	(12,024)

Balance at December 31, 2008 (audited)	3,449	67,473	(527)	486	8,906	79,787	116	79,903

Total comprehensive income (loss) for the period	-	-	-	(1,457)	(5,485)	(6,942)	65	(6,877)

Sale of shares of subsidiaries	-	-	-	-	-	-	(84)	(84)

Balance at June 30, 2009 (unaudited)	3,449	67,473	(527)	(971)	3,421	72,845	97	72,942
Balance at January 1, 2008 (audited)	3,435	67,415	-	(58)	17,535	88,327	568	88,895

Total comprehensive income	-	-	-	2,096	4,437	6,533	243	6,776

Exercise of options	14	58	-	-	-	72	-	72
Treasury shares	-	-	(527)	-	-	(527)	-	(527)
Dividend to minority interest	-	-	-	-	-	-	(159)	(159)
Acquisition of minority interest	-	-	-	-	-	-	(415)	(415)

	14	58	(527)	-	-	(455)	(574)	(1,029)

Balance at June 30, 2008 (unaudited)	3,449	67,473	(527)	2,038	21,972	94,405	237	94,642

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

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Euro in thousands

	Attributable to equity holders of the parent
	Share	Share	Treasury	Other	Retained		Minority	Total
	capital	premium	shares	reserves	earnings	Total	interests	equity

Balance at April 1, 2009 (unaudited)	3,449	67,473	(527)	(1,489)	1,990	70,896	115	71,011

Total comprehensive income (loss) for the period	-	-	-	518	1,431	1,949	66	2,015
Sale of shares of subsidiaries	-	-	-	-	-	-	(84)	(84)

Balance at June 30, 2009 (unaudited)	3,449	67,473	(527)	(971)	3,421	72,845	97	72,942

Balance at April 1, 2008 (unaudited)	3,435	67,415	-	272	18,262	89,384	280	89,664

Total Comprehensive income	-	-	-	1,766	3,710	5,476	17	5,493

Exercise of options	14	58	-	-	-	72	-	72
Treasury shares	-	-	(527)	-	-	(527)	-	(527)
Dividend to minority interest	-	-	-	-	-	-	(57)	(57)
Acquisition of minority interest	-	-	-	-	-	-	(3)	(3)

	14	58	(527)	-	-	(455)	(60)	(515)

Balance at June 30, 2008 (unaudited)	3,449	67,473	(527)	2,038	21,972	94,405	237	94,642

CONSOLIDATED STATEMENTS OF CASH FLOWS

Euro in thousands

	Six months ended June 30,		Three months ended June 30,		Year ended December 31,
	2009	2008	2009	2008	2008
	Unaudited		Unaudited		Audited
Cash flows from operating activities:

Profit (loss) for the period	(5,410)	4,603	1,510	3,662	5,622
Adjustments for:
Non-cash:
Depreciation	13	23	6	4	40
Financial costs	8,642	9,765	6,503	5,900	27,685
Financial income	(7,519)	(12,474)	(12,276)	(8,433)	(25,272)
Taxes on income (tax benefit)	(213)	600	399	256	701
Other income	-	(413)	-	69	370
Share of loss (gain) in associate	1,607	(506)	1,947	(706)	(1,180)
Gain on sale of interest in joint ventures and subsidiaries	(84)	-	(84)	-	(6,527)
Fair value adjustment of investment property	683	(1,786)	683	(1,786)	(1,969)

	3,129	(4,791)	(2,822)	(4,696)	(6,152)
Working capital adjustments:
Decrease (increase) in trade and other receivables	(1,450)	3,144	(5,046)	(781)	(1,114)
Decrease (increase) in inventory of land and housing units	(936)	(14,090)	910	(1,382)	(29,310)
Increase (decrease) in trade and other payables	3,386	(4,984)	3,517	(3,402)	(4,014)
Increase in customer advances	912	9,657	570	8,675	2,462

	1,912	(6,273)	(49)	3,110	(31,976)

Interest paid	(2,317)	(5,837)	(2,038)	(2,317)	(9,294)
Interest received	999	4,884	211	1,286	8,973
Income tax paid	(852)	(888)	(614)	-	(958)

	(2,170)	(1,841)	(2,441)	(1,031)	(1,279)

Net cash provided by (used in) operating activities	(2,539)	(8,302)	(3,802)	1,045	(33,785)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Euro in thousands

	Six months ended June 30,		Three months ended June 30,		Year ended December 31,
	2009	2008	2009	2008	2008
	Unaudited		Unaudited		Audited
Cash flows from investing activities:
Acquisition of subsidiaries, net of cash acquired	-	(29,855)	-	(29,855)	(29,855)
Proceeds upon sale of interest in jointly controlled entity	-	-	-	-	24,152
Deconsolidation of proportionately consolidated company (a)	-	(4,624)	-	(4,624)	(4,624)
Acquisition of minority interest in subsidiaries	-	(3)	-	(3)	(582)
Loans granted, net	(8,635)	(10,772)	(3,785)	(5,799)	(5,862)
Restricted bank deposits, net	13,074	(13,189)	13,652	20,141	(12,735)
Purchases of furniture and equipment	-	-	-	-	(74)

	4,439	(58,443)	9,867	(20,140)	(29,580)
Cash flows from financing activities:
Short-term loans, net	(981)	2,077	(981)	2,077	2,995
Issue of debentures, net of issuance costs	-	24,402	-	24,402	24,402
Repayments of debentures	(1,924)	(2,994)	(694)	(2,994)	(18,025)
Receipt of long-term loans	2,330	19,529	1,063	4,825	32,363
Repayments of long-term loans	(14,434)	(8,961)	(14,434)	(2,126)	(14,584)
Dividend paid	-	-	-	-	(10,995)
Exercise of options	-	72	-	72	72
Treasury shares	-	(527)	-	(527)	(527)

Net cash provided by financing activities	(15,009)	33,598	(15,046)	25,729	15,701

Effect of exchange rate changes on cash and cash equivalents	13	618	1,713	552	(1,185)

Increase (decrease) in cash and cash equivalents	(13,096)	(32,529)	7,268	7,186	(48,849)
Cash and cash equivalents at beginning of period	22,056	70,905	16,228	31,190	70,905

Cash and cash equivalents at end of period	8,960	38,376	8,960	38,376	22,056

CONSOLIDATED STATEMENTS OF CASH FLOWS

Euro in thousands

		Six months ended June 30,		Three months ended June 30,		Year ended December 31,
		2009	2008	2009	2008	2008
		Unaudited		Unaudited		Audited

(a)	Acquisition of subsidiaries, net of cash acquired

	Assets and liabilities at date of acquisition:

	Working capital (excluding cash and cash equivalents)	-	-	-	-	3,713
	Investment property	-	-	-	-	(33,568)

		-	-	-	-	(29,855)

(b)	Deconsolidation of proportionately consolidated company:

	Assets and liabilities at date of deconsolidation:

	Working capital (excluding cash and cash equivalents)	-	49,352	-	49,352	49,336
	Furniture and equipment	-	26	-	26	26
	Investment property	-	10,515	-	10,515	10,515
	Goodwill	-	1,217	-	1,217	1,085
	Deferred taxes	-	(1,900)	-	(1,900)	(1,900)
	Long-term receivables	-	(11,848)	-	(11,848)	(11,848)
	Long-term liabilities	-	(39,205)	-	(39,205)	(39,205)
	Minority interest	-	(16)	-	(16)	-
	Investment in associate	-	(12,765)	-	(12,765)	(12,633)

		-	(4,624)	-	(4,624)	(4,624)

(c)	Deconsolidation of proportionately consolidated company

	Assets and liabilities at date of deconsolidation:

	Working capital (excluding cash and cash equivalents)	-	-	-	-	(2,227)
	Investment properties	-	-	-	-	26,812
	Long-term receivables	-	-	-		(6,113)
	Long-term liabilities	-		-	-	5,026
	Deferred taxes	-		-	-	(207)
	Currency translation adjustment	-		-	-	(407)
	Gain on disposal	-	-	-	-	1,268

		-	-	-	-	24,152

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

NOTE 1:- GENERAL

The interim condensed consolidated financial statements of the Company for six months ended June 30, 2009, were authorized for issue in accordance with a resolution of the directors on August 19, 2009.

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

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

NOTE 2:- BASIS OF PREPARATION AND ACCOUNTING POLICIES

a. Basis of preparation:

The interim financial statement as of June 30, 2009 and for the six months and three months then ended ('the interim statements') have been prepared in a condensed format in accordance with IAS 34, 'Interim Financial Reporting', and should be read in conjunction with the Group's audited annual financial statements and accompanying notes as of December 31, 2008 ('2008 annual financial statements').

b. Accounting policies:

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

IAS 1 - Revised Presentation of Financial Statements

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

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

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

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

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

IFRS 2 - Share-based Payment

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

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

IAS 28 - Investment in Associates

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

IFRIC 15 - Agreements for the Construction of Real Estate

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

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

c. Improvements to IFRS:

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

IAS 1 - Presentation of Financial Statements:

The amended IAS 1 ('the amendment') deals with current or non-current classification of the liability component of a convertible instrument. Pursuant to the amendment, terms of a liability that can, at the option of the counterparty, be settled by the issue of the entity's equity instruments do not affect its classification as current or non-current. The amendment will be prospectively adopted starting from the financial statements for periods beginning on January 1, 2010. Earlier application is permitted.

The Company believes that the effect of the amendment on its financial position, operating results and cash flows is not expected be material.

IAS 23 Borrowing Costs

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

IAS 38 Intangible Assets

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

d. Standards issued but not yet effective:

IAS 17 - Leases:

The amended IAS 17 ('the amendment') deals with the classification of land and buildings. Pursuant to the amendment, the specific criteria for land classification were removed. Consequently, the requirement to classify a lease of land as an operating lease when title does not pass at the end of the lease no longer exists but the classification of the lease of land shall be examined by reference to the general guidance in IAS 17 which addresses the classification of a lease as finance or operating while taking into account that land, normally, has an indefinite economic life.

The amendment will be retrospectively or prospectively adopted starting from the financial statements for periods beginning on January 1, 2010. Earlier application is permitted. For the retrospective adoption, at the date of adoption of the amendment, the classification of the land shall be reassessed on the basis of information existing at the inception of the lease and if there has been a change in the lease classification, the guidance of IAS 17 shall be applied retrospectively at the inception of the lease. However, if the entity does not have the information necessary to apply the amendment retrospectively, it shall apply the amendment prospectively on the basis of the information existing at the date it adopts the amendment and recognize the asset and liability relating to the land lease newly classified as a finance lease at the fair value on that date. Any difference between the fair value of the asset and the fair value of the liability will be recognized in retained earnings.

The Company believes that the effect of the amendment on its financial position, operating results and cash flows is not expected be material.

IAS 36 - Impairment of Assets:

The amended IAS 36 ('the amendment') defines the required accounting unit to which goodwill will be allocated for impairment testing of goodwill. Pursuant to the amendment, the largest unit permitted for impairment testing of goodwill acquired in a business combination is an operating segment as defined in IFRS 8, 'Operating Segments' before the aggregation for reporting purposes. The amendment will be prospectively adopted starting from the financial statements for periods beginning on January 1, 2010. Earlier application is permitted.

The Company believes that the effect of the amendment on its financial position, operating results and cash flows is not expected be material.

IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations:

The amended IFRS 5 ('the amendment') specifies the disclosures required in respect of non-current assets (or disposal groups) that are classified as held for sale or discontinued operations. Pursuant to the amendment, only the disclosures required in IFRS 5 will be provided. Disclosures in other IFRSs apply to such assets only if they require specific disclosures in respect of non-current assets or disposal groups. The amendment will be prospectively adopted starting from the financial statements for periods beginning on January 1, 2010. Earlier application is permitted.

The Company believes that the effect of the amendment on its financial position, operating results and cash flows is not expected be material.

NOTE 3:- ASSOCIATES

a. Composition:

	June 30,		Year ended December 31,
	2009	2008	2008
	Unaudited		Audited
	Euro in thousands

Investment in associates	8,726	13,676	11,101
Loan to associates	48,246	54,408	41,013

	56,972	68,084	52,114

b. Share of the associate's balance sheet:

	June 30,		Year ended December 31,
	2009	2008	2008
	Unaudited		Audited
	Euro in thousands

Current assets	61,726	90,286	67,281
Non-current assets	37,377	40,709	38,568
Current liabilities	(16,063)	(35,554)	(18,774)
Non-current liabilities	(74,314)	(81,765)	(75,974)

Net assets	8,726	13,676	11,101

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

	Six months ended June 30		Three months ended June 30		Year ended December 31
	2009	2008	2009	2008	2008
	Unaudited				Audited

Revenues	6,654	6,237	3,154	6,237	20,512

Profit (loss)	(1,607)	501	(1,947)	701	1,180

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

NOTE 4:- SALE OF SHARES OF SUBSIDIARY

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

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

NOTE 5:- INTEREST-BEARING LOANS AND BORROWINGS

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

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

NOTE 6:- CHANGES IN VALUE OF INVESTMENT PROPERTIES

The Company adjusted the fair value of the properties in Hungary as of June 30, 2009, based on a valuation performed by King Sturge Ltd., an industry specialist in valuing such type of properties. The fair value represents the amount at which the asset could be exchanged between a knowledgeable, willing seller in an arm's length transaction at the date of valuation, in accordance with International Valuation Standards. In determining the fair value of the investment property, the valuator relied on comparable arm's length market transactions for similar properties. The Company's share of the loss from the fair value adjustment for the period ended June 30, 2009, amounted to € 683 thousand.

NOTE 7:- CHANGES IN THE TAX RATES APPLICABLE TO THE GROUP

In furtherance to the matter discussed in Note 13a to the 2008 annual financial statements, in June 2009, the Hugarian Parliament passed the tax law bill relating to 2010 for an increase in general rate of corporate tax from the current 16% to 19% and cancellation of 4% solidarity tax, starting January 1, 2010.

The effect of said change on the balance of deferred taxes was immaterial.

NOTE 8:- DIVIDENDS

	Six months ended June 30,		Year ended December 31,
	2009	2008	2008
	Euro in thousands (except per share data)

Dividends on Ordinary shares declared and paid	-	-	10,995

Dividend per share	-	-	0.06

NOTE 9:- SEGMENT REPORTING

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

	Hungary	Poland	Other	Consolidated
	Euro in thousands
Six months ended June 30, 2009 (unaudited):
Segment revenues	2,038	-	53	2,091

Segment results (includes share in profit (loss) of associates)	(1,398)	145	(1,866)	(3,119)
Unallocated expenses				1,381

Financial costs				(8,642)
Financial income				7,519

Loss before taxes on income				(5,623)

	Hungary	Poland	Other	Consolidated
	Euro in thousands
Six months ended June 30, 2008 (unaudited):
Segment revenues	2,425	8,048	89	10,562

Segment results (includes share in profit of associates)	1,930	1,878	(188)	3,620
Unallocated expenses				1,576
Financial costs				(9,765)
Financial income				12,474
Other income				450

Profit before taxes on income				5,203

NOTE 9:- SEGMENT REPORTING (Cont.)

	Hungary	Poland	Other	Consolidated
	Euro in thousands
Three months ended June 30, 2009 (unaudited):
Segment revenues	1,108	-	27	1,135

Segment results (includes share in profit (loss) of associates)	(1,171)	(154)	(1,846)	(3,171)
Unallocated expenses				693

Financial costs				(6,503)
Financial income				12,276

Profit before taxes on income				1,909

	Hungary	Poland	Other	Consolidated
	Euro in thousands
Three months ended June 30, 2008 (unaudited):
Segment revenues	1,148	-	45	1,193

Segment results (includes share in profit of associates)	1,939	568	(205)	2,302
Unallocated expenses				779
Financial costs				(5,900)
Financial income				8,433
Other expenses				(138)

Profit before taxes on income				3,918

Year ended December 31, 2008 (audited):

	Hungary	Poland	Other	Consolidated
	Euro in thousands

Revenues	18,322	8,047	160	26,529

Segment results (includes share in profit (loss) of associates)	3,806	2,811	(355)	6,262

Unallocated general corporate expenses				(3,856)

Financial costs				(27,685)
Financial income				25,272
Other income				6,330

Profit before taxes on income				6,323

NOTE 10:- EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE

a. During August 2009, the Group sold 50% of its interest in Nanette City Home kft, a wholly-owned Hungarian subsidiary ('Nanette City Home') in consideration of HUF 2.25 million (€ 8 thousand) which approximates the carrying value of the investment.

In addition, the purchaser agreed to provide Nanette City Home with a shareholder loan in an amount of € 1.8 million thousand. Pursuant to the sale agreement, shares representing 2% of the purchaser's interest in Nanette City Home are to be held by a trustee. All of the voting rights in these shares are held by the trustee for the benefit of the Group, and all other rights relating to these shares are held by the trustee for the benefit of the purchaser. Accordingly, the Group will continue to consolidate Nanette City Home.

b. On August 19, 2009 the Company's Board of Directors has resolved to recommend to the Company's shareholder to delist the shares of the Company from trading on AIM. In accordance with AIM rule 41, this decision has to be brought to the approval of the general meeting of the Company's shareholders in an extraordinary general meeting in which 75% of the shareholders present and voting should vote in favour of such resolution. Accordingly, an extraordinary meeting will be convened within about 7 days to decide on this subject.

This information is provided by RNS

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